[Federal Register Volume 87, Number 126 (Friday, July 1, 2022)]
[Proposed Rules]
[Pages 39388-39411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13578]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Proposed
Rules
[[Page 39388]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF83
Assessments, Revised Deposit Insurance Assessment Rates
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The FDIC is seeking comment on a proposed rule that would
increase initial base deposit insurance assessment rates by 2 basis
points, beginning with the first quarterly assessment period of 2023.
The proposal would increase the likelihood that the reserve ratio would
reach the required minimum level of 1.35 percent by the statutory
deadline of September 30, 2028, consistent with the FDIC's Amended
Restoration Plan, and is intended to support growth in the Deposit
Insurance Fund (DIF or fund) in progressing toward the FDIC's long-term
goal of a 2 percent Designated Reserve Ratio (DRR).
DATES: Comments must be received no later than August 20, 2022.
ADDRESSES: You may submit comments on the notice of proposed rulemaking
using any of the following methods:
Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for
submitting comments on the agency website.
Email: [email protected]. Include RIN 3064-AF83 on the
subject line of the message.
Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments--RIN 3064-AF83, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
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 NW) on business days between 7 a.m. and 5 p.m.
Public Inspection: Comments received, including any
personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this document will be retained in the public
comment file and will be considered as required under all applicable
laws. All comments may be accessible under the Freedom of Information
Act.
FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director,
Financial Risk Management Branch, 202-898-7041, [email protected];
Ashley Mihalik, Chief, Banking and Regulatory Policy, 202-898-3793,
[email protected]; Kayla Shoemaker, Senior Policy Analyst, 202-898-
6962, [email protected]; Sheikha Kapoor, Senior Counsel, 202-898-
3960, [email protected]; Ryan McCarthy, Senior Attorney, 202-898-7301,
[email protected].
SUPPLEMENTARY INFORMATION:
I. Legal Authority and Policy Objectives
The FDIC, under its general rulemaking authority in Section 9 of
the Federal Deposit Insurance Act (FDI Act), and its specific authority
under Section 7 of the FDI Act to set assessments, is proposing to
increase initial base deposit insurance assessment rates by 2 basis
points, effective January 1, 2023, and applicable to the first
quarterly assessment period of 2023 (i.e., January 1-March 31,
2023).\1\
---------------------------------------------------------------------------
\1\ See 12 U.S.C. 1817 and 1819.
---------------------------------------------------------------------------
The proposed increase in initial base assessment rates is intended
to achieve two objectives. First, the proposal is intended to increase
assessment revenue in order to build the DIF, which is used to pay
deposit insurance in the event of failure of an insured depository
institution (IDI), and to restore the reserve ratio to the statutory
minimum of 1.35 percent within the deadline set by statute, consistent
with the Restoration Plan, as amended by the FDIC Board of Directors
(Board) on June 21, 2022 (Amended Restoration Plan).\2\ While the
banking industry has remained a source of strength for the economy and
the DIF has experienced low losses from IDI failures in recent years,
slowing growth in the fund balance combined with continued elevated
estimated insured deposit levels, described below, have decreased the
likelihood that the reserve ratio will meet the statutory minimum by
September 30, 2028.\3\ The proposal would increase the likelihood that
the reserve ratio will meet the statutory minimum by the required
deadline and reduce the likelihood that the FDIC would need to raise
assessment rates during a potential future period of banking industry
stress.
---------------------------------------------------------------------------
\2\ Under the FDI Act, a restoration plan must restore the
reserve ratio to at least 1.35 percent within 8 years of
establishing the restoration plan, absent extraordinary
circumstances. See 12 U.S.C. 1817(b)(3)(E). The reserve ratio is
calculated as the ratio of the net worth of the DIF to the value of
the aggregate estimated insured deposits at the end of a given
quarter. See 12 U.S.C. 1813(y)(3).
\3\ 12 U.S.C. 1817(b)(3)(E)(ii). 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 FDI Act, 12
U.S.C. 1813(c)(2).
---------------------------------------------------------------------------
Second, the proposed change in assessment rates is further intended
to support growth in the DIF in progressing toward the 2 percent DRR.
Therefore, the proposed assessment rate schedules would remain in
effect unless and until the reserve ratio meets or exceeds 2 percent,
absent further Board action. This continued growth in the DIF is
intended to reduce the likelihood that the FDIC would need to consider
a potentially pro-cyclical assessment rate increase, and to increase
the likelihood of the DIF remaining positive through potential future
periods of significant losses due to bank failures, consistent with the
FDIC's long-term fund management plan.\4\ A sufficiently large fund is
a necessary precondition to maintaining a positive fund balance during
a banking crisis and allowing for long-term, steady assessment rates.
Accomplishing these objectives also
[[Page 39389]]
would continue to ensure public confidence in federal deposit
insurance.
---------------------------------------------------------------------------
\4\ See 75 FR 66273 (Oct. 27, 2010) and 76 FR 10672 (Feb. 25,
2011).
---------------------------------------------------------------------------
II. Background
A. Restoration Plan
Extraordinary growth in insured deposits during the first and
second quarters of 2020 caused the DIF reserve ratio to decline below
the statutory minimum of 1.35 percent.\5\ As of June 30, 2020, the
reserve ratio had fallen below the statutory minimum and stood at 1.30
percent. The FDI Act requires that the Board adopt a restoration plan
when the DIF reserve ratio falls below the statutory minimum of 1.35
percent or is expected to within 6 months.\6\ On September 15, 2020,
the Board adopted the Restoration Plan to restore the DIF to at least
1.35 percent by September 30, 2028.\7\
---------------------------------------------------------------------------
\5\ See 12 U.S.C. 1817(b)(3)(B).
\6\ See 12 U.S.C. 1817(b)(3)(E).
\7\ See 85 FR 59306 (Sept. 21, 2020).
---------------------------------------------------------------------------
In its June 21, 2022, semiannual update to the Board, FDIC
projections of the reserve ratio under different scenarios reflected
that the reserve ratio is at risk of not reaching 1.35 percent by
September 30, 2028, the end of the statutory 8-year period.\8\ The
scenarios are based on updated data and analysis and incorporate
different rates of insured deposit growth and weighted average
assessment rates, including sustained elevated insured deposit balances
and lower assessment rates than previously anticipated. On June 21,
2022, the Board approved the Amended Restoration Plan, which reflects
an increase in initial base deposit insurance assessment rates of 2
basis points, beginning with the first quarterly assessment period of
2023. Accordingly, the FDIC is concurrently publishing in the Federal
Register an Amended Restoration Plan.
---------------------------------------------------------------------------
\8\ See FDIC Restoration Plan Semiannual Update, June 21, 2022.
Available at https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf.
---------------------------------------------------------------------------
B. Designated Reserve Ratio
The FDI Act requires that the Board designate a reserve ratio for
the DIF and publish the DRR before the beginning of each calendar
year.\9\ The Board must set the DRR in accordance with its analysis of
certain statutory factors: risk of losses to the DIF; economic
conditions generally affecting IDIs; preventing sharp swings in
assessment rates; and any other factors that the Board determines to be
appropriate.\10\
---------------------------------------------------------------------------
\9\ Section 7(b)(3)(A) of the FDI Act, 12 U.S.C. 1817(b)(3)(A).
The DRR is expressed as a percentage of estimated insured deposits.
\10\ Section 7(b)(3)(C) of the FDI Act, 12 U.S.C. 1817(b)(3)(C).
---------------------------------------------------------------------------
In 2010, the FDIC proposed and later adopted a comprehensive, long-
term management plan for the DIF with the following goals: (1) reduce
the pro-cyclicality in the existing risk-based assessment system by
allowing moderate, steady assessment rates throughout economic and
credit cycles; and (2) maintain a positive fund balance even during a
banking crisis by setting an appropriate target fund size and a
strategy for assessment rates and dividends.\11\ Based on the FDIC's
experience through two banking crises, the analysis concluded that a
long-term moderate, steady assessment rate of 5.29 basis points would
have been sufficient to prevent the fund from becoming negative during
the crises.\12\ The FDIC also found that the fund reserve ratio would
have had to exceed 2 percent before the onset of the last two crises to
achieve these results.\13\
---------------------------------------------------------------------------
\11\ See 75 FR 66272 (Oct. 27, 2010) (October 2010 NPR) and 76
FR 10672 (Feb. 25, 2011).
\12\ See 75 FR 66273 and 76 FR 10675.
\13\ The analysis set out in the October 2010 NPR sought to
determine what assessment rates would have been needed to maintain a
positive fund balance during the last two crises. This analysis used
an assessment base derived from domestic deposits to calculate
assessment income. The Dodd-Frank Wall Street Reform and Consumer
Protection Act, however, required the FDIC to change the assessment
base to average consolidated total assets minus average tangible
equity. In the December 2010 final rule establishing a 2 percent
DRR, the FDIC undertook additional analysis to determine how the
results of the original analysis would change had the new assessment
base been in place from 1950 to 2010. Both the analyses in the
October 2010 NPR and the December 2010 final rule show that the fund
reserve ratio would have needed to be approximately 2 percent or
more before the onset of the crises to maintain both a positive fund
balance and stable assessment rates. The updated analysis in the
December 2010 final rule, like the analysis in the October 2010 NPR,
assumed, in lieu of dividends, that the long-term industry average
nominal assessment rate would be reduced by 25 percent when the
reserve ratio reached 2 percent, and by 50 percent when the reserve
ratio reached 2.5 percent. Eliminating dividends and reducing rates
successfully limits rate volatility whichever assessment base is
used. See 75 FR 66273 and 75 FR 79288 (Dec. 20, 2010) (December 2010
final rule).
---------------------------------------------------------------------------
The FDIC's comprehensive, long-term fund management plan combines
the moderate, steady assessment rate with a DRR of 2 percent. The Board
set the DRR at 2 percent in 2010 and has voted annually since then to
maintain the 2 percent DRR, most recently in December 2021.\14\ The
FDIC views the DRR as a long-range, minimum goal that will allow the
fund to grow sufficiently large during times of favorable banking
conditions, increasing the likelihood that the DIF will remain positive
throughout periods of significant losses due to bank failures.
Additionally, in lieu of dividends, the long-term plan prescribes
progressively lower assessment rates that will become effective when
the reserve ratio exceeds 2 percent and 2.5 percent. Because analysis
shows that a reserve ratio higher than 2 percent increases the chance
that the fund will remain positive during a crisis, the 2 percent DRR
should not be treated as a cap on the size of the fund.\15\
---------------------------------------------------------------------------
\14\ See 75 FR 79286 (Dec. 20, 2010), codified at 12 CFR
327.4(g), and 86 FR 71638 (Dec. 17, 2021).
\15\ See 75 FR 66273 and 75 FR 79287.
---------------------------------------------------------------------------
C. 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.\16\
---------------------------------------------------------------------------
\16\ See 12 U.S.C. 1817(b).
---------------------------------------------------------------------------
Under the FDIC's regulations, an IDI's assessment is equal to its
assessment base multiplied by its risk-based assessment rate.\17\
Generally, an IDI's assessment base equals its average consolidated
total assets minus its average tangible equity.\18\ An IDI's assessment
rate is 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. An
IDI's assessment rate is calculated using different methods based on
whether the IDI is a small, large, or highly complex institution.\19\
For assessment purposes, a small bank is generally defined as an
institution with less than $10 billion in total assets, a large bank is
generally defined as an institution with $10 billion or more 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.\20\
---------------------------------------------------------------------------
\17\ See 12 CFR 327.3(b)(1).
\18\ See 12 CFR 327.5.
\19\ See 12 CFR 327.16(a) and (b).
\20\ 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(e),
(f), and (g), respectively.
---------------------------------------------------------------------------
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.\21\
---------------------------------------------------------------------------
\21\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
---------------------------------------------------------------------------
Large and highly complex institutions are assessed using a
scorecard approach
[[Page 39390]]
that combines CAMELS ratings and certain forward-looking financial
measures to assess the risk that a large or highly complex bank poses
to the DIF.\22\
---------------------------------------------------------------------------
\22\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011)
and 77 FR 66000 (Oct. 31, 2012).
---------------------------------------------------------------------------
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.\23\ 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.\24\
---------------------------------------------------------------------------
\23\ See 12 CFR 327.16(e).
\24\ 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).
---------------------------------------------------------------------------
D. Current Assessment Rate Schedules
In 2011, consistent with the FDIC's long-term fund management plan,
the FDIC adopted lower, moderate assessment rates that would go into
effect when the DIF reserve ratio reached 1.15 percent.\25\ In 2016,
the FDIC amended its rules to refine the deposit insurance assessment
system for established small IDIs (i.e., small IDIs that have been
federally insured for at least five years) and preserved the lower
overall range of initial base assessment rates adopted in 2011 pursuant
to the long-term fund management plan.\26\ Those rates are currently in
effect and are detailed in the sections that follow. In addition, the
Board is authorized to uniformly increase or decrease the total base
rate assessment schedule up to a maximum of 2 basis points or a
fraction thereof, as the Board deems necessary, without further
rulemaking.\27\
---------------------------------------------------------------------------
\25\ See 76 FR 10683-10688.
