This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
12079
Vol. 86, No. 39
Tuesday, March 2, 2021
1 Regulations are commonly referred to as
legislative rules because regulations have the ‘‘force
and effect of law.’’ Perez v. Mortgage Bankers
Association, 575 U.S. 92, 96 (2015) (citations
omitted).
2 See Chrysler v. Brown, 441 U.S. 281, 302 (1979)
(quoting the Attorney General’s Manual on the
Administrative Procedure Act at 30 n.3 (1947)
(Attorney General’s Manual) and discussing the
distinctions between regulations and general
statements of policy, of which supervisory guidance
is one form).
3 See https://www.fdic.gov/news/financial-
institution-letters/2018/fil18049.html.
4 While supervisory guidance offers guidance to
the public on the FDIC’s approach to supervision
under statutes and regulations and safe and sound
practices, the issuance of guidance is discretionary
and is not a prerequisite to the FDIC’s exercise of
its statutory and regulatory authorities. This point
reflects the fact that statutes and legislative rules,
not statements of policy, set legal requirements.
5 The Administrative Conference of the United
States (ACUS) has recognized the important role of
guidance documents and has stated that guidance
can ‘‘make agency decision-making more
predictable and uniform and shield regulated
parties from unequal treatment, unnecessary costs,
and unnecessary risk, while promoting compliance
with the law.’’ ACUS, Recommendation 2017–5,
Agency Guidance Through Policy Statements at 2
(adopted December 14, 2017), available at https://
www.acus.gov/recommendation/agency-guidance-
through-policy-statements. ACUS also suggests that
‘‘policy statements are generally better [than
legislative rules] for dealing with conditions of
uncertainty and often for making agency policy
accessible.’’ Id. ACUS’s reference to ‘‘policy
statements’’ refers to the statutory text of the APA,
which provides that notice and comment is not
required for ‘‘general statements of policy.’’ The
phrase ‘‘general statements of policy’’ has
commonly been viewed by courts, agencies, and
administrative law commentators as including a
wide range of agency issuances, including guidance
documents.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 302
RIN 3064–AF32
Role of Supervisory Guidance
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The FDIC is adopting a final
rule that codifies the Interagency
Statement Clarifying the Role of
Supervisory Guidance, issued by the
FDIC, Board of Governors of the Federal
Reserve System (Board), Office of the
Comptroller of the Currency, Treasury
(OCC), National Credit Union
Administration (NCUA), and Bureau of
Consumer Financial Protection (Bureau)
(collectively, the agencies) on
September 11, 2018 (2018 Statement).
By codifying the 2018 Statement, with
amendments, the final rule confirms
that the FDIC will continue to follow
and respect the limits of administrative
law in carrying out its supervisory
responsibilities. The 2018 Statement
reiterated well-established law by
stating that, unlike a law or regulation,
supervisory guidance does not have the
force and effect of law. As such,
supervisory guidance does not create
binding legal obligations for the public.
Because it is incorporated into the final
rule, the 2018 Statement, as amended, is
binding on the FDIC. The final rule
adopts the rule as proposed without
substantive changes.
DATES: The final rule is effective on
April 1, 2021.
FOR FURTHER INFORMATION CONTACT: Rae-
Ann Miller, Senior Deputy Director,
(202) 898–3898; Karen Jones Currie,
Senior Examination Specialist, (202)
898–3981; Supervisory Examinations
Branch, Division of Risk Management
and Supervision; Luke H. Brown,
Associate Director, (202) 898–3842;
David Friedman, Senior Policy Analyst,
(202) 898–7168, Supervisory Policy,
Division of Depositor and Consumer
Protection; William Piervincenzi,
Supervisory Counsel, (202) 898–6957;
Kathryn J. Marks, Counsel, (202) 898–
3896; Jennifer M. Jones, Counsel, (202)
898–6768, jennjones@fdic.gov,
Supervision and Legislation Branch,
Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (800) 925–4618.
