[Federal Register: May 29, 2009 (Volume 74, Number 102)]
[Rules and Regulations]
[Page 25639-25645]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29my09-6]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AD35
Special Assessments
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: Pursuant to section 7(b)(5) of the Federal Deposit Insurance
Act, 12 U.S.C. 1817(b)(5), the FDIC is adopting a final rule to impose
a 5 basis point special assessment on each insured depository
institution's assets minus Tier 1 capital as of June 30, 2009. The
amount of the special assessment for any institution, however, will not
exceed 10 basis points times the institution's assessment base for the
second quarter 2009 risk-based assessment. The special assessment will
be collected on September 30, 2009. The final rule also provides that
if, after June 30, 2009, the reserve ratio of the Deposit Insurance
Fund is estimated to fall to a level that the Board believes would
adversely affect public confidence or to a level that shall be close to
or below zero at the end of any calendar quarter, the Board, by vote,
may impose additional special assessments of up to 5 basis points on
all insured depository institutions based on each institution's total
assets minus Tier 1 capital reported on the report of condition for
that calendar quarter. Any single additional special assessment will
not exceed 10 basis points times the institution's assessment base for
the corresponding quarter's risk-based assessment. The earliest
possible date for imposing any such additional special assessment under
the final rule would be September 30, 2009, with collection on December
30, 2009. The latest possible date for imposing any such additional
special assessment under the final rule would be December 31, 2009,
with collection on March 30, 2010. Authority to impose any additional
special assessments under the final rule terminates on January 1, 2010.
DATES: Effective Date: June 30, 2009.
FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Acting Chief,
Fund Analysis and Pricing Section, Division of Insurance and Research,
(202) 898-8967; Christopher Bellotto, Counsel, Legal Division, (202)
898-3801 or Sheikha Kapoor, Senior Attorney, Legal Division, (202) 898-
3960; Donna Saulnier, Manager, Assessment Policy Section, Division of
Finance (703) 562-6167.
[[Page 25640]]
SUPPLEMENTARY INFORMATION:
I. Background
Recent and anticipated failures of FDIC-insured institutions
resulting from deterioration in banking and economic conditions have
significantly increased losses to the Deposit Insurance Fund (the fund
or the DIF). The reserve ratio of the DIF declined from 1.22 percent as
of December 31, 2007, to 0.40 percent (preliminary) as of December 31,
2008, and is expected to decline further by March 31, 2009. Twenty-five
institutions failed in 2008, and the FDIC projects a substantially
higher rate of institution failures this year and in the next few
years, leading to a further decline in the reserve ratio. (As of May
15, 2009, 33 institutions had failed in 2009.) Because the fund reserve
ratio fell below 1.15 percent as of June 30, 2008, and was expected to
remain below 1.15 percent, the Federal Deposit Insurance Reform Act of
2005 (the Reform Act) required the FDIC to establish and implement a
Restoration Plan that would restore the reserve ratio to at least 1.15
percent within five years, absent extraordinary circumstances.\1\
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\1\ Section 7(b)(3)(E) of the Federal Deposit Insurance Act, 12
U.S.C. 1817(b)(3)(E).
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On October 7, 2008, the FDIC established a Restoration Plan for the
DIF.\2\ The Restoration Plan called for the FDIC to set assessment
rates such that the reserve ratio would return to 1.15 percent within
five years. The plan also required the FDIC to update its loss and
income projections for the fund and, if needed to ensure that the fund
reserve ratio reached 1.15 percent within five years, increase
assessment rates. The FDIC amended the Restoration Plan on February 27,
2009, and extended the time within which the reserve ratio must be
returned to 1.15 percent from five years to seven years due to
extraordinary circumstances.\3\ The FDIC also adopted a final rule (the
assessments final rule) that, among other things, set quarterly initial
base assessment rates at 12 to 45 basis points beginning in the second
quarter of 2009.\4\ However, given the FDIC's estimated losses from
projected institution failures, these assessment rates will not be
sufficient to return the fund reserve ratio to 1.15 percent within
seven years and are unlikely to prevent the DIF fund balance and
reserve ratio from falling to near zero or becoming negative in 2009.
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\2\ 74 FR 61598 (October 16, 2008).
\3\ 74 FR 9564 (Mar. 4, 2009).
\4\ 74 FR 9525 (Mar. 4, 2009).