\26\ See 81 FR 32189-32191.
\27\ See 12 CFR 327.10(f)(3). However, the lowest initial base
assessment rate cannot be negative.
---------------------------------------------------------------------------
Established Small Institutions and Large and Highly Complex
Institutions
Current initial base assessment rates for established small
institutions and large and highly complex institutions are set forth in
Table 1 below.\28\
---------------------------------------------------------------------------
\28\ See 12 CFR 327.10(b)(1). An established insured depository
institution is a bank or savings association that has been federally
insured for at least five years as of the last day of any quarter
for which it is being assessed. See 12 CFR 327.8(k).
Table 1--Current Initial Base Assessment Rate Schedule Applicable To Established Small Institutions and Large
and Highly Complex Institutions \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually. Initial base rates that are not the
minimum or maximum rate will vary between these rates.
An institution's total base assessment rate may vary from the
institution's initial base assessment rate as a result of possible
adjustments for certain liabilities that can increase or reduce loss to
the DIF in the event the institution fails.\29\ After applying all
possible adjustments, the current minimum and maximum total base
assessment rates for established small institutions and large and
highly complex institutions are set out in Table 2 below.\30\
---------------------------------------------------------------------------
\29\ See 12 CFR 327.16(e).
\30\ See 12 CFR 327.10(b)(2).
Table 2--Current Total Base Assessment Rate Schedule (After Adjustments) Applicable to Established Small
Institutions and Large and Highly Complex Institutions \1\ \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
Unsecured Debt Adjustment \3\....... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 1.5 to 16 3 to 30 11 to 30 1.5 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
\3\ The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
depository institution's initial base assessment rate; thus, for example, an insured depository institution
with an initial base assessment rate of 3 basis points will have a maximum unsecured debt adjustment of 1.5
basis points and cannot have a total base assessment rate of lower than 1.5 basis points.
[[Page 39391]]
The assessment rates currently applicable to established small
institutions and large and highly complex institutions in Tables 1 and
2 above will remain in effect unless and until the reserve ratio meets
or exceeds 2 percent.\31\
---------------------------------------------------------------------------
\31\ In lieu of dividends, and pursuant to the FDIC's authority
to set assessments, the progressively lower initial base and total
base assessment rates set forth in 12 CFR 327.10(c) and (d) will
come into effect without further action by the Board when the fund
reserve ratio at the end of the prior assessment period reaches 2
percent and 2.5 percent, respectively.
---------------------------------------------------------------------------
New Small Institutions
Current assessment rates applicable to new small institutions are
set forth in Tables 3 and 4 below.\32\ New small institutions will
remain subject to the assessment schedules in Tables 3 and 4 when the
reserve ratio reaches 2 percent or 2.5 percent.\33\ As stated in the
2010 NPR describing the long-term comprehensive fund management plan,
and adopted in the 2011 Final Rule, the lower assessment rate schedules
applicable when the reserve ratio reaches 2 percent and 2.5 percent do
not apply to any new depository institutions; these institutions will
remain subject to the assessment rates shown below, until they no
longer are new depository institutions.\34\
---------------------------------------------------------------------------
\32\ See 12 CFR 327.10(e)(1)(iii)(A) and (B). Subject to
exceptions, a new depository institution is a bank or savings
association that has been federally insured for less than five years
as of the last day of any quarter for which it is being assessed.
See also 12 CFR 327.8(j).
\33\ See 12 CFR 327.10(e)(1)(iii)(B).
\34\ See 75 FR 66283 and 76 FR 10686.
Table 3--Current Initial Base Assessment Rate Schedule Applicable to New Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
Table 4--Current Total Base Assessment Rate Schedule (After Adjustments) Applicable to New Small Institutions 1
2
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 7 12 to 22 19 to 29 30 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
Insured Branches of Foreign Banks
Current assessment rates applicable to insured branches of foreign
banks are set forth in Table 5 below.\35\ The rates in Tables 5 will
remain in effect unless and until the reserve ratio meets or exceeds 2
percent.\36\
---------------------------------------------------------------------------
\35\ See 12 CFR 327.10(e)(2)(i).
\36\ In lieu of dividends, and pursuant to the FDIC's authority
to set assessments, the progressively lower initial base and total
base assessment rates set forth in 12 CFR 327.10(e)(2)(ii) and (iii)
will come into effect without further action by the Board when the
fund reserve ratio at the end of the prior assessment period reaches
2 percent and 2.5 percent, respectively.
Table 5--Current Initial and Total Base Assessment Rate Schedule \1\ Applicable to Insured Branches of Foreign
Banks \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 3 to 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
III. The Proposed Rule
A. Overview of the Proposal
The FDIC is proposing to increase initial base deposit insurance
assessment rates uniformly by 2 basis points, beginning with the first
quarterly assessment period of 2023. The proposed change is intended to
increase assessment revenue in order to raise the reserve ratio to the
minimum threshold of 1.35 percent within 8 years of the Restoration
Plan's initial establishment, as required by statute, and consistent
with the Amended Restoration Plan, and is intended to support growth in
the DIF in progressing toward the 2 percent DRR. The proposed
assessment rate schedules would remain in effect unless and until the
reserve ratio meets or exceeds 2 percent, absent further Board action.
The proposed change in assessment rates would bring the average
assessment rate close to the moderate steady assessment rate that would
have been required to maintain a positive DIF balance from 1950 to
2010, identified as part of the long-term, comprehensive fund
management plan in 2011.\37\ This continued growth in the DIF is
intended to reduce the likelihood that the FDIC would need to consider
a potentially pro-cyclical assessment rate increase, and to increase
the likelihood of the DIF remaining positive through potential
[[Page 39392]]
future periods of significant losses due to bank failures. In lieu of
dividends, the progressively lower assessment rate schedules currently
in the regulation will remain unchanged and will come into effect
without further action by the Board when the fund reserve ratio at the
end of the prior assessment period reaches 2 percent and 2.5 percent,
respectively.\38\ The FDIC is not proposing changes to the rate
schedules that come into effect when the reserve ratio reaches 2 and
2.5 percent.
---------------------------------------------------------------------------
\37\ See 75 FR 66273 and 76 FR 10675.
\38\ See 12 CFR 327.10(c) and (d).
---------------------------------------------------------------------------
The FDIC proposes to retain the Board's flexibility to adopt higher
or lower total base assessment rates, provided that the Board cannot
increase or decrease rates from one quarter to the next by more than 2
basis points, and cumulative increases and decreases cannot be more
than 2 basis points higher or lower than the total base assessment
rates set forth in the assessment rate schedules.\39\ Retention of this
flexibility will continue to allow the Board to act in a timely manner
to fulfill its mandate to raise the reserve ratio, particularly in
light of the uncertainty related to insured deposit growth and the
economic outlook.
---------------------------------------------------------------------------
\39\ See 12 CFR 327.10(f).
---------------------------------------------------------------------------
B. Proposed Assessment Rate Schedules
Proposed Assessment Rates for Established Small Institutions and Large
and Highly Complex Institutions
Pursuant to the FDIC's authority to set assessments, the proposed
initial and total base assessment rates applicable to established small
institutions and large and highly complex institutions set forth in
Tables 6 and 7 below would take effect beginning with the first
quarterly assessment period of 2023.
Table 6--Proposed Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023, Where the
Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS Composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
An institution's total base assessment rate may vary from the
institution's initial base assessment rate as a result of possible
adjustments for certain liabilities that can increase or reduce loss to
the DIF in the event the institution fails.\40\ These adjustments do
not reflect a change and are consistent with the current assessment
regulations. After applying all possible adjustments, the proposed
minimum and maximum total base assessment rates applicable to
established small institutions and large and highly complex
institutions are set out in Table 7 below.
---------------------------------------------------------------------------
\40\ See 12 CFR 327.16(e).
Table 7--Proposed Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment
Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
Unsecured Debt Adjustment \3\....... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 2.5 to 18 4 to 32 13 to 32 2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
\3\ The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
depository institution's initial base assessment rate; thus, for example, an insured depository institution
with an initial base assessment rate of 5 basis points will have a maximum unsecured debt adjustment of 2.5
basis points and cannot have a total base assessment rate of lower than 2.5 basis points.
The proposed rates applicable to established small institutions and
large and highly complex institutions in Tables 6 and 7 above would
remain in effect unless and until the reserve ratio meets or exceeds 2
percent. In lieu of dividends, and pursuant to the FDIC's authority to
set assessments, progressively lower initial and total base assessment
rate schedules applicable to established small institutions and large
and highly complex institutions as currently set forth in 12 CFR
327.10(c) and (d) will come into effect without further action by the
Board when the fund reserve ratio at the end of the prior assessment
period reaches 2 percent and 2.5 percent, respectively.\41\ The FDIC is
not proposing changes to these progressively lower assessment rate
schedules.
---------------------------------------------------------------------------
\41\ See 12 CFR 327.10(c) and (d).
---------------------------------------------------------------------------
Proposed Assessment Rates for New Small Institutions
Pursuant to the FDIC's authority to set assessments, the initial
and total base assessment rates applicable to new small institutions
set forth in Tables 8 and 9 below would take effect beginning with the
first quarterly assessment
[[Page 39393]]
period of 2023. New small institutions would remain subject to the
assessment schedules in Tables 8 and 9, even when the reserve ratio
reaches 2 percent or 2.5 percent, until they no longer were new
depository institutions, consistent with current assessment
regulations.
Table 8--Proposed Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023 and for
All Subsequent Assessment Periods, Applicable to New Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
Table 9--Proposed Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment
Period of 2023 and for All Subsequent Assessment Periods, Applicable to New Small Institutions \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 9 14 to 24 21 to 31 32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
[[Page 39394]]
Proposed Assessment Rates for Insured Branches of Foreign Banks
Pursuant to the FDIC's authority to set assessments, the initial
and total base assessment rates applicable to insured branches of
foreign banks set forth in Table 10 below would take effect beginning
with the first quarterly assessment period of 2023.
Table 10--Proposed Initial and Total Base Assessment Rate Schedule \1\ Beginning the First Assessment Period of
2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent, Applicable to
Insured Branches of Foreign Banks \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 5 to 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
The proposed rates applicable to insured branches of foreign banks
in Table 10 above would remain in effect unless and until the reserve
ratio meets or exceeds 2 percent. In lieu of dividends, and pursuant to
the FDIC's authority to set assessments, progressively lower initial
and total base assessment rate schedules applicable to insured branches
of foreign banks as currently set forth in 12 CFR 327.10(e)(2)(ii) and
(iii) will come into effect without further action by the Board when
the fund reserve ratio at the end of the prior assessment period
reaches 2 percent and 2.5 percent, respectively. The FDIC is not
proposing changes to these progressively lower assessment rate
schedules.
C. Conforming, Technical, and Other Amendments to the Assessment
Regulations
Conforming Amendments
The FDIC is proposing conforming amendments in Sec. Sec. 327.10
and 327.16 of the FDIC's assessment regulations to effectuate the
modifications described above. These conforming amendments would ensure
that the proposed uniform increase in initial base deposit insurance
assessment rates of 2 basis points is properly incorporated into the
assessment regulation provisions governing the calculation of an IDI's
quarterly deposit insurance assessment. The FDIC is proposing revisions
to Sec. 327.10 to reflect the assessment rate schedules that would be
applicable before and after the effective date of this proposal (i.e.,
January 1, 2023). The FDIC also is proposing to revise the uniform
amounts for small banks and insured branches in Sec. Sec. 327.16(a)
and (d), respectively, to reflect the 2 basis point increase. Aside
from the proposed revisions to reflect the assessment rate schedules,
no additional revisions are required for the regulatory text applicable
to large or highly complex banks because the formula in Sec. 327.16(b)
used to calculate their assessment rates incorporates the minimum and
maximum initial base assessment rates then in effect.
Technical Amendments
As a technical change, the FDIC is rescinding certain rate
schedules in Sec. 327.10 that are no longer in effect. FDIC
regulations provided for changes to deposit insurance assessment rates
the quarter after the reserve ratio first reached or surpassed 1.15
percent, which occurred in the third quarter of 2016.\42\ The FDIC is
rescinding the outdated and obsolete provisions of, and revising
references to, the superseded assessment rate schedules in its
regulations. These changes impose no new requirements on FDIC-
supervised institutions.
