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On December 6, 2021, the FDIC issued a Financial Institution Letter (FIL) (FIL-77-2021) announcing that the FDIC’s Office of Supervisory Appeals is now fully operational, and that the revised Guidelines for Appeals of Material Supervisory Determinations (Guidelines) are fully in effect.1 It remains to be seen whether insured depository institutions (IDIs) will bring more appeals as a result of these changes, but the FDIC has clearly sought to address industry criticisms and create a fairer, more independent appeals process.

Background

Under Section 309(a) of the Riegle Community Development and Regulatory Improvement Act of 1994, the FDIC is required to maintain an independent intra-agency appeals process to allow IDIs to appeal adverse material supervisory determinations.

Although the FDIC has had some version of an appeals process in place for more than 20 years, the FDIC's now-defunct appeals process was rarely used2 and plagued by industry perceptions that the reviewing bodies were not truly operating independently and that initiating an appeal could lead to retaliation by FDIC examiners.3

After soliciting industry input through a series of listening sessions and a period of notice and comment on the FDIC's initial proposed revisions,4 the FDIC's Board of Directors voted to approve the Guidelines in their current form on January 19, 2021 (though the new appeals process would not go into effect until the Office of Supervisory Appeals had been fully staffed).5

Notably, as discussed below, the FDIC appears to have changed its initial proposed revisions in several important respects as a direct result of industry feedback received during the notice and comment process.6

Summary of the Revised Supervisory Appeals Process

What Issues are Appealable?

IDIs may appeal any material supervisory determination as detailed in the Guidelines’ procedures, including, for example, CAMELS ratings, CRA ratings, the appropriateness of loan loss reserve provisions, decisions to initiate informal enforcement actions, determinations regarding an IDI’s level of compliance with a formal enforcement action, and matters requiring board attention. Consistent with the appellate processes of other banking agencies, certain agency actions are not appealable under the Guidelines, including, for example, formal enforcement-related actions and decisions after the FDIC has provided an IDI with a draft consent order or after the FDIC has initiated a formal investigation, the latter of which may not be known to the IDI.7

Step 0: Informal Dispute Resolution

As under the old appeals procedure, IDIs are still encouraged to make a good-faith effort to resolve any disputes with their on-site bank examiner and/or the appropriate Regional Office before initiating a formal appeal. “Seeking such a resolution is not a condition to filing a request for review with the appropriate Division,” but IDIs applying for review by a Division Director will have to report, inter alia, “whether a good-faith effort was made to resolve the dispute with the on-site examiner and the Regional Office.”8

Step 1: Appeal to the Division Director

For IDIs that decide to pursue a formal appeal, the first stage of review will still be conducted by the appropriate Division Director (i.e., the Division Director overseeing the FDIC staff who made the initial material supervisory determination) from the Division of Risk Management Supervision, the Division of Depositor and Consumer Protection, or the Division of Complex Institution Supervision and Resolution.

To initiate a request for review by a Division Director, the IDI must submit, in writing, a request for review that includes a detailed description of the dispute, the circumstances surrounding the dispute, the IDI’s position on the dispute with citations to relevant authority, an explanation of how the dispute materially affects the IDI, and, as noted above, whether a good-faith effort was made to resolve the dispute informally. Additionally, under the new Guidelines, the IDI must submit a statement that either the IDI’s board or senior management9 has considered the merits of the appeal request and has authorized that it be filed. Under the old Guidelines, only the IDI's board could authorize the request for review. This change was made as a direct result of comments submitted by two trade associations,10 arguing that the decision to authorize an appeal falls more appropriately within management's role to conduct the day-to-day operations of the bank and that such a change would make the FDIC's appeal process more consistent with that of the Federal Reserve Board.

In reviewing a request for appeal, the Division Director will still consider whether the material supervisory determination in question was consistent with the policies, practices, and mission of the FDIC. And, as with the old process, the IDI bears the burden of proof for all aspects of the appeal. However, unlike the old process, the Division Director will now make his or her own supervisory determination “without deferring to the judgments of either party,” presumably including the FDIC staff who made the initial determination. This change brings the FDIC in line with the approach recently adopted by the Federal Reserve Board and was made in response to comments from two industry trade associations,11 arguing that this de novo-like standard would be fairer to IDIs.

After concluding his or her review, the Division Director will either respond, in writing, with his or her supervisory determination or refer the request directly to the Office of Supervisory Appeals.

Step 2: Appeal to the Office of Supervisory Appeals

Where the Division Director did not directly refer an appeal to the Office of Supervisory Appeals, once the Division Director has made his or her determination on the review request, if the IDI does not agree with that determination, the IDI can take its appeal to the new Office of Supervisory Appeals (which replaces the Supervision Appeals Review Committee (SARC) used in the FDIC’s old appeals process).

