On December 13, 1991, the Board
of Governors of the Federal Reserve System summarized, in S-letter
2546, (at
3-1532.1), its longstanding policy for affording bank management
an opportunity to discuss and appeal safety-and-soundness examination
findings with which management disagrees. The Board believes that
it is important to provide bankers with such opportunities to ensure
that examination findings are fair and balanced, and that they consider
all relevant information.
In the December 1991 letter, the Board noted that institutions
supervised by the Federal Reserve can raise questions during the on-site
examination and have the further option of referring their questions
or concerns directly to senior Reserve Bank officials, including,
under appropriate circumstances, the Reserve Bank president. In these
situations, Reserve Bank officials have the discretion to decide if
the matter under review should be resolved by parties who did not
directly participate in the examination in question. In addition,
the Board emphasized that Reserve Bank officials have the latitude
to decide if the matter should be resolved in a confidential manner
not involving the individual in charge of the examination. The purpose
of setting forth these procedures in writing was to ensure that state
member bank management and directors were aware of the various avenues
of appeal available to them.
The Board believes that Federal Reserve examiners have
acted responsibly in conducting on-site examinations, and that its
December 1991 statement, together with the System’s long-standing
practices regarding the resolution of examination differences, have
provided an effective avenue of appeal for state member banks. Nevertheless,
concerns have been expressed that some bankers may not be satisfied
with the appeals procedures established by the regulators generally
or may still be reluctant to question examination findings for fear
of adverse consequences.
To address these concerns and to ensure that the findings
of safety-and-soundness examinations are based on a balanced and fair
consideration of all relevant information, the Board believes it is
appropriate to reemphasize its procedures and practices in this area
and to encourage institutions supervised by the Federal Reserve with
legitimate material concerns to bring these matters to the attention
of appropriate Reserve Bank officials. The Board hopes that the restatement
of these practices will serve to assure bank management and directors
that the Federal Reserve’s current procedures are fair and effective.
Moreover, it is the policy of the Federal Reserve that bank management
should have the opportunity to raise legitimate concerns or make a
bona fide appeal regarding substantive examination findings without
fear of adverse consequences.
Opportunities for discussion and resolution of examination
differences exist at many levels—both during and subsequent to the
completion of the examination. For example, during the examination,
bank management may discuss examination findings and loan classifications
with the examiner-in-charge. Bankers also have the option of taking
their concerns directly to senior supervisory officials at the Reserve
Bank if the matter has not been resolved in discussions with the examiner.
At the completion of the examination, examiners or supervisory officials
normally meet with bank management and, if appropriate, with the board
of directors, affording the bank yet another opportunity to discuss
examination results.
In addition to these avenues, legitimate and bona fide
concerns about substantive examination findings may be taken directly
to the Reserve Bank president. Bankers may request that matters appealed
to the Reserve Bank president be resolved by parties who did not directly
participate in the examination in question. In these situations, both
bank management and the examiners involved in the examination may
be consulted, but the final determination regarding the resolution
would, if appropriate, be made by the Reserve Bank president or an
official designated by the president who did not participate directly
in the examination. Bankers who also request that the matter be resolved
in a confidential manner not involving the examiner-in-charge.
These practices, taken together, are designed to provide
bankers an opportunity to express their views and to address differences
between bankers and examiners in a manner that is fair and impartial.
Normally, matters or questions appealed to a Reserve Bank president
would be expected to be those that would have a significant effect
on the safety and soundness, operation, management, or financial standing
of the institution, or that would have a material impact on the Federal
Reserve’s supervision of the institution.
The method for resolving questions or appeals brought
to the attention of senior Reserve Bank officials is at the discretion
of the Reserve Bank. These appeal procedures are intended to afford
an avenue for discussing and resolving legitimate concerns or good
faith differences pertaining to material examination findings. They
are not to be used to impede any supervisory or enforcement action
necessary to protect depositors or ensure the bank’s safety and soundness.
The existence of these avenues for communication and resolution does
not prevent the Federal Reserve from taking any supervisory or enforcement
action—formal or informal—it deems appropriate to discharge the Federal
Reserve System’s supervisory and examination responsibilities in a
timely manner. S-2552; June 11, 1993.