---------------------------------------------------------------------------
\42\ See 76 FR 10672 (Feb. 25, 2011) and 81 FR 32180 (May 20,
2016). In 2016, the FDIC amended its rules to refine the deposit
insurance assessment system for established small IDIs (i.e., those
small IDIs that have been federally insured for at least five
years). The final rule preserved the lower overall range of initial
base assessment rates adopted in 2011 pursuant to the long-term fund
management plan.
---------------------------------------------------------------------------
The FDIC also is rescinding in its entirety Sec. 327.9--Assessment
Pricing Methods, as such section is no longer applicable. The relevant
section that includes the method for calculating risk-based assessments
for all IDIs, particularly established small banks, is now in Sec.
327.16, which was adopted by the Board in a final rule on April 26,
2016. That final rule became applicable the calendar quarter in which
the reserve ratio of the DIF reached 1.15 percent, i.e., the third
quarter of 2016.\43\ The FDIC also will make technical amendments to
remove all references to Sec. 327.9.
---------------------------------------------------------------------------
\43\ See 81 FR 32180 (May 20, 2016).
---------------------------------------------------------------------------
Other Amendments
The FDIC is proposing additional amendments to update and conform
Appendix A to subpart A of part 327--Method to Derive Pricing
Multipliers and Uniform Amount in accordance with the current
assessment regulations. Specifically, the FDIC is proposing to remove
sections I through V, which were superseded by the 2016 final rule
revising the method to calculate risk-based assessment rates for
established small IDIs.\44\ The FDIC is proposing to replace the
current language of sections I through V of Appendix A to subpart A of
part 327 with the content of a previously proposed, but inadvertently
not adopted, Appendix E--Method to Derive Pricing Multipliers and
Uniform Amount. Appendix E was published in the 2016 revised notice of
proposed rulemaking refining the deposit insurance assessment system
for established small IDIs.\45\ Appendix E was inadvertently not
included in the final rule.
---------------------------------------------------------------------------
\44\ See 81 FR 32180 (May 20, 2016).
\45\ See 81 FR 6153-6155 (Feb. 4, 2016).
---------------------------------------------------------------------------
Under the 2016 final rule, initial base assessment rates for
established small banks are calculated by applying statistically
derived pricing multipliers to weighted CAMELS components and financial
ratios; then adding the products to a uniform amount.\46\ The content
of Appendix E describes the statistical model on which the revised and
current pricing method is based and, accordingly, revises the method to
derive the pricing multipliers and uniform amount used to determine the
assessment rate schedules currently in effect.\47\
---------------------------------------------------------------------------
\46\ See 81 FR 32181.
\47\ See 81 FR 32191; see also 81 FR 6116-17. Note, subsequent
to the adoption of the 2016 final rule, the FDIC made other
conforming and technical amendments to the assessment regulations at
12 CFR part 327 resulting from other rulemakings. The content of
Appendix E does not need to be updated to reflect such conforming
and other technical amendments and will be incorporated into the
current Appendix A without change. See 83 FR 14565 (Apr. 5, 2018),
84 FR 1346 (Feb. 4, 2019), and 85 FR 71227 (Nov. 9, 2020).
---------------------------------------------------------------------------
[[Page 39395]]
The proposed revisions to Appendix A to subpart A of part 327 will
result in: the removal of the superseded language currently in sections
I through V; the addition of the language of Appendix E from the 2016
revised notice of proposed rulemaking reflecting the revised and
current pricing method; and the retention of the current language
(without change) of section VI (Description of Scorecard Measures) that
applies to large and highly complex institutions.
D. Analysis
In setting assessment rates, the Board is authorized to set
assessments for IDIs in such amounts as the Board may determine to be
necessary or appropriate.\48\ In setting assessment rates, the Board is
required by statute to consider the following factors:
---------------------------------------------------------------------------
\48\ 12 U.S.C. 1817(b)(2)(A).
---------------------------------------------------------------------------
(i) The estimated operating expenses of the DIF.
(ii) The estimated case resolution expenses and income of the DIF.
(iii) The projected effects of the payment of assessments on the
capital and earnings of IDIs.
(iv) The risk factors and other factors taken into account pursuant
to section 7(b)(1) of the FDI Act (12 U.S.C. 1817(b)(1)) under the
risk-based assessment system, including the requirement under such
section to maintain a risk-based system.\49\
---------------------------------------------------------------------------
\49\ The risk factors referred to in factor (iv) include the
probability that the Deposit Insurance Fund will incur a loss with
respect to the institution, the likely amount of any such loss, and
the revenue needs of the Deposit Insurance Fund. See Section
7(b)(1)(C) of the FDI Act, 12 U.S.C. 1817(b)(1)(C).
---------------------------------------------------------------------------
(v) Other factors the Board has determined to be appropriate.\50\
---------------------------------------------------------------------------
\50\ See Section 7(b)(2)(B) of the FDI Act, 12 U.S.C.
1817(b)(2)(B).
---------------------------------------------------------------------------
The following summarizes the factors considered in proposing a
uniform increase in initial base assessment rates of 2 basis points.
Assessment Revenue Needs
Under the Restoration Plan, the FDIC is monitoring deposit balance
trends, potential losses, and other factors that affect the reserve
ratio. Table 11 shows the components of the reserve ratio for the third
quarter of 2021 through the first quarter of 2022. Growth in insured
deposits outpaced growth in the DIF, resulting in a decline in the
reserve ratio of 4 basis points to 1.23 percent as of March 31, 2022.
While assessment revenue was the primary contributor to growth in
the DIF, the weighted average assessment rate for all IDIs was
approximately 3.7 basis points for the assessment period ending March
31, 2022, compared to approximately 4.0 basis points when the
Restoration Plan was established. In the first quarter of 2022,
unrealized losses on available-for-sale securities in the DIF portfolio
contributed to a relatively flat DIF balance, driven by rising yields
as market participants reacted to expectations of increased inflation
and tighter monetary policy. The DIF has experienced low losses from
bank failures, with no banks failing in 2021 and thus far in 2022. As
of March 31, 2022, the DIF balance totaled $123.0 billion, up $3.7
billion from one year earlier.
Table 11--Fund Balance, Estimated Insured Deposits, and Reserve Ratio
[Dollar amounts in billions]
----------------------------------------------------------------------------------------------------------------
3Q 2021 4Q 2021 1Q 2022
----------------------------------------------------------------------------------------------------------------
Beginning Fund Balance.......................................... $120.5 $121.9 $123.1
Plus: Net Assessment Revenue................................ $1.7 $2.0 $1.9
Plus: Investment Income \a\................................. $0.1 ($0.3) ($1.5)
Less: Loss Provisions....................................... ($0.1) (*) $0.1
Less: Operating Expenses.................................... $0.5 $0.5 $0.4
Ending Fund Balance \b\......................................... $121.9 $123.1 $123.0
Estimated Insured Deposits...................................... $9,580.7 $9,733.5 $9,974.9
Q-O-Q Growth in Est. Insured Deposits........................... 0.97% 1.59% 2.48%
Ending Reserve Ratio............................................ 1.27% 1.27% 1.23%
----------------------------------------------------------------------------------------------------------------
* Absolute value less than $50 million.
\a\ Includes unrealized gains/losses on available-for-sale securities.
\b\ Components of fund balance changes may not sum to totals due to rounding.
In recognition that sustained elevated insured deposit balance
trends, lower than anticipated weighted average assessment rates, and
other factors have affected the ability of the reserve ratio to return
to 1.35 percent before September 30, 2028, the FDIC is proposing to
increase initial base deposit insurance assessment rates uniformly by 2
basis points. While subject to uncertainty, based on updated analysis
of deposit balance trends, potential losses, and other factors that
affect the reserve ratio, the FDIC projects that the increase in
assessment rates would increase the likelihood that the reserve ratio
returns to 1.35 percent before September 30, 2028.
The proposed assessment rate schedules would remain in effect
unless and until the reserve ratio meets or exceeds 2 percent. The
proposed increase is further intended to support growth in the DIF in
progressing toward the 2 percent DRR and would bring the average
assessment rate close to the moderate steady assessment rate of 5.29
basis points that would have been required to maintain a positive DIF
balance from 1950 to 2010, identified as part of the long-term,
comprehensive fund management plan in 2011.\51\ The assessment rate
schedules adopted as part of the long-term, comprehensive plan came
into effect once the reserve ratio reached 1.15 percent in 2016. Since
then, the industry weighted average assessment rate has been
consistently and significantly below the moderate, steady assessment
rate, averaging 3.8 basis points and ranging between 3.5 and 4.1 basis
points through 2019.\52\ Over the four most recent quarters, the
weighted average assessment rate ranged between 3.6 and 3.7 basis
points.
---------------------------------------------------------------------------
\51\ See 75 FR 66273 and 76 FR 10675.
\52\ Weighted average assessment rates do not reflect large bank
surcharges, which were collected beginning December 30, 2016, and
ending December 30, 2018, or small bank credits, which were applied
beginning June 30, 2019, and ending June 30, 2020.
---------------------------------------------------------------------------
The proposed increase in assessment rates would bring the average
assessment rate of 3.7 basis points as of March 31, 2022, close to the
moderate, steady assessment rate that would have been required to
maintain a positive DIF balance from 1950 to 2010. Sustaining this
additional assessment revenue
[[Page 39396]]
would support continued growth in the DIF, thereby reducing the
likelihood that the FDIC would need to consider a potentially pro-
cyclical assessment rate increase and increasing the likelihood of the
DIF remaining positive through potential future periods of significant
losses due to bank failures. In lieu of dividends, progressively lower
assessment rate schedules will come into effect without further action
by the Board when the reserve ratio at the end of the prior assessment
period reaches 2 percent and 2.5 percent, respectively.\53\
---------------------------------------------------------------------------
\53\ See 12 CFR 327.10(c) and (d).
---------------------------------------------------------------------------
The proposed 2 basis point increase in assessment rates would
increase the likelihood of reaching the statutory minimum reserve ratio
by September 30, 2028, and accelerate the timeline for achieving the
long-term goal of a 2 percent DRR without imposing excessive burden on
the industry. The proposal would have a modest effect on banking
industry income, resulting in an estimated annual reduction averaging
less than 2 percent. The banking industry remained resilient moving
into the second half of 2022 despite the extraordinary challenges of
the pandemic, and is well-positioned to absorb such a rate increase.
Overall, it is the FDIC's view that the recommended assessment rate
increase appropriately balances several considerations, including the
goal of reaching the statutory minimum reserve ratio reasonably
promptly, the goal of strengthening the fund to reduce the risk of pro-
cyclical assessments in the event of a future downturn or industry
stress, and the projected effects on bank earnings at a time when the
banking industry is better positioned to absorb an assessment rate
increase.
Deposit Balance Trends
Over the past four quarters, insured deposits exhibited annual
growth that was slightly above historical averages. As shown in Chart
1, fourth and first quarters have historically exhibited the highest
insured deposit growth rates throughout the year. Insured deposits grew
by 1.59 percent in the fourth quarter of 2021, slightly above the pre-
pandemic quarterly average of 1.40 percent. In the first quarter of
2022, insured deposits grew by 2.48 percent, slightly above the
quarterly average of 2.32 percent. This moderation in insured deposit
growth, relative to the first half of 2020 and the first quarter of
2021, was attributable in part to a decline in support from fiscal
stimulus programs and increases in consumer spending. Over the last
year, insured deposits have grown by 4.9 percent, which is slightly
elevated compared to the pre-pandemic average of 4.5 percent.
[GRAPHIC] [TIFF OMITTED] TP01JY22.007
While insured deposit growth has largely normalized, aggregate
balances remain significantly elevated. In its previous semiannual
update, the FDIC estimated that excess insured deposits that flowed
into banks as the result of actions taken by monetary and fiscal
authorities, and by individuals, businesses, and financial market
participants in response to the Coronavirus Disease (COVID-19) pandemic
totaled approximately $1.13 trillion. This estimate reflects the amount
of insured deposits as of September 30, 2021, in excess of the amount
that would have resulted if insured deposits had grown at the pre-
pandemic average rate of 4.5 percent since December 31, 2019.\54\
Rather than receding, as previously expected, these excess insured
deposits have grown by about $200 billion through March 31, 2022.
---------------------------------------------------------------------------
\54\ By September 30, 2021, deposit balances would have fully
reflected the more significant actions taken by monetary and fiscal
authorities in response to the COVID-19 pandemic. September 2021 was
also the first month that the personal savings rate declined to a
level within the range reported during the year prior to the
pandemic.
---------------------------------------------------------------------------
The outlook for insured deposits remains uncertain and depends on
several factors, including the outlook for consumer spending and
incomes. Any unexpected economic weakness or concerns about slower than
expected economic growth may cause businesses and consumers to maintain
caution in spending and keep deposit levels elevated. Continued supply
chain pressures and prolonged higher inflation may cause consumer
spending to rise further as consumers pay more for a similar amount of
goods, or may cause consumers to delay or forgo some purchases.