SUPPLEMENTARY INFORMATION:
I. Background
The FDIC recognizes the important
distinction between issuances that serve
to implement acts of Congress (known
as ‘‘regulations’’ or ‘‘legislative rules’’)
and non-binding supervisory guidance
documents.1 Regulations create binding
legal obligations. Supervisory guidance
is issued by an agency to ‘‘advise the
public prospectively of the manner in
which the agency proposes to exercise
a discretionary power’’ and does not
create binding legal obligations.2
In recognition of the important
distinction between rules and guidance,
on September 11, 2018, the agencies
issued the Interagency Statement
Clarifying the Role of Supervisory
Guidance (2018 Statement) to explain
the role of supervisory guidance and
describe the agencies’ approach to
supervisory guidance.3 As noted in the
2018 Statement, the agencies issue
various types of supervisory guidance to
their respective supervised institutions,
including, but not limited to,
interagency statements, advisories,
bulletins, policy statements, questions
and answers, and frequently asked
questions. Supervisory guidance
outlines the agencies’ supervisory
expectations or priorities and articulates
the agencies’ general views regarding
practices for a given subject area.
Supervisory guidance often provides
examples of practices that mitigate risks,
or that the agencies generally consider
to be consistent with safety-and-
soundness standards or other applicable
laws and regulations, including those
designed to protect consumers.4 The
agencies noted in the 2018 Statement
that supervised institutions at times
request supervisory guidance and that
guidance is important to provide clarity
to these institutions, as well as
supervisory staff, in a transparent way
that helps to ensure consistency in the
supervisory approach.5
The 2018 Statement restated existing
law and reaffirmed the agencies’
understanding that supervisory
guidance does not create binding,
enforceable legal obligations. The 2018
Statement reaffirmed that the agencies
do not issue supervisory criticisms for
‘‘violations’’ of supervisory guidance
and described the appropriate use of
supervisory guidance by the agencies. In
the 2018 Statement, the agencies also
expressed their intention to (1) limit the
use of numerical thresholds in
guidance; (2) reduce the issuance of
multiple supervisory guidance
documents on the same topic; (3)
continue efforts to make the role of
supervisory guidance clear in
communications to examiners and
supervised institutions; and (4)
encourage supervised institutions to
discuss their concerns about
VerDate Sep<11>2014 16:15 Mar 01, 2021 Jkt 253001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\02MRR1.SGM 02MRR1
jbell on DSKJLSW7X2PROD with RULES
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
12079
Vol. 86, No. 39
Tuesday, March 2, 2021
1 Regulations are commonly referred to as
legislative rules because regulations have the ‘‘force
and effect of law.’’ Perez v. Mortgage Bankers
Association, 575 U.S. 92, 96 (2015) (citations
omitted).
2 See Chrysler v. Brown, 441 U.S. 281, 302 (1979)
(quoting the Attorney General’s Manual on the
Administrative Procedure Act at 30 n.3 (1947)
(Attorney General’s Manual) and discussing the
distinctions between regulations and general
statements of policy, of which supervisory guidance
is one form).
3 See https://www.fdic.gov/news/financial-
institution-letters/2018/fil18049.html.
4 While supervisory guidance offers guidance to
the public on the FDIC’s approach to supervision
under statutes and regulations and safe and sound
practices, the issuance of guidance is discretionary
and is not a prerequisite to the FDIC’s exercise of
its statutory and regulatory authorities. This point
reflects the fact that statutes and legislative rules,
not statements of policy, set legal requirements.
