Assessment of Fees; National Banks; District of Columbia Banks

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 8

[Docket No. 97-23]

RIN 1557-AB41

Assessment of Fees; National Banks; District of Columbia Banks

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), in order

to more accurately reflect the OCC's costs of

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supervising banks, is amending its assessment regulation to impose a

surcharge on banks that receive a rating of 3, 4, or 5 under the

Uniform Financial Institutions Rating System (UFIRS) (also referred to

as the CAMELS rating) and on Federal branches and agencies of foreign

banks that receive a rating of 3, 4, or 5 under the ROCA rating system

(which rates risk management, operational controls, compliance, and

asset quality). This amendment will enable the OCC to distribute more

equitably the costs it incurs when supervising institutions that are

experiencing significant problems. The OCC also is eliminating the

annual franchise fee on banks that are registered as municipal and/or

government securities dealers.

EFFECTIVE DATE: December 31, 1997.

FOR FURTHER INFORMATION CONTACT: Roy Madsen, Deputy Chief Financial

Officer, Financial Review, Policy and Analysis, (202) 874-5130; or Mark

Tenhundfeld, Assistant Director, Legislative and Regulatory Activities

Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

The OCC charters, regulates, and supervises approximately 2,700

national banks and 64 Federal branches and agencies of foreign banks in

the United States, accounting for nearly 60 percent of the nation's

banking assets. Its mission is to ensure a safe, sound, and competitive

national banking system that supports the citizens, communities, and

economy of the United States. The OCC funds the activities that further

this mission by imposing assessments, fees, and other charges on banks

within its jurisdiction, as necessary and appropriate to meet the OCC's

expenses, pursuant to 12 U.S.C. 482.

The OCC charges each national bank and Federal branch and agency a

semiannual assessment according to a formula that is described in 12

CFR 8.2. In general, the OCC calculates the semiannual assessment by

using a marginal rate that declines as an institution's asset size

grows. The OCC also reduces assessments charged to a ``non-lead bank''

(which, generally speaking, refers to a national bank that is not the

largest national bank owned by the same company) by a percentage

determined in accordance with each assessment. For example, the OCC

reduced the assessment for non-lead national banks that was due January

31, 1997, by 12 percent.

The marginal rate structure (which applies a declining marginal

rate as bank asset size grows) and the assessment reduction for non-

lead national banks reflect the OCC's cost savings resulting from the

economies of scale realized in the examination and supervision of large

institutions and non-lead banks. However, the current assessment

regulation does not reflect the increased costs that the OCC incurs

when supervising a bank whose condition requires special attention. As

a result, healthy banks subsidize banks that are experiencing

significant problems. The imposition of a surcharge on banks requiring

additional OCC resources, discussed in the section that follows,

addresses this concern.

Discussion of the Final Rule

Surcharge

In the proposed rule (62 FR 54747 (October 21, 1997)), the OCC

sought comment on the addition of new paragraphs (a)(7) and (b)(5) to

Sec. 8.2, pursuant to which the OCC would impose a surcharge equal to

25 percent of the amount of the assessment that otherwise would be due

from (a) national banks that receive a UFIRS rating of 3, 4, or 5 and

(b) Federal branches and agencies of foreign banks that receive a ROCA

rating of 3, 4, or 5. This proposal stemmed from OCC cost data, which

show that there is a significant increase in supervision costs once an

institution's rating moves from 2 to 3 and that these increased costs

continue while the bank is rated 3, 4, or 5. To reflect this increase

in costs of supervising a bank rated 3 or worse, the OCC proposed to

use a UFIRS or ROCA rating (as appropriate) of 3 as the threshold for

applying the surcharge. Using the most recently available data, the

surcharge would affect approximately 94 national banks and Federal

branches and agencies of foreign banks, resulting in an aggregate

annual increase in assessments for these banks of approximately

$983,000.

The OCC received three comments on the proposal, all of which were

generally supportive of imposing the surcharge. The first commenter

acknowledged that banks rated a 3, 4, or 5 require greater supervisory

attention and concluded that the fee structure should reflect this.

