Troubled Debt Restructurings Letter to Regulators and Senators

On July 6, 2020, NYLIB President Ed Lutz sent a letter to members of Congress, the prudential banking agencies, and the Financial Standards Accounting Board (“FASB”) concerning accounting for troubled debt restructurings (“TDRs”) in light of the COVID-19 pandemic. In the letter, NYLIB recommended that Congress extend the TDR relief provided to banks by Section 4013 of the CARES Act until the latter of two months after the end of the COVID-19 National Emergency or December 31, 2021. NYLIB also recommended that the prudential federal banking regulators extend the TDR relief provided in a recent interagency statement to loan modifications that are longer than six months in duration.

President Lutz explained: “NYLIB’s letter grew of out discussions amongst NYLIB members and friends. While NYLIB is deeply appreciative of the short-term TDR relief provided by the CARES Act and the interagency statement, longer-term relief is necessary given the ongoing and potentially persistent economic downturn and the need for additional transition time for asset values to recover from the adverse effects of the pandemic.”

June 30, 2020

Edward T. Lutz President – NYLIB elutz@nylib.org

The Honorable Mitch McConnell

Majority Leader
United States Senate
317 Russell Senate Office Washington, DC 20510

The Honorable Chuck Schumer

Minority Leader
United States Senate
322 Hart Senate Office Building Washington DC 20510

The Honorable Nancy Pelosi

Speaker
United States House of Representatives 1236 Longworth H.O.B.
Washington, D.C. 20515

The Honorable Kevin McCarthy

Minority Leader
United States House of Representatives 2468 Rayburn House Office Building Washington, D.C. 20515

The Honorable Jerome H. Powell

Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W. Washington, DC 20551

The Honorable Jelena McWilliams

Chairman
Federal Deposit Insurance Corporation 550 17th Street, NW
Washington, DC 20429

The Honorable Brian P. Brooks

Acting Comptroller OCC Headquarters
400 7th St. SW Washington, D.C. 20219

Shayne Kuhaneck

Acting Technical Director
Financial Standards Accounting Board 401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856

Dear Majority Leader McConnell, Minority Leader Schumer, Speaker Pelosi, Minority Leader McCarthy, Chairman Powell, Chairman McWilliams, Acting Comptroller Brooks, and Acting Technical Director Kuhaneck:

The New York League of Independent Bankers (“NYLIB”) writes to offer its recommendations for COVID-19-related legislative and regulatory action.1 NYLIB is grateful for the relief provided to community banks by Section 4013 of the CARES Act (the “Act”), which specified that certain COVID-19 related modifications do not constitute troubled debt restructurings (“TDRs”). NYLIB is also grateful for the TDR relief provided by the federal prudential banking regulatory agencies and the Financial Accounting Standards Board (“FASB”) in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) published April 7, 2020 (the “Interagency Statement”). However, we believe additional relief is warranted to prevent potentially devastating impacts on community banks in the hard-hit New York metropolitan region and across the United States.

1 NYLIB is a not-for-profit organization which provides community-based financial institutions in the New York metropolitan area and surrounding region with a unique forum for networking and educational opportunities.

By way of background, community banks are the lifeblood of the American economy. As FDIC Chairman Jelena McWilliams has commented:

Small businesses comprise almost half of private-sector employment in the United States, and banks are the most common source of external credit for these businesses. Despite holding only 13 percent of banking industry assets, our data shows that community banks hold 42 percent of small business loans. In light of ongoing consolidation in the banking industry, banks’ ability to meet the credit needs of this important sector is of vital interest to the FDIC.2

The importance of community banks to small business is highlighted by the Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”). Despite their smaller asset sizes, community banks made 60 percent of loans in the first round of the PPP – and smaller community banks made an even more disproportionately large percentage of PPP loans.3

It is thus critical to the American economy that Congress, the federal prudential banking regulatory agencies, and FASB ensure that the community banking sector not only survives the pandemic, but thrives.

The Looming Problem

Passage of the Act and regulatory relief to date has presumed the impact of COVID-19 would be severe but short-term in nature. In light of that presumption, Section 4013 of the Act and the Interagency Statement, which interprets FASB Accounting Standards Codification Subtopic 310- 40 (“ASC 310-40”), impose limitations on the extent to which banks and credit unions may decline to account for modifications made to loans impacted by COVID-19 as TDRs.