5 The Administrative Conference of the United
States (ACUS) has recognized the important role of
guidance documents and has stated that guidance
can ‘‘make agency decision-making more
predictable and uniform and shield regulated
parties from unequal treatment, unnecessary costs,
and unnecessary risk, while promoting compliance
with the law.’’ ACUS, Recommendation 2017–5,
Agency Guidance Through Policy Statements at 2
(adopted December 14, 2017), available at https://
www.acus.gov/recommendation/agency-guidance-
through-policy-statements. ACUS also suggests that
‘‘policy statements are generally better [than
legislative rules] for dealing with conditions of
uncertainty and often for making agency policy
accessible.’’ Id. ACUS’s reference to ‘‘policy
statements’’ refers to the statutory text of the APA,
which provides that notice and comment is not
required for ‘‘general statements of policy.’’ The
phrase ‘‘general statements of policy’’ has
commonly been viewed by courts, agencies, and
administrative law commentators as including a
wide range of agency issuances, including guidance
documents.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 302
RIN 3064–AF32
Role of Supervisory Guidance
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The FDIC is adopting a final
rule that codifies the Interagency
Statement Clarifying the Role of
Supervisory Guidance, issued by the
FDIC, Board of Governors of the Federal
Reserve System (Board), Office of the
Comptroller of the Currency, Treasury
(OCC), National Credit Union
Administration (NCUA), and Bureau of
Consumer Financial Protection (Bureau)
(collectively, the agencies) on
September 11, 2018 (2018 Statement).
By codifying the 2018 Statement, with
amendments, the final rule confirms
that the FDIC will continue to follow
and respect the limits of administrative
law in carrying out its supervisory
responsibilities. The 2018 Statement
reiterated well-established law by
stating that, unlike a law or regulation,
supervisory guidance does not have the
force and effect of law. As such,
supervisory guidance does not create
binding legal obligations for the public.
Because it is incorporated into the final
rule, the 2018 Statement, as amended, is
binding on the FDIC. The final rule
adopts the rule as proposed without
substantive changes.
DATES: The final rule is effective on
April 1, 2021.
FOR FURTHER INFORMATION CONTACT: Rae-
Ann Miller, Senior Deputy Director,
(202) 898–3898; Karen Jones Currie,
Senior Examination Specialist, (202)
898–3981; Supervisory Examinations
Branch, Division of Risk Management
and Supervision; Luke H. Brown,
Associate Director, (202) 898–3842;
David Friedman, Senior Policy Analyst,
(202) 898–7168, Supervisory Policy,
Division of Depositor and Consumer
Protection; William Piervincenzi,
Supervisory Counsel, (202) 898–6957;
Kathryn J. Marks, Counsel, (202) 898–
3896; Jennifer M. Jones, Counsel, (202)
898–6768, jennjones@fdic.gov,
Supervision and Legislation Branch,
Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (800) 925–4618.
SUPPLEMENTARY INFORMATION:
I. Background
The FDIC recognizes the important
distinction between issuances that serve
to implement acts of Congress (known
as ‘‘regulations’’ or ‘‘legislative rules’’)
and non-binding supervisory guidance
documents.1 Regulations create binding
legal obligations. Supervisory guidance
is issued by an agency to ‘‘advise the
public prospectively of the manner in
which the agency proposes to exercise
a discretionary power’’ and does not
create binding legal obligations.2
In recognition of the important
distinction between rules and guidance,
on September 11, 2018, the agencies
issued the Interagency Statement
Clarifying the Role of Supervisory
Guidance (2018 Statement) to explain
the role of supervisory guidance and
describe the agencies’ approach to
supervisory guidance.3 As noted in the
2018 Statement, the agencies issue
various types of supervisory guidance to
their respective supervised institutions,
including, but not limited to,
interagency statements, advisories,
bulletins, policy statements, questions
and answers, and frequently asked
questions. Supervisory guidance
outlines the agencies’ supervisory
expectations or priorities and articulates
the agencies’ general views regarding
practices for a given subject area.
