United States: The Regulators And Guidance: Thou Doth Protest Too Much

In our recent article in The Banking Law Journal, we discussed bank regulatory "guidance" that the U.S. Government Accountability Office ("GAO") determined should have been reported to Congress and subject to review under the Congressional Review Act ("CRA").1 We discussed how such GAO determinations brought into question the validity of the banking agencies' approach to guidance. We noted that Congress might use the CRA as a tool to invalidate guidance. This prediction came true in May 2018 when Congress first used the CRA to invalidate the Consumer Financial Protection Bureau ("CFPB") Bulletin on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.2 We also predicted that such GAO determinations were likely to have a chilling effect on the issuance of new guidance. While the accuracy of that prediction is still unknown, it is safe to say that the regulators have taken notice.

On September 11, 2018, the Board of Governors of the Federal Reserve System ("Federal Reserve"), Federal Deposit Insurance Corporation ("FDIC"), National Credit Union Administration ("NCUA"), Office of the Comptroller of the Currency ("OCC"), and CFPB issued an Interagency Statement Clarifying the Role of Supervisory Guidance (the "Statement") with the expressed intent of describing the agencies' approach to supervisory guidance. The Statement begins by describing "supervisory guidance" as including interagency statements (ironically, the guidance on guidance), advisories, bulletins, policy statements, questions and answers, and frequently asked questions. The agencies then proclaimed that:

Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance. Rather, supervisory guidance outlines the agencies' supervisory expectations or priorities and articulates the agencies' general views regarding appropriate practices for a given subject area.

The agencies believe that guidance plays an important role in the regulatory scheme applicable to banks by providing transparency and insight to industry. Guidance also educates supervisory staff as to practices that their leadership generally consider consistent with safety-and-soundness standards and other applicable laws and regulations, thereby promoting consistency in supervisory approach. However, when guidance is applied with the effect of law, it can end run protections afforded from regulatory overreach. Based on their public statements, Joseph M. Otting and Jelena McWilliams appear to agree. Specifically, in her first public remarks as chairman of the FDIC, Ms. McWilliams stated her opposition to the use of agency guidance in place of formal rules.3 Now, the agencies have expressed their intention in the Statement to reign in their use of guidance while indicating their belief that guidance still has important uses.

In an effort to draw a brighter line as to when guidance should not trigger the GAO's opinion that guidance is subject to the CRA, the regulators have first indicated their plan to "limit the use of numerical thresholds or other 'bright-lines' in describing expectations in supervisory guidance" and clarified that, where thresholds are used, such thresholds "are exemplary only and not suggestive of requirements." Here, the agencies appear to be not-so-subtly referring to the Interagency Guidance on Leveraged Lending issued by the Federal Reserve, FDIC, and OCC in March 2013, which is extremely heavy on numerical thresholds and bright-line tests. Given that the head of one of the agencies that authored that guidance (Mr. Otting) has taken the stance that banks can essentially "do what they want" in terms of leveraged lending, in spite of the guidance, as long as they have the capital to support it, one might wonder if the leveraged lending guidance faces the same fate as the CFPB's indirect auto lending bulletin.4

In the Statement, the agencies have also committed not to criticize a supervised financial institution for a "violation" of supervisory guidance. Instead, any citations will be for violations of law, regulation, or noncompliance with enforcement orders or other enforceable conditions. We noted in our article that, while the agencies do not generally reference guidance in enforcement actions, they are more likely to do so in examination findings, such as in a "Matter Requiring Attention."5 Now, there is even more room to push back to the extent that guidance is referenced or relied on in examination findings. That being said, the agencies left themselves ample room to "identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation" during examinations and other supervisory activities. Additionally, still at the regulators' disposal are the penalty provisions under Section 8 of the Federal Deposit Insurance Act (FDIA), which allow regulators to impose civil money penalties for unsafe and unsound banking practices6 and breaches of fiduciary duty and not just violations of law.

Also significant is the agencies' commitment in the Statement to limit and reduce the issuance of multiple supervisory guidance documents on the same topic. Ms. McWilliams has previously made statements to this effect as well. On September 10, 2018, one day before the issuance of the Statement, the FDIC issued a financial institution letter ("FIL") seeking comment on a proposal to retire to an inactive status 374 of the 664 risk management supervision-related FILs issued between 1995 through 2017.7 According to the FDIC, the proposal is part of a continuing effort to reduce regulatory burden and to update and streamline guidance.

The agencies also use the Statement to reserve their right to seek public comment on supervisory guidance, proclaiming that doing so does not mean that the guidance is intended to be a regulation or have the force and effect of law. Looking to the future, the agencies end the Statement by committing to continue efforts to make the role of supervisory guidance clear in their communications to examiners and supervised financial institutions, and by encouraging supervised institutions with questions about the Statement or any specific guidance to discuss such questions with their appropriate agency contact. Banks should accept the foregoing invitation enthusiastically.

It is too soon to know what practical effect, if any, the Statement will have on the state of bank regulatory guidance. However, in light of the GAO's recognition of the broad reach of the CRA, the Statement is not likely to serve what appears to be the agencies' main regulatory aim of preserving intact the guidance framework, even if on a more limited basis, and warding off Congressional review.8


1 See Peter Weinstock & Marysia Laskowski, "If It Walks Like A Duck . . .": The Demise Of The Guidance Masquerade, 135 THE BANKING LAW JOURNAL 215 (April 2018), available at https://www.hunton.com/images/content/3/6/v2/36602/if-it-walks-like-a-duck-the-demise-of-the-guidancemasquerade.pdf.

2 Pub. L. No. 115-172, 132 Stat. 1290 (May 21, 2018), available at https://www.congress.gov/115/plaws/publ172/PLAW-115publ172.pdf.

3 In remarks to the to the Prudential Regulation Conference, Ms. McWilliams stated that regulators have a duty to explain the reasoning behind their actions and that the role of guidance is to explain regulations and statutes already in place, not to impose  new standards. Accordingly, she has asked staff to provide a list of guidance and rulemakings that may be good candidates to be reopened, with a clear priority to guidance that has never been subject to notice and public comment. Ms. McWilliams considers cost benefit analysis (such as that required under the CRA) to be an important tool to determining the appropriateness of regulations as well as increasing transparency of the agency's thinking. See Kristina Whittaker & Neil Bloomfield, What To Expect From The FDIC's New Chief, LAW360, available at https://www.law360.com/articles/1060792/what-to-expect-from-the-fdic-s-new-chief

4 See Eleanor Duncan, Banks can 'do what they want' in leveraged lending: Otting, Reuters (Feb. 28, 2018), available at https://www.reuters.com/article/us-usa-banks-lending-otting/banks-can-do-what-they-want-in-leveraged-lending-otting-idUSKCN1GC0B5.

5 Supra note 1 at 225.

6 "Generally speaking, an 'unsafe or unsound practice' embraces any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible consequences of which, if continued, would be abnormal risk of loss or damage to an institution, its shareholders, or the agencies administering the insurance funds." 112 Cong. Rec. 24984 (1966); id. at 26474.

7 FDIC Seeks Comment on Proposed Retirement of Certain Financial Institution Letters, FIL-46-2018 (Sep. 10, 2018), available at https://www.fdic.gov/news/news/financial/2018/fil18046.html

8 Note, the Securities and Exchange Commission ("SEC") also recently issued a statement clarifying the difference between supervisory guidance and laws or regulations. See Chairman Jay Clayton, Statement Regarding SEC Staff Views, SEC (Sep. 13, 2018), available at https://www.sec.gov/news/public-statement/statement-clayton-091318

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions