FDIC Finalizes (Again) Its Independent Office of Supervisory Appeals, While the OCC Proposes Its Own Changes

The FDIC published its final rule revising the Guidelines for Appeals of Material Supervisory Determinations to replace the Supervision Appeals Review Committee (SARC) with a new Office of Supervisory Appeals ("Office"). The Office will operate as an independent, standalone office with delegated authority to review appeals of material supervisory determinations (MSDs). It follows sharp criticism of the FDIC's supervision, both the substance and examiners' and officials' behavior. The final rule should enhance the independence and transparency of the MSD appeals process and, in turn, strengthen confidence in it. The appeals process generally applies to FDIC-supervised banks. The OCC and Federal Reserve have their own internal appeals processes and the OCC has recently proposed significant changes to its process. To date, the FDIC's appeals process is the most independent of these three.

The final rule largely adopts the rule proposed in July 2025 with some key changes and will become effective upon public notice by the FDIC that the Office is operational. This post focuses on what was changed in the final rule as compared to the July proposal.

Key Takeaways

• Diversity of backgrounds. While the proposal only required that at least one reviewing official on a three-member panel have bank supervisory experience, the final rule adds that at least one of the other reviewing officials on the panel must have industry experience. This may prove paradigm-shifting.
• Longer list of permissible appeals. The final rule expands the list of MSDs subject to appeal, including the facts and circumstances underlying certain proposed formal enforcement actions.
• Greater transparency. The final rule inserts several new amendments to the guidelines designed to give a bank that appeals increased access to information and materials that the FDIC holds.

Key Changes in the Final Rule

Although the final rule largely matches the FDIC's proposal, in consideration of public comments, the FDIC made several changes to foster transparency and fairness and reinforce confidence in the Office's independence.

• The final rule adds further structure to the Office. The Office's reviewing officials will be hired for fixed terms and may not be current FDIC employees or current employees of banks or their affiliates (e.g., holding companies, nonbank affiliates). Background information on the reviewing officials will be published on the FDIC's website.
• The final rule clarifies the composition of the panels that will consider appeals of MSDs. Each three-member panel must have: (1) at least one official that has bank supervisory or examination experience; and (2) at least one official that has industry experience (generally defined as having worked at a bank or for a company that provides services to banks or banking-related services). The FDIC explained in the preamble that because the vast majority of banks that have filed appeals have been community banks, it will view community bank experience favorably in considering applicants with industry experience. If a three-member panel cannot be formed, the FDIC Chair may authorize the Office to conduct business temporarily with fewer than three members or appoint one or more officials to serve as reviewing officials on a temporary basis, for up to 120 days.
• The final rule adds to the list of MSDs subject to appeal. In addition to the broad supervisory determinations outlined in the proposal, banks may now also appeal determinations as to compliance with informal enforcement actions, determinations relating to compliance with conditions imposed through the supervision or application processes, and the facts and circumstances that form the basis for a proposed formal enforcement action.

  However, in order to be in scope for an appeal, the proposed enforcement action may not be based, in whole or in part, on:
  
  

  • (1) unsafe or unsound practices under section 8 of the Federal Deposit Insurance Act; or
  • (2) violations of laws or regulations relating to a bank's AML/CFT program or the bank's sanctions compliance.

  Enforcement actions brought under those authorities are more likely to raise concerns related to safety and soundness or financial crimes that involve a degree of urgency. The Office will consider supervisory appeals involving the facts and circumstances underlying a proposed formal enforcement action on an expedited basis and require the subject bank to sign an agreement to toll the relevant statute of limitations. The FDIC rejected a request to permit appeals of decisions relating to resolution plans.

  We note that the carveout for unsafe and unsound practices appears closely related to the FDIC's (and other agencies') policies that determinations of unsafe and unsound practices should be limited to those that are likely to cause material financial harm to the bank or material risk of loss to the financial system. If that policy changes and everything is once again deemed to be a safety and soundness issue—as in years past—the appeals process will likely be less robust.

• The FDIC also rejected a request to expressly clarify that the burden of proof is a preponderance of the evidence. Instead, a bank that appeals must establish that the MSD was in error. The FDIC, however, noted in the preamble that a preponderance of the evidence standard is generally consistent with the guidelines and how the SARC (the prior FDIC appeals committee) historically decided appeals. Thus, it does not appear that a higher burden of proof should apply (e.g., clear and convincing evidence). It is not clear why they did not state it in the rule.
• The final rule confirms that ex parte communications between the Office and supervisory staff regarding the substance of an appeal must be shared with a bank on a timely basis, subject to applicable legal limitations on disclosure, and that the Office must explain any redactions in shared appeal materials to the bank.
• The final rule explains that a bank that appeals is not automatically entitled to a stay of a supervisory action or determination while the appeal of that decision is pending. Rather, the bank may request a stay in writing and the Division Director will weigh potential harms to the bank and financial system when deciding whether to grant a bank's request for a stay.
• The final rule adds that the FDIC's Legal Division will consult with the Office when resolving procedural questions referred to the Legal Division and will provide notice of resolution to the Office and the appealing bank.
• The final rule tailors the Office's waiver authority, allowing it, with the concurrence of the Legal Division, to waive for good cause deadlines or procedural requirements concerning the administration of appeals. The authority would not cover all provisions of the guidelines, such as the qualifications of reviewing officials, the standard of review, or the types of determinations that may be appealed, as initially proposed.