Supervisory guidance often provides
examples of practices that mitigate risks,
or that the agencies generally consider
to be consistent with safety-and-
soundness standards or other applicable
laws and regulations, including those
designed to protect consumers.4 The
agencies noted in the 2018 Statement
that supervised institutions at times
request supervisory guidance and that
guidance is important to provide clarity
to these institutions, as well as
supervisory staff, in a transparent way
that helps to ensure consistency in the
supervisory approach.5
The 2018 Statement restated existing
law and reaffirmed the agencies’
understanding that supervisory
guidance does not create binding,
enforceable legal obligations. The 2018
Statement reaffirmed that the agencies
do not issue supervisory criticisms for
‘‘violations’’ of supervisory guidance
and described the appropriate use of
supervisory guidance by the agencies. In
the 2018 Statement, the agencies also
expressed their intention to (1) limit the
use of numerical thresholds in
guidance; (2) reduce the issuance of
multiple supervisory guidance
documents on the same topic; (3)
continue efforts to make the role of
supervisory guidance clear in
communications to examiners and
supervised institutions; and (4)
encourage supervised institutions to
discuss their concerns about
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jbell on DSKJLSW7X2PROD with RULES
12080 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Rules and Regulations
6 5 U.S.C. 553(e).
7 See Petition for Rulemaking on the Role of
Supervisory Guidance, available at https://bpi.com/
wp-content/uploads/2018/11/BPI_PFR_on_Role_of_
Supervisory_Guidance_Federal_Reserve.pdf. The
Petitioners did not submit a petition to the NCUA,
which has no supervisory authority over the
financial institutions that are represented by
Petitioners. The NCUA chose to join the Proposed
Rule on its own initiative.
8 85 FR 70512 (November 5, 2020).
9 The agencies use different terms to refer to
supervisory actions that are similar to MRAs and
Matters Requiring Immediate Attention (MRIAs),
including matters requiring board attention
(MRBAs), documents of resolution, and supervisory
recommendations.
10 For the sake of clarification, one source of law
among many that can serve as a basis for a
supervisory criticism is the Interagency Guidelines
Establishing Standards for Safety and Soundness,
see 12 CFR part 30, appendix A, 12 CFR part. 208,
appendix D–1, and 12 CFR part 364, appendix A.
These Interagency Guidelines were issued using
notice and comment and pursuant to express
statutory authority in 12 U.S.C. 1831p–1(d)(1) to
adopt safety and soundness standards either by
‘‘regulation or guideline.’’
11 The 2018 Statement contains the following
sentence: ‘‘Examiners will not criticize a supervised
financial institution for a ‘violation’ of supervisory
guidance.’’ 2018 Statement at 2. As revised in the
Proposed Rule, this sentence read as follows:
‘‘Examiners will not criticize (including through the
issuance of matters requiring attention, matters
requiring immediate attention, matters requiring
board attention, documents of resolution, and
supervisory recommendations) a supervised
financial institution for, and agencies will not issue
an enforcement action on the basis of, a ‘violation’
of or ‘non-compliance’ with supervisory guidance.’’
Proposed Rule (emphasis added). As discussed
infra in footnote 13, the Proposed Rule also
removed the sentences in the 2018 Statement that
referred to ‘‘citation,’’ which the Petition suggested
had been confusing. These sentences were also
removed to clarify that the focus of the Proposed
Rule related to the use of guidance, not the
standards for MRAs.
12 The Petition asserted that the federal banking
agencies rely on 12 U.S.C. 1818(b)(1) when issuing
MRAs based on safety-and-soundness matters.
Through statutory examination and reporting
authorities, Congress has conferred upon the
agencies the authority to exercise visitorial powers
with respect to supervised institutions. The
Supreme Court has indicated support for a broad
reading of the agencies’ visitorial powers. See, e.g.,
Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519
(2009); United States v. Gaubert, 499 U.S. 315
(1991); and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 (1963). The visitorial powers
facilitate early identification of supervisory
concerns that may not rise to a violation of law,
unsafe or unsound banking practice, or breach of
fiduciary duty under 12 U.S.C. 1818.
13 The following sentences from the 2018
Statement were not present in the Proposed Rule:
‘‘Rather, any citations will be for violations of law,
regulation, or non-compliance with enforcement
orders or other enforceable conditions. During
supervisory guidance with their agency
contact.
