Proposed Rulemaking to Mitigate the Deposit Insurance Assessment Effects of Participation in the Paycheck Protection Program (PPP), the PPP Lending Facility, and the Money Market Mutual Fund Liquidity Facility

30649

Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

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Signing Authority

This document of the Department of

Energy was signed on April 2, 2020, by

Alexander N. Fitzsimmons, Deputy

Assistant Secretary for Energy

Efficiency, Energy Efficiency and

Renewable Energy, pursuant to

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publication in the Federal Register.

Signed in Washington, DC, on May 6, 2020.

Treena V. Garrett,

Federal Register Liaison Officer, U.S.

Department of Energy.

[FR Doc. 2020–09988 Filed 5–19–20; 8:45 am]

BILLING CODE 6450–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 327

RIN 3064–AF53

Assessments, Mitigating the Deposit

Insurance Assessment Effect of

Participation in the Paycheck

Protection Program (PPP), the PPP

Lending Facility, and the Money Market

Mutual Fund Liquidity Facility

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking

m]

BILLING CODE 6450–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 327

RIN 3064–AF53

Assessments, Mitigating the Deposit

Insurance Assessment Effect of

Participation in the Paycheck

Protection Program (PPP), the PPP

Lending Facility, and the Money Market

Mutual Fund Liquidity Facility

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

SUMMARY: The Federal Deposit

Insurance Corporation is seeking

comment on a proposed rule that would

mitigate the deposit insurance

assessment effects of participating in the

Paycheck Protection Program (PPP)

established by the Small Business

Administration (SBA), and the Paycheck

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Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

1 See 12 U.S.C. 1817, 1819 (Tenth).

2 12 U.S.C. 343(3).

3 Public Law 116–136 (Mar. 27, 2020).

4 Under the PPP, eligible borrowers generally

include businesses with fewer than 500 employees

or that are otherwise considered by the SBA to be

small, including individuals operating sole

proprietorships or acting as independent

contractors, certain franchisees, nonprofit

corporations, veterans’ organizations, and Tribal

businesses. The loan amount under the PPP would

be limited to the lesser of $10 million and 250

percent of a borrower’s average monthly payroll

costs. For more information on the Paycheck

Protection Program, see https://www.sba.gov/

funding-programs/loans/coronavirus-relief-options/

paycheck-protection-program-ppp.

Protection Program Lending Facility

(PPPLF) and Money Market Mutual

Fund Liquidity Facility (MMLF)

established by the Board of Governors of

the Federal Reserve System

50

percent of a borrower’s average monthly payroll

costs. For more information on the Paycheck

Protection Program, see https://www.sba.gov/

funding-programs/loans/coronavirus-relief-options/

paycheck-protection-program-ppp.

Protection Program Lending Facility

(PPPLF) and Money Market Mutual

Fund Liquidity Facility (MMLF)

established by the Board of Governors of

the Federal Reserve System. The

proposed changes would remove the

effect of participation in the PPP and

PPPLF on various risk measures used to

calculate an insured depository

institution’s assessment rate, remove the

effect of participation in the PPPLF and

MMLF programs on certain adjustments

to an IDI’s assessment rate, provide an

offset to an insured depository

institution’s assessment for the increase

to its assessment base attributable to

participation in the MMLF and PPPLF,

and remove the effect of participation in

the PPPLF and MMLF programs when

classifying insured depository

institutions as small, large, or highly

complex for assessment purposes.

DATES: Comments must be received no

later than May 27, 2020.

ADDRESSES: You may submit comments

on the proposed rule, identified by RIN

3064–AF53, using any of the following

methods:

• Agency website: https://

www.fdic.gov/regulations/laws/federal.

Follow the instructions for submitting

comments on the agency website.

• Email: comments@fdic.gov. Include

RIN 3064–AF53 on the subject line of

the message.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, DC 20429.

Include RIN 3064–AF53 in the subject

line of the letter.

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street NW,

building (located on F Street) on

business days between 7 a.m. and 5 p.m

.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, DC 20429.

Include RIN 3064–AF53 in the subject

line of the letter.

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street NW,

building (located on F Street) on

business days between 7 a.m. and 5 p.m.

• Public Inspection: All comments

received, including any personal

information provided, will be posted

generally without change to https://

www.fdic.gov/regulations/laws/federal.

FOR FURTHER INFORMATION CONTACT:

Michael Spencer, Associate Director,

202–898–7041, michspencer@fdic.gov;

Ashley Mihalik, Chief, Banking and

Regulatory Policy, 202–898–3793,

amihalik@fdic.gov; Nefretete Smith,

Counsel, 202–898–6851, nefsmith@

fdic.gov; Samuel Lutz, Counsel, salutz@

fdic.gov, 202–898–3773.

SUPPLEMENTARY INFORMATION:

I. Summary

Pursuant to its authority under the

Federal Deposit Insurance Act (FDI Act),

the FDIC is issuing this notice of

proposed rulemaking to mitigate the

effects of an insured depository

institution’s participation in the PPP,

MMLF, and PPPLF programs on its

deposit insurance assessments.1 Absent

a change to the assessment rules, an IDI

that participates in the PPP, PPPLF, or

MMLF programs could be subject to

increased deposit insurance

assessments. To remove the effect of

these programs on the risk measures

used to determine the deposit insurance

assessment rate for each insured

depository institution (IDI), the FDIC is

proposing to exclude PPP loans, which

include loans pledged to the PPPLF,

from an institution’s loan portfolio;

exclude loans pledged to the PPPLF

from an institution’s total assets; and

exclude amounts borrowed from the

Federal Reserve Banks under the PPPLF

from an institution’s liabilities

the deposit insurance

assessment rate for each insured

depository institution (IDI), the FDIC is

proposing to exclude PPP loans, which

include loans pledged to the PPPLF,

from an institution’s loan portfolio;

exclude loans pledged to the PPPLF

from an institution’s total assets; and

exclude amounts borrowed from the

Federal Reserve Banks under the PPPLF

from an institution’s liabilities. In

addition, because participation in the

PPPLF and MMLF programs will have

the effect of expanding an IDI’s balance

sheet (and, by extension, its assessment

base), the FDIC is proposing to exclude

loans pledged to the PPPLF and assets

purchased under the MMLF in the

calculation of certain adjustments to an

IDI’s assessment rate, and to provide an

offset to an IDI’s total assessment

amount for the increase to its

assessment base attributable to

participation in the MMLF and PPPLF.

Finally, in defining IDIs for assessment

purposes, the FDIC would exclude from

an IDI’s total assets the amount of loans

pledged to the PPPLF and assets

purchased under the MMLF.

II. Background

Recent events have significantly and

adversely impacted the global economy

and financial markets. The spread of the

Coronavirus Disease (COVID–19) has

slowed economic activity in many

countries, including the United States.

Sudden disruptions in financial markets

have put increasing liquidity pressure

on money market mutual funds (MMFs)

and raised the cost of credit for most

borrowers. MMFs have faced

redemption requests from clients with

immediate cash needs and may need to

sell a significant number of assets to

meet these redemption requests, which

could further increase market pressures.

Small businesses also are facing severe

liquidity constraints and a collapse in

revenue streams, as millions of

Americans have been ordered to stay

home, severely reducing their ability to

engage in normal commerce. Many

small businesses have been forced to

close temporarily or furlough

employees

of assets to

meet these redemption requests, which

could further increase market pressures.

Small businesses also are facing severe

liquidity constraints and a collapse in

revenue streams, as millions of

Americans have been ordered to stay

home, severely reducing their ability to

engage in normal commerce. Many

small businesses have been forced to

close temporarily or furlough

employees. Continued access to

financing will be crucial for small

businesses to weather economic

disruptions caused by COVID–19 and,

ultimately, to help restore economic

activity.

In order to prevent the disruption in

the money markets from destabilizing

the financial system, on March 18, 2020,

the Board of Governors of the Federal

Reserve System (Board of Governors),

with approval of the Secretary of the

Treasury, authorized the Federal

Reserve Bank of Boston (FRBB) to

establish the MMLF, pursuant to section

13(3) of the Federal Reserve Act.2 Under

the MMLF, the FRBB is extending non-

recourse loans to eligible borrowers to

purchase assets from MMFs. Assets

purchased from MMFs will be posted as

collateral to the FRBB. Eligible

borrowers under the MMLF include

IDIs. Eligible collateral under the MMLF

includes U.S. Treasuries and fully

guaranteed agency securities, securities

issued by government-sponsored

enterprises, and certain types of

commercial paper. The MMLF is

scheduled to terminate on September

30, 2020, unless extended by the Board

of Governors.

As part of the Coronavirus Aid, Relief,

and Economic Security Act (CARES

Act) and in recognition of the exigent

circumstances faced by small

businesses, Congress created the PPP.3

PPP loans are fully guaranteed as to

principal and accrued interest by the

Small Business Administration (SBA),

the amount of each being determined at

the time the guarantee is exercised. As

a general matter, SBA guarantees are

backed by the full faith and credit of the

U.S. Government

) and in recognition of the exigent

circumstances faced by small

businesses, Congress created the PPP.3

PPP loans are fully guaranteed as to

principal and accrued interest by the

Small Business Administration (SBA),

the amount of each being determined at

the time the guarantee is exercised. As

a general matter, SBA guarantees are

backed by the full faith and credit of the

U.S. Government. PPP loans also afford

borrowers forgiveness up to the

principal amount of the PPP loan, if the

proceeds of the PPP loan are used for

certain expenses. The SBA reimburses

PPP lenders for any amount of a PPP

loan that is forgiven. PPP lenders are not

held liable for any representations made

by PPP borrowers in connection with a

borrower’s request for PPP loan

forgiveness.4

In order to provide liquidity to small

business lenders and the broader credit

markets, and to help stabilize the

financial system, on April 8, 2020, the

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Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

5 12 U.S.C. 343(3).

6 The maturity date of the extension of credit

under the PPPLF will be accelerated if the

underlying PPP loan goes into default and the

eligible borrower sells the PPP Loan to the SBA to

realize the SBA guarantee. The maturity date of the

extension of credit under the PPPLF also will be

accelerated to the extent of any PPP loan

forgiveness reimbursement received by the eligible

borrower from the SBA.

7 Under the SBA’s interim final rule, a lender may

request that the SBA purchase the expected

forgiveness amount of a PPP loan or pool of PPP

loans at the end of week seven of the covered

period. See Interim Final Rule ‘‘Business Loan

Program Temporary Changes; Paycheck Protection

Program,’’ 85 FR 20811, 20816 (Apr. 15, 2020).

8 See 85 FR 16232 (Mar. 23, 2020) and 85 FR

20387 (Apr. 13, 2020).

9 See 12 U.S.C. 1817(b).

10 See 12 CFR 327.3(b)(1)

est that the SBA purchase the expected

forgiveness amount of a PPP loan or pool of PPP

loans at the end of week seven of the covered

period. See Interim Final Rule ‘‘Business Loan

Program Temporary Changes; Paycheck Protection

Program,’’ 85 FR 20811, 20816 (Apr. 15, 2020).

8 See 85 FR 16232 (Mar. 23, 2020) and 85 FR

20387 (Apr. 13, 2020).

9 See 12 U.S.C. 1817(b).

10 See 12 CFR 327.3(b)(1).

11 See 12 CFR 327.5.

12 See 12 CFR 327.16(a) and (b).

13 As used in this proposed rule, the term ‘‘bank’’

is synonymous with the term ‘‘insured depository

institution’’ as it is used in section 3(c)(2) of the

Federal Deposit Insurance Act (FDI Act), 12 U.S.C.

1813(c)(2). As used in this proposed rule, the term

‘‘small bank’’ is synonymous with the term ‘‘small

institution’’ and the term ‘‘large bank’’ is

synonymous with the term ‘‘large institution’’ or

‘‘highly complex institution,’’ as the terms are

defined in 12 CFR 327.8.

14 See 12 CFR 327.16(a); see also 81 FR 32180

(May 20, 2016).

15 See 12 CFR 327.16(b); see also 76 FR 10672

(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).

16 See 12 CFR 327.16(e).

17 See 12 CFR 327.16(b)(3); see also Assessment

Rate Adjustment Guidelines for Large and Highly

Complex Institutions, 76 FR 57992 (Sept. 19, 2011).

18 12 U.S.C. 1817 and 12 U.S.C. 1819 (Tenth).

19 As discussed in greater detail in the section on

the Paperwork Reduction Act, the agencies have

submitted requests for seven additional items on

the Call Report (FFIEC 031, FFIEC 041, and FFIEC

051): (1) The outstanding balance of PPP loans; (2)

the outstanding balance of loans pledged to the

PPPLF as of quarter-end; (3) the quarterly average

amount of loans pledged to the PPPLF; (4) the

Continued

Board of Governors, with approval of

the Secretary of the Treasury,

authorized each of the Federal Reserve

Banks to extend credit under the PPPLF,

pursuant to section 13(3) of the Federal

Reserve Act.5 Under the PPPLF, Federal

Reserve Banks are extending non-

recourse loans to institutions that

uarter-end; (3) the quarterly average

amount of loans pledged to the PPPLF; (4) the

Continued

Board of Governors, with approval of

the Secretary of the Treasury,

authorized each of the Federal Reserve

Banks to extend credit under the PPPLF,

pursuant to section 13(3) of the Federal

Reserve Act.5 Under the PPPLF, Federal

Reserve Banks are extending non-

recourse loans to institutions that are

eligible to make PPP loans, including

IDIs. Under the PPPLF, only PPP loans

that are guaranteed by the SBA with

respect to both principal and interest

and that are originated by an eligible

institution may be pledged as collateral

to the Federal Reserve Banks (loans

pledged to the PPPLF). The maturity

date of the extension of credit under the

PPPLF 6 equals the maturity date of the

PPP loans pledged to secure the

extension of credit.7 No new extensions

of credit will be made under the PPPLF

after September 30, 2020, unless

extended by the Board of Governors and

the Department of the Treasury.