Comparison with the OCC's Proposed MSD Appeals Process

Who may appeal: The OCC has proposed changes to its appeals process that are similar in many ways to the FDIC's final rule. Under the OCC's proposed rule, an OCC-supervised entity—including entities that are outside of statutory requirements, such as national trust banks and permitted foreign payment stablecoin issuers—and even institution-affiliated parties directly affected by an informal enforcement action, may appeal an MSD to either a Deputy Comptroller or proposed "Appeals Board."

Appeals Board composition: Like the FDIC's new Office of Supervisory Appeals, the OCC proposes replacing the role of the Ombudsman with a standalone Appeals Board as the final level of review for MSDs that would report directly to the Comptroller.

Unlike the FDIC's approach, however, which will have a pool of nonagency individuals (including staff from elsewhere in the government that serve in a part-time role for FDIC appeals) to hear appeals, the proposed Appeals Board would be made of one group of individuals, including at least one agency individual, to hear all appeals. Under the proposed rule, the Appeals Board would be composed of the OCC's Chief National Bank Examiner and two non-OCC employee members appointed by the Comptroller for nonrenewable one-year terms with relevant supervisory experience gained from working with a financial regulator or in the private sector.

The OCC is also considering alternative compositions for the Appeals Board, such as including the Ombudsman or Chief Counsel, or OCC employees from reporting lines separate from the one that rendered the MSD, or maintaining the current structure with the Ombudsman as the decision maker. It would be interesting if the OCC were to use the same pool of individuals as the FDIC: if done properly, it might harmonize and standardize the appeals process and insulate it from extreme outcomes when policy changes with administrations.

Appealable issues: Essentially, the same types of issues would be eligible or ineligible for appeal between the two frameworks. Notable differences are that the OCC's proposal would permit appeals of all individual loan ratings, "violations of law," and Shared National Credit (SNC) exam decisions, while the FDIC's final rule only permits appeals of larger loan ratings decisions; violations of laws or regulations that that may affect the capital, earnings, or operating flexibility of a bank; or otherwise affect the nature and level of supervisory oversight accorded a bank and does not address SNC decisions. Both the FDIC's final rule and the OCC's proposed rule would not permit appeals of formal enforcement actions, although the OCC would permit a bank to appeal an underlying MSD for the limited purpose of challenging whether the OCC appropriately followed agency policies and standards in reaching the determination.

Standard of review: The Appeals Board would conduct a de novo review, without deferring to the determinations of either party. While the FDIC's final rule clarifies that the appealing bank has the burden of proof, the OCC has requested comment on the burden of proof that should apply to its appeals process. Unlike the FDIC's final rule, which expressly prohibits consideration of subsequent developments, the OCC's proposal would permit the Appeals Board to supplement the record, including through further fact-finding or soliciting the views of other OCC staff, staff of other supervisory agencies, or other sources, although its review will generally be limited to the facts and circumstances as they existed prior to or at the time the MSD was made. A bank that appeals may request that an MSD be stayed during an appeal if the appropriate Deputy Comptroller or Appeals Board concludes: (1) delaying the implementation of the MSD will not result in a risk of immediate financial harm to an OCC-supervised institution; (2) the MSD would impose costs on the appellant within the timeframe for the OCC to decide the appeal; and (3) the public interest would not be harmed by delaying the implementation of the MSD—a standard that is more precise and provides less discretion than the one in the FDIC's final rule.

Timing: While the FDIC's Office of Supervisory Appeals must meet within 90 days of receiving the appeal and issue a written decision within 45 days after the panel meets, the OCC's proposal sets forth a much shorter timeline for appeal decisions: 45 days from receipt of the appeal, unless there are extenuating circumstances requiring additional time. The timing differences are not surprising given the historical approaches of each agency. Decisions under both the FDIC's final rule and OCC's proposal will be published in redacted form (something the Federal Reserve still does not do). The OCC's proposal would permit the Comptroller to decide a matter if the Appeals Board cannot reach a decision on an appeal due to a member being recused, a scenario unlikely to occur with the FDIC's Office of Supervisory Appeals due to its structure.

Comments on the OCC's proposal are due by April 20, 2026.

Our Take

The FDIC's guidelines will (and OCC's proposed revisions would) be codified final rules and provide banks and others more substantive rights and a clearer, more independent process. It will be harder—but not impossible—to unwind this process under future leadership. At least the process under the Administrative Procedure Act will need to be followed to do so.

We also note that appeals of MSDs have historically been low. Banks—to the extent needed—should consider using this new process once it becomes effective. Hopefully, the Federal Reserve follows suit in developing changes to its appeals process, too. A general reform of the interagency CAMELS ratings would also help banks avoid the need to appeal generally.

But short of that, using the appeals process with renewed energy should eliminate supervisory subjectivity, violations of secret law, subregulatory guidance, personal opinions, and other abuses and irregularities that previously abounded in MSDs. We expect that it would be difficult to roll back substantial due process protections once granted.

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Michael Treves, Max Bonici, and Steve Gannon have extensive experience spanning financial compliance, regulatory counsel, and enforcement matters, providing insights to help clients navigate complex challenges in the financial services sector. For more insights, contact Michael, Max, Steve, or another member of Davis Wright Tremaine's financial services team or sign up for our alerts.