Since the financial crisis and heightened supervisory climate, bankers have been feeling the challenges of unrealistic demands from regulators, yet fear retaliation if they appeal. Kevin Petrasic, Partner in the Paul Hastings Global Banking Practice in Washington, D.C., stated that sometimes a challenge to examination results is in order. During January 23rd’s Regulatory and Legislative Audio Conference, he explained when submitting an appeal is appropriate and how to start the process.
Regulators have been less tolerant as a result of an uncertain economy and significant pressure on the agencies (i.e., Federal Reserve, FDIC, OCC, and CFPB) to detect any signs of trouble. The primary objective of the agencies is to try to resolve issues informally, that is, encourage banks to work with regulators in the field. If that proves unsuccessful, then banks can turn to the formal appeals process. Mr. Petrasic focused on the OCC’s appeals process, which provides a bit more structure than those of the FDIC and Federal Reserve.
What can be appealed:
- Examination ratings
- Adequacy of loan loss reserve provisions
- Classifications of loans that are significant to an institution.
What can’t be appealed:
- Appointment of conservators or receivers
- Preliminary examination conclusions
- Formal enforcement-related actions or decisions
- Formal and informal rulemakings pursuant to the Administrative Procedure Act
- Decisions or recommended decisions following formal or informal adjudications conducted pursuant to the APA
- Requests for agency records or information governed by the Freedom of Information Act
- Decisions to disapprove directors and senior executive officers
- Any other agency decisions that are subject to judicial review.
For matters that can be appealed, a bank can file an appeal with either the Ombudsman or the bank’s immediate OCC supervisory office.Except for appealing Shared National Credit (SNC) decisions and fair lending-related matters, all matters can be received in either location.
Mr. Petrasic explained that the appeal should be submitted by the institution’s president or CEO in writing, explaining the matter in dispute. Supporting materials should also be provided. Ideally, the agency should provide a decision within 45 days, but that timeline is not usually met.
Although formal appeals are, in fact, rare, Mr. Petrasic noted that banks with legitimate issues concerning exam ratings or loan classifications stand a greater chance for success, since those matters are more concrete.
For those banks concerned about retaliation, fear no more. Mr. Petrasic pointed out that the OCC requires the Ombudsman to contact an institution six months after the appeal decision has been made, as well as after the first examination following the appeal decision. Banks may also contact the Ombudsman if they feel that an OCC official is acting in retaliation. Through measures such as these, the OCC seeks to help lay the groundwork for better communication and understood expectations between banks and regulators.
Please join us for the next offering in the Regulatory and Legislative Audio Conference Series on March 19, 2012 at 2pm ET.