[Federal Register Volume 86, Number 28 (Friday, February 12, 2021)]
[Rules and Regulations]
[Pages 9253-9261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01499]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 4

[Docket No. OCC-2020-0005]
RIN 1557-AE80


Role of Supervisory Guidance

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC).

ACTION: Final rule.

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SUMMARY: The OCC is adopting a final rule that codifies the Interagency 
Statement Clarifying the Role of Supervisory Guidance, issued by the 
OCC, Board of Governors of the Federal Reserve System (Board), Federal 
Deposit Insurance Corporation (FDIC), National Credit Union 
Administration (NCUA), and Bureau of Consumer Financial Protection 
(Bureau) (collectively, the agencies) on September 11, 2018 (2018 
Statement). By codifying the 2018

[[Page 9254]]

Statement, with amendments, the final rule confirms that the OCC will 
continue to follow and respect the limits of administrative law in 
carrying out its supervisory responsibilities. The 2018 Statement 
reiterated well-established law by stating that, unlike a law or 
regulation, supervisory guidance does not have the force and effect of 
law. As such, supervisory guidance does not create binding legal 
obligations for the public. Because it is incorporated into the final 
rule, the 2018 Statement, as amended, is binding on the OCC. The final 
rule adopts the rule as proposed without substantive change.

DATES: This final rule is effective on March 15, 2021.

FOR FURTHER INFORMATION CONTACT: Mitchell Plave, Special Counsel, (202) 
649-5490; or Henry Barkhausen, Counsel, Chief Counsel's Office (202) 
649-5490; or Steven Key, Associate Deputy Comptroller for Bank 
Supervision Policy, (202) 649-6770, Office of the Comptroller of the 
Currency, 400 7th Street SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

I. Background

    The OCC recognizes the important distinction between issuances that 
serve to implement acts of Congress (known as ``regulations'' or 
legislative rules'') and non-binding supervisory guidance documents.\1\ 
Regulations create binding legal obligations. Supervisory guidance is 
issued by an agency to ``advise the public prospectively of the manner 
in which the agency proposes to exercise a discretionary power'' and 
does not create binding legal obligations.\2\
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    \1\ Regulations are commonly referred to as legislative rules 
because regulations have the ``force and effect of law.'' Perez v. 
Mortgage Bankers Association, 575 U.S. 92, 96 (2015) (citations 
omitted).
    \2\ See Chrysler v. Brown, 441 U.S. 281, 302 (1979) (quoting the 
Attorney General's Manual on the Administrative Procedure Act at 30 
n.3 (1947) (Attorney General's Manual) and discussing the 
distinctions between regulations and general statements of policy, 
of which supervisory guidance is one form).
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    In recognition of the important distinction between rules and 
guidance, on September 11, 2018, the agencies issued the Interagency 
Statement Clarifying the Role of Supervisory Guidance (2018 Statement) 
to explain the role of supervisory guidance and describe the agencies' 
approach to supervisory guidance.\3\ As noted in the 2018 Statement, 
the agencies issue various types of supervisory guidance to their 
respective supervised institutions, including, but not limited to, 
interagency statements, advisories, bulletins, policy statements, 
questions and answers, and frequently asked questions. Supervisory 
guidance outlines the agencies' supervisory expectations or priorities 
and articulates the agencies' general views regarding practices for a 
given subject area. Supervisory guidance often provides examples of 
practices that mitigate risks, or that the agencies generally consider 
to be consistent with safety-and-soundness standards or other 
applicable laws and regulations, including those designed to protect 
consumers.\4\ The agencies noted in the 2018 Statement that supervised 
institutions at times request supervisory guidance and that guidance is 
important to provide clarity to these institutions, as well as 
supervisory staff, in a transparent way that helps to ensure 
consistency in the supervisory approach.\5\
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    \3\ See https://www.occ.gov/news-issuances/news-releases/2018/nr-ia-2018-97a.pdf.
    \4\ While supervisory guidance offers guidance to the public on 
the OCC's approach to supervision under statutes and regulations and 
safe and sound practices, the issuance of guidance is discretionary 
and is not a prerequisite to the OCC's exercise of its statutory and 
regulatory authorities. This point reflects the fact that statutes 
and legislative rules, not statements of policy, set legal 
requirements.
    \5\ The Administrative Conference of the United States (ACUS) 
has recognized the important role of guidance documents and has 
stated that guidance can ``make agency decision-making more 
predictable and uniform and shield regulated parties from unequal 
treatment, unnecessary costs, and unnecessary risk, while promoting 
compliance with the law.'' ACUS, Recommendation 2017-5, Agency 
Guidance Through Policy Statements at 2 (adopted December 14, 2017), 
available at https://www.acus.gov/recommendation/agency-guidance-through-policy-statements. ACUS also suggests that ``policy 
statements are generally better [than legislative rules] for dealing 
with conditions of uncertainty and often for making agency policy 
accessible.'' Id. ACUS's reference to ``policy statements'' refers 
to the statutory text of the APA, which provides that notice and 
comment is not required for ``general statements of policy.'' The 
phrase ``general statements of policy'' has commonly been viewed by 
courts, agencies, and administrative law commentators as including a 
wide range of agency issuances, including guidance documents.
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    The 2018 Statement restated existing law and reaffirmed the 
agencies' understanding that supervisory guidance does not create 
binding, enforceable legal obligations. The 2018 Statement reaffirmed 
that the agencies do not issue supervisory criticisms for 
``violations'' of supervisory guidance and described the appropriate 
use of supervisory guidance by the agencies. In the 2018 Statement, the 
agencies also expressed their intention to (1) limit the use of 
numerical thresholds in guidance; (2) reduce the issuance of multiple 
supervisory guidance documents on the same topic; (3) continue efforts 
to make the role of supervisory guidance clear in communications to 
examiners and supervised institutions; and (4) encourage supervised 
institutions to discuss their concerns about supervisory guidance with 
their agency contact.
    On November 5, 2018, the OCC, Board, FDIC, and Bureau each received 
a petition for a rulemaking (Petition), as permitted under the 
Administrative Procedure Act (APA),\6\ requesting that the agencies 
codify the 2018 Statement.\7\ The Petition argued that a rule on 
guidance is necessary to bind future agency leadership and staff to the 
2018 Statement's terms. The Petition also suggested there are 
ambiguities in the 2018 Statement concerning how supervisory guidance 
is used in connection with matters requiring attention, matters 
requiring immediate attention (collectively, MRAs), as well as in 
connection with other supervisory actions that should be clarified 
through a rulemaking. Finally, the Petition called for the rulemaking 
to implement changes in the agencies' standards for issuing MRAs. 
Specifically, the Petition requested that the agencies limit the role 
of MRAs to addressing circumstances in which there is a violation of a 
statute, regulation, or order, or demonstrably unsafe or unsound 
practices.
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    \6\ 5 U.S.C. 553(e).
    \7\ See Petition for Rulemaking on the Role of Supervisory 
Guidance, available at https://bpi.com/wp-content/uploads/2018/11/BPI_PFR_on_Role_of_Supervisory_Guidance_Federal_Reserve.pdf. The 
Petitioners did not submit a petition to the NCUA, which has no 
supervisory authority over the financial institutions that are 
represented by Petitioners. The NCUA chose to join the Proposed Rule 
on its own initiative.
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II. The Proposed Rule and Comments Received

