[Federal Register Volume 59, Number 249 (Thursday, December 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32004]


[[Page Unknown]]

[Federal Register: December 29, 1994]


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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[94-264]

 

Supervisory Appeals Process: Guidelines

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed guidelines; request for comments.

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SUMMARY: The Office of Thrift Supervision (OTS) 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 OTS currently provides a supervisory 
review process, which is described in Regulatory Bulletin (RB) 4a 
(September 23, 1993). The OTS proposes to modify RB 4a to conform with 
the requirements imposed by the new statute. This Notice sets out the 
revised guidelines. RB 4a will remain in effect until the new 
guidelines are issued in final form.

DATES: Comments must be received on or before February 27, 1995.

ADDRESSES: Comments should be directed to Director, Information 
Services Division, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552, Attention Docket No. 94-264. These submissions 
may be hand delivered to 1700 G Street, NW., from 9:00 A.M. to 5:00 
P.M. on business days; they may be sent by facsimile transmission to 
FAX number (202) 906-7755. Submissions must be received by 5:00 P.M. on 
the day they are due in order to be considered by the OTS. Comments 
will be available for inspection from 1:00 P.M. until 4:00 P.M. on 
business days. Visitors will be escorted to and from the Public 
Reference Room at established intervals.

FOR FURTHER INFORMATION CONTACT: Alvin W. Smuzynski, Assistant Director 
of Supervision (202) 906-5669; or Valerie J. Lithotomos, Counsel 
(Banking and Finance), Chief Counsel's Office; Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Section 309 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. No. 103-325, 108 Stat. 2160, 2218-20 
(September 23, 1994) (to be codified at 12 U.S.C. 4809) (the CDRI Act), 
requires the Federal banking agencies, including the OTS, to establish 
an ``independent intra-agency appellate process'' for the review of 
``material supervisory determinations'' at insured institutions. The 
statute requires the appeals process to be in place within 180 days of 
its enactment. Within 90 days of enactment, the agencies are to provide 
public notice and opportunity for comment on proposed guidelines for 
the establishment of the process.
    Decisions made during the supervisory process by the OTS's 
examination and supervisory staff are often those that affect savings 
associations most directly and most immediately. From time to time, 
savings associations may disagree with supervisory decisions or with 
the findings or conclusions upon which those decisions are based. It is 
the intent of this proposal to provide a comprehensive and fair process 
for the review of examination and supervisory findings and decisions. 
The OTS encourages the resolution of supervisory disputes through 
informal communications between savings associations and OTS regional 
examination and supervisory staff. When disputes cannot be resolved 
successfully at the regional level, savings associations may use the 
supervisory appeals process that would be established by the proposed 
guidelines to seek independent review by the Director of Supervision in 
Washington.
    The OTS currently provides a supervisory review process that 
achieves these policy objectives and is consistent in many respects 
with section 309 of the CDRI Act. That review process is described in 
Regulatory Bulletin (RB) 4a, which was issued on September 23, 1993. 
The OTS proposes to modify RB 4a to conform with the specific 
requirements imposed by section 309. This Notice sets out the revised 
guidelines with modifications from RB 4a that are described more 
particularly below. RB 4a will remain in effect until the new 
guidelines are issued in final form.

II. Description of the Proposed Supervisory Appeals Process

Independence

    Section 309 of the CDRI Act sets forth certain standards that the 
agencies' supervisory appeals process must satisfy. First, the process 
must be ``independent.'' The statute defines independence to mean that 
the review provided must be conducted ``by an agency official who does 
not directly or indirectly report to the agency official who made the 
material supervisory determination under review.''
    The process established by RB 4a encourages dispute resolution at 
the regional level by setting general guidelines for savings 
associations to use in raising supervisory problems with regional 
staff. RB 4a does not strictly require regional review as a 
precondition to review in Washington. The RB does, however, require an 
institution that has not attempted to resolve an issue at the regional 
level to provide a ``detailed statement'' of its reasons for bypassing 
regional review.
    The OTS continues to believe that open discussion between 
examination and supervisory staff at the regional level is often the 
most productive and direct route to addressing an institution's 
concerns. For this reason, the revised guidelines retain a description 
of procedures available for use at the regional level. The OTS 
continues to encourage savings associations to attempt to resolve 
issues directly with examination or regional supervisory staff.
    The proposed guidelines specify that the decisionmaker for 
supervisory appeals is the Director of Supervision in Washington, and 
they explicitly provide that an institution is not required to seek 
regional review as a precondition to submitting a supervisory appeal. 
In addition, an institution electing to appeal directly to the Director 
of Supervision without prior regional review would no longer be 
required to submit a ``detailed statement'' of its reasons for doing 
so. The OTS will continue to ask an institution whether or not it has 
sought regional review.
    The Director of Supervision reports directly to the Director of the 
OTS. This reporting arrangement satisfies the independence requirement 
of section 309.

