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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Rules and Regulations
supervisory guidance with their agency contact.
On November 5, 2018, the OCC, Board, FDIC, and Bureau each received a petition for a rulemaking Petition, as permitted under the Administrative Procedure Act APA,6 requesting that the agencies codify the 2018 Statement.7
The Petition argued that a rule on guidance is necessary to bind future agency leadership and staff to the 2018
Statements terms. The Petition also suggested there are ambiguities in the 2018 Statement concerning how supervisory guidance is used in connection with matters requiring attention, matters requiring immediate attention collectively, MRAs, as well as in connection with other supervisory actions that should be clarified through a rulemaking. Finally, the Petition called for the rulemaking to implement changes in the agencies standards for issuing MRAs. Specifically, the Petition requested that the agencies limit the role of MRAs to addressing circumstances in which there is a violation of a statute, regulation, or order, or demonstrably unsafe or unsound practices.
II. The Proposed Rule and Comments Received On November 5, 2020, the agencies issued a proposed rule Proposed Rule or Proposal that would have codified the 2018 Statement, with clarifying changes, as an appendix to proposed rule text.8 The Proposed Rule would have superseded the 2018 Statement.
The rule text would have provided that an amended version of the 2018
Statement is binding on each respective agency.
Clarification of the 2018 Statement The Petition expressed support for the 2018 Statement and acknowledged that it addresses many issues of concern for the Petitioners relating to the use of supervisory guidance. The Petition expressed concern, however, that the 2018 Statements reference to not basing criticisms on violations of supervisory guidance has led to confusion about whether MRAs are covered by the 2018 Statement.
Accordingly, the agencies proposed to clarify in the Proposed Rule that the term criticize includes the issuance of 65

U.S.C. 553e.
Petition for Rulemaking on the Role of Supervisory Guidance, available at https bpi.com/
wp-content/uploads/2018/11/BPI_PFR_on_Role_of_
Supervisory_Guidance_Federal_Reserve.pdf. The Petitioners did not submit a petition to the NCUA, which has no supervisory authority over the financial institutions that are represented by Petitioners. The NCUA chose to join the Proposed Rule on its own initiative.
8 85 FR 70512 November 5, 2020.

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MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations collectively, supervisory criticisms.9
As such, the agencies reiterated that examiners will not base supervisory criticisms on a violation of or noncompliance with supervisory guidance.10 The agencies noted that, in some situations, examiners may reference including in writing supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations. The agencies also reiterated that they will not issue an enforcement action on the basis of a violation of or non-compliance with supervisory guidance. The Proposed Rule reflected these clarifications.11
The Petition requested further that these supervisory criticisms should not include generic or conclusory references to safety and soundness. The agencies agreed that supervisory criticisms should continue to be specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, 9 The agencies use different terms to refer to supervisory actions that are similar to MRAs and Matters Requiring Immediate Attention MRIAs, including matters requiring board attention MRBAs, documents of resolution, and supervisory recommendations.
10 For the sake of clarification, one source of law among many that can serve as a basis for a supervisory criticism is the Interagency Guidelines Establishing Standards for Safety and Soundness, see 12 CFR part 30, appendix A, 12 CFR part. 208, appendix D1, and 12 CFR part 364, appendix A.
These Interagency Guidelines were issued using notice and comment and pursuant to express statutory authority in 12 U.S.C. 1831p1d1 to adopt safety and soundness standards either by regulation or guideline.
11 The 2018 Statement contains the following sentence: Examiners will not criticize a supervised financial institution for a violation of supervisory guidance. 2018 Statement at 2. As revised in the Proposed Rule, this sentence read as follows:
Examiners will not criticize including through the issuance of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution, and supervisory recommendations a supervised financial institution for, and agencies will not issue an enforcement action on the basis of, a violation of or non-compliance with supervisory guidance.
Proposed Rule emphasis added. As discussed infra in footnote 13, the Proposed Rule also removed the sentences in the 2018 Statement that referred to citation, which the Petition suggested had been confusing. These sentences were also removed to clarify that the focus of the Proposed Rule related to the use of guidance, not the standards for MRAs.

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final agency orders, or other legally enforceable conditions. Accordingly, the agencies included language reflecting this practice in the Proposed Rule.
The Petition also suggested that MRAs, as well as memoranda of understanding, examination downgrades, and any other formal examination mandate or sanction, should be based only on a violation of a statute, regulation, or order, including a demonstrably unsafe or unsound practice. 12 As noted in the Proposed Rule, examiners all take steps to identify deficient practices before they rise to violations of law or regulation or before they constitute unsafe or unsound banking practices. The agencies stated that they continue to believe that early identification of deficient practices serves the interest of the public and of supervised institutions. Early identification protects the safety and soundness of banks, promotes consumer protection, and reduces the costs and risk of deterioration of financial condition from deficient practices resulting in violations of laws or regulations, unsafe or unsound conditions, or unsafe or unsound banking practices. The Proposed Rule also noted that the agencies have different supervisory processes, including for issuing supervisory criticisms. For these reasons, the agencies did not propose revisions to their respective supervisory practices relating to supervisory criticisms.
The agencies also noted that 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.
To address any confusion concerning the scope of the 2018 Statement, the Proposed Rule removed two sentences from the 2018 Statement concerning grounds for citations and the handling of deficiencies that do not constitute violations of law.13
12 The Petition asserted that the federal banking agencies rely on 12 U.S.C. 1818b1 when issuing MRAs based on safety-and-soundness matters.
Through statutory examination and reporting authorities, Congress has conferred upon the agencies the authority to exercise visitorial powers with respect to supervised institutions. The Supreme Court has indicated support for a broad reading of the agencies visitorial powers. See, e.g., Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519
2009; United States v. Gaubert, 499 U.S. 315
1991; and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 1963. The visitorial powers facilitate early identification of supervisory concerns that may not rise to a violation of law, unsafe or unsound banking practice, or breach of fiduciary duty under 12 U.S.C. 1818.
13 The following sentences from the 2018
Statement were not present in the Proposed Rule:
Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions. During
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