# FDIC FIL-12-2009: Deposit Insurance Assessments

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FDIC_FIL09012

## Section

- **Citation:** FDIC FIL-12-2009
- **Heading:** Deposit Insurance Assessments
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FDIC Financial Institution Letters / Deposit Insurance Assessments

## Text

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN xxxxxxx
ASSESSMENTS
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
SUMMARY:
The FDIC is amending 12 CFR 327 to: (1) alter the way in which it differentiates
for risk in the risk-based assessment system; (2) revise deposit insurance assessment
rates, including base assessment rates; and (3) make technical and other changes to the
rules governing the risk-based assessment system.
EFFECTIVE DATE: April 1, 2009.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Chief, Banking and Regulatory Policy Section, Division of
Insurance and Research, (202) 898-8967; and Christopher Bellotto, Counsel, Legal
Division, (202) 898-3801.

SUPPLEMENTARY INFORMATION:
I.
Background
The Reform Act
On February 8, 2006, the President signed the Federal Deposit Insurance Reform
Act of 2005 into law; on February 15, 2006, he signed the Federal Deposit Insurance
Reform Conforming Amendments Act of 2005 (collectively, the Reform Act).1 The
Reform Act enacted the bulk of the reform recommendations made by the FDIC in
2001.2 The Reform Act, among other things, required that the FDIC, “prescribe final
regulations, after notice and opportunity for comment … providing for assessments under
section 7(b) of the Federal Deposit Insurance Act, as amended …,” thus giving the FDIC,
through its rulemaking authority, the opportunity to better price deposit insurance for
risk.3
The Federal Deposit Insurance Act, as amended by the Reform Act, continues to
require that the assessment system be risk-based and allows the FDIC to define risk
broadly. It defines a risk-based system as one based on an institution’s probability of
causing a loss to the deposit insurance fund due to the composition and concentration of

1 Federal Deposit Insurance Reform Act of 2005, Public Law 109-171, 120 Stat
nues to
require that the assessment system be risk-based and allows the FDIC to define risk
broadly. It defines a risk-based system as one based on an institution’s probability of
causing a loss to the deposit insurance fund due to the composition and concentration of

1 Federal Deposit Insurance Reform Act of 2005, Public Law 109-171, 120 Stat. 9; Federal Deposit
Insurance Conforming Amendments Act of 2005, Public Law 109-173, 119 Stat. 3601.
2 After a year long review of the deposit insurance system, the FDIC made several recommendations to
Congress to reform the deposit insurance system. See
http://www.fdic.gov/deposit/insurance/initiative/direcommendations.html for details.
3 Section 2109(a)(5) of the Reform Act. Section 7(b) of the Federal Deposit Insurance Act (12 U.S.C.
1817(b).

2

the institution’s assets and liabilities, the amount of loss given failure, and revenue needs
of the Deposit Insurance Fund (the fund or DIF).4
Before passage of the Reform Act, the deposit insurance funds’ target reserve
ratio—the designated reserve ratio (DRR)—was generally set at 1.25 percent. Under the
Reform Act, however, the FDIC may set the DRR within a range of 1.15 percent to 1.50
percent of estimated insured deposits. If the reserve ratio drops below 1.15 percent—or if
the FDIC expects it to do so within six months—the FDIC must, within 90 days, establish
and implement a plan to restore the DIF to 1.15 percent within five years (absent
extraordinary circumstances).5
The Reform Act also restored to the FDIC’s Board of Directors the discretion to
price deposit insurance according to risk for all insured institutions regardless of the level
of the fund reserve ratio.6
The Reform Act left in place the existing statutory provision allowing the FDIC to
“establish separate risk-based assessment systems for large and small members of the
Deposit Insurance Fund.”7 Under the Reform Act, however, separate systems are subject
ice deposit insurance according to risk for all insured institutions regardless of the level
of the fund reserve ratio.6
The Reform Act left in place the existing statutory provision allowing the FDIC to
“establish separate risk-based assessment systems for large and small members of the
Deposit Insurance Fund.”7 Under the Reform Act, however, separate systems are subject

4 12 Section 7(b)(1)(C) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(1)(C)). The Reform Act
merged the former Bank Insurance Fund and Savings Association Insurance Fund into the Deposit
Insurance Fund.
5 Section 7(b)(3)(E) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(3)(E)).
6 The Reform Act eliminated the prohibition against charging well-managed and well-capitalized
institutions when the deposit insurance fund is at or above, and is expected to remain at or above, the
designated reserve ratio (DRR). This prohibition was included as part of the Deposit Insurance Funds Act
of 1996. Public Law 104-208, 110 Stat. 3009, 3009-479. However, while the Reform Act allows the DRR
to be set between 1.15 percent and 1.50 percent, it also generally requires dividends of one-half of any
amount in the fund in excess of the amount required to maintain the reserve ratio at 1.35 percent when the
insurance fund reserve ratio exceeds 1.35 percent at the end of any year. The Board can suspend these
dividends under certain circumstances. The Reform Act also requires dividends of all of the amount in
excess of the amount needed to maintain the reserve ratio at 1.50 when the insurance fund reserve ratio
exceeds 1.50 percent at the end of any year. 12 U.S.C. 1817(e)(2).
7 Section 7(b)(1)(D) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(1)(D)).

3
r. The Board can suspend these
dividends under certain circumstances. The Reform Act also requires dividends of all of the amount in
excess of the amount needed to maintain the reserve ratio at 1.50 when the insurance fund reserve ratio
exceeds 1.50 percent at the end of any year. 12 U.S.C. 1817(e)(2).
7 Section 7(b)(1)(D) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(1)(D)).

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to a new requirement that “[n]o insured depository institution shall be barred from the
lowest-risk category solely because of size.”8
The 2006 Assessments Rule
Overview
On November 30, 2006, pursuant to the requirements of the Reform Act, the
FDIC published in the Federal Register a final rule on the risk-based assessment system
(the 2006 assessments rule).9 The rule became effective on January 1, 2007.
The 2006 assessments rule created four risk categories and named them Risk
Categories I, II, III and IV. These four categories are based on two criteria: capital levels
and supervisory ratings. Three capital groups—well capitalized, adequately capitalized,
and undercapitalized—are based on the leverage ratio and risk-based capital ratios for
regulatory capital purposes. Three supervisory groups, termed A, B, and C, are based
upon the FDIC’s consideration of evaluations provided by the institution’s primary
federal regulator and other information the FDIC deems relevant.10 Group A consists of
financially sound institutions with only a few minor weaknesses; Group B 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 insurance fund;
and Group C consists of institutions that pose a substantial probability of loss to the

8 Section 2104(a)(2) of the Reform Act amending Section 7(b)(2)(D) of the Federal Deposit Insurance Act
(12 U.S.C. 1817(b)(2)(D)).
9 71 FR 69282
could result in
significant deterioration of the institution and increased risk of loss to the insurance fund;
and Group C consists of institutions that pose a substantial probability of loss to the

8 Section 2104(a)(2) of the Reform Act amending Section 7(b)(2)(D) of the Federal Deposit Insurance Act
(12 U.S.C. 1817(b)(2)(D)).
9 71 FR 69282. The FDIC also adopted several other final rules implementing the Reform Act, including a
final rule on operational changes to part 327. 71 FR 69270.
10 The term “primary federal regulator” is synonymous with the statutory term “appropriate federal banking
agency.” Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).

4

insurance fund unless effective corrective action is taken.11 Under the 2006 assessments
rule, an institution’s capital and supervisory groups determine its risk category as set
forth in Table 1 below. (Risk categories appear in Roman numerals.)
Table 1
Determination of Risk Category

Supervisory Group
Capital Category
A
B
C
Well Capitalized
I

Adequately Capitalized
II
III
Undercapitalized
III
IV

The 2006 assessments rule established the following base rate schedule and
allowed the FDIC Board to adjust rates uniformly from one quarter to the next up to three
basis points above or below the base schedule without further notice-and-comment
rulemaking, provided that no single change from one quarter to the next can exceed three
basis points.12 Base assessment rates within Risk Category I varied from 2 to 4 basis
points, as set forth in Table 2 below.

11 The capital groups and the supervisory groups have been in effect since 1993. In practice, the
supervisory group evaluations are based on an institution’s composite CAMELS rating, a rating assigned
by the institution’s supervisor at the end of a bank examination, with 1 being the best rating and 5 being the
lowest
et forth in Table 2 below.

11 The capital groups and the supervisory groups have been in effect since 1993. In practice, the
supervisory group evaluations are based on an institution’s composite CAMELS rating, a rating assigned
by the institution’s supervisor at the end of a bank examination, with 1 being the best rating and 5 being the
lowest. CAMELS is an acronym for component ratings assigned in a bank examination: Capital adequacy,
Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. A composite CAMELS
rating combines these component ratings, which also range from 1 (best) to 5 (worst). Generally,
institutions with a CAMELS rating of 1 or 2 are assigned to supervisory group A, those with a CAMELS
rating of 3 to group B, and those with a CAMELS rating of 4 or 5 to group C.
12 The Board cannot adjust rates more than 2 basis points below the base rate schedule because rates cannot
be less than zero.

5

Table 2
2007-08 Base Assessment Rates
Risk Category
I *
Minimum
Maximum
II
III
IV
Annual Rates (in basis points)
2
4
7
25
40
* Rates for institutions that do not pay the minimum or maximum rate vary between these rates.
The 2006 assessments rule set actual rates beginning January 1, 2007, as set out in Table
3 below.
Table 3
2007-08 Actual Assessment Rates
Risk Category
I *
Minimum
Maximum
II
III
IV
Annual Rates (in basis points)
5
7
10
28
43
* Rates for institutions that do not pay the minimum or maximum rate vary between these rates.
Risk Category I
Within Risk Category I, the 2006 assessments rule charges those institutions that
pose the least risk a minimum assessment rate and those that pose the greatest risk a
maximum assessment rate two basis points higher than the minimum rate. The rule
charges other institutions within Risk Category I a rate that varies incrementally by
institution between the minimum and maximum
Risk Category I
Within Risk Category I, the 2006 assessments rule charges those institutions that
pose the least risk a minimum assessment rate and those that pose the greatest risk a
maximum assessment rate two basis points higher than the minimum rate. The rule
charges other institutions within Risk Category I a rate that varies incrementally by
institution between the minimum and maximum.
Within Risk Category I, the 2006 assessments rule combines supervisory ratings
with other risk measures to further differentiate risk and determine assessment rates. The
financial ratios method determines the assessment rates for most institutions in Risk
Category I using a combination of weighted CAMELS component ratings and the
following financial ratios:
•
The Tier 1 Leverage Ratio;

6

•
Loans past due 30-89 days/gross assets;
•
Nonperforming assets/gross assets;
•
Net loan charge-offs/gross assets; and
•
Net income before taxes/risk-weighted assets.
The weighted CAMELS components and financial ratios are multiplied by statistically
derived pricing multipliers and the products, along with a uniform amount applicable to
all institutions subject to the financial ratios method, are summed to derive the
assessment rate under the base rate schedule. If the rate derived is below the minimum
for Risk Category I, however, the institution will pay the minimum assessment rate for
the risk category; if the rate derived is above the maximum rate for Risk Category I, then
the institution will pay the maximum rate for the risk category.
The multipliers and uniform amount were derived in such a way to ensure that, as
of June 30, 2006, 45 percent of small Risk Category I institutions (other than institutions
less than 5 years old) would have been charged the minimum rate and approximately 5
percent would have been charged the maximum rate
or Risk Category I, then
the institution will pay the maximum rate for the risk category.
The multipliers and uniform amount were derived in such a way to ensure that, as
of June 30, 2006, 45 percent of small Risk Category I institutions (other than institutions
less than 5 years old) would have been charged the minimum rate and approximately 5
percent would have been charged the maximum rate. While the FDIC has not changed
the multipliers and uniform amount since adoption of the 2006 assessments rule, the
percentages of institutions that have been charged the minimum and maximum rates have
changed over time as institutions’ CAMELS component ratings and financial ratios have
changed. Based upon June 30, 2008 data, approximately 28 percent of small Risk
Category I institutions (other than institutions less than 5 years old) were charged the
minimum rate and approximately 19 percent were charged the maximum rate.13

13 Based upon September 30, 2008 data, approximately 26 percent of small Risk Category I institutions
(other than institutions less than 5 years old) were charged the minimum rate and approximately 23 percent
were charged the maximum rate.