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II. Interim Rule With Request for Comment
On February 27, 2009, the FDIC, using its statutory authority under
section 7(b)(5) of the FDI Act (12 U.S.C. 1817(b)(5)), adopted an
interim rule with request for comment imposing a 20 basis point special
assessment on June 30, 2009, to be collected on September 30, 2009, at
the same time that the regular quarterly risk-based assessments for the
second quarter of 2009 are collected.\5\ Under the interim rule with
request for comment, the assessment base for the special assessment was
the same as the assessment base for the second quarter risk-based
assessment.
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\5\ 74 FR 9338 (Mar. 4, 2009).
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The interim rule with request for comment also provided that, after
June 30, 2009, if the reserve ratio of the DIF is estimated to fall to
a level that the Board believes would adversely affect public
confidence or to a level which shall be close to or below zero at the
end of any calendar quarter, the Board, by vote, may impose a special
assessment of up to 10 basis points as of the end of any such quarter
based on each institution's assessment base calculated pursuant to 12
CFR 327.5 for the corresponding assessment period.
III. Comments Received
The FDIC sought comments on every aspect of the interim rule with
request for comment, with six particular issues posed. The FDIC
received over 14,000 comments, which are discussed in section V below.
IV. Final Rule
The final rule differs in several ways from the interim rule with
request for comment. The final rule imposes a 5 basis point special
assessment on each institution's assets minus Tier 1 capital as
reported on the report of condition as of June 30, 2009, rather than a
20 basis point special assessment on each institution's assessment base
for the second quarter 2009 risk-based assessment, as provided in the
interim rule with request for comment. The amount of the special
assessment for any institution, however, will not exceed 10 basis
points times the institution's assessment base for the second quarter
2009 risk-based assessment. The special assessment will be collected on
September 30, 2009.
The FDIC estimates that the total amount collected under the
special assessment will approximately equal the amount that would have
been collected by imposing approximately a 7 and one-third basis point
special assessment on the aggregate industry assessment base for the
second quarter 2009 risk-based assessment. For all institutions, the
assessment rate in the final rule will result in a much smaller
assessment than under the interim rule with request for comment.
According to the FDIC's projections, the special assessment,
combined with the rates adopted in the final assessment rule in
February 2009, should result in maintaining a year-end 2009 fund
balance and reserve ratio that are positive, albeit close to
zero.6, 7 It is important, however, to recognize the
inherent uncertainty in these projections. Given the importance of
maintaining a positive fund balance and reserve ratio, it is probable
that an additional special assessment will be necessary, although the
amount and timing of such a special assessment is uncertain.
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\6\ The Helping Families Save Their Homes Act of 2009, discussed
below, extends the temporary deposit insurance coverage limit
increase to $250,000 (from the permanent limit of $100,000 for
deposits other than retirement accounts) through the end of 2013.
The legislation allows the FDIC to factor in the increase in the
coverage limit for assessment purposes. Institutions do not
currently report the amount of deposits insured above $100,000
(except for retirement accounts). Staff estimates that when
institutions begin reporting estimated insured deposits that reflect
the higher coverage limit (probably in their September 30, 2009
reports of condition), projected reserve ratios (provided they are
positive) will be somewhat lower than they would be using the
$100,000 coverage limit. Taking the coverage limit increase into
account would not, of course, convert a positive reserve ratio to a
negative one.
\7\ Also, according to staff's projections, the combination of
the 5 basis points special assessment (without any additional
special assessments) and regular assessments should return the
reserve ratio to 1.15 percent in 2016, one year later than required
by the amended Restoration Plan, which requires that the reserve
ratio return to 1.15 percent by the end of 2015. It should be noted
that the Restoration Plan allows the FDIC the flexibility to adjust
assessment rates as needed throughout the plan period to ensure that
the fund reserve ratio reaches 1.15 percent within seven years (loss
and income projections must be updated at least semiannually).
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Therefore, the final rule also provides that, if, after June 30,
2009, but before January 1, 2010, the reserve ratio of the DIF is
estimated to fall to a level that the Board believes would adversely
affect public confidence or to a level which shall be close to or below
zero at the end of any calendar quarter, the Board, by vote, may impose
an additional special assessment of up to 5 basis points as of the end
of any such quarter on all insured depository institutions based on
each institution's total assets minus Tier 1 capital as reported on the
report of condition for that calendar quarter. Any single additional
special assessment will not exceed 10 basis points times the
institution's assessment base for the corresponding quarter's risk-
based
[[Page 25641]]
assessment. The interim rule with request for comment had allowed
additional special assessments of up to 10 basis points on the
assessment base used for quarterly risk-based assessments.
