69282 Federal Register / Vol. 71, No. 230 / Thursday, November 30, 2006 / Rules and Regulations
1 Federal Deposit Insurance Reform Act of 2005,
Public Law 109–171, 120 Stat. 9; Federal Deposit
Insurance Conforming Amendments Act of 2005,
Public Law 109–173, 119 Stat. 3601.
2 Section 2109(a)(5) of the Reform Act. Pursuant
to the Section 2109 of the Reform Act, current
assessment regulations remain in effect until the
effective date of new regulations. Section 2109(a)(5)
of the Reform Act requires the FDIC, within 270
days of enactment, to prescribe final regulations,
after notice and opportunity for comment,
providing for assessments under section 7(b) of the
Federal Deposit Insurance Act. Section 2109 also
requires the FDIC to prescribe, within 270 days,
rules on the designated reserve ratio, changes to
deposit insurance coverage, the one-time
assessment credit, and dividends. A final rule on
deposit insurance coverage was published on
September 12, 2006. 71 FR 53547. Final rules on
the one-time assessment credit and dividends were
published on October 18, 2006. 71 FR 61374; 71 FR
61385. The FDIC is publishing final rulemakings on
the designated reserve ratio and on operational
changes to part 327 elsewhere in this issue of the
Federal Register.
3 The comment period expired on September 22,
2006. The FDIC also received many comments
relevant to this rulemaking in response to the other
rulemakings discussed in footnote 2. All comments
have been considered and are available on the
FDIC’s Web site, http://www.fdic.gov/regulations/
laws/federal/propose.html.
4 The trade associations included the American
Bankers Association, the Independent Community
Bankers of America, America’s Community
Bankers, the Clearing House, the Financial Services
Roundtable, the New York Bankers Association, the
New Jersey League of Community Bankers, the
Massachusetts Bankers Association, the Kansas
Bankers Association, and the Association for
Financial Professionals.
5 The FDIC’s regulations refer to these risk
categories as ‘‘assessment risk classifications.’’
6 The term ‘‘primary federal regulator’’ is
synonymous with the statutory term ‘‘appropriate
federal banking agency.’’ 12 U.S.C. 1813(q).
consecutive quarters, the FDIC will
reclassify the institution as small
beginning the following quarter.
(h) Large Institution. An insured
depository institution with assets of $10
billion or more as of December 31, 2006
(other than an insured branch of a
foreign bank) shall be classified as a
large institution. If, after December 31,
2006, an institution classified as small
under paragraph (g) of this section
reports assets of $10 billion or more in
its reports of condition for four
consecutive quarters, the FDIC will
reclassify the institution as large
beginning the following quarter.
(i) Long-Term Debt Issuer Rating. A
long-term debt issuer rating shall mean
a current rating of an insured depository
institution’s long-term debt obligations
by Moody’s Investor Services, Standard
& Poor’s, or Fitch Ratings. A long-term
debt issuer rating does not include a
rating of a company that controls an
insured depository institution, or an
affiliate or subsidiary of the institution.
A current rating shall mean one that has
been confirmed or assigned within 12
months before the end of the quarter for
which an assessment rate is being
determined. If no current rating is
available, the institution will be deemed
to have no long-term debt issuer rating.
(j) CAMELS composite and CAMELS
component ratings. The terms CAMELS
composite ratings and CAMELS
component ratings shall have the same
meaning as in the Uniform Financial
Institutions Rating System as published
by the Federal Financial Institutions
Examination Council.
(k) ROCA supervisory ratings. ROCA
supervisory ratings rate risk
management, operational controls,
compliance, and asset quality.
(l) New depository institution. A new
insured depository institution is a bank
or thrift that has not been chartered for
at least five years as of the last day of
any quarter for which it is being
assessed.
(m) Established depository institution.
An established institution is a bank or
thrift that has been chartered for at least
five years as of the last day of any
quarter for which it is being assessed.