Prompt Disposition of Appeal

    The statute also requires that the supervisory appeals process be 
structured so that appeals are ``heard and decided expeditiously.'' RB 
4a sets deadlines for review at both the regional and Washington 
levels. Based on its experience with requests for review filed under 
the RB 4a process and on adjustments in its internal procedures for 
handling such requests, the OTS proposes a deadline of 60 days for the 
Director of Supervision to decide a supervisory appeal.

Material Supervisory Determinations

    Section 309 of the CDRI Act requires that the appeals process be 
available for the review of ``material supervisory determinations,'' a 
term defined by the statute. RB 4a currently provides that ``[t]he OTS 
will review all decisions or actions'' with the exception of those 
specifically excluded from the process. The OTS notes that this broad 
scope provision, which is retained in the proposed guidelines, allows 
for the appeal of a wider range of supervisory determinations than is 
required by the statute. For example, under both the current RB 4a 
process and the revised guidelines, savings associations may appeal 
classifications not only of loans but of other assets as well. In order 
to make it clear that the supervisory appeals process covers the 
determinations that are explicitly mentioned in the statute, the 
proposed guidelines specifically include ``material supervisory 
determinations'' as within the scope of the appeals process and add a 
definition of the term that conforms with the statute. The reference to 
``examination ratings'' in the definition should be read to include 
ratings for any type of examination that the OTS conducts, including 
examinations for compliance with the Community Reinvestment Act and 
other statutory or regulatory requirements as well as trust, electronic 
data processing (EDP), and safety and soundness examinations.
    The OTS proposes to exclude from the section 309 appeals process 
matters for which a special review process is available. For example, 
the agency is now finalizing a process specifically designed to allow 
certain savings associations: (a) to seek an adjustment to the interest 
rate risk methodology as it applies to them, or (b) to request 
authorization to measure their interest rate risk using their own 
methodology. Institutions wishing to obtain this type of review must 
use the separate review process established for that purpose. If the 
specialized review process results in a decision that is adverse to the 
institution and that triggers a supervisory action, the institution may 
appeal the supervisory action using the section 309 supervisory appeals 
process described here.
    The statute specifically exempts from the supervisory appeals 
process decisions to appoint a conservator or receiver and decisions to 
take action pursuant to the prompt corrective action provisions of 
section 38 of the Federal Deposit Insurance Act, 12 U.S.C. 1831o. The 
former exclusion already appears in RB 4a; the latter is added. The 
revised guidelines also retain the exclusions for preliminary 
examination results and formal enforcement-related actions.

Examiner Retaliation

    Section 309 requires that the appeals process contain ``appropriate 
safeguards'' for protecting the institution from retaliation by agency 
examiners. Accordingly, the OTS proposes to modify RB 4a by making 
explicit its policy of prohibiting any employee, including examiners 
and supervisory staff, from taking retaliatory action against a savings 
association that pursues an avenue of review or appeal.
    Separately, section 309 of the CDRI Act requires the OTS to appoint 
an Ombudsman whose duties are to include assuring ``that safeguards 
exist to encourage complainants to come forward and preserve 
confidentiality.'' As the revised guidelines indicate, the OTS does not 
contemplate that its Ombudsman will be involved in the substantive 
review of supervisory decisions. The agency intends, however, that the 
Ombudsman will be the appropriate recipient for complaints of 
retaliation and that the Ombudsman's responsibilities will include the 
investigation and resolution of such complaints. The OTS will take 
disciplinary action against any employee who is found to have acted in 
retaliation against an institution that seeks review or appeal of a 
supervisory determination. The revised guidelines reflect this method 
of establishing safeguards against retaliation.