The earliest any such additional special assessment could be
imposed under the final rule would be September 30, 2009, with
collection on December 30, 2009. An additional special assessment of up
to 5 basis points may be needed and the FDIC will consider whether to
impose such an additional special assessment later in 2009, but the
amount and timing of any additional special assessment remain
uncertain.
Authority to impose any additional special assessments terminates
under this rule on January 1, 2010. The FDIC's ability to collect any
special assessments imposed prior to January 1, 2010, would not be
affected by this termination date.
Special Assessment
The FDIC realizes that assessments are a significant expense,
particularly during a financial crisis and recession when bank earnings
are under pressure. Banks currently face tremendous challenges even
without having to pay higher assessments. Assessments reduce the funds
that banks can lend in their communities to help revitalize the
economy. For that reason, the FDIC has found ways to reduce the size of
the special assessment since adopting the interim rule with request for
comment. The FDIC recently imposed a surcharge on senior unsecured debt
guaranteed under the Temporary Liquidity Guarantee Program (TLGP).
Funds collected and anticipated to be collected from this surcharge
allow the FDIC to reduce somewhat the size of the special assessment.
The FDIC also requested that Congress increase the FDIC's authority
to borrow from Treasury. The size of the special assessment adopted in
the interim rule with request for comment reflected the FDIC's need to
maintain adequate resources to cover potential unforeseen losses. The
FDIC had a thin cushion against unforeseen losses because its $30
billion borrowing authority from Treasury for losses from bank failures
had not increased since 1991, although industry assets had more than
tripled.
On May 20, 2009, Congress increased the FDIC's authority to borrow
from Treasury from $30 billion to $100 billion as a part of the Helping
Families Save Their Homes Act of 2009. In addition, this legislation
authorized a temporary increase until December 31, 2010, in the FDIC's
borrowing authority above $100 billion (but not to exceed $500 billion)
based on a process that would require the concurrence of the FDIC's
Board, the Federal Reserve Board, and the Secretary of the Treasury in
consultation with the President. This increase in the FDIC's borrowing
authority gives the FDIC a sufficient cushion against unforeseen bank
failures to allow it to reduce the size of the special assessment
significantly while continuing to assess at a level that maintains the
DIF through industry funding. Although the industry would still pay
assessments to cover projected losses and rebuild the fund over time, a
lower special assessment will mitigate the pro-cyclical effects of
assessments.
Nevertheless, the FDIC still needs to impose a special assessment.
The FDIC currently projects approximately $70 billion in losses due to
insured depository institution failures over the next five years, the
great majority of which are expected to occur in 2009 and 2010. The $70
billion estimate of losses is about $5 billion higher than the FDIC's
estimate in February 2009. The FDIC also currently projects that,
without a special assessment, the reserve ratio of the DIF will become
negative by the end of 2009. Given current projections, the FDIC
expects that the special assessment will keep the DIF positive, albeit
at a low level.\8\
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\8\ The Helping Families Save Their Homes Act of 2009, discussed
above, extends the temporary deposit insurance coverage limit
increase to $250,000 (from the permanent limit of $100,000 for
deposits other than retirement accounts) through the end of 2013.
The legislation allows the FDIC to factor in the increase in the
coverage limit for assessment purposes. Institutions do not
currently report the amount of deposits insured above $100,000
(except for retirement accounts). The FDIC estimates that when
institutions begin reporting estimated insured deposits that reflect
the higher coverage limit (probably in their September 30, 2009
reports of condition), projected reserve ratios (provided they are
positive) will be somewhat lower than they would be using the
$100,000 coverage limit. Taking the coverage limit increase into
account would not, of course, convert a positive reserve ratio to a
negative one.
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Section 7(b)(5) of the FDI Act, governing special assessments,
allows the Corporation to impose one or more special assessments on
insured depository institutions in an amount determined by the
Corporation for any purpose that the Corporation may deem necessary.
