Extracted from Law360
In July, the Federal Deposit Insurance Corp. proposed revising its guidelines for appealing material supervisory determinations.
If adopted, the proposed rule would strengthen procedural protections, increase transparency and replace the FDIC's existing Supervision Appeals Review Committee, or SARC, with a stand-alone Office of Supervisory Appeals, or OSA.
This proposal merits a fresh comparison to the appeals processes of the other prudential agencies: the Office of the Comptroller of the Currency and the Federal Reserve Board.
FDIC's Current Appeals Framework
Under the FDIC's current appeals guidelines, an FDIC‐supervised institution may appeal any "material supervisory determination." That term broadly covers virtually all major exam ratings and related findings. However, formal enforcement decisions are expressly excluded and are not appealable.
Before submitting a formal appeal request, institutions are encouraged to make a good faith effort to resolve disputes with on-site examiners or the appropriate regional office.
If issues remain unresolved, the institution may submit a written request for formal review to the appropriate FDIC division director within 60 calendar days after receiving the exam report or other written notice of the disputed determination. The division director must issue a written ruling on the points raised or refer the matter to the SARC for appellate consideration within 45 days.
If the institution is dissatisfied with the division director's decision, it may appeal to the SARC within 30 days of receiving that decision. The SARC is a three‐member intra‐agency panel composed of FDIC board‐affiliated senior officials, with the FDIC general counsel and FDIC ombudsman serving as nonvoting members.
SARC appeals must be filed in writing and include a copy of the division director's decision and the institution's full legal and factual arguments. Institutions may also request an oral presentation before the SARC.
Once filed, the SARC independently reviews the record — focusing on consistency with applicable laws, regulations, FDIC policy and the overall reasonableness of the supervisory action.
A hearing on the appeal must be convened within 90 days of filing, and the SARC must issue a written decision within 45 days after such hearing. The SARC's decision is communicated to the institution in writing and is published in redacted form for precedent.
The Proposed Rule
Chief among the proposed rule's changes is replacing the SARC with the OSA as the final review body. Under the proposed rule, an institution would first appeal a material supervisory determination to the appropriate division director in the same manner as is currently in place. If the matter remains unresolved, the OSA would hear the matter.
This independent office is intended to provide a "robust, independent supervisory appeals process," the notice says. The goal of the OSA is to remove appeals decisions from the examination management chain and vest them in a stand-alone entity staffed by objective experts.
The OSA would be a permanent, stand-alone unit of the FDIC, separate from the examination divisions. The OSA would report directly to the FDIC chairperson's office and operate with delegated authority to decide appeals.
Decision panels would consist of three reviewing officials — at least one of which must have hands-on bank supervisory experience. The proposed rule notes that potential candidates may include former regulators, former bankers and other industry professionals.
Current FDIC employees would be ineligible for these roles, and appointees would serve as conflict-checked FDIC staff members bound by FDIC confidentiality rules.
Under the proposed rule, an appeal would still originate with the division director; however, any further appeal would go to an OSA panel. The OSA would then conduct a new review of the contested determination.
Like the division director, the OSA must assess the matter solely on legal and policy consistency and "the reasonableness of the support," as the notice puts it, offered for each side's position. The proposed rule also sets a clear nondeference standard, which underscores the notion that appeals are to be decided independently on their merits.
The FDIC ombudsman will continue to have a neutral oversight role under the proposed rule. As before, the FDIC ombudsman will serve as a nonvoting participant who liaises between the FDIC and appellant institutions.
However, under the proposed rule, the FDIC ombudsman may submit written views to the appeals panel for its consideration and is specifically tasked with monitoring for examiner retaliation.
FDIC leadership emphasizes that the reforms are intended to make the appeals process more independent, apolitical and consistent. By staffing the OSA with external, term‑limited officials, the FDIC expects to attract impartial reviewers who have no ongoing career incentives tied to specific supervisory divisions.
The inclusion of former bankers and regulators on appeal panels is meant to ensure that each panel has deep practical knowledge of banking, improving the quality and consistency of decisions. Collectively, these changes aim to reduce any perception of bias and to foster uniformity in how policies are applied across regions.
With a final rule expected in early 2026, these revisions would provide institutions with a clearer and more robust path to challenge exam-based supervisory findings. The promulgation of the proposed rule invites comparisons with similar frameworks maintained by the OCC and Federal Reserve.
Appeals at the OCC
The OCC has long maintained an informal appeals process through the OCC's supervisory offices. It has maintained a formal appeals process through its Office of Enterprise Governance and the ombudsman or the deputy comptroller.
Similar to the layout in the proposed rule, the OCC ombudsman is housed within the OCC but operates separately from the agency's supervisory chain of command.
OCC-supervised institutions may appeal examination ratings, determination on the adequacy of allowance for credit losses, individual loan ratings, violations of law, Shared National Credit decisions, fair lending decisions, licensing decisions, and material supervisory determinations in reports of examination.
Under the OCC's appeals framework, institutions may submit informal appeals to the appropriate OCC supervisory office within 10 days of receiving a final written agency decision.
Once filed, the supervisory office must issue a written appeals decision within 10 days. If the institution does not agree with the supervisory office's determination, the institution may seek further resolution through the OCC's formal appeals process.