Specifically:

− Section 4013 of the Act grants banks the ability to make COVID-19-related modifications, without characterizing those modifications as TDRs, during the period beginning March 1, 2020 and ending on the earlier of A) December 31, 2020 or B) 60 days after termination of the National Emergency declared by the President on March 13, 2020. Section 4013 excludes COVID-19-related modifications of loans originated after December 31, 2019 from this relief.

2 FDIC, FDIC Releases Report on Small Business Lending Survey, (Oct. 1, 2018) (emphasis added), https://www.fdic.gov/news/news/press/2018/pr18066.pdf.3 See, e.g., Peter Rudegeair, Orla McCaffrey and Liz Hoffman, Small Businesses Were at a Breaking Point. Small Banks Came to the Rescue: Community lenders punched above their weight in the Paycheck Protection Program, the government’s lifeline to small businesses, The Wall Street Journal (May 4, 2020), (“Banks with under $10 billion in assets approved about 60% of loans in the first round of the Paycheck Protection Program, the lending effort’s official name, according to the Treasury Department and Small Business Administration. The smallest banks performed even better: Those with $1 billion or less in assets account for just 6% of all U.S. banking assets, but they and other small specialty lenders approved nearly 20% of loan dollars.”), available at https://www.wsj.com/articles/small-businesses-were-at-a-breaking-point-small-banks-came-to-the-rescue- 11588590013.

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− The Interagency Statement allows banks to presume that a modification is not a TDR if the modification is in response to the National Emergency, the borrower was current on payments at the time the modification program is implemented; and the modification is “short-term (e.g., six months).”

While this relief is greatly appreciated by NYLIB and its members, it appears that the adverse economic effects of COVID-19 on many businesses will continue through the remainder of the year and during 2021, meaning that it is very likely many businesses will continue to need COVID- 19 related modifications (or additional COVID-19-related modifications) in the fourth quarter of 2020 and during 2021. The TDR relief under the CARES Act is limited to modifications made before December 31, 2020 at most and thus is assured to be insufficient to meet the needs of community banks and their borrowers in 2021 (if not earlier in the fourth quarter of 2020, if the National Emergency declaration is terminated prior to October 31, 2020). The TDR relief under Interagency Statement, meanwhile, is limited to “short-term” modifications, and thus will not provide relief for modifications that are longer than six months. Yet not even the rosiest optimist expects that the economic impacts of the pandemic on businesses will be fully resolved six months after the President’s declaration of the National Emergency on March 13, 2020.

In fact, as Federal Reserve Board Chairman Jerome Powell recently testified before the Senate Committee on Banking, Housing, and Urban Affairs, the economy – and in particular the small businesses that are at the heart of the economy – face significant risks from an ongoing and potentially persistent downturn caused by the necessary measures taken to combat COVID-19:

Beginning in mid-March, economic activity fell at an unprecedented speed in response to the outbreak of the virus and the measures taken to control its spread. Even after the unexpectedly positive May employment report, nearly 20 million jobs have been lost on net since February, and the reported unemployment rate has risen about 10 percentage points, to 13.3 percent . . . .

[T]he levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.

Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. Long periods of unemployment can erode workers’ skills and hurt their future job prospects. Persistent unemployment can also negate the gains made by many disadvantaged Americans during the long expansion . . . . The pandemic is presenting acute risks to small businesses . . . . If a small or medium-sized business becomes insolvent because the economy recovers too slowly, we lose more than just that business.

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These businesses are the heart of our economy and often embody the work of generations.4

Congress and the federal prudential banking regulators have been leaders in the economic response to COVID-19, and continued leadership is needed. Short of implementation of the measures recommended below, we are concerned that the community banking industry, its small business clientele and the economy at large will face substantial and preventable disruption in the fourth quarter of 2020 and/or the first quarter of 2021. Even though many business owners hopefully will be on the path to recovery by this time, many may require additional or new loan modifications. With no further relief, banks will be obligated to classify such modifications as TDRs and therefore test those loans for impairment and reserve against and/or charge-off the difference between the amount of the loan and the recoverable value as of that analysis.

