The five federal banking agencies (Federal Reserve, Bureau of Consumer Financial Protection, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency – collectively Agencies) have issued a joint statement on the role of supervisory guidance.

The statement says that supervisory guidance does not have the force and effect of law, and that the Agencies do not take enforcement actions based on supervisory guidance. However, the Agencies state that supervisory guidance outlines the Agencies’ “supervisory expectations or priorities and articulates the [A]gencies’ general views regarding appropriate practices for a given area.” For example, supervisory guidance often contains examples of practices that the Agencies “generally consider consistent with safety-and-soundness standards or other applicable laws and regulations.”

The Agencies assert that examiners will not criticize a financial institution for a “violation” of supervisory guidance, but will criticize a financial institution for unsafe and unsound practices or risk management deficiencies, and may reference supervisory guidance to give examples of safe and sound practices or appropriate risk management practices.

In other words, the Agencies won’t bring enforcement actions based on the supervisory guidance itself, but may bring enforcement actions if a supervised institution acts in a manner that is inconsistent with the supervisory guidance and use supervisory guidance to provide examples of how the financial institution should have acted. To us, this has the distinct appearance of a distinction without a difference.

In our view, guidance is just that – “guidance” – and not law, and should not be an independent ground for legal or supervisory action. That said, in the financial regulatory realm, acting in a manner inconsistent with supervisory guidance nevertheless puts a financial institution at risk of adverse regulatory scrutiny or even adverse regulatory action. At the very least, the financial institution will have to defend its actions in the face of written agency guidance that may take a contrary or differing view.

In sum, we are not convinced that the joint statement will provide material practical comfort to banking and other depository organizations. It still remains to be seen, however, how this “guidance on guidance” will be interpreted and applied at the supervisory and examination levels in the field, because that is where the actual implementation of this process most likely will play out.