One of the FDIC's principal purposes in imposing special assessments
under this rule is to prevent the reserve ratio of the fund from
declining to zero or below. The statute does not define the assessment
base to be used when imposing a special assessment. Thus, the FDIC has
authority to define the appropriate assessment base for the special
assessment by rulemaking. Chevron USA v. NRDC, 467 U.S. 837, 843
(1984); 12 U.S.C. 1819 (a) Tenth. Moreover, prior to 1991, section
7(b)(4) of the FDI Act defined a depository institution's assessment
base as the institution's liability for deposits as reported on the
institution's report of condition, subject to certain statutory
adjustments. The Federal Deposit Insurance Corporation Improvement Act
of 1991 repealed those provisions and substituted the current risk-
based assessment system provisions.\9\ No specific definition of the
assessment base was put in its place, thus giving the FDIC the
discretion to establish the appropriate base against which to charge
assessments depending on circumstances.
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\9\ Section 302(a), Pub. L. 102-242, 105 Stat. 2236, 2345-48
(Dec. 19, 1991).
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The interim rule with request for comment based the amount of the
special assessment on the assessment base used for the regular
quarterly risk-based assessments. In contrast, the final rule bases the
special assessment on an institution's total assets less Tier 1
capital. After careful consideration, the FDIC has concluded that a
departure from the regular risk-based assessment base is appropriate in
the current circumstances because it better balances the burden of the
special assessment. The FDIC has excluded Tier 1 capital from the
assessment base to ensure that no institution will be penalized for
holding large amounts of capital.
Unless additional special assessments are needed, all institutions
will pay less than they would have under the interim rule with request
for comment. Even if a second special assessment is needed, no
institution will pay more than it would have paid under the interim
rule with request for comment.
A 5 basis point special assessment rate based on assets minus Tier
1 capital should increase the reserve ratio as of the end of 2009 by
approximately 10 basis points. According to the FDIC's projections,
this 5 basis point special assessment (without any additional special
assessments), combined with the rates adopted in the final assessment
rule in February 2009, would return the reserve ratio to 1.15 percent
in 2016, one year later than required by the amended Restoration Plan,
which requires that the reserve ratio return to 1.15 percent by the end
of 2015. It should be noted that the Restoration Plan allows the FDIC
the flexibility to adjust assessment rates as needed throughout the
plan period to ensure that the fund reserve ratio reaches 1.15 percent
within seven years (loss and income projections must be updated at
least semiannually).
[[Page 25642]]
As part of the Restoration Plan, the FDIC has the authority to
restrict the use of the one-time assessment credit while the plan is in
effect, although an institution may still apply any remaining credit
against its assessment to the lesser of its assessment or 3 basis
points.\10\ The FDIC has decided not to restrict assessment credit use
in the Restoration Plan. The FDIC projects that the amount of the
assessment credit remaining at the time that the special assessment is
imposed on June 30, 2009, will be very small and that its use will have
very little effect on assessment revenue.\11\
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\10\ Section 7(b)(3)(E)(iv) of the Federal Deposit Insurance Act
(12 U.S.C. 1817(b)(3)(E)(iv)). Congress awarded the industry, in
aggregate, approximately $4.7 billion in assessment credits in the
Federal Deposit Insurance Reform Act of 2005. Almost all of these
credits have been used.
\11\ For 2009 and 2010, credits may not offset more than 90
percent of an institution's assessment. Section 7(e)(3)(D)(ii) of
the Federal Deposit Insurance Act (12 U.S.C. 1817(e)(3)(D)(ii)).
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Effect on Capital and Earnings
The FDIC has analyzed the effect of a 5 basis point special
assessment on assets minus Tier 1 capital (not to exceed 10 basis
points on an institution's June 30, 2009, assessment base) on the
capital and earnings of insured institutions. For this analysis, the
FDIC has projected that insured institutions' earnings from April 1,
2009, through March 31, 2010, will equal their earnings from April 1,
2008, through March 31, 2009, a period that included several stressful
quarters.\12\ Given this projection, for the industry as a whole, the 5
basis point special assessment in 2009 would result in March 31, 2010,
equity capital that would be approximately 0.2 percent lower than in
the absence of a special assessment. Based on this projection for
industry earnings, a 5 basis point special assessment would cause 2
institutions (with $2.9 billion in aggregate assets) whose equity-to-
assets ratio would have exceeded 4 percent in the absence of such an
assessment to fall below that percentage. Of these institutions, the
equity-to-assets ratio of one institution (with $0.2 billion in
aggregate assets) would fall below 2 percent.
