WASHINGTON — The Federal Deposit Insurance Corp. disbanded an internal court for banks to challenge supervisory findings and reinstated a board-controlled committee.
Banking groups say the change makes the oversight of banks less independent and more politically fraught, while regulators argue it’s the more sensible approach.
Andrew Harrer/Bloomberg
The Office of Supervisory Appeals was created in the last days of the Trump administration and only became fully staffed in December. Before that, banks complained that appealing supervisory decisions, such as an unfavorable rating from a bank examiner, to the Supervision Appeals Review Committee was ineffective, and that banks could fear retaliation from the agency.
The FDIC board nixed the Office of Supervisory Appeals and restored the Supervision Appeals Review Committee in last week. The board also got rid of a provision that banks wanted in the creation of the office: requiring that any communication between the office and supervisory staff be shared in writing with the appealing bank.
The move was abrupt, some industry players argue.
“I did a double take on it; I thought maybe I’m reading this wrong,” said Phil Buffington, a partner at Adams and Reese in Jackson, Mississippi, who advises the kinds of banks that the FDIC oversees. “A lot of people aren’t going to realize what this is doing.”
The Office of Supervisory Appeals was meant to make its own decisions that wouldn’t be reviewed by FDIC officials before publication. It would also be staffed by private individuals, including those coming from the private sector as well as former examiners, rather than current government employees who answer to the FDIC’s board.
“The Office of Supervisory Appeals was designed to enhance the independence of the appeals process while ensuring appeals were heard by those with valuable supervisory experience,” Rob Nichols, president and CEO of the American Bankers Association, said in a statement to American Banker. “The sudden decision to eliminate the Office in favor of an outdated and seldom-used framework will make banks less confident in the intra-agency appeals process.”
The switch back to the old supervisory appeals model became effective immediately last week, according to the FDIC. The agency didn’t solicit public comments prior to making the change, as would be typical for a rule that had so much back-and-forth with industry on the front end.
The FDIC is taking comments after the fact for 30 days, the agency said.
“We are disappointed that after years of developing the Office, including a meaningful proposal with notice and comment, the FDIC’s decision is effective immediately,” Nichols said.
When asked about the board’s reasons for the change at a press conference earlier this week, Martin Gruenberg, acting chair of the FDIC, said that the board-centric model was a “more sensible approach.”
"From the standpoint of accountability, at the end of the day, we thought a board level committee was really the appropriate approach,” he said.
Gruenberg previously
“This would fundamentally undermine the independence and integrity of the review process,” he said at the time. “This is a vague, deeply flawed proposal that may well have a chilling effect on the FDIC’s safety and soundness and consumer protection examinations. While the current process may not be perfect, it at least meets the threshold of independence and accountability envisioned by the statute.”
In the Federal Register notice, the FDIC points to staffing concerns with the office model, and says that the board committee would “better promote independence and accountability” in the appeals process.
The meeting is one of the first in Gruenberg’s latest term atop of the FDIC. He and Consumer Financial Protection Bureau Director Rohit Chopra led the policy struggle that
The Independent Community Bankers of America questioned the political independence of a board-centric supervisory appeals approach with a now all Democrat-controlled board following the recent power shift at the agency.
“Without a bipartisan FDIC board, the agency’s decision to reconstitute board-level review using the SARC calls into question its commitment to a more independent supervisory appeals process,” Rebecca Romero Rainey, the ICBA’s president and chief executive, said in a statement.
Buffington said that the more independent supervisory appeals committee helped banks feel more confident in the process, and that the perceived political backdrop behind this decision could have a chilling effect on banks wanting to bring their issues back to regulators.
“It’s an attempt to refocus and reconcentrate the power within the agency to make sure that they ultimately control the outcome,” he said. “And while I get that they need to in some instances, there really does need to be an independence in that supervisory process, to make sure that parties get their opportunity to be heard by someone that’s not involved in the day-to-day, or in the overall regulatory affairs of the institution.”