(n) Risk assignment. An institution’s
risk assignment includes assignment to
Risk Category I, II, III, or IV, and, within
Risk Category I, assignment to an
assessment rate or rates.
By order of the Board of Directors.
Dated at Washington, DC, this 2nd day of
November, 2006.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 06–9267 Filed 11–29–06; 8:45 am]
BILLING CODE 6714 –01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AD09
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Reform Act of 2005 requires
that the Federal Deposit Insurance
Corporation (the FDIC) prescribe final
regulations, after notice and opportunity
for comment, to provide for deposit
insurance assessments under section
7(b) of the Federal Deposit Insurance
Act (the FDI Act). In this rulemaking,
the FDIC is amending its regulations to
create a new risk differentiation system,
to establish a new base assessment rate
schedule, and to set assessment rates
effective January 1, 2007.
DATES: Effective Date: January 1, 2007.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Senior Policy
Analyst, Division of Insurance and
Research, (202) 898–8967; or
Christopher Bellotto, Counsel, Legal
Division, (202) 898–3801.
SUPPLEMENTARY INFORMATION:
I. Background
On February 8, 2006, the President
signed the Federal Deposit Insurance
Reform Act of 2005 into law; on
February 15, 2006, he signed the Federal
Deposit Insurance Reform Conforming
Amendments Act of 2005 (collectively,
the Reform Act).1 The Reform Act
enacts the bulk of the recommendations
made by the FDIC in 2001. The Reform
Act, among other things, requires that
the FDIC, within 270 days, ‘‘prescribe
final regulations, after notice and
opportunity for comment * * *
providing for assessments under section
7(b) of the Federal Deposit Insurance
Act, as amended * * * ,’’ thus giving
the FDIC, through its rulemaking
authority, the opportunity to better price
deposit insurance for risk.2
On July 24, 2006, the FDIC published
in the Federal Register, for a 60-day
comment period, a notice of proposed
rulemaking providing for deposit
insurance assessments (the NPR). 71 FR
41910. The FDIC sought public
comment on its proposal and received
707 comment letters, including
numerous comments from trade
organizations.3 4 The comments and the
final rule providing for assessments are
discussed in later sections.
A. The Current Risk-Differentiation
Framework
The Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA) required that the FDIC
establish a risk-based assessment
system. To implement this requirement,
the FDIC adopted by regulation a system
that places institutions into risk
categories 5 based on two criteria:
capital levels and supervisory ratings.
Three capital groups—well capitalized,
adequately capitalized, and
undercapitalized, which are numbered
1, 2 and 3, respectively—are based on
leverage ratios and risk-based capital
ratios for regulatory capital purposes.
Three supervisory subgroups, termed A,
B, and C, are based upon the FDIC’s
consideration of evaluations provided
by the institution’s primary federal
regulator and other information the
FDIC deems relevant.6 Subgroup A
VerDate Aug<31>2005 17:16 Nov 29, 2006 Jkt 211001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\30NOR2.SGM 30NOR2
jlentini on PROD1PC65 with RULES2
1 Federal Deposit Insurance Reform Act of 2005,
Public Law 109–171, 120 Stat. 9; Federal Deposit
Insurance Conforming Amendments Act of 2005,
Public Law 109–173, 119 Stat. 3601.
2 Section 2109(a)(5) of the Reform Act. Pursuant
to the Section 2109 of the Reform Act, current
assessment regulations remain in effect until the
effective date of new regulations. Section 2109(a)(5)
of the Reform Act requires the FDIC, within 270
days of enactment, to prescribe final regulations,
after notice and opportunity for comment,
providing for assessments under section 7(b) of the
Federal Deposit Insurance Act. Section 2109 also
requires the FDIC to prescribe, within 270 days,
rules on the designated reserve ratio, changes to
deposit insurance coverage, the one-time
assessment credit, and dividends. A final rule on
deposit insurance coverage was published on
September 12, 2006. 71 FR 53547. Final rules on
the one-time assessment credit and dividends were
published on October 18, 2006. 71 FR 61374; 71 FR
61385. The FDIC is publishing final rulemakings on
the designated reserve ratio and on operational
changes to part 327 elsewhere in this issue of the
Federal Register.
