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As banks face potential financial risks resulting from the COVID-19 pandemic, they, their directors, and management need as much protection from errors made by examiners and supervisory staff and the consequences from those errors.

One protective mechanism is the right to appeal a material supervisory determination by the banking agencies. The FDIC’s recently proposed Guidelines improve the current appeals process for state non-member banks but need to adopt additional due process and related protections.
AABD’s October 20, 2020 comment letter identifies several areas for improvement, including:

  1. Clarification that bank directors and management have the right to appeal directly or through their banks.
  2. The right to appeal even once the FDIC supervisory staff has indicated that it may issue an enforcement action against the bank or its directors and officers.
  3. Clarification that just as the supervisory staff has the right to review a bank’s submission to the Office of Supervisory Appeals, the bank and/or its directors and officers should have a right to review the supervisory staff’s response to the bank’s submission.

We know from history that as the economy enters a recessionary period, the financial condition of many banks decline and, with that decline, banking agency enforcement actions multiply. Thousands of formal and informal enforcement actions were taken during and soon after the Great Recession, at huge cost to the banks. Few banks and IAPs can afford the costs of fighting a formal enforcement action in administrative and civil courts to prove their case.

It is therefore essential that before the enforcement action is approved or undertaken, the banks and bank directors/management have an opportunity to challenge disputed facts and supervisory staff interpretations of law, regulation and regulatory policies. This process will help the FDIC to avoid taking unnecessary or inappropriate enforcement action against banks and their directors and management.

Changes to the FDIC proposed Guidelines that AABD has recommended will be important protections for banks and their directors and management as we enter this challenging period.