[Federal Register Volume 71, Number 201 (Wednesday, October 18, 2006)]
[Rules and Regulations]
[Pages 61374-61385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17305]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064--AD08
One-Time Assessment Credit
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is amending its assessments regulations to implement
the one-time assessment credit required by the Federal Deposit
Insurance Act (FDI Act), as amended by the Federal Deposit Insurance
Reform Act of 2005 (Reform Act). The final rule covers: The aggregate
amount of the one-time credit; the institutions that are eligible to
receive credits; and how to determine the amount of each eligible
institution's credit, which for some institutions may be largely
dependent on how the FDIC defines ``successor'' for these purposes. The
final rule also establishes the qualifications and procedures governing
the application of assessment credits, and provides a reasonable
opportunity for an institution to challenge administratively the amount
of the credit.
EFFECTIVE DATE: The final rule is effective on November 17, 2006.
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 Joseph A. DiNuzzo, Counsel, Legal Division, (202)
898-7349.
SUPPLEMENTARY INFORMATION: This supplementary information section
contains a discussion of the statutory basis for this rulemaking and
the proposed rule published in May 2006, a summary of the comments
received on the proposed rule, and the final rule, which responds to
the comments.
I. Background
The Reform Act made numerous revisions to the deposit insurance
assessment provisions of the FDI Act.\1\ Specifically, the Reform Act
amended Section 7(e)(3) of the Federal Deposit Insurance Act to require
that the FDIC's Board of Directors (Board) provide by regulation an
initial, one-time assessment credit to each ``eligible'' insured
depository institution (or its
[[Page 61375]]
successor) based on the assessment base of the institution as of
December 31, 1996, as compared to the combined aggregate assessment
base of all eligible institutions as of that date (the 1996 assessment
base ratio), taking into account such other factors as the Board may
determine to be appropriate. The aggregate amount of one-time credits
is to equal the amount that the FDIC could have collected if it had
imposed an assessment of 10.5 basis points on the combined assessment
base of the Bank Insurance Fund (BIF) and Savings Association Insurance
Fund (SAIF) as of December 31, 2001. 12 U.S.C. 1817(e)(3).
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\1\ The Reform Act was included as Title II, Subtitle B, of the
Deficit Reduction Act of 2005, Public Law 109-171, 120 Stat. 9,
which was signed into law by the President on February 8, 2006.
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An ``eligible'' insured depository institution is one that: was in
existence on December 31, 1996, and paid a Federal deposit insurance
assessment prior to that date; \2\ or is a ``successor'' to any such
insured depository institution. The FDI Act requires the Board to
define ``successor'' for these purposes and provides that the Board
``may consider any factors as the Board may deem appropriate.'' The
amount of a credit to any eligible insured depository institution must
be applied by the FDIC to the deposit insurance assessments imposed on
such institution that become due for assessment periods beginning after
the effective date of the one-time credit regulations required to be
issued within 270 days after enactment.\3\ 12 U.S.C. 1817(e)(3)(D)(i).
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\2\ Prior to 1997, the assessments that SAIF member institutions
paid the SAIF were diverted to the Financing Corporation (FICO),
which had a statutory priority to those funds. Beginning with
enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA, Public Law 101-73, 103 Stat. 183)
and ending with the Deposit Insurance Funds Act of 1996 (DIFA,
Public Law 104-208, 110 Stat. 3009, 3009-479), FICO had authority,
with the approval of the Board of Directors of the FDIC, to assess
against SAIF members to cover anticipated interest payments,
issuance costs, and custodial fees on FICO bonds. The FICO
assessment could not exceed the amount authorized to be assessed
against SAIF members pursuant to section 7 of the FDI Act, and FICO
had first priority against the assessment. 12 U.S.C. 1441(f), as
amended by FIRREA. Beginning in 1997, the FICO assessments were no
longer drawn from SAIF. Rather, the FDIC began collecting a separate
FICO assessment. 12 U.S.C. 1441(f), as amended by DIFA. Payments to
SAIF prior to December 31, 1996, even if diverted to FICO, are
considered deposit insurance assessments for purposes of the one-
time assessment credit. The new law does not change the existing
process through which the FDIC collects FICO assessments.
\3\ Section 2109 of the Reform Act also requires the FDIC to
prescribe, within 270 days, rules on the designated reserve ratio,
changes to deposit insurance coverage, the dividend requirements,
and assessments. The final rule on deposit insurance coverage was
published on September 12, 2006, 71 FR 53547. The final rule on the
dividend requirements is being published on the same day as this
final rule. Final rules on the other matters are expected to be
published in the near future.
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There are three statutory restrictions on the use of credits.
First, as a general rule, for assessments that become due for
assessment periods beginning in fiscal years 2008, 2009, and 2010,
credits may not be applied to more than 90 percent of an institution's
assessment.\4\ 12 U.S.C. 1817(e)(3)(D)(ii). (This 90 percent limit does
not apply to 2007 assessments.) Second, for an institution that
exhibits financial, operational or compliance weaknesses ranging from
moderately severe to unsatisfactory, or is not at least adequately
capitalized (as defined pursuant to section 38 of the FDI Act) at the
beginning of an assessment period, the amount of any credit that may be
applied against the institution's assessment for the period may not
exceed the amount the institution would have been assessed had it been
assessed at the average rate for all institutions for the period. 12
U.S.C. 1817(e)(3)(E). And, third, if the FDIC is operating under a
restoration plan to recapitalize the Deposit Insurance Fund (DIF)
pursuant to section 7(b)(3)(E) of the FDI Act, as amended by the Reform
Act, the FDIC may elect to restrict credit use; however, an institution
must still be allowed to apply credits up to three basis points of its
assessment base or its actual assessment, whichever is less. 12 U.S.C.
1817(b)(3)(E)(iii).
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\4\ As proposed, the FDIC is interpreting a ``fiscal year'' as a
calendar year.
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The one-time credit regulations must include the qualifications and
procedures governing the application of assessment credits. These
regulations also must include provisions allowing a bank or thrift a
reasonable opportunity to challenge administratively the amount of
credits it is awarded.\5\ Any determination of the amount of an
institution's credit by the FDIC pursuant to these administrative
procedures is final and not subject to judicial review. 12 U.S.C.
1817(e)(4).
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\5\ Similarly, for dividends under the FDI Act, as amended by
the Reform Act, the regulations must include provisions allowing a
bank or thrift a reasonable opportunity to challenge
administratively the amount of dividends it is awarded. 12 U.S.C.
1817(e)(4).
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II. The Proposed Rule
As part of this rulemaking, the FDIC was required, among other
things, to: Determine the aggregate amount of the one-time credit;
determine the institutions that are eligible to receive credits; and
determine the amount of each eligible institution's credit, which for
some institutions may be largely dependent on how the FDIC defines
``successor'' for these purposes. The FDIC also must establish the
qualifications and procedures governing the application of assessment
credits, and provide a reasonable opportunity for an institution to
challenge administratively the amount of the credit. The FDIC's
determination after such challenge will be final and not subject to
judicial review.
As set out more fully in the proposed rule,\6\ the FDIC proposed
to: (1) Rely on the 1996 assessment base figures contained in the
Assessment Information Management System (AIMS) \7\; (2) define
``successor'' as the resulting institution in a merger or
consolidation, while seeking comment on alternative definitions; (3)
automatically apply each institution's credit against future
assessments to the maximum extent allowed consistent with the
limitations in the FDI Act; and (4) provide an appeals process for
administrative challenges to the amounts of credits that culminates in
review by the FDIC's Assessment Appeals Committee.
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\6\ 71 FR 28808 (May 18, 2006).
