Appeals of Material Supervisory Determinations

A paper by Julie Andersen Hill at a conference sponsored by Federal Reserve System/Conference of State Bank Supervisors examined appeals of material supervisory determinations (MSDs) by financial institutions to the various federal banking agencies.

Beginning on page 47 of the paper, the author looks at the appeal process for the National Credit Union Administration.

According to the paper, there were 140 contacts by credit unions with NCUA Region Offices between 2002 and 2012. Ninety percent were by federal credit unions and 10 percent were by state chartered credit unions.

The paper found that "disagreement over CAMEL composite or component ratings was the most common reason that credit unions used the MSD appeals process. Additionally, 47 appeals involved a document of resolution."

However, the paper noted that credit unions rarely succeeded in overturning the initial examination determination, as seventy percent of the appeals upheld the initial examiner decision. In less than 20 percent of the appeals did the Region Office amend the MSD.

Moreover, very few appeals were filed with NCUA's Supervisory Review Committee (only six between 1995 and 2012) and the Supervisory Review Committee in each instance upheld the examiners' decisions.

The paper also pointed out differences between NCUA and the other federal banking agencies regarding their appeal processes.

For example, the OCC, Federal Reserve, and FDIC allow financial institutions to appeal any examination rating. The NCUA, however, only allows appeals of composite CAMEL ratings of 3, 4, and 5 and all component ratings of those composite ratings. The author concluded that this means credit unions have less access to an appeals process compared to other financial institutions.

The author concludes that federal banking regulators need to strengthen their MSD appeals process. This would include giving financial institutions direct access to a dedicated appellate authority outside of the examination function; requiring the appellate authority to employ a clear and rigorous standard of review; and disclosing detailed information about each decision reached by the appellate authority.