    On November 5, 2020, the agencies issued a proposed rule (Proposed 
Rule or Proposal) that would have codified the 2018 Statement, with 
clarifying changes, as an appendix to proposed rule text.\8\ The 
Proposed Rule would have superseded the 2018 Statement. The rule text 
would have provided that an amended version of the 2018 Statement is 
binding on each respective agency.
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    \8\ 85 FR 70512 (November 5, 2020).
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Clarification of the 2018 Statement

    The Petition expressed support for the 2018 Statement and 
acknowledged that it addresses many issues of concern for the 
Petitioners relating to the use of supervisory guidance. The Petition 
expressed concern, however, that the 2018 Statement's reference to not 
basing ``criticisms'' on violations of supervisory guidance has led to 
confusion about whether MRAs are covered by the 2018 Statement.

[[Page 9255]]

Accordingly, the agencies proposed to clarify in the Proposed Rule that 
the term ``criticize'' includes the issuance of MRAs and other 
supervisory criticisms, including those communicated through matters 
requiring board attention, documents of resolution, and supervisory 
recommendations (collectively, supervisory criticisms).\9\ As such, the 
agencies reiterated that examiners will not base supervisory criticisms 
on a ``violation'' of or ``non-compliance with'' supervisory 
guidance.\10\ The agencies noted that, in some situations, examiners 
may reference (including in writing) supervisory guidance to provide 
examples of safe and sound conduct, appropriate consumer protection and 
risk management practices, and other actions for addressing compliance 
with laws or regulations. The agencies also reiterated that they will 
not issue an enforcement action on the basis of a ``violation'' of or 
``non-compliance'' with supervisory guidance. The Proposed Rule 
reflected these clarifications.\11\
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    \9\ The agencies use different terms to refer to supervisory 
actions that are similar to MRAs and Matters Requiring Immediate 
Attention (MRIAs), including matters requiring board attention 
(MRBAs), documents of resolution, and supervisory recommendations.
    \10\ For the sake of clarification, one source of law among many 
that can serve as a basis for a supervisory criticism is the 
Interagency Guidelines Establishing Standards for Safety and 
Soundness, see 12 CFR part 30, appendix A, 12 CFR part. 208, 
appendix D-1, and 12 CFR part 364, appendix A. These Interagency 
Guidelines were issued using notice and comment and pursuant to 
express statutory authority in 12 U.S.C. 1831p-1(d)(1) to adopt 
safety and soundness standards either by ``regulation or 
guideline.''
    \11\ The 2018 Statement contains the following sentence:
    Examiners will not criticize a supervised financial institution 
for a ``violation'' of supervisory guidance.
    2018 Statement at 2. As revised in the Proposed Rule, this 
sentence read as follows:
    Examiners will not criticize (including through the issuance of 
matters requiring attention, matters requiring immediate attention, 
matters requiring board attention, documents of resolution, and 
supervisory recommendations) a supervised financial institution for, 
and agencies will not issue an enforcement action on the basis of, a 
``violation'' of or ``non-compliance'' with supervisory guidance.
    Proposed Rule (emphasis added). As discussed infra in footnote 
13, the Proposed Rule also removed the sentences in the 2018 
Statement that referred to ``citation,'' which the Petition 
suggested had been confusing. These sentences were also removed to 
clarify that the focus of the Proposed Rule related to the use of 
guidance, not the standards for MRAs.
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    The Petition requested further that these supervisory criticisms 
should not include ``generic'' or ``conclusory'' references to safety 
and soundness. The agencies agreed that supervisory criticisms should 
continue to be specific as to practices, operations, financial 
conditions, or other matters that could have a negative effect on the 
safety and soundness of the financial institution, could cause consumer 
harm, or could cause violations of laws, regulations, final agency 
orders, or other legally enforceable conditions. Accordingly, the 
agencies included language reflecting this practice in the Proposed 
Rule.
    The Petition also suggested that MRAs, as well as memoranda of 
understanding, examination downgrades, and any other formal examination 
mandate or sanction, should be based only on a violation of a statute, 
regulation, or order, including a ``demonstrably unsafe or unsound 
practice.'' \12\ As noted in the Proposed Rule, examiners all take 
steps to identify deficient practices before they rise to violations of 
law or regulation or before they constitute unsafe or unsound banking 
practices. The agencies stated that they continue to believe that early 
identification of deficient practices serves the interest of the public 
and of supervised institutions. Early identification protects the 
safety and soundness of banks, promotes consumer protection, and 
reduces the costs and risk of deterioration of financial condition from 
deficient practices resulting in violations of laws or regulations, 
unsafe or unsound conditions, or unsafe or unsound banking practices. 
The Proposed Rule also noted that the agencies have different 
supervisory processes, including for issuing supervisory criticisms. 
For these reasons, the agencies did not propose revisions to their 
respective supervisory practices relating to supervisory criticisms.
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    \12\ The Petition asserted that the federal banking agencies 
rely on 12 U.S.C. 1818(b)(1) when issuing MRAs based on safety-and-
soundness matters. Through statutory examination and reporting 
authorities, Congress has conferred upon the agencies the authority 
to exercise visitorial powers with respect to supervised 
institutions. The Supreme Court has indicated support for a broad 
reading of the agencies' visitorial powers. See, e.g., Cuomo v. 
Clearing House Assn L.L.C., 557 U.S. 519 (2009); United States v. 
Gaubert, 499 U.S. 315 (1991); and United States v. Philadelphia Nat. 
Bank, 374 U.S. 321 (1963). The visitorial powers facilitate early 
identification of supervisory concerns that may not rise to a 
violation of law, unsafe or unsound banking practice, or breach of 
fiduciary duty under 12 U.S.C. 1818.
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    The agencies also noted that the 2018 Statement was intended to 
focus on the appropriate use of supervisory guidance in the supervisory 
process, rather than the standards for supervisory criticisms. To 
address any confusion concerning the scope of the 2018 Statement, the 
Proposed Rule removed two sentences from the 2018 Statement concerning 
grounds for ``citations'' and the handling of deficiencies that do not 
constitute violations of law.\13\
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    \13\ The following sentences from the 2018 Statement were not 
present in the Proposed Rule:
    Rather, any citations will be for violations of law, regulation, 
or non-compliance with enforcement orders or other enforceable 
conditions. During examinations and other supervisory activities, 
examiners may identify unsafe or unsound practices or other 
deficiencies in risk management, including compliance risk 
management, or other areas that do not constitute violations of law 
or regulation.
    2018 Statement at 2. The agencies did not intend these deletions 
to indicate a change in supervisory policy.
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Comments on the Proposed Rule