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\12\ The FDIC excluded goodwill losses and amortization expenses
and impairment losses for other intangible assets from earnings
during this period, since many of these items were unusual, one-time
charges.
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For profitable institutions, the 5 basis point special assessment
would result in pre-tax income for 2009 that would be 5.1 percent lower
than if the FDIC did not charge the special assessment. For
unprofitable institutions, pre-tax losses would increase by an average
of 2.0 percent.
Further Special Assessments
The FDIC recognizes that there is considerable uncertainty about
its projections for losses and insured deposit growth, and, therefore,
of future fund reserve ratios. As a result, the FDIC has concluded that
the need for any further special assessments should be considered
periodically beginning later this year when the FDIC can use the most
recently available data on fund losses and the fund reserve ratio.
Under the final rule, the Board may, by vote, impose additional
special assessments of up to 5 basis points each on all insured
depository institutions to further ensure that the fund reserve ratio
does not decline to a level that could undermine public confidence in
federal deposit insurance or to a level which shall be close to or
below zero at the end of a calendar quarter. Any such special
assessment would be imposed on the last day of a quarter for the
remainder of 2009 (September 30 or December 31) and would be collected
approximately three months later at the same time that quarterly risk-
based assessments are collected. The earliest possible date that the
Board, by vote, may impose such an additional special assessment is
September 30, 2009 (which would be collected December 30, 2009). The
latest possible date for imposing any such special assessment under the
final rule would be December 31, 2009 (which would be collected on
March 30, 2010). The final rule reduces the maximum size of any such
additional special assessment to 5 basis points from the 10 basis
points allowed by the interim rule with request for comment, and also
changes the base for calculating this special assessment.
Any additional special assessment also would be based on an
institution's total assets minus Tier 1 capital as reported on the
report of condition for the quarter ending the date the special
assessment is imposed rather than being based on the institution's
assessment base. Thus, for example, a special assessment imposed on
December 31, 2009, would be based on total assets minus Tier 1 capital
reported for the fourth quarter of 2009 (and would be collected March
30, 2010). Any single additional special assessment is capped at 10
basis points of the institution's assessment base used for the
corresponding quarter's risk-based assessment. If the FDIC needs to
impose an additional special assessment larger than 5 basis points, it
will do so by further rulemaking.
Near the end of the third and fourth quarters of 2009, if there is
a reasonable possibility that the reserve ratio has declined to a level
that could undermine public confidence in federal deposit insurance or
to a level which shall be close to or below zero, staff will estimate
the reserve ratio for that quarter from available data on, or estimates
of, insurance fund assessment income, investment income, operating
expenses, other revenue and expenses, and loss provisions (including
provisions for anticipated failures). Because no data on estimated
insured deposits will be available until after the quarter-end, the
FDIC will assume that estimated insured deposits will increase during
the quarter at the average quarterly rate over the previous four
quarters.
If the FDIC estimates that the reserve ratio will fall to a level
that the Board believes would adversely affect public confidence or to
a level close to or below zero at the end of a calendar quarter, and
the Board decides to impose a special assessment of up to 5 basis
points, the FDIC will announce the imposition and rate of the special
assessment no later than the last day of the quarter. As soon as
practicable after any such announcement, the FDIC will have a notice
published in the Federal Register of the imposition of the special
assessment.
For example, if the FDIC estimates in late December 2009 that the
reserve ratio on December 31, 2009, will fall to close to or below
zero, the FDIC's Board may vote to impose a special assessment of up to
5 basis points. Should the Board so vote, the special assessment will
be announced no later than December 31. The announcement will state
that the special assessment is being imposed on December 31, 2009, the
rate of the assessment, and that the assessment will be collected along
with the regular quarterly deposit insurance assessment on March 30,
2010. Notice of the special assessment will be published in the Federal
Register as soon as practicable.
However, the FDIC will not make its estimates of quarter-end
reserve ratios for purposes of any such special assessment, nor will
the Board determine whether to impose such a special assessment, until
shortly before the end of each quarter, in order to take advantage of
the most current data available.
