On February 27, the Federal Reserve Board (Board) published proposed amendments to its guidelines on the internal appeals process for institutions that receive an adverse material supervisory determination. According to the proposal, the goal of the amendments is to improve and expedite the appeals process, which was established in 1995 and applies to any material supervisory determination, including matters related to an examination or inspection, which does not have an alternative, independent appeals process. The current guidelines allow for an institution to file a written appeal, which will be reviewed by a panel selected by the Federal Reserve Bank (Bank). The panel is made up of persons who are not employed by the Bank and have no affiliation with the material supervisory determination in question. Institutions also have further appeal rights to the Bank’s president and then a member of the Board. Proposed changes to the process include:
- reducing the number of appeal levels to two and providing a separate independent review at both appeal levels;
- establishing an accelerated process for appeals that relate to institutions becoming “critically undercapitalized” under the Prompt Corrective Action (PCA) framework as a result of the material supervisory determination, in order to ensure the review occurs within the required PCA timeframe; and
- instituting specific standards of review at both appeals stages. The first panel of review would be required to review the documentation “as if no determination had previously been made.” The final panel, made up primarily of Board staff, would review whether the initial appeals determination is “reasonable and supported by a preponderance of the evidence in the record,” and the decision of the final review panel would be made public.
The proposed amendments also contain changes to the Board’s Ombudsman policy, which, among other things would allow the Ombudsman—if requested by the institution or Federal Reserve personnel—to attend hearings or deliberations relating to the appeal as an observer. The proposal also would formalize many of the Ombudsman’s current activities, including receiving all complaints related to the Board’s supervisory process and facilitating informal resolution of institution’s concerns.