By letter dated April 8, 2004, the [Bank] (the Bank), submitted an appeal
to the FDICs Assessment Appeals Committee (Committee). The Bank is
appealing the March 15, 2004, determination by the FDICs Division of
Insurance and Research (DIR) denying the Banks request for review of its
supervisory subgroup (SS) assignment for the three semiannual assessment
periods beginning January 1, 2002, July 1, 2002, and January 1, 2003.
The Bank was assigned an SS of 1C for each
of the three semiannual periods in question and sought an upgrade to 1A.
In its request for review, the Bank contended that two biased and harmful
FDIC examinations (the January 8, 2001, examination and the November 26,
2001, examination) had inaccurately reflected the Banks true condition for
these semiannual periods. In support, the Bank noted it had successfully
appealed a third examination (the January 6, 2003, examination
to the FDICs Division of Supervision and Consumer Protection (DSC) using
the established FDIC process for appealing supervisory determinations.
As a result of that appeal, the Banks CAMELS composite rating for the
January 6, 2003, examination was upgraded from 3 to 2, which resulted in
an upgrade from 1B to 1A in the Banks assessment risk classification
for the July 2003, semiannual period. The Bank contends that the upgrade
demonstrates that the FDIC had, since early 2001, treated the Bank unjustly,
and that the January 8, 2001, and November 26, 2001, examinations, which
assigned composite ratings of 4, inaccurately reflected the Banks true
condition. The Bank, however, never appealed those two examinations through
the supervisory appeals process.
In its March 15, 2004, letter, DIR denied the
Banks request for review on the grounds that the request was filed late. To
be timely, a request for review of the risk classification for each of the
three semiannual periods at issue should have been submitted within 90 days
of the date of the assessment risk notification for each period.
12 C.F.R. § 327.4(d). DIR found that the Banks January 13, 2004, letter was submitted
well beyond the time limit set in the regulation.
As an informational courtesy to the Bank, DIR
informed the Bank that its request for review would have been denied even if
it had not been filed late. DIR explained that the Banks SS ratings of C
for the January 2002, July 2002, and January 2003, assessment periods had
been properly assigned based, in part, on the two prior examinations
(January 8, 2001, and November 26, 2001), which were never appealed. The
outcome of the appeal of the Banks January 6, 2003 examination, DIR noted,
did not change the findings regarding the serious nature of the Banks
condition reflected in those two previous examinations. DIR also noted that
the Bank itself, in its appeal, referred to the diligent, and ultimately
successful, efforts it had made since the January 8, 2001, examination to
improve its condition. DIR also informed the Bank that under Financial
Institution Letter (FIL)-90-2003, and the prior
FIL-30-2000, a request for
review of assessment risk classification is not a means to dispute
The Bank presents two arguments in its appeal
letter and incorporates by reference the arguments made in its initial
request for review addressed to DIR. The failure to appeal the January 8,
2001, and November 26, 2001, examinations is excusable, the Bank asserts,
because such an appeal would have been futile with likely resulting
retribution. In addition, according to the Bank, DIRs denial of its
request for review may be consistent with the treatment accorded other
institutions, but that fact is irrelevant and immaterial because the
process as applied to the Bank has been unfair.
The Banks request for review of its risk
classifications for the January 2002, July 2002, and January 2003,
semiannual periods was submitted late. Section 327.4(d) of the FDICs Rules
and Regulations, provides that a request for review must be submitted within
90 days of the date of the assessment risk classification notice for each
semiannual period. The notice for the January 2002 semiannual period was
dated December 14, 2001; the notice for the July 2002 semiannual period was
dated June 14, 2002; and the notice for the January 2003 semiannual period
was dated December 13, 2002. The Banks January 13, 2004 request for review
for those three semiannual periods was, respectively, 22 months, 16 months,
and 10 months late.
