Federal Deposit Insurance Corporation 

550 17th Street NW, Washington, D.C. 20429-9990 

 October 18, 2022

MEMORANDUM TO: The Board of Directors 

FROM: Harrel M. Pettway

 General Counsel

SUBJECT: Proposed Amendments to the Guidelines for Appeals of Material 

Supervisory Determinations 

Recommendation 

Staff recommends that the Board of Directors (Board) adopt the attached Proposed 

Amendments to the Guidelines for Appeals of Material Supervisory Determinations and 

authorize the publication in the Federal Register of the Notice and Request for Comment on the 

Amendments. Through this Notice, the FDIC would propose to amend the Guidelines for 

Appeals of Material Supervisory Determinations (Guidelines) by expanding and clarifying the 

role of the agency’s Ombudsman. The proposed Guidelines also would require that materials 

considered by the Supervision Appeals Review Committee (SARC) be shared with both parties 

to the appeal, subject to applicable legal limitations on disclosure, and would allow insured 

depository institutions to request a stay of a material supervisory determination while an appeal 

is pending. The Notice would solicit comment on the proposal with a comment period of 30 

days. 

Background 

Section 309(a) of the Riegle Community Development and Regulatory Improvement Act 

of 1994 (Riegle Act) required each federal banking agency to establish an independent intraagency appellate process to review material supervisory determinations.1

 To satisfy this 

requirement, the Board established the SARC and adopted the Guidelines to govern the appellate 

process.2

 The Board has periodically amended the Guidelines, often through notice and 

comment. 

In January 2021, the FDIC revised the Guidelines to replace the SARC as the final level 

of review in the appellate process with a standalone office within the FDIC, designated the 

Office of Supervisory Appeals (Office).3

 After appealing a material supervisory determination 

to the relevant Division Director, an insured depository institution (IDI) would have had the 

option to appeal to the Office. The Guidelines did not provide for additional review beyond the 

Office.

 

1

 12 U.S.C. 4806(a). 

2

 60 Fed. Reg. 15923 (Mar. 28, 1995). 

3

 86 Fed. Reg. 6880 (Jan. 25, 2021). 

FDlt 
2 

Earlier this year, the FDIC revised the Guidelines by restoring the SARC as the final 

level of review of material supervisory determinations made by the FDIC.4

 The revised 

Guidelines reconstituted the SARC as it existed in 2021. The FDIC decided to restore the SARC 

based on the agency’s longstanding practice of ensuring Board-level review of material 

supervisory determinations, noting that this promotes both independence and accountability in 

the appellate process. Board-level review ensures accountability for the FDIC’s supervisory 

determinations remains with the Board, consistent with sound corporate governance principles. 

While the revised Guidelines were effective on May 17, 2022, the FDIC invited 

comments on all aspects of the revised Guidelines. The FDIC specifically asked for comments 

regarding the inclusion of the Ombudsman’s perspective in the supervisory appeals process and 

for other ways to enhance the process while remaining consistent with the Ombudsman’s role as 

a neutral liaison between supervised IDIs and the FDIC. 

Discussion of Comments 

The FDIC received four comment letters; these comments are discussed in further detail 

below. 

Restoration of SARC Structure 

Commenters generally disagreed with the restoration of the SARC structure and the 

FDIC’s conclusion that this would enhance the independence of the appellate process. 

Commenters stated that the appellate process will be less independent if the Board has control 

over the outcome. In addition, commenters also raised the concern that the SARC structure may 

not provide the intended balancing of perspectives, given the current composition of the Board. 

Some commenters recommended that the FDIC restore the Office of Supervisory 

Appeals. These commenters believed that the Office of Supervisory Appeals provided for 

greater independence in decision-making. Commenters also raised concerns with the process 

used to restore the SARC structure without first soliciting comment, and stated that the FDIC did 

not sufficiently explain why the Office of Supervisory Appeals structure could or should no 

longer function. 

Ombudsman’s Role

Commenters supported expanding the Ombudsman’s role in the appeals process, 

explaining that Ombudsmen are experienced professionals specifically trained in resolving 

disputes between bankers and regulators. One commenter stated that Ombudsmen advocate for a 

fair and impartial process at the FDIC and would be a valuable source of information that would 

benefit appeals panel discussions. 

 

4

 87 Fed. Reg. 30942 (May 20, 2022). 
3 

Communications 

The revised Guidelines eliminated a provision that was added specifically to 

accommodate the Office of Supervisory Appeals. This provision required that any 

communications between the Office and supervisory staff be in writing and shared with an 

appealing IDI, subject to limitations on disclosure. Commenters stated that the requirement to 

share ex parte information with both parties is a fundamental right to assure that both parties are 

aware of the information shared with the decision-maker and have an opportunity to respond to 

that information. 