To facilitate use of the MMLF and

PPPLF, the FDIC, Board of Governors,

and Comptroller of the Currency

(together, the agencies) adopted interim

final rules on March 23, 2020, and April

13, 2020, respectively, to allow banking

organizations to neutralize the

regulatory capital effects of purchasing

assets through the MMLF program and

loans pledged to the PPPLF.8 Consistent

with Section 1102 of the CARES Act,

the April 2020 interim final rule also

required banking organizations to apply

a zero percent risk weight to PPP loans

originated by the banking organization

under the PPP for purposes of the

banking organization’s risk-based

capital requirements

y capital effects of purchasing

assets through the MMLF program and

loans pledged to the PPPLF.8 Consistent

with Section 1102 of the CARES Act,

the April 2020 interim final rule also

required banking organizations to apply

a zero percent risk weight to PPP loans

originated by the banking organization

under the PPP for purposes of the

banking organization’s risk-based

capital requirements.

Deposit Insurance Assessments

Pursuant to Section 7 of the FDI Act,

the FDIC has established a risk-based

assessment system through which it

charges all IDIs an assessment amount

for deposit insurance.9 Under the FDIC’s

regulations, an IDI’s assessment is equal

to its assessment base multiplied by its

risk-based assessment rate.10 An IDI’s

assessment base and assessment rate are

determined each quarter based on

supervisory ratings and information

collected on the Consolidated Reports of

Condition and Income (Call Report) or

the Report of Assets and Liabilities of

U.S. Branches and Agencies of Foreign

Banks (FFIEC 002), as appropriate.

Generally, an IDI’s assessment base

equals its average consolidated total

assets minus its average tangible

equity.11 An IDI’s assessment rate is

calculated using different methods

based on whether the IDI is a small,

large, or highly complex institution.12

For assessment purposes, a large bank is

generally defined as an institution with

$10 billion or more in total assets, a

small bank is generally defined as an

institution with less than $10 billion in

total assets, and a highly complex bank

is generally defined as an institution

that has $50 billion or more in total

assets and is controlled by a parent

holding company that has $500 billion

or more in total assets, or is a processing

bank or trust company.13

Assessment rates for established small

banks are calculated based on eight risk

measures that are statistically significant

in predicting the probability of an

institution’s failure over a three-year

horizon.14 Large banks are assessed

usin

otal

assets and is controlled by a parent

holding company that has $500 billion

or more in total assets, or is a processing

bank or trust company.13

Assessment rates for established small

banks are calculated based on eight risk

measures that are statistically significant

in predicting the probability of an

institution’s failure over a three-year

horizon.14 Large banks are assessed

using a scorecard approach that

combines CAMELS ratings and certain

forward-looking financial measures to

assess the risk that a large bank poses to

the deposit insurance fund (DIF).15 All

institutions are subject to adjustments to

their assessment rates for certain

liabilities that can increase or reduce

loss to the DIF in the event the bank

fails.16 In addition, the FDIC may adjust

a large bank’s total score, which is used

in the calculation of its assessment rate,

based upon significant risk factors not

adequately captured in the appropriate

scorecard.17

Absent a change to the assessment

rules, an IDI that participates in the PPP,

PPPLF, or MMLF programs could be

subject to increased deposit insurance

assessments. For example, an institution

that holds PPP loans, including loans

pledged to the PPPLF, would increase

its total loan portfolio, all else equal,

which may increase its assessment rate.

An IDI that receives funding through the

PPPLF would increase the total assets

on its balance sheet (equal to the

amount of PPP pledged to the Federal

Reserve Banks), and increase its

liabilities by the same amount, which

would increase the IDI’s assessment

base and also may increase its

assessment rate. Similarly, an IDI that

participates in the MMLF would

increase its total assets by the amount of

assets purchased from MMFs under the

MMLF and increase its liabilities by the

same amount, which in turn would

increase its assessment base and may

also increase its assessment rate.

III. The Proposed Rule

A

would increase the IDI’s assessment

base and also may increase its

assessment rate. Similarly, an IDI that

participates in the MMLF would

increase its total assets by the amount of

assets purchased from MMFs under the

MMLF and increase its liabilities by the

same amount, which in turn would

increase its assessment base and may

also increase its assessment rate.

III. The Proposed Rule

A. Summary

The FDIC, under its general

rulemaking authority in Section 9 of the

FDI Act, and its specific authority under

Section 7 of the FDI Act to establish a

risk-based assessment system and set

assessments,18 is proposing to mitigate

the deposit insurance assessment effects

of holding PPP loans, pledging loans to

the PPPLF, and purchasing assets under

the MMLF. Under the proposal, an IDI

generally would not be subject to a

higher deposit insurance assessment

rate solely due to its participation in the

PPP, PPPLF, or MMLF. In addition, the

FDIC would provide an offset against an

IDI’s assessment amount for the increase

to its assessment base attributable to

participation in the MMLF and PPPLF.

Changes to reporting requirements

applicable to the Consolidated Reports

of Condition and Income (Call Report),

the Report of Assets and Liabilities of

U.S. Branches and Agencies of Foreign

Banks, and their respective instructions,

would be required in order to make the

proposed adjustments to the assessment

system. These changes are concurrently

being effectuated in coordination with

the other member entities of the Federal

Financial Institutions Examination

Council.19

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nd their respective instructions,

would be required in order to make the

proposed adjustments to the assessment

system. These changes are concurrently

being effectuated in coordination with

the other member entities of the Federal

Financial Institutions Examination

Council.19

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outstanding balance of borrowings from the Federal

Reserve Banks under the PPPLF with a remaining

maturity of one year or less, as of quarter-end; (5)

the outstanding balance of borrowings from the

Federal Reserve Banks under the PPPLF with a

remaining maturity of greater than one year, as of

quarter-end; (6) the outstanding amount of assets

purchased from MMFs under the MMLF as of

quarter-end; and (7) the quarterly average amount

of assets purchased under the MMLF. In addition,

the agencies have submitted requests for two

additional items on the Report of Assets and

Liabilities of U.S. Branches and Agencies of Foreign

Banks (FFIEC 002): the quarterly average amount of

loans pledged to the PPPLF and the quarterly

average amount of assets purchased from MMFs

under the MMLF. The FDIC is requesting these

items in order to make the proposed adjustments

described below.

20 The FDIC is not proposing to modify its

assessment pricing system with respect to the Tier

1 leverage ratio, which is one of the measures used

to determine the assessment rate for both large and

small IDIs. In accordance with the agencies’ April

13, 2020, interim final rule, banking organizations

are required to neutralize the regulatory capital

effects of assets pledged to the PPPLF on leverage

capital ratios. See 85 FR 20387 (April 13, 2020)

cing system with respect to the Tier

1 leverage ratio, which is one of the measures used

to determine the assessment rate for both large and

small IDIs. In accordance with the agencies’ April

13, 2020, interim final rule, banking organizations

are required to neutralize the regulatory capital

effects of assets pledged to the PPPLF on leverage

capital ratios. See 85 FR 20387 (April 13, 2020).

Therefore, the effects of participation in the PPPLF

will be automatically incorporated in an IDI’s

regulatory capital reporting and the FDIC does not

need to make any adjustments to an IDI’s deposit

insurance assessment.

21 At least 75 percent of the PPP loan proceeds

shall be used for payroll costs, and collateral is not

required to secure the loans. Therefore, the FDIC

expects that PPP loans will not be included in other

loan categories, such as those that are secured by

real estate or consumer loans, in measures used to

determine an IDI’s deposit insurance assessment

rate. See 85 FR 20811 (Apr. 15, 2020) and Slide 5,

Industry by NAICS Subsector, Paycheck Protection

Program (PPP) Report: Approvals through 12 p.m.

EST, April 16, 2020, Small Business

Administration, available at: https://

home.treasury.gov/system/files/136/

SBA%20PPP%20Loan%20Report%20Deck.pdf.

22 According to the instruction for the Call Report,

All Other Loans includes loans to finance

agricultural production and other loans to farmers

and loans to nondepository financial institutions.

23 The FDIC expects that IDIs that participate in

the PPP, PPPLF, and MMLF will earn additional

income from participation in these programs. To

minimize additional reporting burden, however, the

FDIC is not proposing to exclude income related to

participation in these programs from the net income

before taxes to total assets ratio in the calculation

of an IDI’s deposit insurance assessment rate

he FDIC expects that IDIs that participate in

the PPP, PPPLF, and MMLF will earn additional

income from participation in these programs. To

minimize additional reporting burden, however, the

FDIC is not proposing to exclude income related to

participation in these programs from the net income

before taxes to total assets ratio in the calculation

of an IDI’s deposit insurance assessment rate.

24 All Other Loans are not included in the LMI;

therefore, the FDIC proposes to exclude the

outstanding balance of PPP loans, which include

loans pledged to the PPPLF, first from the balance

of C&I Loans, followed by Agricultural Loans. The

loan categories used in the Loan Mix Index are:

Construction and Development, Commercial and

Industrial, Leases, Other Consumer, Real Estate

Loans Residual, Multifamily Residential, Nonfarm

Nonresidential, 1–4 Family Residential, Loans to

Depository Banks, Agricultural Real Estate,

Agricultural Loans. 12 CFR 327.16(a)(1)(ii)(B).

B. Mitigating the Effects of Loans

Pledged to the PPPLF and of PPP Loans

Held by an IDI on an IDI’s Assessment

Rate

To mitigate the assessment effect of

PPP loans, including loans pledged to

the PPPLF, the FDIC is proposing to

exclude PPP loans held by an IDI from

its loan portfolio for purposes of

calculating the IDI’s deposit insurance

assessment rate.20 Consistent with the

substantial protections from risk

provided by the Federal Reserve, the

FDIC is also proposing to modify

various risk measures to exclude loans

pledged to the PPPLF from total assets

and to exclude borrowings from the

Federal Reserve Banks under the PPPLF

from total liabilities when calculating an

IDI’s deposit insurance assessment rate

sit insurance

assessment rate.20 Consistent with the

substantial protections from risk

provided by the Federal Reserve, the

FDIC is also proposing to modify

various risk measures to exclude loans

pledged to the PPPLF from total assets

and to exclude borrowings from the

Federal Reserve Banks under the PPPLF

from total liabilities when calculating an

IDI’s deposit insurance assessment rate.

Based on data from the SBA and on

the terms of the PPP, the FDIC expects

that most PPP loans will be categorized

as Commercial and Industrial (C&I)

Loans.21 PPP loans may also be reported

in other loan types, including

Agricultural Loans and All Other

Loans.22 Under the proposed rule, and

to minimize reporting burden, the FDIC

would therefore exclude outstanding

PPP loans, which includes loans

pledged to the PPPLF, from an IDI’s loan

portfolio using assumptions under a

waterfall approach. First, the FDIC

would exclude the balance of PPP loans

outstanding, which includes loans

pledged to the PPPLF, from the balance

of C&I Loans. In the unlikely event that

the outstanding balance of PPP loans,

which includes loans pledged to the

PPPLF, exceeds the balance of C&I

Loans, the FDIC would exclude any

remaining balance of these loans from

the balance of All Other Loans, up to the

balance of All Other Loans, then

exclude any remaining balance of PPP

loans from the balance of Agricultural

Loans, up to the total amount of

Agricultural Loans. As described below,

the FDIC proposes to apply this

waterfall approach, as appropriate, in

the calculation of the Loan Mix Index

(LMI) for small banks, and in the

calculation of the growth-adjusted

portfolio concentration measure and

loss severity measure for large or highly

complex banks.

Question 1: The FDIC invites

comment on its proposal to apply a

waterfall approach in excluding PPP

loans, which include loans pledged to

the PPPLF, from C&I Loans, All Other

Loans, and Agricultural Loans in the

calculation of an IDI’s assessment rate

nd in the

calculation of the growth-adjusted

portfolio concentration measure and

loss severity measure for large or highly

complex banks.

Question 1: The FDIC invites

comment on its proposal to apply a

waterfall approach in excluding PPP

loans, which include loans pledged to

the PPPLF, from C&I Loans, All Other

Loans, and Agricultural Loans in the

calculation of an IDI’s assessment rate.

Is the assumption that all PPP loans are

C&I Loans appropriate, or should these

loans be distributed across loan

categories in another manner? Should

the FDIC collect additional data on how

PPP loans are categorized in order to

more accurately mitigate the deposit

insurance assessment effects of these

loans? Alternatively, should institutions

report PPP loans as a separate loan

category instead of including them in

C&I Loans or other loan categories, thus

providing data that would reduce the

need for the FDIC to rely on certain

assumptions, reduce the amount of

necessary changes to specific risk

measures and other factors, and

potentially more accurately mitigate the

deposit insurance assessment effects of

an IDI’s participation in the program?

Would this be overly burdensome for

institutions?

1. Established Small Institutions

a. Exclusion of Loans Pledged to the

PPPLF in Various Risk Measures

For established small banks, the

outstanding balance of loans pledged to

the PPPLF would be excluded from total

assets in the calculation of six risk

measures: The net income before taxes

to total assets ratio,23 the nonperforming

loans and leases to gross assets ratio, the

other real estate owned to gross assets

ratio, the brokered deposit ratio, the

one-year asset growth measure, and the

LMI.

b. Exclusion of PPP Loans and Loans

Pledged to the PPPLF in the LMI

The LMI is a measure of the extent to

which a bank’s total assets include

higher-risk categories of loans

taxes

to total assets ratio,23 the nonperforming

loans and leases to gross assets ratio, the

other real estate owned to gross assets

ratio, the brokered deposit ratio, the

one-year asset growth measure, and the

LMI.

b. Exclusion of PPP Loans and Loans

Pledged to the PPPLF in the LMI

The LMI is a measure of the extent to

which a bank’s total assets include

higher-risk categories of loans. In its

calculation of the LMI, the FDIC is

proposing to exclude PPP loans, which

include loans pledged to the PPPLF,

from an institution’s loan portfolio,

based on the waterfall approach

described above. Under the proposed

rule, the FDIC would therefore exclude

outstanding PPP loans, which includes

loans pledged to the PPPLF, from the

balance of C&I Loans in the calculation

of the LMI. In the unlikely event that the

outstanding balance of PPP loans, which

includes loans pledged to the PPPLF,

exceeds the balance of C&I Loans, the

FDIC would exclude any remaining

balance of these loans from the balance

of Agricultural Loans, up to the total

amount of Agricultural Loans, in the

calculation of the LMI.24 The FDIC is

also proposing to exclude loans pledged

to the PPPLF from total assets in the

calculation of the LMI.