\7\ The current Assessment Information Management Systems (AIMS)
contains records from quarterly reports of condition data from
institutions with bank and thrift charters. The FFIEC Central Data
Repository (FFIEC-CDR) for banks and the Thrift Financial Report for
thrifts provide AIMS with the values of the deposit line items that
are used in the calculation of an institution's assessment base.
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Shortly after publication of the proposed rule, the FDIC made
available a searchable database with the FDIC's calculation of every
institution's 1996 assessment base (if any) to give institutions the
opportunity to review and verify both their 1996 assessment base and
preliminary, estimated credit amount, as well as information related to
mergers or consolidations to which it was a party.
The comment period for the proposed rule was extended to August 16,
2006, to allow all interested parties to consider the proposed rule
while proposed rules on the designated reserve ratio and risk-based
assessments were pending.
A. Aggregate Amount of One-Time Assessment Credit
The aggregate amount of the one-time assessment credit is
$4,707,580,238.19, which was calculated by applying an assessment rate
of 10.5 basis points to the combined assessment base of BIF and SAIF as
of December 31, 2001. The FDIC proposed to rely on the assessment base
numbers available from each institution's certified statement (or
amended certified statement), filed quarterly and preserved in AIMS,
which records the assessment base for each insured depository
institution as of that
[[Page 61376]]
date. AIMS is the FDIC's official system of records for determination
of assessment bases and assessments due.
B. Determination of Eligible Insured Depository Institutions and Each
Institution's 1996 Assessment Base Ratio
The FDIC must determine the assessment base of each eligible
institution as of December 31, 1996, and any successor institutions, to
determine the eligible institution's 1996 assessment base ratio. In
making these determinations, the Board has the authority to take into
account such factors as the Board may determine to be appropriate. 12
U.S.C. 1817(e)(3)(A).
As described in the proposed rule, the denominator of the 1996
assessment base ratio is the combined aggregate assessment base of all
eligible insured depository institutions and their successors. The
numerator of each eligible institution's 1996 assessment base ratio is
its assessment base as of December 31, 1996, combined with the
assessment base on December 31, 1996, of each institution (if any) to
which it is a successor. An eligible insured depository institution is
one in existence as of December 31, 1996, that paid a deposit insurance
assessment prior to that date (or a successor to such institution).
1. Determination of Eligible Institutions
Similar to the determination of the aggregate amount of the credit,
the FDIC proposed to use the December 31, 1996 assessment base for each
institution, as it appears on the institution's certified statement or
as subsequently amended and as recorded in AIMS, to identify eligible
institutions. Those numbers reflect the bases on which institutions
that existed on December 31, 1996, paid assessments. As of June 30,
2006, there were approximately 7,300 active insured depository
institutions that may be eligible for the one-time assessment credit--
that is, they were in existence on December 31, 1996, and had paid an
assessment prior to that date or are a successor to such an
institution.
a. Effect of Voluntary Termination or Failure
The FDIC identified institutions that voluntarily terminated their
insurance or failed since December 31, 1996, which otherwise would have
been considered eligible insured depository institutions for purposes
of the one-time credit. Whether an institution that voluntarily
terminated would have a successor would depend on the specific
circumstances surrounding its termination. The FDIC proposed that an
insured depository institution that has failed would not have a
successor.
b. De Novo Institutions
The FDIC also identified institutions newly in existence as of
December 31, 1996 (de novo institutions) that did not pay deposit
insurance premiums prior to December 31, 1996. Under the statute, those
institutions could not be eligible insured depository institutions for
purposes of the one-time assessment credit. However, the FDIC proposed
that certain de novo institutions, which did not directly pay
assessments prior to December 31, 1996, but which acquired by merger or
consolidation before that date another insured depository institution
that had paid assessments, would be considered eligible insured
depository institutions. The FDIC viewed those de novo institutions as
having stepped into the shoes of the existing institution for purposes
of determining eligibility for the one-time assessment credit,
consistent with the proposed successor definition.
2. Definition of ``Successor''
Many institutions that existed at the end of 1996 no longer exist.
Some have disappeared through merger or consolidation. In fact, it
appears that approximately 4,000 institutions that were in existence on
December 31, 1996, have since combined with other institutions. In
addition, 38 institutions have failed and no longer exist, while the
FDIC has to date identified approximately 100 institutions that
voluntarily relinquished Federal deposit insurance coverage or had
their coverage terminated. The FDIC does not maintain complete records
on sales of branches or blocks of deposits, but various sources suggest
that at least 1,400 and possibly over 1,800 branch or deposit
transactions have occurred since 1996.
Section 7(e)(3)(F) of the FDI Act expressly charges the FDIC with
defining ``successor'' by regulation for purposes of the one-time
credit, and it provides the FDIC with broad discretion to do so. The
Board may consider any factors it deems appropriate. The FDIC's
proposed definition of ``successor'' reflected its consideration of
what would be most consistent with the purpose of the one-time credit
and what would be operationally viable. While a number of definitions
of ``successor'' are possible in light of the discretion accorded the
FDIC in defining the term, on balance, the FDIC concluded that the
definition that focused on the institution and relied on traditional
principles of corporate law was both more consistent with the purpose
of the credit and more operationally viable.
For a number of reasons (discussed more fully in the proposed
rule), the FDIC proposed to define ``successor'' for purposes of the
one-time credit as the resulting institution in a merger or
consolidation occurring after December 31, 1996. As proposed, the
definition would not include a purchase and assumption transaction,
even if substantially all of the assets and liabilities of an
institution were acquired by the assuming institution. However, the
FDIC requested comment on whether to include in this definition a
regulatory definition of a de facto merger to recognize that the
results of some transactions, which are not technically or legally
mergers or consolidations, may largely mirror the results of a merger
or consolidation. The FDIC also requested comment on a definition that
would link credits to deposits, sometimes referred to as a ``follow-
the-deposits'' approach.
If there is no successor to an institution that would have been
eligible for the one-time assessment credit before the effective date
of the final rule, because an otherwise eligible institution ceased to
be an insured depository institution before that date, then the FDIC
proposed that that portion of the aggregate one-time credit amount be
redistributed among the eligible institutions. On the other hand, if
there is no successor to an eligible insured depository institution
that ceases to exist after the Board issues the final rule and
allocates the one-time assessment credit among eligible insured
depository institutions, it is proposed that that institution's credits
expire unused.
C. Notification of 1996 Assessment Base Ratio and Credit Amount
Along with the publication of the proposed rule, the FDIC made
available a searchable database provided through the FDIC's public Web
site (http://www.fdic.gov) that shows each currently existing
institution and its predecessors by merger or consolidation from
January 1, 1997, onward, based on information contained in certified
statements, AIMS, and the FDIC's Structure Information Management
System (``SIMS'').\8\ The database included corresponding December 31,
1996 assessment base
[[Page 61377]]
amounts for each institution and its predecessors and preliminary
estimates of the amount of one-time credit that the existing
institution would receive based on the proposed definition of
successor.
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\8\ SIMS maintains current and historical non-financial data for
all institutions that is retrieved by AIMS to identify the current
assessable universe for each quarterly assessment invoice cycle.
SIMS offers institution-specific demographic data, including a
complete set of information on merger or consolidation transactions.
SIMS, however, does not contain complete information about deposit
or branch sales.
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The database could be searched by institution name or insurance
certificate number to ascertain which current institution (if any)
would be considered a successor to an institution that no longer
exists. Institutions had the opportunity to review this information,
but were advised that this preliminary estimate could change, for
example, because of a change in the definition of ``successor'' adopted
in the final rule or because of a change to the information available
to the FDIC for determining successorship.
