Assessments; Forms, Instructions, and Reports

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 304 and 327

RIN 3064-AB45

Assessments; Forms, Instructions, and Reports

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 regulation on assessments

to provide for the quarterly collection of insurance premiums by means

of FDIC-originated direct debits through the Automated Clearing House

(ACH) network, based on invoices prepared by the FDIC using data

reported by insured institutions in their quarterly reports of

condition. The intended purpose of the amendments is to provide for a

more efficient collection process, to the benefit of the deposit

insurance funds and insured institutions, and to reduce the regulatory

burden on insured institutions. The Board is further amending the

assessments regulation to clarify the obligation of acquiring

institutions to pay assessments on deposits assumed from institutions

terminating their insured status; to delete from the assessments

regulation the existing references to experience factors, which are not

available for use after 1994; and to include such amendments to the

FDIC's regulation on forms as are necessitated by the foregoing changes

to the assessments regulation. With a few very limited exceptions, the

amendments made by the final rule to the existing regulation are those

previously proposed by the Board for public comment.

EFFECTIVE DATE: The final rule is effective April 1, 1995.

FOR FURTHER INFORMATION CONTACT: Connie Brindle, Chief, Assessment

Operations Section, Division of Finance, (703) 516-5553, or Martha

Coulter, Counsel, (202) 898-7348, regarding quarterly collections;

William Farrell, Chief, Assessment Management Section, Division of

Finance, (703) 516-5546, or Jules Bernard, Counsel, (202) 898-3731,

regarding assessment obligations of acquiring institutions; Federal

Deposit Insurance Corporation, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Collection Improvement Proposal

A. Background

Earlier this year, the Board issued for public comment a proposal

to revise the existing process for collecting deposit insurance

assessments. 59 FR 29965 (June 10, 1994). The Board is adopting the

revisions as proposed along with technical adjustments to conform the

provisions of the FDIC's assessment regulations at 12 CFR Part 327 to

the new collection process. Implementation of the new system will begin

with the semiannual assessment period that starts July 1, 1995.

At present, the FDIC's assessment regulations require the payment

of deposit insurance premiums twice a year, in an amount computed by

the institution. The computation, and the resulting assessment amount,

is shown on a certified statement submitted by the institution along

with a check for the full amount of the assessment. The payment must be

postmarked no later than January 31 for the first semiannual period of

the year (January through June), and July 31 for the second semiannual

period (July through December).

Under the proposal published in June, assessment payments would be

made in quarterly installments, in amounts computed by the FDIC from

data reported by each institution in its quarterly report of condition

for the preceding quarter.1 Institutions would be invoiced on

November 30 and February 28 for the first semiannual assessment period

of each year and on May 30 and August 30 for the second semiannual

period. Quarterly payment would be due one month later--December 30,

March 30, June 30, and September 30, respectively--and would be

collected by means of ACH debits originated by the FDIC. The first-

quarterly installment for the period beginning January 1 (due two days

earlier, on December 30) would be based on data reported in the

institution's report of condition for the preceding September 30. The

second-quarterly installment for that period (due February 28) would be

based on the report of condition for the preceding December 31. The

first-quarterly payment for the semiannual period beginning July 1 (due

June 30) would be based on the March 31 report of condition, and the

second-quarterly payment (due September 30) would be based on the June

30 report of condition. The following chart summarizes this schedule:

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\1\For banks, the report of condition is called the Report of

Income and Condition; for thrift institutions, the Thrift Financial

Report; and for insured branches of foreign banks, the Report of

Assets and Liabilities of U.S. Branches and Agencies of Foreign

Banks.

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Report of

Semiannual assessment Invoice Payment condition

period covered Quarter date date used for

preparation

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Jan.-June................. 1 Nov. 30... Dec. 30... Sep. 30.

2 Feb. 28... Mar. 30... Dec. 31.

July-Dec.................. 1 May 30.... June 30... Mar. 31.

2 Aug. 30... Sep. 30... June 30.

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The proposal required that each institution designate a deposit

account to be electronically debited by the FDIC for assessment

payments. It also provided a procedure for institutions to request

revision of the FDIC invoice showing the quarterly payment to be

debited. It further included a procedure to be followed if, for some

reason, a quarterly invoice was not timely received by an institution.

Under section 7(c) of the Federal Deposit Insurance Act, 12 U.S.C.

1817(c), each insured depository institution is required to file with

the FDIC a certified statement containing such assessment information

as the FDIC may require for determining the institution's assessment

for the semiannual period. Under the proposal, pursuant to this

statutory provision, the second quarterly invoice for each semiannual

period would include a statement showing both the first- and second-

quarter assessment data. Each institution would be required to certify

its agreement with the assessment computation as shown on the form as

received from the FDIC or, alternatively, its agreement with that

computation as amended in a manner specified by the institution.

B. Discussion of Comments Received

The FDIC received 51 letters in response to its request for comment

on the proposal. Among the respondents were 40 depository institutions,

2 bank holding companies, 3 ACH associations, and 2 governmental

entities. Comment letters were also received from the American Bankers

Association, the Independent Bankers Association of America, the

Savings & Community Bankers of America, and the Independent Bankers

Association of Texas.

All of the responding bankers associations and ACH associations

generally supported the proposal, subject to certain recommendations

and concerns. According to one national bankers association, ``banker

response to the proposal has been overwhelmingly positive''. In

addition, 14 of the individual institutions favored the proposal. The

two bank holding companies generally supported the proposal, although

each objected to one particular element (but not the same one). Of the

remaining 28 commenters, 23 individual institutions generally opposed

the proposal, three institutions expressed support for some major

elements and opposition to other major elements, and 2 related

government agencies submitted letters expressing concern on a single

specific issue.

Significant issues raised by the comment letters are addressed

below. Included with the discussion of each issue is an explanation of

the FDIC's conclusions regarding that issue.

1. Quarterly Collection

One of the elements receiving the most attention from commenters

was the increased frequency of assessment payments, from semiannually

to quarterly. Of the 24 commenters specifically addressing this issue,

three bankers associations and seven individual institutions supported

it and 14 individual institutions opposed it. The final rule includes

this element as proposed.

The principal reasons given in support of quarterly collection were

that it would simplify the assessment calculation by basing each

quarterly payment on only one report of condition instead of an average

of two, and that it would reduce reporting and calculation errors by

moving payment dates further away from the date of the underlying

report-of-condition data, thereby allowing more time for refinement of

the relevant data. The reason most commonly given in opposition was

that increased frequency of payment would result in additional work or

increased costs for institutions. Two institutions objected to

quarterly assessment payments on the grounds that they generally

receive their interest income only semiannually, and one institution

preferred basing assessments on an average of two quarterly reports of

condition.

The issue of whether the proposal might result in increased costs

to institutions was expressly addressed in the comments received from a

national bankers association, which observed that any additional

expenses resulting from the proposed system should be offset by an

overall savings in paperwork and a reduction in assessment prepayment

interest expense. Another bankers association indicated that some

community banks were concerned about the additional work of verifying

the FDIC's calculation four times a year, and recommended that the

FDIC's quarterly assessment invoice be designed in a readily-verifiable

format. A fifth commenter indicated that most banks have automated

their assessment calculations and could use that capability to verify

the FDIC's invoice.

The Board believes that, while a shift to quarterly payments will

add two new collection dates each year and thus require institutions to

go through the payment process more often, the new collection procedure

on the whole will result in an overall reduction in the amount of time

devoted by institutions to assessment collections. Although it is

expected that institutions will want to verify the numbers shown on the

FDIC's invoice, it is also expected that institutions will need less

time to verify four FDIC quarterly invoices than they currently use to

compute their own assessments and prepare two semiannual assessment

statements. The numbers shown on the FDIC's invoice will be the

institution's own numbers, taken from its report of condition for the

preceding quarter. Institutions will need only to check the numbers to

satisfy themselves that they were accurately transferred from the

institution's report of condition. Although the numbers will be

electronically processed by the FDIC to determine an assessment amount,

the assessment calculation on the invoice will be based on only one

report of condition and thus require less time to verify than the

current calculation, which is based on a combination of two reports of

condition. Moreover, the FDIC intends to present the invoice in a

format designed for ease of verification.

In addition, there is more time under the new system between the

end of the applicable reporting period and the assessment payment date.

As a result, there is more time for rechecking the quarterly report

data and making corrections before payment of the assessment that is

derived from that data. The availability of more refined data for the

assessment computation should reduce the amount of time spent by

institutions in revising assessment calculations subsequently rendered

erroneous because of corrections in report-of-condition data.