On November 5, 2018, the OCC,
Board, FDIC, and Bureau each received
a petition for a rulemaking (Petition), as
permitted under the Administrative
Procedure Act (APA),6 requesting that
the agencies codify the 2018 Statement.7
The Petition argued that a rule on
guidance is necessary to bind future
agency leadership and staff to the 2018
Statement’s terms. The Petition also
suggested there are ambiguities in the
2018 Statement concerning how
supervisory guidance is used in
connection with matters requiring
attention, matters requiring immediate
attention (collectively, MRAs), as well
as in connection with other supervisory
actions that should be clarified through
a rulemaking. Finally, the Petition
called for the rulemaking to implement
changes in the agencies’ standards for
issuing MRAs. Specifically, the Petition
requested that the agencies limit the role
of MRAs to addressing circumstances in
which there is a violation of a statute,
regulation, or order, or demonstrably
unsafe or unsound practices.
II. The Proposed Rule and Comments
Received
On November 5, 2020, the agencies
issued a proposed rule (Proposed Rule
or Proposal) that would have codified
the 2018 Statement, with clarifying
changes, as an appendix to proposed
rule text.8 The Proposed Rule would
have superseded the 2018 Statement.
The rule text would have provided that
an amended version of the 2018
Statement is binding on each respective
agency.
Clarification of the 2018 Statement
The Petition expressed support for the
2018 Statement and acknowledged that
it addresses many issues of concern for
the Petitioners relating to the use of
supervisory guidance. The Petition
expressed concern, however, that the
2018 Statement’s reference to not basing
‘‘criticisms’’ on violations of
supervisory guidance has led to
confusion about whether MRAs are
covered by the 2018 Statement.
Accordingly, the agencies proposed to
clarify in the Proposed Rule that the
term ‘‘criticize’’ includes the issuance of
MRAs and other supervisory criticisms,
including those communicated through
matters requiring board attention,
documents of resolution, and
supervisory recommendations
(collectively, supervisory criticisms).9
As such, the agencies reiterated that
examiners will not base supervisory
criticisms on a ‘‘violation’’ of or ‘‘non-
compliance’’ with supervisory
guidance.10 The agencies noted that, in
some situations, examiners may
reference (including in writing)
supervisory guidance to provide
examples of safe and sound conduct,
appropriate consumer protection and
risk management practices, and other
actions for addressing compliance with
laws or regulations. The agencies also
reiterated that they will not issue an
enforcement action on the basis of a
‘‘violation’’ of or ‘‘non-compliance’’
with supervisory guidance. The
Proposed Rule reflected these
clarifications.11
The Petition requested further that
these supervisory criticisms should not
include ‘‘generic’’ or ‘‘conclusory’’
references to safety and soundness. The
agencies agreed that supervisory
criticisms should continue to be specific
as to practices, operations, financial
conditions, or other matters that could
have a negative effect on the safety and
soundness of the financial institution,
could cause consumer harm, or could
cause violations of laws, regulations,
final agency orders, or other legally
enforceable conditions. Accordingly, the
agencies included language reflecting
this practice in the Proposed Rule.
The Petition also suggested that
MRAs, as well as memoranda of
understanding, examination
downgrades, and any other formal
examination mandate or sanction,
should be based only on a violation of
a statute, regulation, or order, including
a ‘‘demonstrably unsafe or unsound
practice.’’ 12 As noted in the Proposed
Rule, examiners all take steps to identify
deficient practices before they rise to
violations of law or regulation or before
they constitute unsafe or unsound
banking practices. The agencies stated
that they continue to believe that early
identification of deficient practices
serves the interest of the public and of
supervised institutions. Early
identification protects the safety and
soundness of banks, promotes consumer
protection, and reduces the costs and
risk of deterioration of financial
condition from deficient practices
resulting in violations of laws or
regulations, unsafe or unsound
conditions, or unsafe or unsound
banking practices. The Proposed Rule
also noted that the agencies have
different supervisory processes,
including for issuing supervisory
criticisms. For these reasons, the
agencies did not propose revisions to
their respective supervisory practices
relating to supervisory criticisms.
