[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: 94-32016]


[[Page Unknown]]

[Federal Register: December 29, 1994]


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FEDERAL RESERVE SYSTEM

[Docket No. R-0867]

 

Internal Appeals Process

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice and request for comments.

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SUMMARY: The Board is seeking public comment on an internal appeals 
process for institutions wishing to appeal an adverse material 
supervisory determination.

DATES: Comments must be received by February 6, 1995.

ADDRESSES: Comments should refer to Docket No. R-0867, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551. Comments also may be delivered to room B-2222 
of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to 
the guard station in the Eccles Building courtyard on 20th Street, N.W. 
(between Constitution Avenue and C Street) at any time. Comments may be 
inspected in room MP-500 between 9:00 a.m. and 5:00 p.m. weekdays, 
except as provided in 12 CFR 261.8 of the Board's rules regarding 
availability of information.

FOR FURTHER INFORMATION CONTACT: Gregory A. Baer, Managing Senior 
Counsel, Legal Division (202/452-3236); Shawn McNulty, Assistant 
Director, Division of Consumer and Community Affairs (202/452-3946); or 
Ann Marie Kohlligian, Senior Counsel/Manager, Division of Banking 
Supervision and Regulation (202/452-3528), Board of Governors of the 
Federal Reserve System. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).

SUPPLEMENTARY INFORMATION:

Background

    Section 309 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (the Act), 12 U.S.C. 4806, requires the Board 
(as well as the other Federal banking agencies) to establish an 
independent, intra-agency appellate process. This process shall be 
available to review material supervisory determinations made at insured 
depository institutions. Section 309 specifies various requirements 
that the appellate process must meet.
    The Federal Reserve conducts its supervision of state member banks, 
bank holding companies, and branches and agencies of foreign banks 
through twelve regional Reserve Banks. The Federal Reserve Banks 
already administer appellate processes that the Board believes have 
worked well over the years and are generally consistent with section 
309. The legislative history of the Act notes that ``[s]ome of the 
Federal banking agencies have in place procedures to settle disputes 
between the agency and a financial institution that may satisfy the 
requirements of this provision.'' H.R. 103-652, 103d Cong., 2d Sess. 
Sec. 309 (1994). The Board is proposing guidelines for appeals that are 
consistent with current practice at the Reserve Banks and the specific 
requirements of section 309.
    The Board wishes to stress that the codification of an appeals 
process is not intended to affect the Federal Reserve System's 
longstanding practice of affording bank management and directors 
opportunities to express their views and concerns throughout the 
examination process. Bank management is encouraged to discuss 
examination findings and loan classifications during on-site 
examinations. Management may also express any concerns to senior 
supervisory staff at the Reserve Bank if a matter has not been resolved 
by the examiner-in-charge. At the completion of all examinations, 
supervisory staff or officials meet with management to discuss the 
examination results and, in some instances, Federal Reserve officials 
will meet with an institution's board of directors to discuss 
examination findings.
    The Board continues to believe that an institution is best served 
by raising questions or objections concerning an examination through 
these informal processes. Doing so permits issues to be discussed and 
resolved as soon as they arise, rather than after the close of an 
examination and the filing of an appeal.

Procedures

    Section 309 requires the Board (1) to provide for appeals to be 
heard and decided expeditiously, (2) to protect appellants from 
retaliation by examiners, and (3) to guarantee that the appeal is heard 
by a disinterested person. The Board's proposed guidelines incorporate 
these statutory standards by requiring that each appeal be decided 
within 30 days by a disinterested person to be selected by the Reserve 
Bank, with a further right of appeal to the President of the Reserve 
Bank, also to be decided within 30 days.
    The proposed guidelines also require that the reviewer be qualified 
to undertake the review. Generally, this means being trained in the 
area under review. For example, reviews should be conducted by 
qualified Reserve Bank officials in either the supervisory or consumer 
affairs area, as appropriate. The Board believes that the structure of 
the supervision and consumer functions at the Reserve Bank should allow 
for review by a trained but impartial person. In the unlikely event 
that all qualified personnel did participate in the contested 
examination, then staff from the Board or another Reserve Bank could be 
enlisted for this purpose.
    Any supervised organization dissatisfied with the results of an 
appeal to a Reserve Bank President may appeal the Reserve Bank's 
decision to the Board of Governors. However, the Board expects that 
such appeals will occur only in unusual cases where serious or System-
wide issues are raised.

Eligibility

    The Federal Reserve's existing appeals process extends not only to 
state member banks but also to bank holding companies and their nonbank 
subsidiaries, branches and agencies of foreign banks, Edge and 
agreement corporations, and other entities examined or inspected by the 
Federal Reserve. Although section 309 requires an appellate process 
only for insured depository institutions, the Board is proposing to 
continue to extend the same opportunity of appeal to all entities 
examined or inspected by the Federal Reserve.