Under the formal appeals process, an institution may submit an appeal to either the deputy comptroller or the OCC ombudsman within 60 days of receiving the final written agency decision giving rise to the appeal.
If filed with the deputy comptroller, the deputy comptroller will review whether the subject decision is appealable and solicit an appeal response from the applicable supervisory office.
The deputy comptroller may then engage in discussions with the institution, request supplemental information and consult with independent OCC staff. A final written decision is typically issued within 45 days.
If an institution disagrees with the deputy comptroller's decision, the institution may appeal the matter to the OCC ombudsman within 15 days of receiving the deputy comptroller's decision.
Upon receipt, the OCC ombudsman will review any materials considered in the initial appeal, and may seek additional information from the institution. They will generally issue a response to the second-tier appeal within 45 days of acceptance.
If the appeal is filed directly with the OCC ombudsman, they will determine whether the subject decision is appealable within seven days of receipt and will then solicit an appeal response from the supervisory office.
The OCC ombudsman may then engage in discussions with the institution, request supplemental information and consult with independent OCC staff.
In certain cases, the OCC ombudsman may order an independent reexamination, conducted by examiners who were not involved in the original review. The OCC ombudsman typically issues a written decision within 45 days.
If an appeal is filed directly with the ombudsman, the institution is not eligible for a second-tier review.
As with the proposed rule, the OCC's appeals policy requires the publication of anonymized appeals proceedings and prohibits retaliation against institutions that file appeals.
Federal Reserve Appeals
Under the Federal Reserve's appeals framework, institutions are encouraged to raise concerns directly with Reserve Bank or Federal Reserve Board staff and resolve disagreements before beginning a formal appeal.
The Fed's informal resolution process does not have set timelines or procedural requirements; rather, institutions and regulators are expected to act in good faith. During this informal resolution process, institutions may contact the Fed ombudsman for confidential assistance and guidance.
If informal efforts do not resolve the relevant issues, institutions may submit a formal written appeal to the Fed ombudsman within 30 days of receiving the supervisory determination. Under the Fed's appellate process, institutions may appeal any material supervisory determination.
Upon receipt, an initial review panel is appointed by the appropriate Fed division director consisting of three Reserve Bank employees not involved in the original determination and an attorney adviser. The initial panel reviews the record independently, without deference to prior findings, and may meet informally with the institution.
Following a review of the record, the initial panel issues a written decision within 45 days.
If an institution disagrees with the initial panel's decision, it may request a final review within 14 days. A final review panel composed of at least three Fed employees, including at least one who is a Fed associate director or higher, and an attorney adviser will then assess the appeal.
This final panel reviews only the record from the initial appeal and applies a so-called clear error standard of review. No new evidence may be submitted, but the final panel may host an informal appeals meeting at which a representative of the institution or counsel may make an oral presentation to the final panel.
The final panel generally issues its written decision within 21 days of the request.
Under the Fed framework, the ombudsman advises institutions on how to navigate the process and serves as a confidential point of contact for retaliation concerns.
While the ombudsman does not decide appeals, their involvement is intended to provide a valuable safeguard for preserving institutional independence and trust in the process.
Strategic Considerations and Industry Outlook
Supervisory appeals processes across all three federal banking agencies are critically important because they typically represent an institution's sole administrative remedy.
Courts routinely hold that ratings decisions, as well as determinations on capital adequacy, asset quality, management, earnings, liquidity, and sensitivity, Community Reinvestment Act, and IT assessments, are nonfinal agency actions and therefore are ineligible for review under the Administrative Procedure Act.
Therefore, judicial review of supervisory ratings is generally unavailable unless a finding is incorporated into a formal enforcement action or final agency order.
Accordingly, institutions facing adverse examination findings must treat the appeals process as their only opportunity to create a formal record, present factual and legal rebuttals, and seek modification or reversal of supervisory conclusions.
Additionally, exam findings and related requirements are not stayed as a matter of course when the determinations are appealed. If an institution desires to stay the effects of a determination, the institution must formally request action be taken.
The proposed rule and an anticipated shift in supervisory focus may encourage greater industry pushback on agency discretion, and banks may be more inclined to challenge material supervisory determinations. These appeals may also be used to preserve favorable standing ahead of potential mergers or capital offerings.
Nevertheless, institutions must consider the potential impact on their ongoing supervisory relationship, the strength of their factual record, and the likelihood of success based on prevailing precedent.
For that reason, early preparation is essential — at the examination stage banks should ensure contemporaneous documentation of examiner interactions, and begin preparing a factual narrative that supports potential appeal arguments.
The proposed rule represents a meaningful shift in the FDIC's appeals process. If finalized, the revisions would provide institutions with greater transparency and independence.
While internal agency appeals remain a nonpublic and nonlitigious process, their significance cannot be overstated, particularly given the limited availability of judicial review.
While the proposed rule is not expected to be finalized until 2026, in the interim, regulated institutions should evaluate internal policies for addressing examination disputes, consider designating escalation teams within legal or compliance functions, and familiarize themselves with the appeals frameworks across all three federal banking regulators.