Such charge-offs and reserves are likely to be substantial, causing community banks to sell assets to deleverage and/or raise capital. Asset sales under these conditions would be heavily discounted as the wave of opportunities will create a buyers’ market for purchasers, the majority of these beneficiaries will likely be non-banks. These purchasers will then exert recourse against struggling small business owners to strip them of their assets, thereby undermining the original intention of the CARES Act and the financial programs originated thereunder to support small businesses. Bank earnings, capital and employment will suffer in proportion, potentially jeopardizing the very community banks that have proven indispensable to small businesses during this crisis. It is therefore critical that Congress, the federal prudential banking regulatory agencies, and FASB take action now to prevent a preventable economic disruption in the fourth quarter of 2020 or the first quarter of 2021.

Recommendations for a Solution

Fortunately, the foregoing realities can be prevented by allowing banks more time to work collaboratively with their borrowers impacted by COVID-19 without having to classify those loans as TDRs.

Our recommendations are as follows:

1. 1)  Amend Section 4013 of the CARES Act as follows:

   • −  Change the definition of “applicable period” to the later of two months after the

     end of the National Emergency or December 31, 2021; and

   • −  Change the definition of “applicability” to include loans that were not more than

     30 days past due as of March 13, 2020.

2. 2)  Amend FASB ASC 310-40 and related interagency banking regulatory guidance to extend for purposes of COVID-19 the definition of “short-term” from 6 months to 18 months, provided that:

4 Jerome H. Powell, Chairman Board of Governors of the Federal Reserve System, Semiannual Monetary Policy Report to the Congress (June 16, 2020), available at https://www.federalreserve.gov/newsevents/testimony/powell20200616a.htm.

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• −  Each successive modification granted by banks to borrowers impacted by COVID- 19 within the 18-month period must be predicated on an improvement in payment amount and be supported by a documented improvement in key performance metrics (e.g., revenue, debt service coverage ratios and/or qualitative indicators such as new contract executions, decreases in payables, etc.);

• −  Full payment status must be restored no later than 18 months to avoid TDR designation; and

• −  Loans to borrowers that file for bankruptcy and/or do not show a relatively steady trend towards rehabilitation must be classified and treated accordingly based on traditional accounting guidance.

  These measures would align legal statutes and regulatory agency and accounting guidance while allowing banks the latitude to work collaboratively with small business borrowers that are credibly on a path to recovery without compromising unnecessarily the financial stability and the viability of community banks.

  Of note, these measures would not involve further allocations of taxpayer dollars and would likely prevent the need for further financial relief for financial institutions, which will otherwise suffer materially simply due to an accounting treatment that is fundamentally at odds with circumstances unique to COVID-19.

  For these reasons, NYLIB, on behalf of its members and the banking industry strongly implore Congress, the federal prudential banking regulatory agencies, and FASB to consider the recommendations herein.

  Thank you for your courtesies. Please do not hesitate to contact me if NYLIB can be of assistance. Sincerely,

  /s/Edward T. Lutz Edward T. Lutz

  President, NYLIB

  cc:

