[Federal Register: November 30, 2006 (Volume 71, Number 230)]
[Rules and Regulations]
[Page 69269-69282]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30no06-8]
[[Page 69269]]
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Part III
Federal Deposit Insurance Corporation
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12 CFR Part 327
Deposit Insurance Assessments; Final Rules
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN-3064-AD03
Assessments
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is improving and modernizing its operational systems
for deposit insurance assessments in 12 CFR Part 327 to make the
deposit insurance assessment system react more quickly and more
accurately to changes in institutions' risk profiles and to ameliorate
several causes for complaint by insured depository institutions. Under
the amendments set out in this final rule, deposit insurance
assessments will be collected after each quarter ends--which will allow
for consideration of more current information than under the prior
rule. Ratings changes will become effective when the rating change is
transmitted to the institution. Although the FDIC will retain the
existing assessment base as applied in practice with only minor
modifications, the computation of institutions' assessment bases will
change in the following significant ways: institutions with $1 billion
or more in assets will determine their assessment bases using average
daily deposit balances; existing smaller institutions will have the
option of using average daily deposits to determine their assessment
bases; and the float deductions used to determine the assessment base
will be eliminated. In addition, the rules governing assessments of
institutions that go out of business will be simpler; newly insured
institutions will be assessed for the assessment period in which they
become insured; prepayment and double payment options will be
eliminated; institutions will have 90 days from each quarterly
certified statement invoice to file requests for review of their risk
assignment and requests for revision of the computation of their
quarterly assessment payment; and the rules governing quarterly
certified statement invoices will be adjusted for a quarterly
assessment system and for a three-year retention period rather than the
former five-year period.
DATES: This final rule will become effective on January 1, 2007.
FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Senior Policy
Analyst, Division of Insurance and Research, (202) 898-8967; Donna M.
Saulnier, Senior Assessment Policy Specialist, Division of Finance,
(703) 562-6167; or Christopher Bellotto, Counsel, Legal Division, (202)
898-3801.
SUPPLEMENTARY INFORMATION:
I. Background
On May 18, 2006, the FDIC published in the Federal Register, for a
60-day comment period, a notice of proposed rulemaking and request for
comment on proposed amendments to 12 CFR 327 (71 FR 28790). The comment
period was extended for 30 additional days (71 FR 36718) and expired on
August 16, 2006. The FDIC received six comment letters--five from trade
organizations and one from a depository institution.\1\ Four of the
commenters generally supported all of the FDIC's proposals; of those
four, three suggested modifications to the provisions governing the use
of average daily balances in determining assessment bases. Two
commenters opposed elimination of the float deductions; three others
opposed eliminating the deductions, but only where deposit bases are
calculated using quarter-end balances. The following is a discussion of
the amendments to Sec. Sec. 327.1 through 327.8 and the comments
received.
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\1\ The trade organizations were: the American Bankers
Association, the Independent Community Bankers of America, the
Association for Financial Professionals, the New York Bankers
Association, and America's Community Bankers; the depository
institution was Capital One Financial Corp.
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Prior to passage of the Federal Deposit Insurance Reform Act of
2005 and the Federal Deposit Insurance Reform Conforming Amendments Act
of 2005 (collectively, the Reform Act),\2\ the FDIC was statutorily
required to set assessments semiannually. The FDIC did so by setting
assessment rates and assigning institutions to risk classes prior to
each semiannual assessment period. The semiannual assessment was
collected in two installments, one near the start of the semiannual
period and the other three months into the period, so that, in
practice, assessment collection was accomplished prospectively every
quarter.
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\2\ Federal Deposit Insurance Reform Act of 2005, Public Law
109-171, 120 Stat. 9; Federal Deposit Insurance Conforming
Amendments Act of 2005, Public Law 109-173, 119 Stat. 3601.
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Provisions in the Reform Act removed longstanding constraints on
the deposit insurance assessment system and granted the FDIC discretion
to revamp and improve the manner in which assessments are determined
and collected from insured depository institutions. The FDIC was vested
with discretion to set assessment rates, classify institutions for
risk-based assessment purposes and collect assessments within a system
and on a schedule designed to track more accurately the degree of risk
to the deposit insurance fund posed by depository institutions. The
Reform Act also eliminated any requirement that the assessment system
be semiannual.
The FDIC's experience with the risk-based system over the past 13
years, and with approaches and arguments made by institutions that have
filed requests for review with the FDIC's Division of Insurance and
Research (DIR) and subsequent appeals to the FDIC's Assessment Appeals
Committee (AAC), prompted some of the proposed revisions made to the
FDIC's deposit insurance assessment system. For example, many appeals
to the AAC involved assertions by insured institutions that the FDIC's
system did not take into account their improved condition quickly
enough. The final rules will ensure that assessment rates reflect
changes in an institution's risk profile much nearer to the time the
changes occur. The standard float deductions will be eliminated because
they appear to be obsolete and arbitrary, and because actual float
appears to be small and decreasing as the result of legal,
technological, and payment system changes. The revisions will enhance
the assessment process for institutions and should eliminate many of
the bases for requests and appeals. The amendments to the FDIC's
operational processes governing assessments affect 12 CFR 327.1 through
12 CFR 327.8.\3\ These sections detail the procedures governing deposit
insurance assessment and collection as well as calculation of the
assessment base.
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\3\ Pursuant to the Section 2109 of the Reform Act, current
assessment regulations remain in effect until the effective date of
new regulations. Section 2109(a)(5) of the Reform Act requires the
FDIC, within 270 days of enactment, to prescribe final regulations,
after notice and opportunity for comment, providing for assessments
under section 7(b) of the Federal Deposit Insurance Act. Section
2109 also requires the FDIC to prescribe, within 270 days, rules on
the designated reserve ratio, changes to deposit insurance coverage,
the one-time assessment credit, and dividends. A final rule on
deposit insurance coverage was published on September 12, 2006. 71
FR 53547. Final rules on the one-time assessment credit and
dividends were published on October 18, 2006. 71 FR 61374 and 71 FR
61385. The FDIC is publishing final rulemakings on the designated
reserve ratio and on risk based assessments in the same issue of the
Federal Register as this final rule.
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[[Page 69271]]
II. The Final Rule
A. Assessments Collected After Each Quarterly Assessment Period
Under the existing system, assessments are collected from insured
institutions on a semiannual basis in two installments. The first
collection is made at the beginning of the semiannual period; the
second collection is made in the middle of the semiannual period.\4\
Under the final rule, assessments will be collected after each
quarterly period being insured. The assessment for each quarter will be
due approximately at the end of the following quarter, on the specified
payment date.\5\ The chart below shows the new assessment process.
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\4\ In December of 1994, the FDIC modified the procedure for
collecting deposit insurance assessments, changing from semiannual
to quarterly collection.
\5\ Adjustments to prior period invoices will continue to be
reflected in invoices for later periods.
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Date of capital
Calendar year quarter evaluation * Assessment base * Invoice date Payment date
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1............................... March 31, 2007.... March 31, 2007.... June 15, 2007..... June 30, 2007.
2............................... June 30, 2007..... June 30, 2007..... September 15, 2007 September 30,
2007.
3............................... September 30, 2007 September 30, 2007 December 15, 2007. December 30, 2007.
4............................... December 31, 2007. December 31, 2007. March 15, 2008.... March 30, 2008.
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* That is, the date of the report of condition on which the capital evaluation and assessment base are
determined.
Collecting quarterly assessments after each assessment period was
expressly supported by five commenters and opposed by none. One
commenter, a trade group, stated ``[t]his should help banks better
manage their risk positions and expected premiums during the quarter
for which they will be assessed.'' Similarly, another trade group
observed that ``banks should be able to predict at the end of each
quarter what their assessment will be for that quarter.'' In line with
the comments received, the FDIC believes quarterly assessment
collection after the period being insured will markedly improve the
responsiveness and accuracy of the assessment system.
The final rule will take effect January 1, 2007. The last deposit
insurance collection under the existing system (made on September 30,
2006, in the middle of the semiannual period before the new system
becomes effective) represents payment for insurance coverage through
December 31, 2006. The first deposit insurance collection under the new
system (made on June 30, 2007, at the end of the second quarter under
the new system) will represent payment for insurance coverage from
January 1 through March 31, 2007. No deposit insurance assessments will
be based upon September 30 or December 31, 2006 reported assessment
bases. However, institutions will continue to make the scheduled
quarterly Financing Corporation (``FICO'') payments on January 2, 2007
(or on the alternate payment date, December 30, 2006) and March 30,
2007, using, respectively, these two reported assessment bases. No
changes to the way FICO payments are charged or collected are being
made.\6\ FICO collections will continue during the transition period to
the new assessment system and will not be affected by the FDIC's new
rules, except to the extent that the definition and computation of
assessment bases has changed. Language has been added to the regulatory
text to make this clear (12 CFR 327.3(a)(3)). The date of the
assessment base on which FICO payments are based will not change. Any
effect on the reserve ratio of transitioning to collecting assessments
after each quarterly period will be minimal. Consistent with the
concepts of generally accepted accounting principles, the FDIC will
recognize assessment revenue in advance of receipt based on a reliable
estimate.