III. Request for Comment

    The OTS seeks comment on all aspects of the proposed guidelines and 
specifically with respect to the following issues:
    (1) The guidelines are intended to provide a framework for 
decisionmaking but also to allow for sufficient flexibility that 
procedures may be tailored to individual circumstances. With respect to 
both the scope of the supervisory appeals process and the procedures 
set out, do the guidelines contain enough specificity to provide useful 
guidance to institutions on when and how to proceed? Commenters 
addressing this issue are encouraged to offer suggestions for ways in 
which the guidelines could be made more specific without sacrificing 
flexibility.
    (2) Are the timeframes established in the guidelines reasonable and 
practical?
    (3) Should the appeals process be available to entities other than 
insured savings associations that OTS has the authority to examine? 
Such entities include savings and loan holding companies, affiliates of 
savings associations, and electronic data processing servicers.
    (4) Do terms such as ``examination ratings,'' ``adequacy of loan 
loss provisions,'' or ``significant'' loan classifications require 
further definition?
    (5) The OTS generally takes the approach that an institution must 
comply with the supervisory determination under review during the 
pendency of its appeal. The agency intends that the Director of 
Supervision could, on a case-by-case basis, stay the institution's 
obligation to comply while the appeal is in process. Should the 
presumption be reversed, so that the effect of supervisory 
determinations is generally stayed unless the decisionmaker 
specifically requires compliance?
    (6) Is it appropriate to segregate complaints of retaliation from 
the substance of the appeals process by authorizing the Ombudsman to 
handle the former complaints and the Director of Supervision to decide 
the substance of the appeal?

Supervisory Appeals Process

Regulatory Bulletin 4b

Background

    The Riegle Community Development and Regulatory Improvement Act of 
1994 requires that the OTS (as well as the other Federal banking 
agencies) establish an intra-agency appellate process for the review of 
material supervisory determinations made at insured institutions. This 
Bulletin establishes the guidelines that govern the OTS's supervisory 
appeals process. It modifies the guidelines that the OTS previously 
followed for its supervisory review process, which were set forth in 
Regulatory Bulletin 4a (September 20, 1993). Regulatory Bulletin 4a is 
rescinded.

Policy Statement

    Decisions made during the supervisory process by the OTS's 
examination and supervisory staff are often those that affect savings 
associations most directly and most immediately. From time to time, 
savings associations may disagree with supervisory decisions or with 
the findings or conclusions upon which those decisions are based. It is 
the intent of this policy statement to provide a comprehensive and fair 
process for the review of examination and supervisory findings and 
decisions. The OTS encourages the resolution of supervisory disputes 
through informal communications between savings associations and OTS 
regional examination and supervisory staff. If disputes cannot be 
resolved successfully at the regional level, however, savings 
associations may seek independent review by the Director of Supervision 
in Washington.

Scope of the Supervisory Appeals Process

    The OTS will review all supervisory decisions or actions, including 
material supervisory determinations, except those that are listed 
below.
    Material supervisory determinations are those relating to:
     Examination ratings;
     The adequacy of loan loss reserve provisions; and
     Loan classifications on loans that are significant to the 
savings association.
    OTS decisions and actions that may not be appealed include:
     The appointment of a conservator or receiver;
     Preliminary examination conclusions prior to issuance of a 
final report of examination;
     Any formal enforcement-related action, such as decisions 
to initiate a formal investigation, to file a notice of charges, or to 
assess civil money penalties; or
     Any decision to take action pursuant to the prompt 
corrective action provisions that appear at section 38 of the Federal 
Deposit Insurance Act, 12 U.S.C. 1831o.
    Matters that are subject to a special appeals or review process 
designed specifically for the matter in dispute are not immediately 
appealable through this supervisory appeals process. If the special 
appeals or review process results in a supervisory action that is 
adverse to the institution and that appeals process does not meet the 
standards of section 309 of the CDRI Act, the institution may appeal 
the supervisory action using the process established by these 
guidelines.

Procedures for Resolving Disagreements at the Regional Level

A. During the Examination

    If a disagreement arises during the on-site examination, the 
difference should be raised directly with the examiner-in-charge (EIC) 
while the EIC is at the institution. If issues remain unresolved, the 
institution should request that the Field Manager be included in the 
discussions. Disagreements will be briefly noted in the final report of 
examination (ROE).

B. With the Regional Office

    Institutions are encouraged to raise examination-related 
disagreements that cannot be resolved during the examination with the 
Regional Office. A supervisory decision in dispute may be raised either 
orally or in writing to the Assistant Director, Regional Deputy 
Director, or Regional Director or his designee. If the institution 
elects to state the issue or problem in writing, the Chief Executive 
Office (CEO) may file a request for reconsideration by describing the 
issue or problem and specifying the related facts. The Regional Office 
will act within 30 days of receipt of an appeal, unless the Regional 
Director notifies the institution, in writing, that the decision will 
take longer than 30 days, the reason additional time is needed, and the 
expected date for a decision.