It is possible that some commenters' opposition to quarterly

payments is based on a perception that because institutions will be

making an assessment payment earlier than they do now, they will lose

interest income on the funds used for the earlier payment. However,

this view ignores the fact that only a portion of an institution's

semiannual assessment will be paid earlier; approximately one-half will

be paid later. At present, the two due dates for assessment payments

are January 31 and July 31. Under the new system, the first-quarterly

payment dates will be December 30 and June 30, one month earlier. Thus,

institutions will lose interest income for one month on approximately

one-half of their semiannual assessments. However, the second-quarterly

payment dates--March 30 and September 30--are two months later than the

existing payment dates. Therefore, in contrast to a one-month loss of

income on the accelerated portion, institutions will gain two months of

income on the delayed portion. This would seem to balance out in

institutions' favor, rather than to their detriment.2

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\2\Several commenters suggested that the purpose of quarterly

collection, with an accelerated payment, is to increase the FDIC's

cash flow. However, when one considers that the accelerated payment

is due only one month earlier than the existing payment date, while

the delayed payment date comes two months after the existing payment

date, the flaw in this suggestion is clear.

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Another possible concern for some institutions might be that basing

assessments on only one quarterly report of condition rather than on an

average of the two previous reports could increase their

assessments.3 Although elimination of averaging should not affect

the actual amount of semiannual assessments paid by an institution,

some institutions might have higher or lower cost-of-funds expenses

than they would if averaging were retained. Institutions whose deposits

are increasing might pay slightly less in assessment payments in the

first quarter of a semiannual assessment period and slightly more in

the second quarter, while the converse would apply to institutions

whose assessable deposits decline through the period. However, on both

an institution-by-institution and industry-wide basis, elimination of

averaging is expected to simplify the assessment process without

affecting the actual amount of semiannual assessments paid.4

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\3\One institution cited loss of averaging as the sole basis for

its opposition to the proposal. Yet in the example given in its

comment letter (receipt of a deposit of $2 million on the last day

of June, which was transferred out a few days later), the retention

of two-quarter report-of-condition averaging would not eliminate the

problem described. Assuming that the institution has deposits of $28

million (including the $2 million just received) at the end of June

30, and $26 million on the previous March 31 (the companion quarter-

end for the same semiannual period), its ``average'' deposits across

the semiannual period would be $27 million. Whether its average

deposits of $27 million is multiplied by one-half its annual

assessment rate (as under the existing system) or March's $26

million and June's $28 million are each multiplied by one-quarter of

the rate (as under the new system) and then added together to

determine the amount across the two quarters, the result is the

same.

\4\A national bankers association noted in its comments that

most bankers believe that, while there will be more volatility in

the payment amount for each quarter under the proposed system than

under the existing system, the total annual payment should remain

about the same.

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2. ACH Direct Debit by the FDIC

Another key element of the collection improvement plan is the use

of ACH direct debits originated by the FDIC as the method of

collection. Of the 28 comment letters addressing this component, 17

were in favor and 11 were opposed. The supporters included ten

individual institutions, two national bankers associations, two bank

holding companies, and three ACH associations. The opposing commenters

were 11 individual institutions. The Board has decided to adopt this

element as proposed.

Increased efficiency over the existing paper-based collection

process was the reason cited most often by supporters of electronic

payment. The principal concern among the opponents seemed to be a loss

of payment flexibility. Also mentioned was the difficulty of correcting

errors in an electronic environment.

The FDIC believes that the existing assessment collection process

will be improved substantially by utilizing an electronic payment

process, to the benefit of insured depository institutions and the

federal deposit insurance funds. Because the existing process is paper-

based, it is more time consuming and less efficient, both for the

industry and for the FDIC, than an improved collection process making

fuller use of advanced payment technology.

It was not clear from the comment letters how the use of an

electronic collection procedure might reduce payment flexibility for

institutions. At present, institutions can submit their assessment

payment by check at any time after they know the amount due, up until

the payment deadline. This covers a maximum period of one month, from

the last day of the latter quarter on which the assessment calculations

are based (December 30 or June 30) through the payment due date

(January 31 or July 31). Under the electronic procedure, institutions

could fund the account designated for the assessment debit (the

equivalent of writing a check) at any time between receipt of the FDIC

invoice and the payment due date, again a period of approximately 30

days. There are also payment deadlines under both the existing and new

systems; for the former, it is the date by which the check must be

postmarked, and under the latter it is the debit date. In these

respects, both the existing and new systems appear to be equally

flexible.

One institution objected to having the FDIC in its ``electronic

back pocket'', which seems to reflect a concern that the FDIC might

originate unexpected debits. This would not be the case, but

institutions with that concern could readily address it by funding

accounts designated for assessment payments only for the exact

assessment amount due and only for the assessment due date.

Another possible concern might be the loss of float resulting from

a change away from paper checks to electronic payments. However, the

amount of cost-savings resulting from other elements of the new

procedure--such as the reduction in prepayment interest expense--should

more than compensate for the loss of float.

The other concern indicated by opponents of electronic collection

was an increased difficulty of error resolution in an electronic

environment. The FDIC believes that, to the contrary, error resolution

will be significantly more efficient under the new system than under

the existing system. Collection by ACH debits will allow the FDIC to

identify within approximately two days of the debit any discrepancies

between the amount due and the amount received, and the FDIC expects to

contact immediately any institutions for which discrepancies appear. At

present, identification of differences between the amounts due and the

amounts paid takes two to three months because the FDIC must await

reports and reconciliations of certified statement forms and paper

checks from lock-box processors.

The three ACH associations from which we received comment letters

on the proposal suggested that the FDIC permit institutions preferring

to pay by institution-initiated ACH credits the option of doing so.

While we recognize that providing such an option might benefit some

institutions, the FDIC's experience, based on live testing of ACH

assessments collection for the two semiannual assessment periods in

1994, is that the error rate for direct-debit collection is

significantly lower.5

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\5\ In January 1994, an ACH-credit test was conducted with 36

small institutions. Despite careful monitoring, significant input

errors occurred (incorrect certificate numbers, absence of bank

name). For the July 1994 payment, testing was expanded to include

183 institutions. Of this group, 19 elected to originate payment

themselves, while the remaining 164 paid by FDIC-initiated debits.

No errors occurred with the debit transactions, in contrast with

errors in six (approximately 30 percent) of the credit transactions

(failure to include certificate numbers).

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Three commenters recommended that, in using the ACH system, the

FDIC comply with the rules of the National Automated Clearing House

Association. It is, and has been, the FDIC's intent to do so.

3. Assessment Computation Review Procedure; Quarterly Adjustment

Under the proposal, the assessment-base data included on the

quarterly assessment invoice provided to the institution by the FDIC

would be taken directly from the institution's most recent report of

condition. Because of the source of the data and given the mechanical

nature of the assessment calculation, it was anticipated that there

would be only limited occasion for institutions to disagree with the

invoices. However, a procedure for resolving any such disagreements was

included in the proposal. With one exception, regarding the timing of

FDIC response, the Board has decided to adopt the proposed procedure.

The proposed procedure would apply only to disagreements identified

in Sec. 327.3(h) of the proposed regulation, such as where the

institution believes the rate multiplier applied by the FDIC is

inconsistent with the assessment risk classification assigned to the

institution for the semiannual period for which the payment is due. The

procedure would not apply to disputes regarding the appropriateness of

the assessment risk classification assigned to the institution; such

disputes would continue to be covered by the risk classification review

procedure in the existing regulations.6

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\6\ Under the final rule, as under the proposal, assessment risk

classifications will be assigned, and applied, semiannually. No

comments were received on this subject, although one commenter

supported the proposal to combine the semiannual risk classification

notice with the first-quarter invoice for the semiannual period.

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Under the new procedure, the period within which an institution

could file a request for revision of an invoice would generally

terminate 60 days from the date of the invoice. However, where the

revision would result from an institution-initiated amendment to its

report of condition, the filing deadline for the request for revision

would be 60 days from the date on which such amendment is filed. The

amendment of the report of condition would not automatically trigger an

assessment adjustment. Instead, institutions would need to utilize the

new procedure to provide notice to the FDIC of the requested revision

resulting from the amendment.

This proposed procedure was specifically addressed by four

commenters, all of which were bankers associations. Each of these

commenters expressed some concern regarding the procedure. One

association indicated that the procedure seemed reasonable, but

recommended that it be revised to include a schedule for FDIC response

to requested revisions. Another association agreed with the need for a

deadline for FDIC response, and also urged the FDIC to reevaluate its

procedures for resolving disputes concerning assessment risk

classifications. According to the latter commenter, the resolution of

risk classification disputes can often be protracted and confusing.

A third bankers association urged the FDIC to establish clear

assessment computation review procedures so that institutions would

know who to contact. The remaining association reported that some of

its members had expressed doubt that the new system would result in

fewer errors and greater ease of error resolution. This association

recommended that, in order to increase the likelihood of these results,

the FDIC make a special effort to provide clear and complete

instructions and forms to institutions and to provide adequate staffing

in the initial stages of the new procedure to answer institutions'

questions.

