[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31726]


[Federal Register: December 28, 1994]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Intra-Agency Appellate Process

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed guidelines; request for comments.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) solicits 
comments on proposed guidelines for the establishment of an independent 
intra-agency appellate process to review material supervisory 
determinations as required by the Riegle Community Development and 
Regulatory Improvement Act of 1994. The guidelines are intended to 
clarify the types of determinations that are eligible for review and to 
establish the process by which appeals will be considered and decided. 
Public comment is invited on all aspects of this proposal.

DATES: Written comments must be received on or before January 27, 1995.

ADDRESSES: Interested parties are invited to submit written comments to 
Robert E. Feldman, Acting Executive Secretary, Federal Deposit 
Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429. 
Comments may be hand delivered to room F-400, 1776 F Street, N.W., 
Washington, D.C., on business days between 8:30 a.m. and 5:00 p.m. (FAX 
number (202) 898-3838). Comments may be inspected at the FDIC's Reading 
Room, room 7118, Federal Deposit Insurance Corporation, 550 17th 
Street, N.W., Washington, D.C. 20429, between 9:00 a.m. and 4:30 p.m. 
on business days.

FOR FURTHER INFORMATION CONTACT: William G. Hrindac, Examination 
Specialist (202/898-6892), Division of Supervision; Ken A. Quincy, 
Acting Assistant Director (202/898-6753), Division of Compliance and 
Consumer Affairs; Gwen E. Factor, Counsel (202/898-8522), Legal 
Division, Federal Deposit Insurance Corporation, 550 17th Street, N.W., 
Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 309(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act) 
requires the FDIC (as well as the other Federal banking agencies and 
the National Credit Union Administration Board) to establish an 
independent intra-agency appellate process to review material 
supervisory determinations. The process is to be established within 180 
days after enactment of the Act (i.e., by March 22, 1995). Section 
309(c) of the Act requires public notice and opportunity for comment on 
proposed guidelines for the establishment of the independent appellate 
process.
    The Act defines the term ``independent appellate process'' to mean 
a review by an agency official who does not directly or indirectly 
report to the agency official who made the material supervisory 
determination under review. In establishing the appeals process, the 
FDIC must ensure that: (1) any appeal of a material supervisory 
determination by an insured depository institution is heard and decided 
expeditiously; and (2) appropriate safeguards exist for protecting the 
appellant from retaliation by agency examiners.
    The FDIC currently has in place procedures for requesting review of 
supervisory determinations. These procedures are set forth in FIL-11-
92, dated February 7, 1992, and will be superseded by the Guidelines 
for Appeals of Material Supervisory Determinations.

II. Proposal for Establishment of Appeals Process

A. Independent Appellate Process

    The Act requires the FDIC to establish an independent appellate 
process for the review of material supervisory determinations by an 
agency official who does not directly or indirectly report to the 
agency official who made the material supervisory determination under 
review. To satisfy this requirement, the FDIC proposes to establish a 
supervisory appeals review committee consisting of the Vice Chairman 
and senior staff members of various divisions of the FDIC to consider 
and decide appeals of material supervisory determinations.

B. Institutions Eligible to Appeal

    The Act requires that the FDIC's appeals process be available to 
review material supervisory determinations made at insured depository 
institutions that it supervises. The FDIC understands this to mean that 
its appeals process must be available to insured State nonmember banks 
(except District banks) and insured branches of foreign banks and 
proposes that the process be available as well to other insured 
depository institutions with respect to which it makes material 
supervisory determinations.

