By Ashtyn Landen and Hugh Carney
ABA Viewpoint
Imagine watching an NFL game where a crucial play is under replay review. A coach throws the challenge flag, questioning whether a receiver had both feet in bounds. But instead of an independent official reviewing the play from multiple angles, the same referee who made the original call is the one deciding whether to overturn it. That would be absurd. Fans, coaches, and players alike would question the fairness of the decision. That is why in the NFL, replay reviews are handled by an independent group of officials, separate from those who made the initial call. The goal is clear: to ensure the review process is objective and free from bias.
Yet when banks appeal a supervisory determination at the FDIC, they do not get an independent review. Instead, they are appealing to the very regulators who made the original decision. The current Supervision Appeals Review Committee, or SARC, consists of senior FDIC officials, many of whom are directly involved in the supervisory functions of the agency. This means that when a bank disputes a CAMELS rating downgrade, a loan classification or other material supervisory determinations, the final decision is being made by individuals who work within the same structure that issued the original ruling.
This lack of true independence creates a conflict of interest and discourages banks from pursuing legitimate appeals. Institutions fear that challenging FDIC examiners could result in retaliatory actions or further scrutiny in future exams. This dynamic is not only unfair, but damages trust in the regulatory process. Banks should have confidence that when they appeal, it will be heard by an impartial and independent body, not by regulators who are simply reviewing their own prior decisions.
Why the Office of Supervisory Appeals was a necessary reform
Recognizing these concerns, the FDIC introduced the Office of Supervisory Appeals, or OSA, in 2021. The OSA was designed to address the inherent conflicts of interest in SARC by providing a truly independent review. It was staffed by former examiners, recruited externally, who were no longer tied to FDIC decision-making structures.
As the FDIC explained when launching the OSA: “By limiting eligibility to former examiners and recruiting externally, the FDIC anticipates attracting impartial candidates who are less likely to have established relationships with individuals involved in the supervisory process… Establishing a standalone Office whose sole function is resolving appeals ensures the reviewing officials will have the capacity to review each case with the proper attention and diligence.”
By restricting ex parte communications and ensuring that decisions reflect case merits rather than internal FDIC relationships, the OSA offered banks a fair chance to contest supervisory determinations without fear of bias or retaliation. The banking industry welcomed the OSA as a long-overdue improvement in transparency, fairness and accountability.
Regulatory whiplash weakens confidence in the appeals process
Unfortunately, the OSA was short-lived. After Chairman Jelena McWilliams stepped down in 2022 and Martin Gruenberg returned to the chair, he dismantled the office and reinstated the SARC, bringing the process back under FDIC control and raising concerns of bias and lack of independence.
In response, ABA and other trade associations warned in a 2022 comment letter that the abrupt dismantling of OSA was a serious setback for due process: “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.”
Under McWilliams, the FDIC took bold steps to improve the fairness of appeals. But just months after her departure, Gruenberg rolled back these protections, placing the process back under the very agency staff whose decisions were being challenged. This regulatory whiplash, where each new FDIC leader reshapes the appeals process to fit their own vision, has created instability.
Congress must act to prevent future political manipulation of the appeals process
This instability makes one thing clear: The ability to challenge regulatory decisions should not be dependent on who happens to be leading the FDIC, or any other bank regulator, at any given time. Congress must step in to provide a permanent, statutory framework that prevents future bank regulators from arbitrarily restructuring the appeals process to suit their own preferences.
To ensure stability, Congress should enact the FAIR Exams Act, which would establish a single, independent appeals office for all federal banking regulators. This would create a uniform process across the OCC, CFPB, and Federal Reserve, ensuring consistency and independence in how supervisory appeals are handled.,
The FAIR Exams Act should include structural safeguards such as prohibiting ex parte communications and requiring appeals to be reviewed by individuals outside the direct supervisory chain. It should also require a transparent, public review process before any future changes can be made to the appeals framework, preventing agencies from unilaterally rolling back important due process protections.
By codifying these reforms, Congress can restore predictability and independence to the supervisory appeals process. This would give financial institutions confidence that they can challenge examination conclusions in a fair, consistent, and transparent manner, regardless of which agency oversees them or who is leading it.
A credible appeals process must operate independently from those whose decisions are being challenged; without such independence, it cannot effectively promote accountability or provide institutions with a meaningful opportunity to contest supervisory determinations. Just as the NFL relies on independent replay reviews to maintain the integrity of the game, bank regulators must ensure an impartial appeals process to uphold the integrity of banking supervision. To restore trust and stability, it is time to end the cycle of regulatory uncertainty and establish a fair, consistent appeals framework that serves banks, regulators and the public alike.
Ashtyn Landen is senior director for prudential regulation, and Hugh Carney is EVP for financial institution policy and regulatory affairs, at ABA.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
