ABA: Proposed changes to FDIC supervisory appeals system fall short

The FDIC has proposed changes to its new supervisory appeals structure aimed at increasing its independence, but the system still requires significant overhauls to preserve banks’ due process rights, the American Bankers Association and five banking trade groups said today in a joint letter to the agency.

Earlier this year, the FDIC board voted to eliminate the Office of Supervisory Appeals and reconstitute the Supervision Appeals Review Committee. The decision was criticized by ABA and other industry groups, which said that the OSA could make determinations independent of the agency’s leadership. The FDIC has since proposed that its ombudsman serve as a nonvoting member of the SARC, that the ombudsman monitor the supervision process following a bank’s submission of an appeal, and that banks be allowed to request a stay of a material supervisory determination while an appeal is pending.

ABA and the other associations said in their letter that the proposed changes make modest improvements but fall short of the reforms necessary to preserve due process for banks appealing supervisory decisions. “By abandoning the OSA after only five months of operation, the FDIC has prematurely given up on a process that holds extraordinary promise of providing FDIC-supervised banks a fair and impartial forum for appeal,” the groups said.

If the FDIC chooses to retain the SARC, the groups said it should set minimum qualifications for voting members; enable banks to bring appeals directly to the committee; prohibit ex parte communications during an appeal and require those that inadvertently occur to be documented and shared with both the SARC and the appealing bank in a timely manner; and require that the SARC, rather than the division director, be the one to consider and grant the stay of the supervisory determination pending appeal, and adopt reasonable standards in evaluating requested stays of supervisory determinations.