7

The supervisory and debt ratings method (or debt ratings method) determines the
assessment rate for large institutions that have a long-term debt issuer rating.14 Long-
term debt issuer ratings are converted to numerical values between 1 and 3 and averaged.
The weighted average of an institution’s CAMELS components and the average
converted value of its long-term debt issuer ratings are multiplied by a common
multiplier and added to a uniform amount applicable to all institutions subject to the
supervisory and debt ratings method to derive the assessment rate under the base rate
schedule
nverted to numerical values between 1 and 3 and averaged.
The weighted average of an institution’s CAMELS components and the average
converted value of its long-term debt issuer ratings are multiplied by a common
multiplier and added to a uniform amount applicable to all institutions subject to the
supervisory and debt ratings method to derive the assessment rate under the base rate
schedule. Again, if the rate derived is below the minimum for Risk Category I, the
institution will pay the minimum assessment rate for the risk category; if the rate derived
is above the maximum for Risk Category I, then the institution will pay the maximum
rate for the risk category.
The multipliers and uniform amount were derived in such a way to ensure that, as
of June 30, 2006, about 45 percent of Risk Category I large institutions (other than
institutions less than 5 years old) would have been charged the minimum rate and
approximately 5 percent would have been charged the maximum rate. These percentages
have changed little from quarter to quarter thereafter even though industry conditions
have changed. Based upon June 30, 2008, data, and ignoring the large bank adjustment
(described below), approximately 45 percent of Risk Category I large institutions (other

14 The final rule defined a large institution as an institution (other than an insured branch of a foreign bank)
that has $10 billion or more in assets as of December 31, 2006 (although an institution with at least $5
billion in assets may also request treatment as a large institution). If, after December 31, 2006, an
institution classified as small reports assets of $10 billion or more in its reports of condition for four
consecutive quarters, the FDIC will reclassify the institution as large beginning the following quarter
or more in assets as of December 31, 2006 (although an institution with at least $5
billion in assets may also request treatment as a large institution). If, after December 31, 2006, an
institution classified as small reports assets of $10 billion or more in its reports of condition for four
consecutive quarters, the FDIC will reclassify the institution as large beginning the following quarter. If,
after December 31, 2006, an institution classified as large reports assets of less than $10 billion in its
reports of condition for four consecutive quarters, the FDIC will reclassify the institution as small
beginning the following quarter. 12 CFR 327.8(g) and (h) and 327.9(d)(6).

8

than institutions less than 5 years old) were charged the minimum rate and approximately
11 percent were charged the maximum rate.15
Assessment rates for insured branches of foreign banks in Risk Category I are
determined using ROCA components.16
For any Risk Category I large institution or insured branch of a foreign bank,
initial assessment rate determinations may be modified up to half a basis point upon
review of additional relevant information (the large bank adjustment).17
With certain exceptions, beginning in 2010, the 2006 assessments rule charges
new institutions in Risk Category I (those established for less than five years), regardless
of size, the maximum rate applicable to Risk Category I institutions. Until then, new
institutions are treated like all others, except that a well-capitalized institution that has not
yet received CAMELS component ratings is assessed at one basis point above the
minimum rate applicable to Risk Category I institutions until it receives CAMELS
component ratings
ess than five years), regardless
of size, the maximum rate applicable to Risk Category I institutions. Until then, new
institutions are treated like all others, except that a well-capitalized institution that has not
yet received CAMELS component ratings is assessed at one basis point above the
minimum rate applicable to Risk Category I institutions until it receives CAMELS
component ratings.
The Need for a Restoration Plan
As part of a separate rule making in November 2006, the FDIC also set the DRR
at 1.25 percent, effective January 1, 2007.18 In November 2006, the FDIC projected that
the assessment rate schedule established by the 2006 assessments rule would raise the

15 Based upon September 30, 2008, data, and ignoring the large bank adjustment (described below),
approximately 41 percent of Risk Category I large institutions (other than institutions less than 5 years old)
were charged the minimum rate and approximately 11 percent were charged the maximum rate.
16 ROCA stands for Risk Management, Operational Controls, Compliance, and Asset Quality. Like
CAMELS components, ROCA component ratings range from 1 (best rating) to a 5 rating (worst rating).
Risk Category 1 insured branches of foreign banks generally have a ROCA composite rating of 1 or 2 and
component ratings ranging from 1 to 3.
17 The FDIC has issued additional Guidelines for Large Institutions and Insured Foreign Branches in Risk
Category I (the large bank guidelines) governing the large bank adjustment. 72 FR 27122 (May 14, 2007).
18 In November 2007 and October 2008, the Board again voted to maintain the DRR at 1.25 percent for
2008 and 2009, respectively. 71 FR 69325 (Nov. 30, 2006) and 72 FR 65576 (Nov. 21, 2007).

9
IC has issued additional Guidelines for Large Institutions and Insured Foreign Branches in Risk
Category I (the large bank guidelines) governing the large bank adjustment. 72 FR 27122 (May 14, 2007).
18 In November 2007 and October 2008, the Board again voted to maintain the DRR at 1.25 percent for
2008 and 2009, respectively. 71 FR 69325 (Nov. 30, 2006) and 72 FR 65576 (Nov. 21, 2007).

9

reserve ratio from 1.23 percent at the end of the second quarter of 2006 to 1.25 percent by
2009. At the time, insured institution failures were at historic lows (no insured institution
had failed in almost two-and-a-half years prior to the rulemaking, the longest period in
the FDIC’s history without a failure) and industry returns on assets (ROAs) were near all
time highs. The FDIC’s projection assumed the continued strength of the industry. By
March 2008, the condition of the industry had deteriorated, and FDIC projected higher
insurance losses compared to recent years. However, even with this increase in projected
failures and losses, the reserve ratio was still estimated to reach the Board’s target of 1.25
percent in 2009. Therefore, the Board voted in March 2008 to maintain the then existing
assessment rate schedule.
Recent failures of FDIC-insured institutions caused the reserve ratio of the
Deposit Insurance Fund (DIF) to decline from 1.19 percent as of March 30, 2008, to 1.01
percent as of June 30, 0.76 percent as of September 30, and 0.40 percent (preliminary) as
of December 31. Twenty-five institutions failed in 2008, and the FDIC expects a
substantially higher rate of institution failures in the next few years, leading to a further
decline in the reserve ratio. Already, 14 institutions have failed in 2009. Because the
fund reserve ratio fell below 1.15 percent as of June 30, 2008, and was expected to
remain below 1.15 percent, the Reform Act required the FDIC to establish and implement
a Restoration Plan to restore the reserve ratio to at least 1.15 percent within five years
in the next few years, leading to a further
decline in the reserve ratio. Already, 14 institutions have failed in 2009. Because the
fund reserve ratio fell below 1.15 percent as of June 30, 2008, and was expected to
remain below 1.15 percent, the Reform Act required the FDIC to establish and implement
a Restoration Plan to restore the reserve ratio to at least 1.15 percent within five years.
The Proposed Rule
On October 7, 2008, the FDIC established a Restoration Plan for the DIF.19 In
the FDIC’s view, restoring the reserve ratio to at least 1.15 percent within five years

19 73 FR 61,598 (Oct. 16, 2008).

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required an increase in assessment rates. Since rates were already three basis points
above the base rate schedule, a new rulemaking was required. Consequently, on October
7, 2008, the FDIC Board of Directors also adopted a notice of proposed rulemaking with
request for comments on revisions to the FDIC’s assessment regulations (the proposed
rule or NPR).20 The NPR proposed that, effective January 1, 2009, assessment rates
would increase uniformly by seven basis points for the first quarter 2009 assessment
period. Effective April 1, 2009, the NPR proposed to alter the way in which the FDIC’s
risk-based assessment system differentiates for risk and set new deposit insurance
assessment rates. Also effective on April 1, 2009, the NPR proposed to make technical
and other changes to the rules governing the risk-based assessment system. The proposed
rule was published concurrently with the Restoration Plan on October 16, 2008, with a
comment period scheduled to end on November 17, 2008.21
On November 7, 2008, the FDIC Board approved an extension of the comment
period until December 17, 2008, on the parts of the proposed rulemaking that would
become effective on April 1, 2009
es governing the risk-based assessment system. The proposed
rule was published concurrently with the Restoration Plan on October 16, 2008, with a
comment period scheduled to end on November 17, 2008.21
On November 7, 2008, the FDIC Board approved an extension of the comment
period until December 17, 2008, on the parts of the proposed rulemaking that would
become effective on April 1, 2009. The comment period for the proposed 7 basis point
rate increase for the first quarter of 2009, with its separate proposed effective date of
January 1, 2009, was not extended and expired on November 17, 2008. The final rule on
the rate increase for the first quarter of 2009 was approved as proposed by the FDIC
Board on December 16, 2008.22
The FDIC received almost 5,000 comments on the parts of the proposed rule that
would become effective on April 1, 2009, including proposed changes in how the FDIC’s

20 12 CFR 327.
21 See 73 FR 61,560 (Oct. 16, 2008).
22 73 FR 78,155 (Dec. 22, 2008).

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risk-based assessment system differentiates for risk and corresponding new assessment
rates. This final rule implements the remaining changes that the FDIC proposed in the
October notice of proposed rulemaking, with some alteration.
II.
Overview of the Final Rule
In this rulemaking, the FDIC seeks to improve the way the assessment system
differentiates risk among insured institutions by drawing upon measures of risk that were
not included when the FDIC first revised its assessment system pursuant to the Reform
Act. The FDIC believes that the rulemaking will make the assessment system more
sensitive to risk. The rulemaking should also make the risk-based assessment system
fairer, by limiting the subsidization of riskier institutions by safer ones
mong insured institutions by drawing upon measures of risk that were
not included when the FDIC first revised its assessment system pursuant to the Reform
Act. The FDIC believes that the rulemaking will make the assessment system more
sensitive to risk. The rulemaking should also make the risk-based assessment system
fairer, by limiting the subsidization of riskier institutions by safer ones. The assessment
rate schedule established in this rule should provide sufficient revenue to cover losses
resulting from a large volume of institution failures and raise the insurance fund’s reserve
ratio over time. However, as explained below, the FDIC is simultaneously issuing an
interim rule to impose a 20 basis point special assessment (and possible additional special
assessments of up to 10 basis points thereafter). The final rule, which differs in several
ways from the proposed rule, is set out in detail in ensuing sections, but is briefly
summarized here. The final rule will take effect April 1, 2009, and will apply to
assessments for the second quarter of 2009 (which will be collected in September 2009)
and thereafter.
Risk Category I
The final rule introduces a new financial ratio into the financial ratios method.
This new ratio will capture certain brokered deposits (in excess of 10 percent of domestic
deposits) that are used to fund rapid asset growth. The new financial ratio in the final

12
ly to
assessments for the second quarter of 2009 (which will be collected in September 2009)
and thereafter.
Risk Category I
The final rule introduces a new financial ratio into the financial ratios method.
This new ratio will capture certain brokered deposits (in excess of 10 percent of domestic
deposits) that are used to fund rapid asset growth. The new financial ratio in the final

12

rule differs from the one proposed in the NPR in two ways. It excludes deposits that an
insured depository institution receives through a deposit placement network on a
reciprocal basis, such that: (1) for any deposit received, the institution (as agent for
depositors) places the same amount with other insured depository institutions through the
network; and (2) each member of the network sets the interest rate to be paid on the entire
amount of funds it places with other network members (henceforth referred to as
reciprocal deposits). It also raises the asset growth threshold from that proposed in the
NPR. The final rule also updates the uniform amount and the pricing multipliers for the
weighted average CAMELS component ratings and financial ratios.
The final rule provides that the assessment rate for a large institution with a long-
term debt issuer rating will be determined using a combination of the institution’s
weighted average CAMELS component ratings, its long-term debt issuer ratings
(converted to numbers and averaged) and the financial ratios method assessment rate,
each equally weighted. The new method will be known as the large bank method.
Under the final rule, the financial ratios method or the large bank method,
whichever is applicable, will determine a Risk Category I institution’s initial base
assessment rate. The final rule will broaden the spread between minimum and maximum
initial base assessment rates in Risk Category I from 2 basis points to an initial range of 4
basis points and adjust the percentage of institutions subject to these initial minimum and
maximum rates
or the large bank method,
whichever is applicable, will determine a Risk Category I institution’s initial base
assessment rate. The final rule will broaden the spread between minimum and maximum
initial base assessment rates in Risk Category I from 2 basis points to an initial range of 4
basis points and adjust the percentage of institutions subject to these initial minimum and
maximum rates.
Adjustments
Under the final rule, an institution’s total base assessment rate can vary from the
initial base rate as the result of possible adjustments. The final rule also increases the