SS assignments are made in accordance with
the FDICs regulations, specifically,
12 C.F.R. § 327.4(a)(2). That section
requires the FDIC to consider supervisory evaluations provided by an
institutions primary federal regulator and other relevant information in
making these assignments. As set forth in
the FDIC assigns an SS to each institution for each semiannual assessment
period based, in part, on consideration of the last examination finalized
and transmitted to the institution by the primary federal regulator on or
before the cut-off date. Under the FIL, the cut-off dates for assessment
periods beginning January 1 and July 1 are the preceding September 30 and
March 31, respectively.
The FDIC considers other pertinent
information during the reconcilement period, which is a period of
approximately six weeks following the cut-off date. Institutions whose risk
profile might have changed since their last examination can be subject to SS
upgrades or downgrades, as more recent examination information may reflect,
during the reconcilement period.
The Committee can discern no flaw in the
assignment of the Banks SS ratings for the three semiannual periods at
issue. The SS of C assigned to the Bank for the January 2002 assessment
period was based, in part, on the January 8, 2001, examination, which
assigned a composite rating of 4 and was the last composite rating
finalized prior to the September 30, 2001, cut-off date. The report for that
examination was transmitted to the Bank on June 26, 2001. The SS assignment
of C was reviewed during the reconcilement period that began in October
2001. That review concluded that there was no significant documented change
in the Banks condition since the January 8, 2001, examination and confirmed
the SS assignment of C.
The SS of C assigned for the July 2002
assessment period was based, in part, on the findings of the November 26,
2001, examination, which assigned a composite rating of 4. The findings
from that examination were transmitted to the Bank in April of 2002. The SS
assignment of C was reviewed during the reconcilement period that
concluded in May of 2002, and the SS of C was confirmed.
The SS of C assigned for the January 2003
assessment period was also based, in part, on the November 26, 2001,
examination, which was the last composite rating finalized prior to the
September 30, 2002, cut-off date. The SS assignment of C was reviewed
during the reconcilement period that began in October 2002. That review
concluded that there was no significant documented change in the Banks
condition since the November 26, 2001 examination and confirmed the SS
assignment of C.
The Bank did not appeal the findings of the
January 8, 2001, examination. The composite rating associated with that
examination has not changed. Nor did the Bank appeal the findings of the
November 26, 2001, examination, and the composite rating associated with
that examination has not changed.
Because the Banks SS assignments were
appropriately made and the underlying examinations have not changed, the
Banks request for review would have been denied even if it had been
submitted on time.
The Bank, however, does not directly address
the late filing of its request for review. Instead, the Bank contends that
its failure to appeal the January 8, 2001, and November 26, 2001,
examinations is excusable because appeal of those examinations would have
been futile at best with likely retribution. This argument is rejected for
a number of reasons.
As stated in both FIL-90-2003 and its
predecessor FIL-30-2000, a request for review of assessment risk
classification is not a means to dispute examination findings. The
appropriate forum for review of supervisory determinations is as set forth
in the Guidelines for Appeals of Material Supervisory Determinations
(FIL-28-1995), with final review by the Supervision Appeals Review Committee
(SARC). The Bank had 60 days following receipt of the January 8, 2001, and
the November 26, 2001, examinations, respectively, in which to file such a
challenge through the SARC process. The Bank chose not to file.4
Administrative remedies made available by
agencies (such as the FDICs processes for appealing supervisory
determinations) generally cannot be bypassed by parties who have claims or
grievances against the agency. Rather, the administrative process must be
exhausted to allow the agency to exercise its discretion and apply its
expertise, to allow for development of a record, to avoid circumvention of
procedures, and to give the agency an opportunity to correct errors.5
Indeed, the Bank acknowledges the exhaustion requirement in its appeal
Courts may recognize an exception to this
exhaustion requirement if pursuing the administrative remedy would be
futile because of the certainty of an adverse decision.7 The Bank, however, offers no valid reason why
appeal of the underlying examinations would have been futile. Although
subsequent to the events at issue in this case, when the Bank appealed the
January 6, 2003, examination findings through the FDICs supervisory
process, DSC upgraded the composite rating from 3 to 2 in the Banks
favor, thus illustrating that the review process may be beneficial and
should not be discounted as futile.