This commenter observed, however, that the surcharge might worsen the

financial condition of institutions having to pay the surcharge. The

second commenter, while supporting the imposition of a surcharge,

suggested that the OCC (a) raise the surcharge for all banks rated a 3,

4, or 5 to some percentage higher than 25%, (b) increase the amount of

the surcharge the worse a bank's condition becomes, and (c) charge

banks a higher assessment the longer they fail to improve their

condition. The third commenter agreed that banks rated a 3, 4, or 5

should pay a surcharge, but suggested that the OCC adopt a sliding

scale that would impose a higher surcharge the worse a bank's rating

became. This commenter also suggested that the OCC consider charging

banks by the hour for examinations, but then noted that such an

approach would raise the possibility of disputes over the number and

qualifications of examiners used and the length of examinations.

The OCC believes, based on available cost data, that a 25%

surcharge is an appropriate step toward minimizing the extent to which

healthy banks subsidize banks requiring additional supervision without

having counterproductive results. The data do not at this point support

increasing the assessment surcharge in the other ways proposed by the

commenters. Accordingly, the OCC, acting pursuant to 12 U.S.C. 482,

adopts the proposed surcharge without change. The OCC will continue to

review its cost data and make further adjustments to the assessment

calculation as appropriate.

The OCC will use the date of the most recent Report of Examination

to determine whether a surcharge should be imposed. If a bank is rated

3, 4, or 5 in the most recent exam report that is dated before the end

of the relevant assessment period, a surcharge will be applied. Thus,

for instance, if a bank is downgraded from a 2 to a 3 and receives this

rating in an exam report dated on or before December 31, that bank

would have to pay the surcharge with the assessment that is due by the

following January 31. If, however, the exam report is dated January 1,

in this example the bank would not have to pay the surcharge with the

payment due the following January 31 but would have to pay the

surcharge with all subsequent assessments until it is upgraded.

Assessments of a Bank That Owns Another Bank

In the preamble to the proposed rule, the OCC sought comment on the

proper method of calculating the assessments of national banks that own

other banks. This issue stems from a recent change in the Consolidated

Report of Condition and Income (Call Report) instructions 1

pursuant to which the assets of a subsidiary bank are reported on a

consolidated basis in the Call Report of its parent bank. Given that

the subsidiary bank also must file a Call Report, the current

assessment regulation, which bases assessments on

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assets reported in a bank's Call Report, has the unintended effect of

double-counting at least some of the assets of the subsidiary bank.

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\1\ See 62 FR 8078 (February 21, 1997).

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The OCC received two comments on this issue. Both commenters

suggested that subsidiary bank assets be subtracted from consolidated

parent bank assets in determining the supervisory assessment base for

the parent bank. The OCC agrees that it is appropriate to subtract the

assets of the subsidiary bank for purposes of calculating the

assessment of the parent bank. However, given the small number of banks

that own other banks and the wide divergence in circumstances of these

banks, the OCC has determined that it is appropriate to address this

situation on a case-by-case basis instead of adopting a regulation that

attempts to cover all situations. In order to ensure that these banks

are assessed fairly, the OCC will inform the affected institutions in

each semiannual assessment notice that they may submit information to

the OCC demonstrating what the appropriate adjustment should be to the

top-tier bank's total assets. The OCC then will review the information

and adjust the assessment accordingly.

Removal of Annual Franchise Fees (Sec. 8.15)

The OCC also is removing Sec. 8.15 from the current rule, which

states that national banks that are registered or on file as municipal

and/or government securities dealers shall pay an annual franchise fee

covering each dealer activity. National banks engage in a wide variety

of activities requiring an equally wide variety of supervisory

activities. Rather than impose special fees on a few activities or,

conversely, attempt to segregate and define all different types of

supervisory activities and costs, the OCC has determined that it is

more efficient and simpler for the industry for the OCC to recover its

costs by imposing only one fee, namely, the semiannual assessment.

Thus, the special fee charged to those banks that are registered as

municipal and government securities dealers will be removed.

