The Office of Supervisory Appeals would be independent and expected to be more business friendly than both its previous iteration and the existing Supervision Appeals Review Committee
On July 18, 2025, the Federal Deposit Insurance Corporation (FDIC) released a proposal to amend its Guidelines for Appeals of Material Supervisory Determinations (Guidelines) to reinstate the Office of Supervisory Appeals (Office) as a replacement for the current Supervision Appeals Review Committee (SARC). The FDIC had previously replaced the SARC with the Office from January 2021 to May 2022. The Office would operate as an independent, stand-alone office within the FDIC to consider and resolve appeals of material supervisory determinations (MSD). The proposal is expected to bring more independence, greater transparency, and, accordingly, greater confidence to the MSD appeals process.
Comments on the proposal are due by September 16, 2025.
Key Takeaways
- Insured depository institutions (IDI) supervised by the FDIC and other IDIs for which the FDIC makes MSDs are subject to regular examinations by FDIC examiners, who make MSDs about the IDI's financial health and compliance with the law. MSDs that suggest an IDI needs to improve may become a building block for enforcement actions and limit the ability of the IDI to engage in new or expanded activities and acquisitions.
- MSDs are defined by statute to include determinations relating to: (1) examination ratings; (2) the adequacy of loan loss reserve provisions; and (3) classifications on loans that are significant to an institution. Expressly excluded are decisions to appoint a conservator or receiver or to take prompt corrective action under section 38 of the Federal Deposit Insurance Act. The existing Guidelines and proposal also exclude appeals of any formal enforcement-related actions and decisions, which may be challenged through the administrative enforcement process.
- IDIs have limited visibility into examiner training and have historically criticized inconsistencies in examination practices and the lack of an independent appeals process to contest erroneous MSDs or those not grounded in material financial risks. For instance, process-based, check-the-box compliance exercises have dominated supervision for some time.
- To create independence for MSD appeals, the proposed Office would be staffed with individuals with bank supervisory or examination experience as well as other relevant experience, such as former banking industry professionals. The Office also would make its determination without deferring to the judgment of either the IDI or FDIC staff.
- The FDIC introduced the proposal at the same time that the Trump Administration is working to restructure federal agencies. The proposal may serve as a model for amendments to the MSD appeals processes at the Federal Reserve Board (which does not even release summaries of supervisory appeals), OCC (which to date has had the most independent appeals process), and NCUA (which only recently began publishing supervisory appeals decisions). It also raises the possibility that the Trump Administration may try to consolidate these appeals processes into one process, similar to the inter-agency body of administrative law judges within the Office of Financial Institution Adjudication reviewing formal enforcement matters taken by the federal banking agencies.
The Current MSD Appeals Process
Under the existing Guidelines, FDIC-supervised IDIs and other IDIs for which the FDIC makes MSDs must first make a good-faith effort to resolve any dispute concerning an MSD with the examiner or appropriate FDIC Regional Office, before filing a request for review of an MSD with the appropriate Division that made the determination. The Division Director will then review the appeal and issue a written determination on the request for review (theoretically without deferring to the judgment of either party), or refer the request directly to the SARC for consideration. If the IDI disagrees with the Division Director's written determination, the IDI may appeal that determination to the SARC.
The SARC operates as a standing committee of the FDIC Board of Directors, composed of three voting members and two non-voting members. The voting members include: (1) one inside FDIC Board member, either the Chairperson, the Vice Chairperson, or the FDIC Director (Appointive), as designated by the FDIC Chairperson (this person serves as the SARC Chairperson); and (2) one deputy or special assistant to each of the inside FDIC Board members who are not designated as the SARC Chairperson. The General Counsel and the Ombudsman are non-voting members of the SARC. The FDIC Chairperson may designate alternate members of the SARC if there are vacancies so long as the alternate member was not involved in making or affirming the MSD under review. Each member of the SARC may designate and authorize a member of their staff to act on the member's behalf. Thus, the current SARC is a non-independent appeals process that nonetheless attempts to provide some degree of separation between the MSD decision maker and the reviewer on appeal.
When the SARC receives a request for review, whether directly from a Division Director or through an appeal of the Director's written determination, the SARC will review the appeal for consistency with FDIC policies, practices, and mission and the overall reasonableness of, and support for, the positions advanced. The IDI making the appeal has the burden of proof. The SARC will limit its review to the facts and circumstances as they existed prior, or at the time the MSD was made, and will not consider any aspect of an appeal that seeks to change or modify existing FDIC rules or policy. The SARC will issue a written decision on the disputed MSD after it meets to consider the appeal.
Notwithstanding the FDIC's current appeals process, hardly any appeals are taken and most are not successful. These numbers strain credulity. And the 2023 spring bank failures, recent supervisory experience, and serious allegations against the FDIC (some of which the FDIC has admitted) only reinforces the need for a new approach.
Proposed Office of Supervisory Appeals
The proposal would keep the current structure of the MSD appeals process but replace the SARC with the Office as the final level of review. The Office would operate as a standalone office within the FDIC, independent of the Divisions, that would report directly to the Chairperson's Office with delegated authority from the FDIC Board to consider and resolve MSD appeals. The Office would be staffed with reviewing officials with relevant government and industry experience, serving on term appointments. The Office would include individuals with bank supervisory or examination experience as well as other relevant experience, such as former banking industry professionals. Current FDIC employees would not be eligible to serve as reviewing officials. These changes would make the Office the most independent of the appeals bodies and the eligibility of former banking industry professionals would open the pool to a broader array of experience, talent, and perspectives.
Appeals to the Office would be considered by a panel of three reviewing officials, at least one of which must have experience as a bank supervisors (e.g., a former/retired bank supervisor). The proposal would not change the existing burden of proof and standard of review for appeals: appealing institutions would still have the burden. The Office would review appeals for consistency with FDIC policies and would not overturn a MSD if such a ruling were inconsistent with FDIC policies. The Office would also review for the overall reasonableness of, and support for, the positions advanced. Like the SARC and the previous version of the Office, the Office would make an independent supervisory determination; however, unlike the existing Guidelines and previous version of the Office, the Office would make its determination without deferring to the judgment of either party.
The FDIC's Legal Division would provide counsel to the Office and generally advise on FDIC policies and rules. The Legal Division would review decisions of the Office for consistency with applicable laws, regulations, and FDIC policies prior to their issuance. If the Legal Division determines that a decision is contrary to applicable laws, regulations, or FDIC policies, the Division would notify the FDIC Chairperson's Office and the Office would revise the decision.
While the FDIC would staff the Office, the current Guidelines would continue to apply and all appeals would be reviewed by the SARC. The FDIC is expected to move expeditiously this time to avoid a situation where the Office is not fully operational before a change in administration.
Potential Next Steps
The confusing and sometimes conflicting appeals processes between and among the federal banking agencies have been vexing for federally regulated banks for years. Compounding those concerns is the obvious conflict of interest arising from the banking agencies serving as reviewers of their own decisions. The addition of the Office and its increased independence from senior FDIC management is a step toward improving confidence in the MSD appeals process. Whether other banking agencies adopt similar provisions to create uniformity across the banking agencies and industry remains to be seen, but if the FDIC's proposal is adopted, it would be a significant first step.
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