The Honorable Steven Mnuchin

Secretary

U.S. Department of the Treasury

1500 Pennsylvania Avenue, N.W.

Washington, D.C. 20220

The Honorable Mike Crapo

Chairman, United States Senate Committee on Banking, Housing, and Urban Affairs

534 Dirksen Senate Office Building

Washington, D.C. 20510

5

The Honorable Sherrod Brown,

Ranking Member, United States Senate Committee on Banking, Housing, and Urban

Affairs

534 Dirksen Senate Office Building

Washington, D.C. 20510

The Honorable Kirsten Gillibrand

United States Senate

478 Russell

Washington, DC 20510

The Honorable Maxine Waters,

Chairwoman, United States House Committee on Financial Services

U.S. House Committee on Financial Services Democrats

2129 Rayburn House Office Building

Washington, DC 20515

The Honorable Patrick McHenry, North Carolina,

Ranking Member, United States House Committee on Financial Services

U.S. House Committee on Financial Services Republicans

4340 O'Neill House Office Building

Washington, DC 20024

The Honorable Carolyn Maloney,

Representative for New York’s 12th congressional district

2308 Rayburn House Office Building

Washington, DC 20515

The Honorable Nydia M. Velázquez

Representative for New York’s 7th congressional district

2302 Rayburn House Office Building

Washington, DC 20515

The Honorable Jim A. Himes

Representative for Connecticut’s 4th congressional district

1227 Longworth House Office Building

Washington, DC 20515

The Honorable Josh Gottheimer

Representative for New Jersey 5th congressional district

213 Cannon HOB

Washington, DC 20515

6

The Honorable Gregory W. Meeks

Representative for New York’s 5th congressional district

2310 Rayburn HOB

Washington, DC 20515

The Honorable Alexandria Ocasio-Cortez

Representative for New York’s 14th congressional district

229 Cannon HOB

Washington, DC 20515

The Honorable Lee M. Zeldin

Representative for New York’s 1st congressional district

2441 Rayburn House Office Building

Washington, DC 20515

The Honorable Blaine Luetkemeyer

Representative for Missouri’s 3rd congressional district

2230 Rayburn HOB

Washington, D.C. 20515

John C. Williams,

President and Chief Executive Officer

Federal Reserve Bank of New York

33 Liberty Street

New York, NY 10045

Michael Strine

First Vice President, Federal Reserve Bank of New York

Federal Reserve Bank of New York

33 Liberty Street

New York, NY 10045

Kevin Stiroh

Executive Vice President – Supervision

Federal Reserve Bank of New York

33 Liberty Street

New York, NY 10045

Doreen R. Eberley,

Director, Division of Division of Risk Management Supervision

Federal Deposit Insurance Corporation

550 17th Street, NW, Washington, DC 20429

7

Frank R. Hughes

Regional Director, Division of Risk Management Supervision (New York)

New York Regional Office

Federal Deposit Insurance Corporation

350 Fifth Avenue

Suite 1200

New York, NY 10118-0110

Jessica A. Kaemingk,

Deputy Regional Director, Division of Risk Management Supervision (New York)

New York Regional Office

Federal Deposit Insurance Corporation

350 Fifth Avenue

Suite 1200

New York, NY 10118-0110

Beverly F. Cole

Deputy Comptroller, Northeastern District

Northeastern District Main Office

Office of the Comptroller of the Currency

340 Madison Ave.

New York, NY 10173

Michael Moriarty,

Associate Deputy Comptroller, Midsize and Community Bank Supervision, Northeastern

District

Northeastern District Main Office

Office of the Comptroller of the Currency

340 Madison Ave.

New York, NY 10173

Cindy Coleman

Associate Deputy Comptroller, Midsize and Community Bank Supervision, Northeastern

District

Northeastern District Main Office

Office of the Comptroller of the Currency

340 Madison Ave.

New York, NY 10173

Melinda Bosworth

Assistant Deputy Comptroller

New York (Edison, NJ) Field Office, Northeastern District

Office of the Comptroller of the Currency

New York (Edison, NJ) Field Office

343 Thornall Street, Suite 610

Edison, NJ 08837

8

Thomas S. Angstadt

Assistant Deputy Comptroller

New York (Edison, NJ) Field Office, Northeastern District

Office of the Comptroller of the Currency

New York (Edison, NJ) Field Office

343 Thornall Street, Suite 610

Edison, NJ 08837

Ed Dowling

Assistant Deputy Comptroller

New York (New York) Field Office, Northeastern District

Office of the Comptroller of the Currency

340 Madison Avenue, 4th Floor

New York, NY 10022

Kerry Ann Samuel

Assistant Deputy Comptroller

New York (New York) Field Office, Northeastern District

Office of the Comptroller of the Currency

340 Madison Avenue, 4th Floor

New York, NY 10173

The Honorable Linda Lacewell

Superintendent

New York State Department of Financial Services

1 State Street

New York, NY 10004-1511

Yolanda Ford

Deputy Superintendent of Banks, Community and Regional Banks

New York State Department of Financial Services

1 State Street

New York, NY 10004-1511

The Honorable Kevin B. Hagler

Chairman

Conference of State Bank Supervisors

1129 20th Street, N.W., 9th Floor

Washington, DC 20036

9

The Federal Reserve Board Adopts Several NYLIB Recommendations in Its Final Intra-Agency Appeals Guidelines

