Several trade associations for the banking industry have weighed in on a pending potential landmark case in the Northern District of Illinois regarding the possible judicial review of CAMELS (Capital, Asset Quality, Management, Earnings, Liquidity and Sensitivity) ratings of financial institutions. As noted by this blog earlier this year, the United States Court of Appeals for the Seventh Circuit, in Builders Bank v. FDIC, 846 F.3d 272 (7th Cir.2017), vacated a lower court ruling stating that CAMELS ratings by the FDIC were committed to agency discretion and thus beyond judicial review. The case has been remanded to the Northern District of Illinois, where the Clearing House Association, the American Bankers Association, and the Independent Community Bankers of America have filed a brief as amici curiae, in support of neither party but solely to assert that CAMELS ratings are not exempt from judicial review.
In their brief, the amici assert that the availability of judicial review of agency decisions serves important purposes, by “providing assurance that agencies do not exceed the limits of their statutory authority and treat parties fairly, consistently, and rationally,” particularly in the arena of CAMELS ratings, which “are a cornerstone to bank regulation” and have the potential to have “significant impact” on banks’ businesses and activities. Following the introductory section to the U.S. Code’s chapter on judicial review of administrative agency decisions (5 U.S.C. Section 701), the amici state that judicial review ought to be presumptively available absent (1) a statute precluding judicial review, or (2) the FDIC’s action being committed to its discretion by law. The amici note that the Federal Deposit Insurance Act does not preclude judicial review of FDIC examinations. They argue, further, that the Seventh Circuit allows for judicial review of agency decisions where the agency has published factors that guide its decision making process. The amici point to, among other factors, the Uniform Financial Institutions Rating System (“UFIRS”), which the FDIC references in its manual for risk management examiners, as providing such factors undergirding the CAMELS ratings. The amici also claim that commitment of certain CAMELS components to agency discretion (e.g., the Capital component, committed to agency discretion pursuant to 12 U.S.C. Section 3907(a)(2), as noted in this blog’s prior post on this matter) would not foreclose other components from judicial review, as noted by the Seventh Circuit in the case at hand.
Appealability of FDIC decisions continues to be a contentious issue for the banking community. On July 18, 2017, the FDIC adopted revised Guidelines for Appeals of Material Supervisory Determinations (the “Guidelines”), which provided guidelines for certain appeals of agency decisions, including CAMELS ratings, to the FDIC’s own Supervisory Appeals Review Committee (“SARC”). In their Notice of Guidelines, however, the FDIC stated that “because supervisory decisions are entrusted to agency discretion, SARC decisions are not appealable.” The American Bankers Association, in its comment to the prior proposed draft of the Guidelines, had requested that the Guidelines be amended to include an independent appellate review process for agency decisions. The forthcoming ruling in Builders Bank v. FDIC may open the door for them and the banking industry in general to such an independent appellate review.
