Washington, D.C. – The FDIC’s proposed changes to its supervisory appeals process would help restore due process and impartiality to a system in need of reform, the Bank Policy Institute and American Association of Bank Directors said in a comment letter submitted late yesterday.
“The FDIC’s proposed changes will help restore due process and confidence to the supervisory appeals framework,” the associations stated after filing the letter. “Justice isn’t served when the accuser is also the judge and the jury. Supervisory actions often carry significant consequences and affect banks’ ability to support their communities, so it is imperative that these decisions are justified and backed by an impartial review.”
Current Context: The FDIC in 2022 summarily disbanded the independent Office of Supervisory Appeals and replaced it with the Supervision Appeals Review Committee. This action was taken without proper public notice and comment, violating longstanding principles of transparency. It also introduced potential conflicts of interest in the examination appeals process, exacerbating concerns about retaliation for appealing supervisory directives. For example, officials at the SARC reviewing appeals of supervisory directives may have been involved with or have overseen the office and team that issued the directive.
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. Currently, as a practical matter, banks are denied the right to speak out about supervisory determinations because they are considered “confidential” matters and banks may not even have a legitimate opportunity to obtain all of the facts and rationale for an examiner’s decision. The FDIC and the industry have a common interest in getting examination results right and having banks trust the appeals process.
What Would Change? The new office would serve as the final review authority for banks’ appeals of examiner actions, including consequential changes like CAMELS rating downgrades. It would be staffed with outside experts (not FDIC leadership or supervisory staff) who are subject to conflict-of-interest and confidentiality mandates, bolstering the appeals process’s independence.
- “No defendant in a lawsuit would be comfortable presenting their case before a court system that only allowed judges drawn from the ranks of plaintiff’s lawyers and prosecutors. … Similarly, a supervisory review board drawing from a diverse range of career backgrounds will increase the independence of the panel and bolster trust in the appeals system.”
Why It Matters: The proposed change to the appeals office would enhance due process, accountability and fairness in bank supervision and better align the appeals process with what Congress intended.
Recommendations: The associations expressed general support for the proposal and recommended several technical changes, including:
- The FDIC should allow banks the opportunity to seek review of supervisory determinations to make sure that the facts are settled before the FDIC may bring any enforcement actions premised on those facts.
- The appeals guidelines should permit a bank to request that the new Office temporarily pause enforcement of a material supervisory determination pending the outcome of an appeal.
- The appeals guidelines should permit a bank to provide all available evidence to the Office.
- The FDIC should expand and clarify the scope of material supervisory determinations subject to appeal.
Broader Call for Reform: BPI has called on policymakers to build on recent momentum to enact meaningful reforms to bank supervision as a whole. Learn more at BetterBankSupervision.com.
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About Bank Policy Institute
The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.
About the American Association of Bank Directors.
The AABD was founded in 1989 in the midst of the S&L crisis to meet the information, education and advocacy needs of individual bank and savings institution directors. Bank regulators expect financial institution Boards of Directors to make informed policy decisions and to act independently to supervise the institution. One way for CEOs and their Boards to demonstrate that the Board is both informed and independent is through membership in the American Association of Bank Directors (AABD)—the only non-profit banking trade association in the United States which exclusively serves individual directors rather than their financial institutions.
Media Contacts
Tara Payne
Bank Policy Institute
tara.payne@bpi.com
David Baris
American Association of Bank Directors
dbaris@aabd.org