On April 30, 2018, the New York League of Independent Bankers submitted comments through Pryor Cashman LLP to the Board of Governors of the Federal Reserve System (“Board”). The comments regarded proposed amendments to the Board’s Guidelines for Appeals of Material Supervisory Determinations, which allow for appeals of material supervisory determinations such as CAMELS and ROCA ratings. NYLIB’s comments focused on aspects of the proposed amendments concerning filing deadlines, the record provided to the final review panel, the composition of the final review panel, and the standard of review applied by the final review panel.

The Board issued its final appeals guidelines on March 17, 2020. The final guidelines adopt several of NYLIB’s recommendations.  Specifically, the final guidelines include the following changes responsive to NYLIB’s comments: 

• The final guidelines acknowledge that financial institutions can request extensions of appeals deadlines in appropriate circumstances; 

• The final guidelines provide greater specificity regarding the calculation of appeals deadlines (i.e., days are calendar days and a final deadline cannot fall on a weekend or federal holiday); 

• The final guidelines require the initial review panel to precisely identify the information upon which it relied in reaching its conclusion, and also require it to promptly provide such information to the institution upon the institution’s request to the extent permitted by law.

Pinchus Raice, the co-founder of NYLIB and one of the Pryor Cashman co-authors of NYLIB’s submission, offered the following comments on the final guidelines:

“Given that the Board’s deadline for submitting an intra-agency appeal is extremely short (30 days from the date of the relevant material supervisory determination), it was critical that the Board allow financial institutions to request extensions of appeals deadlines in appropriate circumstances. Equally important, the Board’s decision to allow appealing financial institutions to review and respond to the evidence relied upon by the initial appeals panel in their second-level appeals to the final review panel will greatly strengthen the integrity of the appeals process and lead to better and more informed decision-making by the final review panel.”

NYLIB President Ed Lutz offered the following comments: 

“It is gratifying to see that the Federal Reserve Board thoughtfully considered and responded to NYLIB’s comments on its proposed appeals guidelines. The Board’s intra-agency appeals process offers financial institutions an avenue to challenge material supervisory determinations, such as CAMELS and ROCA ratings (and, as the Board has clarified in its final appeals guidelines, MRAs and MRIAs).  NYLIB would like to thank Pryor Cashman for submitting a strong comment letter on NYLIB’s behalf that resulted in industry-friendly changes. The Board’s thoughtful response to NYLIB’s comment letter demonstrates that NYLIB fulfills an important role in giving a collective voice to independent financial institutions.”

NYLIB Announces New President Edward T. Lutz

Edward T. Lutz, President of the New York League of Independent Bankers

NYLIB is pleased to announce that Edward T. Lutz, a lifelong pioneer in the banking industry, has agreed to accept the position of President of NYLIB. Outgoing President Casey Christopher, the newest addition to ICBA’s Member Relations Team, will remain involved in the organization as a pivotal member of NYLIB’s newly formed Board of Directors.

Ed will continue the organization’s original mission of leading advocacy efforts, growing membership, developing educational programs, and acting as a voice for independent financial institutions across the tri-state area.

Ed has enjoyed a banking career of over 50 years, most recently serving as President and Chief Executive Officer of Greater Hudson Bank which was sold to ConnectOne Bank in 2018. He has served as director of three community banks (and served as Audit Committee Chairman in two of them) and has provided advice on strategic and regulatory matters as a strategic consultant during that time. Ed began his career as an Assistant Bank Examiner with the FDIC and subsequently rose through the ranks to serve as Regional Director of the FDIC’s New York Region for four years.

Mr. Lutz stated, “It is indeed humbling and exciting to be asked to pick up the mantle of leadership at NYLIB from Casey and her predecessors. I firmly believe NYLIB fills a valuable niche in bringing bankers together to discuss industry issues and to hear from industry experts and public officials. I look forward to working with the NYLIB team and its membership as we look to expand our reach and bring value to all our constituents.”