Authority to impose any additional special assessments terminates
under this rule on January 1, 2010. However, the FDIC's ability to
collect any special assessments imposed prior to January 1, 2010, would
not be affected by this termination date. Thus, in the previous
[[Page 25643]]
example, if the Board voted to impose an additional 5 basis point
special assessment on December 31, 2009, the special assessment would
be collected with the regular quarterly deposit insurance assessment on
March 30, 2010.
V. Summary of Comments
The FDIC received over 14,000 comment letters, the vast majority of
which stated that the proposed 20 basis point special assessment could
have a significant adverse effect on the industry at a very difficult
time in the economic and business cycles. A number of letters from
smaller institutions and their trade groups noted that the assessment
would be particularly hard for community banks to absorb.
Alternatives
While recognizing that the banking industry stands behind the DIF,
most of the comments suggested alternatives to reduce or eliminate a
large, one-time special assessment. Proposed alternatives included
spreading out payments over a number of quarters or years, increasing
the amount of time needed to recapitalize the fund, borrowing from the
Treasury, issuing FICO-like bonds, borrowing from the industry,
allowing the industry to take an equity stake in the FDIC similar to
the credit union model implemented by the National Credit Union
Administration (NCUA) for the National Credit Union Share Insurance
Fund (NCUSIF), using revenue from the TLGP, Legacy Loan Program and
Troubled Asset Relief Program (TARP) initiatives, and reducing FDIC
operational and resolutions costs.
The FDIC is aware, and has acknowledged, that a 20 basis point
special assessment would be a significant expense for the industry,
particularly given current conditions. For the reasons discussed
earlier, the FDIC has decided to reduce the size of the special
assessment to 5 basis points on each insured depository institution's
assets minus Tier 1 capital as of June 30, 2009, with the potential for
imposing additional special assessments of up to 5 basis points on each
institution's total assets minus Tier 1 capital should the FDIC's Board
determine that the fund has declined to a level that would undermine
public confidence in the deposit insurance system or to a level close
to or below zero at the end of a calendar quarter. This decision, in
effect, reduces the special assessment and spreads it out (if more than
one assessment becomes necessary), thereby avoiding a large one time
fee and the effect of that fee on earnings and capital.
While the increase in the FDIC's borrowing authority from the
Treasury gives the FDIC a sufficient cushion against unforeseen bank
failures to allow it to reduce the size of the special assessment, the
FDIC continues to believe that the line of credit with Treasury should
be used to fund unexpected losses, not expected losses.
Many of the other proposed alternative funding mechanisms would
require legislative changes, as the FDIC does not currently have the
statutory authority to issue equity or create an entity to issue FICO-
like bonds. Even if the FDIC had the authority to issue equity, insured
institutions would need to determine regularly whether their equity
investment was impaired and, if so, whether the impairment was other
than temporary. If the investment were other-than-temporarily impaired,
institutions would have to recognize an impairment loss in earnings and
write down the asset (as credit unions have recently had to do with
respect to their deposits in the NCUSIF). Given the FDIC's current
projections for the fund balance, banks may have to recognize an other-
than-temporary impairment loss on equity investments in the FDIC soon
after the issuance of the equity.
While FICO-like bonds, if properly structured, could allow insured
institutions to finance recapitalization of the DIF over a long period,
Congress is not currently considering this option (or the possibility
of allowing the FDIC to issue equity). Consequently, this option would
probably not solve the FDIC's short-term need for funds to keep the
fund balance positive.
Regarding the proposals to use funds from various financial
stability initiatives, as previously discussed, anticipated funds
collected from the TLGP surcharge have allowed the FDIC to reduce
somewhat the size of the special assessment. The FDIC does not have
access to TARP funds.
Borrowing from the industry would create both an asset and
offsetting liability for the FDIC and this would not increase the fund
or the reserve ratio.
Several commenters, including a national trade association,
expressed concern about the potential for a negative feedback loop
where the special assessment causes deterioration in performance ratios
leading by extension to CAMELS downgrades and a subsequent increase in
premiums. The FDIC is aware of this and will issue guidance to
examiners following the adoption of this rule instructing them to
assign component and composite ratings without regard to payment of the
special assessment.
Maximum Rate/Exemption for Weaker Institutions
In addition to requesting comments on the special assessment, the
FDIC sought specific comment on whether there should be a maximum rate
that the combination of an institution's regular quarterly assessment
rate and a special assessment could not exceed and whether weaker
institutions should be exempted, in whole or in part, from the special
assessment.