Material Supervisory Determination

    Section 309 allows appeal of any ``material supervisory 
determination.'' The statute does not define the term precisely, but 
instead states that it ``includes'' determinations relating to 
composite examination ratings, the adequacy of loan loss reserves, and 
significant loan classifications. The Act specifically notes that the 
term does not include a determination to appoint a conservator or 
receiver for an insured depository institution or a decision to take 
prompt corrective action pursuant to section 38 of the Federal Deposit 
Insurance Act. Existing procedures allow institutions to challenge 
these determinations.
    As recognized by the Act, the Federal Reserve (like the other 
Federal banking agencies) already provides administrative rights of 
appeal for various supervisory actions. These include, in addition to 
the two identified by the statute, the issuance of capital directives; 
the issuance of administrative enforcement actions, including the 
imposition of cease and desist, removal and prohibition, suspension and 
civil money penalty orders; and actions to terminate membership in the 
Federal Reserve System. Since these actions already involve 
administrative procedures far more extensive than those contemplated by 
section 309, the Federal Reserve is proposing to exclude these actions 
from the proposed appeals process established under section 309. The 
Federal Reserve believes that these enforcement or quasi-enforcement 
actions either are not ``material supervisory determinations'' for 
purposes of section 309 or, if they are, that existing procedures 
satisfy the Act's requirement of an appellate process. Allowing 
parallel rights of appeal would be confusing, duplicative, and 
wasteful.

Guidelines for Appeals of Material Supervisory Determinations

    Section 309 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (the Act), 12 U.S.C. 4806, requires the Board 
and the other Federal banking agencies to establish an independent, 
intra-agency process to review appeals of material supervisory 
determinations.
    The purpose of these guidelines is to allow each Reserve Bank to 
administer its own appellate process, but to establish the procedures 
under which each Bank's appellate process must operate. Doing so will 
ensure that each Reserve Bank's process is consistent with section 309 
and that institutions will be granted the same appellate rights 
regardless of the Federal Reserve district in which they reside.

Procedures for Appealing a Material Supervisory Determination

    Any appeal of a material supervisory determination pursuant to 
section 309 shall be filed and considered pursuant to the following 
procedures.
    (1) Any appeal shall be approved by the board of directors of the 
institution and filed in writing with the Secretary of the Federal 
Reserve Bank or other appropriate official within 30 calendar days of 
the material supervisory determination, unless the time for filing is 
extended by the Reserve Bank. The Reserve Bank shall promptly provide a 
copy of the appeal to the appropriate division director of the staff of 
the Board of Governors.
    (2) The appeal shall be considered in the first instance by a 
person or persons selected by the Reserve Bank (the review panel) who--
    (A) did not participate in the material supervisory determination;
    (B) do not directly or indirectly report to the person who made the 
material supervisory determination under review; and
    (C) are qualified to review the material supervisory determination.
    (3) The appellant institution may appear before the review panel in 
order to present testimony and, with the consent of the review panel, 
witnesses. The review panel shall also solicit the views of the Reserve 
Bank staff involved in the determination under appeal, Board staff, 
and, when appropriate, the staff of other supervisory agencies (for 
example, in the case of joint examinations or inspections).
    (4) Any appeal shall be decided by the review panel within 30 
calendar days of filing, unless the appellant and the review panel 
jointly agree to extend the time for decision.
    (5) Any appellant institution dissatisfied with the decision of the 
review panel may, with the consent of its board of directors, appeal 
that decision to the Reserve Bank President by filing a written appeal 
with the Secretary of the Reserve Bank or other appropriate official. 
Such an appeal shall be decided within 30 calendar days of filing.
    (6) Any appellant dissatisfied with the final decision of the 
Reserve Bank may, with the consent of its board of directors, appeal 
that decision to the director of the appropriate division of the Board 
of Governors, who in consultation with the appropriate oversight 
Governor, may review an adverse determination by the Reserve Bank.
Safeguards Against Retaliation
    Each Reserve Bank shall establish appropriate safeguards to protect 
appellants from retaliation. The Board's ombudsman will periodically 
contact institutions after their appeals have been decided in order to 
make certain that no retaliation has occurred.
Availability of Procedures
    Each Reserve Bank shall make these guidelines and the Reserve 
Bank's process for selecting a review panel available to each 
institution in its district, any institution appealing a material 
supervisory determination, and any member of the public who requests 
them.
Eligible Institutions
    Any institution about which the Federal Reserve makes a material 
supervisory determination is eligible for the appeals process. This 
includes state member banks, bank holding companies and their nonbank 
subsidiaries, branches and agencies of foreign banks, Edge and 
agreement corporations, and other entities examined or inspected by a 
Reserve Bank.
Material Supervisory Determination Defined
    Whether an appealed action constitutes a ``material supervisory 
determination'' eligible for the appeals process shall be decided by 
the person or persons hearing the appeal, and a determination that the 
action is not appealable under these guidelines may be further appealed 
to the Reserve Bank President and Board staff in the same manner as any 
other adverse decision.
    The term ``material supervisory determination'' includes, but is 
not limited to, material determinations relating to examination or 
inspection composite ratings, the adequacy of loan loss reserves, and 
significant loan classifications. The term does not include any 
material supervisory determination for which an independent right of 
appeal exists. Such actions include prompt corrective action directives 
issued pursuant to section 38 of the Federal Deposit Insurance Act (FDI 
Act), contested actions to impose administrative enforcement actions 
under the FDI Act and Bank Holding Company Act of 1956 (the BHC Act), 
capital directives, and orders issued pursuant to applications under 
the BHC Act.
Savings Provision
    Section 309 expressly provides that it shall not affect the 
authority of the Board or any other agency to take enforcement or 
supervisory action against an institution. In such cases, the rights of 
appeal provided for in the statutes and regulations concerning these 
actions shall govern. The appeal of a material supervisory 
determination does not prevent the Federal Reserve from taking any 
supervisory or enforcement action--formal or informal--it deems 
appropriate to discharge the Federal Reserve System's supervisory 
responsibilities.

    By order of the Board of Governors of the Federal Reserve 
System, December 22, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-32016 Filed 12-28-94; 8:45 am]
BILLING CODE 6210-01-P