[Federal Register Volume 60, Number 61 (Thursday, March 30, 1995)]
[Notices]
[Pages 16470-16473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7795]
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FEDERAL RESERVE SYSTEM
[Docket No. R-0867]
Internal Appeals Process
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final guidelines.
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SUMMARY: The Board is issuing its final guidelines on an internal
appeals process for institutions wishing to appeal an adverse material
supervisory determination.
EFFECTIVE DATE: March 24, 1995.
FOR FURTHER INFORMATION CONTACT: Gregory A. Baer, Managing Senior
Counsel, Legal Division (202/452-3236); Shawn McNulty, Assistant
Director, Division of Consumer and Community Affairs (202/452-3946); or
Ann Marie Kohlligian, Senior Counsel/Manager, Division of Banking
Supervision and Regulation (202/452-3528), Board of Governors of the
Federal Reserve System. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).
SUPPLEMENTARY INFORMATION:
Background
Section 309 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (the Act), 12 U.S.C. 4806, requires the Board
(as well as the other Federal banking agencies) to establish an
independent, intra-agency appellate process that is available to
institutions to seek review of material supervisory determinations.
Section 309 specifies various requirements that the appellate process
must meet.
On December 29, 1994, the Board published for public comment its
proposed guidelines that would implement the intra-agency appellant
[[Page 16471]] process required by section 309 of the Act. (59 FR 67297
(December 29, 1994)). In general, the proposed guidelines required
that: (1) All appeals be in writing and approved by the institution's
board of directors; (2) all appeals be heard and decided within
specified timeframes; (3) the initial appeal be heard by a person or
persons selected by the Reserve Bank (the review panel) who had not
participated in, or reported to the persons who made, the material
supervisory determination under review; (4) an adverse decision by the
review panel be appealable to a Reserve Bank President; (5) an adverse
decision by a Reserve Bank President be appealable to the Board; and
(6) Reserve Banks establish safeguards to protect institutions that
file appeals from examiner retaliation.
Although section 309 requires the Board to develop an internal
appeals process only for state member banks, the proposed guidelines
expanded the process and made it available to all institutions that are
subject to Federal Reserve oversight, including bank holding companies,
U.S. agencies and branches of foreign banks and Edge
corporations.1 The proposed guidelines also defined a ``material
supervisory determination'' to include all material matters relating to
the examination or inspection process, but exclude those matters, such
as the imposition of a prompt corrective action directive or a cease
and desist order, for which an alternative, independent right of appeal
exists.
\1\ The final guidelines have been modified to state explicitly
that third party EDP servicers subject to examination by the Federal
Reserve may appeal any material supervisory determination.
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As noted in the proposed guidelines, the Board continues to believe
that questions about or objections to supervisory determinations made
during the course of an inspection or examination are most effectively
handled through the longstanding Federal Reserve practice of resolving
any problems informally during the course of the inspection or
examination process.
Public Comments
The Board received 27 comments on its proposed guidelines from
Federal Reserve Banks, financial institutions, trade associations, law
firms and a consulting firm. While the comments were generally
supportive of the proposed guidelines, most comments submitted
suggested changes or raised concerns regarding the implementation of
the internal appeals process. These proposed changes and concerns,
which are discussed below, relate to five areas: (1) protection from
examiner retaliation; (2) independence of the review panel; (3) who
should decide the final appeal at the Board; (4) the need for
additional, specific timeframes; and (5) procedural issues.
(1) Protection From Examiner Retaliation
Thirteen comments raised concerns about examiner retaliation.
Several comments suggested that the Ombudsman, which the Board is
required to establish under section 309 of the Act, should play a role
in addressing this issue, such as serving as an independent contact for
institutions that believe they have been subject to some form of
retaliation or ensuring that different examiners conduct examinations
that commence after an appeal has been filed. Some comments suggested
that greater Board involvement in the appeals process would protect
institutions against retaliation, while others suggested that the
guidelines include specific sanctions and disciplinary actions for
examiners found to have engaged in retaliation due to an appeal.