A. Overview

    The five agencies received approximately 30 unique comments 
concerning the Proposed Rule.\14\ The OCC discusses below those 
comments that are potentially relevant to the OCC.\15\ Commenters 
representing trade associations for banking institutions and other 
businesses, state bankers' associations, individual financial 
institutions, and one member of Congress expressed general support for 
the Proposed Rule. These commenters supported codification of the 2018 
Statement and the reiteration by the agencies that guidance does not 
have the force of law and cannot give rise to binding, enforceable 
legal obligations. One of these commenters stated that the Proposal 
would serve the interests of consumers and competition by clarifying 
the law for institutions and potentially removing ambiguities that 
could deter the development of innovative products that serve consumers 
and business clients, without uncertainty regarding potential 
regulatory consequences. These commenters expressed strong support as 
well for the clarification in the Proposed Rule that the agencies will 
not criticize, including through the issuance of ``matters requiring 
attention,'' a supervised financial institution for a ``violation'' of, 
or ``non-compliance'' with, supervisory guidance.
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    \14\ Of the comments received, some comments were not submitted 
to all agencies, and some comments were identical. Note that this 
total excludes comments that were directed at an unrelated 
rulemaking by the Financial Crimes Enforcement Network of the 
Department of the Treasury (FinCEN).
    \15\ This final rule does not specifically discuss those 
comments that are only potentially relevant to other agencies.
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    One commenter agreed with the agencies that supervisory criticisms 
should not be limited to violation of statutes, regulations, or orders, 
including a ``demonstrable unsafe or unsound practice'' and that 
supervisory guidance remains a beneficial tool to communicate 
supervisory expectations

[[Page 9256]]

to the industry. The commenter stated that the proactive identification 
of supervisory criticism or deficiencies that do not constitute 
violations of law facilitates forward-looking supervision, which helps 
address problems before they warrant a formal enforcement action. The 
commenter noted as well that supervisory guidance provides important 
insight to the industry and ensures consistency in the supervisory 
approach and that supervised institutions frequently request 
supervisory guidance. The commenter observed that the COVID-19 pandemic 
has amplified the requests for supervisory guidance and interpretation 
and that it is apparent institutions want clarity and guidance from 
regulators.
    Two commenters, both public interest advocacy groups, opposed the 
proposed rule, suggesting that codifying the 2018 Statement may 
undermine the important role that supervisory guidance can play by 
informing supervisory criticism, rather than merely clarifying that it 
will not serve as the basis for enforcement actions. One commenter 
stated that it is essential for agencies to have the prophylactic 
authority to base criticisms on imprudent bank practices that may not 
yet have ripened into violations of law or significant safety and 
soundness concerns. The commenter stated that this is particularly 
important with respect to large banks, where delay in addressing 
concerns could lead to a broader crisis. One commenter stated that the 
agencies have not explained the benefits that would result from the 
rule or demonstrated how the rule will promote safety and soundness or 
consumer protection. The commenter argued that supervision is different 
from other forms of regulation and requires supervisory discretion, 
which could be constrained by the rule. One of these commenters argued 
that the Proposal would send a signal that banking institutions have 
wider discretion to ignore supervisory guidance.

B. Scope of Rule

    Several industry commenters requested that the Proposed Rule cover 
interpretive rules and clarify that interpretive rules do not have the 
force and effect of law. One commenter stated that the agencies should 
clarify whether they believe that interpretive rules can be binding. 
The commenter argued that, under established legal principles, 
interpretive rules can be binding on the agency that issues them, but 
not on the public. Some commenters suggested that the agencies follow 
ACUS recommendations for issuing interpretive rules and that the 
agencies should clarify when particular guidance documents are (or are 
not) interpretive rules and allow the public to petition to change an 
interpretation. A number of commenters requested that the agencies 
expand the statement to address the standards that apply to MRAs and 
other supervisory criticisms, a suggestion made in the Petition.