3 The comment period expired on September 22,
2006. The FDIC also received many comments
relevant to this rulemaking in response to the other
rulemakings discussed in footnote 2. All comments
have been considered and are available on the
FDIC’s Web site, http://www.fdic.gov/regulations/
laws/federal/propose.html.
4 The trade associations included the American
Bankers Association, the Independent Community
Bankers of America, America’s Community
Bankers, the Clearing House, the Financial Services
Roundtable, the New York Bankers Association, the
New Jersey League of Community Bankers, the
Massachusetts Bankers Association, the Kansas
Bankers Association, and the Association for
Financial Professionals.
5 The FDIC’s regulations refer to these risk
categories as ‘‘assessment risk classifications.’’
6 The term ‘‘primary federal regulator’’ is
synonymous with the statutory term ‘‘appropriate
federal banking agency.’’ 12 U.S.C. 1813(q).
consecutive quarters, the FDIC will
reclassify the institution as small
beginning the following quarter.
(h) Large Institution. An insured
depository institution with assets of $10
billion or more as of December 31, 2006
(other than an insured branch of a
foreign bank) shall be classified as a
large institution. If, after December 31,
2006, an institution classified as small
under paragraph (g) of this section
reports assets of $10 billion or more in
its reports of condition for four
consecutive quarters, the FDIC will
reclassify the institution as large
beginning the following quarter.
(i) Long-Term Debt Issuer Rating. A
long-term debt issuer rating shall mean
a current rating of an insured depository
institution’s long-term debt obligations
by Moody’s Investor Services, Standard
& Poor’s, or Fitch Ratings. A long-term
debt issuer rating does not include a
rating of a company that controls an
insured depository institution, or an
affiliate or subsidiary of the institution.
A current rating shall mean one that has
been confirmed or assigned within 12
months before the end of the quarter for
which an assessment rate is being
determined. If no current rating is
available, the institution will be deemed
to have no long-term debt issuer rating.
(j) CAMELS composite and CAMELS
component ratings. The terms CAMELS
composite ratings and CAMELS
component ratings shall have the same
meaning as in the Uniform Financial
Institutions Rating System as published
by the Federal Financial Institutions
Examination Council.
(k) ROCA supervisory ratings. ROCA
supervisory ratings rate risk
management, operational controls,
compliance, and asset quality.
(l) New depository institution. A new
insured depository institution is a bank
or thrift that has not been chartered for
at least five years as of the last day of
any quarter for which it is being
assessed.
(m) Established depository institution.
An established institution is a bank or
thrift that has been chartered for at least
five years as of the last day of any
quarter for which it is being assessed.
(n) Risk assignment. An institution’s
risk assignment includes assignment to
Risk Category I, II, III, or IV, and, within
Risk Category I, assignment to an
assessment rate or rates.
By order of the Board of Directors.
Dated at Washington, DC, this 2nd day of
November, 2006.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 06–9267 Filed 11–29–06; 8:45 am]
BILLING CODE 6714 –01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AD09
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Reform Act of 2005 requires
that the Federal Deposit Insurance
Corporation (the FDIC) prescribe final
regulations, after notice and opportunity
for comment, to provide for deposit
insurance assessments under section
7(b) of the Federal Deposit Insurance
Act (the FDI Act). In this rulemaking,
the FDIC is amending its regulations to
create a new risk differentiation system,
to establish a new base assessment rate
schedule, and to set assessment rates
effective January 1, 2007.
DATES: Effective Date: January 1, 2007.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Senior Policy
Analyst, Division of Insurance and
Research, (202) 898–8967; or
Christopher Bellotto, Counsel, Legal
Division, (202) 898–3801.