As soon as practicable after the Board approves the final rule, the
FDIC proposed to notify each insured depository institution of its 1996
assessment base ratio and share of the one-time assessment credit. The
notice would take the form of a Statement of One-Time Credit (or
Statement): Informing every institution of its current, preliminary
1996 assessment base ratio; itemizing the 1996 assessment bases to
which the institution may now have claims pursuant to the successor
rule based on existing successor information in the database; providing
the preliminary amount of the institution's one-time credit based on
that 1996 assessment base ratio as applied to the aggregate amount of
the credit; and providing the explanation as to how ratios and
resulting amounts were calculated generally. The FDIC proposed to
provide the Statement of One-Time Credit through FDICconnect and by
mail in accordance with existing practices for assessment invoices.
D. Requests for Review of Credit Amounts
As noted above, the statute requires the FDIC's credit regulations
to include provisions allowing an institution a reasonable opportunity
to challenge administratively the amount of its one-time credit. The
FDIC's determination of the amount following any such challenge is to
be final and not subject to judicial review.
The proposed rule largely paralleled the procedures for requesting
revision of computation of a quarterly assessment payment as shown on
the quarterly invoice with requests for review being considered by the
Director of the Division of Finance and appeals of those decisions made
to the FDIC's Assessment Appeals Committee (``AAC''). As with the
notice of proposed rulemaking on assessment dividends,\9\ the FDIC
proposed shorter timeframes in the credit process so that requests for
review could be resolved to allow application of credits against
upcoming assessments to the extent possible. The FDIC further proposed
to freeze temporarily the allocation of the credit amount in dispute
for institutions involved in a challenge until the challenge is
resolved. After determination of the request for review or appeal, if
filed, appropriate adjustments would be reflected in the next quarterly
invoice.
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\9\ 71 FR 22804 (May 18, 2006).
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E. Using Credits
The FDIC proposed to track each institution's one-time credit
amount and automatically apply an institution's credits to its
assessment to the maximum extent allowed by law. For 2007 assessment
periods, all credits available to an institution may be used to offset
the institution's insurance assessment, subject to certain statutory
limitations described below. For assessments that become due for
assessment periods beginning in fiscal years 2008, 2009, and 2010, the
FDI Act provides that credits may not be applied to more than 90
percent of an institution's assessment.
For an institution that exhibits financial, operational or
compliance weaknesses ranging from moderately severe to unsatisfactory,
or is not adequately capitalized at the beginning of an assessment
period, the amount of any credit that may be applied against the
institution's assessment for the period may not exceed the amount the
institution would have been assessed had it been assessed at the
average assessment rate for all institutions for the period. The FDIC
proposed to interpret the phrase ``average assessment rate'' to mean
the aggregate assessment charged all institutions in a period divided
by the aggregate assessment base for that period.
As described above, the FDIC further has the discretion to limit
the application of the one-time credit when the FDIC establishes a
restoration plan to restore the reserve ratio of the DIF to the range
established for it.\10\
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\10\ Section 2105 of the Reform Act, amending section 7(b)(3) of
the FDI Act to establish a range for the reserve ratio of the DIF,
will take effect on the date that final regulations implementing the
legislation with respect to the designated reserve ratio become
effective. Those regulations are required to be prescribed within
270 days of enactment. Reform Act Section 2109(a)(1).
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As the proposed rule recognized, credit amounts may not be used to
pay FICO assessments pursuant to section 21(f) of the Federal Home Loan
Bank Act, 12 U.S.C. 1441(f). The Reform Act does not affect the
authority of FICO to impose and collect, with the approval of the
FDIC's Board, assessments for anticipated interest payments, issuance
costs, and custodial fees on obligations issued by FICO.
F. Transferring Credits
In addition to the transfer of credits to successors, the FDIC
proposed to allow transfer of credits and adjustments to 1996
assessment base ratios by express agreement between insured depository
institutions prior to the FDIC's final determination of an eligible
insured depository institution's 1996 assessment base ratio and one-
time credit amount pursuant to these regulations. Under the proposal,
the FDIC would require the institutions to submit a written agreement
signed by legal representatives of the involved institutions. Upon the
FDIC's receipt of the agreement, appropriate adjustments would be made
to the institutions' affected one-time credit amounts and 1996
assessment base ratios.
Similarly, after an institution's credit share has been finally
determined and no request for review is pending with respect to that
credit amount, the FDIC proposed to recognize an agreement between
insured depository institutions to transfer any portion of the one-time
credit from the eligible institution to another institution. With
respect to these transactions occurring after the final determination
of each eligible institution's 1996 assessment base ratio and share of
the one-time credit, the FDIC proposed not to adjust the transferring
institution's 1996 assessment base ratio.
III. Comments on the Proposed Rule
We received twenty-six comments on the proposed rule. Most of the
comments focused to some extent on the definition of ``successor.''
Five institutions and one trade association supported the proposed
definition of successor, which relies on traditional principles of
corporate law. Five institutions appeared to support including a de
facto merger rule to recognize purchase and assumption transactions
that may be viewed by some as the functional equivalent of a merger or
consolidation. One institution emphasized that such a rule would have
to be narrowly crafted. Four industry trade associations supported
adding a de facto merger rule. Six institutions and a trade association
commented in favor of a definition that would link credits to deposits,
arguing that assessments are paid on deposits and rights and
responsibilities associated
[[Page 61378]]
with those deposits transfer when they are sold. One institution raised
the question of so-called stripped charters, where one institution
might acquire the assets and liabilities of another, while a third
institution would merely merge with the charter of the acquired
institution.
Two United States Senators filed a joint comment letter asking the
FDIC to reexamine its definition of successor, expressing their concern
that the proposed rule ``provides absolutely no opportunity for a bank
that purchased deposits to receive credits for those deposits, whether
deposits are easily traceable, or whether awarding credits to the
selling bank would create a windfall for that selling bank and create a
new free rider on the Fund.'' One institution requested that the FDIC
reconsider the definitions of ``eligible insured depository
institution'' and ``successor,'' as well as the redistribution of
credits where no successor exists, to recognize the actual assessments
paid before December 31, 1996, by institutions that no longer had the
deposits on which those assessments were paid on December 31, 1996, the
date established by the statute. A trade association commented that the
time-frames for the request for review process should be extended to
parallel those applicable to requests for review of assessments.
Six letters suggested that the FDIC phase in the one-time credit
and some suggested three approaches for phasing in the application of
credits--allowing institutions to use fifty percent of credits against
assessments; allowing institutions to use a certain number of basis
points of credit to offset assessments in any one year; or implementing
a graduated credit schedule to offset assessments. These commenters
argued that the proposal to apply credits to quarterly assessments to
the maximum extent allowed by law would disproportionately adversely
affect institutions chartered since 1996. One trade association
supported the proposed rule, under which the FDIC would automatically
offset quarterly assessments with the maximum amount of credits
available and allowed by law. Another trade association suggested that
the FDIC allow institutions to elect to restrict the application of
their credits to budget for future expected expenses.
One institution took the position that credits should not expire
unused if an institution terminated after the effective date of the
final rule; rather, that institution recommended that any remaining
credit from that institution be redistributed among all eligible
institutions.
One institution opposed allowing the transfer of credits except to
successors. Two trade associations supported the transferability
described in the proposed rule. A trade association also opined that it
was critical that the accounting treatment of these credits be
determined before the effective date of the final rule and further
offered its opinion that credits should not be considered assets or
income.
All of the comment letters have been considered and are available
on the FDIC's Web site, http://www.fdic.gov/regulations/laws/federal/propose.html.
IV. The Final Rule
Upon considering the comments on the proposed rule, the FDIC is
adopting the final rule. Under the final rule, the FDIC will rely on
the 1996 assessment base figures as contained in AIMS in determining
the aggregate amount of the one-time assessment credit and each
institution's share of that aggregate amount; define ``successor'' as
the resulting institution in a merger or consolidation, as well as the
acquiring institution under a de facto rule; automatically apply each
institution's credit against future assessments to the maximum extent
allowed by the statute; and provide an appeals process for
administrative challenges to individual institution's credit amounts
that culminates in review by the AAC.