The Board acknowledges that some institutions may perceive that
availing themselves of the appeals process may result in retaliatory
action by examiners. As proposed, the guidelines require the Reserve
Banks to establish safeguards to protect institutions that file appeals
from retaliation. While the Board believes that this provides
sufficient protection and meets the requirements of section 309, the
Ombudsman is available to address such concerns and may be contacted by
institutions who believe they may have suffered retaliation as a result
of an appeal. The role of this official and his/her procedures for
addressing these concerns will be outlined in the Board's Policy
Statement for the Ombudsman.
(2) Independence of Review Panel
Six comments suggested modifications to the part of the guidelines
that addressed the independence of the review panel. Several stated
that the appeals process cannot be independent so long as it remains an
internal procedure and suggested that outside parties, such as a peer
review panel or a panel appointed by the Federal Financial Institutions
Examination Council, hear and decide all appeals. Another comment
suggested that the review panel exclude not only persons who
participated in, or who directly or indirectly report to the person(s)
who participated in, the material supervisory determination under
appeal, but anyone who directly or indirectly supervises the person(s)
who made such determination.
Section 309 of the Act reflects a Congressional conclusion that an
intra-agency appeals process will provide institutions with an adequate
means to redress adverse material supervisory determinations. The Board
does not believe that it is necessary to expand the guidelines beyond
what is required by the statute. Similarly, section 309 requires that
the person hearing the appeal not directly or indirectly report to the
person who initially made the supervisory decision under review.
Consequently, the composition of the review panel has not been modified
in the final guidelines.
(3) Who Decides the Final Appeal at the Board
The proposed guidelines provided for an appeal of an adverse
decision by a Reserve Bank President to the appropriate Board division
director, who would consult with the appropriate Governor of the
Board's oversight committee for that division. Three comments suggested
that it would be more suitable for a Governor to review a decision by a
Reserve Bank President. The final guidelines have been modified so that
an appeal of a Reserve Bank President's decision will be to the
Governor who serves as chairman of the appropriate oversight committee,
who will consult with that division's director.
(4) Need for Additional Timeframes
The proposed guidelines required institutions to file an appeal
within 30 days of the material supervisory determination and the review
panel to decide the appeal within 30 days of its receipt. The proposed
guidelines also required Reserve Bank Presidents to make a decision on
any matter appealed to them within 30 days of receipt. Several comments
noted that the proposed guidelines did not contain timeframes for other
actions, such as the time in which an appeal should be filed with a
Reserve Bank President or the Board, or the time in which the Board
would make a decision on an appeal.
The Board agrees with these comments on the need for additional
timeframes. Consequently, the final guidelines require that an appeal
to a Reserve Bank President or the Board to be filed within 30 days of
receipt of an adverse decision by the review panel or the Reserve Bank
President, respectively. The final guidelines also require that the
Board decide any appeal within 60 days of its receipt.
[[Page 16472]]
(5) Procedural Issues
Several comments suggested that the Board's guidelines include some
additional procedures in order to ensure that the internal appeal
process works smoothly. One comment suggested that the guidelines
explicitly provide that the material supervisory determination remain
in effect while it is under appeal, while another comment suggested
that the determination be stayed pending the completion of the appeal.
The Board believes that it is appropriate for the determination to
remain in effect while it is under appeal, and the final guidelines
have been modified to state this explicitly. The Board does not believe
that section 309 of the Act is intended to stay the Board's supervisory
decisions, but rather is designed to provide institutions with a
procedure by which to voice objections to supervisory determinations
for which no other formal appeals procedures exist.
Another comment suggested that institutions that consent to the
issuance of a formal enforcement action, such as a cease and desist
order, be allowed to use the internal appeals process to challenge the
material supervisory determinations that led to the enforcement action.