Pinchus Raice, NYLIB Co-Founder and Co-Chairman of Pryor Cashman’s Financial Institutions Group, added: “Ed Lutz brings unique industry experience, having served as senior banking regulator, bank director, and as President and CEO of a community bank. He has seen community banking from all perspectives and has been a first-hand witness to the industry’s ebbs and flows over the last 50 years. His experience and expertise will be invaluable to the organization and we are thrilled as he leads us to NYLIB’s next chapter.”

Community Banking Veteran Casey Christopher Named NYLIB President

The New York League of Independent Bankers (NYLIB) is pleased to announce that Casey Christopher, First Vice President and Business Development Officer of CenterState Bank’s Correspondent Division, has joined NYLIB as President. She will be tasked with leading advocacy efforts, growing membership, developing educational programs, and organizing a voice for local, independent financial institutions across New York City.

At CenterState Bank, a publicly traded commercial bank with over $12 billion in assets based in Winter Haven, Florida, Christopher manages a customer portfolio of over 200 community banks, and she plans to utilize this vast network to inform NYLIB’s philosophy on future advocacy and programming initiatives.

“Casey has her finger on the pulse of what community banks need and knows what keeps them up at night. This kind of knowledge is critical as NYLIB continues to grow in size, scale, and relevance,” said Pinchus Raice, Co-Founder of NYLIB and Co-Chair of Pryor Cashman’s Financial Institutions Group.

Christopher is an active member of the Florida Bankers Association, New Jersey Bankers Association, Financial Women’s Association of NY, Financial Managers Society of NY/NJ, and the Junior League of Bergen County. She is a co-founding member of the Florida Bankers Association’s Annual Florida Women in Banking Conference and currently serves on the Junior League of Bergen County Board as their Membership VP, as well as on the Ohio University Alumni Association’s Board of Directors, where she sits on the Board of Trustees and is Chairwoman of the National Alumni Board (2018-2020). 

Board Member Phil Gonzalez added, “Casey’s depth and knowledge of the community banking world will reap significant rewards for NYLIB both today and well into the future.”

“NYLIB has a wonderful opportunity to foster change through their strength in numbers. They count some of the top community banks in the state among their ranks, and I am thrilled to lead them as we forge a new chapter in the association’s history,” said Christopher.

Christopher was awarded The Dr. C. Arnold Matthews Honor Graduate Award in 2012 at the 43rd Annual Florida School of Banking, which was established to recognize a graduating senior who achieved the highest standard of excellence during their attendance.  She is also a 2015 graduate of The Graduate School of Banking at Louisiana State University and a 2002 graduate of Ohio University.

The New York League of Independent Bankers (NYLIB) Submits Comments Regarding Proposed Amendments to the Federal Reserve’s Guidelines for Intra-Agency Appeals

On April 30, 2018, The New York League of Independent Bankers (“NYLIB”) submitted comments to the Board of Governors of the Federal Reserve System (“Board”). The comments regarded proposed amendments to the Board’s Guidelines for Appeals of Material Supervisory Determinations, which allow for appeals of material supervisory determinations such as CAMELS and ROCA ratings. 

NYLIB’s comments focused on aspects of the proposed amendments concerning filing deadlines, the record provided to the final review panel, the composition of the final review panel, and the standard of review applied by the final review panel. Specifically, NYLIB recommended that:

• The Board should continue to acknowledge that extensions of the 30-day initial appeal deadline may be granted in appropriate circumstances, rather than eliminating the reference to extensions found in the current Guidelines;

• The Board should continue to allow 30 days to appeal from a decision of the initial review panel, rather than reducing the time period allowed for financial institutions to appeal from the decision of the initial review panel from 30 days to 14 days;  

• The Board should incorporate a method for the construction of time limits that addresses issues such as the consequences of filing deadlines falling on weekends and holidays;

• The Board should provide that “the record upon which the initial appeal panel made its decision” that is provided to the final review panel will also be provided to the appealing financial institution;

• The Board should provide that the final level of review is performed by the Ombudsman or the Board, not a panel of staff hand-picked by the “director of the appropriate division of the Board” for the specific appeal; and  

• The Board should provide that the final review panel’s review is de novo, rather than deferential to the decision of an initial review panel drawn from the Reserve Bank that made the material supervisory determination(s) being appealed.

