Federal Deposit
Insurance Corporation

SS assignments are made in accordance with the FDIC’s regulations, specifically, 12 C.F.R. § 327.4(a)(2). That section requires the FDIC to consider supervisory evaluations provided by an institution’s primary federal regulator and other relevant information in making these assignments. As set forth in FIL-90-2003,³ 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 Bank’s 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 Bank’s 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 Bank’s 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 Bank’s SS assignments were appropriately made and the underlying examinations have not changed, the Bank’s 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 FDIC’s 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 letter.⁶

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 FDIC’s supervisory process, DSC upgraded the composite rating from “3” to “2” in the Bank’s 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. DSC’s composite rating upgrade, however, was based in significant part on corrective actions taken to improve the overall condition of the Bank, the Bank’s 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 Bank’s 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 Bank’s argument that its failure to appeal the January 8, 2001, and November 26, 2001, examinations is excusable because such appeals would have been futile.

Finally, the Bank contends that DIR’s 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 DIR’s March 15, 2004, denial letter: “Be assured that the basis for denial of the Bank’s request is consistent with the treatment of similarly situated institutions.”

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 Bank’s 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 Bank’s contention that it has been treated unfairly is unsupported.

Conclusion
The Committee has carefully considered all of the written submissions made in this matter. The Bank’s request for review was submitted late and, for that reason, the Bank’s appeal is denied. The Committee has also taken this opportunity to explain for the benefit of the Bank that the Bank’s request would have been denied even if the request had been filed on time.

By direction of the Assessment Appeals Committee of the FDIC dated July 23, 2004.
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