Guidelines for Appeals of Material Supervisory Determinations

James P. Sheesley
Assistant Executive Secretary
Attention: Comments – RIN 3064-ZA20
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

Dear Mr. Sheesley:

We, the undersigned banking trade associations, appreciate the FDIC soliciting further public comment on amendments to its Guidelines of Material Supervisory Determinations (“Guidelines”). In response to the initial feedback collected after the FDIC Board voted to reconstitute the Supervision Review Appeals Committee (“SARC”), the FDIC is proposing to amend its Guidelines of Material Supervisory Determinations (“Guidelines”) to (1) add the Ombudsman to the SARC as a non-voting member; (2) require the Ombudsman to monitor the supervision process following an institution’s submission of an appeal; (3) require materials considered by the SARC to be shared with both parties to the appeal; and (4) allow IDIs to request a stay of a material supervisory determination while an appeal is pending.

Unfortunately, notwithstanding the FDIC’s proposed modifications, many of the fundamental concerns we previously articulated remain. Once again, the Associations strongly recommend that the FDIC reinstate the Office of Supervisory Appeals (“OSA”) as the best way to achieve the FDIC’s stated goals for a more independent, fair and credible material supervisory determination appeals process. By abandoning the OSA after only five months of operation, the FDIC has prematurely given up on a process that holds extraordinary promise of providing FDIC-supervised banks a fair and impartial forum for appeal. Should the FDIC choose to retain the SARC, however, this letter identifies several opportunities for improvement that can help the FDIC better meet its objectives. These include:

• Setting minimum qualifications for voting members of the SARC who are not FDIC Board members and providing them the resources to conduct a de novo review;
• Providing banks the option to bring appeals directly to the SARC and bypass the first level of review by the appropriate FDIC Division Director.

We also offer recommendations in response to the most recent proposed modifications to the Guidelines relating to: (i) ex parte communications; (ii) stays of supervisory actions pending an appeal; and (iii) accountability and independence of the SARC. More specifically, our recommendations include:

Prohibiting ex parte communications during an appeal;

• Providing for any ex parte communications that inadvertently occur to be memorialized in writing and made available to both the SARC and the appealing bank on a timely basis;
• Providing for the SARC – rather than the FDIC Division Director – to consider IDI requests for stays of material supervisory determinations pending appeal at the SARC; and
• Adopting reasonable standards that the decision-maker must apply in evaluating requested stays of material supervisory determinations.

While we appreciate the agency’s stated objective to enhance due process – and support certain aspects of the proposal such as a new requirement to share SARC information with both parties as a necessary safeguard to protect against one-sided information sharing – on the whole, the FDIC’s most recent proposal sets forth only a patchwork of changes that do not fundamentally alter the shortcomings of the appeals process. For example, while we support the expanded role of the FDIC Ombudsman in the supervisory appeals process as a non-voting member, the participation of the FDIC Ombudsman on the SARC does not meaningfully redress imbalances inherent in current and proposed review approaches.

Accordingly, even with the proposed modifications to the SARC, the FDIC’s appeals process will not meet the expectations Congress had when it adopted Section 309(a) of the Riegle Community Development and Regulatory Improvement Act in 1994. Based on experience and past precedent, banks believe there is little likelihood of success in appealing a material supervisory determination and that the risk of retribution from within the agency (whether real or just perceived) too often outweighs any benefit of pursuing an appeal.

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