13

maximum possible Risk Category I large bank adjustment from one-half basis point to
one basis point. Any such adjustment up or down will be made before any other
adjustment and will be subject to certain limits, which are described in detail below.
Under the final rule, an institution’s unsecured debt adjustment—the institution’s
ratio of long-term unsecured debt (and, for small institutions, certain amounts of its Tier 1
capital) to domestic deposits—will lower the institution’s base assessment rate.23 Any
decrease in base assessment rates will be limited to five basis points. The unsecured debt
adjustment differs from the adjustment proposed in the NPR in several ways. The
adjustment is larger for a given amount of unsecured debt (and, for small institutions,
Tier 1 capital) and the maximum adjustment of five basis points is larger than the
proposed maximum of two basis points in the NPR. The adjustment excludes senior
unsecured debt that the FDIC has guaranteed under its Temporary Liquidity Guarantee
Program. Finally, the adjustment lowers the threshold for inclusion of a small
institution’s Tier 1 capital.
Also, under the final rule, an institution’s secured liability adjustment—which is
based on the institution’s ratio of secured liabilities to domestic deposits—will raise its
base assessment rate
nior
unsecured debt that the FDIC has guaranteed under its Temporary Liquidity Guarantee
Program. Finally, the adjustment lowers the threshold for inclusion of a small
institution’s Tier 1 capital.
Also, under the final rule, an institution’s secured liability adjustment—which is
based on the institution’s ratio of secured liabilities to domestic deposits—will raise its
base assessment rate. An institution’s ratio of secured liabilities to domestic deposits (if
greater than 25 percent), will increase its assessment rate, but the resulting base
assessment rate after any such increase can be no more than 50 percent greater than it was
before the adjustment. The secured liability adjustment will be made after any large bank
adjustment or unsecured debt adjustment. This adjustment also differs from the
adjustment proposed in the NPR in that an institution’s ratio of secured liabilities to

23 Long-term unsecured debt includes senior unsecured and subordinated debt.

14

domestic deposits must be greater than 25 percent for an adjustment to exist, rather than
15 percent as proposed in the NPR.
Institutions in all risk categories will be subject to the unsecured debt adjustment
and secured liability adjustment. In addition, the final rule makes a final adjustment for
brokered deposits (the brokered deposit adjustment) for institutions in Risk Category II,
III or IV. An institution’s ratio of brokered deposits to domestic deposits (if greater than
10 percent) will increase its assessment rate, but any increase will be limited to no more
than 10 basis points. The brokered deposit adjustment is as proposed in the NPR and will
include reciprocal deposits.
Insured branches of foreign banks
The final rule makes conforming changes to the pricing multipliers and uniform
amount for insured branches of foreign banks in Risk Category I
er than
10 percent) will increase its assessment rate, but any increase will be limited to no more
than 10 basis points. The brokered deposit adjustment is as proposed in the NPR and will
include reciprocal deposits.
Insured branches of foreign banks
The final rule makes conforming changes to the pricing multipliers and uniform
amount for insured branches of foreign banks in Risk Category I. The insured branch of
a foreign bank’s initial base assessment rate will be subject to any large bank adjustment,
but not to the unsecured debt adjustment or secured liability adjustment. In fact, no
insured branch of a foreign bank in any risk category will be subject to the unsecured
debt adjustment, secured liability adjustment or brokered deposit adjustment.
New institutions
The final rule makes conforming changes in the treatment of new insured
depository institutions.24 For assessment periods beginning on or after January 1, 2010,
any new institutions in Risk Category I will be assessed at the maximum initial base
assessment rate applicable to Risk Category I institutions.

24 As discussed below, subject to exceptions, the final rule defines a new insured depository institution as a
bank or thrift that has not been federally insured for at least five years as of the last day of any quarter for
which it is being assessed.

15

For assessments for the last three quarters of 2009, until a Risk Category I new
institution received CAMELS component ratings, it will have an initial base assessment
rate that is two basis points above the minimum initial base assessment rate applicable to
Risk Category I institutions, rather than one basis point above the minimum rate, as under
the final rule adopted in 2006. For these three quarters, all other new institutions in Risk
Category I will be treated as established institutions, except as provided in the next
paragraph
nitial base assessment
rate that is two basis points above the minimum initial base assessment rate applicable to
Risk Category I institutions, rather than one basis point above the minimum rate, as under
the final rule adopted in 2006. For these three quarters, all other new institutions in Risk
Category I will be treated as established institutions, except as provided in the next
paragraph.
Either before or after January 1, 2010: no new institution, regardless of risk
category, will be subject to the unsecured debt adjustment; any new institution, regardless
of risk category, will be subject to the secured liability adjustment; and a new institution
in Risk Categories II, III or IV will be subject to the brokered deposit adjustment. After
January 1, 2010, no new institution in Risk Category I will be subject to the large bank
adjustment.
Assessment rates
As explained below, estimated losses from projected institution failures have risen
considerably since the NPR was published last fall. Consequently, initial base
assessment rates as of April 1, 2009, which are set forth in Table 4 below, are slightly
higher than proposed in the NPR.
Table 4
Initial Base Assessment Rates as of April 1, 2009

Risk Category
I *
Minimum
Maximum
II
III
IV
Annual Rates (in basis points)
12
16
22
32
45
* Initial base rates that were not the minimum or maximum rate will vary between these rates.

16
nitial base
assessment rates as of April 1, 2009, which are set forth in Table 4 below, are slightly
higher than proposed in the NPR.
Table 4
Initial Base Assessment Rates as of April 1, 2009

Risk Category
I *
Minimum
Maximum
II
III
IV
Annual Rates (in basis points)
12
16
22
32
45
* Initial base rates that were not the minimum or maximum rate will vary between these rates.

16

After applying all possible adjustments, minimum and maximum total base
assessment rates for each risk category will be as set out in Table 5 below.
Table 5
Total Base Assessment Rates

Risk
Category I
Risk
Category
II
Risk
Category III
Risk
Category
IV
Initial base assessment rate
12 – 16
22
32
45
Unsecured debt adjustment
-5 – 0
-5 – 0
-5 – 0
-5 – 0
Secured liability adjustment
0 – 8
0 – 11
0 – 16
0 – 22.5
Brokered deposit adjustment

0 – 10
0 – 10
0 – 10
Total base assessment rate
7 – 24.0
17 – 43.0
27 – 58.0
40 – 77.5
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
These rates and other revisions to the assessment rules take effect for the quarter
beginning April 1, 2009, and will be reflected in the fund balance as of June 30, 2009,
and assessments due September 30, 2009 and thereafter.
Because the outlook for losses to the insurance fund has deteriorated significantly
since publication of the NPR last fall, the FDIC is simultaneously issuing an interim rule
that provides for a 20 basis point special assessment on June 30, 2009. The interim rule
also provides that the Board may impose additional special assessments of up to 10 basis
points thereafter if the reserve ratio of the DIF is estimated to fall to a level that that the
Board believes would adversely affect public confidence or to a level which shall be
close to zero or negative at the end of a calendar quarter
basis point special assessment on June 30, 2009. The interim rule
also provides that the Board may impose additional special assessments of up to 10 basis
points thereafter if the reserve ratio of the DIF is estimated to fall to a level that that the
Board believes would adversely affect public confidence or to a level which shall be
close to zero or negative at the end of a calendar quarter.
The final rule continues to allow the FDIC Board to adopt actual rates that are
higher or lower than total base assessment rates without the necessity of further notice
and comment rulemaking, provided that: (1) the Board cannot increase or decrease total

17

rates from one quarter to the next by more than three basis points without further notice-
and-comment rulemaking; and (2) cumulative increases and decreases cannot be more
than three basis points higher or lower than the total base rates without further notice-
and-comment rulemaking.
Technical and other changes
The final rule also makes technical changes and one minor non-technical change
to the assessments rules. These changes are detailed below.
III.
Risk Category I: Financial Ratios Method
Brokered deposits and asset growth
The final rule adds a new financial measure to the financial ratios method. This
new financial measure, the adjusted brokered deposit ratio, will measure the extent to
which brokered deposits are funding rapid asset growth
minor non-technical change
to the assessments rules. These changes are detailed below.
III.
Risk Category I: Financial Ratios Method
Brokered deposits and asset growth
The final rule adds a new financial measure to the financial ratios method. This
new financial measure, the adjusted brokered deposit ratio, will measure the extent to
which brokered deposits are funding rapid asset growth. The adjusted brokered deposit
ratio will affect only those established Risk Category I institutions whose total gross
assets are more than 40 percent greater than they were four years previously, after
adjusting for mergers and acquisitions, rather than 20 percent greater as proposed in the
NPR, and whose brokered deposits (less reciprocal deposits) make up more than 10
percent of domestic deposits.25,
,
26 27 Generally speaking, the greater an institution’s asset
growth and the greater its percentage of brokered deposits, the greater will be the increase
in its initial base assessment rate. Small changes in asset growth rate or brokered

25 As discussed below, subject to exceptions, the final rule defines a an established depository institution as
a bank or thrift that has been federally insured for at least five years as of the last day of any quarter for
which it is being assessed .
26 An institution that four years previously had filed no report of condition or had reported no assets would
be treated as having no growth unless it was a participant in a merger or acquisition (either as the acquiring
or acquired institution) with an institution that had reported assets four years previously.
27 References hereafter to “asset growth” or “growth in assets” refer to growth in gross assets.

18
t four years previously had filed no report of condition or had reported no assets would
be treated as having no growth unless it was a participant in a merger or acquisition (either as the acquiring
or acquired institution) with an institution that had reported assets four years previously.
27 References hereafter to “asset growth” or “growth in assets” refer to growth in gross assets.

18

deposits as a percentage of domestic deposits will lead to small changes in assessment
rates.
If an institution’s ratio of brokered deposits to domestic deposits is 10 percent or
less or if the institution’s asset growth over the previous four years is less than 40
percent, the adjusted brokered deposit ratio will be zero and will have no effect on the
institution’s assessment rate. If an institution’s ratio of brokered deposits to domestic
deposits exceeds 10 percent and its asset growth over the previous four years is more than
70 percent (rather than 40 percent as proposed in the NPR), the adjusted brokered deposit
ratio will equal the institution’s ratio of brokered deposits to domestic deposits less the 10
percent threshold. If an institution’s ratio of brokered deposits to domestic deposits
exceeds 10 percent but its asset growth over the previous four years is between 40
percent and 70 percent, overall asset growth rates will be converted into an asset growth
rate factor ranging between 0 and 1, so that the adjusted brokered deposit ratio will equal
a gradually increasing fraction of the ratio of brokered deposits to domestic deposits
(minus the 10 percent threshold). The asset growth rate factor is derived by multiplying
by 3⅓ an amount equal to the overall rate of growth minus 40 percent and expressing the
result as a decimal fraction rather than as a percentage (so that, for example, 3⅓ times 10
percent equals 0.33…).28 The adjusted brokered deposit ratio will never be less than
zero. Appendix A contains a detailed mathematical definition of the ratio
The asset growth rate factor is derived by multiplying
by 3⅓ an amount equal to the overall rate of growth minus 40 percent and expressing the
result as a decimal fraction rather than as a percentage (so that, for example, 3⅓ times 10
percent equals 0.33…).28 The adjusted brokered deposit ratio will never be less than
zero. Appendix A contains a detailed mathematical definition of the ratio. Table 6 gives
examples of how the adjusted brokered deposit ratio would be determined.