This suggestion seems inconsistent with the intent of section 309 of
the Act, which is to provide an avenue for the review of material
supervisory determinations and not to contest enforcement actions for
which an alterative appeals mechanism exists. Therefore, the Board has
not adopted this suggestion. Another comment suggested that the record
be expunged of any material supervisory decisions that have been
modified or overturned on appeal. The Board believes that it is
appropriate to maintain all records of its supervisory actions,
including those relating to a decision that is modified or overturned
as a result of an internal appeal. Nonetheless, the Reserve Banks are
expected to maintain complete records of any appeal, including updating
all files, both hard copy and electronic, to reflect the results of all
appeals.
One comment suggested that the board of directors of an institution
only be required to approve the initiation of an appeal, but that
management be allowed to decide on any subsequent appeals to a Reserve
Bank President or the Board. Another comment noted that getting
approval of the board of directors of a foreign bank would be extremely
difficult in order for its U.S. agency or branch to file timely
appeals. The Board continues to believe that the board of directors
should be involved in each step of the appeals process; therefore, the
final guidelines still require board approval for each step in the
appeals process. On the other hand, the final guidelines have been
modified to allow the senior management person(s) with authority for
U.S. operations of a foreign bank to approve appeals; however, he or
she must approve each step of the appeal.
The Board has decided to adopt several other procedural
suggestions. The final guidelines provide that any appeal filed must
contain all of the facts and arguments that the institution would like
to present to the review panel, the Reserve Bank President or the
Board, as the case may be, and that the review panel, the Reserve Bank
President or the Board may reject the appeal for lack of clarity or
information. In such a case, an institution would have 30 days in which
to refile a rejected appeal. Last, the final guidelines make explicit
that the internal appeals process does not give the appealing
institutions any discovery or other similar rights.
Guidelines for Appeals of Material Supervisory Determinations
Section 309 of the Riegle Community Development and Regulatory
Improvement Act of 1994, 12 U.S.C. 4806, requires the Board and the
other Federal banking agencies to establish an independent, intra-
agency process to review appeals of material supervisory
determinations.
The purpose of these guidelines is to allow each Reserve Bank to
administer its own appellate process, but to establish procedures under
which all Reserve Banks' appellate process must operate. Doing so will
ensure that each Reserve Bank's process is consistent with section 309
and that institutions will be granted the same appellant rights
regardless of the Federal Reserve district in which they reside.
Procedures for Appealing a Material Supervisory Determination. Any
appeal of a material supervisory determination pursuant to section 309
shall be filed and considered pursuant to the following procedures.
(1) Any appeal shall be approved by the board of directors of the
institution, or in the case of a U.S. agency or branch of a foreign
bank, the senior management person(s) responsible for the bank's U.S.
operations, and filed in writing with the Secretary of the Reserve Bank
or other appropriate Reserve Bank official within 30 calendar days of
receipt of the written material supervisory determination, unless the
time for filing is extended by the Reserve Bank. The Reserve Bank shall
promptly provide a copy of the appeal to the appropriate division
director of the staff of the Board of Governors.
(2) Any appeal shall contain all the facts and arguments that the
institution wishes to present. The appeal may be rejected for lack of
clarity or information. In such case, the institution may refile the
appeal within 30 calendar days of receipt of written notice of the
rejection of any filing.
(3) The appeal shall be considered in the first instance by a
person or persons selected by the Reserve Bank (the review panel) who--
--
(A) did not participate in the material supervisory determination;
(B) do not directly or indirectly report to the person who made the
material supervisory determination under review; and
(C) are qualified to review the material supervisory determination.
(4) The appellant institution may appear before the review panel in
order to present testimony and, with the consent of the review panel,
witnesses. The review panel shall also solicit the views of the Reserve
Bank staff involved in the determination under appeal, Board staff,
and, where appropriate, the staff of other supervisory agencies (for
example, in case of joint examinations or inspections). Nothing in this
appeals process shall create any discovery or other such rights.
(5) Any appeal shall be decided, in writing, by the review panel
within 30 calendar days of the filing of an informationally complete
appeal, unless the appellant and the review panel jointly agree to
extend the time for decision.
