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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
written formal actions and that banking institutions should be reassured that they will not be criticized or cited for a violation of guidance when no law or regulation is cited. One commenter suggested that it would instead be appropriate to discuss supervisory guidance privately, rather than publicly, potentially during the pre-exam meetings or during examination exit meetings. Another commenter suggested that, while referencing guidance in supervisory criticism may be useful at times, agencies should provide safeguards to prevent such references from becoming the de facto basis for supervisory criticisms. One commenter suggested that examiners also should not criticize community banks in their final written examination reports for not complying with best practices unless the criticism involves a violation of bank policy or regulation. The commenter added that industry best practices should be transparent enough and sufficiently known throughout the industry before they are cited in an examination report. One commenter requested that examiners should not apply large bank practices to community banks that have a different, less complex and more conservative business model. One commenter asserted that MRAs should not be based on reputational risk, but rather the underlying conduct giving rise to concerns should be the basis for an MRA and asked the agencies to address this in the final rule.
Commenters that opposed the proposal did not support restricting supervisory criticism or sanctions to explicit violations of law or regulation.
One commenter expressed concern that requiring supervisors to wait for an explicit violation of law before issuing criticism would effectively erase the line between supervision and enforcement. One commenter emphasized the importance of bank supervisors basing their criticisms on imprudent bank practices that may not yet have ripened into violations of laws or rules but which if left unaddressed could undermine safety and soundness or pose harm to consumers.
One commenter argued that the agencies should state clearly that guidance can and will be used by supervisors to inform their assessments of banks practices; that it may be cited as, and serve as the basis for, criticisms.
According to the commenter, even under the well-established law described in the proposal, it is quite permissible for guidance to be used as a set of standards that may indeed inform a criticism, provided that application of the guidance is used for
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corrective purposes, if not to support an enforcement action.
According to one commenter, the proposal makes fine conceptual distinctions between, for example, issuing supervisory criticisms on the basis of guidance which is apparently forbidden and issuing supervisory criticisms that make reference to supervisory guidance which continues to be permitted. The commenter suggested that is a distinction that it may be difficult for people to parse in practice. According to the commenter, a rule that makes such a distinction is likely to have a chilling effect on supervisors attempting to implement policy in the field. According to another commenter, the language allowing examiners to reference supervisory guidance to provide examples is too vague and threatens to marginalize the role of guidance to the point that it becomes almost useless in the process of issuing criticisms designed to correct deficient bank practices.
E. Legal Authority and Visitorial Powers One commenter questioned the agencies reference in the proposal to visitorial powers as an additional authority for early identification of supervisory concerns that may not rise to a violation of law, unsafe or unsound banking practice, or breach of fiduciary.
F. Issuance and Management of Supervisory Guidance Several commenters made suggestions about how the agencies should issue and manage supervisory guidance.
Some comments suggested that the agencies should clearly delineate between regulations and supervisory guidance. Commenters encouraged the agencies to regularly review, update, and potentially rescind outstanding guidance. One commenter suggested that the agencies rescind outstanding guidance that functions as a rule but has not gone through notice and comment.
One commenter suggested that the agencies memorialize their intent to revisit and potentially rescind existing guidance, as well as limit multiple guidance documents on the same topic.
Commenters suggested that supervisory guidance should be easy to find, readily available, online, and in a format that is user-friendly and searchable.
One commenter encouraged the agencies to issue principles-based guidance that does not contain the kind of granularity that could be misconstrued as binding expectations.
According to this commenter, the agencies can issue separate FAQs with more detailed information but should clearly identify these as non-binding
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illustrations. This commenter also encouraged the agencies to publish proposed guidance for comment when circumstances allow. One commenter expressed concern that the agencies will aim to reduce the issuances of multiple supervisory guidance documents and will thereby reduce the availability of guidance in circumstances where guidance would be valuable.
Responses to Comments As stated in the Proposed Rule, 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. The standards for issuing MRAs and other supervisory actions such as DORs were, therefore, outside the scope of this rulemaking.
For this reason, and for reasons discussed earlier, the final rule does not address the standards for MRAs and other supervisory actions such as DORs.
Similarly, because the NCUA is not addressing approaches to supervisory criticism in the final rule, including any criticism related to reputation risk, the final rule does not include standards for supervisory criticisms relating to reputation risk.
With respect to the comments on coverage of interpretive rules, the NCUA
agrees with the commenter that interpretive rules do not, alone, have the force and effect of law and must be rooted in, and derived from, a statute or regulation.20 While interpretive rules and supervisory guidance are similar in lacking the force and effect of law, interpretive rules and supervisory guidance are distinct under the APA
and its jurisprudence and are generally issued for different purposes.21
Interpretive rules are typically issued by 20 See
Mortgage Bankers Association, 575 U.S. at
96.
21 Questions concerning the legal and supervisory nature of interpretive rules are case-specific and have engendered debate among courts and administrative law commentators. The NCUA takes no position in this rulemaking on those specific debates. See, e.g., R. Levin, Rulemaking and the Guidance Exemption, 70 Admin. L. Rev. 263 2018
discussing the doctrinal differences concerning the status of interpretive rules under the APA; see also Nicholas R. Parillo, Federal Agency Guidance and the Powder to Bind: An Empirical Study of Agencies and Industries, 36 Yale J. Reg 165, 168 n.6 2019
Whether interpretive rules are supposed to be nonbinding is a question subject to much confusion that is not fully settled; see also ACUS, Recommendation 20191, Agency Guidance Through Interpretive Rules Adopted June 13, 2019, available at https www.acus.gov/
recommendation/agency-guidance-throughinterpretive-rules noting that courts and commentators have different views on whether interpretive rules bind an agency and effectively bind the public through the deference given to agencies interpretations of their own rules under Auer v. Robbins, 519 U.S. 452 1997.

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