• Can Banks Dispute their FDIC Camels Ratings? 
  • April 18, 2017 | Author: Andrew D. Bulgin
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • The United States 7th Circuit Court of Appeals may have created a window of opportunity for banks to challenge their Federal Deposit Insurance Corporation (FDIC) "CAMELS" ratings in court. The FDIC reviews each supervised bank's capital, asset quality, management, earnings, liquidity and sensitivity (CAMELS) using the Uniform Financial Institutions Rating System. Ratings, which range from 1 to 5 (5 being the lowest), impact the premiums banks must pay for FDIC deposit insurance. In the recent 7th Circuit case, a bank filed a complaint in district court alleging that their 4 rating was arbitrary and capricious. The district court agreed with the FDIC's argument that the agency has sole discretion over CAMELS ratings, and the federal Administrative Procedure Act (APA) does not give federal courts authority to hear such cases. As a result, the district court dismissed the complaint for lack of jurisdiction. On appeal, the 7th Circuit decided the case should not have been dismissed, and the lower court in fact may have had jurisdiction if the lower court had found that certain facts existed. The 7th Circuit did not decide whether the rating was arbitrary and capricious, but instead vacated and remanded the case instructing the district court to explore: (1) whether the rating was a final action; and (2) whether the bank exhausted all appeal remedies the FDIC makes available internally. The 7th Circuit held that indeed it may be restricted in reviewing minimum requirements for capital (because federal banking laws give the FDIC authority to set minimum standards for CAMELS' capital component), but there are no other statutes that restrict federal courts from reviewing the other CAMEL components. While it is not definite that banks may question their CAMELS ratings in all circumstances, this case opens a window of opportunity that banks may be able to use federal courts to dispute the FDIC's rating process. Please contact Andrew Bulgin for questions concerning this topic.