Assessments

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AB46

Assessments

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Board of Directors (Board) of the Federal Deposit

Insurance Corporation (FDIC) is amending its regulations governing

computation of an institution's assessment base to provide for the

subtraction of certain liabilities arising under depository institution

investment contracts. The subject liabilities are those not treated as

insured deposits under section 11(a)(8) of the Federal Deposit

Insurance Act (FDI Act). Under the final rule, these liabilities would

be excluded from the deposit base on which deposit insurance premiums

are assessed, thereby reducing assessment payments for affected

institutions. The purpose of the amendment is to give effect, by

regulation, to apparent congressional intent.

EFFECTIVE DATE: July 11, 1994.

FOR FURTHER INFORMATION CONTACT: William Farrell, Chief, Assessments

Management Section, Division of Finance, (703) 516-5546; or Gerald J.

Gervino, Senior Attorney, (202) 898-3723; Federal Deposit Insurance

Corporation, Washington D.C. 20429.

SUPPLEMENTARY INFORMATION: Prior to December 1993, liabilities arising

under bank or thrift investment contracts (BICs) that qualified as

deposits under section 3(l) of the FDI Act, 12 U.S.C. 1813(l), were

insured in accordance with the statutory and regulatory provisions

governing federal deposit insurance coverage. Similarly, BIC

liabilities that qualified as deposits were included in an

institution's deposit base for the purpose of calculating the

institution's deposit insurance premiums.

Effective December 19, 1993, a new section 11(a)(8) was added to

the FDI Act by section 311(a)(1) of the Federal Deposit Insurance

Corporation Improvement Act of 1991 (FDICIA). Under this new provision,

codified at 12 U.S.C. 1821(a)(8), liabilities arising under certain

depository institution investment contracts are no longer treated as

insured deposits.

A companion provision to the new section 11(a)(8) was a new

subparagraph (D) added to section 7(b)(6) of the FDI Act (12 U.S.C.

1817(b)(6)) by section 311(a)(2) of FDICIA, which also became effective

December 19, 1993. Section 7(b)(6)(D) excluded from an institution's

insurance assessment base any liability of the institution not treated

as an insured deposit pursuant to section 11(a)(8).

Although section 11(a)(8) continues in force, its companion

provision does not. Section 7(b)(6), as amended effective December 19,

1993, was superseded as of January 1, 1994, by a totally revised

version of section 7(b) that provides for a risk-based assessment

system. The existing section 7(b), 12 U.S.C. 1817(b), as amended by

section 302(a) of FDICIA, omits all provisions of the superseded

section 7(b) that dealt with the computation of an institution's

deposit insurance assessment base. Under the existing provisions,

definition of the assessment base is to be determined by the FDIC.

The Board believes that it is appropriate and desirable to give

continued effect, by regulation, to the intent of Congress, as

reflected in superseded section 7(b)(6), that investment contract

liabilities not treated as insured deposits under section 11(a)(8) of

the FDI Act should be excluded from the universe of deposits on which

insurance assessments are paid. The amendment maintains the balance the

Board believes Congress intended in enacting the former section 7(b)(6)

as a companion to section 11(a)(8).

The FDIC invited comments on the proposal. 59 FR 9687 (March 1,

1994). Four comments were received. Two were furnished by trade

associations and two by financial institutions. One comment letter from

each group supported the proposal. One association commenter and one

institutional commenter opposed the proposal. An association commenter

strongly opposed the proposal, indicating that the amendment would

favor larger banks since, according to the commenter, small banks

generally do not have deposit liabilities arising under these

investment contracts. It also asked that the change not be addressed

until a larger review of the assessment base is made by the FDIC.

Citing congressional intent, the other trade association supported the

proposal. However, they suggested that the FDIC make it clear that the

exclusion of BICs is a special case and should not be construed as

indicative of other actions that the FDIC may take to change the

assessment base.

The two institutions offered diametrically opposed comments. One

felt that the exemption should be adopted quickly enough to be used in

the first quarter of this year. The other institution was totally

against excluding BICs from the insurance assessment. It felt that BICs

were useful for large money center banks with the resources to enter

complicated arrangements. It felt that any argument that BICs should

not be assessed, if they are not insured, was inappropriate. The

commenter noted that it pays assessments on behalf of customer deposits

that are not insured because the deposits exceed $100,000. In the

commenter's view, principles of fairness require that BICs be assessed

for FDIC insurance purposes.

The Board has carefully considered the comments of each of the four

commenters. The Board believes that the amendment is designed to give

continued effect to congressional intent to exclude investment contract

liabilities, that are not treated as insured deposits, from the deposit

base on which premiums are assessed. Since the amendment is designed to

carry out congressional intent, the Board does not believe it is

appropriate to delay the amendment pending further study of the

assessment base. This amendment does not reflect any policy judgment of

the FDIC relating to the assessment base.

The Board does not believe that the proposal is designed to favor

large banks. Any insured institution, regardless of size, may deduct

deposit liabilities arising under these investment contracts from its

assessment base. Any bank may potentially use the investment contracts

described in the regulation.

Accordingly, the Board is amending its assessments regulation to

exclude from an institution's assessment base, as computed under

Sec. 327.4, those investment contract liabilities not treated as

insured deposits under section 11(a)(8) of the FDI Act.

Paperwork Reduction Act

No collections of information pursuant to section 3504(h) of the

Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in this

final rule. Consequently, no information has been submitted to the

Office of Management and Budget for review.

Regulatory Flexibility Act

The Board hereby certifies that the amendments to part 327 will not

have a significant economic impact on a substantial number of small

entities within the meaning of the Regulatory Flexibility Act (5 U.S.C.

601 et seq.). In light of this certification, the Regulatory

Flexibility Act requirements (at 5 U.S.C. 603, 604) to prepare initial

and final regulatory flexibility analyses do not apply.

List of Subjects in 12 CFR Part 327

Assessments, Bank deposit insurance, Financing corporation, Savings

associations.

For the reasons stated in the preamble, 12 CFR part 327 is amended

as follows:

PART 327--[AMENDED]

1. The authority citation for part 327 continues to read as

follows:

Authority: 12 U.S.C. 1441, 1441b, 1817-1819.

2. Section 327.4 is amended by removing the period at the end of

paragraph (b)(2)(iv)(B) and adding a semicolon in lieu thereof, and by

adding paragraph (b)(2)(v) to read as follows:

Sec. 327.4 Average assessment base.

* * * * *

(b) * * *

(2) * * *

(v) Liabilities arising from a depository institution investment

contract that are not treated as insured deposits under section

11(a)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(8)).

* * * * *

By order of the Board of Directors.

Dated at Washington, D.C., this 24th day of May 1994.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 94-14008 Filed 6-8-94; 8:45 am]

BILLING CODE 6714-01-P