Regarding the addition of a schedule for FDIC response to requested

revisions, the Board has decided to include in the final rule a

requirement that the FDIC respond in writing within 60 days of receipt

of the request (or, if additional information is sought by the FDIC

regarding the request, within 60 days of receipt of the additional

information). It is anticipated that in most cases, the response would

be in the form of a notice of the FDIC's decision on the request.

However, in instances in which decision within 60 days is not feasible,

the response is expected to consist of a status report.

The Board notes the suggestion that the FDIC reconsider the

existing procedure for institutions requesting review of their

assessment risk classifications. This is a matter to which the Board

has given its attention on several occasions, beginning with its

initial consideration of the risk-based assessment system in 1992. It

is also an area the FDIC continues to monitor, in order to identify

potential refinements.

Regarding the remaining two comments, the FDIC appreciates the

significance of the impact the new assessment collection procedures

will have on insured institutions, and fully intends to do its best to

make the change from the existing system as smooth as possible. This

will include staffing an FDIC telephone ``hotline'' for institutions

with questions concerning the new procedures, mailing relevant

information and guidance to each insured institution, and initiating

the formal collection from each institution of the data needed by the

FDIC to identify the accounts designated for the ACH debits.

A matter related to the error-resolution procedure concerns the

manner in which assessment payments are adjusted once an error has been

identified and corrected. The proposal included a ``rolling''

correction process in which necessary adjustments in the assessment

amount would be made on a quarterly basis. Thus, the FDIC would add to

or subtract from the amount that would otherwise be due for the next

quarterly payment the amount of any under- or over-payment from earlier

quarters, with interest to be paid to or by the FDIC determined on a

full-quarter basis. The Board has decided to adopt this procedure as

proposed, with one very limited modification.

One commenter specifically addressing the ``rolling'' adjustment

procedure (a national bankers association) opined that such a system is

reasonable, but requested that the FDIC initiate a special procedure

for large-dollar errors in the FDIC's favor (apparently referring to

assessment overpayments) to enable such errors to be resolved more

quickly, ideally before the payment due date. However, another

commenter applauded the symmetrical treatment given by the proposal to

overpayments and underpayments, in terms of quarterly adjustment and

the payment of interest. The latter commenter noted that the payment of

interest on a quarterly basis for both overpayments and underpayments

would minimize the incentive for the FDIC to delay recognition of

overpayments and reduce the incentive of institutions to delay

identification and reporting of underpayments. A third commenter

observed that it seems inappropriate to charge interest on

underpayments when the FDIC is calculating the assessments, and that

any error would seem to be that of the FDIC and not the institution.

Regarding the source of errors leading to either underpayments or

overpayments, the Board notes that the data used by the FDIC in

computing the assessments due is taken from reports filed by the

institutions. Thus, the FDIC is not the sole possible source of over-

or under-calculating the payments due. Similarly, while the FDIC

intends to try to resolve errors as quickly as possible--and, to the

extent possible, prior to the payment date--we do not consider it to be

the fairest approach to single out for special treatment large-dollar

errors in the FDIC's favor. Such treatment could be seen as giving

individual institutions priority over the interest of the deposit

insurance funds (and, thus, the industry as a whole) and could possibly

reduce the incentive of institutions to exercise care in reporting the

relevant data.

Under the proposal, as under the existing regulation, the amount of

the assessment payment due from an institution is determined by

multiplying its assessment base by its assessment rate (see

Secs. 327.3(c) and (d) of the final rule). These elements determine the

amount due, despite any miscalculations or other errors that, under the

existing rule, might now be made by the institution or, under the final

rule, might be made by either the institution or the FDIC. As discussed

above, under both the proposed and final rule, correction of such

errors would be made by adjustments to subsequent quarterly invoices,

with interest to be paid by the FDIC if the adjustment resulted in a

credit to the institution and by the institution if the adjustment

resulted in an additional payment. This is the procedure intended by

the FDIC in its proposal and, based on the comments received, the

procedure as understood by those addressing the adjustment process.

However, in order to avoid any confusion or misunderstanding that

might otherwise arise regarding this procedure, the final rule includes

additional language in Sec. 327.3(g), which addresses adjustments to

the quarterly invoices, more specifically indicating that such

adjustments can be necessitated by miscalculations or other similar

actions by either the FDIC or the institution.

4. Invoice/Payment Schedule

The final rule adopts the proposed invoice and payment schedule.

One favorable and two unfavorable comments were received on the

proposed schedule. The unfavorable comments concerned the December 30

payment date, which both commenters argued should be moved to January.

The basis for this request was that a December due-date would result in

assessment payments in 1995 covering five quarters (all four quarters

in 1995 and the first quarter of 1996). According to one of the

commenters objecting to this result, this would cause a 25 percent

increase in its 1995 assessment expenses.\7\

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\7\This commenter also questions whether the FDIC has the

authority to require payments in a single year in excess of the

total for two semiannual periods. The Board believes that section 7

of the Federal Deposit Insurance Act, 12 U.S.C. 1817, grants to the

FDIC the authority to establish the collection schedule provided for

in the final rule, including the December 30 payment date for the

quarterly installment for the first quarter of 1996. In particular,

section 7(c)(2)(B) provides that assessment payments are to be made

in such manner and at such time or times as the Board prescribes by

regulation.

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The Board appreciates that this could present a one-time problem

for some institutions. However, it should be noted that this is purely

a timing issue caused by the shift from semiannual to quarterly

collection; it does not involve an ``extra'' assessment payment. It

affects only institutions that use cash-basis accounting, rather than

accrual accounting, and has only a temporary impact (which would be

offset with the March 30, 1996, payment).

The solution recommended by the opposing commenters was to move the

December payment date to January. Because doing so only for the

December 1995 payment would not cure the problem, but merely delay it

until December 1996, a more permanent change in the payment date would

be needed. Such a change would have a continuing adverse cost-of-funds

impact on the deposit insurance funds, in contrast to the temporary

impact the December payment date would have on a limited number of

institutions. Accordingly, the final rule retains the December payment

date provided for in the proposal.

5. Other Comments

Under the proposal, the second quarterly invoice for each

semiannual period would include a statement showing both the first- and

second-quarter assessment data. Each institution would be required to

certify its agreement with the computation of its semiannual assessment

as shown on the invoice or, alternatively, its agreement with that

computation as amended in a manner specified by the institution. One

national bankers association suggested that the FDIC require such a

certified statement only on an annual basis, while two other commenters

suggested that such statements were unnecessary and burdensome and

should be eliminated.

Section 7(c)(1) of the FDI Act requires that each insured

depository institution file with the FDIC a certified statement

containing such information as the FDIC may require for determining the

institution's semiannual assessment. The FDIC agrees that, as a

practical matter, the significance of such statements may be reduced

substantially under the collection system established by the final

rule. However, in light of the statutory language, the Board has

decided to retain the regulatory requirement for a semiannual certified

statement. The FDIC plans to explore the question of whether the

requirement can or should be modified.

Comment letters were received from two federal agencies, the

Financing Corporation (FICO) and the Federal Housing Finance Board

(FICO's regulator). Both of these letters addressed a specific

provision in the existing assessments regulation that was eliminated by

the proposed rule. That provision, at 12 CFR 327.23, deals with the use

of an intermediary ``collection agent'' by the FDIC to receive

assessment payments for the Savings Association Insurance Fund (SAIF)

from savings associations. According to the Federal Housing Finance

Board's comments (presumably with reference to the use of a collection

agent), Sec. 327.23 is critical to FICO's operations because it

establishes the process through which FICO assessments are paid. The

letter opines that, without Sec. 327.23, the proposal is silent as to

how FICO will obtain its SAIF assessments.

According to FICO's comment letter, it believes that the existing

provision regarding the collection agent ``is essential for the

distribution of SAIF premiums between FICO and the FDIC''. FICO states

that there is no provision in law that expressly grants to the FDIC the

power to collect assessments on behalf of FICO or to pay funds over to

FICO. It further asserts that the presence of a third-party collection

agent provides FICO bondholders with greater assurance that the SAIF

premiums will be available for interest payments, and that the absence

of reference to the collection agent in the proposed regulation creates

some risk to FICO bondholders that their claim to assessments collected

by the FDIC will be subject to competing claims of the FDIC's other

creditors.

It is not clear to the FDIC how the collection-agent provision in

Sec. 327.23(a) has the significance the Federal Housing Finance Board

and FICO attribute to it. It does not establish--or even address--the

process through which FICO receives assessment payments or the

distribution of SAIF payments between FICO and the FDIC. Even if

Sec. 327.23(a) is retained, the assessments regulation will still be

silent as to how FICO obtains its assessment payments. In addition,

Sec. 327.23 does not appear to affect the priority of claims on SAIF

assessments. The source of obligations and authorities regarding the

distribution of SAIF assessments between FICO and the FDIC, as well as

FICO's prior claim to SAIF assessments, is the FICO statute, codified

at 12 U.S.C. 1441. The collection-agent provision of 12 CFR 327.23

neither adds to nor subtracts from those statutory obligations and

authorities. The statute clearly indicates that FICO has first priority

to make SAIF assessments, and that, with the approval of the FDIC, it

can make such assessments.