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\6\ Pursuant to statute and a memorandum of understanding with
the Financing Corporation, the FDIC collects FICO assessments from
insured depository institutions based upon quarterly report dates.
See 12 U.S.C. 1441(f)(2). FICO payments represent funds remitted to
FICO to ensure sufficient funding to distribute interest payments
for the outstanding FICO obligations.
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Invoices will continue to be presented using FDICconnect, and
institutions will continue to be required to designate and fund deposit
accounts from which the FDIC can make direct debits. Invoices will, as
at present, be made available on FDICconnect no later than 15 days
prior to the payment date. However, the payment dates themselves, in
relation to the coverage period, will shift. Collections will be made
at or near the end of the following quarter (i.e., June 30, September
30, December 30, and March 30). In this way, the proposed assessment
system will synchronize the insurance coverage period with the
reporting dates and the institutions' risk assignments.\7\
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\7\ The existing regulations refer to an institution's ``risk
classification,'' that is, one of the nine classifications in the
nine-cell matrix, 1A, 2A, and so forth. Under the final rule, an
institution's ``risk assignment'' (see 12 CFR 327.4(a)) includes
assignment to Risk Category I, II, III, or IV, and, within Risk
Category I, assignment to an assessment rate or rates.
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The FDIC will set assessment rates for each risk category no later
than 30 days before the date of the invoice for the quarter, which will
give the FDIC's Board of Directors the option of setting rates before
the beginning of a quarter or after its completion. The final rule will
provide the FDIC with flexibility to set final rates for the first
quarter of a year at any time up to May 16 of that year (30 days before
the June 15 invoice date). However, the FDIC will not necessarily need
to continually reconsider or update assessment rates. Once set, rates
will remain in effect until changed by the FDIC's Board. Institutions
will have at least 45 days notice of the applicable rates before
assessment payments are due.
B. Ratings Changes Effective When Transmitted
Under the present system, an insured institution retains its
supervisory and capital group ratings throughout a semiannual period.
Any change is reflected in the next semiannual period; in this way, an
examination can remain the basis for an institution's assessment rating
long after newer information has become available.
The FDIC proposed that changes to an institution's supervisory
rating be reflected as of the date the examination or targeted
examination began; if no such date existed, then an institution's
supervisory rating would have changed as of the date the institution
was notified of its rating change by its primary federal regulator (or
state authority). In either case, if the FDIC, after taking into
account other information that could affect the rating, did not agree
with the classification implied by the examination, then the
institution's rating would change as of the date that the FDIC
determined that the change in the supervisory rating occurred.
Five commenters supported making ratings changes effective when
they occur; no one opposed. One of the
[[Page 69272]]
supporters, a trade group, suggested that in all cases the change be
implemented ``when the bank is notified of a change, not the date an
examination begins * * * .''
The FDIC has decided to adopt the suggested approach. Under the
final rule, changes to an institution's supervisory rating will be
reflected as of the date that the rating change is transmitted to the
institution. However, if the FDIC disagrees with the CAMELS composite
rating assigned by an institution's primary federal regulator, and
assigns a different composite rating, the supervisory change will be
effective for assessment purposes as of the date that the FDIC assigns
a rating. Disagreements of this type between the FDIC and the other
federal regulators have been rare.
Using the transmittal date as the effective date for supervisory
changes has a number of benefits. First, additional research after
publication of the NPR in May revealed that the federal banking
agencies do not all define and record an examination start date the
same way.\8\ If the start date were used to determine ratings changes
for supervisory purposes, similarly situated institutions could be
treated differently, simply because they have different primary federal
regulators. This result could have been unfair to a large number of
institutions. Second, using the start date would have potentially
produced ratings changes in many prior quarters, with adjustments to
prior assessments paid. By contrast, the final rule should result in
far fewer alterations to earlier assessments, allowing greater finality
in assessments and enabling institutions to better plan their finances.
Several commenters recommended notifying institutions in advance of a
ratings change. While the final rule does not provide for advance
notification, institutions will receive notice contemporaneously with a
change. Third, the final rule is simpler and more uniform than the
proposed rule and produces a more cohesive system. The effective date
of a ratings change will be defined in the same way for all
institutions, large and small. This result comports with the opinions
of several commenters who recommended that the risk differentiation and
assessment system be made simpler and more cohesive. Fourth, as stated,
the trade group specifically recommended that in all cases the
effective date for recognition of a change in supervisory rating should
be when the bank is notified of a change.\9\
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\8\ For example, while the Board of Governors of the Federal
Reserve System and the Office of Thrift Supervision (OTS) define and
record as the start date the date that an examiner arrives at an
institution to begin the bulk of examination activity, the Office of
the Comptroller of the Currency does not. Rather, for the OCC the
start date represents the date that examination activity begins
based on an activity plan. This date bears no consistent relation to
the date that an examiner arrives at an institution.
\9\ The FDIC received no other comments specifically directed to
this issue.
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Accordingly, under the final rule, supervisory ratings changes will
become effective as of the date the institution is notified of its
rating change by its primary federal regulator or state authority,
assuming that the FDIC, after taking into account other information
that could affect the rating, agrees with the assignment implied by the
examination, or it will change as of the date that the FDIC determines
that the change in the supervisory rating occurs.
C. Modifications to the Assessment Base
At present, an institution's assessment base is principally derived
from total domestic deposits. The current definition of the assessment
base is detailed in 12 CFR 327.5. Generally, the definition is deposit
liabilities as defined by section 3(l) of the Federal Deposit Insurance
Act (FDI Act) (12 U.S.C. 1813(l)) with some adjustments. However,
because the total deposits that institutions report in their reports of
condition do not coincide with the section 3(l) definition,
institutions report several adjustments elsewhere in their reports of
condition; these adjustments are used to determine the assessment base.
For example, banks are specifically instructed to exclude
uninvested trust funds from deposit liabilities as reported on Schedule
RC-E of their Reports of Condition and Income (Call Reports). However,
these funds are considered deposits as defined by section 3(l) of the
FDI Act and are therefore included in the assessment base. Line item 3
on Schedule RC-O of the Call Report was included to facilitate
reporting these funds. For this line item and for the many others,
banks simply report the amount of each item that was excluded from the
RC-E calculation. Other line items require the restoration of amounts
that were netted for reporting purposes on Schedule RC-E. For example,
when banks were instructed to file Call Reports in accordance with
Generally Accepted Accounting Principles, they were permitted to offset
deposit liabilities against assets in certain circumstances. In order
to comply with the statutory definition of deposits, lines 12a and 12b
were added to Schedule RC-O to recapture those amounts.
The final rule will retain the current assessment base as applied
in practice with minor modifications. The reworded definition will
operate in concert with a proposed simplification of the associated
reporting requirements on insured institutions' reports of
condition.\10\ The assessment base definition will continue to be
deposit liabilities as defined by section 3(l) of the FDI Act with
enumerated allowable adjustments. These adjustments will include drafts
drawn on other depository institutions that meet the definition of
deposits per section 3(l) of the FDI Act, but are specifically excluded
from reporting requirements in section 7(a)(4) of the FDI Act (12
U.S.C. 1817(a)(4)). Similarly, although depository institution
investment contracts meet the definition of deposits as defined by
section 3(l) of the FDI Act, they are presently excluded from the
assessment base under 12 CFR 327.5 and will continue to be excluded, as
will pass-through reserves. Certain reciprocal bank balances will also
be excluded. In addition, hypothecated deposits will be excluded.
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\10\ At present, 26 items are required in the Reports of
Condition and Income (Call Reports) to determine a bank's assessment
base, and 11 items are required in the Thrift Financial Report
(TFRs) to determine a thrift's assessment base. Under the final
rule, changes to the way the assessment base is reported should
reduce these items to between two and six, depending, in part, on
whether an institution reports average daily balances. Essentially,
instead of starting with deposits as reported in the report of
condition and making adjustments, banks will start with a balance
that approximates the statutory definition of deposits. The FDIC
believes that this balance is typically found within most insured
institutions' deposit systems. In this way, institutions will be
required to track far fewer adjustments. In any case, no additional
burden will result for insured institutions since the items required
to be reported will remain essentially the same under the new
regulatory definition. The changes to reporting requirements should
also allow institutions to report daily average deposits more
easily, since they will not have to track and average adjustment
items separately. As now, the Call Report and TFR instructions will
continue to specify the items required to meet the requirements of
section 3(l) of the FDI Act for reporting purposes. The FDIC has
proposed appropriate changes to reports of condition, to become
effective March 31, 2007, and is coordinating with the Federal
Financial Institutions Examination Council (FFIEC) on the necessary
changes to the reports of condition.