28 The ratio of brokered deposits to domestic deposits and four-year asset growth rate would remain
unrounded (to the extent of computer capabilities) when calculating the adjusted brokered deposit ratio.
The adjusted brokered deposit ratio itself (expressed as a percentage) would be rounded to three digits after
the decimal point prior to being used to calculate the assessment rate.
T

19

Table 6
Adjusted brokered deposit ratio
A
B
C
D
E
F
Example
Ratio of
Brokered
Deposits to
Domestic
Deposits
Ratio of Brokered
Deposits to Domestic
Deposits Minus 10 Percent
Threshold (Column B
Minus 10 Percent)
Cumulative
Asset Growth
Rate over
Four Years
Asset
Growth
Rate
Factor
Adjusted
Brokered
Deposit Ratio
(Column C
Times
Column E)
1
5.0%
0.0%
5.0%
-

0.0%
2
15.0%
5.0%
5.0%
-

0.0%
3
5.0%
0.0%
35.0%
-

0.0%
4
35.0%
25.0%
55.0%
0.500

12.5%
5
25.0%
15.0%
80.0%
1.000

15.0%

In Examples 1, 2 and 3, either the institution has a ratio of brokered deposits to
domestic deposits that is less than 10 percent (Column B) or its four-year asset growth
rate is less than 40 percent (Column D). Consequently, the adjusted brokered deposit
ratio is zero (Column F). In Example 4, the institution has a ratio of brokered deposits to
domestic deposits of 35 percent (Column B), which, after subtracting the 10 percent
threshold, leaves 25 percent (Column C)
s to
domestic deposits that is less than 10 percent (Column B) or its four-year asset growth
rate is less than 40 percent (Column D). Consequently, the adjusted brokered deposit
ratio is zero (Column F). In Example 4, the institution has a ratio of brokered deposits to
domestic deposits of 35 percent (Column B), which, after subtracting the 10 percent
threshold, leaves 25 percent (Column C). Its assets are 55 percent greater than they were
four years previously (Column D), so the fraction applied to obtain the adjusted brokered
deposit ratio is 0.5 (Column E) (calculated as 3⅓ · (55 percent – 40 percent, with the
result expressed as a decimal fraction rather than as a percentage)). Its adjusted brokered
deposit ratio is, therefore, 12.5 percent (Column F) (which is 0.5 times 25 percent). In
Example 5, the institution has a lower ratio of brokered deposits to domestic deposits (25
percent in Column B) than in Example 4 (35 percent). However, its adjusted brokered
deposit ratio (15 percent in Column F) is larger than in Example 4 (12.5 percent) because
its assets are more than 70 percent greater than they were four years previously (Column
D). Therefore, its adjusted brokered deposit ratio is equal to its ratio of brokered deposits
to domestic deposits of 25 percent minus the 10 percent threshold (Column F).

20

The FDIC is adding this new risk measure for a couple of reasons. A number of
costly institution failures, including some recent failures, involved rapid asset growth
funded through brokered deposits. Moreover, statistical analysis reveals a significant
correlation between rapid asset growth funded by brokered deposits and the probability of
an institution’s being downgraded from a CAMELS composite 1 or 2 rating to a
CAMELS composite 3, 4 or 5 rating within a year. A significant correlation is the
standard the FDIC used when it adopted the financial ratios method in the 2006
assessments rule
eover, statistical analysis reveals a significant
correlation between rapid asset growth funded by brokered deposits and the probability of
an institution’s being downgraded from a CAMELS composite 1 or 2 rating to a
CAMELS composite 3, 4 or 5 rating within a year. A significant correlation is the
standard the FDIC used when it adopted the financial ratios method in the 2006
assessments rule.
The adjusted brokered deposit ratio generally will include brokered deposits as
defined in Section 29 of the Federal Deposit Insurance Act (12 U.S.C. § 1831f), and as
implemented in 12 CFR 337.6, which is the definition used in banks’ quarterly Reports of
Condition and Income (Call Reports) and thrifts’ quarterly Thrift Financial Reports
(TFRs). However, for assessment purposes in Risk Category I, the ratio will not include
reciprocal deposits (that is, deposits that an insured depository institution receives
through a deposit placement network on a reciprocal basis, such that: (1) for any deposit
received, the institution (as agent for depositors) places the same amount with other
insured depository institutions through the network; and (2) each member of the network
sets the interest rate to be paid on the entire amount of funds it places with other network
members. All other brokered deposits will be included in an institution’s ratio of
brokered deposits to domestic deposits used to determine its adjusted brokered deposit
ratio, including brokered deposits that consist of balances swept into an insured
institution by another institution, such as balances swept from a brokerage account.

21
ntire amount of funds it places with other network
members. All other brokered deposits will be included in an institution’s ratio of
brokered deposits to domestic deposits used to determine its adjusted brokered deposit
ratio, including brokered deposits that consist of balances swept into an insured
institution by another institution, such as balances swept from a brokerage account.

21

Based on data as of September 30, 2008, approximately 8.7 percent of institutions
in Risk Category I would have exceeded both the 10 percent brokered deposit threshold
and 40 percent minimum 4-year cumulative asset growth threshold, so that their adjusted
brokered deposit ratio would be greater than zero. A smaller percentage of institutions
would actually have been charged a higher rate solely due to the adjusted brokered
deposit ratio because the minimum or maximum initial rates applicable to Risk Category
I would continue to apply to some institutions both before and after accounting for the
effect of this ratio. Only 1.1 percent of Risk Category I institutions would have had an
initial base assessment rate more than 1 basis point higher as a result of the adjusted
brokered deposit ratio.29
Comments
The FDIC received many comments arguing that brokered deposits should not
increase assessment rates for Risk Category I institutions and that the brokered deposit
provisions in the NPR do not account for the use to which institutions put these deposits.
The FDIC is not persuaded by the arguments. Recent data show that institutions with a
combination of brokered deposit reliance and robust asset growth tend to have a greater
concentration in higher risk assets. In addition, there is a statistically significant
correlation between the adjusted brokered deposit ratio, on the one hand, and the
probability that an institution will be downgraded to a CAMELS rating of 3, 4, or 5
within a year, on the other, independent of the other measures of asset quality contained
in the financial ratios method
nd to have a greater
concentration in higher risk assets. In addition, there is a statistically significant
correlation between the adjusted brokered deposit ratio, on the one hand, and the
probability that an institution will be downgraded to a CAMELS rating of 3, 4, or 5
within a year, on the other, independent of the other measures of asset quality contained
in the financial ratios method.

29 These estimates do not exclude deposits that an institution receives through a deposit placement network
on a reciprocal basis and, thus, might overstate the effects on assessment rates for some institutions.

22

The FDIC received several comments, including comments from several industry
trade groups, arguing that institutions should be able to have a ratio of brokered deposits
to domestic deposits greater than 10 percent without triggering the adjusted brokered
deposit ratio and that the minimum asset growth rate required to trigger the adjusted
brokered deposit ratio should be greater than 20 percent. The comments disputed the
characterization of 20 percent cumulative asset growth over four years as “rapid.” One
trade association noted that the proposed minimum growth rate (20 percent) was lower
than the nominal GDP growth between third quarter 2004 and third quarter 2007.
The FDIC is persuaded in part. The final rule raises the minimum 4-year asset
growth rate required to trigger the adjusted brokered deposit ratio from 20 percent to 40
percent. The final rule also increases from 40 percent to 70 percent the asset growth rate
required to make an institution’s adjusted brokered deposit ratio equal to its institution’s
ratio of brokered deposits to domestic deposits less the 10 percent threshold
final rule raises the minimum 4-year asset
growth rate required to trigger the adjusted brokered deposit ratio from 20 percent to 40
percent. The final rule also increases from 40 percent to 70 percent the asset growth rate
required to make an institution’s adjusted brokered deposit ratio equal to its institution’s
ratio of brokered deposits to domestic deposits less the 10 percent threshold. Additional
analysis has revealed that these growth rates are as predictive of downgrade probabilities
as those originally proposed and are more consistent with the intent of the ratio, which
was to capture only those institutions with rapid asset growth.
However, in the FDIC’s view, a ratio of brokered deposits to domestic deposits
greater than 10 percent is a significant amount of brokered deposits. Still, for institutions
in Risk Category I, brokered deposits alone will not trigger higher rates, but must be
combined with significant asset growth.
The FDIC received over 3,300 comment letters arguing that certain reciprocal
deposits should not be included in the adjusted brokered deposit ratio.30 Most of the

30 When an institution receives a deposit through a network on a reciprocal basis, it must place the same
amount (but owed to a different depositor) with another institution through the network. Many of the

23

comments were form letters. Commenters argued that these reciprocal deposits are a
stable source of funding. According to the comments, most customers (83 percent) are
not seeking the highest rate of interest available and choose to keep their deposit at the
same institution when it matures. The commenters also argued that these deposits are
local deposits and not out-of-market funds and stated that 80 percent of these deposits are
placed with an insured institution within 25 miles of a branch location of the relationship
bank
st customers (83 percent) are
not seeking the highest rate of interest available and choose to keep their deposit at the
same institution when it matures. The commenters also argued that these deposits are
local deposits and not out-of-market funds and stated that 80 percent of these deposits are
placed with an insured institution within 25 miles of a branch location of the relationship
bank. The commenters further argued that the interest rate on these deposits reflects that
of local markets since the insured institution that originates the deposit sets the interest
rate, rather than a third-party broker. Commenters also argued that these deposits may
have franchise value in the event of a bank failure.
The FDIC is persuaded that reciprocal deposits like those described in the
comment letters should not be included in the adjusted brokered deposit ratio applicable
to institutions in Risk Category I.31 (However, as discussed below, reciprocal deposits
will be included in the brokered deposits adjustment applicable to institutions in Risk
Categories II, III and IV.) The FDIC recognizes that reciprocal deposits may be a more
stable source of funding for healthy banks than other types of brokered deposits and that
they may not be as readily used to fund rapid asset growth.
The FDIC also received several comments arguing that brokered deposits that
consist of balances swept into an insured institution by a nondepository institution, such
as balances swept into an insured institution from a brokerage account at a broker-dealer,

comment letters also argued that these reciprocal deposits should not be included in the brokered deposit
adjustment applicable to institutions in Risk Categories II, III and IV. The brokered deposit adjustment
applicable to these risk categories is discussed below
comment letters also argued that these reciprocal deposits should not be included in the brokered deposit
adjustment applicable to institutions in Risk Categories II, III and IV. The brokered deposit adjustment
applicable to these risk categories is discussed below.
31 Excluding these deposits from the Call Report and TFR will require changes to these forms. The FDIC
anticipates that the necessary changes will be made beginning with the June 30, 2009 reports of condition.

24

should be excluded from the adjusted brokered deposit ratio.32 Commenters argued that
these sweep accounts are stable, relationship-based accounts. Commenters also stated
that the aggregate flows in and out of the sweep accounts tend to offset one another and
are thus predictable. Some commenters differentiated between sweeps from affiliated
brokerage firms and those from non-affiliated firms. These commenters argued that
broker-dealer affiliated sweeps are not rate-sensitive accounts and are not designed to
compete with the high rates of interest paid by other insured institutions and, therefore,
do not raise the same concerns as other brokered deposits about the high cost of funding
of risky banks. The commenters maintained that these accounts are typically used for
idle investment funds or as a safe investment and are designed to better manage excess
cash. Some commenters suggested that bankers would be willing to separately report
sweep balances from an affiliated brokerage.
Some commenters supported excluding brokered deposits swept from unaffiliated
brokerages through a sweep program, since the deposits have the characteristics of core
deposits and are not driven by yield. According to the commenters, there is no price
competition; deposits from unaffiliated brokerages are used for the convenience and
safety of the customer.
The FDIC is not persuaded by these arguments
enters supported excluding brokered deposits swept from unaffiliated
brokerages through a sweep program, since the deposits have the characteristics of core
deposits and are not driven by yield. According to the commenters, there is no price
competition; deposits from unaffiliated brokerages are used for the convenience and
safety of the customer.
The FDIC is not persuaded by these arguments. In the FDIC’s view, deposits
swept from broker-dealers can and have contributed to high rates of insured depository
institution asset growth and, thus, fall squarely within the type of brokered deposits that
the adjusted brokered deposit ratio was meant to capture. In addition, as noted in the

32 Many of these comment letters also argued that these swept deposits should not be included in the
brokered deposit adjustment applicable to institutions in Risk Categories II, III and IV. The brokered
deposit adjustment for these risk categories is discussed below.

25

NPR, many sweep programs can be structured so that swept balances are not brokered
deposits.
Pricing multipliers, the uniform amount, and the range of rates
The final rule contains a recalculated uniform amount and recalculated pricing
multipliers for the weighted average CAMELS component rating and financial ratios.
The uniform amount and pricing multipliers under the final rule adopted in 2006 were
derived from a statistical estimate of the probability that an institution will be
downgraded to CAMELS 3, 4 or 5 at its next examination using data from the end of the
years 1984 to 2004.33 These probabilities were then converted to pricing multipliers for
each risk measure. The new pricing multipliers were derived using essentially the same
statistical techniques, but based upon data from the end of the years 1988 to 2006.34 The
new pricing multipliers are set out in Table 7 below
to CAMELS 3, 4 or 5 at its next examination using data from the end of the
years 1984 to 2004.33 These probabilities were then converted to pricing multipliers for
each risk measure. The new pricing multipliers were derived using essentially the same
statistical techniques, but based upon data from the end of the years 1988 to 2006.34 The
new pricing multipliers are set out in Table 7 below.
Table 7
New Pricing Multipliers
Risk Measures*
Pricing
Multipliers**
Tier 1 Leverage Ratio
(0.056)
Loans Past Due 30 – 89 Days/Gross Assets
0.575
Nonperforming Assets/Gross Assets
1.074
Net Loan Charge-Offs/Gross Assets
1.210
Net Income before Taxes/Risk-Weighted Assets
(0.764)
Adjusted brokered deposit ratio
Weighted Average CAMELS Component Rating
0.065
1.095
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.

