Background
A bank operating
under a formal agreement appealed the composite rating and each of
the CAMELSI component ratings.
The ratings for capital, asset quality, management, earnings,
liquidity, sensitivity to market risk, and information technology
were 3/3343233, respectively.
In its
submission, the bank expressed a desire to appeal many of the
conclusions in the report of examination (ROE) that supported the
ratings. The appeal
included concern with communications between bank management and the
supervisory office and the lack of objectivity in the ROE. The appeal alleged bias by
the supervisory office in their assessment of the bank's
condition. Management
and the board were explicit in stressing that they endeavored to
work through their disagreements with the supervisory office over a
number of years. The
decision to file an appeal was made after concluding that third
party intervention by the ombudsman was the only way to restore
balance to the supervisory process. Finally, the appeal
requested the ombudsman facilitate a change in supervisory
office.
Discussion
The OCC Bulletin
2002-9, "National Bank Appeals Process: Guidance for Bankers,"
February 25, 2002, (bulletin), makes clear that
banks cannot seek ombudsman review of agency decisions for which
banks are provided with an appeal mechanism by statute or OCC
regulation, or where the decision is subject to judicial
review. These include
agency decisions to pursue formal enforcement action or recommended
decisions following formal or informal adjudications pursuant to the
Administrative Procedures Act, 5 USC 701 et seq., agency actions
that are subject to judicial review, and decisions made to
disapprove directors and senior executive officers pursuant to
Section 914 of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, 12USc 1831i.
While the
bulletin does not allow appeals of the underlying facts of an
enforcement action, it does permit material supervisory
determinations to be appealed even when an enforcement action has
been taken. In such
circumstances, the OCC's ombudsman, without engaging in additional
fact-finding, applies relevant OCC policies and standards to the
existing facts to determine whether the agency's conclusions are
consistent with those policies and standards.
The bank's
correspondence explained that their appeal was not requesting the
ombudsman's involvement with the supervisory decisions pertaining to
compliance with the existing formal enforcement action or any
subsequent decisions to pursue additional enforcement
actions.
The ombudsman
conducted a comprehensive review of the information submitted by the
bank and documentation from the supervisory office. The review included meetings
with members of the bank's board of directors, senior management
team, and legal counsel.
The ombudsman also met with members of the supervisory
office. The ombudsman's
review focused on whether there was adequate support for the
assigned ratings and whether the ratings reflected the condition of
the bank at the time of the examination.
Conclusion
The ombudsman
determined that the assigned composite and CAMELSI component ratings
were appropriate at the time of the examination. The Roe also appropriately
addressed the need to strengthen the bank's risk management
systems. However, the
ombudsman identified several instances where the report lacked
proper balance. The
wording and tone of the report was too harsh and did not give
recognition for the bank's positive actions. Further, the ROE did not
consider the unique aspects of the bank's operating
environment.
Given the length
of time since the onsite examination, the ombudsman decided a new
examination was needed as opposed to rewriting the report. The ombudsman held
discussions with the district deputy comptroller to encourage
measures that would ensure appropriate balance during the next
examination, recognizing the unique aspects of the bank[s operating
environment. Bank
management was encouraged to aggressively direct their attention and
efforts toward institutionalizing a culture that is reflective of
strong risk management systems and internal control processes
throughout the bank.
Such an effort would yield huge dividends internally as well
as eliminating the basis of most of the prior OCC criticisms and
recommendations.