The FDIC received a few comments on whether there should be a cap,
or maximum rate, that the combination of an institution's regular
quarterly assessment rate and a special assessment should not exceed.
Several state trade groups noted that, for institutions whose rate is
close to 100 basis points, there should be a cap, suggesting 50 basis
points. Regarding whether weaker banks should be exempted, many
commenters noted that the special assessment should be risk based so
that less of the burden would be placed on healthy, well-run banks.
However, in response to both questions, some national trade groups
noted that the industry needs as many viable institutions as possible
to limit costs to recapitalize the DIF.
Given the significant reduction in the amount of the special
assessment, the FDIC does not believe that either a cap (other than the
general cap of 10 basis points of an institution's assessment base used
for its risk-based assessment) or an exemption for weaker institutions
is warranted. In addition, the FDIC does not favor using a risk-based
system in this situation. The special assessment is intended to rebuild
the fund, not to reflect risk of failure. Moreover, a risk-based
special assessment would result in too large a premium for the riskiest
institutions, particularly when taken in combination with regular
premiums.
Alternative Assessment Base/Assistance to Systemically Important
Institutions
The FDIC also asked for comments on whether FDIC assessments,
including special assessments, should take into account the assistance
being provided to systemically important institutions and whether
special assessments should be assessed on assets or some other measure,
rather than the regular assessment base.
In response, a large number of commenters stated that the special
assessment should be based on total assets for two reasons: (1) Assets
are a more accurate gauge of risk; and (2) it would place less of the
burden on
[[Page 25644]]
smaller institutions. Several large banks and trade groups whose
clients are predominantly large institutions objected to a new
assessment base, arguing that deviation from the current assessment
base would be inconsistent with the purpose of the DIF, which is to
insure deposits. Several state bankers associations commented that
weaker systemically important institutions should pay more, given the
amount of assistance already received. A community bank trade group
advocated a systemic risk premium.
For the reasons discussed earlier, the FDIC agrees that the special
assessment should be based on assets (minus Tier 1 capital).
In response to the question regarding additional assessments, some
commenters, including several national trade groups and a large bank,
thought that the FDIC should go through a comment period before
implementation of additional special assessments.
The FDIC believes the current rule making has provided the public
and the industry with sufficient opportunity to comment. Further, the
mechanism adopted for additional special assessments allows the FDIC to
act quickly, using the most up-to-date data, which reduces the chances
that the FDIC would have to impose a special assessment that could have
been avoided with better data.
VI. Effective Date
This final rule will take effect June 30, 2009.
VII. Regulatory Analysis and Procedure
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that each federal
agency either certify that a final rule would not 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.\13\ 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.\14\ The final rule relates directly to the rates imposed on
insured depository institutions for deposit insurance. In addition,
this final rule does not involve the issuance of a notice of proposed
rulemaking. For these reasons, the requirements of the RFA do not
apply. Nonetheless, the FDIC is voluntarily undertaking a regulatory
flexibility analysis.
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\13\ See 5 U.S.C. 603, 604 and 605.
\14\ 5 U.S.C. 601.
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As of March 31, 2009, of the 8,247 insured commercial banks and
savings institutions, 4,479 were small insured depository institutions,
as that term is defined for purposes of the RFA (i.e., those with $165
million or less in assets).
The FDIC's total assessment needs are driven by the statutory
requirement that the FDIC adopt a Restoration Plan that provides that
the fund reserve ratio reach at least 1.15 percent within five years
absent extraordinary circumstances and by the FDIC's aggregate
insurance losses, expenses, investment income, and insured deposit
growth, among other factors. (The FDIC adopted an amended Restoration
Plan extending the time within which the reserve ratio must be returned
to 1.15 percent from five years to seven years due to extraordinary
circumstances). Under the final rule, each institution would be subject
to a special assessment at a uniform rate to help meet FDIC assessment
revenue needs. Apart from the uniform special assessment on all
institutions, the final rule makes no other changes in rates for any
insured institution, including small insured depository institutions.
In effect, the final rule would uniformly increase each institution's
assessment by 5 basis points of the institution's total assets minus
Tier 1 capital for one assessment collection (including small
institutions as defined for RFA purposes), and would alter the present
distribution of assessments by reducing the percentage of the special
assessment borne by small institutions. Using the standard assessment
base of deposits as reported in the institution's report of condition
(subject to certain statutory adjustments) and applying a 7.33 \15\
basis point charge, smaller institutions, as defined here, would bear
3.8 percent of the total cost of the special assessment. Applying a 5
basis point charge on assets minus Tier 1 capital, as provided in the
final rule, smaller institutions would bear 2.8 percent of the total
cost of the special assessment.