The Bank, however, points to this upgrade as
evidence that the January 8, 2001, and November 26, 2001, examinations were
biased and damaging and inaccurately reflected its true condition. DSCs
composite rating upgrade, however, was based in significant part on
corrective actions taken to improve the overall condition of the Bank, the
Banks asset quality, and previously criticized risk management policies and
practices. As the Bank itself acknowledged in its appeal of the January 6,
2003, examination, and as mentioned above, the upgrade shows that, from the
Banks perspective, Management has worked diligently since the 2000
examination to improve risk management systems and processes. These efforts
have been successful in affecting improvement in Asset Quality, Capital,
Earnings, Sensitivity, and Liquidity. The upgrade granted by DSC as to the
January 6, 2003, examination does not in any way discount the poor condition
of the Bank as noted in the previous examinations.
In short, the Committee finds no basis for
the Banks argument that its failure to appeal the January 8, 2001, and
November 26, 2001, examinations is excusable because such appeals would have
Finally, the Bank contends that DIRs denial
of its request for review constitutes unfair treatment and asserts that
similar treatment of other institutions in similar circumstances is
immaterial. The Bank is evidently referring to the following statement in
DIRs March 15, 2004, denial letter: Be assured that the basis for denial
of the Banks request is consistent with the treatment of similarly situated
In so stating, DIR correctly informed the
Bank that it was being treated no differently from any other institution in
the same circumstance. Other institutions have in fact made claims similar
to the Banks and had their requests denied. The assessment appeals process
was established in order to promote consistency in the treatment of
institutions. Moveover, in its denial letter, DIR extended to the Bank the
courtesy of explaining why the Bank would not have prevailed even had its
request been filed on time. The Banks contention that it has been treated
unfairly is unsupported.
The Committee has carefully considered all of
the written submissions made in this matter. The Banks request for review
was submitted late and, for that reason, the Banks appeal is denied. The
Committee has also taken this opportunity to explain for the benefit of the
Bank that the Banks request would have been denied even if the request had
been filed on time.
As part of its appeal, the Bank asked that it
be permitted to appear before the Committee for the purposes of providing
oral arguments. The Committee concluded, however, that oral presentation of
this appeal would not be helpful and therefore denies the request.
Pursuant to authority delegated by the FDIC
Board of Directors to the Committee, this decision is considered the FDICs
final agency action on this matter.
By direction of the Assessment Appeals
Committee of the FDIC dated July 23, 2004.
The Bank refers to the three examinations, respectively, as the 2000 examination, the 2001 examination,
and the 2002 examination.
Material supervisory determinations made by
agency examiners and regional
supervisory officials may be appealed under the process set forth in
FIL-28-1995 (Guidelines for Appeals of Material Supervisory
Determinations). Institutions have 60 days following receipt of written
notice of a material supervisory determination to file a request for review
with DSC in Washington, D.C. After DSC considers the matter, the
Supervision Appeals Review Committee renders the FDICs final supervisory
These factors remain, in substance, unchanged from the earlier FIL-30-2000.
The appeals process for supervisory determinations provides for review at
both the Regional and Washington Office levels, as well as with the SARC.
Assistance is also available from the Ombudsmans Office to ensure the
overall fairness, efficiency and effectiveness of the process. Once the
matter has been appealed or a final decision made, the merits are not
eligible for consideration by the Ombudsman except in his or her capacity as
a member of the SARC.
5See Urban v. Jefferson County School Dist. R-1, 89 F.3d 720, 724 (10th
The Bank anticipates that this [appeal] will constitute an exhaustion of
its administrative remedies so it can then take further action against FDIC
7See Randolph-Sheppard Vendors of America v. Weinberger, 795 F.2d 90,
105-07 (D.C. Cir.1986).