C. Material Supervisory Determinations

    The Act requires the FDIC to establish an appeals process to review 
material supervisory determinations. The term ``material supervisory 
determinations'' is defined in the Act to include determinations 
relating to: (1) examination ratings; (2) the adequacy of loan loss 
reserve provisions; and (3) loan classifications on loans that are 
significant to an institution. The Act specifically excludes from the 
definition of ``material supervisory determinations'' a decision to 
appoint a conservator or receiver for an insured depository institution 
or to take prompt corrective action pursuant to section 38 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1831o.
1. Examination Ratings
    The FDIC construes the reference to ``examination ratings'' to 
mean:
    (a) CAMEL ratings under the Uniform Financial Institutions Rating 
System;
    (b) EDP ratings under the Uniform Interagency Rating System for 
Data Processing Operations;
    (c) trust ratings under the Uniform Interagency Trust Rating 
System;
    (d) CRA ratings under the Revised Uniform Interagency Community 
Reinvestment Act Assessment Rating System;
    (e) consumer compliance ratings under the Uniform Interagency 
Consumer Compliance Rating System;
    (f) registered transfer agent examination ratings;
    (g) government securities dealer examination ratings; and
    (h) municipal securities dealer examination ratings.
2. Adequacy of Loan Loss Reserve Provisions
    The Act defines material supervisory determinations to include 
determinations relating to the adequacy of loan loss reserve 
provisions.
3. Loan Classifications
    The Act also defines material supervisory determinations to include 
determinations relating to loan classifications on loans that are 
significant to an institution. The FDIC believes that classifications 
of other assets that are significant to an institution also should be 
eligible for appeal. The FDIC proposes that a classified loan or other 
asset may be regarded as significant to an institution if the amount of 
the loan or asset, individually or together with other classified loans 
or assets, equals or exceeds 10% of the institution's capital or 1% of 
its total assets. Specific comment is requested on whether some other 
basis for the determination of the significance of a classified loan or 
other asset to an institution would be more appropriate.
4. Determinations Not Eligible for Appeal
    As provided in the Act, the term ``material supervisory 
determinations'' does not include a decision to appoint a conservator 
or receiver for an insured depository institution or to take prompt 
corrective action pursuant to section 38 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1831o. The FDIC believes that the term 
``material supervisory determinations'' also should not include: (a) 
determinations for which other appeals procedures exist (such as 
determinations relating to deposit insurance assessment risk 
classifications); (b) decisions to initiate formal enforcement actions 
under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818 
(including assessment of civil money penalties); (c) decisions to 
initiate informal enforcement actions (such as memoranda of 
understanding); (d) determinations relating to a violation of a statute 
or regulation; and (e) any other determinations not specified in the 
Act as being eligible for appeal.

D. Authority to Initiate Appeal

    The FDIC believes that an institution should not be permitted to 
initiate an appeal of a material supervisory determination unless its 
board of directors has considered the merits of the appeal and 
authorized that it be filed. This requirement is intended to assure 
that an institution's board of directors not only has knowledge of a 
possible appeal but also has had an opportunity to consider its merits. 
The FDIC believes that such involvement by the board of directors in 
the decision to initiate an appeal is consistent with its 
responsibility to oversee the institution's management and may 
discourage insignificant or unnecessary appeals.

E. Effect on Supervisory or Enforcement Actions

    Section 309(g) of the Act provides that ``[n]othing in . . . 
section [309] shall affect the authority of an appropriate Federal 
banking agency or the National Credit Administration Board to take 
enforcement or supervisory action.'' To reiterate this mandate as well 
as to discourage any possible abuse of the appeals process, the FDIC 
believes that use of the appeals process by any institution should not 
affect, delay, or impede any formal or informal supervisory or 
enforcement action in progress or affect the FDIC's authority to take 
any supervisory or enforcement action against that institution.

F. Effect on Applications or Requests for Approval

    Any application or request for approval made to the FDIC by an 
institution that has appealed a material supervisory determination 
which relates to or could affect the approval of the application or 
request will not be considered until a final decision concerning the 
appeal is made unless otherwise requested by the institution.

G. Scope of Review

    The FDIC believes that the appropriate scope of review of any 
material supervisory determination should be limited to the facts and 
circumstances as they existed prior to or at the time the material 
supervisory determination was made and that consideration should not be 
given to any facts or circumstances that occur or corrective action 
taken after the determination was made.