Accordingly, the FDIC does not share the concerns expressed by FICO

and the Federal Housing Finance Board. However, it does not appear that

retention of a SAIF collection-agent provision in the final rule would

have any meaningful impact on the new system. In issuing its proposal,

the FDIC had already anticipated that, were the proposal adopted, the

Federal Reserve Bank of Richmond would participate in a capacity that

meets the description of a ``collection agent'' in the existing

regulation. Thus, in order to accommodate the concerns expressed by

FICO and the Federal Housing Finance Board, the final rule retains the

SAIF collection-agent provision from Sec. 327.23(a).

II. Mergers Resulting in the Termination of Business of the Merged

Institution

A. Background

The proposed rule set forth special rules for adjusting the

assessment base of an institution (buyer) that acquires deposits in

bulk (deposit-transfer) from another institution (seller).8 The

final rule adopts these rules substantially as proposed, with minor

revisions as described below.

---------------------------------------------------------------------------

\8\ Deposit-transfers can take many forms, including statutory

mergers, consolidations, statutory assumptions, and contractual

arrangements in which a buyer purchases assets and assumes deposits

from a seller. Furthermore, a seller may transfer its deposits to a

single buyer or to several buyers, and may do so either in a single

transaction or in a series of transactions. Section 327.6(a)'s

special rules cover all such cases.

---------------------------------------------------------------------------

As proposed, the special rules would come into play only when the

following two conditions are satisfied:

(1) The seller goes out of business (or otherwise ceases to be

obliged to pay subsequent assessments) by or at the end of the

semiannual period in which the deposit-transfer takes place; and

(2) The deposit-transfer occurs during the second half of a

semiannual assessment period (April 1 through June 30, or October 1

through December 31).

The special rules would have the effect of increasing the buyer's

June 30 (or December 30) assessment payment. This payment represents

the first installment on the assessment due from the buyer for the

following semiannual period. Under the proposal, the increase in the

buyer's payment was intended to provide compensation to the FDIC for

accepting the insurance risk attributable to the deposits assumed by

the buyer.

The special rules would accomplish this goal by providing for an

adjustment of a buyer's March (or September) assessment base. When a

deposit-transfer occurs during the second half of an assessment period,

the buyer does not assume the deposits in question until after it has

filed its March (or September) report of condition. Absent the

adjustment, the buyer's March (or September) assessment base would not

include these deposits, and the buyer's June 30 (or December 30)

payment would not fully compensate the FDIC for insuring the deposits

in the upcoming semiannual period. The adjustment augments the buyer's

March (or September) assessment base by an amount reflecting the

deposits that the buyer has assumed.

In addition, the proposal eliminated the requirement that the

transferring institution file a final certified statement. Such filings

are not needed under the new assessment collection system. In

connection with this change, the proposal eliminated form FDIC 6420/11

(``Final Certified Statement'') from part 304 of the FDIC's

regulations, pertaining to forms.

B. Discussion of Comments Received

The FDIC received three comments that addressed the topic of

assessment-base adjustments. One commenter said it approved of the

FDIC's proposal in general, without remarking on any particular aspect.

The other two commenters made substantive comments. Both opposed the

proposal.

One of the opposing commenters, a bank holding company, said there

was no need to adjust a buyer's assessment base to reflect the risk

presented by the transferred deposits, because the buyer's Federal

banking supervisor would not approve a merger or acquisition unless the

buyer's risk of default is low. The FDIC considers, however, that the

transferred deposits present an insurance risk to the FDIC, just as the

buyer's other deposits do.

This commenter also questioned the rationale offered by the FDIC

for proposing to adjust buyers' assessment bases. When proposing this

rule, the FDIC said that adjustments of this kind are needed in

connection with the conversion from a semiannual payment schedule to a

quarterly one: absent such adjustments, the FDIC would not be

compensated for insuring the transferred deposits under the new

quarterly payment schedule. The commenter asserted that the prior

payment procedures, which required two semiannual payments, suffered

from this same defect.

The FDIC does not agree that its prior procedures were defective in

this regard. But in any event, it remains true that adjustments of this

kind are necessary to provide appropriate compensation to the FDIC with

respect to transferred deposits in the context of a quarterly payment

schedule. When a deposit-transfer occurs during the second half of an

assessment period, the buyer does not assume the deposits in question

until after it has filed its March (or September) report of condition.

Absent the adjustment, the buyer's March (or September) assessment base

would not include these deposits, and the buyer's June 30 (or December

30) payment would not fully compensate the FDIC for insuring the

deposits in the upcoming semiannual period. To avoid this circumstance,

the adjustment augments the buyer's March (or September) assessment

base by an amount reflecting the deposits that the buyer has assumed.

The FDIC has chosen this approach in order to carry out the

directive set forth in section 7(b)(1) of the FDI Act. Section 7(b)(1)

calls for the FDIC to establish an assessment system in which an

institution's assessment is based on the probability that the

appropriate deposit insurance fund will incur a loss with respect to

the institution, and on the likely amount of any such loss. See 12

U.S.C. 1817(b)(1). The FDIC considers that the buyer presents a

continuing insurance risk to the FDIC with respect to the transferred

deposits, and that accordingly the buyer's assessment payment should

reflect the additional risk that flows from its increase in deposits.

The other commenter, a trade association, first said that it

opposed the proposal, but then declared:

If healthy institutions merge in either quarter of the

semiannual period, the resulting institution's assessment for the

next payment date should be based on the combined deposits of the

merged institutions on the date of the previous quarter-end report

of condition.

This, in substance, was the effect of the proposal--and now, of the

final rule--although these are somewhat more generous to buyers than

the commenter's suggestion. The new rule, both as proposed and adopted,

says that if the seller's volume of deposits declines between the

seller's report-date and the date of the deposit-transfer transaction,

the buyer's next payment will be based on the seller's lower

transaction-date deposits, not on the seller's report-date deposits.

The same commenter also suggested that, if the seller were a

troubled institution, the buyer's assessment liability would ordinarily

be taken into account in the course of the negotiations surrounding the

acquisition. The FDIC believes that this point is well taken, and has

incorporated it into the final rule. Under the proposal, the

assessment-base adjustment provisions would not come into play if the

seller is a failed institution; under the final rule these provisions

would also not be triggered if the FDIC contributes its own resources

to induce the buyer to assume the seller's liabilities. The FDIC

considers that, in such cases, the net price paid by the buyer

implicitly includes compensation to the FDIC for accepting, in its

corporate capacity, the insurance risk with respect to the deposits

assumed by the buyer.

Somewhat contradictorily, however, the same commenter continued as

follows:

If, on the other hand, an institution acquires the deposits of

an independent, unaffiliated institution that fails during the same

quarter, but after the deposit transfer, the institution acquiring

the deposits should not be liable for the increase in the deposits

at the next assessment payment date. Rather, the acquired deposits

should be reflected in the aquirer's [sic] next quarterly report of

condition, the same as internal deposit growth would be treated. The

FDIC should be responsible for collecting the assessments due from

failed institutions via a claim on the receivership.

The FDIC does not agree. For the reasons given above, the FDIC

considers that, when the seller goes out of business (or otherwise

ceases to be obliged to pay assessments) prior to the end of the

semiannual period, the buyer's payment should reflect the risk

presented by the transferred deposits.

No comments were received on the proposed elimination of the final

certified statement. These provisions are adopted as proposed.

C. Other Changes to the Proposed Rule

In addition to the change already referred to regarding troubled

institutions, the final rule modifies the proposed rule in minor

respects. The proposed rule said that the seller's March (or September)

assessment base would be reduced in amounts corresponding to the amount

by which the buyers' assessment bases were increased. The final rule

eliminates this provision. There is no need for it: A seller is not

required to make an assessment payment based on its March or September

report of condition (and if a seller does so anyway, the buyer is given

credit for the payment). The final rule also eliminates an improper

reference, and renumbers certain paragraphs.

The final rule clarifies and simplifies the terminology that was

originally used in the proposed rule. The final rule makes it clear

that the term ``deposit-transfer transaction'' refers to any deposit-

transfer that occurs during a semiannual assessment period if the

seller goes out of business (or otherwise ceases to be obligated to pay

assessments) by the end of that assessment period. The final rule does

not use or define the term ``transfer period''.

The final rule also clarifies the intent of the proposed rule,

which spoke of applying the special rules when the seller's ``status as

an insured institution has terminated or is expected to terminate''. A

seller that transfers some of its deposits and then voluntarily

terminates its insurance may still remain in business, however, and may

still be obliged to pay assessments to the FDIC for some period after

termination. The FDIC considers that in such a case the seller's

regular June 30 (or December 30) payment will compensate the FDIC for

the risk presented by the transferred deposits during the following

semiannual period. Accordingly, the final rule specifies that

Sec. 327.6(a)'s special rules come into play when the seller goes out

of business, or otherwise ceases to be obliged to pay subsequent

assessments.