The Office of Supervisory Appeals (Office) is the linchpin of the new appeals process, and it differs from the now-defunct SARC in several important respects. To begin, the Office of Supervisory Appeals is an independent office within the FDIC that will make its own supervisory determinations that will not be reviewed by any other FDIC official before publication. The Office will not be staffed by any current government officials (though former officials are eligible), and all officials will be hired for set terms. Additionally, the Office of Supervisory Appeals will make all decisions regarding which reviewing officials will serve on each review panel, including whether the panels will be composed of three or five reviewing officials (as opposed to the SARC which only used panels of three officials).

Importantly, under the new appeals process, IDIs now have the right to see any communications between FDIC supervisory staff and the Office. This change was made as a direct result of three comments submitted to the FDIC,12 arguing that ex parte communications between the supervisory staff and the Office would present due process and fairness concerns.

Notwithstanding the heightened powers of the Office of Supervisory Appeals, there are two important limitations on the Office’s authority. First, the Office cannot consider any aspect of an appeal that seeks to change or modify existing FDIC rules or policy. And, second, the Office cannot consider any appeal that raises a policy matter of first impression; any such appeal must be referred to the FDIC Chairperson’s Office. To account for these limitations, the Legal Division will review the Office of Supervisory Appeals’ decisions before publication to ensure that the decisions are consistent with applicable laws, regulations, and FDIC policy; however, the Legal Division will not comment on the merits of the appeal.

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Financial institutions with questions about the FDIC’s new appeals process can reach out to the authors or any of their colleagues in Arnold & Porter’s Financial Services Group.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. FDIC, FIL-77-2021, FDIC Launches Office of Supervisory Appeals (Dec. 6, 2021); see also FDIC, Appeal of Material Supervisory Determinations: Guidelines & Decisions (last visited Dec. 10, 2021). To view a copy of the now-defunct Guidelines, see FDIC, FIL-42-2017, Guidelines for Appeals of Material Supervisory Determinations (Sept. 6, 2017).

  2. See Statement by FDIC Chairman Jelena McWilliams on the Request for Comment on Charges to Supervisory Appeals Process (Aug. 21, 2020), (“Overall, in more than 13 years since January 2007, 50 appeals were filed out of 111,516 exams. The FDIC has a highly professional workforce and a deep bench of highly trained, experienced examiners. While I would like to believe that the low number of past appeals is indicative of a meeting of the minds between our examiners and the banks they examine, I consider it my duty to ensure that the appeals process is robust, fair, and independent.”) (footnote omitted).

  3. SeeGuidelines for Appeals of Material Supervisory Determinations (Notice and Request for Comment).” Federal Register 85:170 (Sept. 1, 2020) p. 54378.

  4. On September 24, 2019, the FDIC began exploring the possibility of improving the supervisory appeals process and conducted a webinar and a series of eight listening sessions with IDIs and other interested parties. FDIC, FIL-52-2019, Listening Sessions on Supervisory Appeals and Dispute Resolution Processes (Sept. 24, 2019). Then, in the fall of 2020, the FDIC issued a notice and request for comment on its proposed revisions. SeeGuidelines for Appeals of Material Supervisory Determinations (Notice and Request for Comment).” Federal Register 85:170 (Sept. 1, 2020). Commentors were near-uniformly supportive of the FDIC’s attempts to improve the appeals process even if they disagreed with aspects of the agency’s proposed changes. See FDIC, Federal Register Citations, Comments: Guidelines for Appeals of Material Supervisory Determinations RIN 3064-ZA20 (last visited Dec. 8, 2021); see alsoGuidelines for Appeals of Material Supervisory Determinations (Notice of Guidelines).” Federal Register 85:14 (Jan. 25, 2021) p. 6882 (“Commenters generally supported the proposal, with most asserting that the changes would enhance the supervisory appeals process. In particular, commenters supported the steps taken to promote the independence of the Office, suggesting that this would bolster the industry’s confidence in the supervisory appeals process.”).

  5. FDIC, FIL-04-2021, Revised Guidelines for Appeals of Material Supervisory Determinations (Jan. 19, 2021).

  6. SeeGuidelines for Appeals of Material Supervisory Determinations (Notice of Guidelines).” Federal Register 85:14 (Jan. 25, 2021) p. 6882-84.

  7. 12 U.S.C. § 4806. For a full list of material supervisory determinations that are eligible for appeal, see FDIC, Appeal of Material Supervisory Determinations: Guidelines & Decisions (last visited Dec. 10, 2021).

  8. FDIC, Appeal of Material Supervisory Determinations: Guidelines & Decisions.

  9. If the senior management (i.e., “the core group of individuals directly accountable to the board of directors for the sound and prudent day-to-day management of the institution”) give the authorization to appeal, the board must, nevertheless, still be told of the substance of the appeal before it is filed and the board must be kept abreast of the status of the appeal.

  10. SeeGuidelines for Appeals of Material Supervisory Determinations (Notice of Guidelines).” Federal Register 85:14 (Jan. 25, 2021) p. 6884.

  11. Id. at p. 6883.

  12. Id.

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