The Federal Reserve System's Ombudsman and the Amended Material Supervisory Determination Appeals Process

12 Min Read By: Federal Reserve Ombudsman Office, Amy Koontz, Jean Whyte

Do you know what an ombudsman does? Did you know that the Board of Governors of the Federal Reserve System (“Board”) has an Ombudsman Office that serves individuals and financial institutions affected by the Federal Reserve System’s (the “Federal Reserve”) regulatory and supervisory activities? This article provides an overview of the Board’s Ombudsman Office and explains recent amendments to the Federal Reserve’s procedures for an institution to appeal a rating or other supervisory action (material supervisory determination (“MSD”) appeals process).[1]

What Is an Ombudsman?

The term “ombudsman” is Swedish in origin (literally translated, it means “representative”), and an ombudsman’s function is to assist “individuals and groups in the resolution of conflicts and concerns.”[2] The ombudsman profession dates back to 1713, when King Charles XII of Sweden appointed an ombudsman to help promote good governance and conflict mitigation.[3] The use of ombudsmen has continued to evolve, spreading throughout the public, private, and academic sectors around the world.[4] Examples of organizations and businesses that employ ombudsmen include the United Nations, the International Monetary Fund, the American Red Cross, the Inter-American Development Bank, the United States Olympic Committee, American Express Company, The Coca-Cola Company, Mars Inc., and United Technologies Corporation.

This article presents an outline of the office’s methods and purpose from the perspective of the Federal Reserve’s Ombudsman Office employees, past and present.

The Federal Reserve System’s Ombudsman Office

Establishment of the Ombudsman Office

The Board established the position of Ombudsman in 1995, as required by the Riegle Act.[5] Other financial regulators, including the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency, also have ombudsmen. The Riegle Act directed each federal banking agency to appoint an ombudsman to:

(A)  act as a liaison between the agency and any party with any problem the party may have in dealing with the agency as a result of its regulatory activities; and

(B)  ensure that safeguards exist to encourage complainants to come forward and preserve confidentiality.[6]

What We Do and How We Do It

The Board’s Ombudsman Office is guided by four core principles: independence, informality, fairness, and confidentiality. We operate outside of the Federal Reserve’s supervisory and regulatory processes and are therefore independent. The Ombudsman Office is located in the Board’s Office of the Secretary, and Ombudsman staff do not report to the Board’s supervisory divisions.

The Ombudsman Office has three major functions. Primarily, we are available to facilitate the fair and timely resolution of complaints related to the Federal Reserve’s supervisory and regulatory activities. In performing this function, we most commonly hear from representatives of state member banks (for which the Federal Reserve is the primary federal regulator) about a specific supervisory determination. For example, financial institutions have contacted our office about supervisory component and composite ratings; findings in safety and soundness examinations and consumer compliance exams; timing, process, or other concerns relating to exams; and the review and approval of pending applications. To help resolve such matters, we work collaboratively with representatives of the supervised institution and with senior staff at the Board or Reserve Bank, as appropriate. In short, we do our best to facilitate productive communication and to keep the resolution process on track.   

Depending on the severity of the problem, the Board’s general practice is to attempt to resolve problems informally, when appropriate. In keeping with this policy, our office typically assists individuals or financial institutions before a formal process is initiated, often obviating the need to use a formal process. Moreover, our office can continue to assist an individual or institution in resolving a dispute even if it has escalated to a formal process. We have informally assisted financial institutions during the pendency of an MSD appeal to provide information and to help address, for example, communication or delay issues. 

We also serve as an intake point for whistleblower complaints against supervised institutions or institution-affiliated parties. We generally gather information from the complainant and share the information with appropriate Board or Reserve Bank staff. However, if an individual wants to remain anonymous outside of discussions with the Ombudsman Office, we will not share any identifying information.