2. Large and Highly Complex

Institutions

For IDIs defined as large or highly

complex for deposit insurance

assessment purposes, the FDIC is

proposing to exclude the outstanding

balance of loans pledged to the PPPLF

and borrowings from the Federal

Reserve Banks under the PPPLF from

five risk measures used in the scorecard

method: the core earnings ratio, the core

deposit ratio, the balance sheet liquidity

ratio, the average short-term funding

ratio and the loss severity measure. For

four risk measures—the growth-adjusted

portfolio concentration measure, the

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e risk measures used in the scorecard

method: the core earnings ratio, the core

deposit ratio, the balance sheet liquidity

ratio, the average short-term funding

ratio and the loss severity measure. For

four risk measures—the growth-adjusted

portfolio concentration measure, the

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25 Appendix A to subpart A of 12 CFR part 327.

26 The FDIC expects that IDIs that participate in

the PPP, PPPLF, and MMLF will earn additional

income from participation in these programs. To

minimize additional reporting burden, the FDIC is

not proposing to exclude earnings related to

participation in these programs from the core

earnings ratio in the calculation of an IDI’s deposit

insurance assessment rate.

27 Appendix A to subpart A of 12 CFR part 327.

28 The balance sheet liquidity ratio is defined as

the sum of cash and balances due from depository

institutions, federal funds sold and securities

purchased under agreements to resell, and the

market value of available-for-sale and held-to-

maturity agency securities (excludes agency

mortgage-backed securities but includes all other

agency securities issued by the U.S. Treasury, U.S.

government agencies, and U.S. government

sponsored enterprises) divided by the sum of

federal funds purchased and repurchase

agreements, other borrowings (including FHLB)

with a remaining maturity of one year or less, 5

percent of insured domestic deposits, and 10

percent of uninsured domestic and foreign deposits.

Appendix A to subpart A of 12 CFR part 327.

29 Appendix A to subpart A of 12 CFR part 327

describes the average short-term funding ratio.

30 For large banks, the concentration measure is

the higher of the ratio of higher-risk assets to Tier

1 capital and reserves, and the growth-adjusted

portfolio measure

insured domestic deposits, and 10

percent of uninsured domestic and foreign deposits.

Appendix A to subpart A of 12 CFR part 327.

29 Appendix A to subpart A of 12 CFR part 327

describes the average short-term funding ratio.

30 For large banks, the concentration measure is

the higher of the ratio of higher-risk assets to Tier

1 capital and reserves, and the growth-adjusted

portfolio measure. For highly complex institutions,

the concentration measure is the highest of three

measures: The ratio of higher risk assets to Tier 1

capital and reserves, the ratio of top 20 counterparty

exposure to Tier 1 capital and reserves, and the

ratio of the largest counterparty exposure to Tier 1

capital and reserves. See Appendix A to subpart A

of part 327.

31 All Other Loans and Agricultural Loans are not

included in the growth-adjusted portfolio

concentration measure; therefore, the FDIC

proposes to exclude the outstanding balance of PPP

loans, which include loans pledged to the PPPLF,

from the balance of C&I Loans. The loan

concentration categories used in the growth-

adjusted portfolio concentration measure are:

Construction and development, other commercial

real estate, first lien residential mortgages

(including non-agency residential mortgage-backed

securities), closed-end junior liens and home equity

lines of credit, commercial and industrial loans,

credit card loans, and other consumer loans.

Appendix C to subpart A of 12 CFR part 327.

32 See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).

33 To minimize reporting burden, the FDIC would

reduce average loans by the outstanding balance of

PPP loans, which includes loans pledged to the

PPPLF, as of quarter-end, rather than requiring

institutions to additionally report the average

balance of PPP loans and the average balance of

loans pledged to the PPPLF.

34 Appendix D to subpart A of 12 CFR 327

describes the calculation of the loss severity

measure

ng burden, the FDIC would

reduce average loans by the outstanding balance of

PPP loans, which includes loans pledged to the

PPPLF, as of quarter-end, rather than requiring

institutions to additionally report the average

balance of PPP loans and the average balance of

loans pledged to the PPPLF.

34 Appendix D to subpart A of 12 CFR 327

describes the calculation of the loss severity

measure.

balance sheet liquidity ratio, the trading

asset ratio, and the loss severity

measure—the FDIC is proposing to treat

the outstanding balance of PPP loans,

which includes loans pledged to the

PPPLF, as riskless. These measures are

described in more detail below.

a. Core Earnings Ratio

For the core earnings ratio, the FDIC

divides the four-quarter sum of merger-

adjusted core earnings by the average of

five quarter-end total assets (most recent

and four prior quarters).25 The FDIC is

proposing to exclude the outstanding

balance of loans pledged to the PPPLF

at quarter-end from total assets for the

applicable quarter-end periods prior to

averaging.26

b. Core Deposit Ratio

The core deposit ratio is defined as

total domestic deposits excluding

brokered deposits and uninsured non-

brokered time deposits divided by total

liabilities.27 For purposes of this

calculation, the FDIC is proposing to

exclude from total liabilities borrowings

from Federal Reserve Banks under the

PPPLF.

c. Balance Sheet Liquidity Ratio

The balance sheet liquidity ratio

measures the amount of highly liquid

assets needed to cover potential cash

outflows in the event of stress.28 In

calculating this ratio, the FDIC is

proposing to treat the outstanding

balance of PPP loans as of quarter-end

that exceed borrowings from the Federal

Reserve Banks under the PPPLF as

riskless and to treat them as highly

liquid assets. The FDIC is also

proposing to exclude from the ratio an

IDI’s reported borrowings from the

Federal Reserve Banks under the PPPLF

with a remaining maturity of one year

or less.

d

the FDIC is

proposing to treat the outstanding

balance of PPP loans as of quarter-end

that exceed borrowings from the Federal

Reserve Banks under the PPPLF as

riskless and to treat them as highly

liquid assets. The FDIC is also

proposing to exclude from the ratio an

IDI’s reported borrowings from the

Federal Reserve Banks under the PPPLF

with a remaining maturity of one year

or less.

d. Average Short-Term Funding Ratio

The ratio of average short-term

funding to average total assets is one of

the measures used to determine the

assessment rate for a highly complex

IDI.29 In calculating the average short-

term funding ratio, the FDIC is

proposing to reduce the quarterly

average of total assets by the quarterly

average amount of loans pledged to the

PPPLF.

e. Growth-Adjusted Portfolio

Concentrations

The growth-adjusted portfolio

concentration measure is one of the

measures used to determine a large IDI’s

overall concentration measure.30 Under

the proposal, the FDIC would apply a

waterfall approach as described above

and assume that all outstanding PPP

loans, which include loans pledged to

the PPPLF, are categorized as C&I Loans

and would exclude these loans from C&I

Loans in the calculation of the portfolio

growth rate calculations for this

measure.31

f. Trading Asset Ratio

For highly complex IDIs, the trading

asset ratio is used to determine the

relative weights assigned to the credit

quality measure and the market risk

measure.32 In calculating this ratio, the

FDIC is proposing to reduce the balance

of loans by the outstanding balance as

of quarter-end of PPP loans, which

includes loans pledged to the PPPLF.33

g

or this

measure.31

f. Trading Asset Ratio

For highly complex IDIs, the trading

asset ratio is used to determine the

relative weights assigned to the credit

quality measure and the market risk

measure.32 In calculating this ratio, the

FDIC is proposing to reduce the balance

of loans by the outstanding balance as

of quarter-end of PPP loans, which

includes loans pledged to the PPPLF.33

g. Loss Severity Measure

The loss severity measure estimates

the relative magnitude of potential

losses to the DIF in the event of an IDI’s

failure.34 In calculating the loss severity

score, the FDIC is proposing to remove

the total amount of borrowings from the

Federal Reserve Banks under the PPPLF

from short- and long-term secured

borrowings, as appropriate. The FDIC

also would exclude PPP loans, which

include loans pledged to the PPPLF,

using a waterfall approach, described

above. Under this approach, the FDIC

would exclude PPP loans, which

include loans pledged to the PPPLF,

from an IDI’s balance of C&I Loans. In

the unlikely event that the outstanding

balance of PPP loans exceeds the

balance of C&I Loans, the FDIC would

exclude any remaining balance from All

Other Loans, up to the total amount of

All Other Loans, followed by

Agricultural Loans, up to the total

amount of Agricultural Loans. To the

extent that an IDI’s outstanding PPP

loans exceeds its borrowings under the

PPPLF, and consistent with the

treatment of these loans as riskless, the

FDIC would then add outstanding PPP

loans in excess of borrowings under the

PPPLF to cash.

Question 2: The FDIC invites

comment on its proposal to exclude PPP

loans from C&I Loans, All Other Loans,

and Agricultural Loans in the

calculation of an IDI’s assessment rate

nding PPP

loans exceeds its borrowings under the

PPPLF, and consistent with the

treatment of these loans as riskless, the

FDIC would then add outstanding PPP

loans in excess of borrowings under the

PPPLF to cash.

Question 2: The FDIC invites

comment on its proposal to exclude PPP

loans from C&I Loans, All Other Loans,

and Agricultural Loans in the

calculation of an IDI’s assessment rate.

Is the assumption that all PPP loans are

C&I loans appropriate, or should these

loans be distributed across loan

categories in another manner? If so, how

and why? Should the FDIC collect

additional data on how PPP loans are

categorized?

Question 3: The FDIC invites

comment on advantages and

disadvantages of mitigating the effects

of participating in the PPP and PPPLF

on deposit insurance assessments. How

does the approach in the proposed rule

support or not support the objectives of

the Paycheck Protection Program and

the associated liquidity facility?

C. Mitigating the Effects of Loans

Pledged to the PPPLF and Assets

Purchased Under the MMLF on Certain

Adjustments to an IDI’s Assessment

Rate

The FDIC proposes to exclude the

quarterly average amount of loans

pledged to the PPPLF and the quarterly

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35 For certain IDIs, adjustments include the

unsecured debt adjustment and the depository

institution debt adjustment (DIDA). The unsecured

debt adjustment decreases an IDI’s total assessment

rate based on the ratio of its long-term unsecured

debt to its assessment base. The DIDA increases an

IDI’s total assessment rate if it holds long-term,

unsecured debt issued by another IDI. In addition,

large banks that meet certain criteria and new small

banks are subject to the brokered deposit

adjustment

justment (DIDA). The unsecured

debt adjustment decreases an IDI’s total assessment

rate based on the ratio of its long-term unsecured

debt to its assessment base. The DIDA increases an

IDI’s total assessment rate if it holds long-term,

unsecured debt issued by another IDI. In addition,

large banks that meet certain criteria and new small

banks are subject to the brokered deposit

adjustment. The brokered deposit adjustment

increases the total assessment rate of large IDIs that

hold significant concentrations of brokered deposits

and that are less than well capitalized, not CAMELS

composite 1- or 2-rated, as well as new, small IDIs

that are not assigned to Risk Category I. See 12 CFR

327.16(e).

36 Under the proposed rule, the offset to the total

assessment amount due for the increase to the

assessment base attributable to participation in the

PPPLF and MMLF would apply to all IDIs,

including new small institutions as defined in 12

CFR 327.8(w), and insured U.S. branches and

agencies of foreign banks.

37 Currently, an IDI’s total assessment amount on

its quarterly certified statement invoice is equal to

the product of the institution’s assessment base

(calculated in accordance with 12 CFR 327.5)

multiplied by the institution’s assessment rate

(calculated in accordance with 12 CFR 327.4 and

12 CFR 327.16). See 12 CFR 327.3(b)(1).

38 These assumptions reflect current participation

in the PPP and PPPLF and an expectation of

increased participation in the PPPLF over time,

based on data published by the SBA and Federal

Reserve Board. These assumptions use SBA data to

estimate the participation in the PPP program of

nonbank lenders including CDFI funds, CDCs,

Microlenders, Farm Credit Lenders, and FinTechs

327.3(b)(1).

38 These assumptions reflect current participation

in the PPP and PPPLF and an expectation of

increased participation in the PPPLF over time,

based on data published by the SBA and Federal

Reserve Board. These assumptions use SBA data to

estimate the participation in the PPP program of

nonbank lenders including CDFI funds, CDCs,

Microlenders, Farm Credit Lenders, and FinTechs.

See Paycheck Protection Program (PPP) Report:

Second Round, Approvals from 4/27/2020 through

05/01/2020, Small Business Administration,

available at: https://www.sba.gov/sites/default/files/

2020–05/PPP2%20Data%2005012020.pdf; Factors

Affecting Reserve Balances, Federal Reserve

statistical release H.4.1, as of May 7, 2020, available

at: https://www.federalreserve.gov/releases/h41/

current/, and Board of Governors of the Federal

Reserve System as of April 1, 2020, available at

https://fred.stlouisfed.org/series/

H41RESPPALDBNWW.

average amount of assets purchased

under the MMLF from the calculation of

the unsecured debt adjustment,

depository institution debt adjustment,

and the brokered deposit adjustment.

These adjustments would continue to be

applied to an IDI’s initial base

assessment rate, as applicable, for

purposes of calculating the IDI’s total

base assessment rate.35

D. Offset To Deposit Insurance

Assessment Due to Increase in the

Assessment Base Attributable to Assets

Pledged to the PPPLF and Assets

Purchased Under the MMLF

Under the proposed rule, the FDIC

would provide an offset to an IDI’s total

assessment amount due for the increase

to its assessment base attributable to

participation in the PPPLF and

MMLF.36 To determine this offset

amount, the FDIC would calculate the

total of the quarterly average amount of

assets pledged to the PPPLF and the

quarterly average amount of assets

purchased under the MMLF, multiply

that amount by an IDI’s total base

assessment rate (after excluding the

effect of participation in the MMLF and

PPPLF, as proposed), and subtract the

re

on in the PPPLF and

MMLF.36 To determine this offset

amount, the FDIC would calculate the

total of the quarterly average amount of

assets pledged to the PPPLF and the

quarterly average amount of assets

purchased under the MMLF, multiply

that amount by an IDI’s total base

assessment rate (after excluding the

effect of participation in the MMLF and

PPPLF, as proposed), and subtract the

resulting amount from an IDI’s total

assessment amount.37

Question 4: The FDIC invites

comment on the advantages and

disadvantages of adjusting an IDI’s

assessment to offset the increase in its

assessment base due to participation in

the MMLF and PPPLF. How does the

approach in the proposed rule support

or not support the objectives of the

Facilities?

