In Support of Supervisory Guidance

Abstract

The role and appropriateness of bank supervisory guidance is widely misunderstood. It has been argued that supervisory guidance is used in lieu of notice-and-comment rulemakings, binding banks to policies on which they had no opportunity to comment. This claim, however, misunderstand that the Federal banking agencies have wide latitude to interpret and apply the banking statutes during examinations and that guidance serves to narrow the universe of possible enforcement actions regulators may take, while also providing regulated entities predictability. This essay argues in support of bank supervisory guidance, placing it within the administrative law framework governing bank examinations. It also discusses supervisory guidance’s benefits to banks, examiners, and the public. This essay concludes by arguing that the banking agencies should not be concerned that Congress may use the Congressional Review Act to overturn their guidance.