A. Eligible Insured Depository Institutions and Their Successors
To be eligible to receive a share of the one-time assessment
credit, an insured depository institution must have been in existence
on December 31, 1996, and paid a deposit insurance assessment prior to
that date or be a successor to such an institution. The statute, in
essence, takes a snapshot of the industry as of year-end 1996, and uses
that as a proxy to recognize the assessments that had been paid by some
institutions to recapitalize the deposit insurance funds at that time.
Because it is a proxy, there may not be perfect alignment between
institutions that paid significant assessments over years and their
credit amounts.
As the comments reflect, the principal issue in this rulemaking has
been the definition of ``successor.'' In the proposed rule, the FDIC
proposed to define successor for purposes of the one-time credit as the
resulting institution in a merger or consolidation occurring after
December 31, 1996. We requested specific comment on whether to include
in the definition of ``successor'' a regulatory definition of a de
facto merger to recognize that the results of some transactions, which
are not technically or legally mergers or consolidations, may largely
mirror the results of a merger or consolidation. A number of approaches
were possible, and the FDIC carefully considered the alternatives
presented in the proposed rule and the comments on them. The final rule
defines successor as (1) the resulting institution in a merger or
consolidation or (2) as an insured depository institution that acquired
part of another insured depository institution's 1996 assessment base
ratio under a de facto rule, as described below.
The FDIC believes this definition is consistent with the purpose of
the one-time credit--that is, to recognize the contributions that
certain institutions made to capitalize the Bank Insurance Fund and
Savings Association Insurance Fund, now merged into the Deposit
Insurance Fund. Thus, a resulting institution in a merger occurring
after December 31, 1996, will be considered a successor to an eligible
insured depository institution. This definition also is consistent with
traditional principles of corporate law. 15 William Meade Fletcher et
al., Fletcher Cyclopedia of the Law of Private Corporations Sec. Sec.
7041-7100 (perm. ed., rev. vol. 1999).
Under the statute, Congress has provided the FDIC with broad
discretion to define ``successor'' considering any factors that the
Board deems appropriate. Several commenters noted, and the Board
recognizes, the consolidation of the industry, the numerous
transactions that have occurred since 1996, and that parties would not
have taken into account future credits when structuring transactions.
Accordingly, under the final rule, ``successor'' is defined as the
acquiring, assuming or resulting institution in a merger \11\ or the
acquiring institution under a de facto rule. The de facto rule applies
to any transaction in which an insured depository institution assumes
substantially all of the deposit liabilities and acquires substantially
all of the assets of any other insured depository institution.
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\11\ The definition of merger in the final rule specifically
excludes transactions in which an insured depository institution
either directly or indirectly acquires the assets of, or assumes
liability to pay any deposits made in, any other insured depository
institution where there is not a legal merger or consolidation of
the two insured depository institutions.
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For these purposes, the FDIC considers an assumption and
acquisition of at least 90 percent of the transferring institution's
deposit liabilities and assets at the time of
[[Page 61379]]
transfer as substantially all of that institution's assets and deposit
liabilities. Any successor institution qualifying under that threshold
would be entitled to a pro rata share, based on the deposit liabilities
assumed, of the transferring institution's remaining 1996 assessment
base ratio at the time of the transfer.
The FDIC recognizes that including a de facto rule in the
definition of successor departs, to a certain extent, from the clear,
bright line that a strictly applied merger definition would provide.
However, in keeping with the comments we received in favor of defining
mergers to include de facto mergers, the FDIC believes this approach is
fairer than excluding de facto transactions from the definition of
successor. It is also consistent with Congressional intent in giving
the FDIC broad discretion to define successor institutions for purposes
of the one-time assessment credit. As some commenters point out, the
insurance fund benefited from certain of these transactions by avoiding
failure of an insured depository institution and associated losses.
The FDIC believes that the merger and consolidation approach for
successor is the most consistent with the purpose of the one-time
assessment credit; however, a strict merger definition would exclude
certain transactions that are also consistent with the purpose of the
one-time credit. A de facto rule recognizes that a transfer of at least
90 percent of an institution's assets and deposit liabilities indicates
a substantial divestiture of the transferring institution's business.
We recognize some institutions that assumed deposit liabilities would
not qualify, but a lower threshold would be less consistent with the
purpose of the one-time credit in recognizing past contributions by
institutions.
Although the FDIC does not have records evidencing all transactions
that would qualify under the de facto rule, we expect these situations
to be limited and, as some commenters noted, the acquiring institutions
in such transactions should be able to provide supporting documents to
the FDIC. We note, however, that institutions will have thirty days
from the effective date of the final rule to advise the FDIC if they
disagree with the computation of the credit amount, or their claim will
be barred. It is important to have a final determination regarding any
de facto rule credit claims in order to determine the amounts
institutions will be entitled to under the one-time assessment credit.
Some commenters suggested a more expansive definition of successor
up to and including the very inclusive ``follow the deposits.''
Ultimately, the FDIC believes, for the reasons stated below, that if
the term ``successor'' were expanded to include deposit acquisitions
other than through merger or under the de facto rule, it would become
very difficult to distinguish on a principled basis who should be
included and who should be excluded, and that a ``follow-the-deposits''
approach which brings with it a potentially large administrative
complication is incompatible with the need to timely and efficiently
administer the credit.
As noted above, the FDIC has significant discretion under the
statute to define ``successor'' for these purposes, and a single,
clear, easily administered Federal standard is essential to allow the
FDIC to implement and administer the one-time credit requirement in a
timely and efficient manner. As one trade association wrote,
institutions on ``opposite sides of deposit sales transactions * * *
have strong and legitimate arguments for why they would be the
successor.'' In contrast, if a ``follow-the-deposits'' approach were
adopted, because the aggregate one-time assessment credit is a finite
pool, disputes over credits resulting from deposit/branch purchases
would have to be identified and to some extent resolved before the
universe of eligible insured depository institutions could even be
identified, which is essential to determining each institution's share
based on its 1996 assessment base as adjusted for successorship. Under
that scenario, until the 1996 assessment base for all eligible
institutions was finalized, use of credits could be delayed and
administration would be complicated. Record deposit growth could
further complicate these determinations because, in addition to tracing
deposits sometimes through numerous transactions, the FDIC might need
to account for deposit growth over time attributable to the
transferring deposits. One of the trade groups that supports the
``follow the deposits'' approach acknowledged that `` `following the
deposits' significantly complicates the FDIC's job of allocating the
credit * * *.''
Some commenters suggest that the merger rule ``discriminates'' and
``arbitrarily places institutions which acquired deposits through asset
acquisition at a competitive disadvantage based merely on the method by
which they acquired deposits.'' The FDIC disagrees with that
characterization. The adopted definition recognizes past payments made
by depository institutions to build the insurance funds. By providing
the credit to depository institutions that actually paid the
assessments or the institution resulting from their merger or
consolidation into another insured institution, the final rule ensures
that credits are awarded to the entity that bore the financial burden
of recapitalizing the funds, either by directly paying into the funds
or acquiring the institutions that did. Similarly, a successor under
the de facto rule may be viewed as acquiring substantially all of the
business of the transferring institution.
Some commenters that would benefit from a ``follow the deposits''
approach argue that the adopted definition of ``successor'' is not
consistent with congressional intent. Contrary to the contention of
some commenters, Congress's broad delegation of authority to the FDIC
to define ``successor'' does not evidence Congressional intent either
to expand or contract the group of qualified institutions. Rather, the
broad delegation ensured that the FDIC could consider the full range of
facts and circumstances in developing a definition of successor--which
we have done.