Pinchus Raice, Co-Founder of NYLIB, offered the following comments on NYLIB’s recommendations:

Some aspects of the Board’s proposed amendments took a step backward, rather than a step forwards, from the perspective of financial institutions. The Board should not amend its Guidelines in a manner that makes it more difficult for financial institutions to file intra-agency appeals, nor should it seek to reduce the independence of the appeals process. Adopting NYLIB’s well-reasoned recommendations would enhance the effectiveness of the Board’s appeals process, lead to better decision-making, and increase the confidence of financial institutions in the integrity and independence of the appeals process. 

Builders Bank Update: NYLIB Submits Additional Authority Supporting Option to Challenge “CAMELS” Ratings in Federal Court

On October 23, 2017, the court in Builders Bank v. FDIC granted the New York League of Independent Bankers ("NYLIB") approval to file additional authority in support of its September 13, 2017 friend-of-the-court brief.

The case concerns whether the federal financial regulatory agencies' "CAMELS" ratings are reviewable in federal court. The FDIC's position, expressed in its July 2017 comments to its intra-agency appeals guidelines, is that CAMELS ratings are never reviewable by the federal courts because there is no meaningful source of law to apply to review the FDIC's exercise of discretion in assessing the ratings.

NYLIB's motion points out that a sister agency, the National Credit Union Administration ("NCUA"), has put forth a contradictory view of the appealability of CAMELS ratings (or in the NCUA's case, "CAMEL" ratings).  In a May 2017 intra-agency appeal decision, the NCUA Board explicitly acknowledged that its decisions upholding CAMEL ratings after an intra-agency appeal are reviewable by the federal courts. NYLIB submitted the NCUA Board decision to the Builders Bank court as additional, persuasive authority supporting its position that there in fact are standards by which the federal courts may review CAMELS ratings.

NYLIB Supports Option for Financial Institutions to Challenge "CAMELS" Ratings

NYLIB has joined other banking industry organizations in filing a friend-of-the-court brief in Builders Bank v. FDIC regarding whether the federal financial regulatory agencies' "CAMELS" ratings are reviewable in federal court. Our organization believes the support of this matter is important to ensure that banks have the ability to challenge ratings they feel are undeserved and to ensure that the power of the federal regulatory agencies does not go unchecked. Click here to read the amicus brief. 

A Look at the Issues    

Builders Bank brought suit in federal court challenging the composite rating of "4" assigned to it by the FDIC and sought a reversal of that rating along with a refund of the excess deposit insurance premiums it incurred due to the rating.

In response, the FDIC sought to dismiss Builders Bank's suit, arguing that a CAMELS rating is not reviewable in federal court unless a financial institution first obtains review of the rating through the FDIC's intra-agency appeals process. The FDIC's motion to dismiss further contended that, even if an institution prosecutes an intra-agency appeal, CAMELS ratings are never reviewable by the federal courts because there is no meaningful source of law to apply to review the FDIC's exercise of discretion in assessing CAMELS ratings.

NYLIB's amicus brief challenges both of these contentions. Pinchus D. Raice, Co-Chair of Pryor Cashman's Financial Institution Group, explained, "While the federal financial regulatory agencies' intra-agency appeals processes can provide a useful method of challenging unwarranted CAMELS ratings, no statute or regulation requires financial institutions that have been assigned unwarranted CAMELS ratings to utilize the agencies' intra-agency appeals processes. Under appropriate circumstances, a financial institution should have the option to seek review of a CAMELS rating in federal court — whether or not the institution has chosen to utilize the examining agency's intra-agency appeals process." 

Banking Industry Support    

Sarah Ciopyk, NYLIB's Executive Director, commented, "It is important to provide an industry viewpoint on complex legal and regulatory issues that have a systemic, industry-wide impact, and NYLIB appreciates the opportunity to make its voice heard on the important issues before the Court in Builders Bank v. FDIC. NYLIB hopes that its amicus brief will be of assistance to the Court."  

The Clearing House Association, the American Bankers Association, and the Independent Community Bankers of America also previously submitted a joint amicus brief in the case.