E. Classification of IDIs as Small, Large,

or Highly Complex for Assessment

Purposes

In defining IDIs for assessment

purposes, the FDIC would exclude from

an IDI’s total assets the amount of loans

pledged to the PPPLF and assets

purchased under the MMLF. As a result,

the FDIC would not reclassify a small

institution as large or a large institution

as a highly complex institution solely

due to participation in the PPPLF and

MMLF programs, which would

otherwise have the effect of expanding

an IDI’s balance sheet. In addition, an

institution with total assets between $5

billion and $10 billion, excluding the

amount of loans pledged to the PPPLF

and assets purchased under the MMLF,

may request that the FDIC determine its

assessment rate as a large institution.

F. Other Conforming Amendments to

the Assessment Regulations

The FDIC is proposing to make

conforming amendments to the FDIC’s

assessment regulations to effectuate the

modifications described above

billion and $10 billion, excluding the

amount of loans pledged to the PPPLF

and assets purchased under the MMLF,

may request that the FDIC determine its

assessment rate as a large institution.

F. Other Conforming Amendments to

the Assessment Regulations

The FDIC is proposing to make

conforming amendments to the FDIC’s

assessment regulations to effectuate the

modifications described above. These

conforming amendments would ensure

that the proposed modifications to an

IDI’s assessment rate and the proposed

offset to an IDI’s assessment payment

are properly incorporated into the

assessment regulation provisions

governing the calculation of an IDI’s

quarterly deposit insurance assessment.

G. Expected Effects

To facilitate participation in the PPP

and use of PPPLF and MMLF, the FDIC

is proposing to mitigate the deposit

insurance assessment effects of PPP

loans, loans pledged to the PPPLF, and

assets purchased under the MMLF.

Because IDIs are not yet reporting the

necessary data, the FDIC does not have

sufficient data on the distribution of

loans among IDIs and other non-bank

financial institutions made under the

PPP, loans pledged to the PPPLF, and

dollar volume of assets purchased under

the MMLF by IDIs, nor on the loan

categories of PPP loans held. Therefore,

the FDIC has estimated the potential

effects of these programs on deposit

insurance assessments based on certain

assumptions. Although this estimate is

subject to considerable uncertainty, the

FDIC estimates that absent the proposed

rule, PPP loans, loans pledged to the

PPPLF, and assets purchased under the

MMLF could increase quarterly

assessment revenue from IDIs by

approximately $90 million, based on the

assumptions described below.

The FDIC anticipates that PPP loans

will be held by both IDIs and non-IDIs,

and that some IDIs will hold PPP loans

without pledging them to the PPPLF,

although the rate of IDI participation in

the PPP and PPPLF is uncertain

PLF, and assets purchased under the

MMLF could increase quarterly

assessment revenue from IDIs by

approximately $90 million, based on the

assumptions described below.

The FDIC anticipates that PPP loans

will be held by both IDIs and non-IDIs,

and that some IDIs will hold PPP loans

without pledging them to the PPPLF,

although the rate of IDI participation in

the PPP and PPPLF is uncertain. Based

on Call Report data as of December 31,

2019, and assuming that (1) $600 billion

of PPP loans are held by IDIs, (2) the

PPP loans that are held by IDIs are

evenly distributed across all IDIs that

have C&I loans, which results in a 27

percent increase in those loans, (3) 25

percent of PPP loans held by IDIs are

pledged to the PPPLF, (4) 100 percent of

loans pledged to the PPPLF are matched

by borrowings from the Federal Reserve

Banks with maturities greater than one

year, and (5) large and highly complex

banks hold approximately $50 billion in

assets pledged under the MMLF,38 the

FDIC estimates that quarterly deposit

insurance assessments would increase

by approximately $90 million.

The actual effect of these programs on

deposit insurance assessments will vary

depending on participation in the

programs by IDIs and non-IDIs, the

maturity of borrowings from the Federal

Reserve Banks under these programs,

and the types of loans held under the

PPP, as described above.

H. Alternatives Considered

The FDIC considered the reasonable

and possible alternatives described

below. On balance, the FDIC believes

the current proposal would mitigate the

deposit insurance assessments effects of

an IDI’s participation in the PPP, PPPLF,

and MMLF in the most appropriate and

straightforward manner.

One alternative would be to leave in

place the current assessment

regulations. As a result, participation in

the PPP, PPPLF, and MMLF could have

the effect of increasing an IDI’s quarterly

deposit insurance assessment

proposal would mitigate the

deposit insurance assessments effects of

an IDI’s participation in the PPP, PPPLF,

and MMLF in the most appropriate and

straightforward manner.

One alternative would be to leave in

place the current assessment

regulations. As a result, participation in

the PPP, PPPLF, and MMLF could have

the effect of increasing an IDI’s quarterly

deposit insurance assessment. This

option, however, would not accomplish

the policy objective of mitigating the

assessment effects of holding PPP loans,

pledging loans to the PPPLF, and

purchasing assets under the MMLF and

would potentially lead to sharp

increases in assessments for an

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39 See Assessment Rate Adjustment Guidelines

for Large and Highly Complex Institutions, 76 FR

57992 (Sept. 19, 2011).

40 See CARES Act, § 1114.

41 5 U.S.C. 553.

42 5 U.S.C. 553(d).

individual IDI solely due to its

participation in programs intended to

provide liquidity to small businesses

and stabilize the financial system.

As described above, a second

alternative is that the FDIC could

require that institutions report PPP

loans as a separate loan category instead

of including them in C&I Loans or other

loan categories, as appropriate,

depending on the nature of the loan.

Under the current proposal, the FDIC

would exclude PPP loans from C&I

Loans, Agricultural Loans, and All

Other Loans using a waterfall approach

in the calculation of an IDI’s assessment

rate, and would have to apply certain

assumptions to do so. Under this

approach, the FDIC would assume that

all PPP loans are C&I Loans, and to the

extent that balance of PPP loans exceed

the balance of C&I Loans, any excess

loan amounts are assumed to be

categorized as either All Other Loans or

Agricultural Loans, as applicable for a

given measure

the calculation of an IDI’s assessment

rate, and would have to apply certain

assumptions to do so. Under this

approach, the FDIC would assume that

all PPP loans are C&I Loans, and to the

extent that balance of PPP loans exceed

the balance of C&I Loans, any excess

loan amounts are assumed to be

categorized as either All Other Loans or

Agricultural Loans, as applicable for a

given measure. Under the alternative

considered, institutions would report

PPP loans as a separate loan category,

thus providing data that would reduce

the need for the FDIC to rely on certain

assumptions, reduce the amount of

necessary changes to specific risk

measures and other factors, and

potentially more accurately mitigate the

deposit insurance assessment effects of

an IDI’s participation in the program.

The FDIC did not propose this

alternative due to concerns that it may

shift additional reporting burden onto

IDIs in comparison to the current

proposal, which would achieve a

similar result with less burden.

However, as mentioned below, the FDIC

is interested in feedback on this

alternative.

The FDIC also considered excluding

the effects of participation in the MMLF

from measures used to determine an

IDI’s deposit insurance assessment rate.

For example, an IDI that participates in

the MMLF could increase its total assets

by the amount of assets that are eligible

collateral pledged to the FRBB, and

increase its liabilities by the amount of

borrowings received from the FRBB

through the MMLF. With respect to the

MMLF, the FDIC expects a limited

number of IDIs to participate in the

program, and that all of these IDIs are

priced as large or highly complex

institutions. Furthermore, the FDIC

expects that participation in the MMLF

will have minimal to no effect on an

IDI’s deposit insurance assessment rate.

The MMLF is scheduled to cease on

September 30, 2020, and eligible

collateral includes a variety of assets,

including U.S

ted

number of IDIs to participate in the

program, and that all of these IDIs are

priced as large or highly complex

institutions. Furthermore, the FDIC

expects that participation in the MMLF

will have minimal to no effect on an

IDI’s deposit insurance assessment rate.

The MMLF is scheduled to cease on

September 30, 2020, and eligible

collateral includes a variety of assets,

including U.S. Treasuries and fully

guaranteed agency securities,

Certificates of Deposit, securities issued

by government-sponsored enterprises,

and certain types of commercial paper.

Given the minimal expected effect of

participation in the MMLF on an IDI’s

assessment rate and the short duration

of the program, and to minimize the

additional reporting burden associated

with the variety of potential assets in

the program, the FDIC decided not to

propose this alternative. Under the

proposal, the FDIC would exclude loans

pledged to the PPPLF and assets

purchased from the MMLF from the

calculation of certain adjustments to an

IDI’s assessment rate, and would

provide an offset to an IDI’s assessment

for the increase to its assessment base

attributable to participation in the

MMLF and PPPLF. In addition, an IDI

that is priced as large or highly complex

may request an adjustment to its total

score, used in determining an

institution’s assessment rate, based on

supporting data reflecting its

participation in the MMLF.39

Question 5: The FDIC invites

comment on the reasonable and

possible alternatives described in this

proposed rule. Should the FDIC

consider other reasonable and possible

alternatives?

I. Comment Period, Proposed Effective

Date and Application Date

The FDIC is issuing this proposal with

a 7-day comment period, in order to

allow sufficient time for the FDIC to

consider comments and ensure

publication of a final rule before June

30, 2020 (the end of the second

quarterly assessment period)

roposed rule. Should the FDIC

consider other reasonable and possible

alternatives?

I. Comment Period, Proposed Effective

Date and Application Date

The FDIC is issuing this proposal with

a 7-day comment period, in order to

allow sufficient time for the FDIC to

consider comments and ensure

publication of a final rule before June

30, 2020 (the end of the second

quarterly assessment period).

As stated above, in response to recent

events which have significantly and

adversely impacted global financial

markets along with the spread of

COVID–19, which has slowed economic

activity in many countries, including

the United States, the agencies moved

quickly due to exigent circumstances

and issued two interim final rules to

allow banking organizations to

neutralize the regulatory capital effects

of purchasing assets through the MMLF

program and loans pledged to the PPPL

Facility. Since the implementation of

the PPP, PPPLF, and MMLF, the FDIC

has observed uncertainty from the

public and the banking industry and

wants to provide clarity on how, if at

all, these programs would affect the

assessments of IDIs which participate in

these programs. Because PPP loans must

be issued by June 30, 2020, the full

assessment impact of these programs

will first occur in the second quarterly

assessment period. Congress has also

given indications that implementation

of these programs is an urgent policy

matter, instructing the SBA to issue

regulations for the PPP within 15 days

of the CARES Act’s enactment.40 The

FDIC has therefore concluded that rapid

administrative action is critical and

warrants an abbreviated comment

period.

The 7-day comment period will afford

the public and affected institutions with

an opportunity to review and comment

on the proposal, and will allow the

FDIC sufficient time to consider and

respond to comments received

PP within 15 days

of the CARES Act’s enactment.40 The

FDIC has therefore concluded that rapid

administrative action is critical and

warrants an abbreviated comment

period.

The 7-day comment period will afford

the public and affected institutions with

an opportunity to review and comment

on the proposal, and will allow the

FDIC sufficient time to consider and

respond to comments received. In

addition, a proposed effective date by

June 30, 2020 and a proposed

application date of April 1, 2020 will

enable the FDIC to provide the relief

contemplated in this rulemaking as soon

as practicable, starting with the second

quarter of 2020, and provide certainty to

IDIs regarding the assessment effects of

participating in the PPP, PPPLF, or

MMLF for the second quarter of 2020,

which is the first assessment quarter in

which the assessments will be affected.

IV. Request for Comment

The FDIC is requesting comment on

all aspects of the notice of proposed

rulemaking, in addition to the specific

requests for comment above.

V. Administrative Law Matters

A. Administrative Procedure Act

Under the Administrative Procedure

Act (APA),41 ‘‘[t]he required publication

or service of a substantive rule shall be

made not less than 30 days before its

effective date, except as otherwise

provided by the agency for good cause

found and published with the rule.’’ 42

Under this proposal, the amendments to

the FDIC’s deposit insurance assessment

regulations would be effective upon

publication of a final rule in the Federal

Register

‘‘[t]he required publication

or service of a substantive rule shall be

made not less than 30 days before its

effective date, except as otherwise

provided by the agency for good cause

found and published with the rule.’’ 42

Under this proposal, the amendments to

the FDIC’s deposit insurance assessment

regulations would be effective upon

publication of a final rule in the Federal

Register. It is anticipated that the FDIC

would find good cause that the

publication of a final rule implementing

the proposal can be less than 30 days

before its effective date in order to fully

effectuate the intent of ensuring that

IDIs benefit from the mitigation effects

to their deposit insurance assessments

as soon as practicable, and to provide

banks with certainty regarding the

assessment effects of participating in the

PPP, PPPLF, or MMLF for the second

quarter of 2020, which is the first

assessment quarter in which the

assessments will be affected.

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43 5 U.S.C. 601 et seq.

44 The SBA defines a small banking organization

as having $600 million or less in assets, where an

organization’s ‘‘assets are determined by averaging

the assets reported on its four quarterly financial

statements for the preceding year.’’ See 13 CFR

121.201 (as amended, effective August 19, 2019). In

its determination, the SBA ‘‘counts the receipts,

employees, or other measure of size of the concern

whose size is at issue and all of its domestic and

foreign affiliates.’’ 13 CFR 121.103. Following these

regulations, the FDIC uses a covered entity’s

affiliated and acquired assets, averaged over the

preceding four quarters, to determine whether the

covered entity is ‘‘small’’ for the purposes of RFA.

45 5 U.S.C. 601.

46 FDIC Call Report data, as of December 31, 2019

f size of the concern

whose size is at issue and all of its domestic and

foreign affiliates.’’ 13 CFR 121.103. Following these

regulations, the FDIC uses a covered entity’s

affiliated and acquired assets, averaged over the

preceding four quarters, to determine whether the

covered entity is ‘‘small’’ for the purposes of RFA.

45 5 U.S.C. 601.

46 FDIC Call Report data, as of December 31, 2019.

47 These assumptions reflect current participation

in the PPP and PPPLF and an expectation of

increased participation in the PPPLF over time,

based on data published by the SBA and Federal

Reserve Board. These assumptions use SBA data to

estimate the participation in the PPP program of

nonbank lenders including CDFI funds, CDCs,

Microlenders, Farm Credit Lenders, and FinTechs.