The adopted definition is well within the broad discretion Congress
gave the FDIC to implement the statute and with our understanding of
the intent. The statute uses the term ``eligible insured depository
institution'' and defines it to include those that paid assessments
prior to December 31, 1996. The legislative history is replete with
statements indicating that credits were intended to recognize those
institutions that recapitalized the funds. In testimony before
Congress, then-Chairman Powell stated, ``Institutions that never paid
premiums would receive no assessment credit.'' Testimony of Chairman
Powell before the Senate Committee on Banking, Housing and Urban
Affairs (April 23, 2002); see also Testimony of Chairman Powell before
the House Financial Services Committee (October 17, 2001) (indicating
that an acquiring institution would get credit for past assessments
paid by the acquired institution). In a statement before the House, one
of the co-sponsors of the legislation stated, ``We have reforms in this
bill that compensate banks for the adverse effect of these so-called
free riders. We give transition assessment credits, recognizing the
contribution of those banks to the insurance reserves that they made
during the early and mid-1990s, and those credits will offset future
premiums for all but the newest and the most recent new institutions
and also
[[Page 61380]]
those fast-growing institutions.'' Statement of Rep. Spencer Bachus,
148 Cong. Rec. H 2799 (daily ed. May 21, 2002). Also in a statement
before the House, another co-sponsor of the legislation stated, ``The
bill includes a mechanism for determining credits for past
contributions to the insurance funds * * *. This is a very, very
important provision as a matter of fairness to institutions that
recapitalized the funds.'' Statement of Rep. Carolyn Maloney, 151 Cong.
Rec. 2019, at 8-9 (2005).
The successor definition adopted in this rule responds to comments
supportive of a de facto merger rule by providing an opportunity for an
acquirer of all or substantially all deposits to share in the credit
for those deposits, absent a merger or consolidation.
As indicated in the proposed rule, if there is no successor to an
institution that would have been eligible for the one-time assessment
credit before the effective date of the final rule, because an
otherwise eligible institution ceased to be an insured depository
institution before that date, then that portion of the aggregate one-
time credit amount will be redistributed among the eligible
institutions. On the other hand, if there is no successor to an
eligible insured depository institution that ceases to exist after the
effective date of the final rule, that institution's credits will
expire unused.
B. Notice of Credit Amount
As soon as practicable after the publication date of the final
rule, the FDIC will notify each insured depository institution of its
1996 assessment base ratio and preliminary determination of its share
of the one-time assessment credit, based on the information derived
from its official system of records (AIMS). The Statement of One-Time
Credit: Will inform each institution of its current, preliminary 1996
assessment base ratio; itemize the 1996 assessment bases to which the
institution is believed to have claims pursuant to the definition of
successor; provide the preliminary amount of the institution's one-time
credit based on the institution's 1996 assessment base ratio as applied
to the aggregate amount of the credit; and explain how the ratios and
resulting amounts were calculated generally. The FDIC will provide the
Statement through FDICconnect and by mail in accordance with existing
practices for assessment invoices.
After the initial notification by the Statement described above,
periodic updated notices will be provided to reflect the adjustments
that may be made up or down as a result of requests for review of
credit amounts, as well as subsequent adjustments reflecting the
application of credits to assessments and any appropriate adjustment to
an institution's 1996 assessment base ratio due to a subsequent merger
or consolidation. If the FDIC's responses to individual institutions'
requests for review of their initial credit amount are not finalized
prior to the invoices for collection of assessments for the first
calendar quarter of 2007, the FDIC will freeze the credit amounts in
dispute while making any credits not in dispute available for use. From
that point on, an individual institution's credit share might increase,
but it should not generally decrease except when its credits are used
or transferred.
Adjustments to credits would be included with each quarterly
assessment invoice until an institution's credits have been exhausted.
The initial Statement and any subsequent updates notices or assessment
invoices advising of an adjustment to the assessment base ratio would
also advise institutions of their right to challenge the calculation
and the procedures to follow.
C. Requests for Review Involving Credits
Within 30 days from the effective date of the final rule (or an
adjusted invoice), an institution may request review if--
(1) It disagrees with the FDIC's determination of eligibility or
ineligibility for the credit;
(2) It disagrees with the computation of the credit amount on the
initial Statement or any subsequent invoice; or
(3) It believes that the Statement, an updated notice, or a
subsequently updated invoice does not fully or accurately reflect
appropriate adjustments to the institution's 1996 assessment base
ratio.
One commenter requested that this time frame be extended to
parallel the assessment appeals process. Because institutions have had
access to the online search tool since May, the FDIC does not believe
the 30-day deadline for requests for review will be overly burdensome.
In addition, compressing the schedule for reviews is necessary to
resolve as many requests as possible before the collection of
assessments for the first calendar quarter of 2007, thereby allowing
most institutions to offset those assessments with available credits.
The request for review must be filed with the Division of Finance
and be accompanied by any documentation supporting the institution's
claim. If an institution does not submit a timely request for review,
the institution is barred from subsequently requesting review of its
one-time assessment credit amount.
In addition, the requesting institution must identify all other
institutions of which it knew or had reason to believe would be
directly and materially affected by granting the request for review and
provide those institutions with copies of the request for review and
supporting documentation, as well as the FDIC's procedures for these
requests for review. In addition, the FDIC will also make reasonable
efforts, based on its official systems of records, to determine that
such institutions have been identified and notified. These institutions
then have 30 days to submit a response and any supporting documentation
to the FDIC's Division of Finance, copying the institution making the
original request for review. If an institution identified and notified
through this process does not submit a timely response, that
institution would be: (1) Foreclosed from subsequently disputing the
information submitted by any other institution on the transaction(s) at
issue in the review process; and (2) foreclosed from any appeal of the
decision by the Director of the Division of Finance (discussed below).
Upon receipt of a request for review or a response from a
potentially affected institution, the FDIC also may request additional
information as part of its review and require the institution to supply
that information within 21 days of the date of the FDIC's request for
additional information. The FDIC will freeze temporarily the amount of
the proposed credit in controversy for the institutions involved in the
request for review until the request is resolved.
The final rule requires a written response from the FDIC's Director
of the Division of Finance (Director), or his or her designee, which
notifies the requesting institution and any materially affected
institutions of the determination of the Director as to whether the
requested change is warranted, whenever feasible: (1) Within 60 days of
receipt by the FDIC of the request for revision; (2) if additional
institutions have been notified by the FDIC, within 60 days of the last
response; or (3) if additional information has been requested by the
FDIC, within 60 days of receipt of any additional information due to
such request, whichever is later.
The requesting institution, or an institution materially affected
by the Director's decision, that disagrees with that decision may
appeal its credit determination to the AAC. The final rule extends the
time for filing an appeal; an appeal to the AAC must be
[[Page 61381]]
filed within 30 calendar days from the date of the Director's written
determination. Notice of the procedures applicable to appeals will be
included with that written determination. The AAC's determination will
be final and not subject to judicial review.
As noted in the proposed rule, the FDIC believes that a number of
challenges may arise in connection with the distribution of the one-
time assessment credit, in large part because many transactions
occurred after 1996 and before the Reform Act provided for a one-time
credit, and because this will be the first time that an institution's
1996 assessment base ratio is calculated. Once those challenges are
resolved, and each institution's 1996 assessment base ratio for
purposes of its one-time credit share is established, unforeseen
circumstances or issues may lead to other challenges of credit share,
and administrative procedures will remain in place to address those
challenges.
Once the Director or the AAC, as appropriate, has made the final
determination, the FDIC will make appropriate adjustments to credit
amounts or shares consistent with that determination and
correspondingly update each affected institution's next invoice.
Adjustments to credit amounts will not be applied retroactively to
reduce or increase prior period assessments.