H. Review Procedures

    An institution may appeal any material supervisory determination 
but it first should make a good faith effort to resolve the dispute 
concerning the determination with the on-site examiner and/or the 
appropriate Regional Office. The on-site examiner and the Regional 
Office are expected to promptly respond to any concerns raised by an 
institution regarding a material supervisory determination.
    The FDIC wishes to express that codification of its appeals process 
is not intended to affect its longstanding practice of affording 
institutions opportunities to express their views and concerns 
throughout the examination process. Institutions are encouraged to 
discuss examination findings, loan loss reserve provisions and 
classifications on loans and other assets during on-site examinations 
as well as express any concerns to senior staff of the appropriate 
Regional Office if a matter has not been resolved by the on-site 
examiner. The FDIC continues to believe that an institution is best 
served by raising questions or objections concerning an examination 
when they arise through these informal processes rather than after the 
close of an examination and the filing of an appeal.
    If an institution is unable to resolve the dispute with the on-site 
examiner or the Regional Office, it may appeal the determination to the 
Washington Office. All appeals to the Washington Office must be 
initiated within 60 days following the institution's receipt of a 
report of examination containing a material supervisory determination 
or other written communication of a material supervisory determination. 
To initiate an appeal, the institution must submit, in writing, to the 
Director of the Division of Supervision, if the institution was unable 
to resolve the dispute with a Division of Supervision on-site examiner 
or Regional Office, or to the Director of the Division of Compliance 
and Consumer Affairs, if the institution was unable to resolve the 
dispute with a Division of Compliance and Consumer Affairs on-site 
examiner or Regional Office, a request for review. The request for 
review should include: (a) a detailed description of the issues in 
dispute, the surrounding circumstances, the institution's position 
regarding the dispute and any arguments to support that position, and 
the good faith effort to resolve the dispute with the on-site examiner 
and the Regional Office and the results of that effort; and (b) a 
statement that the institution's board of directors has considered the 
merits of the appeal and authorized that it be filed.
    The appropriate Division Director may, in his or her discretion, 
promptly resolve the appeal in favor of the institution or, if he or 
she cannot resolve the appeal in favor of the institution, will refer 
the appeal to the Supervision Appeals Review Committee, together with 
the institution's request for review and any other relevant information 
concerning the dispute. The Supervision Appeals Review Committee (which 
is proposed to be comprised of the Vice Chairman, the Director of the 
Division of Supervision, the Director of the Division of Compliance and 
Consumer Affairs, the Ombudsman, and the General Counsel, or their 
designees) will review the appeal for consistency with the policies, 
practices and mission of the FDIC, including those of the Division of 
Supervision or the Division of Compliance and Consumer Affairs, as 
appropriate, and the overall reasonableness of and support offered for 
the respective positions advanced, and notify the institution, in 
writing, of its decision concerning the disputed material supervisory 
determination within 60 days of receipt by the appropriate Division 
Director of the institution's request for review. The notice of 
decision must contain at a minimum an explanation of the factual basis 
as well as the reason(s) for the decision and a statement that the 
decision constitutes the final supervisory decision of the FDIC.
    If sufficient information is not provided to enable the Supervision 
Appeals Review Committee to make a decision concerning the disputed 
material supervisory determination, the 60-day period within which the 
Committee must notify the institution of its decision will be extended 
upon agreement of the institution for such additional time as it takes 
the institution to provide the information requested by the Committee. 
If the institution fails to provide the requested information, the 
Committee may but will not be required to consider and decide the 
appeal.
    The decision of the Supervision Appeals Review Committee will 
constitute the final supervisory decision of the FDIC and will not be 
eligible for further appeal pursuant to the FDIC's appeals process 
unless new information is submitted. In such case, the Committee may, 
in its discretion, reconsider the decision concerning the disputed 
material supervisory determination if good cause is shown why such new 
information is material to the dispute.
    The proposed composition of the Supervision Appeals Review 
Committee includes the Vice Chairman as a voting member and chair of 
the Committee. As a member of the FDIC Board of Directors, the Vice 
Chairman may participate in the consideration and disposition of 
enforcement proceedings before the Board of Directors which, on 
occasion, may involve matters considered by the Supervision Appeals 
Review Committee. While the FDIC believes that the proposed composition 
of the Committee should lend credibility, fairness and balance to the 
appeals process, it recognizes that the Vice Chairman's participation 
in an appeal of certain material supervisory determinations could give 
the Vice Chairman access to information which may not be part of the 
administrative record of a factually related enforcement proceeding. 
Although such a situation is unlikely to occur, if it does occur it may 
be prudent for the Vice Chairman to recuse himself from participation 
in the related enforcement proceeding. Accordingly, specific comment is 
requested on whether the Vice Chairman should be included on the 
Committee and, if the Vice Chairman is not included on the Committee, 
how the Committee otherwise might be structured.

I. Limitation on Use of Agency Ombudsman

    Section 309(d) of the Act requires the FDIC to appoint an agency 
ombudsman to act as a liaison with respect to any problem that any 
person may have in dealing with the FDIC resulting from its regulatory 
activities. The FDIC understands that the role of the agency ombudsman 
is to consider issues of a general corporate nature that affect any 
person resulting from its regulatory activities whereas the role of the 
appeals process is to consider only those matters of a supervisory 
nature that materially affect insured depository institutions. The FDIC 
believes that, in order to preserve the integrity of the appeals 
process, the merits of any material supervisory determination for which 
an appeal has been initiated or a final decision made will not be 
eligible for consideration by the agency ombudsman. The FDIC does not 
intend, however, to prohibit the agency ombudsman from considering any 
other problems that an institution may have in dealing with the FDIC in 
connection with its appeals process, including consideration of the 
overall fairness or efficiency of the process.