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Unposted debits will not reduce the assessment base and unposted
credits will be excluded from the definition of the assessment base for
institutions that report average daily balances because these debits
and credits are captured in the next day's deposits (and thus reflected
in the averages). For consistency, and because they should not
materially affect assessment bases, unposted debits will not reduce the
assessment base and unposted credits
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will also be excluded from the definition of the assessment base for
institutions that report quarter-end balances.
The current definition of the assessment base, in 12 CFR 327.5, has
been driven by reporting requirements that have evolved over time.
These requirements have changed because of the evolving reporting needs
of all of the federal regulators. As a result, the FDIC's regulatory
definition of the assessment base has required periodic updates when
reporting requirements in reports of condition are changed for other
purposes.\11\ By rewording the definition of the assessment base to
deposit liabilities as defined by section 3(l) of the FDI Act with
allowable exclusions, the FDIC will no longer be required to update its
regulation periodically in response to outside factors. Two commenters
generally supported the minor modifications the FDIC is making to the
definition of assessment base; no commenters opposed them.
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\11\ In fact, the regulatory definition has not kept pace with
these reporting changes. In practice, however, the assessment base
is calculated as if the regulatory definition had kept pace.
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D. Average Daily Deposit Balance for Institutions With Assets of $1
Billion or More
Currently, an insured institution's assessment base is computed
using quarter-end deposit balances. Most schedules of the Call Report
and the TFR are based on quarter-end data, but there are drawbacks to
using quarter-end balances for assessment determinations. Under the
current system, deposits at quarter-end are used as a proxy for
deposits for an entire quarter, but balances on a single day in a
quarter may not accurately reflect an institution's typical deposit
level. For example, if an institution receives an unusually large
deposit at the end of a quarter and holds it only briefly, the
institution's assessment base and deposit insurance assessment may
increase disproportionately to the amount of deposits it typically
holds. A misdirected wire transfer received at the end of a quarter can
create a similar result. Using quarter-end balances creates incentives
to temporarily reduce deposit levels at the end of a quarter for the
sole purpose of avoiding assessments. Institutions of various sizes
have raised these issues with the FDIC.
Under the final rule, instead of using quarter-end deposits,
certain institutions will use average daily balances over the quarter,
which will give a more accurate depiction of an institution's deposits.
When combined with other operational changes to the assessment system,
the use of average daily balances will provide a more realistic and
timely depiction of actual events. The FDIC's proposal to use average
daily balances was supported by all six commenters; however, three of
those six suggested that the use of average daily balances be mandatory
only for institutions of $1 billion or more in assets rather than $300
million as proposed. For example, one trade group suggested the higher
cutoff because ``the FDIC and other federal bank regulators use $1
billion in assets as the cutoff in other Call Report requirements and
for other regulatory purposes.'' Similarly, another trade group urged
the higher cutoff because ``[t]his increase would be consistent with
other FDIC regulations and reporting requirements * * * and would
affect only a very small proportion of insured deposits.'' In addition,
a third trade group urged the $1 billion cutoff ``to not impose
unnecessary paperwork burden on smaller institutions and to be
consistent with the $1 billion threshold for other FDIC regulations * *
*.'' After consideration of these comments, the FDIC has changed the
final rule to incorporate the higher cutoff amount.
Institutions do not at present report average daily balances on
Call Reports and TFRs. Reporting average assessment bases will
therefore necessitate changes to Call Reports and TFRs requiring the
approval of the FFIEC and time to implement. Until these changes to the
Call Report and TFR are made, institutions will continue to determine
assessment bases using quarter-end balances.
Under the final rule, for one year after the necessary changes to
the Call Report and TFR have been made, each existing institution will
have the option of continuing to use quarter-end balances to determine
its assessment base. Thereafter, institutions with $1 billion or more
in assets will be required to report average daily balances. To avoid
burdening smaller institutions, which might have to modify their
accounting and reporting systems, existing institutions with less than
$1 billion in assets will have the option of continuing to use quarter-
end balances to determine their assessment bases.\12\
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\12\ In those instances where a parent bank or savings
association files its Call Report or TFR on a consolidated basis by
including a subsidiary bank(s) or savings association(s), the
assessment bases for all institutions included in the consolidated
reporting must be reported separately on an unconsolidated basis so
that assessment bases can be determined separately for each
institution.
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If its assessment base is growing, an institution will pay smaller
assessments if it reports daily averages rather than quarter-end
balances, all else equal. Nevertheless, a smaller institution that
elects to report quarter-end balances may continue to do so, so long as
its assets, as reported in its Call Report or TFR, do not equal or
exceed $1 billion in two consecutive reports. Otherwise, the
institution will be required to begin reporting average daily balances
for the quarter that begins six months after the end of the quarter in
which the institution reported that its assets equaled or exceeded $1
billion for the second consecutive time. An institution with less than
$1 billion in assets may switch from reporting quarter-end balances to
reporting average daily balances for an upcoming quarter. Any
institution, once having begun to report average daily balances, either
voluntarily or because required to, may not switch back to reporting
quarter-end balances.
Finally, one commenter, a trade group, urged that the $1 billion
cutoff apply to newly insured institutions because those institutions
``should not be treated differently in the assessment base
calculation'' and because ``having the option to file using quarter-end
balances is important as some banks believe the cost of the more
involved General Ledger systems is excessive.'' The FDIC believes that
systems likely to be in place in newly insured institutions can
generate average daily balances and will therefore impose no additional
costs in doing so. In addition, this approach will encourage the
transition to average daily balances throughout the industry, which
will improve the accuracy of institutions' assessment base
calculations. Accordingly, under the final rule, any institution that
becomes insured after the necessary modifications to the Call Report
and TFR have been made will be required to report average daily
balances for assessment purposes.
E. Float Deductions Eliminated
The largest overall adjustments to the current assessment base are
deductions for float, deposits reported as such for assessment purposes
that were created by deposits of cash items (checks) for which the
institution has not itself received credit or payment. The current
float deductions are 16\2/3\ percent for demand deposits and 1 percent
for time and savings deposits. Under the final rule, the float
deductions will be eliminated.
[[Page 69274]]
Two basic rationales existed for allowing institutions to deduct
float. First, without float deductions, institutions would be assessed
for balances created by deposits of checks for which they had not
actually been paid. Second, crediting an uncollected cash item (a
check) to a deposit account can temporarily create double counting in
the aggregate assessment base--once at the insured institution that
credited the cash item to the deposit account, and again at the payee
insured institution on which the cash item is drawn. Deducting float
from deposits when calculating the assessment base reduced this double
counting.
Before 1960, institutions computed actual float and deducted it
from deposits when computing their assessment bases. This proved to be
onerous at the time. In 1960, Congress by statute established the
standardized float deductions in an effort to simplify and streamline
the assessment base calculation. Section 7(b) of the FDI Act defined
the deposit insurance assessment base until passage of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which
removed the statutory definition.\13\ In its proposal, the FDIC sought
comment on whether to eliminate the float deductions, whether to allow
the deduction of actual float, or whether to retain the present
standardized float deductions.
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\13\ Since FDICIA, the FDIC's regulations alone defined the
assessment base. The current definition, at 12 CFR 327.5, generally
tracks the former statutory definition.
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All six commenters addressed the float issue. Two opposed
elimination of the float deductions. One supported retaining the
standard float deductions and ``if necessary, modifying them to
recognize reduction in float due to technology advances'' but opposed
requiring banks to deduct actual float. Another urged the adoption of
``rules that allow for the deduction of actual float--base assessments
on collected balances'' and opposed eliminating the standard float
deductions because that would ``increase in the premiums that corporate
depositors pay.'' Three other commenters generally supported
elimination of the float deductions, but urged retention of the
deductions for quarter-end filers, as opposed to institutions reporting
average daily balances. A trade group noted that while float has
declined, it has not gone away, and without the float deductions for
quarter-end filers ``the assessment base using quarter-end balances
would be greater than appropriate and, therefore, the premium assessed
would be higher than appropriate.'' Two of the trade groups suggested
revising the current float deductions for quarter-end filers and
allowing such institutions to continue their use.
The FDIC has decided to eliminate the float deductions for all
institutions on the grounds that, based on available information, the
standard float deductions appear to be obsolete. Actual float appears
to be small and decreasing as the result of legal, technological, and
payment systems changes. The basis for the percentages in the
standardized deductions chosen by Congress is not clear. However, even
if the percentages were a realistic approximation of average bank float
when they were selected over 40 years ago, legal, technological, and
payment systems changes--such as Check 21--that have accelerated check
clearing should have reduced float, everything else being equal, and
made the existing standard float deductions obsolete.\14\ Consequently,
the current standardized float deductions probably do not reflect real
float for most institutions. In addition, cash items in the process of
collection as a percent of domestic deposits for commercial banks with
total assets greater than or equal to $300 million has been decreasing.