The second major function of our office is to investigate any claim that Federal Reserve staff has retaliated against a supervised institution. The Board has a strict policy prohibiting retaliation. The Ombudsman Office defines retaliation as any action or decision by Board or Reserve Bank staff that causes a supervised institution to be treated differently (e.g. more harshly) than other similarly situated institutions because the institution has attempted to resolve a complaint by filing an MSD appeal or has utilized any other Board mechanism for resolving a complaint.[7] Because of the ongoing relationships between financial institutions and the Board, we recognize how difficult it can be for an institution to raise retaliation claims, and we ensure that all such claims are fully investigated. During this process, our office collects and reviews relevant documents, interviews witnesses, and consults with Board or Reserve Bank subject matter experts.[8] Throughout the course of our investigation, we also attempt to resolve retaliation claims informally, such as through discussions with the complaining institution and relevant Board or Reserve Bank staff.[9] At the conclusion of an investigation, our office determines if retaliation occurred and reports its factual findings and determination to the appropriate Federal Reserve internal resources.[10] We may also recommend to the appropriate division director that personnel involved in the claimed retaliation be excluded from the next examination of the institution or review that may lead to an MSD. However, the division director will make the final decision regarding any exclusions of Federal Reserve personnel from future examinations. 

Our third function is to provide feedback on patterns of issues.[11] This function includes reporting to Board members and senior staff on issues that are likely to have a significant impact on the Federal Reserve’s missions, activities, or reputation that arise from the Ombudsman’s review of complaints, such as patterns of issues that occur across multiple complaints. This information includes aggregate data, and may also include particular issues raised by institutions. To maintain confidentiality, we do not share any identifying information about an institution in these reports, unless expressly authorized to do so by the institution. This reporting function enables us to share directly with Board members and senior staff our perspective based on the concerns of individuals and financial institutions affected by the Federal Reserve’s supervisory or regulatory activities.

Due to the nature of the Ombudsman Office’s functions, we have established safeguards to protect the identity of the individuals and financial institutions that contact our office. We also protect the confidentiality of the information they share, upon request. Our email address and telephone line are not accessible to anyone other than Ombudsman Office staff. We share identifying and other information with Federal Reserve staff only if the individual or financial institution has explicitly authorized us to do so (except if disclosure is required by law, in the event of imminent risk of serious harm, or in the case of fraud, waste, or abuse). 

In sum, our office serves in most instances as an informal resource, and we advocate for a fair and timely resolution of disputes or concerns. An institution’s participation in a resolution process with the Ombudsman is voluntary.  If a financial institution or individual no longer wants to pursue resolution through our office, it is free to terminate the process at any time.

The MSD Appeals Process

The Riegle Act also directed the federal banking agencies to establish an “independent intra-agency appellate process” for the review of “material supervisory determination[s]” and to ensure that “appropriate safeguards exist for protecting the appellant from retaliation by agency examiners.”[12] In response, the Board established an MSD appeals process in March 1995. Last year, the Board adopted an amended MSD appeals process, drawing on experience with and feedback on the original policy.[13] The purpose of the revised process is to improve and expedite the appeals process. Highlights of the amendments, which became effective on April 1, 2020, are summarized below. 

The original process defined an MSD to include determinations related to examinations or inspection composite ratings, the adequacy of loan loss reserves, and significant loan classifications.  The revised process clarifies that Matters Requiring Attention (MRAs) and Matters Requiring Immediate Attention (MRIAs) constitute appealable MSDs. Specifically, the revised process states that an MSD includes, but is not limited to, “any material determination relating to examination or inspection composite ratings, material examination or inspection component ratings, the adequacy of loan loss reserves and/or capital, significant loan classification, accounting interpretation, Matters Requiring Attention (MRAs), Matters Requiring Immediate Attention (MRIAs), Community Reinvestment Act ratings (including component ratings), and consumer compliance ratings.” The revised process clarifies that it excludes any referral of a matter to another government agency from an appealable MSD. Finally, the revised process continues to exclude any supervisory determination for which an independent right of appeal exists.

The original appeals process consisted of three levels—an initial review panel, an appeal to the president of the Reserve Bank that issued the MSD, and an appeal to the appropriate Governor at the Board. The revised process only includes two levels—an initial review panel and a final review panel—both of which have three members. Under the revised process, all appeals are filed with the Ombudsman Office. Generally, the initial review panel consists of three Reserve Bank employees, with the option for a Board employee to be appointed as one of the three members in appropriate circumstances. The final review panel must consist of at least two Board employees, at least one of whom must be an officer of the Board at the level of associate director or higher. Members of the review panels must not have been substantively involved in, or directly or indirectly report to someone else who was involved in, the MSD being appealed.  Additionally, none of the panel members may be employees of the Reserve Bank that made the MSD being appealed.        