D. Application or Use of Credits
The one-time assessment credits offset the collection of deposit
insurance assessments beginning with the collection of assessments for
the first assessment period of 2007. Under the final rule, the FDIC
will track each institution's one-time credits and automatically apply
them to that institution's assessment to the maximum extent allowed by
law. For 2007 assessment periods, all credits available to an
institution may be used to offset the institution's insurance
assessment, subject to certain statutory limitations described below.
For the following three years (2008, 2009, and 2010), the final rule,
consistent with the statute, provides that credits may not be applied
to more than 90 percent of an institution's assessment. Assuming that
an institution has sufficient credits, those credits will automatically
apply to 90 percent of that institution's assessment, subject to the
two other statutory limitations on usage.\12\
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\12\ However, this rule will not affect or apply to deposit
insurance assessment adjustments for assessment periods beginning
before 2007 when these adjustments are made prior to the assessments
imposed prior to the effective date of this rule.
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By statute, for an institution that exhibits financial,
operational, or compliance weaknesses ranging from moderately severe to
unsatisfactory, or is not adequately capitalized at the beginning of an
assessment period, the amount of any credit that may be applied against
that institution's assessment for the period may not exceed the amount
the institution would have been assessed had it been assessed at the
average assessment rate for all institutions for the period. The final
rule interprets ``average assessment rate'' to mean the aggregate
assessment charged all institutions in a period divided by the
aggregate assessment base for that period.
The final statutory limit on the use of credits may be imposed by
the FDIC in a restoration plan when the reserve ratio falls below 1.15
percent of estimated insured deposits. The FDIC's discretion to limit
the use of credits during that period is, however, circumscribed by the
statute. During the time that a restoration plan is in effect, the FDIC
may elect to limit the use of credits, but an institution with credits
could apply them against any assessment imposed on an institution for
any assessment period in an amount equal to the lesser of (1) the
amount of the assessment, or (2) the amount equal to three basis points
of the institution's assessment base.
Five letters on behalf of de novo institutions suggest that the
FDIC should phase in the use of credits or allow credits to offset
assessments only on a graduated scale--that is, the FDIC should, in
some manner, further limit the use of credits over the next few years.
These commenters argue that, if the credit regulation is implemented as
proposed, ``it would have an immediate negative impact on rates paid on
consumer savings accounts by new growth institutions because they will
be required to bear the burden on the cost of deposit insurance not
just for their own institution, but also for utilizing assessment
credits.'' In the FDIC's view, any such impact would be short-term.
Moreover, the purpose of the credits, as previously discussed, is to
recognize past payments by depository institutions to build the fund,
so, by definition, institutions that did not pay assessments will be
treated differently. As these commenters acknowledge, the proposal to
apply credits against assessments to the maximum extent allowed by law
is easily understood and simple to administer. In addition, the better
reading of the statute indicates that there was no congressional intent
to allow the FDIC to restrict further the use of credits, except in
specifically enumerated circumstances. The FDI Act, as amended by the
Reform Act, requires the FDIC to apply credit amounts to future
assessments, mandates certain limits on the use of credits at specific
times or in specific circumstances, and expressly provides the FDIC
with the discretion to restrict the use of credits only during a
restoration plan and only to a limited extent. This reading of the
statute is more consistent with the intent of the one-time credit (also
referred to as a ``transitional credit'' in the Conference Report on
the legislation \13\), which, as noted above, was to recognize the
contributions of certain institutions to capitalize the DIF.
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\13\ See H.R. Rep. No. 109-362, at 197 (2005).
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One commenter recommended that institutions be allowed to adjust
their use of credits to budget for future expected expenses, so that if
assessments climb significantly higher than the proposed base rates,
institutions could choose to pay smaller assessments over time rather
than large assessments all at once as credits are completely exhausted.
The Board believes this flexibility in using credits would be
undesirable because of its potential operational complexities for the
FDIC. More importantly, the one-time credit is not interest bearing;
therefore, application of the credit against an institution's future
assessments other than to the maximum extent allowed consistent with
the limitations in the FDI Act will reduce the economic benefit of the
credit to the institution.
In response to the comment on the characterization of credits for
accounting purposes, the FDIC concurs that the determination and
allocation of the one-time assessment credit to eligible insured
depository institutions does not result in the recognition of an asset
or income by these institutions, for accounting purposes. The FDIC does
not believe that the one-time credit meets the characteristics of an
asset described in Statement of Financial Accounting Concepts No. 6,
Elements of Financial Statements. In this regard, the reduction in an
institution's future insurance assessment payments from the application
of the one-time credit does not represent a cash inflow to the
institution, but rather represents contingent future relief from future
cash outflows. The timing and ultimate recoverability of the one-time
credit is not completely within the control of an eligible institution
and no transaction or other event will have occurred at the date when
the FDIC notifies the institution of the amount of its credit
[[Page 61382]]
that gives rise to the institution's right to or control of the
benefit. The benefit is contingent on a future event, the payment of
future insurance assessments. Moreover, the amount of benefit to an
institution is dependent on the assessment rates charged by the FDIC
and the applicability of the statutory restrictions on the use of the
one-time credit, which is not interest-bearing.
Credit amounts may not be used to pay FICO assessments.\14\ The
Reform Act does not affect the authority of FICO to impose and collect,
with the approval of the FDIC's Board, assessments for anticipated
interest payments, issuance costs, and custodial fees on obligations
issued by FICO.
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\14\ See section 21(f) of the Federal Home Loan Bank Act, 12
U.S.C. 1441(f).
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E. Transfer of Credits
In addition to the transfer of credits to successors, the final
rule allows transfers of credits and adjustments to 1996 assessment
base ratios by express agreement between insured depository
institutions prior to the FDIC's final determination of an eligible
insured depository institution's 1996 assessment base ratio and one-
time credit amount pursuant to this final rule. While the statute does
not expressly address transferability, the final rule recognizes that
it is possible that such agreements might already be part of deposit
transfer contracts drafted in anticipation of deposit insurance reform
legislation, which was pending in Congress over several years.
Alternatively, institutions involved in a dispute over successorship,
their 1996 assessment base ratio, and their shares of the one-time
credit might reach a settlement over the disposition of the one-time
credit. Given the FDIC's role in administering credits, it is most
efficient to allow the FDIC to recognize these contractual provisions
or settlements. In either case, for the FDIC to recognize the transfer,
the final rule requires the institutions to notify the FDIC and submit
a written agreement signed by legal representatives of the involved
institutions. The agreement must include documentation that each
representative has the legal authority to bind the institution. Upon
the FDIC's receipt of the agreement, appropriate adjustments will be
made to the institutions' affected one-time credit amounts and 1996
assessment base ratios. These adjustments will be reflected with the
next quarterly assessment invoice, so long as the institutions submit
the written agreement at least 10 days prior to the FDIC's issuance of
the next invoices.
Similarly, after an institution's credit share has been finally
determined and no request for review is pending with respect to that
credit amount, the FDIC will recognize an agreement between insured
depository institutions to transfer any portion of the one-time credit
from an eligible institution to another institution. Nothing in the
statute suggests that such transfers are precluded. In addition, no
compelling reasons to prevent such transfers have been raised by the
commenters. Because credits do not earn interest, there may be some
interest among eligible insured depository institutions to sell credits
that could not otherwise be used promptly. The same rules for
notification to the FDIC and adjustments to invoices would apply as
under the prior discussion, except that the FDIC will not adjust
institutions' 1996 assessment base ratios. Except as provided in the
preceding paragraph, adjustments to 1996 ratios will be made only to
reflect mergers or consolidations occurring after the effective date of
these regulations.