33 Data on downgrades to CAMELS 3, 4 or 5 is from the years 1985 to 2005. The “S” component rating
was first assigned in 1997. Because the statistical analysis relies on data from before 1997, the “S”
component rating was excluded from the analysis.
34 For the adjusted brokered deposit ratio, assets at the end of each year are compared to assets at the end of
the year four years earlier, so assets at the end of 1988, for example, are compared to assets at the end of
1984. Data on downgrades to CAMELS 3, 4 or 5 is from the years 1989 to 2007.

26
relies on data from before 1997, the “S”
component rating was excluded from the analysis.
34 For the adjusted brokered deposit ratio, assets at the end of each year are compared to assets at the end of
the year four years earlier, so assets at the end of 1988, for example, are compared to assets at the end of
1984. Data on downgrades to CAMELS 3, 4 or 5 is from the years 1989 to 2007.

26

To determine an institution’s initial assessment rate under the base assessment
rate schedule, each of these risk measures (that is, each institution’s financial measures
and weighted average CAMELS component rating) will continue to be multiplied by the
corresponding pricing multipliers. The sum of these products will be added to a new
uniform amount, 11.861.35 The new uniform amount is also derived from the same
statistical analysis.36 As under the final rule adopted in 2006, no initial base assessment
rate within Risk Category I will be less than the minimum initial base assessment rate
applicable to the category or higher than the initial base maximum assessment rate
applicable to the category. The final rule sets the initial minimum base assessment rate
for Risk Category I at 12 basis points and the maximum initial base assessment rate for
Risk Category I at 16 basis points.
To compute the values of the uniform amount and pricing multipliers shown
above, the FDIC chose cutoff values for the predicted probabilities of downgrade such
that, using June 30, 2008 Call Report and TFR data: (1) 25 percent of small institutions in
Risk Category I (other than institutions less than 5 years old) would have been charged
the minimum initial assessment rate; and (2) 15 percent of small institutions in Risk
Category I (other than institutions less than 5 years old) would have been charged the
maximum initial assessment rate.37 These cutoff values will be used in future periods,

35 Appendix A provides the derivation of the pricing multipliers and the uni
charged
the minimum initial assessment rate; and (2) 15 percent of small institutions in Risk
Category I (other than institutions less than 5 years old) would have been charged the
maximum initial assessment rate.37 These cutoff values will be used in future periods,

35 Appendix A provides the derivation of the pricing multipliers and the uniform amount to be added to
compute an assessment rate. The rate derived will be an annual rate, but will be determined every quarter.
36 The uniform amount would be the same for all institutions in Risk Category I (other than large
institutions that have long-term debt issuer ratings, insured branches of foreign banks and, beginning in
2010, new institutions).
37 The cutoff value for the minimum assessment rate is a predicted probability of downgrade of
approximately 2 percent. The cutoff value for the maximum assessment rate is approximately 15 percent.

27

which could lead to different percentages of institutions being charged the minimum and
maximum rates.
In comparison, under the system in place on June 30, 2008: (1) approximately 28
percent of small institutions in Risk Category I (other than institutions less than 5 years
old) were charged the existing minimum assessment rate; and (2) approximately 19
percent of small institutions in Risk Category I (other than institutions less than 5 years
old) were charged the existing maximum assessment rate based on June 30, 2008 data.38
Table 8 gives initial base assessment rates for three institutions with varying
characteristics, given the new pricing multipliers above, using initial base assessment
rates for institutions in Risk Category I of 12 basis points to 16 basis points.39
Table 8
Initial Base Assessment Rates for Three Institutions*

A
B
C
D
E
F
G
Risk Measure
Value
Contribution
to
Assessment
Rate
Risk Measure
Value
Contribution
to
Assessment
Rate
Risk Measure
Value
Contribution
to
Assessment
Rate
Uniform Amount
11.8
multipliers above, using initial base assessment
rates for institutions in Risk Category I of 12 basis points to 16 basis points.39
Table 8
Initial Base Assessment Rates for Three Institutions*

A
B
C
D
E
F
G
Risk Measure
Value
Contribution
to
Assessment
Rate
Risk Measure
Value
Contribution
to
Assessment
Rate
Risk Measure
Value
Contribution
to
Assessment
Rate
Uniform Amount
11.861
11.861
11.861
11.861
Tier 1 Leverage Ratio (%)
(0.056)
9.590
(0.537)
8.570
(0.480)
7.500
(0.420)
Loans Past Due 30-89 Days/Gross Assets (%)
0.575
0.400
0.230
0.600
0.345
1.000
0.575
Nonperforming Loans/Gross Assets (%)
1.074
0.200
0.215
0.400
0.430
1.500
1.611
Net Loan Charge-Offs/Gross Assets (%)
1.210
0.147
0.177
0.079
0.096
0.300
0.363
Net Income before Taxes/Risk-Weighted Assets (%)
(0.764)
2.500
(1.910)
1.951
(1.491)
0.518
(0.396)
Adjusted Brokered Deposit Ratio (%)
0.065
0.000
0.000
12.827
0.834
24.355
1.583
Weighted Average CAMELS Component Ratings
1.095
1.200
1.314
1.450
1.588
2.100
2.300
Sum of Contributions
11.35
13.18
17.48
Initial Base Assessment Rate
12.00
13.18
16.00
Institution 3
Pricing
Multiplier
Institution 1
Institution 2
H

* Figures may not multiply or add to totals due to rounding.40

38 For the assessment period ending September 30, 2008, approximately 26 percent of small Risk Category
I institutions (other than institutions less than 5 years old) were charged the minimum rate and
approximately 23 percent were charged the maximum rate.
39 These are the initial base rates for Risk Category I proposed below.

28
ing.40

38 For the assessment period ending September 30, 2008, approximately 26 percent of small Risk Category
I institutions (other than institutions less than 5 years old) were charged the minimum rate and
approximately 23 percent were charged the maximum rate.
39 These are the initial base rates for Risk Category I proposed below.

28

The initial base assessment rate for an institution in the table is calculated by
multiplying the pricing multipliers (Column B) by the risk measure values (Column C, E
or G) to produce each measure’s contribution to the assessment rate. The sum of the
products (Column D, F or H) plus the uniform amount (the first item in Column D, F and
H) yields the initial base assessment rate. For Institution 1 in the table, this sum actually
equals 11.35 basis points, but the table reflects the initial base minimum assessment rate
of 12 basis points. For Institution 3 in the table, the sum actually equals 17.48 basis
points, but the table reflects the initial base maximum assessment rate of 16 basis points.
Under the final rule, the FDIC will continue to have the flexibility to update the
pricing multipliers and the uniform amount annually, without further notice-and-
comment rulemaking. In particular, the FDIC will be able to add data from each new
year to its analysis and could, from time to time, exclude some earlier years from its
analysis. Because the analysis will continue to use many earlier years’ data as well,
pricing multiplier changes from year to year should usually be relatively small.
On the other hand, as a result of the annual review and analysis, the FDIC may
conclude, as it has in this rulemaking, that additional or alternative financial measures,
ratios or other risk factors should be used to determine risk-based assessments or that a
new method of differentiating for risk should be used
pricing multiplier changes from year to year should usually be relatively small.
On the other hand, as a result of the annual review and analysis, the FDIC may
conclude, as it has in this rulemaking, that additional or alternative financial measures,
ratios or other risk factors should be used to determine risk-based assessments or that a
new method of differentiating for risk should be used. In any of these events, the FDIC
would again make changes through notice-and-comment rulemaking.
Financial measures for any given quarter will continue to be calculated from the
report of condition filed by each institution as of the last day of the quarter.41 CAMELS

40 Under the proposed rule, pricing multipliers, the uniform amount, and financial ratios will continue to be
rounded to three digits after the decimal point. Resulting assessment rates will be rounded to the nearest
one-hundredth (1/100th) of a basis point.
41 Reports of condition include Reports of Income and Condition and Thrift Financial Reports.

29

component rating changes will continue to be effective as of the date that the rating
change is transmitted to the institution for purposes of determining assessment rates for
all institutions in Risk Category I.42
Comments
One industry trade group noted that some banks expressed a concern that the
expanded range of rates for Risk Category I, particularly in combination with the
proposed adjustment for secured liabilities (discussed below), could result in differences
in rates among institutions that are too large compared to differences in risk. This could
lead to some institutions bearing disproportionate costs and being competitively
disadvantaged
banks expressed a concern that the
expanded range of rates for Risk Category I, particularly in combination with the
proposed adjustment for secured liabilities (discussed below), could result in differences
in rates among institutions that are too large compared to differences in risk. This could
lead to some institutions bearing disproportionate costs and being competitively
disadvantaged. However, another trade group expressed concerns that the range of rates
for Risk Category I is too narrow, insufficiently reflecting differences in risk and creating
a cross subsidy within the risk category.43 The FDIC considers the 4-basis point range
for the initial base assessment rate in Risk Category I to be appropriate.
IV.
Risk Category I: Large Bank Method
For large Risk Category I institutions now subject to the debt ratings method, the
final rule derives assessment rates from the financial ratios method as well as long-term
debt issuer ratings and CAMELS component ratings. The new method is known as the
large bank method. The rate using the financial ratios method is first converted from the
range of initial base rates (12 to 16 basis points) to a scale from 1 to 3 (financial ratios

42 Pursuant to existing supervisory practice, the FDIC does not assign a different component rating from
that assigned by an institution’s primary federal regulator, even if the FDIC disagrees with a CAMELS
component rating assigned by an institution’s primary federal regulator, unless: (1) the disagreement over
the component rating also involves a disagreement over a CAMELS composite rating; and (2) the
disagreement over the CAMELS composite rating is not a disagreement over whether the CAMELS
composite rating should be a 1 or a 2. The FDIC has no plans to alter this practice.
43 The same trade group argued that rates for Risk Categories III and IV should be higher than proposed.

30
eement over
the component rating also involves a disagreement over a CAMELS composite rating; and (2) the
disagreement over the CAMELS composite rating is not a disagreement over whether the CAMELS
composite rating should be a 1 or a 2. The FDIC has no plans to alter this practice.
43 The same trade group argued that rates for Risk Categories III and IV should be higher than proposed.

30

score).44 The financial ratios score is then given a 331/3 percent weight in determining
the large bank method assessment rate, as are both the weighted average CAMELS
component rating and debt-agency ratings.
The weights of the CAMELS components remain the same as in the final rule
adopted in 2006. The values assigned to the debt issuer ratings also remain the same.
The weighted CAMELS components and debt issuer ratings will continue to be converted
to a scale from 1 to 3.
The initial base assessment rate under the large bank method will be derived as
follows: (1) an assessment rate computed using the financial ratios method will be
converted to a financial ratios score; (2) the weighted average CAMELS rating,
converted long-term debt issuer ratings, and the financial ratios score will each be
multiplied by a pricing multiplier and the products summed; and (3) a uniform amount
will be added to the result. The resulting initial base assessment rate will be subject to a
minimum and a maximum assessment rate. The pricing multiplier for the weighted
average CAMELS ratings, converted long-term debt issuer rating and financial ratios
score is 1.692, and the uniform amount is 3.873.45
In recent periods, assessment rates for some large institutions have not responded
in a timely manner to rapid changes in these institutions’ financial conditions
ll be subject to a
minimum and a maximum assessment rate. The pricing multiplier for the weighted
average CAMELS ratings, converted long-term debt issuer rating and financial ratios
score is 1.692, and the uniform amount is 3.873.45
In recent periods, assessment rates for some large institutions have not responded
in a timely manner to rapid changes in these institutions’ financial conditions. For the
assessment period ending June 30, 2008, under the assessment system then in place: (1)
45 percent of large institutions in Risk Category I (other than institutions less than 5 years

44 The assessment rate computed using the financial ratios method would be converted to a financial ratios
score by first subtracting 10 from the financial ratios method assessment rate and then multiplying the
result by one-half. For example, if an institution had an initial base assessment rate of 13, 10 would be
subtracted from 13 and the result would be multiplied by one-half to produce a financial ratios score of 1.5.
45 Appendix 1 provides the derivation of the pricing multipliers and the uniform amount.