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\15\ The FDIC estimates that the total amount collected under
the special assessment will approximately equal the amount that
would have been collected by imposing approximately a 7.33 basis
point special assessment on the aggregate industry assessment base
for the second quarter 2009 risk-based assessment.
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The final rule does not directly impose any ``reporting'' or
``recordkeeping'' requirements within the meaning of the Paperwork
Reduction Act. The compliance requirements for the final rule would not
exceed existing compliance requirements for the present system of FDIC
deposit insurance assessments, which, in any event, are governed by
separate regulations. The FDIC is unaware of any duplicative,
overlapping or conflicting federal rules.
B. 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 Act of 1996
(SBREFA) Public Law 110-28 (1996). As required by law, the FDIC will
file the appropriate reports with Congress and the Government
Accountability Office so that the final rule may be reviewed.
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.
F. 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).
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 amends chapter III
of title 12 of the Code of Federal Regulations as follows:
PART 327--ASSESSMENTS
0
1. The authority citation for part 327 continues 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. In part 327 add new Sec. 327.11 to Subpart A to read as follows:
Sec. 327.11 Special assessments.
(a) Special assessment imposed on June 30, 2009. On June 30, 2009,
the FDIC shall impose a special assessment on each insured depository
institution of 5 basis points based on the institution's total assets
less Tier 1 capital as reported on the report of condition for the
second assessment
[[Page 25645]]
period of 2009. The special assessment paid by any institution shall
not exceed 10 basis points times the institution's assessment base for
the second quarter 2009 risk-based assessment.
(b) Special assessments after June 30, 2009--(1) Authority for
additional special assessments. After June 30, 2009, if the reserve
ratio of the Deposit Insurance Fund is estimated to fall to a level
that the Board believes would adversely affect public confidence or to
a level which shall be close to or below zero at the end of a calendar
quarter, a special assessment of up to 5 basis points on total assets
less Tier 1 capital as reported on the report of condition for that
calendar quarter may be imposed by a vote of the Board on all insured
depository institutions. For any institution, the amount of such a
special assessment shall not exceed 10 basis points times the
institution's assessment base reported as of the date that the special
assessment is imposed.
(2) Termination of authority. The authority to impose additional
special assessments under this paragraph (b) shall terminate on January
1, 2010, but such termination of authority shall not prevent the
Corporation from thereafter collecting any special assessment imposed
prior to January 1, 2010.
(3) Estimation process. For purposes of any special assessment
under this paragraph (b), the FDIC shall estimate the reserve ratio of
the Deposit Insurance Fund for the applicable calendar quarter end from
available data on, or estimates of, insurance fund assessment income,
investment income, operating expenses, other revenue and expenses, and
loss provisions, including provisions for anticipated failures. The
FDIC will assume that estimated insured deposits will increase during
the quarter at the average quarterly rate over the previous four
quarters.
(4) Imposition and announcement of special assessments. Any special
assessment under this paragraph (b) shall be imposed on the last day of
a calendar quarter and shall be announced by the end of such quarter.
As soon as practicable after announcement, the FDIC will have a notice
of the special assessment published in the Federal Register.
(c) Invoicing of any special assessments. The FDIC shall advise
each insured depository institution of the amount and calculation of
any special assessment imposed under paragraph (a) or (b) of this
section. This information shall be provided at the same time as the
institution's quarterly certified statement invoice for the assessment
period in which the special assessment was imposed.
(d) Payment of any special assessment. Each insured depository
institution shall pay to the Corporation any special assessment imposed
under paragraph (a) or (b) of this section in compliance with and
subject to the provisions of Sec. Sec. 327.3, 327.6 and 327.7 of
subpart A, and the provisions of subpart B. The payment date for any
special assessment shall be the date provided in Sec. 327.3(b)(2) for
the institution's quarterly certified statement invoice for the
calendar quarter in which the special assessment was imposed.
Dated at Washington, DC this 22nd day of May, 2009.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-12549 Filed 5-27-09; 11:15 am]
BILLING CODE 6714-01-P