III. Deletion of References to Experience Factors

The FDIC's assessment regulations currently permit the use of

``experience factors'' in the computation of an institution's

assessment base, for the purpose of quantifying unposted debits and

credits. However, under the existing regulations, the use of experience

factors will no longer be permitted for assessments due for assessment

periods beginning after 1994. Accordingly, the FDIC proposed to delete

all references to experience factors from the regulations. No comments

were received on the proposal, and the Board is amending the

regulations to delete experience factors.

IV. Paperwork Reduction Act

The final rule contains a revision to an existing collection of

information. The revision has been reviewed and approved by the Office

of Management and Budget (OMB) in accordance with the requirements of

the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.) Comments

regarding the accuracy of the burden estimate, and suggestions for

reducing the burden, should be addressed to the Office of Management

and Budget, Paperwork Reduction Project (3064-0057), Washington, D.C.

20503, with copies to Steven F. Hanft, Assistant Executive Secretary

(Administration), Federal Deposit Insurance Corporation, Room F-400,

550 17th St, NW, Washington, D.C. 20429.

At present, each insured depository institution is required to

compute its own semiannual assessment. Under the final rule,

assessments will be computed by the FDIC using information reported by

the institution in its quarterly reports of condition. The institution

will be required to certify its agreement with the computation shown on

the certified statement form as received from the FDIC or,

alternatively, its agreement with that computation as amended in a

manner specified by the institution. It is expected that, prior to

certification, an institution will compare the information on the form

with its own records--which it collects and maintains for purposes of

filing its reports of condition--and, if necessary, indicate any

amendments. This process should constitute a substantially smaller

burden for the institution than preparing and reporting its own

assessment computation. The requirements concerning the certified

statement are found in Sec. 327.2 of the final rule.

The annual reporting burden for the collection of information under

the final rule, as approved by OMB on August 12, 1994, is estimated as

follows:

Approximate number of respondents: 13,400

Number of responses per respondent: 2

Total approximate annual responses: 26,800

Average time per response: 30 minutes

Total average annual burden hours: 13,400

V. Regulatory Flexibility Act

The Board hereby certifies that the final rule 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.).

Under the rule, as adopted, the FDIC will compute the assessment

payments due from each insured depository institution, a task currently

required of the institution. Thus, the rule would reduce an existing

burden. Moreover, to the extent any burden would remain, the FDIC

believes that it would be proportionate to the size of the institution

and, accordingly, that the proposal would not have a disparate impact

of the nature contemplated by the Regulatory Flexibility Act.

List of Subjects

12 CFR Part 304

Bank deposit insurance, Banks, banking, Freedom of information,

Reporting and recordkeeping requirements.

12 CFR Part 327

Assessments, Bank deposit insurance, Financing Corporation, Savings

associations.

For the reasons stated in the preamble, the Board amends 12 CFR

parts 304 and 327 as follows:

PART 304--FORMS, INSTRUCTIONS AND REPORTS

1. The authority citation for part 304 continues to read as

follows:

Authority: 5 U.S.C. 552; 12 U.S.C. 1817, 1818, 1819, 1820;

Public Law 102-242, 105 Stat. 2251 (12 U.S.C. 1817 note).

2. Section 304.3 is revised to read as follows:

Sec. 304.3 Certified statements.

The certified statements required to be filed by insured depository

institutions under the provisions of section 7 of the Federal Deposit

Insurance Act as amended (12 U.S.C. 1817) shall be filed in accordance

with part 327 of this chapter. The applicable forms are as follows:

(a) Form 6420/07: Certified Statement. Form 6420/07 shows the

computation of the semiannual assessment due to the Corporation from an

insured depository institution. As provided for in part 327 of this

chapter, the form will be furnished to insured depository institutions

by the Corporation twice each calendar year and the completed statement

must be returned to the Corporation by each institution, except that

newly insured institutions must submit their first certified statement

on Form 6420/10.

(b) Form 6420/10: First Certified Statement. Form 6420/10 shows the

computation of the semiannual assessment due to the Corporation from an

institution in the first semiannual period after the semiannual period

during which the institution becomes an insured depository institution,

as provided for in part 327 of this chapter.

Appendix A to Part 304--[Amended]

3. Appendix A to part 304 is amended by removing the entries for

FDIC 6400/01, Consolidated Statement Amending Certified Statements, and

FDIC 6420/11, Final Certified Statement.

PART 327--ASSESSMENTS

1. The table of contents for part 327 is revised to read as

follows:

Subpart A--In General

Sec.

327.1 Purpose and scope.

327.2 Certified statements.

327.3 Payment of semiannual assessments.

327.4 Annual assessment rate.

327.5 Assessment base.

327.6 Deposit-transfer transactions; other terminations of

insurance.

327.7 Payment of interest on assessment underpayments and

overpayments.

327.8 Definitions.

327.9 Assessment rate schedules.

Subpart B--Insured Depository Institutions Participating in Section

5(d)(3) Transactions

327.31 Scope.

327.32 Computation and payment of assessment.

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

follows:

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

3. Section 327.2 is revised to read as follows:

Sec. 327.2 Certified statements.

(a) Required. Each insured depository institution shall file a

certified statement during each semiannual period.

(b) Time of filing. Certified statements for any semiannual period

must be filed no later than the second-quarterly payment date specified

in Sec. 327.3(d)(2). Certified statements postmarked on or before such

date are deemed to be timely filed.

(c) Form. The Corporation will provide to each insured depository

institution a certified statement form showing the amount and

computation of the institution's semiannual assessment. The president

of the insured depository institution, or such other officer as the

institution's board of directors or trustees may designate, shall

review the information shown on the form.

(d) Certification--(1) Form accepted. If such officer agrees that

to the best of his or her knowledge and belief the information shown on

the certified statement form is true, correct and complete and in

accordance with the Federal Deposit Insurance Act and the regulations

issued thereunder, the officer shall so certify.

(2) Form amended--(i) In general. If such officer determines that

to the best of his or her knowledge and belief the information shown on

the certified statement form is not true, correct and complete and in

accordance with the Federal Deposit Insurance Act and the regulations

issued thereunder, the officer shall make such amendments to the

information as he or she believes necessary. The officer shall certify

that to the best of his or her knowledge and belief the information

shown on the form, as so amended, is true, correct and complete and in

accordance with the Federal Deposit Insurance Act and the regulations

issued thereunder.

(ii) Request for revision. The certification and filing of an

amended form under paragraph (d)(2) of this section does not constitute

a request for revision by the Corporation of the information shown on

the form. Any such request to the Corporation for revision of the

information shown on the form shall be submitted separately from the

certified statement and in accordance with the provisions of

Sec. 327.3(h).

(iii) Rate multiplier. The rate multiplier shown on the certified

statement form shall be amended only if it is inconsistent with the

assessment risk classification assigned to the institution in writing

by the Corporation for the current semiannual period pursuant to

Sec. 327.4(a). Agreement with the rate multiplier shall not be deemed

to constitute agreement with the assessment risk classification

assigned.

Sec. 327.5 [Removed]

4. Section 327.5 is removed.

Secs. 327.3 and 327.4 [Redesignated as Secs. 327.4 and 327.5]

5. Sections 327.3 and 327.4 are redesignated as Secs. 327.4 and

327.5, respectively, and a new Sec. 327.3 is added to read as follows:

Sec. 327.3 Payment of semiannual assessments.

(a) Required--(1) In general. Except as provided in paragraph (b)

of this section, each insured depository institution shall pay to the

Corporation, in two quarterly payments, a semiannual assessment

determined in accordance with this part 327.

(2) Notice of designated deposit account. For the purpose of making

such payments, each insured depository institution shall designate a

deposit account for direct debit by the Corporation. No later than 30

days prior to the next payment date specified in paragraphs (c)(2) and

(d)(2) of this section, each institution shall provide written notice

to the Corporation of the account designated, including all information

and authorizations needed by the Corporation for direct debit of the

account. After the initial notice of the designated account, no further

notice is required unless the institution designates a different

account for assessment debit by the Corporation, in which case the

requirements of the preceding sentence apply.

(b) Newly insured institutions. A newly insured institution shall

not be required to pay an assessment for the semiannual period during

which it becomes an insured institution. For the semiannual period

following the period during which it becomes an insured institution, it

shall pay its full semiannual assessment at the time and in the manner

provided for in paragraph (d) of this section, in an amount that is the

product of its assessment base for the prior semiannual period, as

provided for in Sec. 327.5(c), multiplied by one-half of the annual

assessment rate corresponding to the assessment risk classification

assigned to the institution pursuant to Sec. 327.4(a). For the purpose

of making such payment, the institution shall provide to the

Corporation no later than the payment date specified in paragraph

(d)(2) of this section the notice required by paragraph (a)(2) of this

section.