SUPPLEMENTARY INFORMATION:
I. Background
On February 8, 2006, the President
signed the Federal Deposit Insurance
Reform Act of 2005 into law; on
February 15, 2006, he signed the Federal
Deposit Insurance Reform Conforming
Amendments Act of 2005 (collectively,
the Reform Act).1 The Reform Act
enacts the bulk of the recommendations
made by the FDIC in 2001. The Reform
Act, among other things, requires that
the FDIC, within 270 days, ‘‘prescribe
final regulations, after notice and
opportunity for comment * * *
providing for assessments under section
7(b) of the Federal Deposit Insurance
Act, as amended * * * ,’’ thus giving
the FDIC, through its rulemaking
authority, the opportunity to better price
deposit insurance for risk.2
On July 24, 2006, the FDIC published
in the Federal Register, for a 60-day
comment period, a notice of proposed
rulemaking providing for deposit
insurance assessments (the NPR). 71 FR
41910. The FDIC sought public
comment on its proposal and received
707 comment letters, including
numerous comments from trade
organizations.3 4 The comments and the
final rule providing for assessments are
discussed in later sections.
A. The Current Risk-Differentiation
Framework
The Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA) required that the FDIC
establish a risk-based assessment
system. To implement this requirement,
the FDIC adopted by regulation a system
that places institutions into risk
categories 5 based on two criteria:
capital levels and supervisory ratings.
Three capital groups—well capitalized,
adequately capitalized, and
undercapitalized, which are numbered
1, 2 and 3, respectively—are based on
leverage ratios and risk-based capital
ratios for regulatory capital purposes.
Three supervisory subgroups, termed A,
B, and C, are based upon the FDIC’s
consideration of evaluations provided
by the institution’s primary federal
regulator and other information the
FDIC deems relevant.6 Subgroup A
VerDate Aug<31>2005 17:16 Nov 29, 2006 Jkt 211001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\30NOR2.SGM 30NOR2
jlentini on PROD1PC65 with RULES2
69283Federal Register / Vol. 71, No. 230 / Thursday, November 30, 2006 / Rules and Regulations
7 CAMELS is an acronym for component ratings
assigned in a bank examination: Capital adequacy,
Asset quality, Management, Earnings, Liquidity,
and Sensitivity to market risk. A composite
CAMELS rating combines these component ratings,
which also range from 1 (best) to 5 (worst).
8 12 U.S.C. 1817(b)(1)(A) and (C). The Bank
Insurance Fund and Savings Association Insurance
Fund were merged into the newly created Deposit
Insurance Fund on March 31, 2006.
9 The Reform Act eliminates the prohibition
against charging well-managed and well-capitalized
institutions when the deposit insurnace fund is at
or above, and is expected to remain at or above, the
designated reserve ratio (DRR). This prohibition
was inclulded as part of the Deposit Insurance
Funds Act of 1996. Public Law 104–208, 110 Stat.
3009, 3009–479. However, while the Reform Act
allows the DRR to be set between 1.15 percent and
1.50 percent, it also generally requires dividends of
one-half of any amount in the fund in excess of the
amount required to maintain the reserve ratio at
1.35 percent when the insurance fund reserve ratio
exceeds 1.35 percent at the end of any year. The
Board can suspend these dividends under certain
circumstances. 12 U.S.C. 1817(e)(2).
10 12 U.S.C. 1817(b)(1)(D).
11 Section 2104(a)(2) of the Reform Act (to be
codified at 12 U.S.C. 1817(b)(2)(D)).