C. Role of Guidance Documents

    Several commenters recommended that the agencies clarify that the 
practices described in supervisory guidance are merely examples of 
conduct that may be consistent with statutory and regulatory 
compliance, not expectations that may form the basis for supervisory 
criticism. One commenter suggested that the agencies state that when 
agencies offer examples of safe and sound conduct, compliance with 
consumer protection standards, appropriate risk management practices, 
or acceptable practices through supervisory guidance or interpretive 
rules, the agencies will treat adherence to practices outlined in that 
supervisory guidance or interpretive rule as a safe harbor from 
supervisory criticism. One commenter also requested that the agencies 
make clear that guidance that goes through public comment, as well as 
any examples used in guidance, is not binding. The commenter also 
requested that the agencies affirm that they will apply statutory 
factors while processing applications.
    One commenter argued that guidance provides valuable information to 
supervisors about how their discretion should be exercised and 
therefore plays an important role in supervision. As an example, 
according to this commenter, 12 U.S.C. 1831p-1 and 12 U.S.C. 1818 
recognize the discretionary power conferred on the Federal banking 
agencies,\16\ which is separate from the power to issue regulations. 
The commenter noted that, pursuant to these statutes, regulators may 
issue cease and desist orders based on reasonable cause to believe that 
an institution has engaged, is engaging, or is about to engage in an 
unsafe and unsound practice, separately and apart from whether the 
institution has technically violated a law or regulation. The commenter 
added that Congress entrusted the Federal banking agencies with the 
power to determine whether practices are unsafe and unsound and attempt 
to halt such practices through supervision, even if a specific case may 
not constitute a violation of a written law or regulation.
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    \16\ The Federal banking agencies are the OCC, Board, and FDIC. 
12 U.S.C. 1813.
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D. Supervisory Criticisms

    Several commenters addressed supervisory criticisms and how they 
relate to guidance. These commenters suggested that supervisory 
criticisms should be specific as to practices, operations, financial 
conditions, or other matters that could have a negative effect. These 
commenters also suggested that MRAs, memoranda of understanding, and 
any other formal written mandates or sanctions should be based only on 
a violation of a statute or regulation. Similarly, these commenters 
argued that there should be no references to guidance in written formal 
actions and that banking institutions should be reassured that they 
will not be criticized or cited for a violation of guidance when no law 
or regulation is cited. One commenter suggested that it would instead 
be appropriate to discuss supervisory guidance privately, rather than 
publicly, potentially during the pre-exam meetings or during 
examination exit meetings. Another commenter suggested that, while 
referencing guidance in supervisory criticism may be useful at times, 
agencies should provide safeguards to prevent such references from 
becoming the de facto basis for supervisory criticisms. One commenter 
stated that examiners also should not criticize community banks in 
their final written examination reports for not complying with ``best 
practices'' unless the criticism involves a violation of bank policy or 
regulation. The commenter added that industry best practices should be 
transparent enough and sufficiently known throughout the industry 
before being cited in an examination report. One commenter requested 
that examiners should not apply large bank practices to community banks 
that have a different, less complex, and more conservative business 
model. One commenter asserted that MRAs should not be based on 
``reputational risk,'' but rather on the underlying conduct giving rise 
to concerns and asked the agencies to address this in the final rule.
    Commenters that opposed the Proposal did not support restricting 
supervisory criticism or sanctions to explicit violations of law or 
regulation. One commenter expressed concern that requiring supervisors 
to wait for an explicit violation of law before issuing criticism would 
effectively erase the line between supervision and enforcement. 
According to the commenter, it would eliminate the space for 
supervision as an intermediate

[[Page 9257]]

practice of oversight and cooperative problem-solving between banks and 
the regulators who support and manage the banking system and would also 
clearly violate the intent of the law in 12 U.S.C. 1818(b). One 
commenter emphasized the importance of bank supervisors basing their 
criticisms on imprudent bank practices that may not yet have ripened 
into violations of laws or rules but could undermine safety and 
soundness or pose harm to consumers if left unaddressed.
    One commenter argued that the agencies should state clearly that 
guidance can and will be used by supervisors to inform their 
assessments of banks' practices and that it may be cited as, and serve 
as the basis for, criticisms. According to the commenter, even under 
the legal principles described in the Proposal, it is permissible for 
guidance to be used as a set of standards that may inform a criticism, 
provided that application of the guidance is used for corrective 
purposes, if not to support an enforcement action.
    According to one commenter, the Proposal makes fine conceptual 
distinctions between, for example, issuing supervisory criticisms ``on 
the basis of'' guidance and issuing supervisory criticisms that make 
``reference'' to supervisory guidance. The commenter suggested that is 
a distinction that it may be difficult for ``human beings to parse in 
practice.'' According to the commenter, a rule that makes such a 
distinction is likely to have a chilling effect on supervisors 
attempting to implement policy in the field. According to another 
commenter, the language allowing examiners to reference supervisory 
guidance to provide examples is too vague and threatens to marginalize 
the role of guidance and significantly reduce its usefulness in the 
process of issuing criticisms designed to correct deficient bank 
practices.

E. Legal Authority and Visitorial Powers

    One commenter questioned the Federal banking agencies' reference in 
the Proposal to visitorial powers as an additional authority for early 
identification of supervisory concerns that may not rise to a violation 
of law, unsafe or unsound banking practice, or breach of fiduciary duty 
under 12 U.S.C. 1818.