Similarly, unexpected financial market stress could prompt another
round of investor risk aversion that could lead to an increase in
insured deposits.
In contrast, tighter monetary policy and reduction of the Federal
Reserve's
[[Page 39397]]
balance sheet may inhibit growth of insured deposits in the banking
system. Despite the recent increases in the short-term benchmark rate
set by the Federal Reserve, most IDIs have little incentive to raise
interest rates on deposit accounts and spur deposit growth in the near-
term, given excess liquidity. If competition for deposits remains
subdued and rates paid on deposit accounts remain low, depositors may
shift balances away from deposit accounts and into higher-yielding
alternatives, including money-market funds.
A year has passed since the latest quarter of extraordinary growth
in insured deposits prompted by the last round of fiscal stimulus, but
those deposits have yet to exhibit any indication of receding. The FDIC
will continue to closely monitor depositor behavior and the effects on
insured deposits.
Case Resolution Expenses (Insurance Fund Losses)
Losses from past and future bank failures affect the reserve ratio
by lowering the fund balance. In recent years, the DIF has experienced
low losses from IDI failures. On average, four IDIs per year failed
between 2016 and 2021, at an average annual cost to the fund of about
$208 million.\55\ No banks have failed thus far in 2022, marking 19
consecutive months without a bank failure and the seventh year in a row
with few or no failures. Based on currently available information about
banks expected to fail in the near term; analyses of longer-term
prospects for troubled banks; and trends in CAMELS ratings, failure
rates, and loss rates; the FDIC projects that failures for the five-
year period from 2022 to 2026 would cost the fund approximately $1.8
billion.
---------------------------------------------------------------------------
\55\ FDIC, Annual Report 2021, Assets and Deposits of Failed or
Assisted Insured Institutions and Losses to the Deposit Insurance
Fund, 1934-2021, page 190, available at https://www.fdic.gov/about/financial-reports/reports/2021annualreport/2021-arfinal.pdf.
---------------------------------------------------------------------------
The total number of institutions on the FDIC's Problem Bank List
was 40 at the end of the first quarter of 2022, the lowest level since
publication of the FDIC's Quarterly Banking Profile began in 1984.\56\
The number of troubled banks is currently expected to remain at low
levels.
---------------------------------------------------------------------------
\56\ ``Problem'' institutions are institutions with a CAMELS
composite rating of ``4'' or ``5'' due to financial, operational, or
managerial weaknesses that threaten their continued financial
viability.
---------------------------------------------------------------------------
Future losses to the DIF remain uncertain, although some sources of
uncertainty have changed since the Restoration Plan was adopted in
September of 2020. The uncertainties include, among others, the
variable trends in COVID-19 infections, rising inflation and interest
rates, the possibility of recession, supply chain pressures,
geopolitical tensions, and evolving consumer and depositor behavior,
any of which could have longer-term effects on the condition and
performance of the banking industry. However, the banking industry has
remained a source of strength for the economy, in part, because its
stronger capital position has better positioned banks to withstand
losses compared to 2008.
Operating Expenses and Investment Income
Operating expenses remain steady, while low investment returns
coupled with elevated unrealized losses on securities held by the DIF
have limited growth in the fund balance, particularly in the first
quarter of 2022.
Operating expenses partially offset increases in the DIF balance.
Operating expenses have remained steady, ranging between $450 and $475
million per quarter since the Restoration Plan was first adopted in
September 2020, totaling $453 million as of March 31, 2022.
Growth in the fund balance has been limited by a prolonged period
of low investment returns on securities held by the DIF. Recently, as a
result of the rising interest rate environment and market expectations
leading up to such rate increases, the DIF has also experienced
elevated unrealized losses on securities. Unrealized losses on
available-for-sale securities in the DIF portfolio contributed to a
relatively flat DIF balance in the first quarter of 2022. Unrealized
losses were primarily due to rising yields as market participants
reacted to expectations of increased inflation and tighter monetary
policy. Future market movements may temporarily increase unrealized
losses in the near term, to the extent that market participants have
not already priced in these actions. However, the FDIC expects that
these unrealized losses will be outpaced by higher investment returns
over the longer-term as future cash proceeds are reinvested at higher
rates.
Projections for Fund Balance and Reserve Ratio
In its consideration of proposed rates, the FDIC sought to increase
the likelihood that the reserve ratio would reach the statutory minimum
of 1.35 percent by the statutory deadline of September 30, 2028, and to
support growth in the DIF in progressing toward the long-term goal of a
2 percent DRR. With these objectives in mind, the FDIC updated its
analysis and projections for the fund balance and reserve ratio to
estimate how changes in insured deposit growth and assessment rates
affect when the reserve ratio would reach the statutory minimum of 1.35
percent and the DRR of 2 percent.
Based on this analysis, the FDIC projects that, absent an increase
in assessment rates, the reserve ratio is at risk of not reaching the
statutory minimum of 1.35 percent by the statutory deadline of
September 30, 2028. In estimating how soon the reserve ratio would
reach 1.35 percent, the FDIC developed two scenarios that assume
different levels of insured deposit growth and average assessment
rates, both of which the FDIC views as reasonable based on current and
historical data. For insured deposit growth, the FDIC assumed annual
growth rates of 4.0 percent and 3.5 percent, respectively. These
insured deposit growth rates represent a range of excess insured
deposits resulting from the pandemic being retained. The assumption of
a 4.0 percent annual growth rate reflects retention of all of the
estimated $1.13 trillion of excess deposits in insured accounts, with
this amount not contributing to further growth, while the remaining
balance of insured deposits continues to grow at the pre-pandemic
average annual rate of 4.5 percent.
Alternatively, a 3.5 percent annual growth rate assumption reflects
banks retaining about 60 percent of the estimated excess insured
deposits resulting from the pandemic, with this amount not contributing
to further growth, while the remaining balance of insured deposits
grows at the pre-pandemic average annual rate of 4.5 percent.
The two scenarios also apply different assumptions for average
annual assessment rates. The weighted average assessment rate for all
banks during 2019, prior to the pandemic, was about 3.5 basis points
and rose to 4.0 basis points, on average, during 2020. The weighted
average assessment rate for all IDIs was approximately 3.7 basis points
for the assessment period ending March 31, 2022. For the scenario in
which all excess insured deposits are retained, the FDIC assumed a
lower assessment rate of 3.5 basis points, and for the scenario in
which some excess insured deposits recede, the FDIC assumed an
assessment rate of 4.0 basis points.
In developing the proposal, the FDIC projected the date that the
reserve ratio would likely reach the statutory minimum of 1.35 percent
in each
[[Page 39398]]
scenario, shown in Table 12 below.\57\ Under Scenario A, which assumes
annual insured deposit growth of 4.0 percent and an average annual
assessment rate of 3.5 basis points, the FDIC projects that the reserve
ratio would reach 1.35 percent in the third quarter of 2034, after the
statutory deadline of September 30, 2028.
---------------------------------------------------------------------------
\57\ For simplicity, the analysis shown in Table 12 assumes
that: (1) the assessment base grows 4.5 percent, annually; (2)
interest income on the deposit insurance fund balance is zero; (3)
operating expenses grow at 1 percent per year; and (4) failures for
the five-year period from 2022 to 2026 would cost approximately $1.8
billion.
Table 12--Scenario Analysis: Expected Time To Reach a 1.35 Percent Reserve Ratio
--------------------------------------------------------------------------------------------------------------------------------------------------------
As of 1Q 2023, average annual
Annual insured Average annual Date the reserve assessment rate increases by . . .
deposit growth assessment rate ratio reaches -----------------------------------
rate [percent] [basis points] 1.35 percent 1 BPS 2 BPS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Scenario A.................................................... 4.0 3.5 3Q 2034 3Q 2026 4Q 2024
Scenario B.................................................... 3.5 4.0 2Q 2027 2Q 2025 2Q 2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
In Scenario B, which assumed annual insured deposit growth of 3.5
percent and an average annual assessment rate of 4.0 basis points, the
FDIC projects that the reserve ratio would reach 1.35 percent in the
second quarter of 2027, five years from the second quarter of 2022 and
only five quarters before the statutory deadline. Even under these
relatively favorable conditions, which assume lower insured deposit
growth and a higher average assessment rate than experienced over the
last year, the reserve ratio reaches the statutory minimum of 1.35
percent close to the statutory deadline. While the FDIC projects that
the reserve ratio would reach the statutory minimum before the deadline
in this Scenario, any number of uncertain factors--including unexpected
losses, accelerated insured deposit growth, or lower weighted average
assessment rates due to improving risk profiles of institutions--could
materialize between now and the second quarter of 2027, and easily
prevent the reserve ratio from reaching the minimum by the statutory
deadline.
Both Scenarios apply assumptions for insured deposit growth and
average assessment rates that the FDIC views as reasonable based on
current and historical data, and that do not widely differ from each
other in magnitude. These relatively minor changes in the underlying
assumptions result in considerably different outcomes, as the reserve
ratio is projected to reach the statutory minimum of 1.35 percent in
2034 in Scenario A, compared to 7 years earlier in Scenario B. The
disparity between outcomes under these Scenarios demonstrates the
sensitivity of the projections to slight variations in any key
variable.
Given these uncertainties, the FDIC projected the DIF balance and
associated reserve ratio under each Scenario, applying an increase in
average assessment rates beginning in the first assessment period of
2023. Under Scenario A, a 1 basis point increase in the average
assessment rate is projected to result in the reserve ratio reaching
the minimum in the third quarter of 2026, and a 2 basis point increase
is projected to result in the reserve ratio reaching the minimum in the
fourth quarter of 2024. Under Scenario B, a 1 basis point increase in
the average assessment rate is projected to result in the reserve ratio
reaching the minimum in the second quarter of 2025, and a 2 basis point
increase is projected to result in the reserve ratio reaching the
minimum in the second quarter of 2024.
While the FDIC projects that the reserve ratio would reach the
minimum before the statutory deadline under Scenario B with no increase
in assessment rates, or under Scenario A with a 1 basis point increase
in the average assessment rate, these outcomes are still over 4 years
away and carry higher risk that the FDIC would have to increase
assessment rates in the face of a future downturn or industry stress.
In contrast, the proposed increase of 2 basis points would improve
the likelihood that the reserve ratio will reach the minimum ahead of
the statutory deadline, building in a buffer in the event of
uncertainties as described above that could stall or counter growth in
the reserve ratio. Under both scenarios described above, an increase in
assessment rates of 2 basis points is projected to result in the
reserve ratio reaching the statutory minimum reserve ratio of 1.35
percent approximately two years from now.
Reaching the minimum reserve ratio of 1.35 percent ahead of the
statutory deadline would mean that the FDIC would exit its Restoration
Plan. If the reserve ratio subsequently declined below the statutory
minimum, the FDIC would establish a new restoration plan and would have
an additional eight years to restore the reserve ratio.
The FDIC also analyzed the effects of an increase in assessment
rates in supporting growth in the DIF in progressing toward the 2
percent DRR. For this analysis, the FDIC assumed a near-term annual
insured deposit growth rate of 3.5 percent and a weighted average
assessment rate of 4.0 basis points.\58\ These assumptions reflect the
ranges of insured deposit growth and assessment rates used in Scenario
B, described above, and result in the shortest projected timeline to
reach a 2 percent reserve ratio. As illustrated in Chart 2, even under
these relatively favorable conditions, absent an increase in assessment
rates, the projected reserve ratio would not reach 2 percent until
2045, over twenty years from now.\59\ When the FDIC proposed the long-
term, comprehensive fund management plan in 2010, it estimated that the
reserve ratio would reach 2 percent in 2027.\60\
---------------------------------------------------------------------------
\58\ After September 30, 2028, the deadline to restore the
reserve ratio to the 1.35 percent minimum, insured deposits are
assumed to grow at the pre-pandemic annual average of 4.5 percent.
\59\ The analysis shown in Chart 2 is based on the assumptions
used in Scenario B through the projected quarter that the reserve
ratio meets or exceeds 1.35 percent. Afterward, the analysis
assumes: (1) net income on investments by the fund based on market-
implied forward rates; (2) the assessment base grows 4.5 percent,
annually; (3) operating expenses grow at 1 percent per year; and (4)
failures for the five-year period from 2022 to 2026 cost
approximately $1.8 billion, with a low level of losses each year
thereafter. The uniform increase in assessment rates of 1 or 2 basis
points from the current rate schedule is assumed to take effect on
January 1, 2023.
\60\ See 75 FR 66281.
---------------------------------------------------------------------------
Using the same assumptions, an increase in assessment rates would
significantly accelerate the timeline for achieving a 2 percent DRR. An
increase in assessment rates of 1 basis point resulted in the projected
reserve ratio reaching 2 percent in 2036, nine years faster. Applying a
2 basis point increase in assessment rates would accelerate the
timeline by an additional four years, to 2032.
