The New York League of Independent Bankers (NYLIB) Submits Comments Regarding Proposed Amendments to the Federal Reserve’s Guidelines for Intra-Agency Appeals

On April 30, 2018, The New York League of Independent Bankers (“NYLIB”) submitted comments to the Board of Governors of the Federal Reserve System (“Board”). The comments regarded proposed amendments to the Board’s Guidelines for Appeals of Material Supervisory Determinations, which allow for appeals of material supervisory determinations such as CAMELS and ROCA ratings. 

NYLIB’s comments focused on aspects of the proposed amendments concerning filing deadlines, the record provided to the final review panel, the composition of the final review panel, and the standard of review applied by the final review panel. Specifically, NYLIB recommended that:

• The Board should continue to acknowledge that extensions of the 30-day initial appeal deadline may be granted in appropriate circumstances, rather than eliminating the reference to extensions found in the current Guidelines;

• The Board should continue to allow 30 days to appeal from a decision of the initial review panel, rather than reducing the time period allowed for financial institutions to appeal from the decision of the initial review panel from 30 days to 14 days;  

• The Board should incorporate a method for the construction of time limits that addresses issues such as the consequences of filing deadlines falling on weekends and holidays;

• The Board should provide that “the record upon which the initial appeal panel made its decision” that is provided to the final review panel will also be provided to the appealing financial institution;

• The Board should provide that the final level of review is performed by the Ombudsman or the Board, not a panel of staff hand-picked by the “director of the appropriate division of the Board” for the specific appeal; and  

• The Board should provide that the final review panel’s review is de novo, rather than deferential to the decision of an initial review panel drawn from the Reserve Bank that made the material supervisory determination(s) being appealed.

Pinchus Raice, Co-Founder of NYLIB, offered the following comments on NYLIB’s recommendations:

Some aspects of the Board’s proposed amendments took a step backward, rather than a step forwards, from the perspective of financial institutions. The Board should not amend its Guidelines in a manner that makes it more difficult for financial institutions to file intra-agency appeals, nor should it seek to reduce the independence of the appeals process. Adopting NYLIB’s well-reasoned recommendations would enhance the effectiveness of the Board’s appeals process, lead to better decision-making, and increase the confidence of financial institutions in the integrity and independence of the appeals process. 

Builders Bank Update: NYLIB Submits Additional Authority Supporting Option to Challenge “CAMELS” Ratings in Federal Court

On October 23, 2017, the court in Builders Bank v. FDIC granted the New York League of Independent Bankers ("NYLIB") approval to file additional authority in support of its September 13, 2017 friend-of-the-court brief.

The case concerns whether the federal financial regulatory agencies' "CAMELS" ratings are reviewable in federal court. The FDIC's position, expressed in its July 2017 comments to its intra-agency appeals guidelines, is that CAMELS ratings are never reviewable by the federal courts because there is no meaningful source of law to apply to review the FDIC's exercise of discretion in assessing the ratings.

NYLIB's motion points out that a sister agency, the National Credit Union Administration ("NCUA"), has put forth a contradictory view of the appealability of CAMELS ratings (or in the NCUA's case, "CAMEL" ratings).  In a May 2017 intra-agency appeal decision, the NCUA Board explicitly acknowledged that its decisions upholding CAMEL ratings after an intra-agency appeal are reviewable by the federal courts. NYLIB submitted the NCUA Board decision to the Builders Bank court as additional, persuasive authority supporting its position that there in fact are standards by which the federal courts may review CAMELS ratings.

NYLIB Supports Option for Financial Institutions to Challenge "CAMELS" Ratings

NYLIB has joined other banking industry organizations in filing a friend-of-the-court brief in Builders Bank v. FDIC regarding whether the federal financial regulatory agencies' "CAMELS" ratings are reviewable in federal court. Our organization believes the support of this matter is important to ensure that banks have the ability to challenge ratings they feel are undeserved and to ensure that the power of the federal regulatory agencies does not go unchecked. Click here to read the amicus brief. 

A Look at the Issues    

Builders Bank brought suit in federal court challenging the composite rating of "4" assigned to it by the FDIC and sought a reversal of that rating along with a refund of the excess deposit insurance premiums it incurred due to the rating.

In response, the FDIC sought to dismiss Builders Bank's suit, arguing that a CAMELS rating is not reviewable in federal court unless a financial institution first obtains review of the rating through the FDIC's intra-agency appeals process. The FDIC's motion to dismiss further contended that, even if an institution prosecutes an intra-agency appeal, CAMELS ratings are never reviewable by the federal courts because there is no meaningful source of law to apply to review the FDIC's exercise of discretion in assessing CAMELS ratings.

NYLIB's amicus brief challenges both of these contentions. Pinchus D. Raice, Co-Chair of Pryor Cashman's Financial Institution Group, explained, "While the federal financial regulatory agencies' intra-agency appeals processes can provide a useful method of challenging unwarranted CAMELS ratings, no statute or regulation requires financial institutions that have been assigned unwarranted CAMELS ratings to utilize the agencies' intra-agency appeals processes. Under appropriate circumstances, a financial institution should have the option to seek review of a CAMELS rating in federal court — whether or not the institution has chosen to utilize the examining agency's intra-agency appeals process." 

Banking Industry Support    

Sarah Ciopyk, NYLIB's Executive Director, commented, "It is important to provide an industry viewpoint on complex legal and regulatory issues that have a systemic, industry-wide impact, and NYLIB appreciates the opportunity to make its voice heard on the important issues before the Court in Builders Bank v. FDIC. NYLIB hopes that its amicus brief will be of assistance to the Court."  

The Clearing House Association, the American Bankers Association, and the Independent Community Bankers of America also previously submitted a joint amicus brief in the case.