Alert June 03, 2008

FDIC Proposes Amendments to its Guidelines for Appeals of Material Supervisory Determinations

The FDIC issued proposed amendments (the “Amendments”) to its Guidelines for Appeals of Material Supervisory Determinations (the “Guidelines”).  The purposes of the Amendments, said the FDIC, are to conform the FDIC’s appellate process to the requirements of the Riegle Community Development and Regulatory Improvement Act of 1994 (the “Riegle Act”) and to “better align” the FDIC’s Supervisory Appeals Review Committee (“SARC”) process with the appeals procedures used by the other federal banking agencies.

Section 309(a) of the Riegle Act requires the FDIC and other federal banking agencies to establish an independent intra-agency appellate process to review material supervisory determinations.  The review must be made by an agency official who does not directly or indirectly report to the agency official who provides the determination under review.  “Material supervisory determinations” are defined by the Riegle Act as determinations related to: (1) examination ratings; (2) adequacy of the loan loss reserve provision; and (3) classifications on loans that are significant to the bank.  Determinations underlying enforcement actions, such as the citations of apparent violations of law, have been appealable under the Guidelines since the enactment of the Guidelines in 1995.  However, the FDIC has now determined that such appeals to the SARC are inconsistent with the Riegle Act because, under the Riegle Act, appeals are “not supposed to impair, in any way, the agencies’ litigation or enforcement authority.”

The Amendments would eliminate the ability of an FDIC-supervised bank to file an appeal to the SARC “with respect to determinations or [regarding] the facts and circumstances underlying a formal enforcement-related action or decision, including the initiation of a formal investigation.”  The FDIC said that adoption of the Amendments would meet the objectives of satisfying the Riegle Act requirements and better aligning FDIC supervisory determination appeals processes with those used by the other federal banking agencies.

In addition, under the Amendments, when an FDIC official with authority to initiate a formal enforcement action decides that the facts and circumstances warrant the issuance of an enforcement action, the FDIC will send a letter to the applicable bank notifying the bank of the FDIC’s decision to pursue formal action, and the issuance of the foregoing letter by the FDIC will (unlike the practice under the current Guidelines) cut-off the bank’s rights to appeal the facts and circumstances underlying the FDIC’s determination.

Comments on the Amendments are due to the FDIC no later than July 28, 2008.