Adoption of Final Rule Removing Annual Franchise Fees

The OCC has determined that notice and comment is not required

before removing Sec. 8.15. The rule involves agency practice and

procedure and thus is exempt under 5 U.S.C. 553(b)(A) from the prior

notice requirements of the Administrative Procedure Act (5 U.S.C. 551

et seq.). The determination of how fees are imposed is internal to the

OCC, since the Comptroller is required by 12 U.S.C. 482 to recover

expenses but is not required to follow specific calculations or

formulae when making this determination. As a result, the OCC may

revise its assessment structure as necessary to meet its expenses. In

addition, the rule is exempt pursuant to 5 U.S.C. 553(b)(B) from the

prior notice requirements because delaying adoption of the final rule

pending receipt of comments would be unnecessary and contrary to the

public interest. The rule confers a benefit on national banks that are

registered as municipal and/or government securities dealers by

eliminating the franchise fee.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA)

(5 U.S.C. 605(b)), the regulatory flexibility analysis otherwise

required under section 604 of the RFA (5 U.S.C. 604) is not required if

the agency certifies that the rule will not have a significant economic

impact on a substantial number of small entities and the agency

publishes that certification and a short, explanatory statement in the

Federal Register along with the final rule.

Pursuant to section 605(b) of the RFA, the OCC hereby certifies

that this final rule will not have a significant economic impact on a

substantial number of small entities. While the rule requires national

banks, Federal branches, and Federal agencies of all sizes that receive

a UFIRS or ROCA rating of 3, 4, or 5 to pay an assessment surcharge,

this will not create a significant or disparate impact on small

institutions. The assessments for the 69 national banks, Federal

branches, and Federal agencies with total assets of under $100 million

that currently are rated 3, 4, or 5 would increase, in the aggregate,

by approximately $357,683 per year, which is equal to approximately

$5,184 per institution. Accordingly, a regulatory flexibility analysis

under section 604 of the RFA is not required.

Executive Order 12866

The OCC has determined that this final rule is not a significant

regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law

104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency

prepare a budgetary impact statement before promulgating any rule

likely to result in a Federal mandate that may result in the

expenditure by State, local, and tribal governments, in the aggregate,

or by the private sector of $100 million or more in any one year. If a

budgetary impact statement is required, section 205 of the Unfunded

Mandates Act also requires an agency to identify and consider a

reasonable number of regulatory alternatives before promulgating a

rule. The OCC has determined that this final rule will not result in

expenditures by State, local, and tribal governments, or by the private

sector, of $100 million or more in any one year. The increase in the

assessments of institutions rated a 3, 4, or 5 will be less than $1.0

million in the aggregate. Accordingly, the OCC has not prepared a

budgetary impact statement or specifically addressed any regulatory

alternatives.

List of Subjects in 12 CFR Part 8

Assessments, Fees, National banks.

Authority and Issuance

For the reasons set forth in the preamble, part 8 of chapter I of

title 12 of the Code of Federal Regulations is amended as follows:

PART 8--ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA

BANKS

1. The authority citation for part 8 continues to read as follows:

Authority: 12 U.S.C. 93a, 481, 482, 3102, and 3108; 15 U.S.C.

78c and 78l; and 26 D.C. Code 102.

2. Section 8.2 is amended by adding new paragraphs (a)(7) and

(b)(5) to read as follows:

Sec. 8.2 Semiannual assessment.

(a) * * *

(7) The OCC shall adjust the semiannual assessment computed in

accordance with paragraphs (a)(1) through (a)(6) of this section by

multiplying that figure by 1.25 for each bank that receives a rating of

3, 4, or 5 under the Uniform Financial Institutions Rating System at

its most recent examination.

(b) * * *

(5) The OCC shall adjust the semiannual assessment computed in

accordance with paragraphs (b)(1) through (b)(4) of this section by

multiplying that figure by 1.25 for each Federal branch or Federal

agency that receives a ROCA rating (which rates risk management,

operational controls, compliance, and asset quality) of 3, 4, or 5 at

its most recent examination.

Sec. 8.15 [Removed]

3. Section 8.15 is removed.

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Dated: December 1, 1997.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 97-31867 Filed 12-2-97; 11:32 am]

BILLING CODE 4810-33-P