Under the revised, streamlined process, an institution must file an initial appeal within 30 calendar days of receipt of the MSD, and the initial review panel will issue a decision within 45 calendar days of the date the appeal is received.[14] An institution must file a final appeal within 14 calendar days of the initial review panel’s decision, and the final review panel will issue a decision within 21 calendar days of the filing of a final appeal.[15]

The revised process also addresses a potential timing conflict between the Prompt Corrective Action (PCA) framework[16] and the original MSD appeals process by expediting the appeals process. If an MSD being appealed relates to or causes an institution to become critically undercapitalized, the appeals process is further expedited. An institution must still file an initial appeal within 30 calendar days of receipt of the MSD, but the initial review panel will issue a decision within 35 calendar days of the date the appeal is received.[17] An institution must file a final appeal within seven calendar days of the initial review panel’s decision, and the final review panel will issue a decision within 10 calendar days of the filing of a final appeal. 

The revised process also defines specific standards of review applicable at each level of the appeal. The initial review panel considers whether the MSD being appealed is consistent with applicable laws, regulations, and policy, and is supported by a preponderance of evidence in the record. The initial review panel will make its own supervisory determination and will not defer to the judgment of the Reserve Bank staff that made the MSD being appealed. The initial review panel may, however, rely on any examination work papers developed by the Reserve Bank or materials submitted by the institution if it determines it is reasonable to do so. The final review panel determines whether the initial review panel’s decision was reasonable.

Finally, the Ombudsman Office may attend, as an observer, meetings or deliberations relating to the appeal, if requested by either the institution or Federal Reserve personnel. Ombudsman staff will also follow up with institutions that have filed an MSD appeal to inquire whether retaliation has occurred. As in the prior policy, the Ombudsman Office is the authorized recipient of all retaliation claims made by supervised institutions involving the Federal Reserve.


As explained above, the three main functions of the Ombudsman Office are: (1) to facilitate the fair and timely resolution of complaints related to the Federal Reserve’s supervisory and regulatory activities; (2) to investigate any claim that Federal Reserve staff has retaliated against a supervised institution; and (3) to provide feedback on patterns of issues. The Board’s Ombudsman Office staff is here to assist you, and we are dedicated to helping the Federal Reserve and its constituents resolve issues efficiently and effectively. If you have any questions, please contact us via email at [email protected] or by calling 1-800-337-0429.

[1] The authors of this article would like to acknowledge the valuable contributions of former staff members of the Ombudsman Office who contributed to the development of this article.

[2] The International Ombudsman Association,

[3] C. McKenna Lang, A Western King and an Ancient Notion: Reflections on the Origins of Ombudsing, Journal of Conflictology, Vol. 2, Issue 2 (2011).

[4] Id.

[5] Riegle Community Development and Regulatory Improvement Act of 1994, 12 USC §§ 4701 et seq.

[6] 12 U.S.C. § 4806(d)(2). In addition, when Congress created the Consumer Financial Protection Bureau in 2010, it directed that the Consumer Financial Protection Bureau appoint an ombudsman to carry out these roles. 12 U.S.C. § 5493(a)(5).

[7] “Internal Appeals Process for Material Supervisory Determinations and Policy Statement regarding the Ombudsman for the Federal Reserve System,” 85 Fed. Reg. 15175, 15182 (March 17, 2020).

[8] Id. at 15181.

[9] Id.

[10] Id.

[11] Id.

[12] 12 U.S.C. § 4806(a),(b)(2).

[13] “Internal Appeals Process for Material Supervisory Determinations and Policy Statement regarding the Ombudsman for the Federal Reserve System,” 85 Fed. Reg. 15175 (March 17, 2020).

[14] The initial review panel may extend the period for issuing a decision by up to 30 calendar days if the panel determines that the record is incomplete, and that additional fact-finding is necessary for the panel to issue a decision.

[15] The final review panel may extend the period for issuing a decision by up to 30 calendar days if the panel determines an extension is appropriate.

[16] For an overview of the PCA framework, please refer to section 4133.1 of the Board’s Commercial Bank Examination Manual,

[17] This period may be extended by up to an additional seven calendar days if the initial review panel decides that such time is required to supplement the record and consider additional information received.

By: Federal Reserve Ombudsman Office, Amy Koontz, Jean Whyte

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