(c) First-quarterly payment--(1) Invoice. No later than 30 days

prior to the payment date specified in paragraph (c)(2) of this

section, the Corporation will provide to each insured depository

institution an invoice showing the amount of the assessment payment due

from the institution for the first quarter of the upcoming semiannual

period, and the computation of that amount. Subject to paragraph (g) of

this section and to subpart B of this part, the invoiced amount shall

be the product of the following: The assessment base of the institution

for the preceding September 30 (for the semiannual period beginning

January 1) or March 31 (for the semiannual period beginning July 1)

computed in accordance with Sec. 327.5; multiplied by one-quarter of

the annual assessment rate corresponding to the assessment risk

classification assigned to the institution pursuant to Sec. 327.4(a).

(2) Payment date and manner. On December 30 (for the semiannual

period beginning the following January 1) and on June 30 (for the

semiannual period beginning the following July 1), the Corporation will

cause the amount stated in the applicable invoice to be directly

debited from the deposit account designated by the insured depository

institution for that purpose.

(d) Second-quarterly payment--(1) Invoice. No later than 30 days

prior to the payment date specified in paragraph (d)(2) of this

section, the Corporation will provide to each insured depository

institution an invoice showing the amount of the assessment payment due

from the institution for the second quarter of that semiannual period,

and the computation of that amount. Subject to paragraph (g) of this

section and to subpart B of this part, the invoiced amount shall be the

product of the following: The assessment base of the institution for

the preceding December 31 (for the semiannual period beginning January

1) or June 30 (for the semiannual period beginning July 1) computed in

accordance with Sec. 327.5; multiplied by one-quarter of the annual

assessment rate corresponding to the assessment risk classification

assigned to the institution pursuant to Sec. 327.4(a).

(2) Payment date and manner. On March 30 (for the semiannual period

beginning the preceding January 1) and on September 30 (for the

semiannual period beginning the preceding July 1), the Corporation will

cause the amount stated in the applicable invoice to be directly

debited from the deposit account designated by the insured depository

institution for that purpose.

(e) Necessary action, sufficient funding by institution. Each

insured depository institution shall take all actions necessary to

allow the Corporation to debit assessments from the institution's

designated deposit account and, prior to each payment date indicated in

paragraphs (c)(2) and (d)(2) of this section, shall ensure that funds

in an amount at least equal to the invoiced amount are available in the

designated account for direct debit by the Corporation. Failure to take

any such action or to provide such funding of the account shall be

deemed to constitute nonpayment of the assessment.

(f) Business days. If a payment date specified in paragraph (c) or

(d) of this section falls on a day that is not a business day, the

applicable date shall be the previous business day.

(g) Payment adjustments in succeeding quarters. The quarterly

assessment invoices provided by the Corporation may reflect

adjustments, initiated by the Corporation or an institution, resulting

from such factors as amendments to prior quarterly reports of

condition, retroactive revision of the institution's assessment risk

classification, and revision of the Corporation's assessment

computations for prior quarters.

(h) Request for revision of computation of quarterly assessment

payment--(1) In general. An institution may submit a request for

revision of the computation of the institution's quarterly assessment

payment as shown on the quarterly invoice. Such revision may be

requested in the following circumstances:

(i) The institution disagrees with the computation of the

assessment base as stated on the invoice;

(ii) The institution determines that the rate multiplier applied by

the Corporation is inconsistent with the assessment risk classification

assigned to the institution in writing by the Corporation for the

semiannual period for which the payment is due; or

(iii) The institution believes that the invoice does not fully or

accurately reflect adjustments provided for in paragraph (g) of this

section.

(2) Inapplicability. This paragraph (h) is not applicable to

requests for review of an institution's assessment risk classification,

which are covered by Sec. 327.4(d).

(3) Requirements. Any such request for revision must be submitted

within 60 days of the date of the quarterly assessment invoice for

which revision is requested, except that requests for revision

resulting from detection by the institution of an error or omission for

which the institution files an amendment to its quarterly report of

condition must be submitted within 60 days of the filing date of the

amendment to the quarterly report of condition. The request for

revision shall be submitted to the Chief of the Assessment Operations

Section and shall provide documentation sufficient to support the

revision sought by the institution. If additional information is

requested by the Corporation, such information shall be provided by the

institution within 21 days of the date of the Corporation's request for

additional information. Any institution submitting a timely request for

revision will receive written response from the Corporations's Chief

Financial Officer (or his or her designee) within 60 days of receipt by

the Corporation of the request for revision or, if additional

information has been requested by the Corporation, within 60 days of

receipt of the additional information. Whenever feasible, the response

will notify the institution of the determination of the Chief Financial

Officer (or designee) as to whether the requested revision is

warranted. In all instances in which a timely request for revision is

submitted, the Chief Financial Officer (or designee) will make a

determination on the request as promptly as possible and notify the

institution in writing of the determination.

(i) Assessment notice not received. Any institution that has not

received an assessment invoice for any quarterly payment by the

fifteenth day of the month in which the quarterly payment is due shall

promptly notify the Corporation. Failure to provide prompt notice to

the Corporation shall not affect the institution's obligation to make

full and timely assessment payment. Unless otherwise directed by the

Corporation, the institution shall preliminarily pay the amount shown

on its assessment invoice for the preceding quarter, subject to

subsequent correction.

6. Newly designated Sec. 327.4 is revised to read as follows:

Sec. 327.4 Annual assessment rate.

(a) Assessment risk classification. For the purpose of determining

the annual assessment rate for BIF members under Sec. 327.9(a) and the

annual assessment rate for SAIF members under Sec. 327.9(c), each

insured depository institution will be assigned an ``assessment risk

classification''. Notice of the assessment risk classification

applicable to a particular semiannual period will be provided to the

institution with the first-quarterly invoice provided pursuant to

Sec. 327.3(c)(1). Each institution's assessment risk classification,

which will be composed of a group and a subgroup assignment, will be

based on the following capital and supervisory factors:

(1) Capital factors. Institutions will be assigned to one of the

following three capital groups on the basis of data reported in the

institution's Report of Income and Condition, Report of Assets and

Liabilities of U.S. Branches and Agencies of Foreign Banks, or Thrift

Financial Report containing the necessary capital data, for the report

date that is closest to the last day of the seventh month preceding the

current semiannual period.

(i) Well capitalized. For assessment risk classification purposes,

the short-form designation for this group is ``1''.

(A) Except as provided in paragraph (a)(1)(i)(B) of this section,

this group consists of institutions satisfying each of the following

capital ratio standards: Total risk-based ratio, 10.0 percent or

greater; Tier 1 risk-based ratio, 6.0 percent or greater; and Tier 1

leverage ratio, 5.0 percent or greater. New insured depository

institutions coming into existence after the report date specified in

paragraph (a)(1) of this section will be included in this group for the

first semiannual period for which they are required to pay assessments.

(B) For purposes of assessment risk classification, an insured

branch of a foreign bank will be deemed to be ``well capitalized'' if

the insured branch:

(1) Maintains the pledge of assets required under 12 CFR 346.19;

and

(2) Maintains the eligible assets prescribed under 12 CFR 346.20 at

108 percent or more of the average book value of the insured branch's

third-party liabilities for the quarter ending on the report date

specified in paragraph (a)(1) of this section.

(ii) Adequately capitalized. For assessment risk classification

purposes, the short-form designation for this group is ``2''.

(A) Except as provided in paragraph (a)(1)(ii)(B) of this section,

this group consists of institutions that do not satisfy the standards

of ``well capitalized'' under this paragraph but which satisfy each of

the following capital ratio standards: Total risk-based ratio, 8.0

percent or greater; Tier 1 risk-based ratio, 4.0 percent or greater;

and Tier 1 leverage ratio, 4.0 percent or greater.

(B) For purposes of assessment risk classification, an insured

branch of a foreign bank will be deemed to be ``adequately

capitalized'' if the insured branch:

(1) Maintains the pledge of assets required under 12 CFR 346.19;

(2) Maintains the eligible assets prescribed under 12 CFR 346.20 at

106 percent or more of the average book value of the insured branch's

third-party liabilities for the quarter ending on the report date

specified in paragraph (a)(1) of this section; and

(3) Does not meet the definition of a well capitalized insured

branch of a foreign bank.

(iii) Undercapitalized. For assessment risk classification

purposes, the short-form designation for this group is ``3''. This

group consists of institutions that do not qualify as either ``well

capitalized'' or ``adequately capitalized'' under paragraphs (a)(1) (i)

and (ii) of this section.