Over the long term, the ratio of cash items in the process of
collection to total domestic deposits has fallen significantly. Cash
items in the process of collection can be viewed as a rough
approximation of actual float.
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\14\ Congress enacted Public Law 108-100, the Check Clearing for
the 21st Century Act (Check 21), on October 28, 2004. Check 21
allows banks to electronically transfer check images instead of
physically transferring paper checks. The Federal Reserve Board,
What You Should Know About Your Checks, http://www.federalreserve.gov/pubs/check21/shouldknow.htm
(updated Feb. 16,
2005). As a result, the transmission and processing of electronic
checks can be done faster than transferring paper checks through the
clearing process. A recent Federal Reserve payment survey indicates
that, for the first time, bank-to-bank electronic payments have
exceeded payments by check. Treasury and Risk Management, Just
Another Step Along the Way to a Checkless Economy,
http://www.treasuryandrisk.com, September 2005. With Check 21, the volume
of paper checks processed is expected to continue to decline with
more payments processed electronically resulting in a smaller float.
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Eliminating the float deductions will favor some institutions over
others. Institutions with larger percentages of time and savings
deposits will see smaller increases in their assessment bases;
conversely, those with larger percentages of demand deposits will see
greater increases in their assessment bases. However, eliminating the
float deductions will only minimally affect the relative distribution
of the aggregate assessment base among institutions of different asset
sizes and between banks and thrifts (although it will have a greater
effect on the assessment bases of some individual institutions). While
eliminating the float deductions will increase assessment bases and
affect the distribution of the assessment burden among institutions, it
should not, in itself, increase assessments. The assessment rates that
the FDIC will set in the new pricing system will take into account the
elimination of the float deductions.
The FDIC has decided not to deduct actual float to arrive at the
assessment base for a number of reasons. Deducting actual float would
require that institutions report actual float; and institutions that
determine their assessment base using average daily balances would be
required to report average daily float. This would necessitate a new
information requirement for float data.\15\ Before 1960, institutions
computed actual float and deducted it from deposits when computing
their assessment bases. Because this proved to be onerous at one time,
Congress established the standardized float deductions by statute.
Asking institutions again to report actual float could create
significant regulatory burden, which the FDIC has decided to avoid.
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\15\ Despite one commenter's suggestion, the Call Report item
``Cash items in process of collection'' could not be used to
determine the actual float deduction for individual institutions.
Because ``Cash items in process of collection'' contains items other
than float, it may overstate actual float. For a few institutions,
``Cash items in process of collection,'' exceeds the institutions'
assessment bases. (These institutions' ``Cash items'' are not
included in the approximation of actual float in the text.)
Conversely, given the small size of the ``Cash items in process of
collection'' reported by many institutions, this item may understate
float at some institutions.
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Finally, the FDIC does not agree with the suggestion that the float
deductions (or revised or adjusted float deductions) be retained for
institutions reporting quarter-end balances, as three commenters urged.
It is not clear that reporting quarter-end balances would result in a
larger than appropriate assessment than reporting average daily
balances, as one commenter suggested. Moreover, allowing standardized
deductions for institutions that report quarter-end balances could
provide institutions with incentives for retaining the quarter-end
balance method. The FDIC believes that institutions will generally
benefit from reporting average daily balances and believes the
assessment system should generally be structured to encourage the bulk
of institutions with less than $1 billion in assets to opt to use
average daily
[[Page 69275]]
balances in reporting their assessment bases.
F. Terminating Transfer Rule Modified
At present, complex rules apply to terminating transfers \16\ to
ensure that the assessment of a terminating institution is paid.
Determining and collecting assessments after the end of each quarter
and using average daily assessment bases make these complex rules
largely obsolete. An acquiring institution (or institutions) will
remain liable for the quarterly assessment(s) owed by a terminating
institution; the assessment base of the terminating institution will be
zero for the remainder of the quarter after the terminating transfer.
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\16\ Generally speaking, a terminating transfer occurs when an
institution assumes another institution's liability for deposits--
often through merger or consolidation--when the terminating
institution essentially goes out of business. Neither the assumption
of liability for deposits from the estate of a failed institution
nor a transaction in which the FDIC contributes its own resources in
order to induce a surviving institution to assume liabilities of a
terminating institution is a terminating transfer.
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The terminating transfer provision in the final rule will deal with
a few remaining situations. If the terminating institution does not
file a report of condition for the quarter prior to the quarter in
which the terminating transfer occurred, calculation of its quarterly
certified statement invoices for those quarters will be based on its
assessment base from its most recently filed report of condition. For
the quarter before the terminating transfer occurs, the terminating
institution's assessment will be determined using its most recent rate;
for the quarter in which the terminating transfer occurs, the
acquirer's rate will apply, but the calculation will be different
depending upon whether the acquiring institution reports its assessment
base using average daily balances or quarter-end balances.
Under the final rule, once institutions begin reporting average
daily deposits, the average assessment base of the acquiring
institution will properly reflect the terminating transfer and will
increase after the terminating transfer. When this happens, the
terminating institution's assessment for the quarter in which the
terminating transfer occurs will be reduced by the percentage of the
quarter remaining after the terminating transfer and calculated at the
acquirer's rate.
Three of the six commenters generally supported these changes to
the terminating transfer rule, and none opposed them.
Under the final rule, an acquiring institution that reports
quarter-end balances will have its assessment for the quarter in which
the terminating transfer occurred calculated slightly differently from
the language in the proposal. Because the acquiring institution is not
averaging its assessment base, its assessment for the quarter in which
the terminating transfer occurs will be its assessment base (which will
include the acquired deposits) calculated at its assessment rate. Thus,
for example, an institution that reports quarter-end balances might
acquire another institution by merger one month (one-third of the way)
into a quarter. Since the acquiring institution's assessment base for
that quarter will include the acquired deposits, application of the
acquirer's rate to that base will obviate the need to assess the
terminating institution separately for that quarter. The final rule has
been revised from the proposed rule to reflect this simpler calculation
for acquiring institutions that use quarter-end balances.
G. Newly Insured Institutions Assessed for the Quarter in Which They
Become Insured
At present, a newly insured institution is not liable for
assessments for the semiannual period in which it becomes insured, but
is liable for assessments for the following semiannual period. The
institution's assessment base as of the day before the following
semiannual period begins is deemed to be its assessment base for the
entire semiannual period. These special rules were needed because
assessments were based upon assessment bases that an institution
reported in the past. Under the existing rules, a newly insured
institution reports an assessment base at the end of the quarter in
which it becomes insured but that assessment base is not used to
calculate its assessment until the following semiannual period.
Further, if an institution becomes insured in the second half of a
semiannual period, it has no reported assessment base on which to
calculate the first installment of its premium for the next semiannual
period.
Under the final rules, each quarterly assessment will be based upon
the assessment base that an institution reports at the end of that
quarter. Since a newly insured institution will have reported an
assessment base (using average daily balances) for the quarter in which
it becomes insured, its assessment will be computed in the same manner
as all other institutions. Three commenters generally supported
elimination of the special rules for newly insured institutions, and
none opposed it.
H. Ninety Days Each Quarter To File a Request for Review or Request for
Revision
The current deadline for an institution to request a review of its
assessment risk classification is 90 days from the invoice date for the
first quarterly installment of a semiannual period. Under the final
rule, each quarterly assessment will be separately computed.
Consequently, the final rule will provide institutions with 90 days
from the date of each quarterly certified statement invoice to file a
request for review from its risk assignment. Institutions will also
have 90 days from the date of any subsequent invoice that adjusted the
assessment of an earlier assessment period to request a review. The
final rule clarifies that an institution with between $5 billion and
$10 billion in assets may request review if the FDIC denies its request
to be assessed as a large bank; in addition, institutions may request
review of an FDIC determination that they are new.\17\
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\17\ 12 CFR 327.9(d)(6) and (7). See the FDIC's final rulemaking
regarding risk based assessments published in this issue of the
Federal Register.
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A parallel amendment will allow requests for revision of an
institution's quarterly assessment payment computation to be filed
within 90 days of the quarterly assessment invoice for which revision
is requested (rather than the present 60 days). Three commenters
generally supported these changes to the rules; none opposed them.
I. Conforming Changes to the Certified Statement Rules
The Reform Act eliminated the requirement that the deposit
insurance assessment system be semiannual and provided a new three-year
statute of limitations for assessments. Accordingly, the FDIC has
revised the provisions of 12 CFR 327.2 to clarify that the certified
statement is the quarterly certified statement invoice and to provide
for the retention of the quarterly certified statement invoice by
insured institutions for three years, rather than five years under the
prior law. Three commenters generally supported these changes; none
opposed them.
