Title

When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations

Document Type

Working Paper

Publication Date

9-12-2014

SSRN Discipline

Economics Research Network; Legal Scholarship Network; Banking & Financial Institutions eJournals; Law School Research Papers - Legal Studies; FEN Subject Matter eJournals; Administrative Law eJournals; LSN Subject Matter eJournals; Financial Economics Network

Abstract

Banks and credit unions sometimes complain that the examination process regulators use to police banking practices is oppressive These financial institutions complain that regulators reach unduly negative examination conclusions known as "material supervisory determinations" Institutions are wary because negative determinations can subject an institution to further regulatory scrutiny or enforcement actions To guard against erroneous determinations Congress in 1994 enacted a statute requiring federal financial institution regulators to provide an appeals process Each of the four regulators the Office of the Comptroller of the Currency the Federal Deposit Insurance Corporation the Federal Reserve and the National Credit Union Administration adopted a unique material supervisory determination appeals process Using data some collected through Freedom of Information Act requests about material supervisory decision appeals since 1994 and interviews with top regulators this Article provides the first indepth analysis of the appeals process It shows that the appeals process is sometimes dysfunctional and seldom used To improve the appeals process the Article recommends three changes First once a regulator issues a material supervisory determination financial institutions should have direct access to a dedicated appellate authority outside of the examination function Second the appellate authority should engage in a robust review process it should consider a broad scope of appealable matters and employ a clear and rigorous standard of review Third regulators should release detailed information about each decision reached by the appellate authority

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