F. Issuance and Management of Supervisory Guidance

    Several commenters made suggestions about how the agencies should 
issue and manage supervisory guidance. Some commenters suggested that 
the agencies should delineate clearly between regulations and 
supervisory guidance. Commenters encouraged the agencies to regularly 
review, update, and potentially rescind outstanding guidance. One 
commenter suggested that the agencies rescind outstanding guidance that 
functions as rule but has not gone through notice and comment. One 
commenter suggested that the agencies memorialize their intent to 
revisit and potentially rescind existing guidance, as well as limit 
multiple guidance documents on the same topic. Commenters suggested 
that supervisory guidance should be easy to find, readily available, 
online, and in a format that is user-friendly and searchable.
    One commenter encouraged the agencies to issue principles-based 
guidance that avoids the kind of granularity that could be misconstrued 
as binding expectations. According to this commenter, the agencies can 
issue separate frequently asked questions with more detailed 
information, but should clearly identify these as non-binding 
illustrations. This commenter also encouraged the agencies to publish 
proposed guidance for comment when circumstances allow. Another 
commenter requested that the agencies issue all ``rules'' as defined by 
the APA through the notice-and-comment process. One commenter expressed 
concern that the agencies will aim to reduce the issuance of multiple 
supervisory guidance documents and will thereby reduce the availability 
of guidance in circumstances where guidance would be valuable.

Responses to Comments

    As stated in the Proposed Rule, the 2018 Statement was intended to 
focus on the appropriate use of supervisory guidance in the supervisory 
process, rather than the standards for supervisory criticisms. The 
standards for issuing MRAs and other supervisory actions were, 
therefore, outside the scope of this rulemaking. For this reason, and 
for reasons discussed earlier, the final rule does not address the 
standards for MRAs or other supervisory actions. Similarly, because the 
OCC is not addressing its approach to supervisory criticism in the 
final rule, including any criticism related to reputation risk, the 
final rule does not address supervisory criticisms relating to 
``reputation risk.''
    With respect to the comments on coverage of interpretive rules, the 
OCC agrees with the commenter that interpretive rules do not, alone, 
``have the force and effect of law'' and must be rooted in, and derived 
from, a statute or regulation.\17\ While interpretive rules and 
supervisory guidance are similar in lacking the force and effect of 
law, interpretive rules and supervisory guidance are distinct under the 
APA and its jurisprudence and are generally issued for different 
purposes.\18\ Interpretive rules are typically issued by an agency to 
advise the public of the agency's construction of the statutes and 
rules that it administers,\19\ whereas general statements of policy, 
such as supervisory guidance, advise the public of how an agency 
intends to exercise its discretionary powers.\20\ To this end, guidance 
generally reflects an agency's policy views, for example, on safe and 
sound risk management practices. On the other hand, interpretive rules 
generally resolve ambiguities regarding requirements imposed by 
statutes and regulations. Because supervisory guidance and interpretive 
rules have different characteristics and serve different purposes, the 
OCC has decided that the final rule will continue to cover supervisory 
guidance only.
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    \17\ See Mortgage Bankers Association, 575 U.S. at 96.
    \18\ Questions concerning the legal and supervisory nature of 
interpretive rules are case-specific and have engendered debate 
among courts and administrative law commentators. The OCC takes no 
position in this rulemaking on those specific debates. See, e.g., R. 
Levin, Rulemaking and the Guidance Exemption, 70 Admin. L. Rev. 263 
(2018) (discussing the doctrinal differences concerning the status 
of interpretive rules under the APA); see also Nicholas R. Parillo, 
Federal Agency Guidance and the Powder to Bind: An Empirical Study 
of Agencies and Industries, 36 Yale J. Reg 165, 168 n.6 (2019) 
(``[w]hether interpretive rules are supposed to be nonbinding is a 
question subject to much confusion that is not fully settled''); see 
also ACUS, Recommendation 2019-1, Agency Guidance Through 
Interpretive Rules (Adopted June 13, 2019), available at https://www.acus.gov/recommendation/agency-guidance-through-interpretive-rules (noting that courts and commentators have different views on 
whether interpretive rules bind an agency and effectively bind the 
public through the deference given to agencies' interpretations of 
their own rules under Auer v. Robbins, 519 U.S. 452 (1997)).
    \19\ Mortgage Bankers Association, 575 U.S. at 97 (citing 
Shalala v. Guernsey Memorial Hospital, 514 U.S. 87, 99 (1995)); 
accord Attorney General's Manual at 30 n.3.
    \20\ See Chrysler v. Brown, 441 U.S. at 302 n.31 (quoting 
Attorney General's Manual at 30 n.3); see also, e.g., American 
Mining Congress v. Mine Safety & Health Administration, 995 F.2d 
1106, 1112 (D.C. Cir. 1993) (outlining tests in the D.C. Circuit for 
assessing whether an agency issuance is an interpretive rule).
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    With respect to the question of whether to adopt ACUS's procedures 
for allowing the public to request reconsideration or revision of an 
interpretive rule, this rulemaking, again, does not address 
interpretive rules. As such, the OCC is not adding procedures for 
challenges to interpretive rules through this rulemaking.

[[Page 9258]]