Standard of Review 

A commenter recommended that the FDIC adopt a de novo standard of review, asserting 

that this would be consistent with the standard adopted by the Board of Governors of the Federal 

Reserve System in its supervisory appeals process and explained that a more robust de novo 

standard of review would increase institutions’ confidence in the process.

Stay of Material Supervisory Determinations 

A commenter recommended that the FDIC stay supervisory actions during an appeal 

because supervisory determinations can have consequences for an institution, such as removing 

an institution from expedited processing of applications. 

Proposed Guidelines

Based on the recommendations from commenters, staff is recommending that the Board 

propose to amend the Guidelines to address commenters’ concerns as discussed below.

SARC Structure 

The proposed Guidelines would retain the SARC as the final level of review of material 

supervisory determinations made by the FDIC. Review of material supervisory determinations 

by a Board-level committee such as the SARC promotes accountability in the supervisory 

appeals process. Ultimate responsibility for the FDIC’s supervision function is vested in the 

Board by statute, and the SARC structure ensures that the Board remains accountable for the 

agency’s supervisory determinations. Accordingly, the FDIC’s longstanding practice has been to 

ensure Board-level review of material supervisory determinations with a panel also including 

other senior officials. The Guidelines governing the Office allowed for reliance on individuals 

with previous supervisory experience recruited from outside the FDIC and hired for intermittent 

service on a time-limited contract basis to make final supervisory determinations on behalf of the 

FDIC. 

Hiring individuals from outside the agency represented a significant departure from the 

FDIC’s established approach for over 25 years of reliance on a Board-level committee and 

undermines accountability for these supervisory determinations. Moreover, it is fundamentally 

inconsistent with how the other financial regulators have carried out their responsibilities under 
4 

the Riegle Act. While there is some diversity of approach among the Board of Governors of the 

Federal Reserve System, the Office of the Comptroller of the Currency, and the National Credit 

Union Administration, all of these agencies utilize full-time internal staff or Board members to 

carry out their appeals processes. The Office of the Comptroller of the Currency allows 

supervisory appeals to be decided by its Ombudsman, the National Credit Union Administration 

allows appeals to a committee of senior staff or directly to its Board of Directors, and the Board 

of Governors of the Federal Reserve System utilizes panels of staff from the Federal Reserve 

Banks and the Board of Governors. 

Review of material supervisory determinations by the SARC also promotes independence 

from the usual supervisory and examination channels in a manner consistent with the Riegle Act. 

As provided by the statute, independent review means review “by an agency official who does 

not directly or indirectly report to the agency official who made the material supervisory 

determination under review.” Members of the Board (and their special assistants or deputies) are 

agency officials independent from the staff that carry out day-to-day supervisory responsibilities. 

They also bring important knowledge and experience with current applicable laws, regulations, 

and policies when they consider appeals. 

In terms of timing, comment was not solicited prior to restoring the SARC structure 

because, at that time, there were no pending appeals and the new Office had not yet been utilized 

in any cases. The FDIC sought to avoid a situation in which an appeal might be filed while these 

Guidelines and the appropriate appeals structure were under review. As indicated in the May 

2022 notice, taking action quickly minimized the potential for confusion among IDIs with 

respect to the process they must follow in the event they wish to appeal a material supervisory 

determination. While the FDIC’s primary reason for restoring the SARC structure was 

promoting independence and accountability in the process, it noted that staffing considerations 

also favored a return to the SARC structure. Commenters sought additional detail on these 

considerations. The FDIC had engaged in extensive efforts to recruit reviewing officials to staff 

the Office of Supervisory Appeals, extending the application postings for these positions in an 

attempt to develop a broad pool of applicants. Three reviewing officials were hired, but this 

would have been insufficient to provide for the minimum three-member panel if an individual 

were unable to participate in the review of an appeal due to a conflict of interest or illness, 

leaving the Office unable to function. 

In response to commenters’ concerns regarding the need for a balance of perspectives to 

be reflected in the appellate process, staff recommends that the FDIC propose to add the 

Ombudsman to the SARC as a non-voting member. Adding the Ombudsman as a non-voting 

member would minimize any potential for conflict with the Ombudsman’s statutory role. Under 

the Riegle Act, the Ombudsman acts as liaison between the agency and any affected person, and 

assures that safeguards exist to encourage complainants to come forward and preserve 

confidentiality.5

 The FDIC’s Ombudsman has a longstanding commitment to neutrality that 

 

5

 12 U.S.C. 4806(d). The FDIC notes that the OCC Ombudsman’s role in deciding supervisory appeals predates the 

enactment of the Riegle Act (which also required the appointment of an Ombudsman). The FDIC also notes that the 

Ombudsmen at the Board of Governors of the Federal Reserve System and the National Credit Union 

Administration are not involved in decision making for appeals. 
5 

could be compromised if the Ombudsman were to serve as a voting member of the SARC. As a 

non-voting member, the Ombudsman would be expected to attend SARC meetings, participate in 

discussions, and offer views, opinions, and advice to the SARC during its deliberations based on 

the Ombudsman’s perspective as a neutral advocate for a fair process, and as a party independent 

of the supervisory process. Under the proposed Guidelines, the Ombudsman would also have 

access to all materials reviewed by the SARC. 