The agencies also noted that the 2018
Statement was intended to focus on the
appropriate use of supervisory guidance
in the supervisory process, rather than
the standards for supervisory criticisms.
To address any confusion concerning
the scope of the 2018 Statement, the
Proposed Rule removed two sentences
from the 2018 Statement concerning
grounds for ‘‘citations’’ and the
handling of deficiencies that do not
constitute violations of law.13
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6 5 U.S.C. 553(e).
7 See Petition for Rulemaking on the Role of
Supervisory Guidance, available at https://bpi.com/
wp-content/uploads/2018/11/BPI_PFR_on_Role_of_
Supervisory_Guidance_Federal_Reserve.pdf. The
Petitioners did not submit a petition to the NCUA,
which has no supervisory authority over the
financial institutions that are represented by
Petitioners. The NCUA chose to join the Proposed
Rule on its own initiative.
8 85 FR 70512 (November 5, 2020).
9 The agencies use different terms to refer to
supervisory actions that are similar to MRAs and
Matters Requiring Immediate Attention (MRIAs),
including matters requiring board attention
(MRBAs), documents of resolution, and supervisory
recommendations.
10 For the sake of clarification, one source of law
among many that can serve as a basis for a
supervisory criticism is the Interagency Guidelines
Establishing Standards for Safety and Soundness,
see 12 CFR part 30, appendix A, 12 CFR part. 208,
appendix D–1, and 12 CFR part 364, appendix A.
These Interagency Guidelines were issued using
notice and comment and pursuant to express
statutory authority in 12 U.S.C. 1831p–1(d)(1) to
adopt safety and soundness standards either by
‘‘regulation or guideline.’’
11 The 2018 Statement contains the following
sentence: ‘‘Examiners will not criticize a supervised
financial institution for a ‘violation’ of supervisory
guidance.’’ 2018 Statement at 2. As revised in the
Proposed Rule, this sentence read as follows:
‘‘Examiners will not criticize (including through the
issuance of matters requiring attention, matters
requiring immediate attention, matters requiring
board attention, documents of resolution, and
supervisory recommendations) a supervised
financial institution for, and agencies will not issue
an enforcement action on the basis of, a ‘violation’
of or ‘non-compliance’ with supervisory guidance.’’
Proposed Rule (emphasis added). As discussed
infra in footnote 13, the Proposed Rule also
removed the sentences in the 2018 Statement that
referred to ‘‘citation,’’ which the Petition suggested
had been confusing. These sentences were also
removed to clarify that the focus of the Proposed
Rule related to the use of guidance, not the
standards for MRAs.
12 The Petition asserted that the federal banking
agencies rely on 12 U.S.C. 1818(b)(1) when issuing
MRAs based on safety-and-soundness matters.
Through statutory examination and reporting
authorities, Congress has conferred upon the
agencies the authority to exercise visitorial powers
with respect to supervised institutions. The
Supreme Court has indicated support for a broad
reading of the agencies’ visitorial powers. See, e.g.,
Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519
(2009); United States v. Gaubert, 499 U.S. 315
(1991); and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 (1963). The visitorial powers
facilitate early identification of supervisory
concerns that may not rise to a violation of law,
unsafe or unsound banking practice, or breach of
fiduciary duty under 12 U.S.C. 1818.
13 The following sentences from the 2018
Statement were not present in the Proposed Rule:
‘‘Rather, any citations will be for violations of law,
regulation, or non-compliance with enforcement
orders or other enforceable conditions. During
supervisory guidance with their agency
contact.
On November 5, 2018, the OCC,
Board, FDIC, and Bureau each received
a petition for a rulemaking (Petition), as
permitted under the Administrative
Procedure Act (APA),6 requesting that
the agencies codify the 2018 Statement.7
The Petition argued that a rule on
guidance is necessary to bind future
agency leadership and staff to the 2018
Statement’s terms. The Petition also
suggested there are ambiguities in the
2018 Statement concerning how
supervisory guidance is used in
connection with matters requiring
attention, matters requiring immediate
attention (collectively, MRAs), as well
as in connection with other supervisory
actions that should be clarified through
a rulemaking. Finally, the Petition
called for the rulemaking to implement
changes in the agencies’ standards for
issuing MRAs. Specifically, the Petition
requested that the agencies limit the role
of MRAs to addressing circumstances in
which there is a violation of a statute,
regulation, or order, or demonstrably
unsafe or unsound practices.