    In response to the comment that the agencies should treat examples 
in guidance as ``safe harbors'' from supervisory criticism, the OCC 
agrees that examples offered in supervisory guidance can provide 
insight about practices that, in general, may lead to safe and sound 
operation and compliance with regulations and statutes. The examples in 
guidance, however, are generalized. When an institution implements 
examples, examiners must consider the facts and circumstances of that 
institution in assessing the application of those examples. In 
addition, the underlying legal principle of supervisory guidance is 
that it does not create binding legal obligation for either the public 
or an agency. As such, the OCC does not deem examples used in 
supervisory guidance to categorically establish safe harbors from 
supervisory criticism.
    In response to the comments that the Proposal may undermine the 
important role that supervisory guidance can play in informing 
supervisory criticism and serving to address conditions before those 
conditions lead to enforcement actions, the OCC agrees that the 
appropriate use of supervisory guidance generates a more collaborative 
and constructive regulatory process that supports the safety and 
soundness and compliance of institutions, thereby diminishing the need 
for enforcement actions. As noted by ACUS, guidance can make agency 
decision-making more predictable and uniform and shield regulated 
parties from unequal treatment, unnecessary costs, and unnecessary 
risk, while promoting compliance with the law. The OCC does not view 
the final rule as weakening the role of guidance in the supervisory 
process and the OCC will continue to use guidance in a robust way to 
support the safety and soundness of banks and promote compliance with 
consumer protection laws and regulations.
    Further, the OCC does not agree with one commenter's assertion that 
the Proposal made an unclear distinction between, on the one hand, 
inappropriate supervisory criticism for a ``violation'' of or ``non-
compliance'' with supervisory guidance, and, on the other hand, OCC 
examiners' appropriate use of supervisory guidance to reference 
examples of safe and sound conduct, appropriate consumer protection and 
risk management practices, and other actions for addressing compliance 
with laws or regulations. This approach appropriately implements the 
principle that institutions are not required to follow supervisory 
guidance in itself but may find such guidance useful. The OCC disagrees 
with the commenter that institutions and examiners are incapable of 
understanding this important distinction.
    With respect to the comment that visitorial powers do not provide 
the Federal banking agencies with authority to issue MRAs or other 
supervisory criticisms, the OCC disagrees. The OCC's visitorial powers 
are well-established. The Supreme Court's decision in Cuomo v. Clearing 
House Assn L.L.C. explained that the visitation included the ``exercise 
of supervisory power.'' \21\ The Court ruled that the ``power to 
enforce the law exists separate and apart from the power of 
visitation.'' \22\ While the Cuomo decision involved the question of 
which powers may be exercised by state governments (and ruled that 
states could exercise law enforcement powers, but could not exercise 
visitorial powers), the decision did not dispute that the Federal 
banking agencies possess both these powers. The Court in Cuomo 
explained that visitorial powers entailed ``oversight and 
supervision,'' while the Court's earlier decision in Watters v. 
Wachovia Bank, N.A. explained that visitorial powers entailed ``general 
supervision and control.'' \23\ Accordingly, visitorial powers include 
the power to issue supervisory criticisms independent of the agencies' 
authority to enforce applicable laws or ensure safety and soundness. 
For these reasons, the OCC reaffirms the statement in the preamble to 
the Proposed Rule that such visitorial powers have been conferred 
through statutory examination and reporting authorities, which 
facilitate the OCC's identification of supervisory concerns that may 
not rise to a violation of law, unsafe or unsound practice, or breach 
of fiduciary duty under 12 U.S.C. 1818. These statutory examination and 
reporting authorities pre-existed 12 U.S.C. 1818, which neither 
superseded nor replaced such authorities. The OCC has been vested with 
statutory examination and reporting authorities with respect to banks 
under its supervision.\24\
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    \21\ Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519, 536 
(2009).
    \22\ Id. at 533.
    \23\ Watters v. Wachovia Bank, N.A., 550 U.S. 1, 127 (2007).
    \24\ The commenter's reading of the Federal banking agencies' 
examination and reporting authorities would assert that the Federal 
banking agencies may examine supervised institutions and require 
reports, but not make findings based on such examinations and 
reporting, unless the finding is sufficient to warrant a formal 
enforcement action under the standard set out in 12 U.S.C. 1818. 
This reading is inconsistent with the history of federal banking 
supervision, including as described in the cases cited in the 
Proposed Rule.
---------------------------------------------------------------------------

    In response to the comments regarding the role of public comment 
for supervisory guidance, the OCC notes that it has made clear through 
the 2018 Statement and in this final rule that supervisory guidance 
(including guidance that goes through public comment) does not create 
binding, enforceable legal obligations. Rather, the OCC in some 
instances issues supervisory guidance for comment in order to improve 
its understanding of an issue, gather information, or seek ways to 
achieve a supervisory objective most effectively. Similarly, examples 
that are included in supervisory guidance (including guidance that goes 
through public comment) are not binding on institutions. Rather, these 
examples are intended to be illustrative of ways a supervised 
institution may implement safe and sound practices, appropriate 
consumer protection, prudent risk management, or other actions in 
furtherance of compliance with laws or regulations. Relatedly, the OCC 
does not agree with one comment that it should use notice and comment 
procedures, without exception, to issue all ``rules'' as defined by the 
APA, which would include supervisory guidance. Congress has established 
longstanding exceptions in the APA from the notice and comment process 
for certain rules, including for general statements of policy like 
supervisory guidance and for interpretive rules. As one court has 
explained, Congress intended to ``accommodate situations where the 
policies promoted by public participation in rulemaking are outweighed 
by the countervailing considerations of effectiveness, efficiency, 
expedition and reduction in expense.'' \25\
---------------------------------------------------------------------------

    \25\ Am. Hosp. Ass'n v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 
1987). The specific contours of these exceptions are the subject of 
an extensive body of case law.
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    With respect to the commenter's request that the agencies affirm 
that they will apply statutory factors while processing applications, 
the OCC affirms that the agency will continue to consider and apply all 
applicable statutory factors when processing applications.
    In response to the question raised by some commenters concerning 
potential confusion between supervisory guidance and interpretive 
rules, the OCC notes that interpretive rules are outside the scope of 
the rulemaking. In addition, as stated earlier, interpretive rules do 
not, alone, ``have the force and effect of law'' and must be rooted in, 
and derived from, a statute or regulation. While interpretive rules and 
supervisory guidance are similar in lacking the force and effect of 
law,