[[Page 39399]]
[GRAPHIC] [TIFF OMITTED] TP01JY22.008
The proposed 2 basis point increase in assessment rates would bring
the average assessment rate of 3.7 basis points, as of March 31, 2022,
close to the moderate steady assessment rate that would have been
required to maintain a positive DIF balance from 1950 to 2010, and
identified as part of the long-term, comprehensive fund management plan
in 2011.\61\ Upon achieving the 2 percent DRR, progressively lower
assessment rate schedules would take effect. The proposed 2 basis point
increase would accelerate the timeline for achieving the 2 percent DRR
significantly, would reduce the likelihood that the FDIC would need to
consider a potentially pro-cyclical assessment rate increase, and would
increase the likelihood of the DIF remaining positive through potential
future periods of significant losses due to bank failures, consistent
with the FDIC's long-term fund management plan.
---------------------------------------------------------------------------
\61\ See 75 FR 66273 and 76 FR 10675.
---------------------------------------------------------------------------
Capital and Earnings Analysis and Expected Effects
This analysis estimates the effect of the changes in deposit
insurance assessments resulting from the proposed uniform increase in
initial base assessment rates of 2 basis points. For this analysis,
data as of March 31, 2022, are used to calculate each bank's assessment
base and risk-based assessment rate, absent the proposed increase. The
base and rate are assumed to remain constant throughout the one-year
projection period.\62\
---------------------------------------------------------------------------
\62\ All income statement items used in this analysis were
adjusted for the effect of mergers. Institutions for which four
quarters of non-zero earnings data were unavailable, including
insured branches of foreign banks, were excluded from this analysis.
---------------------------------------------------------------------------
The analysis assumes that pre-tax income for the four quarters
beginning on the proposed effective date of the rate increase, January
1, 2023, is equal to income reported from April 1, 2021, through March
31, 2022, adjusted for mergers. The analysis also assumes that the
effects of changes in assessments are not transferred to customers in
the form of changes in borrowing rates, deposit rates, or service fees.
Since deposit insurance assessments are a tax-deductible operating
expense, increases in the assessment expense can lower taxable income.
Therefore, the analysis considers the effective after-tax cost of
assessments in calculating the effect on capital.\63\
---------------------------------------------------------------------------
\63\ The analysis does not incorporate any tax effects from an
operating loss carry forward or carry back.
---------------------------------------------------------------------------
The effect of the change in assessments on an institution's income
is measured by the change in deposit insurance assessments as a percent
of income before assessments and taxes (hereafter referred to as
``income''). This income measure is used in order to eliminate the
potentially transitory effects of taxes on profitability. The FDIC
analyzed the impact of assessment changes on institutions that were
profitable in the period covering the 12 months before March 31, 2022.
An institution's earnings retention and dividend policies also
influence the extent to which assessments affect equity levels. If an
institution maintains the same dollar amount of dividends when it pays
a higher deposit insurance assessment under the final rule, equity
(retained earnings) will be less by the full amount of the after-tax
cost of the increase in the assessment. This analysis instead assumes
that an institution will maintain its dividend rate (that is, dividends
as a fraction of net income) unchanged from the weighted average rate
reported over the four quarters ending March 31, 2022. In the event
that the ratio of equity to assets falls below 4 percent, however, this
assumption is modified such that an institution retains the amount
necessary to reach a 4 percent minimum and distributes any remaining
funds according to the dividend payout rate.\64\
---------------------------------------------------------------------------
\64\ The analysis uses 4 percent as the threshold because IDIs
generally need to maintain a leverage ratio of 4.0 percent or
greater to be considered ``adequately capitalized'' under Prompt
Corrective Action Standards, in addition to the following
requirements: (i) total risk-based capital ratio of 8.0 percent or
greater; and (ii) Tier 1 risk-based capital ratio of 6.0 percent or
greater; and (iii) common equity tier 1 capital ratio of 4.5 percent
or greater; and (iv) does not meet the definition of ``well
capitalized.'' (iv) Beginning January 1, 2018, an advanced
approaches or Category III FDIC-supervised institution will be
deemed to be ``adequately capitalized'' if it satisfies the above
criteria and has a supplementary leverage ratio of 3.0 percent or
greater, as calculated in accordance with Sec. 324.10. See 12 CFR
324.403. For purposes of this analysis, equity to assets is used as
the measure of capital adequacy.
---------------------------------------------------------------------------
The FDIC estimates that a uniform increase in initial base
assessment rates of 2 basis points would contribute approximately $4.5
billion in assessment revenue in 2023.\65\ Given the assumptions in the
analysis, for the industry as a whole, the FDIC estimates
[[Page 39400]]
that, on average, a uniform increase in assessment rates of 2 basis
points would decrease Tier 1 capital by an estimated 0.1 percent. The
proposed increase is estimated to cause no banks whose ratio of equity
to assets would have equaled or exceeded 4 percent under the current
assessment rate schedule to fall below that percentage (becoming
undercapitalized), and no banks whose ratio of equity to assets would
have exceeded 2 percent under the current rate schedule to fall below
that percentage, becoming critically undercapitalized.
---------------------------------------------------------------------------
\65\ Estimates and projections are based on the assumptions used
in Scenario B.
---------------------------------------------------------------------------
The banking industry reported an increase in full year 2021 income
primarily due to negative provision expense in all four quarters of the
year. Fourth quarter net income improved from a year ago due to higher
net interest income and negative provisions while first quarter 2022
net income declined due to higher and positive provisions. While
provisions are positive and caused the decline in quarterly net income,
the current level remains low compared to pre-pandemic levels. The net
interest margin for the industry remained stable from the prior quarter
and from the year-ago quarter, as growth in earning assets has been
equal to the growth in net interest income. The average return-on-
assets (ROA) decreased from a decade-high of 1.38 percent in first
quarter 2021 to 1.00 percent in first quarter 2022. The banking
industry remained resilient moving into the second half of 2022 despite
the extraordinary challenges of the pandemic, and is well-positioned to
absorb the proposed rate increase.
Given the assumptions in the analysis, for the industry as a whole,
the FDIC estimates that the annual increase in assessments would
average 1.0 percent of income, which includes an average of 0.9 percent
for small banks and an average of 1.0 percent for large and highly
complex institutions.\66\
---------------------------------------------------------------------------
\66\ Earnings or income are annual income before assessments and
taxes. Annual income is assumed to equal income from April 1, 2021,
through March 31, 2022.
---------------------------------------------------------------------------
Table 13 shows that approximately 95 percent of profitable
institutions are projected to have an increase in assessments of less
than 5 percent of income. Another 5 percent of profitable institutions
are projected to have an increase in assessments equal to or exceeding
5 percent of income.
Table 13--Estimated Annual Effect of the Proposed Rule on Income for All Profitable Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions ($ billions) assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 8 0 1 <1
20% to 30%...................................... 11 <1 1 <1
10% to 20%...................................... 48 1 7 <1
5% to 10%....................................... 145 3 28 <1
Less than 5%.................................... 4,400 95 23,724 100
No Change....................................... 3 <1 <1 <1
---------------------------------------------------------------
Total....................................... 4,615 100 23,762 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending March 31, 2022. Excludes 9 insured branches of
foreign banks and 7 institutions reporting fewer than 4 quarters of reported earnings. Some columns do not add
to total due to rounding.
Among profitable small institutions, 95 percent are projected to
have an increase in assessments of less than 5 percent of income, as
shown in Table 14. The remaining 5 percent of profitable small
institutions are projected to have an increase in assessments equal to
or exceeding 5 percent of income. As shown in Table 15, 100 percent of
profitable large and highly complex institutions are projected to have
an increase in assessments below 5 percent of income.
Table 14--Estimated Annual Effect of the Proposed Rule on Income for Profitable Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions ($ billions) assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 8 <1 1 <1
20% to 30%...................................... 11 <1 1 <1
10% to 20%...................................... 48 1 7 <1
5% to 10%....................................... 145 3 28 1
Less than 5%.................................... 4,258 95 3,466 99
No Change....................................... 3 <1 <1 <1
---------------------------------------------------------------
Total....................................... 4,473 100 3,503 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending March 31, 2022. Some columns do not add to
total due to rounding.
[[Page 39401]]
Table 15--Estimated Annual Effect of the Proposed Rule on Income for Profitable Large and Highly Complex
Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions ($ billions) assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 0 0 0 0
20% to 30%...................................... 0 0 0 0
10% to 20%...................................... 0 0 0 0
5% to 10%....................................... 0 0 0 0
Less than 5%.................................... 142 100 20,258 100
No Change....................................... 0 0 0 0
---------------------------------------------------------------
Total....................................... 142 100 20,258 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending March 31, 2022. Some columns do not add to
total due to rounding.
Strengthening the DIF
As discussed above, the proposed rule is unlikely to have large
material effects on any individual institution. However, the resulting
increase in assessment revenue, combined across all institutions, would
grow the DIF by over $4 billion a year. This growth would strengthen
the DIF's ability to withstand potential future periods of significant
losses due to bank failures and reduce the likelihood that the FDIC
would need to increase assessment rates during a future banking crisis.
Accelerating the time in which the reserve ratio would reach the
statutory minimum of 1.35 percent and the DRR of 2 percent would allow
the banking industry to remain a source of strength for the economy
during a potential future downturn and would continue to ensure public
confidence in federal deposit insurance.
E. Alternatives Considered
The FDIC considered the reasonable and possible alternatives
described below. On balance, the FDIC views the current proposal as the
most appropriate and most straightforward manner in which to achieve
the objectives of the Amended Restoration Plan and the long-term fund
management plan.
Alternative 1: Maintain Current Assessment Rate Schedule
The first alternative would be to maintain the current schedule of
assessment rates. As described above, the FDIC projected that the
reserve ratio would reach the statutory minimum of 1.35 percent in the
third quarter of 2034, after the statutory deadline under Scenario A,
which assumes annual insured deposit growth of 4.0 percent and an
average annual assessment rate of 3.5 basis points. Under Scenario B,
which assumes insured deposit growth of 3.5 percent and an average
assessment rate of 4.0 basis points, the FDIC projected that the
reserve ratio would reach the statutory minimum of 1.35 percent in the
second quarter of 2027, only five quarters before the statutory
deadline of September 30, 2028.
As described above, the FDIC rejected maintaining the current
schedule of assessment rates. Absent an increase in assessment rates,
under Scenario A growth in the DIF would not be sufficient for the
reserve ratio to reach the statutory minimum of 1.35 percent ahead of
the required deadline. While the reserve ratio would reach the
statutory minimum ahead of the required deadline under Scenario B,
growth in the fund resulting from current assessment rates could be
offset if unexpected losses materialize, insured deposit growth
accelerates, or risk profiles of institutions continue to improve
resulting in lower assessment rates.
Additionally, relative to the other alternatives and the current
proposal, maintaining the current schedule of assessment rates would
not result in any acceleration of growth in the DIF in progressing
toward the FDIC's long-term goal of a 2 percent DRR. Absent an increase
in assessment rates and assuming annual insured deposit growth of 3.5
percent and a weighted average assessment rate of 4.0 basis points, the
FDIC projected that the reserve ratio would achieve the 2 percent DRR
in 2045, thirteen years later than if the FDIC were to apply an
increase in assessment rates of 2 basis points beginning in 2023.
Alternative 2: Increase in Assessment Rates of 1 Basis Point
A second alternative would be to increase initial base assessment
rates uniformly by 1 basis point. As described above, the FDIC
projected that a 1 basis point increase in the average assessment rate
would result in the reserve ratio reaching the minimum in the third
quarter of 2026 under Scenario A and in the second quarter of 2025
under Scenario B.
However, also as described above, the FDIC rejected this
alternative in favor of a 2 basis point increase. Reaching the minimum
reserve ratio in 2026, as projected under Scenario A, would be very
close to the statutory deadline and could result in the FDIC having to
consider higher assessment rates in the face of a future downturn or
industry stress. While a 1 basis point increase under Scenario B is
projected to result in the reserve ratio reaching 1.35 percent in 2025,
the increase in associated assessment revenue would generate a smaller
buffer to absorb unexpected losses, accelerated insured deposit growth,
or lower average assessment rates that could materialize over this
period.
Additionally, the FDIC projected that a 1 basis point increase in
assessment rates would result in the reserve ratio achieving the 2
percent DRR in approximately 2036, about 4 years later than if the FDIC
were to apply an increase in assessment rates of 2 basis points
beginning in 2023.