J. Prepayment and Double Payment Options Eliminated
When the present assessment system was proposed more than 10 years
ago, the original quarterly dates for payment of assessments were:
March 30; June 30;
[[Page 69276]]
September 30; and December 30. The FDIC recognized that the December
1995 collection date could present a one-time problem for institutions
using cash-basis accounting, since these institutions would, in effect,
be paying assessments for five quarters in 1995. The FDIC believed that
few institutions would be adversely affected. Soon after the new system
was adopted, however, the FDIC began to receive information that more
institutions than had originally been identified would be adversely
affected by the December collection date. As a result, the FDIC amended
the regulation in 1995 to move the collection date to January 2, but
allowed institutions to elect to pay on December 30, thus establishing
the prepayment date.
The prepayment option is eliminated under the final rule. With
implementation of the new assessment system, a transition period will
be created in which institutions will not be subject to collection of
deposit insurance assessments after the September 30, 2006 payment date
until June 30, 2007. Consequently, reestablishing the original December
30 payment date should have no adverse consequences for institutions
that use cash-basis accounting. No institution would make more than
four insurance payments in calendar year 2006; those using the December
30, 2005 payment date would make only three payments in 2006. All
institutions would make four payments annually thereafter. This change
will keep all assessment payments within each calendar year.\18\
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\18\ The allowance for payment on the following business day--
should January 2 fall on a non-business day--is eliminated as well.
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In addition, insured institutions presently have the regulatory
option of making double payments on any payment date except January 2.
Under the final rule, this option is also eliminated. The double
payment option originated in the 1995 amendment, when the payment date
was modified from December 30, 1995 to January 2, 1996. The double
payment option was adopted to provide cash-basis institutions the
opportunity to pay the full amount of their semiannual assessment
premium on December 30 so as to have the complete benefit of this
modification. The transition period from September 30, 2006 to June 30,
2007 and four payments annually beginning in 2007 should eliminate the
need for the double payment option, since the FDIC will no longer be
charging semiannual premiums.
The final rule also makes clear that scheduled quarterly FICO
payments will be collected from all institutions on January 2, 2007,
and March 30, 2007, based upon, respectively, their September 30, 2006
and December 31, 2006 reported assessment bases (see 12 CFR
327.3(a)(3)). Institutions that elect to do so, however, will still be
able to make prepayment of their first quarter 2007 FICO payment on
December 30, 2006, as provided for under the existing rules at 12 CFR
327.3(c)(3). Institutions that do not choose this prepayment option
will make their first quarter 2007 FICO payment on January 2, 2007, as
the final rule will provide.
III. Regulatory Analysis and Procedure
A. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (GLBA), Public Law 106-
102, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking
agencies to use plain language in all proposed and final rules
published after January 1, 2000. The proposed rules requested comments
on how the rules might be changed to reflect the requirements of GLBA.
No GLBA comments were received.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that each Federal
agency either certify that a proposed rule would not, if adopted in
final form, have a significant economic impact on a substantial number
of small entities or prepare an initial regulatory flexibility analysis
of the proposal and publish the analysis for comment. See 5 U.S.C. 603,
604, 605. Certain types of rules, such as rules of particular
applicability relating to rates or corporate or financial structures,
or practices relating to such rates or structures, are expressly
excluded from the definition of ``rule'' for purposes of the RFA. 5
U.S.C. 601. The final rule provides operational procedures governing
assessments and relates directly to the rates imposed on insured
depository institutions for deposit insurance, by providing for the
determination of assessment bases to which the rates will apply and
providing the operational processes required for deposit insurance
assessments. Consequently, no regulatory flexibility analysis is
required. Nonetheless, the FDIC is voluntarily undertaking a regulatory
flexibility analysis of the final rule.
The provisions dealing with determining assessment bases using
average daily balances include an opt-out for insured institutions with
assets of less than $1 billion, which would permit small institutions
under the RFA (i.e., those with $165 million or less in assets) to
continue (as they do now) reporting quarter-end balances. Newly insured
institutions with $165 million or less in assets, however, will be
required to report average daily balances. For the period from 2001
through 2005, the average number of small institutions that became
insured each year was approximately 126. Most small, newly insured
institutions will ordinarily implement systems permitting calculation
of average daily balances and, therefore, will not be significantly
burdened by this requirement.
Similarly, elimination of the float deduction in calculating
assessment bases will not have a significant economic impact on a
substantial number of small ($165 million in assets or less) insured
depository institutions within the meaning of the RFA. Based on
December 31, 2005 reports of condition, small institutions represented
5.09 percent of the total assessment base, with large institutions
(i.e., those with more than $165 million in assets) representing 94.91
percent. Without the existing float deduction, those percentages would
have been 5.14 and 94.86, respectively, a change of only 0.05 percent.
By way of example, if a flat 2 basis point annual charge had been
assessed on the December 31, 2005 assessment base without the float
deduction (i.e., with the float deduction added back to the assessment
base), the amount collected would have been approximately $1.267
billion. To collect the same amount from the industry on the same
assessment base, but allowing the float deduction, approximately a 2.05
basis point charge would have been required, since the assessment base
would have been smaller. The average difference in assessment charged a
small institution for one year if the float deduction were eliminated
(charging 2 basis points) versus allowing the float deduction (charging
2.05 basis points) would be about $110. The actual increase in
assessments charged small institutions for one year if the float
deduction were eliminated (charging 2 basis points) versus allowing the
float deduction (charging 2.05 basis points) would be greater than or
equal to $1,000 for only 38 out of 5,362 small institutions as of
December 31, 2005.\19\ The largest resulting increase for any small
institution would be about $2,500.
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\19\ Of the 8,832 insured depository institutions, there were
5,362 small insured depository institutions (i.e., those with $165
million or less in assets) as of December 31, 2005.
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Moreover, the final rule will not have a significant economic
impact on a
[[Page 69277]]
substantial number of small institutions within the meaning of those
terms as used in the RFA. The final rule sets out the operational
format for the FDIC's assessment system for the collection of deposit
insurance assessments. Most of the processes within this proposed
regulation are analogous to existing FDIC assessment processes;
variances occur largely in timing, not in the processes themselves; no
additional reporting requirements or record retention requirements are
created by the proposed rules.
Comments were sought regarding any information about the likely
quantitative effects of the proposal on small insured depository
institutions; no comments were received.
C. Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.) are contained in the final rule. Any
paperwork created as the result of the conversion to reporting average
daily assessment balances will be submitted to the Office of Management
and Budget (OMB) for review and approval as an adjustment to the
Consolidated Reports of Condition and Income (Call Reports), an
existing collection of information approved by OMB under Control No.
3064-0052.
D. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Public Law 105-277, 112 Stat. 2681).
E. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined that the final
rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC
will file the appropriate reports with Congress and the Government
Accountability Office so that the final rule may be reviewed.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
0
For the reasons set forth in the preamble, the FDIC hereby amends part
327 of chapter III of title 12 of the Code of Federal Regulations as
follows:
PART 327--ASSESSMENTS
0
1. The authority citation for part 327 is revised to read as follows:
Authority: 12 U.S.C. 1441, 1813, 1815, 1817-1819, 1821; Sec.
2101-2109, Pub. L. 109-171, 120 Stat. 9-21, and Sec. 3, Pub. L. 109-
173, 119 Stat. 3605.
0
2. Revise Sec. Sec. 327.1 through 327.8 of Subpart A to read as
follows:
Sec. 327.1 Purpose and scope.
(a) Scope. This part 327 applies to any insured depository
institution, including any insured branch of a foreign bank.
(b) Purpose. (1) Except as specified in paragraph (b)(2) of this
section, this part 327 sets forth the rules for:
(i) The time and manner of filing certified statements by insured
depository institutions;
(ii) The time and manner of payment of assessments by such
institutions;
(iii) The payment of assessments by depository institutions whose
insured status has terminated;
(iv) The classification of depository institutions for risk; and
(v) The processes for review of assessments.
(2) Deductions from the assessment base of an insured branch of a
foreign bank are stated in subpart B part 347 of this chapter.
Sec. 327.2 Certified statements.
(a) Required. (1) The certified statement shall also be known as
the quarterly certified statement invoice. Each insured depository
institution shall file and certify its quarterly certified statement
invoice in the manner and form set forth in this section.
(2) The quarterly certified statement invoice shall reflect the
institution's risk assignment, assessment base, assessment computation,
and assessment amount, for each quarterly assessment period.
(b) Availability and access. (1) The Corporation shall make
available to each insured depository institution via the FDIC's e-
business Web site FDICconnect a quarterly certified statement invoice
each assessment period.
(2) Insured depository institutions shall access their quarterly
certified statement invoices via FDICconnect, unless the FDIC provides
notice to insured depository institutions of a successor system. In the
event of a contingency, the FDIC may employ an alternative means of
delivering the quarterly certified statement invoices. A quarterly
certified statement invoice delivered by any alternative means will be
treated as if it had been downloaded from FDICconnect.
(3) Institutions that do not have Internet access may request a
renewable one-year exemption from the requirement that quarterly
certified statement invoices be accessed through FDICconnect. Any
exemption request must be submitted in writing to the Manager of the
Assessments Section.
