The American Bankers Association and the Bank Policy Institute have sent a letter to the Board of Governors of the Federal Reserve System (Fed) to petition the Fed to engage in rulemaking to clarify the Fed’s September 2018 “Interagency Statement Clarifying the Role of Supervisory Guidance” (the “Interagency Statement”).  The Interagency Statement was issued jointly by the Fed, FDIC, NCUA, OCC and CFPB with the stated purpose of “explain[ing] the role of supervisory guidance and to describe the agencies’ approach to supervisory guidance.”

The letter states that the petition is made pursuant to section 553(e) of the Administrative Procedure Act.  That provision provides that each agency “shall give an interested person the right to petition for the issuance, amendment, or repeal of a rule.”  An agency must provide the grounds for the denial of a petition and a denial can be appealed to a court.

In their letter, the trade groups express concern that the Interagency Statement “may leave room for examiners to continue to base examination criticisms on matters not based in law.”  An example given is that “some examiners may continue to retain existing [matters requiring attention (MRAs) and matters requiring immediate attention (MRIAs)] based on agency guidance, on the theory that the Interagency Statement is not retroactive.”  They state that there is also “a concern that examiners might defeat the purpose of the Statement by replacing guidance-based examination criticisms with MRAs and MRIAs grounded in generic and conclusory assertions about ‘safety and soundness’ (as opposed to those that identify specific, demonstrably unsafe and unsound practices-the actual legal standard).

Finally, they observe that “the Interagency Statement’s general reference to a ‘criticism’ or ‘citation’ has engendered some confusion about whether MRAs, MRIAs, and other adverse supervisory actions are covered by the Statement.” (The Statement provided that ‘[e]xaminers will not criticize a supervised financial institution for a ‘violation’ of supervisory guidance.  Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions.”)

To address these concerns, the trade groups petition the Fed to take the following two specific rulemaking actions:

• To propose and adopt, through notice and comment rulemaking, the content of the Agency Statement “as a formal expression and acknowledgment of the proper legal status of the guidance.”
• To include in such a rulemaking “a clear statement that MRAs, MRIAs, examination rating downgrades, MOUs, and any other formal examination mandate or sanction will be based only on a violation of a statute, regulation or order—that is, that they are the types of ‘criticisms’ or ‘citations’ at which the guidance is directed.”  For this purpose, a “violation of a statute” would include the identification of a demonstrably unsafe and unsound practice pursuant to 12 U.S.C. Section 1818(b)(1) but would not include a generic or conclusory reference to “safety and soundness.”  (The groups call this “a critical distinction,” observing that “[i]t is essential that any examination criticisms adhere to the relevant legal standard: the statutory bar on ‘unsafe and unsound’ conduct, as interpreted and binding on the agencies under governing case law.”)