consists of financially sound
institutions with only a few minor
weaknesses; subgroup B consists of
institutions that demonstrate
weaknesses that, if not corrected, could
result in significant deterioration of the
institution and increased risk of loss to
the insurance fund; and subgroup C
consists of institutions that pose a
substantial probability of loss to the
insurance fund unless effective
corrective action is taken. In practice,
the subgroup evaluations are generally
based on an institution’s composite
CAMELS rating, a rating assigned by the
institution’s supervisor at the end of a
bank examination, with 1 being the best
rating and 5 being the lowest.7
Generally speaking, institutions with a
CAMELS rating of 1 or 2 are put in
supervisory subgroup A, those with a
CAMELS rating of 3 are put in subgroup
B, and those with a CAMELS rating of
4 or 5 are put in subgroup C. Thus, in
the current assessment system, the
highest-rated (least risky) institutions
are assigned to category 1A and the
lowest-rated (riskiest) institutions to
category 3C. The three capital groups
and three supervisory subgroups form a
nine-cell matrix for risk-based
assessments:
B. Reform Act Provisions
The Federal Deposit Insurance Act, as
amended by the Reform Act, continues
to require that the assessment system be
risk-based and allows the FDIC to define
risk broadly. It defines a risk-based
system as one based on an institution’s
probability of causing a loss to the
deposit insurance fund due to the
composition and concentration of the
institution’s assets and liabilities, the
amount of loss given failure, and
revenue needs of the Deposit Insurance
Fund (the fund).8
At the same time, the Reform Act also
restores to the FDIC’s Board of Directors
the discretion to price deposit insurance
according to risk for all insured
institutions regardless of the level of the
fund reserve ratio.9
The Reform Act leaves in place the
existing statutory provision allowing the
FDIC to ‘‘establish separate risk-based
assessment systems for large and small
members of the Deposit Insurance
Fund.’’ 10 Under the Reform Act,
however, separate systems are subject to
a new requirement that ‘‘[n]o insured
depository institution shall be barred
from the lowest-risk category solely
because of size.’’ 11
II. Summary of the Final Rule
The final rule is set out in detail in
ensuing sections, but is briefly
summarized here.
The final rule consolidates the
existing nine risk categories into four
and names them Risk Categories I, II, III
and IV. Risk Category I replaces the 1A
risk category.
Within Risk Category I, the final rule
combines supervisory ratings with other
risk measures to differentiate risk. For
most institutions, the final rule
combines CAMELS component ratings
with financial ratios to determine an
institution’s assessment rate. For large
institutions that have long-term debt
issuer ratings, the final rule
differentiates risk by combining
CAMELS component ratings with these
ratings. For large institutions within
Risk Category I, initial assessment rate
determinations may be modified within
limits upon review of additional
relevant information.
The final rule defines a large
institution as an institution that has $10
billion or more in assets. With certain
exceptions, beginning in 2010, the final
rule treats new institutions (those
established for less than five years) in
Risk Category I the same, regardless of
size, and assesses them at the maximum
rate applicable to Risk Category I
institutions.
The final rule sets actual rates
beginning January 1, 2007, as follows:
Risk Category
I * II III IV
Minimum Maximum
Annual Rates (in basis points) ........................................................................................................... 5 7 10 28 43
* Rates for institutions that do not pay the minimum or maximum rate vary between these rates.
VerDate Aug<31>2005 17:16 Nov 29, 2006 Jkt 211001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 E:\FR\FM\30NOR2.SGM 30NOR2
ER30NO06.002</GPH>
jlentini on PROD1PC65 with RULES2
7 CAMELS is an acronym for component ratings
assigned in a bank examination: Capital adequacy,
Asset quality, Management, Earnings, Liquidity,
and Sensitivity to market risk. A composite
CAMELS rating combines these component ratings,
which also range from 1 (best) to 5 (worst).
8 12 U.S.C. 1817(b)(1)(A) and (C). The Bank
Insurance Fund and Savings Association Insurance
Fund were merged into the newly created Deposit
Insurance Fund on March 31, 2006.
9 The Reform Act eliminates the prohibition
against charging well-managed and well-capitalized
institutions when the deposit insurnace fund is at
or above, and is expected to remain at or above, the
designated reserve ratio (DRR). This prohibition
was inclulded as part of the Deposit Insurance
Funds Act of 1996. Public Law 104–208, 110 Stat.