(4) Each assessment period, the FDIC will provide courtesy e-mail
notification to insured depository institutions indicating that new
quarterly certified statement invoices are available and may be
accessed on FDICconnect. E-mail notification will be sent to all
individuals with FDICconnect access to quarterly certified statement
invoices.
(5) E-mail notification may be used by the FDIC to communicate with
insured depository institutions regarding quarterly certified statement
invoices and other assessment-related matters.
(c) Review by institution. The president of each insured depository
institution, or such other officer as the institution's president or
board of directors or trustees may designate, shall review the
information shown on each quarterly certified statement invoice.
(d) Retention by institution. If the appropriate officer of the
insured depository institution agrees that, to the best of his or her
knowledge and belief, the information shown on the quarterly certified
statement invoice is true, correct, and complete and in accordance with
the Federal Deposit Insurance Act and the regulations issued under it,
the institution shall pay the amount specified on the quarterly
certified statement invoice and shall retain it in the institution's
files for three years as specified in section 7(b)(4) of the Federal
Deposit Insurance Act.
(e) Amendment by institution. If the appropriate officer of the
insured depository institution determines that, to the best of his or
her knowledge and belief, the information shown on the quarterly
certified statement invoice is not true, correct, and complete and in
accordance with the Federal Deposit Insurance Act and the regulations
issued under it, the institution shall pay the amount specified on the
quarterly certified statement invoice, and may:
(1) Amend its report of condition, or other similar report, to
correct any data believed to be inaccurate on the quarterly certified
statement invoice; amendments to such reports timely filed under
section 7(g) of the Federal Deposit
[[Page 69278]]
Insurance Act but not permitted to be made by an institution's primary
federal regulator may be filed with the FDIC for consideration in
determining deposit insurance assessments; or
(2) Amend and sign its quarterly certified statement invoice to
correct a calculation believed to be inaccurate and return it to the
FDIC by the applicable payment date specified in Sec. 327.3(b)(2).
(f) Certification. Data used by the Corporation to complete the
quarterly certified statement invoice has been previously attested to
by the institution in its reports of condition, or other similar
reports, filed with the institution's primary federal regulator. When
an insured institution pays the amount shown on the quarterly certified
statement invoice and does not correct that invoice as provided in
paragraph (e) of this section, the information on that invoice shall be
deemed true, correct, complete, and certified for purposes of paragraph
(a) of this section and section 7(c) of the Federal Deposit Insurance
Act.
(g) Requests for revision of assessment computation. (1) The timely
filing of an amended report of condition or other similar report under
paragraph (e)(1) of this section, or the timely filing of an amended
quarterly certified statement invoice under paragraph (e)(2), that will
result in a change to deposit insurance assessments owed or paid by an
insured depository institution, shall be treated as a timely filed
request for revision of computation of quarterly assessment payment
under Sec. 327.3(f).
(2) The assessment rate on the quarterly certified statement
invoice shall be amended only if it is inconsistent with the assessment
risk assignment(s) provided to the institution by the Corporation for
the assessment period in question pursuant to Sec. 327.4(a). Agreement
with the assessment rate shall not be deemed to constitute agreement
with the assessment risk assignment. An institution may request review
of an assessment risk assignment it believes to be incorrect pursuant
to Sec. 327.4(c).
Sec. 327.3 Payment of assessments.
(a) Required--(1) In general. Except as provided in paragraph (b)
of this section, each insured depository institution shall pay to the
Corporation for each assessment period an assessment determined in
accordance with this part 327.
(2) Notice of designated deposit account. For the purpose of making
such payments, each insured depository institution shall designate a
deposit account for direct debit by the Corporation. No later than 30
days prior to the next payment date specified in paragraph (b)(2) of
this section, each institution shall provide notice to the Corporation
via FDICconnect of the account designated, including all information
and authorizations needed by the Corporation for direct debit of the
account. After the initial notice of the designated account, no further
notice is required unless the institution designates a different
account for assessment debit by the Corporation, in which case the
requirements of the preceding sentence apply.
(3) Transition Rule for Financing Corporation (FICO) Payments.
Quarterly FICO payments shall be collected by the FDIC without
interruption during the assessment system transitional period in 2007.
All insured depository institutions shall make scheduled quarterly FICO
payments on January 2, 2007 (unless prepaid on December 30, 2006), and
March 30, 2007, based upon, respectively, their September 30, 2006, and
December 31, 2006 reported assessment bases, which shall be the final
assessment bases calculated pursuant to 12 CFR 327.5(a) and (b) (2006).
Simultaneous collection of deposit insurance assessments and FICO
assessments will resume in June of 2007, based on the March 31, 2007
reported assessment base.
(b) Assessment payment--(1) Quarterly certified statement invoice.
Starting with the first assessment period of 2007, no later than 15
days prior to the payment date specified in paragraph (b)(2) of this
section, the Corporation will provide to each insured depository
institution a quarterly certified statement invoice showing the amount
of the assessment payment due from the institution for the prior
quarter (net of credits or dividends, if any), and the computation of
that amount. Subject to paragraph (e) of this section, the invoiced
amount on the quarterly certified statement invoice shall be the
product of the following: the assessment base of the institution for
the prior quarter computed in accordance with Sec. 327.5 multiplied by
the institution's rate for that prior quarter as assigned to the
institution pursuant to Sec. Sec. 327.4(a) and 327.9.
(2) Quarterly payment date and manner. The Corporation will cause
the amount stated in the applicable quarterly certified statement
invoice to be directly debited on the appropriate payment date from the
deposit account designated by the insured depository institution for
that purpose, as follows:
(i) In the case of the assessment payment for the quarter that
begins on January 1, the payment date is the following June 30;
(ii) In the case of the assessment payment for the quarter that
begins on April 1, the payment date is the following September 30;
(iii) In the case of the assessment payment for the quarter that
begins on July 1, the payment date is the following December 30; and
(iv) In the case of the assessment payment for the quarter that
begins on October 1, the payment date is the following March 30.
(c) Necessary action, sufficient funding by institution. Each
insured depository institution shall take all actions necessary to
allow the Corporation to debit assessments from the insured depository
institution's designated deposit account. Each insured depository
institution shall, prior to each payment date indicated in paragraph
(b)(2) of this section, ensure that funds in an amount at least equal
to the amount on the quarterly certified statement invoice are
available in the designated account for direct debit by the
Corporation. Failure to take any such action or to provide such funding
of the account shall be deemed to constitute nonpayment of the
assessment. Penalties for failure to timely pay assessments are
provided for at 12 CFR 308.132(c)(3)(v).
(d) Business days. If a payment date specified in paragraph (b)(2)
falls on a date that is not a business day, the applicable date shall
be the previous business day.
(e) Payment adjustments in succeeding quarters. Quarterly certified
statement invoices provided by the Corporation may reflect adjustments,
initiated by the Corporation or an institution, resulting from such
factors as amendments to prior quarterly reports of condition,
retroactive revision of the institution's assessment risk assignment,
and revision of the Corporation's assessment computations for prior
quarters.
(f) Request for revision of computation of quarterly assessment
payment--(1) In general. An institution may submit a written request
for revision of the computation of the institution's quarterly
assessment payment as shown on the quarterly certified statement
invoice in the following circumstances:
(i) The institution disagrees with the computation of the
assessment base as stated on the quarterly certified statement invoice;
(ii) The institution determines that the rate applied by the
Corporation is inconsistent with the assessment risk assignment(s)
provided to the institution in writing by the Corporation
[[Page 69279]]
for the assessment period for which the payment is due; or
(iii) The institution believes that the quarterly certified
statement invoice does not fully or accurately reflect adjustments
provided for in paragraph (e) of this section.
(2) Inapplicability. This paragraph (f) is not applicable to
requests for review of an institution's assessment risk assignment,
which are covered by Sec. 327.4(c) of this part.
(3) Requirements. Any such request for revision must be submitted
within 90 days from the date the computation being challenged appears
on the institution's quarterly certified statement invoice. The request
for revision shall be submitted to the Manager of the Assessments
Section and shall provide documentation sufficient to support the
change sought by the institution. If additional information is
requested by the Corporation, such information shall be provided by the
institution within 21 days of the date of the request for additional
information. Any institution submitting a timely request for revision
will receive written notice from the Corporation regarding the outcome
of its request. Upon completion of a review, the DOF Director (or
designee) shall promptly notify the institution in writing of his or
her determination of whether revision is warranted. If the institution
requesting revision disagrees with that determination, it may appeal to
the FDIC's Assessment Appeals Committee. Notice of the procedures
applicable to appeals will be included with the written determination.
(g) Quarterly certified statement invoice unavailable. Any
institution whose quarterly certified statement invoice is unavailable
on FDICconnect by the fifteenth day of the month in which the payment
is due shall promptly notify the Corporation. Failure to provide prompt
notice to the Corporation shall not affect the institution's obligation
to make full and timely assessment payment. Unless otherwise directed
by the Corporation, the institution shall preliminarily pay the amount
shown on its quarterly certified statement invoice for the preceding
assessment period, subject to subsequent correction.