V. Regulatory Analysis and Procedure
Plain Language
Section 722 of the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. 6801 et
seq., requires the Federal banking agencies to use plain language in
all proposed and final rules published after January 1, 2000. The
proposed rule requested comments on how the rule might be changed to
reflect the requirements of GLBA. No GLBA comments were received.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
requires that each Federal agency either certify that a proposed rule
would not, if adopted in final form, have a significant impact on a
substantial number of small entities or prepare an initial flexibility
analysis of the proposal and publish the analysis for comment. See
U.S.C. 603-605. 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 one-time assessment credit rule relates directly to the
rates imposed on insured depository institutions for deposit insurance,
as they will offset future deposit insurance assessments. Nonetheless,
the FDIC has voluntarily undertaken an initial and final regulatory
flexibility analysis of the final rule.
Pursuant to 5 U.S.C. 605(b), the FDIC certifies that the final rule
will not have a significant economic impact on a substantial number of
small businesses within the meaning of the RFA. No comments on this
issue were received. The final rule affects all ``eligible'' insured
depository institutions. Of the approximately 8,790 insured depository
institutions as of June 30, 2006, approximately 5,269 institutions fell
within the definition of ``small entity'' in the RFA--that is, having
total assets of no more than $165 million. Approximately 4,280 small
institutions appear to be eligible for the one-time credit under the
FDI Act definition of ``eligible insured depository institution.''
These institutions would have approximately $239 million in one-time
credits out of a total of approximately $4.7 billion in one-time
credits, given the FDI Act definition of ``eligible insured depository
institution'' and the definition of ``successor'' in this
rulemaking.\15\ These one-time credits represent approximately 9.5
basis points of the combined assessment base of eligible small
institutions as of June 30, 2006. Assuming, for purposes of
illustration, that small institutions were charged an average annual
assessment rate of 2 basis points, these one-time credits would last,
on average, approximately 4.75 years. Clearly, if small institutions
are charged a higher average annual assessment rate, given the final
rule's requirement that credits be applied to assessment payments to
the maximum extent allowed by law, the one-time credits would not last
as long. Not all small institutions will benefit from one-time credits.
New institutions, in particular, will not have credits unless they are
a successor to an eligible institution or have purchased them. Most
small, eligible institutions, however, would benefit to some extent
from the final rule.
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\15\ The present value of these one-time credits depends upon
when they are used, which in turn depends on the assessment rates
charged. The one-time credits do not earn interest; therefore, the
higher the assessment rate charged--and the faster credits are
used--the greater their present value. These one-time assessment
credits are transferable, which could increase their present value.
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Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.), the FDIC may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid Office of Management and Budget (OMB) control number.
The information collection
[[Page 61383]]
occurs when an institution participates in a transaction that results
in the transfer of one-time credits or an institution's 1996 assessment
base, as permitted under the final rule, and seeks the FDIC's
recognition of that transfer. Institutions are required to notify the
FDIC of these transactions so that the FDIC can accurately track the
transfer of credits, apply available credits appropriately against
institutions' deposit insurance assessments, and determine an
institution's 1996 assessment base if the transaction involved both the
base and the credit amount. The need for credit transfer information
will expire when the credit pool has been exhausted. Moreover, it is
expected that most transactions will occur during the first year.
The FDIC solicited public comment on this information collection in
accordance with 44 U.S.C. 3506(c)(2)(B). No comments were received on
this information collection. The FDIC also submitted the information
collection to OMB for review in accordance with 44 U.S.C. 3507(d). The
OMB has approved the information collection under control number 3065-
0151.
Respondents: Insured depository institutions.
Frequency of response: Occasional.
Annual burden estimate:
Number of responses: 200-500 during the first year with fewer than
10 per year thereafter.
Average number of hours to prepare a response: 2 hours.
Total annual burden: 400-1,000 hours the first year, and fewer than
100 hours thereafter.
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
(Pub. L. 105-277, 112 Stat. 2681).
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.
Authority and Issuance
0
For the reasons set forth in the preamble, the FDIC is amending chapter
III of title 12 of the Code of Federal Regulations as follows:
0
1. Revise subpart B, consisting of Sec. Sec. 327.30 through 327.36, to
read as follows:
PART 327--ASSESSMENTS
Subpart B--Implementation of One-Time Assessment Credit
Sec.
327.30 Purpose and scope.
327.31 Definitions.
327.32 Determination of aggregate credit amount.
327.33 Determination of eligible institution's credit amount.
327.34 Transferability of credits.
327.35 Application of credits.
327.36 Requests for review of credit amount.
Subpart B--Implementation of One-Time Assessment Credit
Authority: 12 U.S.C. 1817(e)(3).
Sec. 327.30 Purpose and scope.
(a) Scope. This subpart B of part 327 implements the one-time
assessment credit required by section 7(e)(3) of the Federal Deposit
Insurance Act, 12 U.S.C. 1817(e)(3) and applies to insured depository
institutions.
(b) Purpose. This subpart B of part 327 sets forth the rules for:
(1) Determination of the aggregate amount of the one-time credit;
(2) Identification of eligible insured depository institutions;
(3) Determination of the amount of each eligible institution's
December 31, 1996 assessment base ratio and one-time credit;
(4) Transferability of credit amounts among insured depository
institutions;
(5) Application of such credit amounts against assessments; and
(6) An institution's request for review of the FDIC's determination
of a credit amount.
Sec. 327.31 Definitions.
For purposes of this subpart and subpart C:
(a) The average assessment rate for any assessment period means the
aggregate assessment charged all insured depository institutions for
that period divided by the aggregate assessment base for that period.
(b) Board means the Board of Directors of the FDIC.
(c) De facto rule means any transaction in which an insured
depository institution assumes substantially all of the deposit
liabilities and acquires substantially all of the assets of any other
insured depository institution at the time of the transaction.
(d) An eligible insured depository institution:
(1) Means an insured depository institution that:
(i) Was in existence on December 31, 1996, and paid a deposit
insurance assessment before December 31, 1996; or
(ii) Is a successor to an insured depository institution referred
to in paragraph (d)(1)(i) of this section; and
(2) does not include an institution if its insured status has
terminated as of or after the effective date of this regulation.
(e) Merger means any transaction in which an insured depository
institution merges or consolidates with any other insured depository
institution. Notwithstanding part 303, subpart D, for purposes of this
subpart B and subpart C of this part, merger does not include
transactions in which an insured depository institution either directly
or indirectly acquires the assets of, or assumes liability to pay any
deposits made in, any other insured depository institution, but there
is not a legal merger or consolidation of the two insured depository
institutions.
(f) Resulting institution refers to the acquiring, assuming, or
resulting institution in a merger.
(g) Successor means a resulting institution or an insured
depository institution that acquired part of another insured depository
institution's 1996 assessment base ratio under paragraph 327.33(c) of
this subpart under the de facto rule.
Sec. 327.32 Determination of aggregate credit amount.
The aggregate amount of the one-time credit shall equal
$4,707,580,238.19.
Sec. 327.33 Determination of eligible institution's credit amount.
(a) Subject to paragraph (c) of this section, allocation of the
one-time credit shall be based on each eligible insured depository
institution's 1996 assessment base ratio.
(b) Subject to paragraph (c) of this section, an eligible insured
depository institution's 1996 assessment base ratio shall consist of:
(1) Its assessment base as of December 31, 1996 (adjusted as
appropriate to reflect the assessment base of December 31, 1996, of all
institutions for which it is the successor), as the numerator; and
[[Page 61384]]
(2) The combined aggregate assessment bases of all eligible insured
depository institutions, including any successor institutions, as of
December 31, 1996, as the denominator.
