On October 20, 2020, Pryor Cashman attorneys Pinchus D. Raice and Dustin N. Nofziger assisted the New York League of Independent Bankers (NYLIB) in submitting comments to the Federal Deposit Insurance Corporation (FDIC) on proposed revisions to the FDIC's Guidelines for Appeals of Material Supervisory Determinations.
The FDIC's appeals process allows financial institutions to appeal material supervisory determinations such as examination ratings and MRAs.
On January 19, 2021, the FDIC promulgated revised appeals guidelines. The FDIC incorporated several of NYLIB's recommendations in the revised guidelines:
- NYLIB recommended that decisions of the new Office of Supervisory Appeals (Office) not be subject to review by the FDIC Board or Chairperson before issuance to promote confidence in the independence of the Office. The FDIC adopted this recommendation.
- NYLIB recommended that members of the Office who will serve as reviewing officials not have been employed by the FDIC for at least two years prior to joining the Office. The FDIC partially adopted this recommendation. While the FDIC did not adopt NYLIB's recommendation for a two-year cooling-off period, the revised guidelines do provide that only former (rather than current) government officials will be eligible to serve as reviewing officials. In addition, the FDIC noted in its commentary accompanying the revised guidelines that it may continue to consider the comments it received regarding staffing the Office.
- NYLIB recommended that each of the Office's review panels include at least one banker. While the FDIC did not adopt this recommendation, the FDIC did note that it "appreciates that industry perspective can be valuable and accordingly will generally view relevant industry experience favorably" when staffing the Office.
- NYLIB recommended that measures be taken to prevent reviewing officials from being retaliated against for issuing decisions in favor of banks, for example, by hiring reviewing officials for time-limited, non-renewable terms. The FDIC partially adopted this recommendation. The revised guidelines provide that the Office's "[r]eviewing officials will be hired for terms." The FDIC further noted, in direct response to NYLIB's comment letter, that it has "structured the Office to minimize the risk that a fear of retaliation could impact decisions by reviewing officials" – for example, by providing that decisions regarding which reviewing officials will serve on which review panels will be decided by the Office rather than by FDIC officials outside of the Office.
- NYLIB recommended that when a bank's appeals deadline falls on a weekend or federal holiday, the bank's deadline be extended to the next business day. The FDIC adopted this recommendation.
- NYLIB recommended that the revised guidelines acknowledge that banks can submit requests for extensions of deadlines. The FDIC adopted this recommendation, noting that "it is reasonable to permit institutions to request extensions under appropriate circumstances."
- NYLIB recommended that a bank that is appealing from a decision of the appropriate Division Director (the first level of review) to the Office (the second and final level of review) "should have the right to review and respond to any written comments, briefs, or materials submitted by the Division Director or the Ombudsman to the Office in connection with the appeal." The FDIC adopted this recommendation with a caveat. The revised guidelines provide: "Any communications between the Office and either supervisory staff or the appealing institution will be shared with the other party to the appeal, subject to limitations on disclosure."
- NYLIB recommended that the FDIC publish statistical data on appeals that are resolved at the first level of review (i.e., by the Division Director) or outside of the appeals process. NYLIB noted that publishing only final, second-level appeals decisions may create an inaccurate impression of the success of appeals if banks are successful at the first level of review or without a formal appeals decision ever being issued (e.g., if the FDIC responds to an appeal by withdrawing an examination report). The FDIC adopted this recommendation, at least in part. The revised guidelines provide that the FDIC will publish annual reports on Division Director (first-level) and Office (second-level) appeals decisions. The FDIC's commentary to the revised guidelines notes: "The FDIC agrees [with NYLIB] that the transparency of the appeals process could be enhanced by providing summary statistics on the outcomes of appeals."
Pinchus Raice commented:
The FDIC has strengthened its appeals process by adopting several of NYLIB's recommendations. In particular, the disclosure to appealing financial institutions of communications between the Office and FDIC supervisory staff may significantly benefit appealing financial institutions. The acknowledgment that banks can request extensions of deadlines in appropriate circumstances is also important.
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