31

old) were charged the minimum assessment rate (ignoring large bank adjustments),
compared with 28 percent of small institutions; and (2) 11 percent of large institutions in
Risk Category I (other than institutions less than 5 years old) were charged the maximum
assessment rate (ignoring large bank adjustments), compared with 19 percent of small
institutions.46 The FDIC’s proposed values for pricing multipliers and the uniform
amount are such that, using June 30, 2008 data, the percentages of large institutions in
Risk Category I (other than new institutions less than 5 years old) that would have been
charged the minimum and maximum initial base assessment rates would be the same as
the percentages of small institutions that would have been charged these rates (25 percent
at the minimum rate and 15 percent at the maximum rate).47,48 These cutoff
30, 2008 data, the percentages of large institutions in
Risk Category I (other than new institutions less than 5 years old) that would have been
charged the minimum and maximum initial base assessment rates would be the same as
the percentages of small institutions that would have been charged these rates (25 percent
at the minimum rate and 15 percent at the maximum rate).47,48 These cutoff values
would be used in future periods, which could lead to different percentages of institutions
being charged the minimum and maximum rates.
Under the final rule adopted in 2006, large institutions that lack a long-term debt
issuer rating are assessed using the financial ratios method by itself, subject to the large
bank adjustment. This will continue under the final rule.

46 For the assessment period ending September 30, 2008, under the assessment system then in place: (1) 41
percent of large institutions in Risk Category I (other than institutions less than 5 years old) were charged
the minimum assessment rate (again ignoring large bank adjustments), compared with 26 percent of small
institutions; and (2) 11 percent of large institutions in Risk Category I (other than institutions less than 5
years old) were charged the maximum assessment rate (ignoring large bank adjustments), compared with
23 percent of small institutions.
47 The cutoff value for the minimum assessment rate is an average score of approximately 1.601. The
cutoff value for the maximum assessment rate is approximately 2.389.
48 A “new” institution, as defined in 12 CFR 327.8(l), is generally one that is less than 5 years old, but there
are several exceptions, including, for example, an exception for certain otherwise new institutions in certain
holding company structures. 12 CFR 327.9(d)(7)
rate is an average score of approximately 1.601. The
cutoff value for the maximum assessment rate is approximately 2.389.
48 A “new” institution, as defined in 12 CFR 327.8(l), is generally one that is less than 5 years old, but there
are several exceptions, including, for example, an exception for certain otherwise new institutions in certain
holding company structures. 12 CFR 327.9(d)(7). The calculation of percentages of small institutions,
however, was determined strictly by excluding institutions less than 5 years old, rather than by using the
definition of a “new” institution and its regulatory exceptions, since determination of whether an institution
meets an exception to the definition of “new” requires a case-by-case investigation.

32

Under the final rule, the initial base assessment rate for an institution with a
weighted average CAMELS converted value of 1.70, a debt issuer ratings converted
value of 1.65 and a financial ratios method assessment rate of 13.50 basis points would
be computed as follows:
• The financial ratios method assessment rate less 10 basis points would be
multiplied by one-half (calculated as (13.5 basis points – 10 basis points) ·
0.5) to produce a financial ratios score of 1.75.
• The weighted average CAMELS score, debt ratings score and financial ratios
score will each be multiplied by 1.692 and summed (calculated as 1.70 · 1.692
+ 1.65 · 1.692 + 1.75 · 1.692) to produce 8.629.
• A uniform amount of 3.873 would be added, resulting in an initial base
assessment rate of 12.50 basis points.
The FDIC anticipates that incorporating the financial ratios score into the large
bank method assessment rate will result in a more accurate distribution of initial
assessment rates and in timelier assessment rate responses to changing risk profiles, while
retaining the market and supervisory perspectives that debt and CAMELS ratings
provide
nitial base
assessment rate of 12.50 basis points.
The FDIC anticipates that incorporating the financial ratios score into the large
bank method assessment rate will result in a more accurate distribution of initial
assessment rates and in timelier assessment rate responses to changing risk profiles, while
retaining the market and supervisory perspectives that debt and CAMELS ratings
provide. While the number of potential discretionary adjustments under this revised large
bank method cannot be known with certainty, the revised method should create a more
accurate distribution of initial rates and, thus, should minimize the number of necessary
discretionary adjustments.49
Comments

49 The FDIC has issued additional Guidelines for Large Institutions and Insured Foreign Branches in Risk
Category I (the large bank guidelines) governing these large bank adjustments. 72 FR 27122 (May 14,
2007).

33

One trade group supported the proposal and specifically noted that the FDIC
should move away from the debt rating method. Other comments, including comments
from trade groups, argued that the proposed rule would make it harder for a large bank to
be eligible for the lowest assessment rates. A commenting bank argued that:
Structuring the rules with a goal to maintain parity between large and
small banks would be in violation of [12 U.S.C. § 1817(b)(2)(D)].
Arbitrarily establishing targets for percentages of institutions that fall into
a given assessment rate is inconsistent with not only the governing statute
but the whole concept of risk-based pricing.… The fact that, under
objective criteria, large banks may have a greater percentage of
institutions that qualify for the lowest rate is not an indication that the rule
is flawed and needs to change, but may just be a factual representation of
the strength of large banks.50
The FDIC disagrees with the commenting bank
not only the governing statute
but the whole concept of risk-based pricing.… The fact that, under
objective criteria, large banks may have a greater percentage of
institutions that qualify for the lowest rate is not an indication that the rule
is flawed and needs to change, but may just be a factual representation of
the strength of large banks.50
The FDIC disagrees with the commenting bank. The purpose of the new large
bank method is to create an assessment system for large Risk Category I institutions that
will respond more timely to changing risk profiles, will improve the accuracy of initial
assessment rates, relative risk rankings, and will create a greater parity between small and
large Risk Category I institutions. The recalibration of the percentages of large
institutions that would have been charged the minimum and maximum rates applicable to
Risk Category I is intended to better reflect the actual risk posed by large institutions.
Under the debt ratings method, the percentage of large Risk Category I institutions that
were charged the minimum assessment rate changed little over time despite deteriorating
financial conditions. If the financial ratios method, which is based on a combination of
objective financial ratios and supervisory ratings, were applied to large Risk Category I
institutions, only about 19 percent would have been charged the minimum assessment
rate. While the FDIC continues to believe that the financial ratios method alone does not

50 12 U.S.C. § 1817(b)(2)(D) provides that, “No insured depository institution shall be barred from the
lowest-risk category solely because of size.”

34
Risk Category I
institutions, only about 19 percent would have been charged the minimum assessment
rate. While the FDIC continues to believe that the financial ratios method alone does not

50 12 U.S.C. § 1817(b)(2)(D) provides that, “No insured depository institution shall be barred from the
lowest-risk category solely because of size.”

34

adequately provide the appropriate risk ranking for large and complex institutions, the
deterioration in financial ratios is highly indicative of rapidly changing risk profiles,
which are not fully reflected in the debt ratings method on a timely basis.
Furthermore, 12 U.S.C. § 1817(b)(2)(D) does not prohibit the FDIC from
calibrating a risk-based assessment system so that, at a given point in time, an equal
percentage of small and large institutions would have been charged the minimum
assessment rate, provided that the risks posed were equal, as, in the FDIC’s view, they
were.
V.
Adjustment for Large Institutions and Insured Branches of Foreign Banks in
Risk Category I
Under the final rule adopted in 2006, within Risk Category I, large institutions
and insured branches of foreign banks are subject to an assessment rate adjustment (the
large bank adjustment). In determining whether to make such an adjustment for a large
institution or an insured branch of a foreign bank, the FDIC may consider such
information as financial performance and condition information, other market or
supervisory information, potential loss severity, and stress considerations. Any large
bank adjustment is limited to a change in assessment rate of up to 0.5 basis points higher
or lower than the rate determined using the supervisory ratings and financial ratios
method, the supervisory and debt ratings method, or the weighted average ROCA
component rating method, whichever is applicable
t or
supervisory information, potential loss severity, and stress considerations. Any large
bank adjustment is limited to a change in assessment rate of up to 0.5 basis points higher
or lower than the rate determined using the supervisory ratings and financial ratios
method, the supervisory and debt ratings method, or the weighted average ROCA
component rating method, whichever is applicable. Adjustments are meant to preserve
consistency in the orderings of risk indicated by assessment rates, to ensure fairness
among all large institutions, and to ensure that assessment rates take into account all
available information that is relevant to the FDIC’s risk-based assessment decision.

35

The final rule will increase the maximum possible large bank adjustment to one
basis point. The adjustment will be made to an institution’s initial base assessment rate
before any other adjustments are made. The adjustment cannot: (1) decrease any rate so
that the resulting rate would be less than the minimum initial base assessment rate; or
(2) increase any rate above the maximum initial base assessment rate.
The FDIC is amending the maximum size of the adjustment for two primary
reasons. First, under the final rule adopted in 2006, the difference between the minimum
and maximum base assessment rates in Risk Category I is two basis points. The
maximum one-half basis point large bank adjustment represents 25 percent of the
difference between the minimum and maximum rates. While an adjustment of this size is
generally sufficient to preserve consistency in the orderings of risk indicated by
assessment rates and to ensure fairness, there have been circumstances where more than a
half a basis point adjustment would have been warranted. The difference between the
minimum and maximum base assessment rates will increase from two basis points to four
basis points under the final rule
nt of this size is
generally sufficient to preserve consistency in the orderings of risk indicated by
assessment rates and to ensure fairness, there have been circumstances where more than a
half a basis point adjustment would have been warranted. The difference between the
minimum and maximum base assessment rates will increase from two basis points to four
basis points under the final rule. A half basis point large bank adjustment would
represent only 12.5 percent of the difference between the minimum and maximum rates
and would not be sufficient to preserve consistency in the orderings of risk indicated by
assessment rates or to ensure fairness. The increase in the maximum possible large bank
adjustment will continue to represent 25 percent of the difference between the minimum
and maximum rates, minimizing the potential number of instances where the large bank
adjustment is insufficient to fully and accurately reflect the risk that an institution poses.
The purpose of the large bank adjustment is to improve the relative risk ranking of
large Risk Category I institutions with respect to their initial assessment rates, not total

36

assessment rates. The FDIC expects that, under the final rule, large bank adjustments
will continue to be made infrequently and for a limited number of institutions.51 The
FDIC’s view is that the use of supervisory ratings, financial ratios and agency ratings
(when available) will sufficiently reflect the risk profile and rank orderings of risk in
large Risk Category I institutions in most (but not all) cases.
The FDIC expects to further clarify its Assessment Rate Adjustment Guidelines
for Large Institutions and Insured Foreign Branches in Risk Category I (the
Guidelines).52 The Guidelines will discuss in detail the quantitative and qualitative
factors that the FDIC will rely upon when deciding whether to make a large bank
adjustment. Until then, the Guidelines will be applied taking into account the changes
resulting from this rulemaking
ssment Rate Adjustment Guidelines
for Large Institutions and Insured Foreign Branches in Risk Category I (the
Guidelines).52 The Guidelines will discuss in detail the quantitative and qualitative
factors that the FDIC will rely upon when deciding whether to make a large bank
adjustment. Until then, the Guidelines will be applied taking into account the changes
resulting from this rulemaking.
Comments
An industry trade group and a bank objected to the increase in the large bank
adjustment, arguing that the adjustment is arbitrary and subjective. The FDIC disagrees.
The large bank method appropriately recognizes the need for subjective, expert
judgment-based risk assessments for large banks. Because large institutions are usually
complex and often have unique operations, an entirely formulaic approach, while
objective, has yielded a distribution of assessment rates that is not sufficiently reflective
of the risk. When the FDIC decides to increase or decrease a large institution’s
assessment rate based upon the large bank adjustment, it does so after reviewing a large

51 In the seven quarters for which institutions have been assessed since the 2006 assessment rule went into
effect, the total number of adjustments in any one quarter has ranged from 2 to 16. For the third quarter of
2008, the FDIC continued or implemented assessment rate adjustments for 16 large Risk Category I
institutions, 14 to increase an institution’s assessment rate, and 2 to decrease an institution’s assessment
rate. Additionally, the FDIC sent 2 institutions advance notification of a potential upward adjustment in
their assessment rate.
52 72 Fed. Reg. 27,122 (May 14, 2007).

37
ird quarter of
2008, the FDIC continued or implemented assessment rate adjustments for 16 large Risk Category I
institutions, 14 to increase an institution’s assessment rate, and 2 to decrease an institution’s assessment
rate. Additionally, the FDIC sent 2 institutions advance notification of a potential upward adjustment in
their assessment rate.
52 72 Fed. Reg. 27,122 (May 14, 2007).