The Supervisory Appeals Process

A. The Institution's Appeal Submission

    While savings associations are encouraged to attempt to resolve 
disagreements through discussion with regional examination and 
supervisory staff and through review at the regional level, regional 
discussion and review are not preconditions for taking an appeal to the 
Director of Supervision in Washington, D.C.
    If the above-described discussions or appeals do not result in 
satisfactory resolution of the disagreement or if the institution 
elects to use the supervisory appeals process without first obtaining 
regional review, an appeal may be filed with the Director of 
Supervision. The following procedures apply:
     The Board of Directors must review the request for an 
appeal and forward one copy of its resolution authorizing such action.
     The institution will have 60 calendar days from its 
receipt of a material supervisory determination or, where appropriate, 
of the document transmitting the Regional Office's decision, to file a 
request for an appeal with the Director of Supervision. Requests for 
appeal should be directed to: Director of Supervision, Attention: 
Assistant Director, Office of Thrift Supervision, 1700 G Street, N.W., 
Washington, D.C. 20552.
     The request should be limited to five pages and should 
contain:
    --A concise statement of the dispute and why it is material. For 
example, identify the precise loan(s), property, appraisal, etc.
    --The remedy being sought and its financial impact.
    --A statement of whether the institution has attempted to resolve 
the dispute at the regional level.
    --A citation to any applicable statutes, regulations, policies, or 
procedures on which the institution relies.
    --Confirmation that the institution has, in the interim, complied 
with the supervisory actions being reviewed.
    --Copies of any relevant excerpts from the current examination, 
appraisal report, or correspondence with the region about the action or 
decision. (These copies do not count toward the 5-page limit.)
    --The name, address, and telephone number of the individual at the 
institution designated to provide additional information (if required).
     No fee is required for submission of the request. 
Institutions are encouraged to minimize costs by preparing review 
requests themselves rather than using outside attorneys, accountants, 
or consultants. If warranted by the circumstances and agreed to by the 
institution, OTS may use outside experts to evaluate issues. In such 
circumstances, the institution will pay the costs of such experts.

B. Review by the Director of Supervision

     The OTS will acknowledge receipt of a supervisory appeal 
within 5 calendar days of receipt.
     Within 15 calendar days of receipt, the OTS will make a 
request for any additional information necessary to complete the 
decision on the appeal.
     The institution shall furnish the additional information 
as soon as possible or within 15 calendar days of the date of the OTS's 
request, unless the time is extended by the Director of Supervision or 
his designee.
     Absent unusual circumstances, the OTS will provide its 
decision on the appeal within 60 calendar days of receipt of the 
request for appeal or, if additional information is requested, within 
60 calendar days of receipt of any additional information.
     Any of the above timeframes may be extended by the 
Director of Supervision or his designee. Any extensions granted will be 
in writing, and will include the reason for the extension, and the 
expected date that a decision will be made.

Effect of Initiating a Supervisory Appeal

    An institution's appeal will not suspend or delay the pursuit of 
any enforcement action or formal investigation. An appeal will not stay 
the obligation of an institution or institution-affiliated party to 
comply with any order or other determination resulting from an 
enforcement action. An appeal will not operate automatically to relieve 
the savings association of its obligation to comply with the 
supervisory determination under review. Upon the request of the savings 
association filed simultaneously with its appeal, the Director of 
Supervision may, however, relieve the institution of that obligation to 
comply during the pendency of its appeal in Washington. OTS retains the 
right to take any action and to apply any standards deemed appropriate 
to ensure the safety and soundness of an institution.

Prohibition on Retaliation

    The OTS prohibits any employee, including members of its 
examination and supervisory staff, from acts of retaliation against a 
savings association that appeals a supervisory determination. 
Separately, the OTS intends to appoint an Ombudsman whose 
responsibilities include the investigation and resolution of complaints 
of retaliation made by a savings association. Such complaints may be 
made at any time to: Office of Ombudsman, Office of Thrift Supervision, 
1700 G Street, N.W., Washington, D.C. 20552.
    The OTS will take appropriate disciplinary action against any 
employee who is found to have violated the prohibition on retaliation.

    Dated: December 22, 1994.

    By the Office of Thrift Supervision.
John F. Downey,
Director of Supervision.
[FR Doc. 94-32004 Filed 12-28-94; 8:45 am]
BILLING CODE 6720-01-P