J. Prohibition on Examiner Retaliation

    The FDIC believes that any retaliation, abuse, or retribution by an 
agency examiner against an institution that appeals a material 
supervisory determination constitutes unprofessional conduct and should 
subject the examiner to appropriate disciplinary or remedial action by 
the appropriate Division Director. Such disciplinary or remedial action 
may include oral or written warning or admonishment, reprimand, or 
suspension, or change in assigned duties or disqualification from a 
particular assignment or a particular matter, including prohibition 
from participating in any examination of the institution that was the 
subject of the retaliation, abuse, or retribution.
    For the reasons set out in the Preamble, the Board of Directors 
proposes to adopt the Guidelines for Review of Material Supervisory 
Determinations as set forth below.

Guidelines for Appeals of Material Supervisory Determinations

A. Introduction

    Section 309(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act) 
requires the Federal Deposit Insurance Corporation (FDIC) to establish 
an independent intra-agency appellate process to review material 
supervisory determinations made at insured depository institutions that 
it supervises. The FDIC has adopted these Guidelines for Appeals of 
Material Supervisory Determinations (Guidelines) in accordance with the 
Act. The Guidelines describe the types of determinations that are 
eligible for review and the process by which appeals will be considered 
and decided.

B. Independent Appellate Process

    The procedures set forth in these Guidelines establish an appeals 
process for the review of material supervisory determinations by a 
supervisory appeals review committee consisting of the Vice Chairman 
and senior staff members of various divisions of the FDIC who do not 
directly or indirectly report to the staff member who made the material 
supervisory determination in dispute.

C. Institutions Eligible to Appeal

    These Guidelines apply not only to the insured depository 
institutions that the FDIC supervises (i.e., insured State nonmember 
banks (except District banks) and insured branches of foreign banks) 
but also to other insured depository institutions with respect to which 
the FDIC makes material supervisory determinations.

D. Material Supervisory Determinations

1. Determinations Eligible for Appeal
    An institution may appeal any material supervisory determination 
pursuant to the procedures set forth in these Guidelines. Material 
supervisory determinations mean:
    (a) CAMEL ratings under the Uniform Financial Institutions Rating 
System;
    (b) EDP ratings under the Uniform Interagency Rating System for 
Data Processing Operations;
    (c) Trust ratings under the Uniform Interagency Trust Rating 
System;
    (d) CRA ratings under the Revised Uniform Interagency Community 
Reinvestment Act Assessment Rating System;
    (e) Consumer compliance ratings under the Uniform Interagency 
Consumer Compliance Rating System;
    (f) Registered transfer agent examination ratings;
    (g) Government securities dealer examination ratings;
    (h) Municipal securities dealer examination ratings;
    (i) Determinations relating to the adequacy of loan loss reserve 
provisions; and
    (j) Classifications on loans and other assets the amount of which, 
individually or together with other classified loans or assets, equals 
or exceeds 10% of an institution's capital or 1% of its total assets.
2. Determinations Not Eligible for Appeal
    Material supervisory determinations do not include: (a) decisions 
to appoint a conservator or receiver for an insured depository 
institution; (b) decisions to take prompt corrective action pursuant to 
section 38 of the Federal Deposit Insurance Act, 12 U.S.C. 1831o; (c) 
determinations for which other appeals procedures exist (such as 
determinations relating to deposit insurance assessment risk 
classifications); (d) decisions to initiate formal enforcement actions 
under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818 
(including assessment of civil money penalties); (e) decisions to 
initiate informal enforcement actions (such as memoranda of 
understanding); (f) determinations relating to a violation of a statute 
or regulation; and (g) any other determinations not specified in the 
Act or these Guidelines as being eligible for appeal.

E. Authority to Initiate Appeals

    An institution may not initiate an appeal of a material supervisory 
determination pursuant to the procedures set forth in these Guidelines 
unless its board of directors has considered the merits of the appeal 
and authorized that it be filed.

F. Effect on Supervisory or Enforcement Actions

    The use of the procedures set forth in these Guidelines by any 
institution will not affect, delay, or impede any formal or informal 
supervisory or enforcement action in progress or affect the FDIC's 
authority to take any supervisory or enforcement action against that 
institution.

G. Effect on Applications or Requests for Approval

    Any application or request for approval made to the FDIC by an 
institution that has appealed a material supervisory determination 
which relates to or could affect the approval of the application or 
request will not be considered until a final decision concerning the 
appeal is made unless otherwise requested by the institution.

H. Scope of Review

    The scope of review of any material supervisory determination 
pursuant to the procedures set forth in these Guidelines is limited to 
the facts and circumstances as they existed prior to or at the time the 
material supervisory determination was made and no consideration will 
be given to any facts or circumstances that occur or corrective action 
taken after the determination was made.