37

set of financial and performance data in addition to making qualitative assessments.
While the decision to apply an adjustment cannot be reduced to a formula, the set of data
that the FDIC reviews is consistent from one institution to the next and the FDIC strives
to make its decisions based on the data as consistent as possible and the reasons for the
decisions as clear as possible for the institutions affected. As stated above, the FDIC
intends to publish revised Guidelines to further clarify the large bank adjustment process.
Despite the existence of a long-established appeals process for assessment rates,
one industry trade group stated that “[B]ankers felt that they were not allowed to
effectively challenge the adjustments through the FDIC’s appeals process.” The FDIC
notes, however, that no institution has yet appealed an adjustment (or the lack thereof) to
the Assessment Appeals Committee.53
VI.
Adjustment for Unsecured Debt for all Risk Categories
Under the final rule, an institution’s base assessment rate (after making any large
bank adjustment) will be reduced from the initial rate using the institution’s ratio of long-
term unsecured debt (and, for small institutions, certain amounts of Tier 1 capital) to
domestic deposits.54 Any decrease in base assessment rates as a result of this unsecured
debt adjustment will be limited to five basis points (rather than two basis points as
proposed in the NPR). Unsecured debt will not include any senior unsecured debt that
the FDIC has guaranteed under the Temporary Liquidity Guarantee Program
for small institutions, certain amounts of Tier 1 capital) to
domestic deposits.54 Any decrease in base assessment rates as a result of this unsecured
debt adjustment will be limited to five basis points (rather than two basis points as
proposed in the NPR). Unsecured debt will not include any senior unsecured debt that
the FDIC has guaranteed under the Temporary Liquidity Guarantee Program.

53 Only one institution has requested review of its assessment rate; it asked for an adjustment when the
FDIC had not given one. However, this institution did not appeal the denial of its request for review to the
Assessment Appeals Committee. The FDIC has also received 9 responses to the 29 advance notices of
intent to increase an assessment rate using the large bank adjustment that the FDIC has sent out.
54 For this purpose, an institution would be “small” if it met the definition of a small institution in 12 CFR
327.8(g)—generally, an institution with less than $10 billion in assets—except that it would not include an
institution that would otherwise meet the definition for which the FDIC had granted a request to be treated
as a large institution pursuant to 12 CFR 327.9(d)(6).

38

The unsecured debt adjustment will be determined by multiplying an institution’s
long-term unsecured debt (plus, if the institution is a small institution, “qualified”
amounts of Tier 1 capital as explained below) as a percentage of domestic deposits by 40
basis points (rather than 20 basis points as proposed in the NPR). For example, an
institution with a ratio of long-term unsecured debt (plus, if the institution is small,
qualified amounts of Tier 1 capital) to domestic deposits of 3.0 percent will see its initial
base assessment rate reduced by 1.20 basis points (calculated as 40 basis points · 0.03)
a percentage of domestic deposits by 40
basis points (rather than 20 basis points as proposed in the NPR). For example, an
institution with a ratio of long-term unsecured debt (plus, if the institution is small,
qualified amounts of Tier 1 capital) to domestic deposits of 3.0 percent will see its initial
base assessment rate reduced by 1.20 basis points (calculated as 40 basis points · 0.03).
An institution with a ratio of long-term unsecured debt (plus, if the institution is small,
qualified amounts of Tier 1 capital) to domestic deposits of 13.0 percent will have its
assessment rate reduced by five basis points, since the maximum possible reduction will
be five basis points. (40 basis points · 0.13 = 5.20 basis points, which exceeds the
maximum possible reduction.)
For a small institution, the amount of qualified Tier 1 capital that will be added to
long-term unsecured debt will be a portion of the amount of Tier 1 capital that exceeds a
ratio of Tier 1 capital to adjusted average assets of 5.0%.55 The percentage of Tier 1
capital that is qualified increases as the amount of Tier 1 capital held by a small
institution increases. The qualified amount is set forth in Table 9.

55 Adjusted average assets will be used for Call Report filers; adjusted total assets will be used for TFR
filers.

39

Table 9
Amount of Qualified Tier 1 Capital
Amount of Tier 1 capital within
range which is qualified
≤
5%
0%
>
5%
and
≤
6%
10%
>
6%
and
≤
7%
20%
>
7%
and
≤
8%
30%
>
8%
and
≤
9%
40%
>
9%
and
≤10%
50%
> 10% and
≤11%
60%
> 11% and
≤12%
70%
> 12% and
≤13%
80%
> 13% and
≤14%
90%
> 14%
100%
Range of Tier 1 capital to adjusted average
assets

The amount of qualified Tier 1 capital within each of the ranges is summed to determine
the total amount of qualified Tier 1 capital for this institution
lified
≤
5%
0%
>
5%
and
≤
6%
10%
>
6%
and
≤
7%
20%
>
7%
and
≤
8%
30%
>
8%
and
≤
9%
40%
>
9%
and
≤10%
50%
> 10% and
≤11%
60%
> 11% and
≤12%
70%
> 12% and
≤13%
80%
> 13% and
≤14%
90%
> 14%
100%
Range of Tier 1 capital to adjusted average
assets

The amount of qualified Tier 1 capital within each of the ranges is summed to determine
the total amount of qualified Tier 1 capital for this institution. The sum of qualified Tier
1 capital and long-term unsecured debt as a percentage of domestic deposits will be
multiplied by 40 basis points to produce the unsecured debt adjustment.56
To illustrate the calculation of qualified Tier 1 capital, consider a small institution
with a Tier 1 leverage ratio of 20.0 percent and Tier 1 capital of $2.0 million. The
amount of qualified Tier 1 capital is illustrated in Table 10.

56 The percentage of qualified Tier 1 capital and long-term unsecured debt to domestic deposits will remain
unrounded (to the extent of computer capabilities). The unsecured debt adjustment will be rounded to two
digits after the decimal point prior to being applied to the base assessment rate. Appendix 2 describes the
unsecured debt adjustment for a small institution mathematically.

40

Table 10
Example of Qualified Tier 1 Capital for the Unsecured Debt Adjustment
Leverage Ratio
Band
Tier 1 Capital
within Band
($000)
Qualified
Percentage of
Tier 1 Capital
Qualified
Tier 1
Capital
($000)
0 - 5%
$500
0%
$0
5% - 6%
$100
10%
$10
6% - 7%
$100
20%
$20
7% - 8%
$100
30%
$30
8% - 9%
$100
40%
$40
9% - 10%
$100
50%
$50
10% - 11%
$100
60%
$60
11% - 12%
$100
70%
$70
12% - 13%
$100
80%
$80
13% - 14%
$100
90%
$90
> 14%
$600
100%
$600
Total
$2,000
$1,050
*
=

As can be seen in Table 10, each band of the Tier 1 leverage ratio (up to the last
band) contains $100,000 in Tier 1 capital and the qualified percentage increases linearly
until it reaches 100 percent for amounts over 14.0 percent
%
$40
9% - 10%
$100
50%
$50
10% - 11%
$100
60%
$60
11% - 12%
$100
70%
$70
12% - 13%
$100
80%
$80
13% - 14%
$100
90%
$90
> 14%
$600
100%
$600
Total
$2,000
$1,050
*
=

As can be seen in Table 10, each band of the Tier 1 leverage ratio (up to the last
band) contains $100,000 in Tier 1 capital and the qualified percentage increases linearly
until it reaches 100 percent for amounts over 14.0 percent. The total qualified Tier 1
capital for this small institution is $1.05 million, which will be added to any long-term
unsecured debt to calculate the institution’s unsecured debt adjustment.
The final rule includes more Tier 1 capital in qualified Tier 1 capital than
proposed in the NPR. The NPR proposed including the sum of one-half of the amount of
Tier 1 capital between 10 percent and 15 percent of adjusted average assets and the full
amount of Tier 1 capital exceeding 15 percent of adjusted average assets. The FDIC has
concluded, based in part on comments, that the proposal did not give small institutions
sufficient credit for Tier 1 capital.
Ratios for any given quarter will be calculated from the report of condition filed
by each institution as of the last day of the quarter.

41

Unsecured debt will consist of senior unsecured liabilities and subordinated debt.
A senior unsecured liability is defined as the unsecured portion of other borrowed
money.57 Subordinated debt is defined in the report of condition for the reporting
period.58 Long-term unsecured debt is defined as unsecured debt with at least one year
remaining until maturity. However, unsecured debt will not include any debt that the
FDIC has guaranteed pursuant to the Temporary Liquidity Guarantee Program, since this
kind of debt will not decrease FDIC losses in the event an institution fails.
At present, institutions separately report neither long-term senior unsecured
liabilities nor long-term subordinated debt in the report of condition
ining until maturity. However, unsecured debt will not include any debt that the
FDIC has guaranteed pursuant to the Temporary Liquidity Guarantee Program, since this
kind of debt will not decrease FDIC losses in the event an institution fails.
At present, institutions separately report neither long-term senior unsecured
liabilities nor long-term subordinated debt in the report of condition. In a separate notice
of proposed rulemaking, the Federal Financial Institution Examination Council has
proposed revising the Call Report to report separately long-term senior unsecured
liabilities and subordinated debt that meet this definition. The Office of Thrift
Supervision (OTS) has also published a notice of proposed rulemaking that would adopt

57 Other borrowed money is reported on the Call Report in Schedule RC, item 16 and on the Thrift
Financial Report as the sum of items SC720, SC740, and SC760.
58 The definition of “subordinated debt” in the Call Report is contained in the Glossary under
“Subordinated Notes and Debentures.” For the June 30, 2008 Call Report, the definition read, in pertinent
part, as follows:
Subordinated Notes and Debentures: A subordinated note or debenture is a form of debt
issued by a bank or a consolidated subsidiary. When issued by a bank, a subordinated
note or debenture is not insured by a federal agency, is subordinated to the claims of
depositors, and has an original weighted average maturity of five years or more. Such
debt shall be issued by a bank with the approval of, or under the rules and regulations of,
the appropriate federal bank supervisory agency ….
When issued by a subsidiary, a note or debenture may or may not be explicitly
subordinated to the deposits of the parent bank ….
For purposes of the final rule, subordinated debt would also include limited-life preferred stock as defined
in the report of condition for the reporting period
approval of, or under the rules and regulations of,
the appropriate federal bank supervisory agency ….
When issued by a subsidiary, a note or debenture may or may not be explicitly
subordinated to the deposits of the parent bank ….
For purposes of the final rule, subordinated debt would also include limited-life preferred stock as defined
in the report of condition for the reporting period. The definition of “limited-life preferred stock” in the
Call Report is contained in the Glossary under “Preferred Stock.” For the June 30, 2008 Call Report, the
definition read, in pertinent part, as follows:
Limited-life preferred stock is preferred stock that has a stated maturity date or that can
be redeemed at the option of the holder. It excludes those issues of preferred stock that
automatically convert into perpetual preferred stock or common stock at a stated date.

42

similar reporting requirements. The FDIC anticipates that these revisions will be made
beginning with the June 30, 2009 Call Report and TFR. However, if they are not, until
banks separately report these amounts in the Call Report, the FDIC will use subordinated
debt included in Tier 2 capital and will not include any amount of senior unsecured
liabilities. These adjustments will also be made for TFR filers until thrifts separately
report these amounts in the TFR.
At present, institutions also do not report debt that the FDIC has guaranteed
pursuant to the Temporary Liquidity Guarantee Program.59 The FDIC is pursuing the
necessary changes to the Call Report and TFR to ensure that these amounts are excluded
from the separate report of long-term senior unsecured liabilities and subordinated debt
beginning with the June 30, 2009 Call Report and TFR.
When an institution fails, holders of unsecured claims, including subordinated
debt, receive distributions from the receivership estate only if all secured claims,
administrative claims and deposit claims have been paid in full
e amounts are excluded
from the separate report of long-term senior unsecured liabilities and subordinated debt
beginning with the June 30, 2009 Call Report and TFR.
When an institution fails, holders of unsecured claims, including subordinated
debt, receive distributions from the receivership estate only if all secured claims,
administrative claims and deposit claims have been paid in full. Consequently, greater
amounts of long-term unsecured claims provide a cushion that can reduce the FDIC’s
loss in the event of failure.
For small institutions (but not large ones), the unsecured debt adjustment includes
a portion of Tier 1 capital for two primary reasons. First, cost concerns and lack of
demand generally make it difficult for small institutions to issue unsecured debt in the
market. For reasons of fairness, the FDIC believes that small institutions that have large
amounts of Tier 1 capital should receive an equivalent benefit for that capital. Second,

59 Institutions report this debt to the FDIC shortly after issuing it and also file monthly reports on the
amount of this debt outstanding as of the end of each month. However, neither of these reports contains all
of the information the FDIC needs to deduct this debt from the unsecured debt adjustment, since neither
uses the definition of “unsecured debt” contained in the text. In addition, the monthly report does not
contain maturity information.