Alternative 3: One-Time Special Assessment of 4.5 Basis Points
A third alternative would be to impose a one-time special
assessment of 4.5 basis points, applicable to the assessment base of
all IDIs. Utilizing data as of March 31, 2022, and assuming an
effective date of January 1, 2023, the FDIC estimated that a one-time
special assessment of 4.5 basis points would contribute approximately
$9.8 billion in assessment revenue and the reserve ratio would reach
1.35 percent the quarter following the effective date (i.e., the second
assessment period of 2023).\67\ Accordingly, the FDIC
[[Page 39402]]
estimates that, on average, a one-time special assessment of 4.5 basis
points would decrease Tier 1 capital by an estimated 0.4 percent and
reduce the annual earnings of IDIs by approximately 2.3 percent, in
aggregate.\68\
---------------------------------------------------------------------------
\67\ Estimates and projections related to the one-time special
assessment assume that: (1) insured deposit growth is 4 percent
annually; (2) the average assessment rate before any rate increase
is 3.5 basis points; (3) losses to the DIF from bank failures total
$1.8 billion from 2022 to 2026; (4) the assessment base grows 4.5
percent, annually; (5) interest income on the deposit insurance fund
balance is zero; and (6) operating expenses grow at 1 percent per
year.
\68\ Earnings or income are annual income before assessments,
taxes, and extraordinary items. Annual income is assumed to equal
income from April 1, 2021 through March 31, 2022.
---------------------------------------------------------------------------
While a one-time special assessment of 4.5 basis points is
projected to increase the DIF reserve ratio to 1.35 percent the most
quickly and precisely, and would significantly mitigate the potential
that the FDIC would need to consider a potentially pro-cyclical
increase in assessment rates, it is estimated to result in a quarterly
assessment expense that is more than 8 times greater than the proposal.
Additionally, while the reserve ratio is projected to be restored to
1.35 percent immediately under this alternative, the risk would remain
that it could fall back below the statutory minimum shortly thereafter
if a sufficient cushion is not built in. This would result in the
establishment of a new restoration plan. Further, a one-time special
assessment would not meaningfully accelerate the timeline for achieving
the 2 percent DRR.
The FDIC requests comments on the proposal and the alternative
approaches considered. On balance, in the FDIC's view, the proposed
increase in assessment rates appropriately balances several
considerations, including the goal of reaching the statutory minimum
reserve ratio reasonably promptly, accelerating the timeline for
achieving a 2 percent DRR, strengthening the fund to reduce the risk
that the FDIC would need to consider a potentially pro-cyclical
assessment increase in the event of a future downturn or industry
stress, and the projected effects on bank earnings at a time when the
banking industry is better positioned to absorb an assessment rate
increase.
F. Comment Period, Effective Date, and Application Date
The FDIC is issuing this proposal with an opportunity for public
comment through August 20, 2022. Following the comment period, the FDIC
expects to issue a final rule with an effective date of January 1,
2023, and applicable to the first quarterly assessment period of 2023
(i.e., January 1-March 31, 2023).
IV. Request for Comment
The FDIC is requesting comment on all aspects of the notice of
proposed rulemaking, in addition to the specific requests below.
Question 1: The FDIC invites comment on its proposal to increase
deposit insurance assessment rates uniformly by 2 basis points,
beginning with the first quarterly assessment period of 2023. How does
the approach in the proposed rule support or not support the objectives
of the Amended Restoration Plan and the FDIC's long-term fund
management plan?
Question 2: The FDIC invites comment on the reasonable and possible
alternatives described in this proposed rule. What are other reasonable
and possible alternatives that the FDIC should consider?
V. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) 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.\69\ However,
an initial regulatory flexibility analysis is not required if the
agency certifies that the proposed 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 $750
million.\70\ Certain types of rules, such as rules of particular
applicability relating to rates, 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.\71\ Because
the proposed rule relates directly to the rates imposed on IDIs for
deposit insurance, the proposed rule is not subject to the RFA.
Nonetheless, the FDIC is voluntarily presenting information in this RFA
section.
---------------------------------------------------------------------------
\69\ 5 U.S.C. 601 et seq.
\70\ The SBA defines a small banking organization as having $750
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 by 87 FR 18627, effective May 2, 2022). 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. See 13 CFR 121.103. Following these
regulations, the FDIC uses a banking organization's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the banking organization is ``small'' for the
purposes of RFA.
\71\ 5 U.S.C. 601.
---------------------------------------------------------------------------
The proposed rule is expected to affect all FDIC-insured depository
institutions. According to recent Call Report data, there are currently
4,848 IDIs holding approximately $24 trillion in assets.\72\ Of these,
approximately 3,478 IDIs would be considered small entities for the
purposes of RFA.\73\ These small entities hold approximately $905
billion in assets.
---------------------------------------------------------------------------
\72\ Based on Call Report data as of December 31, 2021, the most
recent period for which small entities can be identified.
\73\ Id.
---------------------------------------------------------------------------
The proposed rule would increase initial base assessment rates for
these small entities by 2 basis points. In aggregate, the total annual
amount paid in assessments by small entities would increase by
approximately $160 million, from $320 million to $480 million.\74\
---------------------------------------------------------------------------
\74\ Id.
---------------------------------------------------------------------------
At the individual bank level, few institutions would be
significantly affected by the proposed rule. Fewer than 330 small
entities would experience annual assessment increases greater than
$100,000, and none would experience annual assessment increases greater
than $150,000. When compared to the banks' expenses, the annual
assessment increases are significant for only a handful of small
entities: only five small entities would experience annual assessment
increases greater than 2.5 percent of their noninterest expenses, and
only three would experience annual assessment increases greater than 5
percent of what they paid in employee salaries and benefits.\75\
---------------------------------------------------------------------------
\75\ Id. For purposes of the RFA, the FDIC generally 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 noninterest expenses.
---------------------------------------------------------------------------
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?
B. 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 Office of
Management and Budget (OMB) control number.\76\ The FDIC's OMB control
numbers for its assessment regulations are 3064-0057, 3064-0151, and
3064-0179. The proposed rule does not revise any of these existing
assessment information
[[Page 39403]]
collections pursuant to the PRA and consequently, no submissions in
connection with these OMB control numbers will be made to the OMB for
review.
---------------------------------------------------------------------------
\76\ 4 U.S.C. 3501-3521.
---------------------------------------------------------------------------
C. Riegle Community Development and Regulatory Improvement Act
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (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.\77\ Subject to certain exceptions, new
regulations and amendments to regulations prescribed by a Federal
banking agency which impose additional reporting, disclosures, or other
new requirements on insured depository institutions shall take effect
on the first day of a calendar quarter which begins on or after the
date on which the regulations are published in final form.\78\
---------------------------------------------------------------------------
\77\ 12 U.S.C. 4802(a).
\78\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The proposed rule would not impose additional reporting,
disclosure, or other new requirements on insured depository
institutions, including small depository institutions, or on the
customers of depository institutions. Accordingly, section 302 of
RCDRIA does not apply. Nevertheless, the requirements of RCDRIA have
been considered in setting the proposed effective date. The FDIC
invites comments that will further inform its consideration of RCDRIA.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \79\ 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:
---------------------------------------------------------------------------
\79\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------
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 regulation clearly
stated? If not, how could the regulation be stated more clearly?
Does the proposed regulation 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 regulation easier to
understand?
VI. Revisions to Code of Federal Regulations
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation proposes to amend 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority for 12 CFR part 327 continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend Sec. 327.4 by revising paragraphs (a) and (c) to read as
follows:
Sec. 327.4 Assessment rates.
(a) Assessment risk assignment. For the purpose of determining the
annual assessment rate for insured depository institutions under Sec.
327.16, each insured depository institution will be provided an
assessment risk assignment. Notice of an institution's current
assessment risk assignment will be provided to the institution with
each quarterly certified statement invoice. Adjusted assessment risk
assignments for prior periods may also be provided by the Corporation.
Notice of the procedures applicable to reviews will be included with
the notice of assessment risk assignment provided pursuant to this
paragraph (a).
* * * * *
(c) Requests for review. An institution that believes any
assessment risk assignment provided by the Corporation pursuant to
paragraph (a) of this section is incorrect and seeks to change it must
submit a written request for review of that risk assignment. An
institution cannot request review through this process of the CAMELS
ratings assigned by its primary federal regulator or challenge the
appropriateness of any such rating; each federal regulator has
established procedures for that purpose. An institution may also
request review of a determination by the FDIC to assess the institution
as a large, highly complex, or a small institution (Sec. 327.16(f)(3))
or a determination by the FDIC that the institution is a new
institution (Sec. 327.16(g)(5)). Any request for review must be
submitted within 90 days from the date the assessment risk assignment
being challenged pursuant to paragraph (a) of this section appears on
the institution's quarterly certified statement invoice. The request
shall be submitted to the Corporation's Director of the Division of
Insurance and Research in Washington, DC, and shall include
documentation sufficient to support the change sought by the
institution. If additional information is requested by the Corporation,
such information shall be provided by the institution within 21 days of
the date of the request for additional information. Any institution
submitting a timely request for review will receive written notice from
the Corporation regarding the outcome of its request. Upon completion
of a review, the Director of the Division of Insurance and Research (or
designee) or the Director of the Division of Supervision and Consumer
Protection (or designee) or any successor divisions, as appropriate,
shall promptly notify the institution in writing of his or her
determination of whether a change is warranted. If the institution
requesting review disagrees with that determination, it may appeal to
the FDIC's Assessment Appeals Committee. Notice of the procedures
applicable to appeals will be included with the written determination.
* * * * *
0
3. Amend Sec. 327.8 by revising paragraphs (e)(2), (f), (k)(1), and
(l) through (p) to read as follows:
Sec. 327.8 Definitions.
* * * * *
(e) * * *
(2) Except as provided in paragraph (e)(3) of this section and
Sec. 327.17(e), if, after December 31, 2006, an institution classified
as large under paragraph (f) of this section (other than an institution
classified as large for purposes of Sec. 327.16(f)) reports assets of
less than $10 billion in its quarterly reports of condition for four
consecutive quarters, excluding assets as described in Sec. 327.17(e),
the FDIC will reclassify the institution as small beginning the
following quarter.
* * * * *
(f) Large institution. An institution classified as large for
purposes of Sec. 327.16(f) or an insured depository institution with
assets of $10 billion or more, excluding assets as described in Sec.
327.17(e), as of December 31, 2006 (other than an insured branch of a
foreign bank or a highly complex institution) shall be classified as a
large institution. If, after December 31, 2006,
[[Page 39404]]
an institution classified as small under paragraph (e) of this section
reports assets of $10 billion or more in its quarterly reports of
condition for four consecutive quarters, excluding assets as described
in Sec. 327.17(e), the FDIC will reclassify the institution as large
beginning the following quarter.
* * * * *
(k) * * *
(1) Merger or consolidation involving new and established
institution(s). Subject to paragraphs (k)(2) through (5) of this
section and Sec. 327.16(g)(3) and (4), when an established institution
merges into or consolidates with a new institution, the resulting
institution is a new institution unless:
* * * * *
(l) Risk assignment. Under Sec. 327.16, for all new small
institutions and insured branches of foreign banks, risk assignment
includes assignment to Risk Category I, II, III, or IV, and for insured
branches of foreign banks within Risk Category I, assignment to an
assessment rate or rates. For all established small institutions, and
all large institutions and all highly complex institutions, risk
assignment includes assignment to an assessment rate.
(m) Unsecured debt. For purposes of the unsecured debt adjustment
as set forth in Sec. 327.16(e)(1) and the depository institution debt
adjustment as set forth in Sec. 327.16(e)(2), unsecured debt shall
include senior unsecured liabilities and subordinated debt.
(n) Senior unsecured liability. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2), senior
unsecured liabilities shall be the unsecured portion of other borrowed
money as defined in the quarterly report of condition for the reporting
period as defined in paragraph (b) of this section.
(o) Subordinated debt. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2),
subordinated debt shall be as defined in the quarterly report of
condition for the reporting period; however, subordinated debt shall
also include limited-life preferred stock as defined in the quarterly
report of condition for the reporting period.
(p) Long-term unsecured debt. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2), long-
term unsecured debt shall be unsecured debt with at least one year
remaining until maturity; however, any such debt where the holder of
the debt has a redemption option that is exercisable within one year of
the reporting date shall not be deemed long-term unsecured debt.
* * * * *
Sec. 327.9 [Removed and Reserved]
0
4. Remove and reserve Sec. 327.9.
0
5. Amend Sec. 327.10 as follows:
0
a. Remove paragraph (a);
0
b. Redesignate paragraph (b) as paragraph (a) and revise it;
0
c. Add new paragraph (b);
0
d. Remove paragraph (e)(1)(i);
0
e. Redesignate paragraph (e)(1)(ii) as paragraph (e)(1)(i) and revise
it;
0
f. Add new paragraph (e)(1)(ii);
0
g. Revise paragraph (e)(1)(iii);
0
h. Add paragraph (e)(1)(iv);
0
i. Revise paragraph (e)(2)(i);
0
j. Redesignate paragraphs (e)(2)(ii) and (iii) as (e)(2)(iii) and (iv),
respectively; and
0
k. Add new paragraph (e)(2)(ii).