Staff recognizes that adding the Ombudsman to the SARC could cause IDIs to reconsider 

whether they should share confidential information with the Ombudsman, given that the 

Ombudsman could be involved in deciding a potentially related supervisory appeal. The current 

Guidelines provide a mechanism to address this by allowing a SARC member to designate the 

most senior member of his or her staff to serve on the SARC on his or her behalf. Staff is 

proposing to broaden this authority to allow a SARC member to designate any member of his or 

her staff within the member’s area of responsibility. For example, if the Ombudsman were 

unable to serve as a SARC member with respect to a particular appeal because of information 

learned from meeting with the IDI, he or she might designate a Regional Ombudsman who has 

not been involved in the matter to serve on the SARC instead. 

Commenters also expressed concern about possible retaliatory actions if an IDI submits a 

supervisory appeal. Due to these concerns, staff recommends proposing to amend the Guidelines 

to require the Ombudsman to monitor the supervisory process following an IDI’s submission of 

an appeal. The Ombudsman would be expected to report to the Board on these matters 

periodically. Staff believes these enhancements to the process may alleviate some IDIs’ 

concerns regarding potential retaliation. 

Sharing of Materials 

Due to commenters’ concerns regarding the elimination of a provision that generally 

required communications to be shared with the appealing institution, staff recommends that the 

proposal include a provision requiring that all materials considered by the SARC are shared with 

both parties to the appeal, subject to applicable legal limitations on disclosure.6

 The 

Ombudsman would verify that both parties have received all materials considered by the SARC. 

Standard of Review 

In 2021, the FDIC amended the Guidelines to provide that the Division Director’s 

standard of review would be substantially similar to the standard of review employed by the 

Federal Reserve’s initial review panels.7

 Under the FDIC’s Guidelines, the Division Director 

considers whether a material supervisory determination is consistent with applicable laws, 

regulations, and policies, and makes his or her own supervisory determination without deferring 

to the judgments of either party. This may be considered a de novo standard of review, and 

 

6

 For example, the disclosure of confidential supervisory information and certain other types of information is 

restricted under 12 CFR part 309. Thus, to the extent that materials shared with the SARC include such confidential 

supervisory information relating to another IDI, for example, that material could be redacted. 

7

 86 Fed. Reg. 6880, 6883 (Jan. 25, 2021). 
6 

remains unchanged in the current Guidelines. Staff believes that the standard of review set forth 

in the FDIC’s process is consistent with the standard of review used by the Federal Reserve, in 

that neither standard provides that the decision maker will defer to the judgment of agency staff 

that made the material supervisory determination under review. 

The Guidelines also clearly explain the standard of review for the SARC, promoting 

transparency and enabling institutions to understand how their appeals will be evaluated. The 

SARC reviews appeals for consistency with the policies, practices, and mission of the FDIC and 

the overall reasonableness of, and the support offered for, the positions advanced. This is similar 

to the standard of review employed by the Federal Reserve’s final review panels, which consider 

whether the decision of the initial review panel is reasonable and whether there has been a clear 

error of judgment. Staff believes the agencies’ standards are generally consistent, and neither 

agency’s process provides for a de novo standard at the final level of review. 

Stay of Material Supervisory Determinations 

The FDIC has previously stated that institutions may request a stay of supervisory actions 

from the appropriate Division Director during the pendency of an appeal,8

 but staff agrees that it 

would be useful to address this aspect of the process expressly in the Guidelines to better ensure 

that IDIs are aware of the ability to request a stay. Accordingly, staff recommends proposing to 

amend the Guidelines to expressly permit IDIs to request a stay of an action or determination 

while an appeal is pending. The Division Director would have discretion to grant a stay, and 

would generally decide whether a stay is granted within 21 days of receiving the IDI’s request. 

The Division Director could grant a stay subject to certain conditions where appropriate. 

Request for Comment 

The Notice prepared by staff includes a request for comment, particularly regarding the 

role of the Ombudsman, sharing of appeal materials, and the ability of an IDI to request a stay of 

a supervisory action. 

Conclusion 

Staff recommends that the Board approve the attached Notice and Request for Comment 

for publication in the Federal Register, with a comment period of 30 days.

Staff Contacts 

Sheikha Kapoor, Senior Counsel, Legal Division, x83960 

James Watts, Counsel, Legal Division, x86678 

 

8 See 82 Fed. Reg. 34522, 34526 (July 25, 2017).