Federal Reserve Proposes Changes to Material Supervisory Determination Appeals Process

The Federal Reserve Board (the Board) recently proposed revisions to its guidelines for appeals of material supervisory determinations.  The revisions are aimed at improving and expediting the appeals process, particularly for troubled institutions.  Among the proposals is a reduction from a three- to two-tiered appeals process, troubleshooting a timing conflict between the Prompt Corrective Action (PCA) framework and the existing appeals process, and establishing specific standards of review for appeals.

 Notably, under current guidelines, an initial appeals review panel is made up of Reserve Bank employees and an advising attorney, none of whom may have been involved with any substantive matter incident to the appeal.  Those individuals must have necessary experience to review the supervisory determination under appeal, but may not be employed by or directly report to the Reserve Bank who made that initial supervisory determination.

 Under the proposed guidelines, that initial review panel will consider a record that includes relevant materials submitted by the appealing institution and Federal Reserve staff, and will conduct its review as though no determination had previously been made.  If an appealing institution proceeds further with a request for review of a material supervisory determination after the initial review, a review panel of Board staff, or “final review panel,” will consider whether the initial review was reasonable and supported by a preponderance of the evidence.  That final review panel will not add new information to the record, and their decision will be made public.  In order to enhance the independent nature of the review, experts not affiliated with the affected Reserve Bank would review the matter at both levels of appeal.

The Board highlighted four areas for which it welcomes comments regarding the revised guidelines: (1) the standards of review for the two review panels; (2) the nature and composition of the review panels; (3) the record to be considered by the panels; and (4) the proposed timeline for resolving conflicts between the PCA and existing appeals process.

Also proposed is a change to the Board’s Ombudsman policy which would formalize that position as the initial recipient of all complaints pertaining to the supervisory process, including appeal requests.  Under the new proposal, the Ombudsman could attend proceedings related to the appeal and be the decision-maker for claims of retaliation, e.g., where an entity appealing a material supervisory determination lodges a complaint about Board staff.

The Proposed Rule may be viewed here.