(2) Supervisory risk factors. Within its capital group, each

institution will be assigned to one of three subgroups based on the

Corporation's consideration of supervisory evaluations provided by the

institution's primary federal regulator. The supervisory evaluations

include the results of examination findings by the primary federal

regulator, as well as other information the primary federal regulator

determines to be relevant. In addition, the Corporation will take into

consideration such other information (such as state examination

findings, if appropriate) as it determines to be relevant to the

institution's financial condition and the risk posed to the BIF or

SAIF. Authority to set dates applicable to the determination of

supervisory subgroup assignments is delegated to the Corporation's

Director of the Division of Supervision (or his or her designee). The

three supervisory subgroups are:

(i) Subgroup ``A''. This subgroup consists of financially sound

institutions with only a few minor weaknesses;

(ii) Subgroup ``B''. This subgroup consists of institutions that

demonstrate weaknesses which, if not corrected, could result in

significant deterioration of the institution and increased risk of loss

to the BIF or SAIF; and

(iii) Subgroup ``C''. This subgroup consists of institutions that

pose a substantial probability of loss to the BIF or SAIF unless

effective corrective action is taken.

(b) Payment of assessment at rate assigned. Institutions shall make

timely payment of assessments based on the assessment risk

classification assigned in the notice provided to the institution

pursuant to paragraph (a) of this section. Timely payment is required

notwithstanding any request for review filed pursuant to paragraph (d)

of this section. An institution for which the assessment risk

classification cannot be determined prior to an invoice date specified

in Sec. 327.3(c)(1) or (d)(1) shall preliminarily pay on that invoice

at the assessment rate applicable to the classification designated

``2A'' in the appropriate rate schedule set forth in Sec. 327.9. If

such institution is subsequently assigned for that semiannual period an

assessment risk classification other than that designated as ``2A'', or

if the classification assigned to an institution in the notice is

subsequently changed, any excess assessment paid by the institution

will be credited by the Corporation, with interest, and any additional

assessment owed shall be paid by the institution, with interest, in the

next quarterly assessment payment after such subsequent assignment or

change. Interest payable under this paragraph shall be determined in

accordance with Sec. 327.7.

(c) Classification for certain types of institutions. The annual

assessment rate applicable to institutions that are bridge banks under

12 U.S.C. 1821(n) and to institutions for which either the Corporation

or the Resolution Trust Corporation has been appointed conservator

shall in all cases be the rate applicable to the classification

designated as ``2A'' in the schedules set forth in Secs. 327.9(a) and

327.9(c).

(d) Requests for review. An institution may submit a written

request for review of its assessment risk classification. Any such

request must be submitted within 30 days of the date of the assessment

risk classification notice provided by the Corporation pursuant to

paragraph (a) of this section. The request shall be submitted to the

Corporation's Director of the Division of Supervision in Washington,

DC, and shall include documentation sufficient to support the

reclassification sought by the institution. If additional information

is requested by the Corporation, such information shall be provided by

the institution within 21 days of the date of the request for the

additional information. Any institution submitting a timely request for

review will receive written notice from the Corporation regarding the

outcome of its request. Upon completion of a review, the Director of

the Division of Supervision (or his or her designee) shall promptly

notify the institution in writing of the FDIC's determination of

whether reclassification is warranted. Notice of the procedures

applicable to reviews will be included with the assessment risk

classification notice to be provided pursuant to paragraph (a) of this

section.

(e) Disclosure restrictions. The supervisory subgroup to which an

institution is assigned by the Corporation pursuant to paragraph (a) of

this section is deemed to be exempt information within the scope of

Sec. 309.5(c)(8) of this chapter and, accordingly, is governed by the

disclosure restrictions set out at Sec. 309.6 of this chapter.

(f) Limited use of assessment risk classification. The assignment

of a particular assessment risk classification to a depository

institution under this part 327 is for purposes of implementing and

operating a risk-based assessment system. Unless permitted by the

Corporation or otherwise required by law, no institution may state in

any advertisement or promotional material the assessment risk

classification assigned to it pursuant to this part.

(g) Lifeline accounts. Notwithstanding any other provision of this

part 327, the portion of an institution's assessment base that is

attributable to deposits in lifeline accounts pursuant to the Bank

Enterprise Act, 12 U.S.C. 1834, will be assessed at such rate as may be

established by the Corporation pursuant to 12 U.S.C. 1834 and section

7(b)(2)(H) of the Federal Deposit Insurance Act, as amended, 12 U.S.C.

1817(b)(2)(H).

7. Newly designated Sec. 327.5 is revised to read as follows:

Sec. 327.5 Assessment base.

(a) Computation of assessment base. Except as provided in paragraph

(c) of this section, the assessment base of an insured depository

institution for any date on which the institution is required to file a

quarterly report of condition shall be computed by:

(1) Adding--

(i) All demand deposits--

(A) That the institution reported as such in the quarterly report

of condition for that date;

(B) That belong to subsidiaries of the institution and were

eliminated in consolidation;

(C) That are held in any insured branches of the institution that

are located in the territories and possessions of the United States;

(D) That represent any uninvested trust funds required to be

separately stated in the quarterly report for that date;

(E) That represent any unposted credits to demand deposits, as

determined in accordance with the provisions of paragraph (b)(1) of

this section; and

(ii) All time and savings deposits, together with all interest

accrued and unpaid thereon--

(A) That the institution reported as such in the quarterly report

of condition for that date;

(B) That belong to subsidiaries of the institution and were

eliminated in consolidation;

(C) That are held in any insured branches of the institution that

are located in the territories and possessions of the United States;

(D) That represent any unposted credits to time and savings

deposits, as determined in accordance with the provisions of paragraph

(b)(1) of this section; then

(2) Subtracting, in the case of any institution that maintains such

records as will readily permit verification of the correctness of its

assessment base--

(i) Any unposted debits;

(ii) Any pass-through reserve balances;

(iii) 16\2/3\ percent of the amount computed by subtracting, from

the amount specified in paragraph (a)(1)(i) of this section, the sum

of:

(A) Unposted debits allocated to demand deposits pursuant to the

provisions of paragraph (b)(2) of this section; plus

(B) Pass-through reserve balances representing demand deposits;

(iv) 1 percent of the amount computed by subtracting, from the

amount specified in paragraph (a)(1)(ii) of this section, the sum of:

(A) Unposted debits allocated to time and savings deposits pursuant

to the provisions of paragraph (b)(2) of this section; plus

(B) Pass-through reserve balances representing time and savings

deposits;

(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)).

(b) Methods of reporting unposted credits and unposted debits--(1)

Unposted credits. Each insured depository institution shall report

unposted credits in quarterly reports of condition for addition to the

assessment base in the following manner:

(i) If the institution's records show the total actual amount of

unposted credits segregated into demand deposits and time and savings

deposits, the institution must report the segregated amounts for

addition to demand deposits and time and savings deposits,

respectively.

(ii) If the institution's records show the total actual amount of

unposted credits but do not segregate the amount as stated in paragraph

(b)(1)(i) of this section, the institution must report the total actual

amount of the unposted credits for addition to time and savings

deposits.

(2) Unposted debits. Unposted debits may be reported in the same

manner as stated in paragraph (b)(1) of this section for deduction from

the assessment base, except that unsegregated amounts may be reported

for deduction only from demand deposits.

(c) Newly insured institutions. In the case of a newly insured

institution, the assessment base for the last date for which insured

depository institutions are required to file quarterly reports of

condition within the semiannual period in which the newly insured

institution became an insured institution shall be deemed to be its

assessment base for that semiannual period. If the institution has not

filed such a report by the due date for such reports from insured

depository institutions, it shall promptly provide to the Corporation

such information as the Corporation may require to prepare the

certified statement form for the institution for the current semiannual

period.

8. Section 327.6 is amended by revising the section heading and

paragraph (a) to read as follows:

Sec. 327.6 Deposit-transfer transactions; other terminations of

insurance.

(a) Deposit transfers--(1) Assessment base computation. If a

deposit-transfer transaction occurs at any time in the second half of a

semiannual period, each acquiring institution's assessment base (as

computed pursuant to Sec. 327.5) for the first half of that semiannual

period shall be increased by an amount equal to such institution's pro

rata share of the transferring institution's assessment base for such

first half.

(2) Pro rata share. For purposes of paragraph (a)(1) of this

section, the phrase pro rata share means a fraction the numerator of

which is the deposits assumed by the acquiring institution from the

transferring institution during the second half of the semiannual

period during which the deposit-transfer transaction occurs, and the

denominator of which is the total deposits of the transferring

institution as required to be reported in the quarterly report of

condition for the first half of that semiannual period.

(3) Other assessment-base adjustments. The Corporation may in its

discretion make such adjustments to the assessment base of an

institution participating in a deposit-transfer transaction, or in a

related transaction, as may be necessary properly to reflect the likely

amount of the loss presented by the institution to its insurance fund.

(4) Limitation on aggregate adjustments. The total amount by which

the Corporation may increase the assessment bases of acquiring or other

institutions under this paragraph (a) shall not exceed, in the

aggregate, the transferring institution's assessment base as reported

in its quarterly report of condition for the first half of the

semiannual period during which the deposit-transfer transaction occurs.