See Paycheck Protection Program (PPP) Report:

Second Round, Approvals from 4/27/2020 through

05/01/2020, Small Business Administration,

available at: https://www.sba.gov/sites/default/files/

2020-05/PPP2%20Data%2005012020.pdf; Factors

Affecting Reserve Balances, Federal Reserve

statistical release H.4.1, as of May 7, 2020, available

at: https://www.federalreserve.gov/releases/h41/

current/, and Board of Governors of the Federal

Reserve System as of April 1, 2020, available at

https://fred.stlouisfed.org/series/

H41RESPPALDBNWW.

48 5 U.S.C. 553(b)(B).

48 5 U.S.C. 553(d).

48 5 U.S.C. 601 et seq.

48 5 U.S.C. 801 et seq.

48 5 U.S.C. 801(a)(3).

48 5 U.S.C. 804(2).

48 5 U.S.C. 808(2).

48 12 U.S.C. 4802(a).

48 12 U.S.C. 4802(b).

49 4 U.S.C. 3501–3521.

As explained in the Supplementary

Information section, the FDIC expects

that an IDI that participates in either the

PPP, the PPPLF, or the MMLF program

could be subject to increased deposit

insurance assessments, beginning with

the second quarter of 2020. The FDIC

invoices for quarterly deposit insurance

assessments in arrears

U.S.C. 4802(a).

48 12 U.S.C. 4802(b).

49 4 U.S.C. 3501–3521.

As explained in the Supplementary

Information section, the FDIC expects

that an IDI that participates in either the

PPP, the PPPLF, or the MMLF program

could be subject to increased deposit

insurance assessments, beginning with

the second quarter of 2020. The FDIC

invoices for quarterly deposit insurance

assessments in arrears. As a result,

invoices for the second quarterly

assessment period of 2020 (i.e., April 1–

June 30) would be made available to

IDIs in September 2020, with a payment

due date of September 30, 2020.

While it is anticipated that the FDIC

would find good cause to issue the final

rule with an immediate effective date,

the FDIC is interested in the views of

the public and requests comment on all

aspects of the proposal.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA),

5 U.S.C. 601 et seq., generally requires

an agency, in connection with a

proposed rule, to prepare and make

available for public comment an initial

regulatory flexibility analysis that

describes the impact of a proposed rule

on small entities.43 However, a

regulatory flexibility analysis is not

required if the agency certifies that the

rule will not have a significant

economic impact on a substantial

number of small entities. The Small

Business Administration (SBA) has

defined ‘‘small entities’’ to include

banking organizations with total assets

of less than or equal to $600 million.44

Generally, the FDIC considers a

significant effect to be a quantified effect

in excess of 5 percent of total annual

salaries and benefits per institution, or

2.5 percent of total non-interest

expenses. The FDIC believes that effects

in excess of these thresholds typically

represent significant effects for FDIC-

insured institutions

th total assets

of less than or equal to $600 million.44

Generally, the FDIC considers a

significant effect to be a quantified effect

in excess of 5 percent of total annual

salaries and benefits per institution, or

2.5 percent of total non-interest

expenses. The FDIC believes that effects

in excess of these thresholds typically

represent significant effects for FDIC-

insured institutions. Certain types of

rules, such as rules of particular

applicability relating to rates or

corporate or financial structures, or

practices relating to such rates or

structures, are expressly excluded from

the definition of ‘‘rule’’ for purposes of

the RFA.45 The proposed rule relates

directly to the rates imposed on IDIs for

deposit insurance and to the deposit

insurance assessment system that

measures risk and determines each

established small bank’s assessment rate

and is, therefore, not subject to the RFA.

Nonetheless, the FDIC is voluntarily

presenting information in this RFA

section.

Based on quarterly regulatory report

data as of December 31, 2019, the FDIC

insures 5,186 depository institutions, of

which 3,841 are defined as small

entities by the terms of the RFA.46 The

proposed rule applies to all FDIC-

insured institutions, but is expected to

affect only those institutions that

participate in the PPP, PPPLF, and

MMLF. The FDIC does not presently

have access to information that would

enable it to identify which institutions

are participating in these programs and

lending facilities.

As previously discussed in this

Notice, to facilitate participation in the

PPP and use of PPPLF and MMLF, the

FDIC is proposing to mitigate the

deposit insurance assessment effects of

PPP loans, loans pledged to the PPPLF,

and assets purchased under the MMLF.

Therefore, the FDIC estimated the

potential effects of these programs on

deposit insurance assessments based on

certain assumptions

s previously discussed in this

Notice, to facilitate participation in the

PPP and use of PPPLF and MMLF, the

FDIC is proposing to mitigate the

deposit insurance assessment effects of

PPP loans, loans pledged to the PPPLF,

and assets purchased under the MMLF.

Therefore, the FDIC estimated the

potential effects of these programs on

deposit insurance assessments based on

certain assumptions. Based on Call

Report data as of December 31, 2019,

assuming that (1) $600 billion of PPP

loans are held by IDIs, (2) the PPP loans

that are held by IDIs are evenly

distributed across all IDIs that have C&I

loans, which results in a 27 percent

increase in those loans, (3) 25 percent of

PPP loans held by IDIs are pledged to

the PPPLF, and (4) 100 percent of loans

pledged to the PPPLF are matched by

borrowings from the Federal Reserve

Banks with maturities greater than one

year,47 the FDIC estimates that the

proposal would save small IDIs

approximately $5 million in quarterly

deposit insurance assessments.

The actual effect of these programs on

deposit insurance assessments will vary

depending on IDI’s participation in the

PPP and Federal Reserve Facilities, the

maturity of borrowings from the Federal

Reserve Banks under these programs,

and the types of loans held under the

PPP.

The FDIC invites comments on all

aspects of the supporting information

provided in this RFA section. In

particular, would this proposed rule

have any significant effects on small

entities that the FDIC has not identified?

C

n the

PPP and Federal Reserve Facilities, the

maturity of borrowings from the Federal

Reserve Banks under these programs,

and the types of loans held under the

PPP.

The FDIC invites comments on all

aspects of the supporting information

provided in this RFA section. In

particular, would this proposed rule

have any significant effects on small

entities that the FDIC has not identified?

C. Riegle Community Development and

Regulatory Improvement Act

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act (RCDRIA) requires

that the Federal banking agencies,

including the FDIC, in determining the

effective date and administrative

compliance requirements of new

regulations that impose additional

reporting, disclosure, or other

requirements on IDIs, consider,

consistent with principles of safety and

soundness and the public interest, any

administrative burdens that such

regulations would place on depository

institutions, including small depository

institutions, and customers of

depository institutions, as well as the

benefits of such regulations. In addition,

section 302(b) of RCDRIA requires new

regulations and amendments to

regulations that impose additional

reporting, disclosures, or other new

requirements on IDIs generally to take

effect on the first day of a calendar

quarter that begins on or after the date

on which the regulations are published

in final form, with certain exceptions,

including for good cause.48 The FDIC

invites comments that will further

inform its consideration of RCDRIA.

D. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(PRA) states that no agency may

conduct or sponsor, nor is the

respondent required to respond to, an

information collection unless it displays

a currently valid OMB control

number.49 The proposed rule affects the

agencies’ current information

collections for the Call Report (FFIEC

031, FFIEC 041, and FFIEC 051)

on of RCDRIA.

D. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(PRA) states that no agency may

conduct or sponsor, nor is the

respondent required to respond to, an

information collection unless it displays

a currently valid OMB control

number.49 The proposed rule affects the

agencies’ current information

collections for the Call Report (FFIEC

031, FFIEC 041, and FFIEC 051). The

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50 12 U.S.C. 4809.

agencies’ OMB control numbers for the

Call Reports are: Comptroller of the

Currency OMB No. 1557–0081; Board of

Governors OMB No. 7100–0036; and

FDIC OMB No. 3064–0052. The

proposed rule also affects the Report of

Assets and Liabilities of U.S. Branches

and Agencies of Foreign Banks (FFIEC

002), which the Federal Reserve System

collects and processes on behalf of the

three agencies (Board of Governors OMB

No. 7100–0032). Submissions will be

made by the agencies to OMB for their

respective information collections. The

changes to the Call Report, the Report of

Assets and Liabilities of U.S. Branches

and Agencies of Foreign Banks, and

their respective instructions, will be

addressed in a separate Federal Register

notice or notices.

E. Plain Language

Section 722 of the Gramm-Leach-

Bliley Act 50 requires the Federal

banking agencies to use plain language

in all proposed and final rulemakings

published in the Federal Register after

January 1, 2000. The FDIC invites your

comments on how to make this

proposed rule easier to understand

ve instructions, will be

addressed in a separate Federal Register

notice or notices.

E. Plain Language

Section 722 of the Gramm-Leach-

Bliley Act 50 requires the Federal

banking agencies to use plain language

in all proposed and final rulemakings

published in the Federal Register after

January 1, 2000. The FDIC invites your

comments on how to make this

proposed rule easier to understand. For

example:

• Has the FDIC organized the material

to suit your needs? If not, how could the

material be better organized?

• Are the requirements in the

proposed rule clearly stated? If not, how

could the proposed rule be stated more

clearly?

• Does the proposed rule contain

language or jargon that is unclear? If so,

which language requires clarification?

• Would a different format (grouping

and order of sections, use of headings,

paragraphing) make the proposed rule

easier to understand?

List of Subjects in 12 CFR Part 327

Bank deposit insurance, Banks,

banking, Savings associations.

Authority and Issuance

For the reasons stated above, the

Federal Deposit Insurance Corporation

proposes to amend 12 CFR part 327 as

follows:

PART 327—ASSESSMENTS

■1. The authority citation for part 327

is revised to read as follows:

Authority: 12 U.S.C. 1813, 1815, 1817–19,

1821.

■2. Amend § 327.3 by revising

paragraph (b)(1) to read as follows:

§ 327.3

Payment of assessments.

*

*

*

*

*

(b) * * *

(1) Quarterly certified statement

invoice. Starting with the first

assessment period of 2007, no later than

15 days prior to the payment date

specified in paragraph (b)(2) of this

section, the Corporation will provide to

each insured depository institution a

quarterly certified statement invoice

showing the amount of the assessment

payment due from the institution for the

prior quarter (net of credits or

dividends, if any), and the computation

of that amount

sment period of 2007, no later than

15 days prior to the payment date

specified in paragraph (b)(2) of this

section, the Corporation will provide to

each insured depository institution a

quarterly certified statement invoice

showing the amount of the assessment

payment due from the institution for the

prior quarter (net of credits or

dividends, if any), and the computation

of that amount. Subject to paragraph (e)

of this section and § 327.17, the

invoiced amount on the quarterly

certified statement invoice shall be the

product of the following: The

assessment base of the institution for the

prior quarter computed in accordance

with § 327.5 multiplied by the

institution’s rate for that prior quarter as

assigned to the institution pursuant to

§§ 327.4(a) and 327.16.

*

*

*

*

*

■3. Amend § 327.16 by adding

introductory text to read as follows:

§ 327.16

Assessment pricing methods—

beginning the first assessment period after

June 30, 2016, where the reserve ratio of the

DIF as of the end of the prior assessment

period has reached or exceeded 1.15

percent.

Subject to the modifications described

in § 327.17, the following pricing

methods shall apply beginning in the

first assessment period after June 30,

2016, where the reserve ratio of the DIF

as of the end of the prior assessment

period has reached or exceeded 1.15

percent, and for all subsequent

assessment periods.

*

*

*

*

*

■4. Add § 327.17 to read as follows:

§ 327.17

Mitigating the Deposit Insurance

Assessment Effect of participation in the

Money Market Mutual Fund Liquidity

Facility, the Paycheck Protection Program

Lending Facility, and the Paycheck

Protection Program.

f the end of the prior assessment

period has reached or exceeded 1.15

percent, and for all subsequent

assessment periods.

*

*

*

*

*

■4. Add § 327.17 to read as follows:

§ 327.17

Mitigating the Deposit Insurance

Assessment Effect of participation in the

Money Market Mutual Fund Liquidity

Facility, the Paycheck Protection Program

Lending Facility, and the Paycheck

Protection Program.

(a) Mitigating the assessment effects of

Paycheck Protection Program loans for

established small institutions. Effective

as of April 1, 2020, the FDIC will take

the following actions when calculating

the assessment rate for established small

institutions under § 327.16:

(1) Exclusion from net income before

taxes ratio, nonperforming loans and

leases ratio, other real estate owned

ratio, brokered deposit ratio, and one-

year asset growth measure.

Notwithstanding any other section of

this part, and as described in Appendix

E to this subpart, the FDIC will exclude

the outstanding balance of loans that are

pledged as collateral to the Paycheck

Protection Program Lending Facility, as

reported on the Consolidated Report of

Condition and Income, from the total

assets in the calculation of the following

risk measures: Net income before taxes

ratio, the nonperforming loans and

leases ratio, the other real estate owned

ratio, the brokered deposit ratio, and the

one-year asset growth measure, which

are described in § 327.16(a)(1)(ii)(A).

(2) Exclusion from Loan Mix Index.

Notwithstanding any other section of

this part, and as described in appendix

E to this subpart A, when calculating

the loan mix index described in

§ 327.16(a)(1)(ii)(B), the FDIC will

exclude:

leases ratio, the other real estate owned

ratio, the brokered deposit ratio, and the

one-year asset growth measure, which

are described in § 327.16(a)(1)(ii)(A).

(2) Exclusion from Loan Mix Index.

Notwithstanding any other section of

this part, and as described in appendix

E to this subpart A, when calculating

the loan mix index described in

§ 327.16(a)(1)(ii)(B), the FDIC will

exclude:

(i) The outstanding balance of loans

that are pledged as collateral to the

Paycheck Protection Program Lending

Facility, as reported on the Consolidated

Report of Condition and Income, from

the total assets; and

(ii) The amount of outstanding loans

provided as part of the Paycheck

Protection Program, including loans

pledged to the Paycheck Protection

Program Lending Facility, as reported

on the Consolidated Report of Condition

and Income, from an established small

institution’s balance of commercial and

industrial loans. To the extent that the

outstanding balance of loans provided

as part of the Paycheck Protection

Program, including loans pledged to the

Paycheck Protection Program Lending

Facility, exceeds an established small

institution’s balance of commercial and

industrial loans, the FDIC will exclude

any remaining balance of these loans

from the balance of agricultural loans,

up to the amount of agricultural loans,

in the calculation of the loan mix index.