I. Review Procedures

    An institution may appeal any material supervisory determination 
but it first should make a good faith effort to resolve the dispute 
concerning the determination with the on-site examiner and/or the 
appropriate Regional Office. The on-site examiner and the Regional 
Office are expected to promptly respond to any concerns raised by an 
institution regarding a material supervisory determination. If an 
institution is unable to resolve the dispute with the on-site examiner 
or the Regional Office, it may appeal the determination to the 
Washington Office.
    All appeals to the Washington Office must be initiated within 60 
days following the institution's receipt of a report of examination 
containing a material supervisory determination or other written 
communication of a material supervisory determination. To initiate an 
appeal, the institution must submit, in writing, to the Director of the 
Division of Supervision, if the institution was unable to resolve the 
dispute with a Division of Supervision on-site examiner or Regional 
Office, or to the Director of the Division of Compliance and Consumer 
Affairs, if the institution was unable to resolve the dispute with a 
Division of Compliance and Consumer Affairs on-site examiner or 
Regional Office, a request for review. The request for review should 
include: (a) a detailed description of the issues in dispute, the 
surrounding circumstances, the institution's position regarding the 
dispute and any arguments to support that position, and the good faith 
effort to resolve the dispute with the on-site examiner and the 
Regional Office and the results of that effort; and (b) a statement 
that the institution's board of directors has considered the merits of 
the appeal and authorized that it be filed.
    The appropriate Division Director may, in his or her discretion, 
promptly resolve the appeal in favor of the institution or, if he or 
she cannot resolve the appeal in favor of the institution, will refer 
the appeal to the Supervision Appeals Review Committee, together with 
the institution's request for review and any other relevant information 
concerning the dispute. The Supervision Appeals Review Committee (which 
is comprised of the Vice Chairman, the Director of the Division of 
Supervision, the Director of the Division of Compliance and Consumer 
Affairs, the Ombudsman, and the General Counsel, or their designees) 
will review the appeal for consistency with the policies, practices and 
mission of the FDIC, including those of the Division of Supervision or 
the Division of Compliance and Consumer Affairs, as appropriate, and 
the overall reasonableness of and the support offered for the 
respective positions advanced, and notify the institution, in writing, 
of its decision concerning the disputed material supervisory 
determination within 60 days of receipt by the appropriate Division 
Director of the institution's request for review. The notice of 
decision must contain at a minimum an explanation of the factual basis 
as well as the reason(s) for the decision and a statement that the 
decision constitutes the final supervisory decision of the FDIC.
    If sufficient information is not provided to enable the Supervision 
Appeals Review Committee to make a decision concerning the disputed 
material supervisory determination, the 60-day period within which the 
Committee must notify the institution of the decision will be extended 
upon agreement of the institution for such additional time as it takes 
the institution to provide the information requested by the Committee. 
If the institution fails to provide the requested information, the 
Committee may but will not be required to consider and decide the 
appeal.
    The decision of the Supervision Appeals Review Committee will 
constitute the final supervisory decision of the FDIC and will not be 
eligible for further appeal pursuant to the procedures set forth in 
these Guidelines unless new information is submitted. In such case, the 
Committee may, in its discretion, reconsider the decision concerning 
the disputed material supervisory determination if good cause is shown 
why such new information is material to the dispute.

J. Limitation on Use of Agency Ombudsman

    The merits of any material supervisory determination for which an 
appeal has been initiated or a final decision made will not be eligible 
for consideration by the FDIC's Ombudsman. Any other problems, however, 
that an institution may have in dealing with the FDIC in connection 
with the procedures set forth in these Guidelines are eligible for 
consideration by the Ombudsman, including consideration of the overall 
fairness or efficiency of the process.

K. Prohibition on Examiner Retaliation

    Any retaliation, abuse, or retribution by an agency examiner 
against an institution that appeals a material supervisory 
determination constitutes unprofessional conduct and will subject the 
examiner to appropriate disciplinary or remedial action by the 
appropriate Division Director. Such disciplinary or remedial action may 
include oral or written warning or admonishment, reprimand, or 
suspension, or change in assigned duties or disqualification from a 
particular assignment or a particular matter, including prohibition 
from participating in any examination of the institution that was the 
subject of the retaliation, abuse, or retribution.

    By order of the Board of Directors.

    Dated at Washington, DC this 20th day of December, 1994.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 94-31726 Filed 12-27-94; 8:45 am]
BILLING CODE 6714-01-P