FDIC Keeps Public in the Dark on Appeals Process and Discards Due Process Protections

Washington, D.C. –

A coalition of trades representing banks late yesterday objected to the FDIC’s recent decision to overhaul its supervisory appeals process without proper public notice and comment. The FDIC violated longstanding norms of transparency with its move to eliminate the Office of Supervisory Appeals and reinstate the Supervision Appeals Review Committee as the final review in supervisory appeals by FDIC-supervised banks (e.g., which include appeals of CAMELS ratings assigned by FDIC examiners). In the process, FDIC has discarded certain due process protections.

What they’re saying:

“The Associations strongly object to the FDIC’s decision on substantive and procedural grounds,” the trades wrote in the letter. “Not only do we believe the SARC is a flawed forum and decisionmaker for the intra-agency supervisory appeals process, but the lack of transparency demonstrated by the agency in announcing this decision without any prior notice to the public or opportunity to comment fails to take into account fundamental due process rights.” The FDIC also has discarded “the requirement that ex parte information be shared with both parties in the appeal ,… a fundamental right to ensure that both parties are aware of information shared with the decision-maker and have an opportunity to respond, as appropriate.” 

Key context: In a 1994 banking law, Congress required the FDIC to put in place an independent intra-agency appellate process. This statute codified safeguards aimed at protecting appellants from bias and retaliation by FDIC staff. But the FDIC’s initial final appeals body, the SARC, was composed of FDIC insiders and underutilized by those seeking to appeal supervisory determinations due to concerns about a lack of fairness and fear of retaliation by FDIC examiners, even after undergoing structural reforms. After conducting in-person listening sessions around the country and soliciting public comments, the FDIC later replaced SARC with the independent, standalone Office of Supervisory Appeals, supported by an overwhelming consensus of public feedback. However, just a few months after unveiling the new OSA, the FDIC Board voted to dismantle it and revive the defunct SARC. This major action took place without a prior public announcement.

Why it matters: Examiners are often asked to make complex judgments on matters such as loan quality and the capabilities of management and the board. They cannot be expected to always get it right and if they are wrong, the consequences to banks can be severe. The FDIC and the industry have a common interest in getting examination results right and having banks trust the supervisory appeals process. 

The impact of the elimination of the OSA and reestablishment of the SARC is so significant in its application that the basic principle of transparency should have been followed. Banks of all sizes agree that independent supervisory reviews bolster confidence in the process governing supervisory determinations. 

Bottom line: The FDIC should resurrect the OSA. At a minimum, it should enable public notice and comment on the SARC action and adopt measures to enhance due process and independence. The agency should also ensure that it is not discouraging use of the appeals process.

The group includes the American Association of Bank Directors, American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Independent Community Bankers of America and Mid-Size Bank Coalition of America.


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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