(b) Mitigating the assessment effects

of Paycheck Protection Program loans

for large or highly complex institutions.

Effective as of April 1, 2020, the FDIC

will take the following actions when

calculating the assessment rate for large

institutions and highly complex

institutions under § 327.16:

ral loans,

up to the amount of agricultural loans,

in the calculation of the loan mix index.

(b) Mitigating the assessment effects

of Paycheck Protection Program loans

for large or highly complex institutions.

Effective as of April 1, 2020, the FDIC

will take the following actions when

calculating the assessment rate for large

institutions and highly complex

institutions under § 327.16:

(1) Exclusion from average short-term

funding ratio. Notwithstanding any

other section of this part, and as

described in appendix E of this subpart,

the FDIC will exclude the quarterly

average amount of loans that are

pledged as collateral to the Paycheck

Protection Program Lending Facility, as

reported on the Consolidated Report of

Condition and Income, from the

calculation of the average short-term

funding ratio, which is described in

appendix E to this subpart.

(2) Exclusion from core earnings ratio.

Notwithstanding any other section of

this part, and as described in appendix

E of this subpart, the FDIC will exclude

the outstanding balance of loans that are

pledged as collateral to the Paycheck

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Protection Program Lending Facility as

of quarter-end, as reported on the

Consolidated Report of Condition and

Income, from the calculation of the core

earnings ratio, which is described in

appendix E to this subpart.

(3) Exclusion from core deposit ratio.

Notwithstanding any other section of

this part, and as described in appendix

E of this subpart, the FDIC will exclude

the amount of borrowings from the

Federal Reserve Banks under the

Paycheck Protection Program Lending

Facility, as reported on the Consolidated

Report of Condition and Income, from

the calculation of the core deposit ratio,

which is described in appendix E to this

subpart.

twithstanding any other section of

this part, and as described in appendix

E of this subpart, the FDIC will exclude

the amount of borrowings from the

Federal Reserve Banks under the

Paycheck Protection Program Lending

Facility, as reported on the Consolidated

Report of Condition and Income, from

the calculation of the core deposit ratio,

which is described in appendix E to this

subpart.

(4) Exclusion from growth-adjusted

portfolio concentration measure and

trading asset ratio. Notwithstanding any

other section of this part, and as

described in appendix E to this subpart,

the FDIC will exclude, as applicable, the

outstanding balance of loans provided

under the Paycheck Protection Program,

including loans pledged to the Paycheck

Protection Program Lending Facility, as

reported on the Consolidated Report of

Condition and Income, from the

calculation of the growth-adjusted

portfolio concentration measure and the

trading asset ratio, which are described

in appendix E to this subpart.

(5) Balance sheet liquidity ratio.

Notwithstanding any other section of

this part, and as described in appendix

E to this subpart, when calculating the

balance sheet liquidity measure

described under appendix A to this

subpart, the FDIC will include the

outstanding balance of loans provided

under the Paycheck Protection Program

that exceed total borrowings from the

Federal Reserve Banks under the

Paycheck Protection Program Lending

Facility, as reported on the Consolidated

Report of Condition and Income in

highly liquid assets, and exclude the

amount of borrowings from the Federal

Reserve Banks under the Paycheck

Protection Program Lending Facility

with a remaining maturity of one year

or less, as reported on the Consolidated

Report of Condition and Income from

other borrowings with a remaining

maturity of one year or less.

as reported on the Consolidated

Report of Condition and Income in

highly liquid assets, and exclude the

amount of borrowings from the Federal

Reserve Banks under the Paycheck

Protection Program Lending Facility

with a remaining maturity of one year

or less, as reported on the Consolidated

Report of Condition and Income from

other borrowings with a remaining

maturity of one year or less.

(6) Exclusion from loss severity

measure. Notwithstanding any other

section of this part, and as described in

appendix E to this subpart, when

calculating the loss severity measure

described under appendix A to this

subpart, the FDIC will exclude the total

amount of borrowings from the Federal

Reserve Banks under the Paycheck

Protection Program Lending Facility

from short- and long-term secured

borrowings, as appropriate. The FDIC

will exclude the total amount of

outstanding loans provided as part of

the Paycheck Protection Program, as

reported on the Consolidated Report of

Condition and Income, from an

institution’s balance of commercial and

industrial loans. To the extent that the

outstanding balance of loans provided

as part of the Paycheck Protection

Program exceeds an institution’s

balance of commercial and industrial

loans, the FDIC will exclude any

remaining balance from all other loans,

up to the total amount of all other loans,

followed by agricultural loans, up to the

total amount of agricultural loans. To

the extent that an institution’s

outstanding loans under the Paycheck

Protection Program exceeds its

borrowings under the Paycheck

Protection Program Loan Facility, the

FDIC will add outstanding loans under

the Paycheck Protection Program in

excess of borrowings under the

Paycheck Protection Program Loan

Facility to cash and interest-bearing

balances.

l amount of agricultural loans. To

the extent that an institution’s

outstanding loans under the Paycheck

Protection Program exceeds its

borrowings under the Paycheck

Protection Program Loan Facility, the

FDIC will add outstanding loans under

the Paycheck Protection Program in

excess of borrowings under the

Paycheck Protection Program Loan

Facility to cash and interest-bearing

balances.

(c) Mitigating the effects of loans

pledged to the PPPLF and assets

purchased under the MMLF on the

unsecured adjustment, depository

institution debt adjustment, and the

brokered deposit adjustment to an IDI’s

assessment rate. Notwithstanding any

other section of this part, and as

described in appendix E to this subpart,

when calculating an insured depository

institution’s unsecured debt adjustment,

depository institution debt adjustment,

or the brokered deposit adjustment

described in § 327.16(e), as applicable,

the FDIC will exclude the quarterly

average amount of loans pledged to the

Paycheck Protection Program Lending

Facility and the quarterly average

amount of assets purchased under the

Money Market Mutual Fund Liquidity

Facility, as reported on the Consolidated

Report of Condition and Income.

(d) Mitigating the effects on the

assessment base attributable to the

Paycheck Protection Program Lending

Facility and the Money Market Mutual

Fund Liquidity Facility.

Notwithstanding any other section of

this part, and as described in appendix

E to this subpart, when calculating an

insured depository institution’s

quarterly deposit insurance assessment

payment due under this part, the FDIC

will provide an offset to an institution’s

assessment for the increase to its

assessment base attributable to

participation in the Money Market

Mutual Fund Liquidity Facility and the

Paycheck Protection Program Lending

Facility.

n appendix

E to this subpart, when calculating an

insured depository institution’s

quarterly deposit insurance assessment

payment due under this part, the FDIC

will provide an offset to an institution’s

assessment for the increase to its

assessment base attributable to

participation in the Money Market

Mutual Fund Liquidity Facility and the

Paycheck Protection Program Lending

Facility.

(1) Calculation of offset amount. To

determine the offset amount, the FDIC

will take the sum of the quarterly

average amount of loans pledged to the

Paycheck Protection Program Lending

Facility and the quarterly average

amount of assets purchased under the

Money Market Mutual Fund Liquidity

Facility, and multiply the sum by an

institution’s total base assessment rate,

as calculated under § 327.16, including

any adjustments under § 327.16(e).

(2) Calculation of assessment amount

due. Notwithstanding any other section

of this part, the FDIC will subtract the

offset amount described in

§ 327.17(d)(1) from an insured

depository institution’s total assessment

amount.

(e) Definitions. For the purposes of

this section:

(1) Paycheck Protection Program. The

term ‘‘Paycheck Protection Program’’

means the program that was created in

section 1102 of the Coronavirus Aid,

Relief, and Economic Security Act.

(2) Paycheck Protection Program

Liquidity Facility. The term ‘‘Paycheck

Protection Program Liquidity Facility’’

means the program of that name that

was announced by the Board of

Governors of the Federal Reserve

System on April 9, 2020.

. The

term ‘‘Paycheck Protection Program’’

means the program that was created in

section 1102 of the Coronavirus Aid,

Relief, and Economic Security Act.

(2) Paycheck Protection Program

Liquidity Facility. The term ‘‘Paycheck

Protection Program Liquidity Facility’’

means the program of that name that

was announced by the Board of

Governors of the Federal Reserve

System on April 9, 2020.

(3) Money Market Mutual Fund

Liquidity Facility. The term ‘‘Money

Market Mutual Fund Liquidity Facility’’

means the program of that name

announced by the Board of Governors of

the Federal Reserve System on March

18, 2020.

■5. Add Appendix E to subpart A of

part 327 to read as follows:

Appendix E to Subpart A of Part 327—

Mitigating the Deposit Insurance

Assessment Effect of Participation in

the Money Market Mutual Fund

Liquidity Facility, the Paycheck

Protection Program Lending Facility,

and the Paycheck Protection Program

I. Mitigating the Assessment Effects of

Paycheck Protection Program Loans for

Established Small Institutions

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TABLE E.1—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR

ESTABLISHED SMALL INSTITUTIONS

Variables

Description

Exclusions

Leverage Ratio (%) .........................

Tier 1 capital divided by adjusted average assets. (Numerator and

denominator are both based on the definition for prompt corrective

action.).

No Exclusion.

Net Income before Taxes/Total As-

sets (%).

Income (before applicable income taxes and discontinued operations)

for the most recent twelve months divided by total assets 1.

Exclude from total assets the bal-

ance of loans pledged to the

PPPLF outstanding at end of

quarter.

Nonperforming Loans and Leases/

Gross Assets (%)

based on the definition for prompt corrective

action.).

No Exclusion.

Net Income before Taxes/Total As-

sets (%).

Income (before applicable income taxes and discontinued operations)

for the most recent twelve months divided by total assets 1.

Exclude from total assets the bal-

ance of loans pledged to the

PPPLF outstanding at end of

quarter.

Nonperforming Loans and Leases/

Gross Assets (%).

Sum of total loans and lease financing receivables past due 90 or

more days and still accruing interest and total nonaccrual loans

and lease financing receivables (excluding, in both cases, the max-

imum amount recoverable from the U.S. Government, its agencies

or government-sponsored enterprises, under guarantee or insur-

ance provisions) divided by gross assets 2.

Exclude from total assets the bal-

ance of loans pledged to the

PPPLF outstanding at end of

quarter.

Other Real Estate Owned/Gross

Assets (%).

Other real estate owned divided by gross assets 2 ...............................

Exclude from total assets the bal-

ance of loans pledged to the

PPPLF outstanding at end of

quarter.

Brokered Deposit Ratio ...................

The ratio of the difference between brokered deposits and 10 percent

of total assets to total assets. For institutions that are well capital-

ized and have a CAMELS composite rating of 1 or 2, brokered re-

ciprocal deposits as defined in § 327.8(q) are deducted from bro-

kered deposits. If the ratio is less than zero, the value is set to

zero.

Exclude from total assets (in both

numerator and denominator) the

balance of loans pledged to the

PPPLF outstanding at end of

quarter.

Weighted Average of C, A, M, E, L,

and S Component Ratings.

The weighted sum of the ‘‘C,’’ ‘‘A,’’ ‘‘M,’’ ‘‘E’’, ‘‘L’’, and ‘‘S’’ CAMELS

components, with weights of 25 percent each for the ‘‘C’’ and ‘‘M’’

components, 20 percent for the ‘‘A’’ component, and 10 percent

each for the ‘‘E’’, ‘‘L’’ and ‘‘S’’ components.

No Exclusion.

Loan Mix Index ...............................

t end of

quarter.

Weighted Average of C, A, M, E, L,

and S Component Ratings.

The weighted sum of the ‘‘C,’’ ‘‘A,’’ ‘‘M,’’ ‘‘E’’, ‘‘L’’, and ‘‘S’’ CAMELS

components, with weights of 25 percent each for the ‘‘C’’ and ‘‘M’’

components, 20 percent for the ‘‘A’’ component, and 10 percent

each for the ‘‘E’’, ‘‘L’’ and ‘‘S’’ components.

No Exclusion.

Loan Mix Index ................................

A measure of credit risk described paragraph (A) of this section ........

Exclusions are described in para-

graph (A) of this section..

One-Year Asset Growth (%) ...........

Growth in assets (adjusted for mergers 3) over the previous year in

excess of 10 percent.4 If growth is less than 10 percent, the value

is set to zero.

Exclude from total assets (in both

numerator and denominator) the

balance of loans pledged to the

PPPLF outstanding at end of

quarter.

1 The ratio of Net Income before Taxes to Total Assets is bounded below by (and cannot be less than) ¥25 percent and is bounded above by

(and cannot exceed) 3 percent.

2 Gross assets are total assets plus the allowance for loan and lease financing receivable losses (ALLL) or allowance for credit losses, as ap-

plicable.

3 Growth in assets is also adjusted for acquisitions of failed banks.

4 The maximum value of the Asset Growth measure is 230 percent; that is, asset growth (merger adjusted) over the previous year in excess of

240 percent (230 percentage points in excess of the 10 percent threshold) will not further increase a bank’s assessment rate.

(A) Definition of Loan Mix Index. The Loan

Mix Index assigns loans in an institution’s

loan portfolio to the categories of loans

described in the following table. Exclude

from the balance of commercial and

industrial loans the balance of PPP loans,

which includes loans pledged to the PPPLF,

outstanding at end of quarter

percent threshold) will not further increase a bank’s assessment rate.

(A) Definition of Loan Mix Index. The Loan

Mix Index assigns loans in an institution’s

loan portfolio to the categories of loans

described in the following table. Exclude

from the balance of commercial and

industrial loans the balance of PPP loans,

which includes loans pledged to the PPPLF,

outstanding at end of quarter. In the event

that the balance of outstanding PPP loans,

which includes loans pledged to the PPPLF,

exceeds the balance of commercial and

industrial loans, exclude the remaining

balance from the balance of agricultural

loans, up to the total amount of agricultural

loans. The Loan Mix Index is calculated by

multiplying the ratio of an institution’s

amount of loans in a particular loan category

to its total assets, excluding the balance of

loans pledged to the PPPLF outstanding at

end of quarter by the associated weighted

average charge-off rate for that loan category,

and summing the products for all loan

categories. The table gives the weighted

average charge-off rate for each category of

loan. The Loan Mix Index excludes credit

card loans.