The revisions and additions read as follows:
Sec. 327.10 Assessment rate schedules.
(a) Assessment rate schedules for established small institutions
and large and highly complex institutions applicable 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 in all subsequent assessment periods through
the assessment period ending December 31, 2022, where the reserve ratio
of the DIF as of the end of the prior assessment period is less than 2
percent.
(1) Initial base assessment rate schedule for established small
institutions and large and highly complex institutions. 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
through the assessment period ending December 31, 2022, where the
reserve ratio as of the end of the prior assessment period is less than
2 percent, the initial base assessment rate for established small
institutions and large and highly complex institutions, except as
provided in paragraph (f) of this section, shall be the rate prescribed
in the schedule in the following table:
Table 1 to Paragraph (a)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December 31
2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
----------------------------------------------------------------------------------------------------------------
\1\All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 1 or 2 shall range from 3 to 16 basis points.
(ii) CAMELS composite 3-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 3 shall range from 6 to 30 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions initial base assessment rate schedule. The annual initial
base assessment rates for all established small institutions with a
CAMELS composite rating of 4 or 5 shall range from 16 to 30 basis
points.
(iv) Large and highly complex institutions initial base assessment
rate schedule. The annual initial base assessment rates for all large
and highly complex institutions shall range from 3 to 30 basis points.
[[Page 39405]]
(2) Total base assessment rate schedule after adjustments. In the
first assessment period after June 30, 2016, that 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
through the assessment period ending December 31, 2022, where the
reserve ratio for the prior assessment period is less than 2 percent,
the total base assessment rates after adjustments for established small
institutions and large and highly complex institutions, except as
provided in paragraph (f) of this section, shall be as prescribed in
the schedule in the following table:
Table 2 to Paragraph (a)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments)\1\
Beginning the First Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period ending December
31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
Unsecured Debt Adjustment........... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 1.5 to 16 3 to 30 11 to 30 1.5 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
total base assessment rate schedule. The annual total base assessment
rates for all established small institutions with a CAMELS composite
rating of 1 or 2 shall range from 1.5 to 16 basis points.
(ii) CAMELS composite 3-rated established small institutions total
base assessment rate schedule. The annual total base assessment rates
for all established small institutions with a CAMELS composite rating
of 3 shall range from 3 to 30 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions total base assessment rate schedule. The annual total base
assessment rates for all established small institutions with a CAMELS
composite rating of 4 or 5 shall range from 11 to 30 basis points.
(iv) Large and highly complex institutions total base assessment
rate schedule. The annual total base assessment rates for all large and
highly complex institutions shall range from 1.5 to 40 basis points.
(b) Assessment rate schedules for established small institutions
and large and highly complex institutions beginning the first
assessment period of 2023, where the reserve ratio of the DIF as of the
end of the prior assessment period is less than 2 percent
(1) Initial base assessment rate schedule for established small
institutions and large and highly complex institutions. Beginning the
first assessment period of 2023, where the reserve ratio of the DIF as
of the end of the prior assessment period is less than 2 percent, the
initial base assessment rate for established small institutions and
large and highly complex institutions, except as provided in paragraph
(f) of this section, shall be the rate prescribed in the schedule in
the following table:
Table 3 to Paragraph (b)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2
Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 1 or 2 shall range from 5 to 18 basis points.
(ii) CAMELS composite 3-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 3 shall range from 8 to 32 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions initial base assessment rate schedule. The annual initial
base assessment rates for all established small institutions with a
CAMELS composite rating of 4 or 5 shall range from 18 to 32 basis
points.
(iv) Large and highly complex institutions initial base assessment
rate schedule. The annual initial base assessment rates for all large
and highly complex institutions shall range from 5 to 32 basis points.
(2) Total base assessment rate schedule after adjustments.
Beginning the first assessment period of 2023,
[[Page 39406]]
where the reserve ratio of the DIF as of the end of the prior
assessment period is less than 2 percent, the total base assessment
rates after adjustments for established small institutions and large
and highly complex institutions, except as provided in paragraph (f) of
this section, shall be as prescribed in the schedule in the following
table:
Table 4 to Paragraph (b)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments)\1\
Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
Unsecured Debt Adjustment........... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 2.5 to 18 4 to 32 13 to 32 2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
total base assessment rate schedule. The annual total base assessment
rates for all established small institutions with a CAMELS composite
rating of 1 or 2 shall range from 2.5 to 18 basis points.
(ii) CAMELS composite 3-rated established small institutions total
base assessment rate schedule. The annual total base assessment rates
for all established small institutions with a CAMELS composite rating
of 3 shall range from 4 to 32 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions total base assessment rate schedule. The annual total base
assessment rates for all established small institutions with a CAMELS
composite rating of 4 or 5 shall range from 13 to 32 basis points.
(iv) Large and highly complex institutions total base assessment
rate schedule. The annual total base assessment rates for all large and
highly complex institutions shall range from 2.5 to 42 basis points.
* * * * *
(e) * * *
(1) * * *
(i) Assessment rate schedules for new large and highly complex
institutions once the DIF reserve ratio first reaches 1.15 percent on
or after June 30, 2016 and through the assessment period ending
December 31, 2022. 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 through the assessment period ending
December 31, 2022, new large and new highly complex institutions shall
be subject to the initial and total base assessment rate schedules
provided for in paragraph (a) of this section.
(ii) Assessment rate schedules for new large and highly complex
institutions beginning the first assessment period of 2023 and for all
subsequent periods. Beginning in the first assessment period of 2023
and for all subsequent assessment periods, new large and new highly
complex institutions shall be subject to the initial and total base
assessment rate schedules provided for in paragraph (b) of this
section.
(iii) Assessment rate schedules for new small institutions
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, and for all subsequent assessment
periods through the assessment period ending December 31, 2022--(A)
Initial base assessment rate schedule for new small institutions. 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 through the assessment period ending December 31, 2022, the
initial base assessment rate for a new small institution shall be the
rate prescribed in the schedule in the following table:
Table 9 to Paragraph (e)(1)(iii)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15
Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December 31, 2022 \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
(1) Risk category I initial base assessment rate schedule. The
annual initial base assessment rates for all new small institutions in
Risk Category I shall be 7 basis points.
(2) Risk category II, III, and IV initial base assessment rate
schedule. The annual initial base assessment rates for all new small
institutions in Risk Categories II, III, and IV shall be 12, 19, and 30
basis points, respectively.
(B) Total base assessment rate schedule for new small institutions.
In the first assessment period after June 30, 2016, that the reserve
ratio of the DIF as of the end of the prior assessment period has
reached or exceeded 1.15
[[Page 39407]]
percent, and for all subsequent assessment periods through the
assessment period ending December 31, 2022, the total base assessment
rates after adjustments for a new small institution shall be the rate
prescribed in the schedule in the following table:
Table 10 to Paragraph (e)(1)(iii)(B) Introductory Text--Total Base Assessment Rate Schedule (After
Adjustments)\1\ Beginning the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End
of the Prior Assessment Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the
Assessment Period Ending December 31, 2022 \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 7 12 to 22 19 to 29 30 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
(1) Risk category I total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category I shall be 7 basis points.
(2) Risk category II total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category II shall range from 12 to 22 basis points.
(3) Risk category III total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category III shall range from 19 to 29 basis points.
(4) Risk category IV total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category IV shall range from 30 to 40 basis points.
(iv) Assessment rate schedules for new small institutions beginning
the first assessment period of 2023 and for all subsequent assessment
periods--(A) Initial base assessment rate schedule for new small
institutions. Beginning in the first assessment period of 2023 and for
all subsequent assessment periods, the initial base assessment rate for
a new small institution shall be the rate prescribed in the schedule in
the following table, even if the reserve ratio equals or exceeds 2
percent or 2.5 percent:
Table 11 to Paragraph (e)(1)(iv)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period of 2023 and for All Subsequent Assessment Periods \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
(1) Risk category I initial base assessment rate schedule. The
annual initial base assessment rates for all new small institutions in
Risk Category I shall be 9 basis points.
(2) Risk category II, III, and IV initial base assessment rate
schedule. The annual initial base assessment rates for all new small
institutions in Risk Categories II, III, and IV shall be 14, 21, and 32
basis points, respectively.
(B) Total base assessment rate schedule for new small institutions.
Beginning in the first assessment period of 2023 and for all subsequent
assessment periods, the total base assessment rates after adjustments
for a new small institution shall be the rate prescribed in the
schedule in the following table, even if the reserve ratio equals or
exceeds 2 percent or 2.5 percent:
Table 12 to Paragraph (e)(1)(iv)(B) Introductory Text--Total Base Assessment Rate Schedule (After
Adjustments)\1\ Beginning the First Assessment Period of 2023 and for All Subsequent Assessment Periods \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 9 14 to 24 21 to 31 32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
(1) Risk category I total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category I shall be 9 basis points.
[[Page 39408]]
(2) Risk category II total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category II shall range from 14 to 24 basis points.
(3) Risk category III total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category III shall range from 21 to 31 basis points.
(4) Risk category IV total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category IV shall range from 32 to 42 basis points.
(2) * * *
(i) 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, and for all
subsequent assessment periods through the assessment period ending
December 31, 2022, where the reserve ratio as of the end of the prior
assessment period is less than 2 percent. 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 through the
assessment period ending December 31, 2022, where the reserve ratio as
of the end of the prior assessment period is less than 2 percent, the
initial and total base assessment rates for an insured branch of a
foreign bank, except as provided in paragraph (f) of this section,
shall be the rate prescribed in the schedule in the following table:
Table 13 to Paragraph (e)(2)(i) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\ Beginning
the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment
Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending
December 31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent
\2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 3 to 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
(A) Risk category I initial and total base assessment rate
schedule. The annual initial and total base assessment rates for an
insured branch of a foreign bank in Risk Category I shall range from 3
to 7 basis points.
(B) Risk category II, III, and IV initial and total base assessment
rate schedule. The annual initial and total base assessment rates for
Risk Categories II, III, and IV shall be 12, 19, and 30 basis points,
respectively.
(C) All insured branches of foreign banks in any one risk category,
other than Risk Category I, will be charged the same initial base
assessment rate, subject to adjustment as appropriate.
(ii) Assessment rate schedule for insured branches of foreign banks
beginning the first assessment period of 2023, where the reserve ratio
of the DIF as of the end of the prior assessment period is less than 2
percent. Beginning the first assessment period of 2023, where the
reserve ratio of the DIF as of the end of the prior assessment period
is less than 2 percent, the initial and total base assessment rates for
an insured branch of a foreign bank, except as provided in paragraph
(f) of this section, shall be the rate prescribed in the schedule in
the following table:
Table 14 to Paragraph (e)(2)(ii) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\
Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 5 to 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
(A) Risk category I initial and total base assessment rate
schedule. The annual initial and total base assessment rates for an
insured branch of a foreign bank in Risk Category I shall range from 5
to 9 basis points.
(B) Risk category II, III, and IV initial and total base assessment
rate schedule. The annual initial and total base assessment rates for
Risk Categories II, III, and IV shall be 14, 21, and 32 basis points,
respectively.
(C) Same initial base assessment rate. All insured branches of
foreign banks in any one risk category, other than Risk Category I,
will be charged the same initial base assessment rate, subject to
adjustment as appropriate.
* * * * *
0
6. Amend Sec. 327.11 by revising paragraph (c)(3)(i) to read as
follows:
Sec. 327.11 Surcharges and assessments required to raise the reserve
ratio of the DIF to 1.35 percent.
* * * * *
(c) * * *
(3) * * *
(i) Fraction of quarterly regular deposit insurance assessments
paid by credit accruing institutions. The fraction of assessments paid
by credit accruing institutions shall equal quarterly deposit insurance
assessments, as determined under Sec. 327.16, paid by such
institutions for each assessment period during the credit calculation
period, divided by the total amount of quarterly deposit insurance
assessments paid by all insured depository institutions during the
credit calculation period, excluding the aggregate amount of
[[Page 39409]]
surcharges imposed under paragraph (b) of this section.
* * * * *
0
7. Amend Sec. 327.16 as follows:
0
a. Redesignate paragraphs (a)(1)(i)(A) through (C) as (a)(1)(i)(B)
through (D), respectively;
0
b. Add new paragraph (a)(1)(i)(A);
0
c. Revise newly redesignated paragraph (a)(1)(i)(B);
0
d. Redesignate paragraphs (d)(4)(ii)(A) through (C) as (d)(4)(ii)(B)
through (D), respectively;
0
e. Add new paragraph (d)(4)(ii)(A); and
0
f. Revise newly redesignated paragraph (d)(4)(ii)(B).