* * * * *

9. Section 327.7 is amended by revising the section heading and

paragraph (a), to read as follows:

Sec. 327.7 Payment of interest on assessment underpayments and

overpayments.

(a) Payment of interest--(1) Payment by institutions. Each insured

depository institution shall pay interest to the Corporation on any

underpayment of the institution's assessment.

(2) Payment by Corporation. The Corporation will pay interest to an

insured depository institution on any overpayment by the institution of

its assessment.

(3) Accrual of interest. Interest shall accrue under this section

from the day following the due date, as provided for in Sec. 327.3 (c)

and (d), of the quarterly assessment amount that was overpaid or

underpaid, through the payment date applicable to the quarterly

assessment invoice on which adjustment is made by the Corporation for

the underpayment or overpayment, provided, however, that interest shall

not begin to accrue on any overpayment until the day following the date

such overpayment was received by the Corporation.

* * * * *

10. Section 327.8 is amended by revising paragraph (d)(2) and by

adding a new paragraph (h), to read as follows:

Sec. 327.8 Definitions.

* * * * *

(d) * * *

(2) Current semiannual period. The term current semiannual period

means, with respect to a certified statement or an assessment, the

semiannual period within which such certified statement is required to

be filed or for which such assessment is required to be paid.

* * * * *

(h) As used in Sec. 327.6, the following terms are given the

following meanings:

(1) Acquiring institution. The term acquiring institution means an

insured depository institution that assumes some or all of the deposits

of another insured depository institution in a deposit-transfer

transaction.

(2) Transferring institution. The term transferring institution

means an insured depository institution some or all of the deposits of

which are assumed by another insured depository institution in a

deposit-transfer transaction.

(3) Deposit-transfer transaction. The term deposit-transfer

transaction means the assumption by one insured depository institution

of another insured depository institution's liability for deposits,

whether by way of merger, consolidation, or other statutory assumption,

or pursuant to contract, when the transferring institution goes out of

business or otherwise ceases to be obliged to pay subsequent

assessments by or at the end of the semiannual period during which such

assumption of liability for deposits occurs. The term deposit-transfer

transaction does not refer to the assumption of liability for deposits

from the estate of a failed institution, or to a transaction in which

the FDIC contributes its own resources in order to induce an acquiring

institution to assume liabilities of a transferring institution.

(4) First half; second half--(i) First half. The term first half of

a semiannual period means the months of January, February, and March in

the case of a semiannual period that begins in January, and means the

months of July, August, and September in the case of a semiannual

period that begins in July.

(ii) Second half. The term second half of a semiannual period means

the months of April, May, and June in the case of a semiannual period

that begins in January, and means the months of October, November, and

December in the case of a semiannual period that begins in July.

Sec. 327.13 [Redesignated as Sec. 327.9]

11. Section 327.13 is redesignated as Sec. 327.9, transferred to

subpart A, and amended by revising the section heading, removing

paragraphs (a) and (b), redesignating paragraphs (c) and (d) as new

paragraphs (a) and (b), respectively, revising newly designated

paragraph (a), amending newly designated paragraph (b) by revising the

paragraph heading to read ``BIF recapitalization schedule'' and

removing the word ``assessment'' in the first sentence, and adding a

new paragraph (c) to read as follows:

Sec. 327.9 Assessment rate schedules.

(a) BIF members. Subject to Sec. 327.4(c), the annual assessment

rate for each BIF member other than a bank specified in Sec. 327.31(a)

shall be the rate designated in the following rate schedule applicable

to the assessment risk classification assigned by the Corporation under

Sec. 327.4(a) to that BIF member (the schedule utilizes the group and

subgroup designations specified in Sec. 327.4(a)):

Schedule

------------------------------------------------------------------------

Supervisory subgroup

Capital group --------------------------

A B C

------------------------------------------------------------------------

1............................................ 23 26 29

2............................................ 26 29 30

3............................................ 29 30 31

------------------------------------------------------------------------

* * * * *

(c) SAIF members. (1) Subject to Sec. 327.4(c), the annual

assessment rate for each SAIF member shall be the rate designated in

the following schedule applicable to the assessment risk classification

assigned by the Corporation under Sec. 327.4(a) to that SAIF member

(the schedule utilizes the group and subgroup designations specified in

Sec. 327.4(a)):

Schedule

------------------------------------------------------------------------

Supervisory subgroup

Capital group --------------------------

A B C

------------------------------------------------------------------------

1............................................ 23 26 29

2............................................ 26 29 30

3............................................ 29 30 31

------------------------------------------------------------------------

(2) Collection agent. The amounts required to be paid by SAIF

members pursuant to this part 327 shall be paid through a collection

agent, which shall be any person, corporation, governmental entity, or

any other entity that has been authorized by the Corporation to act as

its agent for collecting assessments.

12. Part 327 is amended by removing subparts B and C and

redesignating subpart D as new subpart B.

Sec. 327.31 [Amended]

13. Section 327.31 is amended by removing the reference ``subpart

D'' and replacing it with ``subpart B'' each place it appears.

Sec. 327.32 [Amended]

14. Section 327.32 is revised to read as follows:

Sec. 327.32 Computation and payment of assessment.

(a) Rate of assessment--(1) BIF and SAIF member rates. (i) Except

as provided in paragraphs (a)(2)(i) and (a)(2)(ii) of this section, and

consistent with the provisions of Sec. 327.4, the assessment to be paid

by a BIF member subject to this subpart B shall be computed at the rate

applicable to BIF members and the assessment to be paid by a SAIF

member subject to this subpart B shall be computed at the rate

applicable to SAIF members.

(ii) Such applicable rate shall be applied to the insured

depository institution's assessment base less that portion of the

assessment base which is equal to the institution's adjusted

attributable deposit amount.

(2) Rate applicable to the adjusted attributable deposit amount.

(i) Notwithstanding paragraph (a)(1)(i) of this section, that portion

of the assessment base of any acquiring, assuming, or resulting

institution that is a BIF member which is equal to the adjusted

attributable deposit amount of such institution shall:

(A) Be subject to assessment at the assessment rate applicable to

SAIF members pursuant to subpart A of this part; and

(B) Not be taken into account in computing the amount of any

assessment to be allocated to BIF.

(ii) Notwithstanding paragraph (a)(1)(i) of this section, that

portion of the assessment base of any acquiring, assuming, or resulting

institution that is a SAIF member which is equal to the adjusted

attributable deposit amount of such institution shall:

(A) Be subject to assessment at the assessment rate applicable to

BIF members pursuant to subpart A of this part; and

(B) Not be taken into account in computing the amount of any

assessment to be allocated to SAIF.

(3) Adjusted attributable deposit amount. An insured depository

institution's ``adjusted attributable deposit amount'' for any

semiannual period is equal to the sum of:

(i) The amount of any deposits acquired by the institution in

connection with the transaction (as determined at the time of such

transaction) described in Sec. 327.31(a);

(ii) The total of the amounts determined under paragraph

(a)(3)(iii) of this section for semiannual periods preceding the

semiannual period for which the determination is being made under this

section; and

(iii) The amount by which the sum of the amounts described in

paragraphs (a)(3)(i) and (a)(3)(ii) of this section would have

increased during the preceding semiannual period (other than any

semiannual period beginning before the date of such transaction) if

such increase occurred at a rate equal to the annual rate of growth of

deposits of the acquiring, assuming, or resulting depository

institution minus the amount of any deposits acquired through the

acquisition, in whole or in part, of another insured depository

institution.

(4) Deposits acquired by the institution. As used in paragraph

(a)(3)(i) of this section, the term ``deposits acquired by the

institution'' means all deposits that are held in the institution

acquired by such institution on the date of such transaction; provided,

that if the Corporation or the Resolution Trust Corporation (RTC) has

been appointed as conservator or receiver for the acquired institution,

such term:

(i) Does not include any deposit held in the acquired institution

on the date of such transaction which the acquired institution has

obtained, directly or indirectly, by or through any deposit broker;

(ii) Does not include that part of any remaining deposit held in

the acquired institution on the date of such transaction that is in

excess of $80,000; and

(iii) Is limited to 80 per centum of the remaining portion of the

aggregate of the deposits specified in paragraph (a)(4)(ii) of this

section.

(5) Deposit broker. As used in paragraph (a)(4) of this section,

the term ``deposit broker'' has the meaning specified in section 29 of

the Federal Deposit Insurance Act (12 U.S.C. 1831f).

(b) Procedures for computation and payment. An insured depository

institution subject to this subpart B shall follow the payment

procedure that is set forth in subpart A of this part.

Sec. 327.33 [Removed]

15. Sec. 327.33 is removed.

By order of the Board of Directors.

Dated at Washington, D.C., this 20th day of Dec., 1994.

Federal Deposit Insurance Corporation

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 94-31662 Filed 12-28-94; 8:45 am]

BILLING CODE 6714-01-P