January 9, 2006

Ms. Lisa Jones
Office of Information and Regulatory Affairs
Office of Management and Budget
725 17th Street, N.W.,
New Executive Office Building
Room 9013
Washington, DC 20503

Re: Proposed Bulletin for Good Guidance Practices

Dear Ms. Jones:

America’s Community Bankers (“ACB”)¹ is pleased to comment on the Office of Management and Budget’s (“OMB”) proposed Bulletin establishing policies and procedures for agencies of the United States Government to develop, issue and use guidance documents. The proposed Bulletin is intended to improve the transparency, consistency and accountability of agency guidance.

ACB Position

We generally support the proposed Bulletin for good guidance practices. In particular, we strongly support:

• Procedures allowing the public to request the creation and modification of significant guidance documents; and
• A presumption of notice and comment under the Administrative Procedure Act (“APA”) for economically significant guidance.

We find the exclusion from the proposed Bulletin of independent regulatory agencies to be a major shortcoming of the proposal. We strongly urge OMB to revise the proposal by adding a provision stating that the independent regulatory agencies as defined in the Paperwork Reduction Act (“PRA”), 44 U.S.C. § 3502(5), be encouraged to follow the procedures for issuing guidance as set forth in the proposed Bulletin.

Extension of Applicability

The proposal defines in § I (1) the agencies subject to the Bulletin as having the same meaning as under Section 3502(1) of the PRA. This excludes independent regulatory agencies as defined in Section 3502(5) of that statute. Some of the banking agencies that supervise the activities of depository institutions, namely the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, and other financial regulatory agencies fall within Section 3502(5) and would be exempt from the requirements of the Bulletin. For the reasons articulated in the following section of this letter, we strongly urge that all independent regulatory agencies be included in the Bulletin. This may be accomplished by language encouraging the independent regulatory agencies to adopt language similar to that included in the Bulletin, or by direct application of the good guidance principals as defined by the Bulletin.

Background and Explanation

ACB strongly supports the establishment of a procedure that all agencies must follow when issuing guidance. In the recent past, one or more of the financial services regulatory agencies and other independent agencies have issued guidance that has had a significant impact on the operations of ACB member institutions. This is of great concern as the guidance was issued without the notice, publication and public comment safeguards provided by the rulemaking process of the APA.

ACB’s member institutions are insured depository institutions that are regulated, supervised and in many cases chartered by one or more of the banking agencies. Banking agencies have supervisory authority over the activities of depository institutions not only through regulation but also through the issuance of guidance. Banking agencies and other financial regulatory agencies often rely on guidance, including guidance in examination manuals, to inform regulated entities how the agency interprets the law and intends to enforce the law. The guidance often contains language that may give the impression to bank management that compliance with the guidance is mandatory. In addition, banking agency staff often are compelled to follow guidance, citing violations of the guidance in examination reports. Banking agencies and other financial regulatory agencies pursuant to safety and soundness authority have tremendous discretion, which may vary from examiner to examiner, region to region, in the interpretation and application of guidance.

We, therefore, support the proposed Bulletin’s requirement that there be a notice and comment process for significant guidance documents, retaining any notice and comment period that otherwise may be required by statute. Such guidance should be subject to internal agency review and clearance, publication, submission to the public for comment, and agency consideration and response to the public comments. These procedures will help to provide certainty, consistency and fairness to the regulated entity. In addition, we support OMB’s recognition of the need for consistency in the application of guidance as well as flexibility allowing for departure from the guidance with appropriate justification and supervisory concurrence.

ACB also recommends that the definition of a “significant guidance document” be clarified to provide for a more flexible monetary threshold. In many instances, the financial impact of guidance is not known until it has been issued and is in place.
We further recommend either striking the word “highly” from “highly controversial issues” or defining what distinguishes “highly controversial” issues from “controversial issues.” An issue may be viewed differently by the regulated entity than the regulator.

We support the prohibition against the use of mandatory language in guidance unless the words describe a statutory or regulatory requirement. One of our concerns is that guidance issued by banking agencies is frequently considered binding by the regulated institution. The more mandatory the language, the less likely a regulated entity will be to seek alternative approaches from the regulator. We support the proposed Bulletin’s procedures to address complaints through electronic submission.

Finally, we strongly urge that any guidance issued be made public in as timely a way as possible. For instance, posting guidance on the agency web site is appropriate. We have been concerned in the past when guidance that affects the operations of depository institutions is not easily obtained. We are very concerned when guidance or interpretation that is followed strictly by examiners is found only in documents provided to them and not the regulated entity. It is appropriate for examiners to be given interpretive information for use in supervisory situations, but when the information is used to require a change in accounting, capital or regulatory compliance the information, should be available to the regulated entities.

We appreciate the opportunity to comment on this very important matter. We have been concerned about the increasing use by the banking agencies of guidance to inform insured depository institutions of changes in policy. We strongly support the review by OMB of the process by which guidance is issued. ACB supports the proposal with suggested modifications. Please contact the undersigned at Robert Davis at (202) 857-5088 or Sharon Lachman at (202) 857-3186 or [email protected].

Sincerely,

Robert R. Davis
Executive Vice President and
Managing Director, Government Relations
 

¹ America”s Community Bankers is the member driven national trade association representing community banks that pursue progressive, entrepreneurial and service-oriented strategies to benefit their customers and communities. To learn more about ACB, visit www.AmericasCommunityBankers.com.