The revisions and additions read as follows:
Sec. 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.
* * * * *
(a) * * *
(1) * * *
(i) Uniform amount. Except as adjusted for the actual assessment
rates set by the Board under Sec. 327.10(f), the uniform amount shall
be:
(A) 7.352 whenever the assessment rate schedule set forth in Sec.
327.10(a) is in effect;
(B) 9.352 whenever the assessment rate schedule set forth in Sec.
327.10(b) is in effect;
* * * * *
(d) * * *
(4) * * *
(ii) * * *
(A) -5.127 whenever the assessment rate schedule set forth in Sec.
327.10(a) is in effect;
(B) -3.127 whenever the assessment rate schedule set forth in Sec.
327.10(b) is in effect;
* * * * *
0
8. Amend appendix A to subpart A of part 327 as follows:
0
a. Revise sections I through III;
0
b. Remove sections IV and V; and
0
c. Redesignate section VI as section IV;
The revisions read as follows:
Appendix A to Subpart A of Part 327--Method To Derive Pricing
Multipliers and Uniform Amount
I. Introduction
The uniform amount and pricing multipliers are derived from:
A model (the Statistical Model) that estimates the
probability of failure of an institution over a three-year horizon;
The minimum initial base assessment rate;
The maximum initial base assessment rate;
Thresholds marking the points at which the maximum and
minimum assessment rates become effective.
II. The Statistical Model
The Statistical Model estimates the probability of an insured
depository institution failing within three years using a logistic
regression and pooled time-series cross-sectional data; \1\ that is,
the dependent variable in the estimation is whether an insured
depository institution failed during the following three-year
period. Actual model parameters for the Statistical Model are an
average of each of three regression estimates for each parameter.
Each of the three regressions uses end-of-year data from insured
depository institutions' quarterly reports of condition and income
(Call Reports and Thrift Financial Reports or TFRs \2\) for every
third year to estimate probability of failure within the ensuing
three years. One regression (Regression 1) uses insured depository
institutions' Call Report and TFR data for the end of 1985 and
failures from 1986 through 1988; Call Report and TFR data for the
end of 1988 and failures from 1989 through 1991; and so on, ending
with Call Report data for the end of 2009 and failures from 2010
through 2012. The second regression (Regression 2) uses insured
depository institutions' Call Report and TFR data for the end of
1986 and failures from 1987 through 1989, and so on, ending with
Call Report data for the end of 2010 and failures from 2011 through
2013. The third regression (Regression 3) uses insured depository
institutions' Call Report and TFR data for the end of 1987 and
failures from 1988 through 1990, and so on, ending with Call Report
data for the end of 2011 and failures from 2012 through 2014. The
regressions include only Call Report data and failures for
established small institutions.
\1\ Tests for the statistical significance of parameters use
adjustments discussed by Tyler Shumway (2001) ``Forecasting
Bankruptcy More Accurately: A Simple Hazard Model,'' Journal of
Business 74:1, 101-124.
\2\ Beginning in 2012, all insured depository institutions began
filing quarterly Call Reports and the TFR was no longer filed.
Table A.1 lists and defines the explanatory variables
(regressors) in the Statistical Model.
Table A.1--Definitions of Measures Used in the Financial Ratios Method
------------------------------------------------------------------------
Variables Description
------------------------------------------------------------------------
Leverage Ratio (%)................ Tier 1 capital divided by adjusted
average assets. (Numerator and
denominator are both based on the
definition for prompt corrective
action.)
Net Income before Taxes/Total Income (before applicable income
Assets (%). taxes and discontinued operations)
for the most recent twelve months
divided by total assets.\1\
Nonperforming Loans and Leases/ Sum of total loans and lease
Gross Assets (%). 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
maximum amount recoverable from the
U.S. Government, its agencies or
government-sponsored enterprises,
under guarantee or insurance
provisions) divided by gross
assets.\2\ \3\
Other Real Estate Owned/Gross Other real estate owned divided by
Assets (%). gross assets.\2\
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
capitalized and have a CAMELS
composite rating of 1 or 2,
reciprocal deposits are deducted
from brokered deposits. If the
ratio is less than zero, the value
is set to zero.
Weighted Average of C, A, M, E, L, The weighted sum of the ``C,''
and S Component Ratings. ``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. In
instances where the ``S'' component
is missing, the remaining
components are scaled by a factor
of 10/9.\4\
Loan Mix Index.................... A measure of credit risk described
below.
One-Year Asset Growth (%)......... Growth in assets (adjusted for
mergers \5\) over the previous year
in excess of 10 percent.\6\ If
growth is less than 10 percent, the
value is set to zero.
------------------------------------------------------------------------
\1\ For purposes of calculating actual assessment rates (as opposed to
model estimation), 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. For purposes of
model estimation only, the ratio of Net Income before Taxes to Total
Assets is defined as income (before income taxes and extraordinary
items and other adjustments) for the most recent twelve months divided
by total assets.
[[Page 39410]]
\2\ For purposes of calculating actual assessment rates (as opposed to
model estimation), ``Gross assets'' are total assets plus the
allowance for loan and lease financing receivable losses (ALLL); for
purposes of estimating the Statistical Model, for years before 2001,
when allocated transfer risk was not included in ALLL in Call Reports,
allocated transfer risk is included in gross assets separately.
\3\ Delinquency and non-accrual data on government guaranteed loans are
not available for the entire estimation period. As a result, the
Statistical Model is estimated without deducting delinquent or past-
due government guaranteed loans from the nonperforming loans and
leases to gross assets ratio.
\4\ The component rating for sensitivity to market risk (the ``S''
rating) is not available for years before 1997. As a result, and as
described in the table, the Statistical Model is estimated using a
weighted average of five component ratings excluding the ``S''
component where the component is not available.
\5\ Growth in assets is also adjusted for acquisitions of failed banks.
\6\ For purposes of calculating actual assessment rates (as opposed to
model estimation), the maximum value of the One-Year 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.
The financial variable measures used to estimate the failure
probabilities are obtained from Call Reports and TFRs. The weighted
average of the ``C,'' ``A,'' ``M,'' ``E'', ``L'', and ``S''
component ratings measure is based on component ratings obtained
from the most recent bank examination conducted within 24 months
before the date of the Call Report or TFR.
The Loan Mix Index assigns loans to the categories of loans
described in Table A.2. For each loan category, a charge-off rate is
calculated for each year from 2001 through 2014. The charge-off rate
for each year is the aggregate charge-off rate on all such loans
held by small institutions in that year. A weighted average charge-
off rate is then calculated for each loan category, where the weight
for each year is based on the number of small-bank failures during
that year.\3\ A Loan Mix Index for each established small
institution is calculated by: (1) multiplying the ratio of the
institution's amount of loans in a particular loan category to its
total assets by the associated weighted average charge-off rate for
that loan category; and (2) summing the products for all loan
categories. Table A.2 gives the weighted average charge-off rate for
each category of loan, as calculated through the end of 2014. The
Loan Mix Index excludes credit card loans.
\3\ An exception is ``Real Estate Loans Residual,'' which
consists of real estate loans held in foreign offices. Few small
insured depository institutions report this item and a statistically
reliable estimate of the weighted average charge-off rate could not
be obtained. Instead, a weighted average of the weighted average
charge-off rates of the other real estate loan categories is used.
(The other categories are construction & development, multifamily
residential, nonfarm nonresidential, 1-4 family residential, and
agricultural real estate.) The weight for each of the other real
estate loan categories is based on the aggregate amount of the loans
held by small insured depository institutions as of December 31,
2014.
Table A.2--Loan Mix Index Categories
------------------------------------------------------------------------
Weighted charge-
off rate
percent
------------------------------------------------------------------------
Construction and Development.......................... 4.4965840
Commercial & Industrial............................... 1.5984506
Leases................................................ 1.4974551
Other Consumer........................................ 1.4559717
Loans to Foreign Government........................... 1.3384093
Real Estate Loans Residual............................ 1.0169338
Multifamily Residential............................... 0.8847597
Nonfarm Nonresidential................................ 0.7286274
1-4 Family Residential................................ 0.6973778
Loans to Depository banks............................. 0.5760532
Agricultural Real Estate.............................. 0.2376712
Agriculture........................................... 0.2432737
------------------------------------------------------------------------
For each of the three regression estimates (Regression 1,
Regression 2 and Regression 3), the estimated probability of failure
(over a three-year horizon) of institution i at time T is
Equation 1
PiT = 1/((1+ exp(-ZiT))
where
Equation 2
ZiT = [beta]0 + [beta]1 (Leverage RatioiT) +
[beta]2 (Nonperforming loans and leases ratioiT) +
[beta]3 (Other real estate owned ratioiT) +
[beta]4 (Net income before taxes ratioiT) +
[beta]5 (Brokered deposit ratioiT) + [beta]6
(Weighted average CAMELS component ratingiT) + [beta]7
(Loan mix indexiT) + [beta]8 (One-year asset growthiT)
where the [beta] variables are parameter estimates. As stated
earlier, for actual assessments, the [beta] values that are applied
are averages of each of the individual parameters over three
separate regressions. Pricing multipliers (discussed in the next
section) are based on ZiT.\4\
\4\ The ZiT values have the same rank ordering as the
probability measures PiT.
III. Derivation of Uniform Amount and Pricing Multipliers
The uniform amount and pricing multipliers used to compute the
annual initial base assessment rate in basis points, RiT, for any
such institution i at a given time T will be determined from the
Statistical Model as follows:
Equation 3
RiT = [alpha]0 + [alpha]1 * ZiT subject to Min
<= RiT <= Max 5
where [alpha]0 and [alpha]1 are a constant term and a scale factor
used to convert ZiT to an assessment rate, Max is the maximum
initial base assessment rate in effect and Min is the minimum
initial base assessment rate in effect. (RiT is expressed as an
annual rate, but the actual rate applied in any quarter will be RiT/
4.)
\5\ RiT is also subject to the minimum and maximum
assessment rates applicable to established small institutions based
upon their CAMELS composite ratings.
Solving equation 3 for minimum and maximum initial base
assessment rates simultaneously,
Min = [alpha]0 + [alpha]1 * ZN and
Max = [alpha]0 + [alpha]1 * ZX
where ZX is the value of ZiT above which the
maximum initial assessment rate (Max) applies and ZN is
the value of ZiT below which the minimum initial
assessment rate (Min) applies, results in values for the constant
amount, [alpha]0, and the scale factor,
[alpha]1:
[[Page 39411]]
[GRAPHIC] [TIFF OMITTED] TP01JY22.009
[GRAPHIC] [TIFF OMITTED] TP01JY22.010
The values for ZX and ZN will be selected
to ensure that, for an assessment period shortly before adoption of
a final rule, aggregate assessments for all established small
institutions would have been approximately the same under the final
rule as they would have been under the assessment rate schedule
that--under rules in effect before adoption of the final rule--will
automatically go into effect when the reserve ratio reaches 1.15
percent. As an example, using aggregate assessments for all
established small institutions for the third quarter of 2013 to
determine ZX and ZN, and assuming that Min had
equaled 3 basis points and Max had equaled 30 basis points, the
value of ZX would have been 0.87 and the value of
ZN -6.36. Hence based on equations 4 and 5,
[alpha]0 = 26.751 and
[alpha]1 = 3.734.
Therefore from equation 3, it follows that
Equation 6
RiT = 26.751 + 3.734 * ZiT subject to 3 <= RiT <= 30
Substituting equation 2 produces an annual initial base
assessment rate for institution i at time T, RiT, in terms of the
uniform amount, the pricing multipliers and model variables:
Equation 7
RiT = [26.751 + 3.734 * [beta]0] + 3.734 *
[[beta]1 (Leverage ratioiT)] + 3.734 * [beta]2
(Nonperforming loans and leases ratioiT) + 3.734 *
[beta]3 (Other real estate owned ratioiT) + 3.734 *
[beta]4 (Net income before taxes ratioiT) + 3.734 *
[beta]5 (Brokered deposit ratioiT) + 3.734 *
[beta]6 (Weighted average CAMELS component ratingiT) +
3.734 * [beta]7 (Loan mix indexiT) + 3.734 *
[beta]8 (One-year asset growthiT)
again subject to 3 <= RiT <= 30 \6\
where 26.751 + 3.734 * [beta]0 equals the uniform amount,
3.734 * [beta]j is a pricing multiplier for the
associated risk measure j, and T is the date of the report of
condition corresponding to the end of the quarter for which the
assessment rate is computed.
\6\ As stated above, RiT is also subject to the minimum and
maximum assessment rates applicable to established small
institutions based upon their CAMELS composite ratings.
* * * * *
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on June 21, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-13578 Filed 6-30-22; 8:45 am]
BILLING CODE 6714-01-P