Assessments

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AC31

Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Board of Directors of the FDIC (Board) is amending its

regulation governing assessments to change the reporting date used to

determine the capital component of the assessment risk classifications

assigned by the FDIC to insured depository institutions. This change

moves that date closer by one calendar quarter to the semiannual

assessment period for which the capital component is assigned, and it

permits the FDIC to use more up-to-date information in determining

institutions' assessment risk classifications. The new date coincides

with the date currently used to determine the supervisory component of

the assessment risk classification.

To permit the use of more current capital information, the Board is

further amending the assessments regulation to shorten from 30 days to

15 days the prior notice the FDIC sends to institutions advising them

of their assessment risk classifications for the following semiannual

assessment period. The Board is adopting the same reduction for the

invoice sent by the FDIC each quarter showing the amount of the

assessment payment due for the next quarterly collection. At the other

end of the process, the Board is increasing from 30 days to 90 days the

time within which an institution may request review of its assessment

risk classification.

Additionally, to reflect a shift of certain assessment functions

within the FDIC, the Board is revising two of the references to FDIC

offices in the regulation. Also, as proposed, the amendment corrects a

typographical error in the form of a misstated cross-reference to

another FDIC regulation.

Finally, in response to concerns raised by comments that the FDIC

[[Page 70179]]

received on the proposal, the final rule is additionally amended to

increase from 15 to 30 days the time between announcement of limited

changes in deposit insurance rates and the date of the assessment

notice sent to insured institutions by the FDIC.

EFFECTIVE DATE: The final rule is effective April 1, 2000.

FOR FURTHER INFORMATION CONTACT: James W. Thornton, Senior Banking

Analyst, Division of Insurance, (202) 898-6707; or Claude A. Rollin,

Senior Counsel, Legal Division, (202) 898-8741, Federal Deposit

Insurance Corporation, Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

The Proposed Rule

On September 8, 1999, the Board issued for public comment a

proposal to make several revisions to its assessments regulation. 64 FR

48719 (September 8, 1999). The primary change proposed by the Board

involved the reporting date for data used in determining the capital

component of the assessment risk classifications that the FDIC assigns

semiannually to FDIC-insured institutions. At present, the FDIC's risk-

based assessments regulation specifies that the capital component of

the assessment risk classification assigned to an institution for a

semiannual assessment period will be determined on the basis of data

reported by the institution in its Consolidated Reports of Condition

and Income, Thrift Financial Report, or Report of Assets and

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

(collectively, call report) for the quarter ending six months earlier

(12 CFR 327.4(a)(1)). The Board proposed to amend the regulation by

basing capital-group determinations on data reported by institutions in

their call reports for the period ending three months before the

beginning of the semiannual period to which that data would apply.

To allow use of the more current capital data in assigning

assessment risk classifications, the Board also proposed to shorten--

from 30 days to 15 days--the time between the date institutions are

notified of their assessment risk classifications for the upcoming

assessment period and the date the assessment is collected for the

first quarter of that upcoming period. The same reduction was proposed,

for both the first and second quarters of each semiannual assessment

period, in the time between the date of the quarterly assessment

invoice and date the invoiced amount is collected.

As the Board explained in its proposal, moving the capital

reporting date forward by 90 days would leave the FDIC as little as 15

to 30 days to receive the reported data, scan the reports, input the

information into the FDIC's system, perform capital-group calculations

for more than 10,000 institutions, and prepare and mail the assessment

notices. 64 FR 48720. Because that is not sufficient time for

completing this process, the alternatives are to leave the capital

reporting date as it is or mail the assessment notices somewhat later.

As the Board noted, the proposal anticipated that reduction of the

notice period from 30 to 15 days would not have a significantly adverse

impact on insured institutions, as institutions typically know (or can

anticipate with reasonable certainty) the assessment risk

classification they will be assigned for the next assessment period.

Id.

With regard to the assessment the FDIC collects on behalf of the

Financing Corporation (FICO), institutions are also able, under normal

circumstances, to estimate with reasonable accuracy the assessment

amount due for each upcoming payment date. However, the proposal noted

the FDIC's intent, in the event of significant developments that could

cause material changes in the FICO assessment rate, to provide notice

of the changes as early as possible through such means as mailings to

insured institutions. Id.

Another timing change proposed by the Board was an increase in the

period during which an institution may seek review and revision of its

assessment risk classification. Under the existing regulation, an

institution may file a review request within 30 days after the date of

the FDIC notice informing the institution of its assessment risk

classification. The proposal would expand that period to 90 days.

The two remaining changes proposed by the Board were office

redesignations to reflect the shift of certain assessment functions

within the FDIC, and correction of a typographical error in the form of

a misstated cross-reference.

Comments Received

The FDIC received nine comment letters in response to the proposal.