Sec. 327.4 Assessment rates.
(a) Assessment risk assignment. For the purpose of determining the
annual assessment rate for insured depository institutions under Sec.
327.9, each insured depository institution will be provided an
assessment risk assignment. Notice of an institution's current
assessment risk assignment will be provided to the institution with
each quarterly certified statement invoice. Adjusted assessment risk
assignments for prior periods may also be provided by the Corporation.
Notice of the procedures applicable to reviews will be included with
the notice of assessment risk assignment provided pursuant to paragraph
(a) of this section.
(b) Payment of assessment at rate assigned. Institutions shall make
timely payment of assessments based on the assessment risk assignment
in the notice provided to the institution pursuant to paragraph (a) of
this section. Timely payment is required notwithstanding any request
for review filed pursuant to paragraph (c) of this section. Assessment
risk assignments remain in effect for future assessment periods until
changed. If the risk assignment in the notice is subsequently changed,
any excess assessment paid by the institution will be credited by the
Corporation, with interest, and any additional assessment owed shall be
paid by the institution, with interest, in the next assessment payment
after such subsequent assignment or change. Interest payable under this
paragraph shall be determined in accordance with Sec. 327.7.
(c) Requests for review. An institution that believes any
assessment risk assignment provided by the Corporation pursuant to
paragraph (a) of this section is incorrect and seeks to change it must
submit a written request for review of that risk assignment. An
institution cannot request review through this process of the CAMELS
ratings assigned by its primary federal regulator; each federal
regulator has established procedures for that purpose. An institution
may also request review of a determination by the FDIC to assess the
institution as a large or a small institution (12 CFR 327.9(d)(6)) or a
determination by the FDIC that the institution is a new institution (12
CFR 327.9(d)(7)). Any request for review must be submitted within 90
days from the date the assessment risk assignment being challenged
pursuant to paragraph (a) of this section appears on the institution's
quarterly certified statement invoice. The request shall be submitted
to the Corporation's Director of the Division of Insurance and Research
in Washington, DC, and shall include documentation sufficient to
support the change sought by the institution. If additional information
is requested by the Corporation, such information shall be provided by
the institution within 21 days of the date of the request for
additional information. Any institution submitting a timely request for
review will receive written notice from the Corporation regarding the
outcome of its request. Upon completion of a review, the Director of
the Division of Insurance and Research (or designee) or the Director of
the Division of Supervision and Consumer Protection (or designee), as
appropriate, shall promptly notify the institution in writing of his or
her determination of whether a change is warranted. If the institution
requesting review disagrees with that determination, it may appeal to
the FDIC's Assessment Appeals Committee. Notice of the procedures
applicable to appeals will be included with the written determination.
(d) Disclosure restrictions. The portion of an assessment risk
assignment provided to an institution by the Corporation pursuant to
paragraph (a) of this section that reflects any supervisory evaluation
or confidential information is deemed to be exempt information within
the scope of Sec. 309.5(g)(8) of this chapter and, accordingly, is
governed by the disclosure restrictions set out at Sec. 309.6 of this
chapter.
(e) Limited use of assessment risk assignment. Any assessment risk
assignment provided to a depository institution under this part 327 is
for purposes of implementing and operating the FDIC's risk-based
assessment system. Unless permitted by the Corporation or otherwise
required by law, no institution may state in any advertisement or
promotional material, or in any other public place or manner, the
assessment risk assignment provided to it pursuant to this part.
(f) Effective date for changes to risk assignment. (1) Changes to
an insured institution's risk assignment resulting from a supervisory
ratings change become effective as of the date of written notification
to the institution by its primary federal regulator or state authority
of its supervisory rating (even when the CAMELS component ratings have
not been disclosed to the institution), if the FDIC, after taking into
account other information that could affect the rating, agrees with the
rating. If the FDIC does not agree, changes to an insured institution's
risk assignment become effective as of the date that the FDIC
determines that a change in the supervisory rating is warranted.
(2) Changes to an insured institution's risk assignment resulting
from a change in a long-term debt issuer rating become effective as of
the date the change is announced by the rating agency.
Sec. 327.5 Assessment base.
(a) Quarter-end balances and average daily balances. An insured
depository institution shall determine its assessment base using
quarter-end
[[Page 69280]]
balances until changes in the quarterly report of condition allow it to
report average daily deposit balances on the quarterly report of
condition, after which--
(1) An institution that becomes newly insured after the first
report of condition allowing for average daily balances shall have its
assessment base determined using average daily balances;
(2) An insured depository institution (other than one covered in
paragraph (a)(1) of this section) reporting assets of $1 billion or
more on the first report of condition allowing for average daily
balances, shall within one year after so reporting have its assessment
base determined using average daily balances;
(3) An insured depository institution (other than one covered in
paragraph (a)(1) of this section) that was insured prior to the first
report of condition allowing for average daily balances, reporting less
than $1 billion in assets on the first report of condition allowing for
average daily balances--
(i) May continue to have its assessment base determined using
quarter end balances; or
(ii) May opt permanently to have its assessment base determined
using average daily balances after notice to the Corporation, but
(iii) Shall have its assessment rate determined using average daily
balances for any quarter beginning six months after the institution
reported that its assets equaled or exceeded $1 billion for two
consecutive quarters and thereafter; and
(4) In any event, an insured depository institution that files its
report of condition on a consolidated basis by including a subsidiary
bank(s) or savings association(s) shall report its assessment base on
an unconsolidated basis.
(b) Computation of assessment base. Whether computed on a quarter-
end balance or an average daily balance, the assessment base for any
insured institution that is required to file a quarterly report of
condition shall be computed by:
(1) Adding all deposit liabilities as defined in section 3(l) of
the Federal Deposit Insurance Act, to include deposits that are held in
any insured branches of the institution that are located in the
territories and possessions of the United States, but does not include
unposted credits and is not reduced by unposted debits; and
(2) Subtracting the following allowable exclusions, in the case of
any institution that maintains such records as will readily permit
verification of the correctness of its assessment base--
(i) Any demand deposit balance due from or cash item in the process
of collection due from any depository institution (not including a
private depository institution, a foreign depository institution, a
foreign office of another U.S. depository institution, or a U.S. branch
of a foreign depository institution) up to the total of the amount of
deposit balances due to and cash items in the process of collection due
to such depository institution that are included in paragraph (b)(1) of
this section;
(ii) Any outstanding drafts (including advices and authorization to
charge deposit institution's balance in another bank) drawn in the
regular course of business;
(iii) Any pass-through reserve balances;
(iv) Liabilities arising from a depository institution investment
contract that are not treated as insured deposits under section
11(a)(5) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(5));
and
(v) Deposits accumulated for the payment of personal loans, which
represent actual loan payments received by the depository institution
from borrowers and accumulated by the depository institution in
hypothecated deposit accounts for payment of the loans at maturity.
Time and savings deposits that are pledged as collateral to secure
loans are not ``deposits accumulated for the payment of personal
loans.''
(c) Newly insured institutions. A newly insured institution shall
pay an assessment for the assessment period during which it became an
insured institution.
Sec. 327.6 Terminating transfers; other terminations of insurance.
(a) Terminating institution's final two quarterly certified
statement invoices. If a terminating institution does not file a report
of condition for the quarter prior to the quarter in which the
terminating transfer occurs, its assessment base for the quarterly
certified statement invoice or invoices for which it failed to file a
report of condition shall be deemed to be its assessment base for the
last quarter for which the institution filed a report of condition. The
acquiring institution in a terminating transfer is liable for paying
the final invoices of the terminating institution. The terminating
institution's assessment for the quarter prior to the quarter in which
the terminating transfer occurs shall be calculated at the terminating
institution's rate.
(b) Assessment for quarter in which the terminating transfer
occurs--(1) Acquirer using Average Daily Balances. If an acquiring
institution's assessment base is computed using average daily balances
pursuant to Sec. 327.5, the terminating institution's assessment for
the quarter in which the terminating transfer occurs shall be reduced
by the percentage of the quarter remaining after the terminating
transfer and calculated at the acquiring institution's rate.
(2) Acquirer using Quarter-end Balances. If an acquiring
institution's assessment base is computed as a quarter-end balance
pursuant to Sec. 327.5, its assessment for the quarter in which the
terminating transfer occurs shall be the acquiring institution's
quarter-end balance calculated at the acquiring institution's
assessment rate, and the terminating institution shall not be assessed
separately for that quarter.
(c) Other terminations. When the insured status of an institution
is terminated, and the deposit liabilities of such institution are not
assumed by another insured depository institution--
(1) Payment of assessments; quarterly certified statement invoices.