3009, 3009–479. However, while the Reform Act
allows the DRR to be set between 1.15 percent and
1.50 percent, it also generally requires dividends of
one-half of any amount in the fund in excess of the
amount required to maintain the reserve ratio at
1.35 percent when the insurance fund reserve ratio
exceeds 1.35 percent at the end of any year. The
Board can suspend these dividends under certain
circumstances. 12 U.S.C. 1817(e)(2).
10 12 U.S.C. 1817(b)(1)(D).
11 Section 2104(a)(2) of the Reform Act (to be
codified at 12 U.S.C. 1817(b)(2)(D)).
consists of financially sound
institutions with only a few minor
weaknesses; subgroup B consists of
institutions that demonstrate
weaknesses that, if not corrected, could
result in significant deterioration of the
institution and increased risk of loss to
the insurance fund; and subgroup C
consists of institutions that pose a
substantial probability of loss to the
insurance fund unless effective
corrective action is taken. In practice,
the subgroup evaluations are generally
based on an institution’s composite
CAMELS rating, a rating assigned by the
institution’s supervisor at the end of a
bank examination, with 1 being the best
rating and 5 being the lowest.7
Generally speaking, institutions with a
CAMELS rating of 1 or 2 are put in
supervisory subgroup A, those with a
CAMELS rating of 3 are put in subgroup
B, and those with a CAMELS rating of
4 or 5 are put in subgroup C. Thus, in
the current assessment system, the
highest-rated (least risky) institutions
are assigned to category 1A and the
lowest-rated (riskiest) institutions to
category 3C. The three capital groups
and three supervisory subgroups form a
nine-cell matrix for risk-based
assessments:
B. Reform Act Provisions
The Federal Deposit Insurance Act, as
amended by the Reform Act, continues
to require that the assessment system be
risk-based and allows the FDIC to define
risk broadly. It defines a risk-based
system as one based on an institution’s
probability of causing a loss to the
deposit insurance fund due to the
composition and concentration of the
institution’s assets and liabilities, the
amount of loss given failure, and
revenue needs of the Deposit Insurance
Fund (the fund).8
At the same time, the Reform Act also
restores to the FDIC’s Board of Directors
the discretion to price deposit insurance
according to risk for all insured
institutions regardless of the level of the
fund reserve ratio.9
The Reform Act leaves in place the
existing statutory provision allowing the
FDIC to ‘‘establish separate risk-based
assessment systems for large and small
members of the Deposit Insurance
Fund.’’ 10 Under the Reform Act,
however, separate systems are subject to
a new requirement that ‘‘[n]o insured
depository institution shall be barred
from the lowest-risk category solely
because of size.’’ 11
II. Summary of the Final Rule
The final rule is set out in detail in
ensuing sections, but is briefly
summarized here.
The final rule consolidates the
existing nine risk categories into four
and names them Risk Categories I, II, III
and IV. Risk Category I replaces the 1A
risk category.
Within Risk Category I, the final rule
combines supervisory ratings with other
risk measures to differentiate risk. For
most institutions, the final rule
combines CAMELS component ratings
with financial ratios to determine an
institution’s assessment rate. For large
institutions that have long-term debt
issuer ratings, the final rule
differentiates risk by combining
CAMELS component ratings with these
ratings. For large institutions within
Risk Category I, initial assessment rate
determinations may be modified within
limits upon review of additional
relevant information.
The final rule defines a large
institution as an institution that has $10
billion or more in assets. With certain
exceptions, beginning in 2010, the final
rule treats new institutions (those
established for less than five years) in
Risk Category I the same, regardless of
size, and assesses them at the maximum
rate applicable to Risk Category I
institutions.
The final rule sets actual rates
beginning January 1, 2007, as follows:
Risk Category
I * II III IV
Minimum Maximum
Annual Rates (in basis points) ........................................................................................................... 5 7 10 28 43
* Rates for institutions that do not pay the minimum or maximum rate vary between these rates.
VerDate Aug<31>2005 17:16 Nov 29, 2006 Jkt 211001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 E:\FR\FM\30NOR2.SGM 30NOR2
ER30NO06.002</GPH>
jlentini on PROD1PC65 with RULES2