Three of the letters were from depository institutions, two from state

associations of bankers, three from national associations of bankers,

and one from a state banking regulator. In general, these commenters

supported the proposal. However, one commenter--a state association of

bankers--neither supported nor opposed the proposal itself, but

expressed its views on the proposal's implications for agricultural

banks. This comment letter is not included in the discussion

immediately below but rather is addressed separately, following the

discussion below.

The remaining eight commenters expressed unanimous support for the

use of more current capital data. The seven commenters addressing the

proposed extension of the deadline for filing requests for review of

assessment risk classifications all supported that proposal. Of the two

commenters specifically addressing either or both of the proposals to

correct the typographical error and to revise two of the references in

the regulation to FDIC offices, both supported those changes as well.

Thus, the Board has decided to adopt each of these four amendments as

proposed.

The remaining element of the proposal is reduction of the

assessment notice period from 30 to 15 days. In the proposal, the Board

specifically requested comment on any adverse impact the shorter notice

period might have. Comment was further requested on any alternative

means of permitting the use of more current capital data without

shortening the notice period.

The eight commenters either generally supported or did not

separately address the proposed reduction. None of the commenters

offered an alternative to the reduction. Two of the commenters

expressly recognized a necessary connection between the use of more

current capital data and a reduction in the assessment notice period.

Six commenters concluded that the proposed reduction in the notice

period would not have a significant adverse impact. However, two of the

eight expressed certain concerns. These two commenters--both of which

are national associations of bankers--agreed that the proposed

reduction generally would not present a problem. However, one noted

that a shorter notice period could potentially present problems if

assessment rates increase or become more complex, or in the event of

volatile economic conditions. The other commenter suggested that the

proposal be revised to require the FDIC to notify institutions of any

changes in the assessment rate schedule at least 30 days before the

assessment notice date, and that the FDIC be required to notify an

institution of any changes in its supervisory category no later than 30

days prior to each assessment collection date. This same commenter

further recommended that the FDIC provide notice of any material

changes in the FICO assessment rate at least 30 days before the

relevant assessment payment date, including any advance notice of

[[Page 70180]]

material changes in the rate expected for subsequent quarters.

The Board appreciates the concerns expressed regarding the

shortened notice period. At the same time, the Board believes that--as

was suggested in the proposal and as more than one commenter expressly

recognized--a reduction in the notice period is necessary if more

current capital data is to be used. The eight commenters addressing the

proposal unanimously supported the use of more up-to-date capital data,

and only limited concerns were expressed by commenters regarding the

reduced notice period. Accordingly, the Board has decided to adopt the

proposed notice reduction.

With regard to the concern that a 15-day notice period might not be

sufficient for institutions for which there is a change in the

supervisory category from one semiannual assessment period to the next,

the FDIC is willing to consider what refinements might be warranted and

feasible to address any significant problems. To this end, the FDIC

will monitor implementation of the new notice schedule in June 2000 to

determine any adverse impact. The results will be reviewed and

alternative means of addressing any significant problems will be

considered.

In response to the concern raised by one commenter regarding

material changes in the FICO assessment, the Board reiterates its

intention, as noted in the proposal, that in instances in which

significant developments are likely to result in material changes in

FICO assessment rates, the FDIC will provide notice as early as

possible, through mailings to insured institutions or similar means. 64

FR 48720.

The remaining issue raised by commenters regarding the reduced

assessment notice period concerned notice of changes in the assessment

rate schedule. At present, the assessments regulation requires that any

change in the assessment rate schedule be announced by the FDIC at

least 15 days before the date the assessment notice is to be provided

to institutions for the first quarter of each semiannual assessment

period.\1\ Thus, for example, under the existing regulation, an

adjustment for the assessment period beginning July 1 would be

announced by no later than May 16, which is 15 days before the existing

assessment notice date of May 31.

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\1\ 12 CFR 327.9(c)(4). This provision applies only to

adjustment (either increase or decrease) of the rate schedule up to

a maximum of five basis points. Any change that exceeds this level

would first be announced in the form of a proposal on which public

comment would be invited.

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Because, in this example, the final rule moves the applicable

assessment notice date to June 15, the amendment as proposed would have

had the effect of moving the deadline for the rate-change announcement

to May 31. However, if the announcement period were increased from 15

to 30 days prior to the assessment notice date, that change, in

conjunction with the reduction of the assessment notice period to 15

days, would restore the announcement deadline to May 16, which is the

existing date.

Under these circumstances, the Board believes a revision of the

existing announcement date is warranted. This change would serve merely

to continue the existing situation, by adapting the announcement date

to accommodate the new change in the assessment notice date.

Accordingly, the Board is further amending the assessments regulation

to require that any adjustment in the assessment rate schedule under

this provision of the regulation be announced at least 30 days before

the date the assessment notice is to be provided to institutions for

the first quarter of each semiannual assessment period.

