EDITOR’S NOTE: Daniel Marcotte, veteran ombudsman for the FDIC’s Chicago region, and Brent Klanderud, recently appointed ombudsman for the FDIC’s Kansas City region, spent several days this spring visiting with industry professionals to explain how they advocate for bankers who might be dissatisfied with their examiner processes or the end result. While the coronavirus put an early end to their tour, they did find a couple of hours to spend with BankBeat’s Tom Bengtson, Anna Cushing and Jackie Hilgert. A condensed version of their conversation is presented here.
The FDIC held eight listening sessions last year. What did you hear?
Daniel Marcotte: We had listening sessions in each of the regions to look at the appeals process. We have a formal, regimented, bureaucratic process for when a bank wants to challenge an official finding once a report gets issued — on rating violations or a decision on an application. Very few bankers go through that process. And very few bankers win in that process. There’s an FDIC army on the other side of the table and it’s intimidating.
The listening sessions were a great way to talk about the formal process and how we could retool it. We talked about the fear of retaliation, and how if a banker doesn’t want an examiner to come back because of the experience they had, they can talk to the regional director confidentially.
If they have a valid story, the director will sideline that examiner at least for three exam cycles. The FDIC has limited staffing, so we can’t say they’ll never come back to your bank. That was an eye-opening experience for some bankers who didn’t realize they could do that.
How does the ombudsman generally connect with bankers?
Brent Klanderud: There are two major ways. First, we spend most of our time doing outreach, meeting with commissioners and state trade associations. Second, we’re required to meet with at least 80 banks in our territory each year. So it’s meeting one-on-one with the executive team, meeting with the boards, or whomever the bank wants us to contact. We leave it up to them to kind of share their thoughts. It’s a good way to gauge the pulse of the industry.
What happens if a banker reports an issue?
D.M.: We report those up to the chair kind of generically — the bank’s name never gets mentioned. Sometimes bankers have had an issue, but they didn’t know the ombudsman was a resource, so they kept it to themselves. Typically bankers can reach out either by phone or email if they want a confidential sounding board. It’s a good way for bankers to know whether they’re on sound footing, or if there’s something worth challenging.
What kind of advice does the ombudsman give?
D.M.: If a banker disagrees with the findings of an exam, we’ll often advise them if they want to send a letter into the office. They’ll send me a draft letter, I’ll proofread it for them, give them suggestions. I can’t breach confidentiality unless the banker waives it; they’ll have to reach out and say, “Dan, you can go speak for me.”
B.K.: Most bankers are perfectly happy speaking for themselves, but they want to make sure that they’re saying the right things. They don’t want to throw all the spaghetti at the wall — they want to make sure that the argument that they raise is something worth challenging.
Does a bank need to bring in its legal team?
D.M.: Some do, but there’s no requirement that you have legal counsel. But because of the process, it’s hard to know what to challenge. Bankers aren’t as versed in the regulations as the examiners are. So it’s an unfair fight.
That’s why it’s much better to resolve the issue before it gets to that point. We tell bankers, before the report gets finalized, make sure you have an opportunity to have a conference call with the office or have a visit to explain where you think the FDIC is off base.
B.K.: We have several layers of review for exam findings, but they’re reviewing what the examiner wrote. So if [the examiners] didn’t ask the right questions or speak to the right person, they have their own opinions and their facts as they present them. They get reviewed to make sure the findings match what’s being written, but if the bank’s side of the story isn’t there, no matter how many levels of review, it’s not going to be put in.
D.M.: We always recommend that a banker either talks to people at the field office or the regional office, or document it in a letter that says: “The preliminary findings said this is a problem, and we don’t think it is. Here’s why.”
Has your job changed at all under Jelena McWilliams’s leadership?
B.K.: Our chair has been fantastic in her speeches where she says the last thing she wants is for an exam report to get issued that’s not accurate. If there’s something inaccurate and the bank is forced to do a certain thing and won’t challenge it, it’s an expense to the industry to spend the man hours to write the policy, to police the policy, and to report on it. If it wasn’t necessary in the first place, why do it? And if a banker isn’t challenging the finding because of fear, that’s a problem we need to address.
We also talked about how our ombudsman office works, and how we really want to hear from bankers. We realize bankers are going to pick and choose their battles, but there’s also the ombudsman’s office where they can raise issues confidentially and not get into any trouble. If there’s something that we’re doing wrong, we need to fix it.
D.M.: She’s been very supportive of our office because she cares about the industry. She really wants us to be leaner and meaner — meaning more focused and more transparent.
For example, when our risk management folks or compliance examiners do an examination, there’s always been a survey that they ask banks to fill out. It’s an important survey because we care about what bankers say about the timeliness, the communication and various aspects of the exam. The response rate has typically been relatively low for those surveys. Our office, however, does a survey after we do outreach with bankers, and our response rate is almost 70 percent.
She came to the ombudsman’s office and asked: “Why aren’t bankers filling [the other surveys] out?”
Bankers don’t want to say anything bad, because the examiners are going to come back. They’re afraid it’s not confidential. So we offered to take the survey under our wing. We sent out a press release to say the ombudsman’s office is managing the survey, and it’s gonna be confidential.
If a banker indicates in the survey they want someone from the agency to contact them, it’s our boss, Amy Brown, the FDIC associate ombudsman, who makes the phone calls. She asks: “Who would you like to talk to? What message do you want to convey? Do you want to remain confidential?” And we can direct them. So we’re trying to manage that process under Chair McWilliams’s direction.
You were both once examiners. How do you temper those examiner impulses?
B.K.: My boss, Amy Brown, has said a couple times that you’ve got to fight the urge to be defensive. You know what the examiners are thinking, or you feel for them, but I think it’s tempered a little bit. I’ve been on long enough and worked at the Graduate School of Banking at Colorado — I think I’m probably more empathetic to bank owners and bankers.
That’s what I like about this job — it’s a better relationship and a better perspective, whereas being an examiner, you’re not really praising the positive, you’re going straight to the negative and spending your time there. You’re telling banks something they don’t agree with, and you’re trying to support [other regulators] who are telling them that.
D.M.: That was something I was concerned about. I’ve been in this role for five years, but I did the same thing. I am now the ombudsman for six states, three of which I had been a supervisory examiner in. And during the financial crisis! So I was concerned what the banks thought and what my relationship with the agency would be in this role. And it went well. Bankers who I had put under enforcement actions or had an issue with came back and said, “It was a tough time for everybody. But you were fair.”