(c) If an insured depository institution is a successor to an
eligible insured depository institution under the de facto rule, as
defined in paragraph 327.31(c) of this subpart, the successor and the
eligible insured depository institution will divide the eligible
insured depository institution's 1996 assessment base ratio pro rata,
based on the deposit liabilities assumed in the transaction. In any
subsequent transaction involving an insured depository institution that
previously engaged in a transaction to which the de facto rule applied,
the insured depository institution may not be deemed to have
transferred more than its remaining 1996 assessment base ratio. If the
transferring institution is no longer an insured depository institution
after the transfer, the last successor will acquire the transferring
institution's remaining 1996 assessment base ratio.
Sec. 327.34 Transferability of credits.
(a) Any remaining amount of the one-time assessment credit and the
associated 1996 assessment base ratio shall transfer to a successor of
an eligible insured depository institution.
(b) Prior to the final determination of its 1996 assessment base
and one-time assessment credit amount by the FDIC, an eligible insured
depository institution may enter into an agreement to transfer any
portion of such institution's one-time credit amount and 1996
assessment base ratio to another insured depository institution. The
parties to the agreement shall notify the FDIC's Division of Finance
and submit a written agreement, signed by legal representatives of both
institutions. The parties must include documentation stating that each
representative has the legal authority to bind the institution. The
adjustment to credit amount and the associated 1996 assessment base
ratio shall be made in the next assessment invoice that is sent at
least 10 days after the FDIC's receipt of the written agreement.
(c) An eligible insured depository institution may enter into an
agreement after the final determination of its 1996 assessment base
ratio and one-time credit amount by the FDIC to transfer any portion of
such institution's one-time credit amount to another insured depository
institution. The parties to the agreement shall notify the FDIC's
Division of Finance and submit a written agreement, signed by legal
representatives of both institutions. The parties must include
documentation stating that each representative has the legal authority
to bind the institution. The adjustment to the credit amount shall be
made in the next assessment invoice that is sent at least 10 days after
the FDIC's receipt of the written agreement.
Sec. 327.35 Application of credits.
(a) Subject to the limitations in paragraph (b) of this section,
the amount of an eligible insured depository institution's one-time
credit shall be applied to the maximum extent allowable by law against
that institution's quarterly assessment payment under subpart A of this
part, until the institution's credit is exhausted.
(b) The following limitations shall apply to the application of the
credit against assessment payments.
(1) For assessments that become due for assessment periods
beginning in calendar years 2008, 2009, and 2010, the credit may not be
applied to more than 90 percent of the quarterly assessment.
(2) For an insured depository institution that exhibits financial,
operational, or compliance weaknesses ranging from moderately severe to
unsatisfactory, or is not at least adequately capitalized (as defined
pursuant to section 38 of the Federal Deposit Insurance Act) at the
beginning of an assessment period, the amount of the credit that may be
applied against the institution's quarterly assessment for that period
shall not exceed the amount that the institution would have been
assessed if it had been assessed at the average assessment rate for all
insured institutions for that period. The FDIC shall determine the
average assessment rate for an assessment period based upon its best
estimate of the average rate for the period. The estimate shall be made
using the best information available, but shall be made no earlier than
30 days and no later than 20 days prior to the payment due date for the
period.
(3) If the FDIC has established a restoration plan pursuant to
section 7(b)(3)(E) of the Federal Deposit Insurance Act, the FDIC may
elect to restrict the application of credit amounts, in any assessment
period, up to the lesser of:
(i) The amount of an insured depository institution's assessment
for that period; or
(ii) The amount equal to 3 basis points of the institution's
assessment base.
Sec. 327.36 Requests for review of credit amount.
(a)(1) As soon as practicable after the publication date of this
rule, the FDIC shall notify each insured depository institution by
FDICconnect or mail of its 1996 assessment base ratio and credit amount
in a Statement of One-Time Credit (``Statement''), if any. An insured
depository institution may submit a request for review of the FDIC's
determination of the institution's 1996 assessment base ratio or credit
amount as shown on the Statement within 30 days after the effective
date of this rule. Such review may be requested if:
(i) The institution disagrees with a determination as to
eligibility for the credit that relates to that institution's credit
amount;
(ii) The institution disagrees with the calculation of the credit
as stated on the Statement; or
(iii) The institution believes that the 1996 assessment base ratio
attributed to the institution on the Statement does not fully or
accurately reflect its own 1996 assessment base or appropriate
adjustments for successors.
(2) If an institution does not submit a timely request for review,
that institution is barred from subsequently requesting review of its
credit amount, subject to paragraph (e) of this section.
(b)(1) An insured depository institution may submit a request for
review of the FDIC's adjustment to the credit amount in a quarterly
invoice within 30 days of the date on which the FDIC provides the
invoice. Such review may be requested if:
(i) The institution disagrees with the calculation of the credit as
stated on the invoice; or
(ii) The institution believes that the 1996 assessment base ratio
attributed to the institution due to the adjustment to the invoice does
not fully or accurately reflect appropriate adjustments for successors
since the last quarterly invoice.
(2) If an institution does not submit a timely request for review,
that institution is barred from subsequently requesting review of its
credit amount, subject to paragraph (e) of this section.
(c) The request for review shall be submitted to the Division of
Finance and shall provide documentation sufficient to support the
change sought by the institution. At the time of filing with the FDIC,
the requesting institution shall notify, to the extent practicable, any
other insured depository institution that would be directly and
materially affected by granting the request for review and provide such
institution with copies of the request for review, the supporting
documentation, and the FDIC's procedures for requests under this
subpart. In addition, the FDIC also shall make reasonable efforts,
based on its official systems of records, to
[[Page 61385]]
determine that such institutions have been identified and notified.
(d) During the FDIC's consideration of the request for review, the
amount of credit in dispute shall not be available for use by any
institution.
(e) Within 30 days of being notified of the filing of the request
for review, those institutions identified as potentially affected by
the request for review may submit a response to such request, along
with any supporting documentation, to the Division of Finance, and
shall provide copies to the requesting institution. If an institution
that was notified under paragraph (c) does not submit a response to the
request for review, that institution may not:
(1) Subsequently dispute the information submitted by other
institutions on the transaction(s) at issue in the review process; or
(2) Appeal the decision by the Director of the Division of Finance.
(f) If additional information is requested of the requesting or
affected institutions by the FDIC, such information shall be provided
by the institution within 21 days of the date of the FDIC's request for
additional information.
(g) Any institution submitting a timely request for review will
receive a written response from the FDIC's Director of the Division of
Finance, (or his or her designee), notifying the requesting and
affected institutions of the determination of the Director as to
whether the requested change is warranted. Notice of the procedures
applicable to appeals under paragraph (h) of this section will be
included with the Director's written determination. Whenever feasible,
the FDIC will provide the institution with the aforesaid written
response the later of:
(1) Within 60 days of receipt by the FDIC of the request for
revision;
(2) If additional institutions have been notified by the requesting
institution or the FDIC, within 60 days of the date of the last
response to the notification; or
(3) If additional information has been requested by the FDIC,
within 60 days of receipt of the additional information.
(h) Subject to paragraph (e) of this section, the insured
depository institution that requested review under this section, or an
insured depository institution materially affected by the Director's
determination, that disagrees with that determination may appeal to the
FDIC's Assessment Appeals Committee on the same grounds as set forth
under paragraph (a) of this section. Any such appeal must be submitted
within 30 calendar days from the date of the Director's written
determination. Notice of the procedures applicable to appeals under
this section will be included with the Director's written
determination. The decision of the Assessment Appeals Committee shall
be the final determination of the FDIC.
(i) Any adjustment to an institution's credits resulting from a
determination by the Director of the FDIC's Assessment Appeals
Committee shall be reflected in the institution's next assessment
invoice. The adjustment to credits shall affect future assessments only
and shall not result in a retroactive adjustment of assessment amounts
owed for prior periods.
Dated at Washington, DC, this 10th day of October, 2006.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E6-17305 Filed 10-17-06; 8:45 am]
BILLING CODE 6714-01-P