(6) Any appellant institution dissatisfied with the decision of the
review panel may, with the consent of its board of directors of the
institution, or in the case of a U.S. agency or branch of a foreign
bank, the senior management person(s) responsible for the bank's U.S.
operations, appeal that decision to the Reserve Bank President by
filing a written appeal with the Secretary of the Reserve Bank or other
appropriate Reserve Bank official within 30 calendar days of receipt of
the review panel's written decision. The appeal shall contain all facts
and arguments that the institution wishes to be considered. The appeal
may be rejected for lack of clarity or information. In such case, the
institution may refile the appeal within 30 calendar days of receipt of
written notice of the rejection. The appeal shall be decided by the
Reserve Bank President, in writing, within 30 calendar days of the
filing of an informationally complete appeal. [[Page 16473]]
(7) Any appellant institution dissatisfied with the decision of the
Reserve Bank President may, with the consent of its board of directors
of the institution, or in the case of a U.S. agency or branch of a
foreign bank, the senior management person(s) responsible for the
bank's U.S. operations, appeal that decision to the appropriate
Governor by filing a written appeal with the Secretary of the Board
within 30 calendar days of receipt of the Reserve Bank President's
written decision. The appeal may be rejected for lack of clarity or
information. In such case, the institution may refile the appeal within
30 calendar days of receipt of written notice of the rejection. The
appeal shall be decided, in writing, by the appropriate Governor, who
shall consult with the director of the appropriate division of the
Board of Governors, within 60 calendar days of the filing of an
informationally complete appeal.
Safeguards Against Retaliation. Each Reserve Bank shall establish
appropriate safeguards to protect appellants from retaliation. The
Board's Ombudsman will periodically contact institutions after their
appeals have been decided in order to make certain that no retaliation
has occurred. In addition, institutions who believe they have suffered
retaliation as the result of an appeal may contact the Board's
Ombudsman.
Availability of Procedures. Each Reserve Bank shall make these
guidelines and the Reserve Bank's process for selecting a review panel
available to each institution in its district, any institution
appealing a material supervisory determination, and any member of the
public who requests them.
Eligible Institutions. Any institution about which the Federal
Reserve makes a material supervisory determination is eligible for the
appeal process. This includes state member banks, bank holding
companies and their nonbank subsidiaries, U.S. agencies and branches of
foreign banks, Edge and agreement corporations, third party EDP
servicers, and other entities examined or inspected by a Reserve Bank.
Material Supervisory Determination Defined. Whether an appealed
action constitutes a ``material supervisory determination'' eligible
for the appeals process shall be decided by the person or persons
hearing the appeal, and a determination that the action is not
appealable under these guidelines may be further appealed to the
Reserve Bank President or the appropriate oversight Governor in the
same manner as any other adverse decision.
The term ``material supervisory determination'' includes, but is
not limited to, material determinations relating to examination or
inspection composite ratings, the adequacy of loan loss reserves and
significant loan classifications. The term does not include any
supervisory determination for which an independent right of appeal
exists. Such actions include prompt corrective action directives issued
pursuant to section 38 of the Federal Deposit Insurance Act, as amended
(the FDI Act), actions to impose administrative enforcement actions
under the FDI Act and the Bank Holding Company Act of 1956, as amended
(the BHC Act), capital directives, and orders issued pursuant to
applications under the BHC Act.
Effect of Appeal on Material Supervisory Determinations. A material
supervisory determination shall remain in effect while under appeal and
until such time it is modified or overturned through the appeals
process. The appeal of a material supervisory determination does not
prevent the Federal Reserve from taking any supervisory or enforcement
action--formal or informal--it deems appropriate to discharge the
Federal Reserve's supervisory responsibilities.
Savings Provision. Section 309 expressly provides that it shall not
affect the authority of the Board or any other agency to take
enforcement or supervisory action against an institution. In such
cases, the rights of appeal provided for in the statutes and
regulations concerning these actions shall govern.
By order of the Board of Governors of the Federal Reserve
System, March 24, 1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-7795 Filed 3-29-95; 8:45 am]
BILLING CODE 6210-01-P