43
ng it and also file monthly reports on the
amount of this debt outstanding as of the end of each month. However, neither of these reports contains all
of the information the FDIC needs to deduct this debt from the unsecured debt adjustment, since neither
uses the definition of “unsecured debt” contained in the text. In addition, the monthly report does not
contain maturity information.

43

the FDIC does not want to create an incentive for small institutions to convert existing
Tier 1 capital into subordinated debt, for example, by having a shareholder in a closely
held corporation redeem shares and receive subordinated debt.
Comments
The FDIC received several comments on the proposed unsecured debt
adjustment. One commenter found the proposal fair and appropriate.
Another commenter, however, claimed that the proposal would penalize
institutions that do not issue long-term unsecured debt. A commenter recommended that
the FDIC abandon the separate risk adjustment for unsecured debt. A commenter argued
that the proposal uses arbitrary measures when adjusting for risk and ignores the
probability of default. The FDIC disagrees with these comments. As noted earlier,
greater amounts of long-term unsecured debt provide a cushion that can reduce the
FDIC’s loss in the event of failure, thus reducing the FDIC’s risk.
The FDIC specifically sought comments on the size of the unsecured debt
adjustment and whether it should be larger or smaller. Several commenters argued that
the proposed two basis point reduction in base assessment rates, which was the maximum
reduction possible under the proposal, was arbitrary and too low. Some also argued that
the proposed 20 basis point multiplier should be increased. Several noted that the
maximum proposed unsecured debt adjustment was much smaller than the maximum
proposed secured liability adjustment.
The FDIC has concluded that the proposed 20 basis point multiplier and two basis
point maximum reduction were too small
ble under the proposal, was arbitrary and too low. Some also argued that
the proposed 20 basis point multiplier should be increased. Several noted that the
maximum proposed unsecured debt adjustment was much smaller than the maximum
proposed secured liability adjustment.
The FDIC has concluded that the proposed 20 basis point multiplier and two basis
point maximum reduction were too small. Spreads on depository institution unsecured
debt have, on average, approximately doubled since the NPR was published. The FDIC

44

has, therefore, doubled the size of the multiplier, partly to reflect the recent increase in
debt spreads and partly to create greater parity between the size of the unsecured debt
adjustment and the size of the secured liability adjustment. The FDIC has more than
doubled the maximum possible unsecured debt adjustment to ensure that institutions will
retain an incentive to issue unsecured debt and, again, to create greater parity between the
unsecured debt adjustment and the secured liability adjustment.
Under the final rule, the FDIC estimates that the reduction in industry average
assessments arising from the unsecured debt adjustment will exceed the industry average
increase in assessments arising from the secured liability adjustment and (for Risk
Categories II, III, and IV) the brokered deposit adjustment.
An industry trade group recommended that the unsecured debt adjustment for
small institutions include larger amounts of Tier 1 capital. The trade group argued that
small institutions should be rewarded for their additional capital and that the proposal did
not sufficiently reward them. The trade group suggested that the adjustment include the
sum of one-half of the amount of Tier 1 capital between 8 percent and 12 percent of
adjusted average assets and the full amount of Tier 1 capital exceeding 12 percent of
adjusted average assets
e group argued that
small institutions should be rewarded for their additional capital and that the proposal did
not sufficiently reward them. The trade group suggested that the adjustment include the
sum of one-half of the amount of Tier 1 capital between 8 percent and 12 percent of
adjusted average assets and the full amount of Tier 1 capital exceeding 12 percent of
adjusted average assets. The FDIC agrees that small institutions should receive more
credit for Tier 1 capital and, and discussed above, has so provided in the final rule.
Another industry trade group suggested that institutions subject to the large bank
method should also be given credit for capital in the unsecured debt adjustment.
However, in the FDIC’s view, doing so would undo the one of the purposes of including
a portion of Tier 1 capital in the unsecured debt adjustment for small banks, which was to
give small banks, which generally do not (and generally cannot) issue much unsecured

45

debt, an benefit equivalent to that of large banks. If a large institution’s assessment rate
does not appropriately factor its capital, the FDIC can use the large bank adjustment to
alter the rate (although the FDIC anticipates that the need to do so will seldom arise).
Some comments suggested that the FDIC include all unsecured and subordinated
debt in the unsecured debt adjustment, regardless of maturity. One suggested using all
unencumbered assets. The FDIC disagrees. Short-term debt is likely to be paid prior to
failure and, thus, is unlikely to provide a cushion against FDIC losses.
Some commenters argued that it would be more appropriate to use a ratio of long-
term unsecured debt (or unencumbered debt) to insured deposits, since insured deposits
are the true proxy for the FDIC’s risk. The FDIC disagrees. Numerous studies have
shown that, as an institution approaches failure, uninsured depositors tend to demand
payment
unlikely to provide a cushion against FDIC losses.
Some commenters argued that it would be more appropriate to use a ratio of long-
term unsecured debt (or unencumbered debt) to insured deposits, since insured deposits
are the true proxy for the FDIC’s risk. The FDIC disagrees. Numerous studies have
shown that, as an institution approaches failure, uninsured depositors tend to demand
payment. In effect, these uninsured depositors receive full payment on their claims (as if
they were insured depositors at failure), leaving the failed institution with fewer assets to
satisfy the FDIC’s claims.
VII.
Adjustment for Secured Liabilities for all Risk Categories
Under the final rule, an institution’s base assessment rate may increase depending
upon its ratio of secured liabilities to domestic deposits (the secured liability adjustment).
An institution’s ratio of secured liabilities to domestic deposits, if greater than 25 percent
(rather than 15 percent as proposed in the NPR), will increase its assessment rate, but the
resulting base assessment rate after any such increase will be no more than 50 percent
greater than it was before the adjustment. The secured liability adjustment will be made
after any large bank adjustment or unsecured debt adjustment.

46

Specifically, for an institution that has a ratio of secured liabilities to domestic
deposits of greater than 25 percent, the secured liability adjustment will be the
institution’s base assessment rate (after taking into account previous adjustments)
multiplied by the ratio of its secured liabilities to domestic deposits minus 0.25.
However, the resulting adjustment cannot be more than 50 percent of the institution’s
base assessment rate (after taking into account previous adjustments)
f greater than 25 percent, the secured liability adjustment will be the
institution’s base assessment rate (after taking into account previous adjustments)
multiplied by the ratio of its secured liabilities to domestic deposits minus 0.25.
However, the resulting adjustment cannot be more than 50 percent of the institution’s
base assessment rate (after taking into account previous adjustments). For example, if an
institution had a ratio of secured liabilities to domestic deposits of 35 percent, and a base
assessment rate before the secured liability adjustment of 14 basis points, the secured
liability adjustment would be the base rate multiplied by 0.10 (calculated as 0.35 – 0.25),
resulting in an adjustment of 1.4 basis points. However, if the institution had a ratio of
secured liabilities to domestic deposits of 80 percent, its base rate before the secured
liability adjustment of 14 basis points would be multiplied by 0.50 rather than 0.55
(calculated as 0.80 – 0.25), since the resulting adjustment can be no greater than 50
percent of the base assessment rate before the secured liability adjustment.60
Ratios of secured liabilities to domestic deposits for any given quarter will be
calculated from the report of condition filed by each institution as of the last day of the
quarter. For banks, secured liabilities include Federal Home Loan Bank advances,
securities sold under repurchase agreements, secured Federal funds purchased and “other
secured borrowings,” as reported in banks’ quarterly Call Reports. Thrifts also report
Federal Home Loan Bank advances in their quarterly TFR, but, at present, do not
separately report securities sold under repurchase agreements, secured Federal funds
purchased or “other secured borrowings.” The OTS has published a notice of proposed

60 Under the final rule, the ratio of secured liabilities to domestic deposits will be rounded to three digits
after the decimal point
ir quarterly TFR, but, at present, do not
separately report securities sold under repurchase agreements, secured Federal funds
purchased or “other secured borrowings.” The OTS has published a notice of proposed

60 Under the final rule, the ratio of secured liabilities to domestic deposits will be rounded to three digits
after the decimal point. The resulting amount and adjusted assessment rate will be rounded to the nearest
one-hundredth (1/100th) of a basis point.

47

rulemaking to revise the TFR so that thrifts will separately report these items and the
FDIC anticipates that this revision will be effective for the June 30, 2009 TFR. Until the
TFR is revised, however, any of these secured amounts not reported separately from
unsecured or other liabilities by a thrift in its TFR will be imputed based on simple
averages for Call Report filers as of June 30, 2008. As of that date, on average, 63.0
percent of the sum of Federal funds purchased and securities sold under repurchase
agreements reported by Call Report filers were secured, and 49.4 percent of other
borrowings were secured.
Under the final rule adopted in 2006, an institution’s secured liabilities do not
directly affect its assessments. The exclusion of secured liabilities can lead to inequity.
An institution with secured liabilities in place of another’s deposits pays a smaller deposit
insurance assessment, even if both pose the same risk of failure and would cause the
same losses to the FDIC in the event of failure.
To illustrate with a simple example, assume that Bank A has $100 million in
insured deposits, while Bank B has $50 million in insured deposits and $50 million in
secured liabilities. Each poses the same risk of failure and is charged the same
assessment rate. At failure, each has assets with a market value of $80 million. The loss
to the DIF would be identical for Bank A and Bank B ($20 million each)
rate with a simple example, assume that Bank A has $100 million in
insured deposits, while Bank B has $50 million in insured deposits and $50 million in
secured liabilities. Each poses the same risk of failure and is charged the same
assessment rate. At failure, each has assets with a market value of $80 million. The loss
to the DIF would be identical for Bank A and Bank B ($20 million each). The total
assessments paid by Bank A and Bank B, however, would not be identical. Because
secured liabilities do not figure into an institution’s assessment under the final rule
adopted in 2006, the DIF would receive twice as much assessment revenue from Bank A
as from Bank B over a given period (despite identical FDIC losses at failure).

48

In general, under the final rule adopted in 2006, substituting secured liabilities for
unsecured liabilities (including subordinated debt) raises the FDIC’s loss in the event of
failure without providing increased assessment revenue. Substituting secured liabilities
for deposits can also lower an institution’s franchise value in the event of failure, which
increases the FDIC’s losses, all else equal.61
Comments
The vast majority of commenters were opposed to the secured liability
adjustment. The few commenters that supported the FDIC’s proposal called the secured
liability adjustment fair and appropriate, and viewed the logic for the increased charge as
clear and compelling. One of the supportive commenters stated that core deposits are
more advantageous to an institution than secured liabilities, as they are cheaper and allow
cross-selling of products. As a result, prudent institutions show a preference for core
funding. The commenter found the proposed threshold to be reasonable.
Many of the commenters opposed to the adjustment suggested that the NPR gave
too much weight to risk adjustments based on arbitrary measures, and ignored the
probability of default
secured liabilities, as they are cheaper and allow
cross-selling of products. As a result, prudent institutions show a preference for core
funding. The commenter found the proposed threshold to be reasonable.
Many of the commenters opposed to the adjustment suggested that the NPR gave
too much weight to risk adjustments based on arbitrary measures, and ignored the
probability of default. Commenters argued that the true risk of a bank lies in the quality
of its assets, rather than how the assets are funded. Some noted that the presence of
unsecured liabilities (as opposed to secured liabilities) is no guarantee of the quality of a
bank’s assets or that the assets would be sufficient to cover a bank’s deposit liabilities in
case of bank failure. Commenters believe that the FDIC should abandon the proposed
approach of targeting certain funding sources.

61 Overall, whether substituting secured liabilities for deposits increases, decreases, or leaves unchanged the
FDIC’s loss given failure also depends on how the substitution affects the proportion of insured and
uninsured deposits, but FDIC’s assessment revenue will always decline with a substitution.

49

Some commenters argued that the proposed secured liability adjustment appears
to run contrary to established programs that have implied government support, including
borrowings from the Federal Reserve through the Term Auction Facility. Commenters
viewed the secured liability adjustment as unfair to institutions that have limited options
for funding.
Many of the comments (over 1,100) were particularly concerned about the effect
the FDIC’s proposal would have on Federal Home Loan Bank (FHLB) advances.
Commenters argued that FHLB advances are a stable, reliable source of liquidity, and a
key tool for asset/liability management, inte

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FDIC_FIL09012. Check the current official text before relying on it. Not legal advice.