[[Page 9259]]

interpretive rules and supervisory guidance are distinct under the APA 
and its jurisprudence and are generally issued for different purposes. 
The OCC believes that when it issues an interpretive rule, the fact 
that it is an interpretive rule is generally clear. In addition, these 
comments relate to clarity in drafting, rather than a matter that seems 
suitable for rulemaking.
    In response to the two commenters opposing the Proposal, this final 
rule does not undermine any of the OCC's safety and soundness or other 
authorities. Indeed, the final rule is designed to support the OCC's 
ability to supervise banks effectively. In addition, the OCC notes the 
question of the role of guidance has been one of interest to regulated 
parties and other stakeholders over the past few years. The Petition 
and the numerous comments on the Proposal are a sign of this interest. 
As such, the OCC believes it will serve the public interest to reaffirm 
the appropriate role of supervisory guidance. There are inherent 
benefits to the supervisory process whenever institutions and examiners 
have a clear understanding of their roles, including how supervisory 
guidance can be used effectively within legal limits. Therefore, the 
OCC is proceeding with the rule as proposed.
    In response to the commenter expressing concern that language in 
the Statement on reducing multiple supervisory guidance documents on 
the same topic will limit the OCC's ability to provide valuable 
guidance, the OCC assures the commenter that this language will not 
inhibit the OCC from issuing new supervisory guidance when appropriate.
    Finally, the OCC appreciates the other comments related to other 
aspects of guidance or the supervisory process, but the OCC does not 
believe that they are best addressed in this rulemaking.

III. The Final Rule

    For the reasons discussed above, the final rule adopts the Proposed 
Rule without substantive change. However, the OCC has decided to issue 
a final rule that is specifically addressed to the OCC and OCC-
supervised institutions, rather than the joint version that the five 
agencies included in their joint Proposal. Although many of the 
comments were applicable to all of the agencies, some comments were 
specific to particular agencies or to groups of agencies. Having 
separate final rules has enabled agencies to better focus on explaining 
any agency-specific issues to their respective audiences of supervised 
institutions and agency employees.

IV. Administrative Law Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 \26\ (PRA) states that no 
agency may conduct or sponsor, nor is the respondent required to 
respond to, an information collection unless it displays a currently 
valid Office of Management and Budget (OMB) control number. The OCC has 
reviewed this final rule and determined that it does not contain any 
information collection requirements subject to the PRA. Accordingly, no 
submissions to OMB will be made with respect to this final rule.
---------------------------------------------------------------------------

    \26\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

B. Regulatory Flexibility Act

    In general, the Regulatory Flexibility Act \27\ (RFA) requires that 
in connection with a rulemaking, an agency prepare and make available 
for public comment a regulatory flexibility analysis that describes the 
impact of the rule on small entities. Under section 605(b) of the RFA, 
this analysis is not required if an agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities and publishes its certification and a brief explanatory 
statement in the Federal Register along with its rule.
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 601, et seq.
---------------------------------------------------------------------------

    The OCC currently supervises approximately 782 small entities.\28\ 
Because the final rule will apply to all OCC-supervised depository 
institutions, the final rule will affect a substantial number of OCC-
supervised entities. While the final rule does clarify that the 
Statement is binding on the OCC, it would not impose any new mandates 
on the banking industry. As such, the OCC estimates that the costs, if 
any, associated with the final rule will be negligible. For these 
reasons, the OCC certifies that the final rule will not have a 
significant economic impact significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \28\ We base our estimate of the number of small entities on the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $600 million and $41.5 million, 
respectively. Consistent with the General Principles of Affiliation 
13 CFR 121.103(a), we count the assets of affiliated financial 
institutions when determining if we should classify an OCC-
supervised institution as a small entity. We use December 31, 2018, 
to determine size because a ``financial institution's assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See footnote 8 of the 
U.S. Small Business Administration's Table of Size Standards.
---------------------------------------------------------------------------

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \29\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The OCC has sought to present the 
final rule in a simple and straightforward manner and did not receive 
any comments on the use of plain language in the Proposed Rule.
---------------------------------------------------------------------------

    \29\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------

D. Unfunded Mandates Reform Act of 1995 Determination

    The OCC analyzed the final rule under the factors set forth in the 
Unfunded Mandates Reform Act of 1995 (UMRA).\30\ Under this analysis, 
the OCC considered whether the final rule includes a Federal mandate 
that may result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted for inflation). The OCC has 
determined that the final rule will not impose new mandates on the 
banking industry. Therefore, the OCC concludes that the final rule will 
not result in an expenditure of $100 million or more annually by State, 
local, and Tribal governments, or by the private sector.
---------------------------------------------------------------------------

    \30\ 2 U.S.C. 1532.
---------------------------------------------------------------------------

E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\31\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must consider, consistent with principles of safety and soundness and 
the public interest, any administrative burdens that such regulations 
would place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, section 302(b) of RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on IDIs 
generally to take effect on the first day of a calendar quarter that 
begins on or after the date on which the regulations are published in 
final form.\32\ The OCC has determined that the final rule will not 
impose additional reporting, disclosure, or other requirements on IDIs; 
therefore, the requirements of the RCDRIA do not apply.
---------------------------------------------------------------------------

    \31\ 12 U.S.C. 4802(a).
    \32\ 12 U.S.C. 4802.

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[[Page 9260]]

F. Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\33\ If a rule is deemed a ``major rule'' by the OMB, the 
Congressional Review Act generally provides that the rule may not take 
effect until at least 60 days following its publication.\34\
---------------------------------------------------------------------------

    \33\ 5 U.S.C. 801 et seq.
    \34\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\35\ The OCC has determined that the final rule will not 
impose new mandates on the banking industry. Therefore, we conclude 
that the final rule will not result in an expenditure of $100 million 
or more annually by State, local, and Tribal governments, or by the 
private sector.
---------------------------------------------------------------------------

    \35\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 4

    Administrative practice and procedure, Freedom of Information, 
Individuals with disabilities, Minority businesses, Organization and 
functions (Government agencies), Reporting and recordkeeping 
requirements, Women.