LOAN MIX INDEX CATEGORIES AND

WEIGHTED CHARGE-OFF RATE PER-

CENTAGES

Weighted

charge-off

rate

percent

Construction & Development ......

4.4965840

Commercial & Industrial .............

1.5984506

Leases ........................................

1.4974551

Other Consumer .........................

1.4559717

Real Estate Loans Residual .......

1.0169338

LOAN MIX INDEX CATEGORIES AND

WEIGHTED CHARGE-OFF RATE PER-

CENTAGES—Continued

Weighted

charge-off

rate

percent

Multifamily Residential ................

0.8847597

Nonfarm Nonresidential ..............

0.7289274

I–4 Family Residential ................

0.6973778

Loans to Depository banks .........

0.5760532

Agricultural Real Estate ..............

0.2376712

Agriculture ...................................

0.2432737

II

WEIGHTED CHARGE-OFF RATE PER-

CENTAGES—Continued

Weighted

charge-off

rate

percent

Multifamily Residential ................

0.8847597

Nonfarm Nonresidential ..............

0.7289274

I–4 Family Residential ................

0.6973778

Loans to Depository banks .........

0.5760532

Agricultural Real Estate ..............

0.2376712

Agriculture ...................................

0.2432737

II. Mitigating the Assessment Effects of

Paycheck Protection Program Loans for

Large or Highly Complex Institutions

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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS

Scorecard measures 1

Description

Exclusions

Leverage Ratio ................................

Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted

average assets based on the definition for prompt corrective action.

No Exclusion.

Concentration Measure for Large

Insured

depository

institutions

(excluding Highly Complex Insti-

tutions).

The concentration score for large institutions is the higher of the fol-

lowing two scores:.

(1) Higher-Risk Assets/Tier 1 Cap-

ital and Reserves.

Sum of construction and land development (C&D) loans (funded and

unfunded), higher-risk commercial and industrial (C&I) loans (fund-

ed and unfunded), nontraditional mortgages, higher-risk consumer

loans, and higher-risk securitizations divided by Tier 1 capital and

reserves. See Appendix C for the detailed description of the ratio.

No Exclusion.

(2) Growth-Adjusted Portfolio Con-

centrations.

The measure is calculated in the following steps: ................................

-risk commercial and industrial (C&I) loans (fund-

ed and unfunded), nontraditional mortgages, higher-risk consumer

loans, and higher-risk securitizations divided by Tier 1 capital and

reserves. See Appendix C for the detailed description of the ratio.

No Exclusion.

(2) Growth-Adjusted Portfolio Con-

centrations.

The measure is calculated in the following steps: ................................

(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are

calculated for each broad portfolio category:.

• Constructions and land development (C&D) .....................................

• Other commercial real estate loans ...................................................

• First lien residential mortgages (including non-agency residential

mortgage-backed securities).

• Closed-end junior liens and home equity lines of credit (HELOCs) ..

• Commercial and industrial loans (C&I) ..............................................

• Credit card loans, and .......................................................................

• Other consumer loans .......................................................................

(2) Risk weights are assigned to each loan category based on histor-

ical loss rates.

(3) Concentration levels are multiplied by risk weights and squared to

produce a risk-adjusted concentration ratio for each portfolio.

(4) Three-year merger-adjusted portfolio growth rates are then scaled

to a growth factor of 1 to 1.2 where a 3-year cumulative growth

rate of 20 percent or less equals a factor of 1 and a growth rate of

80 percent or greater equals a factor of 1.2. If three years of data

are not available, a growth factor of 1 will be assigned.

Exclude from C&I loan growth rate

the amount of PPP loans, which

includes loans pledged to the

PPPLF, outstanding at end of

quarter.

to a growth factor of 1 to 1.2 where a 3-year cumulative growth

rate of 20 percent or less equals a factor of 1 and a growth rate of

80 percent or greater equals a factor of 1.2. If three years of data

are not available, a growth factor of 1 will be assigned.

Exclude from C&I loan growth rate

the amount of PPP loans, which

includes loans pledged to the

PPPLF, outstanding at end of

quarter.

(5) The risk-adjusted concentration ratio for each portfolio is multi-

plied by the growth factor and resulting values are summed.

See Appendix C for the detailed description of the measure ...............

Concentration Measure for Highly

Complex Institutions.

Concentration score for highly complex institutions is the highest of

the following three scores:.

(1) Higher-Risk Assets/Tier 1 Cap-

ital and Reserves.

Sum of C&D loans (funded and unfunded), higher-risk C&I loans

(funded and unfunded), nontraditional mortgages, higher-risk con-

sumer loans, and higher-risk securitizations divided by Tier 1 cap-

ital and reserves. See Appendix C for the detailed description of

the measure.

No Exclusion.

(2) Top 20 Counterparty Exposure/

Tier 1 Capital and Reserves.

Sum of the 20 largest total exposure amounts to counterparties di-

vided by Tier 1 capital and reserves. The total exposure amount is

equal to the sum of the institution’s exposure amounts to one

counterparty (or borrower) for derivatives, securities financing

transactions (SFTs), and cleared transactions, and its gross lend-

ing exposure (including all unfunded commitments) to that

counterparty (or borrower). A counterparty includes an entity’s own

affiliates. Exposures to entities that are affiliates of each other are

treated

as

exposures

to

one

counterparty

(or

borrower).

Counterparty exposure excludes all counterparty exposure to the

U.S. Government and departments or agencies of the U.S. Gov-

ernment that is unconditionally guaranteed by the full faith and

credit of the United States

). A counterparty includes an entity’s own

affiliates. Exposures to entities that are affiliates of each other are

treated

as

exposures

to

one

counterparty

(or

borrower).

Counterparty exposure excludes all counterparty exposure to the

U.S. Government and departments or agencies of the U.S. Gov-

ernment that is unconditionally guaranteed by the full faith and

credit of the United States. The exposure amount for derivatives,

including OTC derivatives, cleared transactions that are derivative

contracts, and netting sets of derivative contracts, must be cal-

culated using the methodology set forth in 12 CFR 324.34(b), but

without any reduction for collateral other than cash collateral that is

all or part of variation margin and that satisfies the requirements of

12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3)

through (7). The exposure amount associated with SFTs, including

cleared transactions that are SFTs, must be calculated using the

standardized approach set forth in 12 CFR 324.37(b) or (c). For

both derivatives and SFT exposures, the exposure amount to cen-

tral counterparties must also include the default fund contribution.

No Exclusion.

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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued

Scorecard measures 1

Description

Exclusions

Exclusion.

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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued

Scorecard measures 1

Description

Exclusions

(3) Largest Counterparty Exposure/

Tier 1 Capital and Reserves.

The largest total exposure amount to one counterparty divided by

Tier 1 capital and reserves. The total exposure amount is equal to

the sum of the institution’s exposure amounts to one counterparty

(or borrower) for derivatives, SFTs, and cleared transactions, and

its gross lending exposure (including all unfunded commitments) to

that counterparty (or borrower). A counterparty includes an entity’s

own affiliates. Exposures to entities that are affiliates of each other

are treated as exposures to one counterparty (or borrower).

Counterparty exposure excludes all counterparty exposure to the

U.S. Government and departments or agencies of the U.S. Gov-

ernment that is unconditionally guaranteed by the full faith and

credit of the United States. The exposure amount for derivatives,

including OTC derivatives, cleared transactions that are derivative

contracts, and netting sets of derivative contracts, must be cal-

culated using the methodology set forth in 12 CFR 324.34(b), but

without any reduction for collateral other than cash collateral that is

all or part of variation margin and that satisfies the requirements of

12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3)

through (7). The exposure amount associated with SFTs, including

cleared transactions that are SFTs, must be calculated using the

standardized approach set forth in 12 CFR 324.37(b) or (c). For

both derivatives and SFT exposures, the exposure amount to cen-

tral counterparties must also include the default fund contribution.

No Exclusion

c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3)

through (7). The exposure amount associated with SFTs, including

cleared transactions that are SFTs, must be calculated using the

standardized approach set forth in 12 CFR 324.37(b) or (c). For

both derivatives and SFT exposures, the exposure amount to cen-

tral counterparties must also include the default fund contribution.

No Exclusion.

Core

Earnings/Average

Quarter-

End Total Assets.

Core earnings are defined as net income less extraordinary items

and tax-adjusted realized gains and losses on available-for-sale

(AFS) and held-to-maturity (HTM) securities, adjusted for mergers.

The ratio takes a four-quarter sum of merger-adjusted core earn-

ings and divides it by an average of five quarter-end total assets

(most recent and four prior quarters). If four quarters of data on

core earnings are not available, data for quarters that are available

will be added and annualized. If five quarters of data on total as-

sets are not available, data for quarters that are available will be

averaged.

Prior to averaging, exclude from

total assets for the applicable

quarter-end periods the balance

of loans pledged to the PPPLF

outstanding at end of quarter.

Credit Quality Measure 1 .................

The credit quality score is the higher of the following two scores: .......

(1) Criticized and Classified Items/

Tier 1 Capital and Reserves.

Sum of criticized and classified items divided by the sum of Tier 1

capital and reserves. Criticized and classified items include items

an institution or its primary federal regulator have graded ‘‘Special

Mention’’ or worse and include retail items under Uniform Retail

Classification Guidelines, securities, funded and unfunded loans,

other real estate owned (ORE), other assets, and marked-to-mar-

ket counterparty positions, less credit valuation adjustments. Criti-

cized and classified items exclude loans and securities in trading

books, and the amount recoverable from the U.S

graded ‘‘Special

Mention’’ or worse and include retail items under Uniform Retail

Classification Guidelines, securities, funded and unfunded loans,

other real estate owned (ORE), other assets, and marked-to-mar-

ket counterparty positions, less credit valuation adjustments. Criti-

cized and classified items exclude loans and securities in trading

books, and the amount recoverable from the U.S. government, its

agencies, or government-sponsored enterprises, under guarantee

or insurance provisions.

No Exclusion.

(2) Underperforming Assets/Tier 1

Capital and Reserves.

Sum of loans that are 30 days or more past due and still accruing in-

terest, nonaccrual loans, restructured loans (including restructured

1—4 family loans), and ORE, excluding the maximum amount re-

coverable from the U.S. government, its agencies, or government-

sponsored enterprises, under guarantee or insurance provisions,

divided by a sum of Tier 1 capital and reserves.

No Exclusion.

Core Deposits/Total Liabilities ........

Total domestic deposits excluding brokered deposits and uninsured

non-brokered time deposits divided by total liabilities.

Exclude from total liabilities bor-

rowings from Federal Reserve

Banks under the PPPLF with a

maturity of one year or less and

borrowings from the Federal Re-

serve Banks under the PPPLF

with a maturity of greater than

one year, outstanding at end of

quarter.

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otal liabilities.

Exclude from total liabilities bor-

rowings from Federal Reserve

Banks under the PPPLF with a

maturity of one year or less and

borrowings from the Federal Re-

serve Banks under the PPPLF

with a maturity of greater than

one year, outstanding at end of

quarter.

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30662

Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR

HIGHLY COMPLEX INSTITUTIONS—Continued

Scorecard measures 1

Description

Exclusions

Balance Sheet Liquidity Ratio .........

Sum of cash and balances due from depository institutions, federal

funds sold and securities purchased under agreements to resell,

and the market value of available for sale and held to maturity

agency securities (excludes agency mortgage-backed securities

but includes all other agency securities issued by the U.S. Treas-

ury, U.S. government agencies, and U.S. government sponsored

enterprises) divided by the sum of federal funds purchased and re-

purchase agreements, other borrowings (including FHLB) with a re-

maining maturity of one year or less, 5 percent of insured domestic

deposits, and 10 percent of uninsured domestic and foreign depos-

its.

Include in highly liquid assets the

outstanding balance of PPP

loans that exceed borrowings

from the Federal Reserve Banks

under the PPPLF at end of

quarter. Exclude from other bor-

rowings with a remaining matu-

rity of one year or less the bal-

ance of borrowings from the

Federal Reserve Banks under

the PPPLF with a remaining ma-

turity of one year or less out-

standing at end of quarter.

Potential

Losses/Total

Domestic

Deposits (Loss Severity Meas-

ure).

Potential losses to the DIF in the event of failure divided by total do-

mestic deposits. Paragraph [A] of this section describes the cal-

culation of the loss severity measure in detail

borrowings from the

Federal Reserve Banks under

the PPPLF with a remaining ma-

turity of one year or less out-

standing at end of quarter.

Potential

Losses/Total

Domestic

Deposits (Loss Severity Meas-

ure).

Potential losses to the DIF in the event of failure divided by total do-

mestic deposits. Paragraph [A] of this section describes the cal-

culation of the loss severity measure in detail.

Exclusions are described in para-

graph (A) of this section.

Market Risk Measure for Highly

Complex Institutions.

The market risk score is a weighted average of the following three

scores:.

(1) Trading Revenue Volatility/Tier

1 Capital.

Trailing 4-quarter standard deviation of quarterly trading revenue

(merger-adjusted) divided by Tier 1 capital.

No Exclusion.

(2) Market Risk Capital/Tier 1 Cap-

ital.

Market risk capital divided by Tier 1 capital ..........................................

No Exclusion.

(3) Level 3 Trading Assets/Tier 1

Capital.

Level 3 trading assets divided by Tier 1 capital ....................................

No Exclusion.

Average Short-term Funding/Aver-

age Total Assets.

Quarterly average of federal funds purchased and repurchase agree-

ments divided by the quarterly average of total assets as reported

on Schedule RC–K of the Call Reports.

Exclude from the quarterly aver-

age of total assets the quarterly

average

amount

of

loans

pledged to the PPPLF.