II. The Proposed Rule and Comments
Received
On November 5, 2020, the agencies
issued a proposed rule (Proposed Rule
or Proposal) that would have codified
the 2018 Statement, with clarifying
changes, as an appendix to proposed
rule text.8 The Proposed Rule would
have superseded the 2018 Statement.
The rule text would have provided that
an amended version of the 2018
Statement is binding on each respective
agency.
Clarification of the 2018 Statement
The Petition expressed support for the
2018 Statement and acknowledged that
it addresses many issues of concern for
the Petitioners relating to the use of
supervisory guidance. The Petition
expressed concern, however, that the
2018 Statement’s reference to not basing
‘‘criticisms’’ on violations of
supervisory guidance has led to
confusion about whether MRAs are
covered by the 2018 Statement.
Accordingly, the agencies proposed to
clarify in the Proposed Rule that the
term ‘‘criticize’’ includes the issuance of
MRAs and other supervisory criticisms,
including those communicated through
matters requiring board attention,
documents of resolution, and
supervisory recommendations
(collectively, supervisory criticisms).9
As such, the agencies reiterated that
examiners will not base supervisory
criticisms on a ‘‘violation’’ of or ‘‘non-
compliance’’ with supervisory
guidance.10 The agencies noted that, in
some situations, examiners may
reference (including in writing)
supervisory guidance to provide
examples of safe and sound conduct,
appropriate consumer protection and
risk management practices, and other
actions for addressing compliance with
laws or regulations. The agencies also
reiterated that they will not issue an
enforcement action on the basis of a
‘‘violation’’ of or ‘‘non-compliance’’
with supervisory guidance. The
Proposed Rule reflected these
clarifications.11
The Petition requested further that
these supervisory criticisms should not
include ‘‘generic’’ or ‘‘conclusory’’
references to safety and soundness. The
agencies agreed that supervisory
criticisms should continue to be specific
as to practices, operations, financial
conditions, or other matters that could
have a negative effect on the safety and
soundness of the financial institution,
could cause consumer harm, or could
cause violations of laws, regulations,
final agency orders, or other legally
enforceable conditions. Accordingly, the
agencies included language reflecting
this practice in the Proposed Rule.
The Petition also suggested that
MRAs, as well as memoranda of
understanding, examination
downgrades, and any other formal
examination mandate or sanction,
should be based only on a violation of
a statute, regulation, or order, including
a ‘‘demonstrably unsafe or unsound
practice.’’ 12 As noted in the Proposed
Rule, examiners all take steps to identify
deficient practices before they rise to
violations of law or regulation or before
they constitute unsafe or unsound
banking practices. The agencies stated
that they continue to believe that early
identification of deficient practices
serves the interest of the public and of
supervised institutions. Early
identification protects the safety and
soundness of banks, promotes consumer
protection, and reduces the costs and
risk of deterioration of financial
condition from deficient practices
resulting in violations of laws or
regulations, unsafe or unsound
conditions, or unsafe or unsound
banking practices. The Proposed Rule
also noted that the agencies have
different supervisory processes,
including for issuing supervisory
criticisms. For these reasons, the
agencies did not propose revisions to
their respective supervisory practices
relating to supervisory criticisms.
The agencies also noted that the 2018
Statement was intended to focus on the
appropriate use of supervisory guidance
in the supervisory process, rather than
the standards for supervisory criticisms.
To address any confusion concerning
the scope of the 2018 Statement, the
Proposed Rule removed two sentences
from the 2018 Statement concerning
grounds for ‘‘citations’’ and the
handling of deficiencies that do not
constitute violations of law.13
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