The terminating depository institution shall continue to file and
certify its quarterly certified statement invoice and pay assessments
for the assessment period its deposits are insured. Such terminating
institution shall not be required to certify its quarterly certified
statement invoice and pay further assessments after it has paid in full
its deposit liabilities and the assessment to the Corporation required
to be paid for the assessment period in which its deposit liabilities
are paid in full, and after it, under applicable law, goes out of
business or transfers all or substantially all of its assets and
liabilities to other institutions or otherwise ceases to be obliged to
pay subsequent assessments.
(2) Payment of deposits; certification to Corporation. When the
deposit liabilities of the depository institution have been paid in
full, the depository institution shall certify to the Corporation that
the deposit liabilities have been paid in full and give the date of the
final payment. When the depository institution has unclaimed deposits,
the certification shall further state the amount of the unclaimed
deposits and the disposition made of the funds to be held to meet the
claims. For assessment purposes, the following will be considered as
payment of the unclaimed deposits:
(i) The transfer of cash funds in an amount sufficient to pay the
unclaimed and unpaid deposits to the public official authorized by law
to receive the same; or
[[Page 69281]]
(ii) If no law provides for the transfer of funds to a public
official, the transfer of cash funds or compensatory assets to an
insured depository institution in an amount sufficient to pay the
unclaimed and unpaid deposits in consideration for the assumption of
the deposit obligations by the insured depository institution.
(3) Notice to depositors. (i) The terminating depository
institution shall give sufficient advance notice of the intended
transfer to the owners of the unclaimed deposits to enable the
depositors to obtain their deposits prior to the transfer. The notice
shall be mailed to each depositor and shall be published in a local
newspaper of general circulation. The notice shall advise the
depositors of the liquidation of the depository institution, request
them to call for and accept payment of their deposits, and state the
disposition to be made of their deposits if they fail to promptly claim
the deposits.
(ii) If the unclaimed and unpaid deposits are disposed of as
provided in paragraph (b)(2)(i) of this section, a certified copy of
the public official's receipt issued for the funds shall be furnished
to the Corporation.
(iii) If the unclaimed and unpaid deposits are disposed of as
provided in paragraph (b)(2)(ii) of this section, an affidavit of the
publication and of the mailing of the notice to the depositors,
together with a copy of the notice and a certified copy of the contract
of assumption, shall be furnished to the Corporation.
(4) Notice to Corporation. The terminating depository institution
shall advise the Corporation of the date on which it goes out of
business or transfers all or substantially all of its assets and
liabilities to other institutions or otherwise ceases to be obliged to
pay subsequent assessments and the method whereby the termination has
been effected.
(d) Resumption of insured status before insurance of deposits
ceases. If a depository institution whose insured status has been
terminated is permitted by the Corporation to continue or resume its
status as an insured depository institution before the insurance of its
deposits has ceased, the institution will be deemed, for assessment
purposes, to continue as an insured depository institution and must
thereafter file and certify its quarterly certified statement invoices
and pay assessments as though its insured status had not been
terminated. The procedure for applying for the continuance or
resumption of insured status is set forth in Sec. 303.248 of this
chapter.
Sec. 327.7 Payment of interest on assessment underpayments and
overpayments.
(a) Payment of interest--(1) Payment by institutions. Each insured
depository institution shall pay interest to the Corporation on any
underpayment of the institution's assessment.
(2) Payment by Corporation. The Corporation will pay interest on
any overpayment by the institution of its assessment.
(3) Accrual of interest. (i) Interest on an amount owed to or by
the Corporation for the underpayment or overpayment of an assessment
shall accrue interest at the relevant interest rate.
(ii) Interest on an amount specified in paragraph (a)(3)(i) of this
section shall begin to accrue on the day following the regular payment
date, as provided for in Sec. 327.3(b)(2), for the amount so overpaid
or underpaid, provided, however, that interest shall not begin to
accrue on any overpayment until the day following the date such
overpayment was received by the Corporation. Interest shall continue to
accrue through the date on which the overpayment or underpayment
(together with any interest thereon) is discharged.
(iii) The relevant interest rate shall be redetermined for each
quarterly assessment interval. A quarterly assessment interval begins
on the day following a regular payment date, as specified in Sec.
327.3(b)(2), and ends on the immediately following regular payment
date.
(b) Interest rates. (1) The relevant interest rate for a quarterly
assessment interval that includes the month of January, April, July,
and October, respectively, is the coupon equivalent yield of the
average discount rate set on the 3-month Treasury bill at the last
auction held by the United States Treasury Department during the
preceding December, March, June, and September, respectively.
(2) The relevant interest rate for a quarterly assessment interval
will apply to any amounts overpaid or underpaid on the payment date
immediately prior to the beginning of the quarterly assessment
interval. The relevant interest rate will also apply to any amounts
owed for previous overpayments or underpayments (including any interest
thereon) that remain outstanding, after any adjustments to such
overpayments or underpayments have been made thereon, at the end of the
regular payment date immediately prior to the beginning of the
quarterly assessment interval. Interest will be compounded daily.
Sec. 327.8 Definitions.
For the purpose of this part 327:
(a) Deposits. The term deposit has the meaning specified in section
3(l) of the Federal Deposit Insurance Act.
(b) Quarterly report of condition. The term quarterly report of
condition means a report required to be filed pursuant to section
7(a)(3) of the Federal Deposit Insurance Act.
(c) Assessment period--In general. The term assessment period means
a period beginning on January 1 of any calendar year and ending on
March 31 of the same year, or a period beginning on April 1 of any
calendar year and ending on June 30 of the same year; or a period
beginning on July 1 of any calendar year and ending on September 30 of
the same year; or a period beginning on October 1 of any calendar year
and ending on December 31 of the same year.
(d) Acquiring institution. The term acquiring institution means an
insured depository institution that assumes some or all of the deposits
of another insured depository institution in a terminating transfer.
(e) Terminating institution. The term terminating institution means
an insured depository institution some or all of the deposits of which
are assumed by another insured depository institution in a terminating
transfer.
(f) Terminating transfer. The term terminating transfer means the
assumption by one insured depository institution of another insured
depository institution's liability for deposits, whether by way of
merger, consolidation, or other statutory assumption, or pursuant to
contract, when the terminating institution goes out of business or
transfers all or substantially all its assets and liabilities to other
institutions or otherwise ceases to be obliged to pay subsequent
assessments by or at the end of the assessment period during which such
assumption of liability for deposits occurs. The term terminating
transfer does not refer to the assumption of liability for deposits
from the estate of a failed institution, or to a transaction in which
the FDIC contributes its own resources in order to induce a surviving
institution to assume liabilities of a terminating institution.
(g) Small Institution. An insured depository institution with
assets of less than $10 billion as of December 31, 2006 (other than an
insured branch of a foreign bank) shall be classified as a small
institution. If, after December 31, 2006, an institution classified as
large under paragraph (h) of this section reports assets of less than
$10 billion in its reports of condition for four
[[Page 69282]]
consecutive quarters, the FDIC will reclassify the institution as small
beginning the following quarter.
(h) Large Institution. An insured depository institution with
assets of $10 billion or more as of December 31, 2006 (other than an
insured branch of a foreign bank) shall be classified as a large
institution. If, after December 31, 2006, an institution classified as
small under paragraph (g) of this section reports assets of $10 billion
or more in its reports of condition for four consecutive quarters, the
FDIC will reclassify the institution as large beginning the following
quarter.
(i) Long-Term Debt Issuer Rating. A long-term debt issuer rating
shall mean a current rating of an insured depository institution's
long-term debt obligations by Moody's Investor Services, Standard &
Poor's, or Fitch Ratings. A long-term debt issuer rating does not
include a rating of a company that controls an insured depository
institution, or an affiliate or subsidiary of the institution. A
current rating shall mean one that has been confirmed or assigned
within 12 months before the end of the quarter for which an assessment
rate is being determined. If no current rating is available, the
institution will be deemed to have no long-term debt issuer rating.
(j) CAMELS composite and CAMELS component ratings. The terms CAMELS
composite ratings and CAMELS component ratings shall have the same
meaning as in the Uniform Financial Institutions Rating System as
published by the Federal Financial Institutions Examination Council.
(k) ROCA supervisory ratings. ROCA supervisory ratings rate risk
management, operational controls, compliance, and asset quality.
(l) New depository institution. A new insured depository
institution is a bank or thrift that has not been chartered for at
least five years as of the last day of any quarter for which it is
being assessed.
(m) Established depository institution. An established institution
is a bank or thrift that has been chartered for at least five years as
of the last day of any quarter for which it is being assessed.
(n) Risk assignment. An institution's risk assignment includes
assignment to Risk Category I, II, III, or IV, and, within Risk
Category I, assignment to an assessment rate or rates.
By order of the Board of Directors.
Dated at Washington, DC, this 2nd day of November, 2006.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 06-9267 Filed 11-29-06; 8:45 am]
BILLING CODE 6714-01-P