1 The credit quality score is the greater of the criticized and classified items to Tier 1 capital and reserves score or the underperforming assets

to Tier 1 capital and reserves score. The market risk score is the weighted average of three scores—the trading revenue volatility to Tier 1 cap-

ital score, the market risk capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios are described in

appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart

apital and reserves score. The market risk score is the weighted average of three scores—the trading revenue volatility to Tier 1 cap-

ital score, the market risk capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios are described in

appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart. Each score is multiplied by its re-

spective weight, and the resulting weighted score is summed to compute the score for the market risk measure. An overall weight of 35 percent

is allocated between the scores for the credit quality measure and market risk measure. The allocation depends on the ratio of average trading

assets to the sum of average securities, loans and trading assets (trading asset ratio) as follows: (1) Weight for credit quality score = 35 percent

* (1¥trading asset ratio); and, (2) Weight for market risk score = 35 percent * trading asset ratio. In calculating the trading asset ratio, exclude

from the balance of loans the balance of PPP loans, which includes loans pledged to the PPPLF, outstanding as of quarter-end.

(A) Description of the loss severity

measure. The loss severity measure applies a

standardized set of assumptions to an

institution’s balance sheet to measure

possible losses to the FDIC in the event of an

institution’s failure. To determine an

institution’s loss severity rate, the FDIC first

applies assumptions about uninsured deposit

and other unsecured liability runoff, and

growth in insured deposits, to adjust the size

and composition of the institution’s

liabilities. Exclude from liabilities total

borrowings from Federal Reserve Banks

under the PPPLF from short-and long-term

secured borrowings outstanding at end of

quarter, as appropriate. Assets are then

reduced to match any reduction in liabilities

Exclude from commercial and industrial

loans included in assets PPP loans, which

include loans pledged to the PPPLF,

outstanding at end of quarter

ities. Exclude from liabilities total

borrowings from Federal Reserve Banks

under the PPPLF from short-and long-term

secured borrowings outstanding at end of

quarter, as appropriate. Assets are then

reduced to match any reduction in liabilities

Exclude from commercial and industrial

loans included in assets PPP loans, which

include loans pledged to the PPPLF,

outstanding at end of quarter. In the event

that the outstanding balance of PPP loans

exceeds the balance of C&I loans, exclude

any remaining balance first from the balance

of all other loans, up to the total amount of

all other loans, followed by the balance of

agricultural loans, up to the total amount of

agricultural loans. Increase cash and interest-

bearing balances by outstanding PPP loans

exceeding total borrowings under the PPPLF,

if any. The institution’s asset values are then

further reduced so that the Leverage ratio

reaches 2 percent. In both cases, assets are

adjusted pro rata to preserve the institution’s

asset composition. Assumptions regarding

loss rates at failure for a given asset category

and the extent of secured liabilities are then

applied to estimated assets and liabilities at

failure to determine whether the institution

has enough unencumbered assets to cover

domestic deposits. Any projected shortfall is

divided by current domestic deposits to

obtain an end-of-period loss severity ratio.

The loss severity measure is an average loss

severity ratio for the three most recent

quarters of data available.

Runoff and Capital Adjustment Assumptions

Table E.3 contains run-off assumptions.

TABLE E.3—RUNOFF RATE ASSUMPTIONS

Liability type

Runoff rate *

(percent)

Insured Deposits ............................................................................................................................................................................

e three most recent

quarters of data available.

Runoff and Capital Adjustment Assumptions

Table E.3 contains run-off assumptions.

TABLE E.3—RUNOFF RATE ASSUMPTIONS

Liability type

Runoff rate *

(percent)

Insured Deposits ............................................................................................................................................................................

(10)

Uninsured Deposits .......................................................................................................................................................................

58

Foreign Deposits ............................................................................................................................................................................

80

Federal Funds Purchased .............................................................................................................................................................

100

Repurchase Agreements ...............................................................................................................................................................

75

Trading Liabilities ...........................................................................................................................................................................

50

Unsecured Borrowings < = 1 Year ................................................................................................................................................

75

Secured Borrowings < = 1 Year, excluding outstanding borrowings from the Federal Reserve Banks under the PPPLF < = 1

Year ............................................................................................................................................................................................

25

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excluding outstanding borrowings from the Federal Reserve Banks under the PPPLF < = 1

Year ............................................................................................................................................................................................

25

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30663

Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

TABLE E.3—RUNOFF RATE ASSUMPTIONS—Continued

Liability type

Runoff rate *

(percent)

Subordinated Debt and Limited Liability Preferred Stock .............................................................................................................

15

* A negative rate implies growth.

Given the resulting total liabilities after

runoff, assets are then reduced pro rata to

preserve the relative amount of assets in each

of the following asset categories and to

achieve a Leverage ratio of 2 percent:

• Cash and Interest Bearing Balances,

including outstanding PPP loans in excess of

borrowings under the PPPLF;

• Trading Account Assets;

• Federal Funds Sold and Repurchase

Agreements;

• Treasury and Agency Securities;

• Municipal Securities;

• Other Securities;

• Construction and Development Loans;

• Nonresidential Real Estate Loans;

• Multifamily Real Estate Loans;

• 1—4 Family Closed-End First Liens;

• 1—4 Family Closed-End Junior Liens;

• Revolving Home Equity Loans; and

• Agricultural Real Estate Loans.

Recovery Value of Assets at Failure

Table E.4 shows loss rates applied to each

of the asset categories as adjusted above.

TABLE E.4—ASSET LOSS RATE ASSUMPTIONS

Asset category

Loss rate

(percent)

Cash and Interest Bearing Balances, including outstanding PPP loans in excess of borrowings under the PPPLF .................

• Revolving Home Equity Loans; and

• Agricultural Real Estate Loans.

Recovery Value of Assets at Failure

Table E.4 shows loss rates applied to each

of the asset categories as adjusted above.

TABLE E.4—ASSET LOSS RATE ASSUMPTIONS

Asset category

Loss rate

(percent)

Cash and Interest Bearing Balances, including outstanding PPP loans in excess of borrowings under the PPPLF ..................

0.0

Trading Account Assets .................................................................................................................................................................

0.0

Federal Funds Sold and Repurchase Agreements .......................................................................................................................

0.0

Treasury and Agency Securities ...................................................................................................................................................

0.0

Municipal Securities .......................................................................................................................................................................

10.0

Other Securities .............................................................................................................................................................................

15.0

Construction and Development Loans ..........................................................................................................................................

38.2

Nonresidential Real Estate Loans .................................................................................................................................................

17.6

Multifamily Real Estate Loans ......................................................................................................................................................

............................

38.2

Nonresidential Real Estate Loans .................................................................................................................................................

17.6

Multifamily Real Estate Loans .......................................................................................................................................................

10.8

1—4 Family Closed-End First Liens ..............................................................................................................................................

19.4

1—4 Family Closed-End Junior Liens ...........................................................................................................................................

41.0

Revolving Home Equity Loans ......................................................................................................................................................

41.0

Agricultural Real Estate Loans ......................................................................................................................................................

19.7

Agricultural Loans, excluding outstanding PPP loans, which include loans pledged to the PPPLF, as applicable ....................

11.8

Commercial and Industrial Loans, excluding outstanding PPP loans, which include loans pledged to the PPPLF, as applica-

ble ...............................................................................................................................................................................................

21.5

Credit Card Loans .........................................................................................................................................................................

18.3

Other Consumer Loans ................................................................................................................................................................

..................

21.5

Credit Card Loans .........................................................................................................................................................................

18.3

Other Consumer Loans .................................................................................................................................................................

18.3

All Other Loans, excluding outstanding PPP loans, which include loans pledged to the PPPLF, as applicable ........................

51.0

Other Assets ..................................................................................................................................................................................

75.0

Secured Liabilities at Failure

Federal home loan bank advances, secured

federal funds purchased and repurchase

agreements are assumed to be fully secured.

Foreign deposits are treated as fully secured

because of the potential for ring fencing.

Exclude outstanding borrowings from the

Federal Reserve Banks under the PPPLF.

Loss Severity Ratio Calculation

The FDIC’s loss given failure (LGD) is

calculated as:

An end-of-quarter loss severity ratio is LGD

divided by total domestic deposits at quarter-

end and the loss severity measure for the

scorecard is an average of end-of-period loss

severity ratios for three most recent quarters.

III. Mitigating the Effects of Loans Pledged to

the PPPLF and Assets Purchased under the

MMLF on the Unsecured Adjustment,

Depository Institution Debt Adjustment, and

the Brokered Deposit Adjustment to an IDI’s

Assessment Rate.

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LGD

InsuredDeposits Failure

(D

. D

.

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)

=

.

.

x

omest1c epos1tsFailure -

ecovery

ueo1, ssetsFailure + ecur

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Domest1cDepos1ts Failure

tment, and

the Brokered Deposit Adjustment to an IDI’s

Assessment Rate.

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LGD

InsuredDeposits Failure

(D

. D

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=

.

.

x

omest1c epos1tsFailure -

ecovery

ueo1, ssetsFailure + ecur

1a 11t1esFailure

Domest1cDepos1ts Failure

30664

Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Proposed Rules

TABLE E.5—EXCLUSIONS FROM ADJUSTMENTS TO THE INITIAL BASE ASSESSMENT RATE

Adjustment

Calculation

Exclusion

Unsecured debt adjustment ..............................

The unsecured debt adjustment shall be de-

termined as the sum of the initial base as-

sessment rate plus 40 basis points; that

sum shall be multiplied by the ratio of an in-

sured depository institution’s long-term un-

secured debt to its assessment base. The

amount of the reduction in the assessment

rate due to the adjustment is equal to the

dollar amount of the adjustment divided by

the amount of the assessment base.

Exclude the quarterly average amount of as-

sets purchased under MMLF and quarterly

average amount of loans pledged to the

PPPLF.

Depository institution debt adjustment ..............

An insured depository institution shall pay a

50 basis point adjustment on the amount of

unsecured debt it holds that was issued by

another insured depository institution to the

extent that such debt exceeds 3 percent of

the institution’s Tier 1 capital. This amount

is divided by the institution’s assessment

base. The amount of long-term unsecured

debt issued by another insured depository

institution shall be calculated using the

same valuation methodology used to cal-

culate the amount of such debt for reporting

on the asset side of the balance sheets.

Exclude the quarterly average amount of as-

sets purchased under MMLF and quarterly

average amount of loans pledged to the

PPPLF outstanding.

Brokered deposit adjustment ............................

another insured depository

institution shall be calculated using the

same valuation methodology used to cal-

culate the amount of such debt for reporting

on the asset side of the balance sheets.

Exclude the quarterly average amount of as-

sets purchased under MMLF and quarterly

average amount of loans pledged to the

PPPLF outstanding.

Brokered deposit adjustment .............................

The brokered deposit adjustment shall be de-

termined by multiplying 25 basis points by

the ratio of the difference between an in-

sured depository institution’s brokered de-

posits and 10 percent of its domestic depos-

its to its assessment base.

Exclude the quarterly average amount of as-

sets purchased under MMLF and quarterly

average amount of loans pledged to the

PPPLF outstanding.

IV. Mitigating the Effects on the

Assessment Base Attributable to the

Paycheck Protection Program Lending

Facility and the Money Market Mutual Fund

Liquidity Facility.

Total Assessment Amount Due = Total

Assessment Amount LESS: (SUM

(Quarterly average amount of assets

pledged to the PPPLF and quarterly

average amount of assets purchased

under the MMLF) * Total Base

Assessment Rate)

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on May 12, 2020.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 2020–10454 Filed 5–18–20; 2:30 pm]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2020–0503; Product

Identifier 2018–SW–006–AD]

RIN 2120–AA64

Airworthiness Directives; Leonardo

S.p.a. Helicopters

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: The FAA proposes to adopt a

new airworthiness directive (AD) for

certain Leonardo S.p.a. (Leonardo)

Model AW189 helicopters. This

proposed AD would require various

repetitive inspections of the main rotor

(MR) damper

2120–AA64

Airworthiness Directives; Leonardo

S.p.a. Helicopters

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: The FAA proposes to adopt a

new airworthiness directive (AD) for

certain Leonardo S.p.a. (Leonardo)

Model AW189 helicopters. This

proposed AD would require various

repetitive inspections of the main rotor

(MR) damper. This proposed AD is

prompted by reports of in-service MR

damper failures and the development of

an improved MR damper. This

condition, if not corrected, could lead to

loss of the lead-lag damping function of

the MR blade, possibly resulting in

damage to adjacent critical rotor

components and subsequent loss control

of the helicopter. The actions of this

proposed AD are intended to address

the unsafe condition on these products.

DATES: The FAA must receive comments

on this proposed AD by July 20, 2020.

ADDRESSES: You may send comments by

any of the following methods:

• Federal eRulemaking Docket: Go to

https://www.regulations.gov. Follow the

online instructions for sending your

comments electronically.

• Fax: 202–493–2251.

• Mail: Send comments to the U.S.

Department of Transportation, Docket

Operations, M–30, West Building

Ground Floor, Room W12–140, 1200

New Jersey Avenue SE, Washington, DC

20590–0001.

• Hand Delivery: Deliver to the

‘‘Mail’’ address between 9 a.m. and 5

p.m., Monday through Friday, except

Federal holidays.

Examining the AD Docket

You may examine the AD docket on

the internet at https://

www.regulations.gov by searching for

and locating Docket No. FAA–2020–

0503; or in person at Docket Operations

between 9 a.m. and 5 p.m., Monday

through Friday, except Federal holidays.

The AD docket contains this proposed

AD, the European Aviation Safety

Agency (now European Union Aviation

Safety Agency) (EASA) AD, any

comments received, and other

information. The street address for

Docket Operations is listed above

g for

and locating Docket No. FAA–2020–

0503; or in person at Docket Operations

between 9 a.m. and 5 p.m., Monday

through Friday, except Federal holidays.

The AD docket contains this proposed

AD, the European Aviation Safety

Agency (now European Union Aviation

Safety Agency) (EASA) AD, any

comments received, and other

information. The street address for

Docket Operations is listed above.

Comments will be available in the AD

docket shortly after receipt.

For service information identified in

this proposed rule, contact Leonardo

S.p.A. Helicopters, Emanuele Bufano,

Head of Airworthiness, Viale G.Agusta

520, 21017 C.Costa di Samarate (Va)

Italy; telephone +39–0331–225074; fax

+39–0331–229046; or at https://

www.leonardocompany.com/en/home.

You may view the referenced service

information at the FAA, Office of the

Regional Counsel, Southwest Region,

10101 Hillwood Pkwy, Room 6N–321,

Fort Worth, TX 76177.

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