Authority and Issuance

    For the reasons stated in the Supplementary Information, chapter I 
of title 12 of the Code of Federal Regulations is amended by the OCC as 
follows:

PART 4--ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF 
INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT 
RESTRICTIONS FOR SENIOR EXAMINERS

0
1. The authority citation for part 4 continues to read as follows:

    Authority:  5 U.S.C. 301, 552; 12 U.S.C. 1, 93a, 161, 481, 482, 
484(a), 1442, 1462a, 1463, 1464 1817(a), 1818, 1820, 1821, 1831m, 
1831p-1, 1831o, 1833e, 1867, 1951 et seq., 2601 et seq., 2801 et 
seq., 2901 et seq., 3101 et seq., 3401 et seq., 5321, 5412, 5414; 15 
U.S.C. 77uu(b), 78q(c)(3); 18 U.S.C. 641, 1905, 1906; 29 U.S.C. 
1204; 31 U.S.C. 5318(g)(2), 9701; 42 U.S.C. 3601; 44 U.S.C. 3506, 
3510; E.O. 12600 (3 CFR, 1987 Comp., p. 235).


0
2. Subpart F is added to part 4 to read as follows:

Subpart F--Use of Supervisory Guidance

Sec.
4.81 Purpose.
4.82 Implementation of the Statement Clarifying the Role of 
Supervisory Guidance.
4.83 Rule of construction. Appendix A to Subpart F of Part 4--
Statement Clarifying the Role of Supervisory Guidance


Sec.  4.81  Purpose.

    The OCC issues regulations and guidance as part of its supervisory 
function. This subpart reiterates the distinctions between regulations 
and guidance, as stated in the Statement Clarifying the Role of 
Supervisory Guidance (appendix A to this subpart) (Statement).


Sec.  4.82   Implementation of the Statement Clarifying the Role of 
Supervisory Guidance.

    The Statement describes the official policy of the OCC with respect 
to the use of supervisory guidance in the supervisory process. The 
Statement is binding on the OCC.


Sec.  4.83   Rule of construction.

    This subpart does not alter the legal status of guidelines 
authorized by statute, including but not limited to, 12 U.S.C. 1831p-1, 
to create binding legal obligations.

Appendix A to Subpart F of Part 4--Statement Clarifying the Role of 
Supervisory Guidance

Statement Clarifying the Role of Supervisory Guidance

    The OCC is issuing this statement to explain the role of 
supervisory guidance and to describe the OCC's approach to 
supervisory guidance.

Difference Between Supervisory Guidance and Laws or Regulations

    (1) The OCC issues various types of supervisory guidance, 
including interagency statements, advisories, bulletins, policy 
statements, questions and answers, and frequently asked questions, 
to its supervised institutions. A law or regulation has the force 
and effect of law.\36\ Unlike a law or regulation, supervisory 
guidance does not have the force and effect of law, and the OCC does 
not take enforcement actions based on supervisory guidance. Rather, 
supervisory guidance outlines the OCC's supervisory expectations or 
priorities and articulates the OCC's general views regarding 
appropriate practices for a given subject area. Supervisory guidance 
often provides examples of practices that the OCC generally 
considers consistent with safety-and-soundness standards or other 
applicable laws and regulations, including those designed to protect 
consumers. Supervised institutions at times request supervisory 
guidance, and such guidance is important to provide insight to the 
industry, as well as supervisory staff, in a transparent way that 
helps to ensure consistency in the supervisory approach.
---------------------------------------------------------------------------

    \36\ Government agencies issue regulations that generally have 
the force and effect of law. Such regulations generally take effect 
only after the agency proposes the regulation to the public and 
responds to comments on the Proposal in a final rulemaking document.
---------------------------------------------------------------------------

Ongoing Efforts To Clarify the Role of Supervisory Guidance

    (2) The OCC is clarifying the following policies and practices 
related to supervisory guidance:
    (i) The OCC intends to limit the use of numerical thresholds or 
other ``bright-lines'' in describing expectations in supervisory 
guidance. Where numerical thresholds are used, the OCC intends to 
clarify that the thresholds are exemplary only and not suggestive of 
requirements. The OCC will continue to use numerical thresholds to 
tailor, and otherwise make clear, the applicability of supervisory 
guidance or programs to supervised institutions, and as required by 
statute.
    (ii) Examiners will not criticize (through the issuance of 
matters requiring attention), a supervised financial institution 
for, and the OCC will not issue an enforcement action on the basis 
of, a ``violation'' of or ``non-compliance'' with supervisory 
guidance. In some situations, examiners may reference (including in 
writing) supervisory guidance to provide examples of safe and sound 
conduct, appropriate consumer protection and risk management 
practices, and other actions for addressing compliance with laws or 
regulations.
    (iii) Supervisory criticisms should continue to be specific as 
to practices, operations, financial conditions, or other matters 
that could have a negative effect on the safety and soundness of the 
financial institution, could cause consumer harm, or could cause 
violations of laws, regulations, final agency orders, or other 
legally enforceable conditions.
    (iv) The OCC has at times sought, and may continue to seek, 
public comment on supervisory guidance. Seeking public comment on 
supervisory guidance does not mean that the guidance is intended to 
be a regulation or have the force and effect of law. The comment 
process helps the OCC to improve its understanding of an issue, to 
gather information on institutions' risk management practices, or to 
seek ways to achieve a supervisory objective most effectively and 
with the least burden on institutions.
    (v) The OCC will aim to reduce the issuance of multiple 
supervisory guidance

[[Page 9261]]

documents on the same topic and will generally limit such multiple 
issuances going forward.
    (vi) The OCC will continue efforts to make the role of 
supervisory guidance clear in communications to examiners and to 
supervised financial institutions and encourage supervised 
institutions with questions about this statement or any applicable 
supervisory guidance to discuss the questions with their appropriate 
agency contact.

Blake J. Paulson,
Acting Comptroller of the Currency.
[FR Doc. 2021-01499 Filed 2-11-21; 8:45 am]
BILLING CODE 4810-33-P