As indicated above, one of the nine comment letters received by the

FDIC in response to the proposal neither supported nor opposed any

aspect of the proposal itself but expressed its views of the proposal's

implications for agricultural banks. As noted in the letter, the focus

of the comments ``is the need to address the adverse impacts of

substantial increases in assessments if well-managed ag banks

experience significant capital reductions because of ag loan losses''.

The commenter ``does not challenge the concept that deposit assessments

should be founded on the most current available data'' but does note

that one of the effects of using more current information is that the

assessments of a bank with declining capital is a more rapid increase

in risk-based deposit insurance assessments. The commenter suggested

that the assessment process be reviewed to determine whether additional

revisions are necessary to reflect the likelihood that increased

deposit assessments may increase, rather than reduce, the risk that

some banks will fail.

The commenter further suggested that the FDIC consider providing a

means by which banks can benefit from funds paid as increased

assessments in connection with loan losses from economic contraction

rather than from poor management practices.

In response, the Board notes that refinements to the risk-based

assessment system are continually under consideration and that these

comments will be reviewed and carefully considered in connection with

that on-going process.

The Final Rule

For the reasons stated above, the Board is adopting the amendments

as proposed, with one addition. That addition is the revision of

Sec. 327.9 to increase from 15 to 30 days the time by which an

announcement of a limited adjustment to the assessment rate schedule

must precede the date of the assessment notice sent to FDIC-insured

institutions prior to the beginning of a semiannual assessment period.

The date changes made by the final rule will be implemented with

the assessment period beginning July 1, 2000. The following chart

illustrates the new dates, as compared to the existing dates, using

that initial assessment period as an example.

Semiannual Assessment Period Beginning July 1, 2000

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Deadline for

Controlling announcing Assessment Start of Deadline to

call report limited rate notification Payment date assessment request a

date change date period review

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Old Dates......................................... 12-31-1999 5-16-2000 5-31-2000 6-30-2000 7-1-2000 6-30-2000

New Dates......................................... 3-31-2000 5-16-2000 6-15-2000 6-30-2000 7-1-2000 9-13-2000

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[[Page 70181]]

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.). No new or increased reporting, recordkeeping, or other

compliance requirements are imposed by the rule. Of the amendments

adopted by the Board, only one--lengthening the time for filing

requests for review of assessment risk classifications--addresses

actions to be initiated by insured institutions. The remaining

amendments address actions to be undertaken by the FDIC. The amendments

addressing actions to be initiated by institutions relax an existing

time restriction, and it is expected that any impact on insured

institutions, of whatever size, will be favorable rather than adverse.

Assessment of Impact of Federal Regulation on Families

The FDIC has determined that this amendment will not affect family

well-being within the meaning of section 654 of the Treasury Department

Appropriations Act, 1999, enacted as part of the Omnibus Consolidated

and Emergency Supplemental Appropriations Act, 1999 (Pub. L. 105-277,

112 Stat. 2681).

List of Subjects in 12 CFR Part 327

Assessments, Bank deposit insurance, Banks, banking, Reporting and

recordkeeping requirements, Savings associations.

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

as follows:

PART 327--ASSESSMENTS

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

follows:

Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L.

104-208, 110 Stat. 3009-479 (12 U.S.C. 1812).

Sec. 327.3 [Amended]

2. Section 327.3 is amended by removing the phrase ``30 days'' and

adding in its place the phrase ``15 days'' in paragraphs (c)(1) and

(d)(1), respectively.

3. Section 327.4 is amended by removing the citation

``309.5(c)(8)'' in paragraph (e) and adding in its place the citation

``309.5(g)(8)'', and revising paragraphs (a)(1) introductory text and

(d) to read as follows:

Sec. 327.4 Annual assessment rate.

(a) * * *

(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 Consolidated Reports of Condition and Income, Report of

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

or Thrift Financial Report dated as of March 31 for the assessment

period beginning the following July and as of September 30 for the

assessment period beginning the following January 1.

* * * * *

(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 90 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 Insurance in Washington,

D.C., 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

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 Insurance (or designee) or the Director of the Division

of Supervision (or designee), as appropriate, shall promptly notify the

institution in writing of his or her 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.

Sec. 327.9 [Amended]

4. Section 327.9 is amended by removing the phrase ``15 days'' and

adding in its place the phrase ``30 days'' in paragraph (c)(4).

By order of the Board of Directors.

Dated at Washington, DC, this 6th day of December, 1999.

Federal Deposit Insurance Corporation.

James D. LaPierre,

Deputy Executive Secretary.

[FR Doc. 99-32587 Filed 12-15-99; 8:45 am]

BILLING CODE 6714-01-P