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.
Proposed Rules Federal Register
68780
Vol. 80, No. 215
Friday, November 6, 2015
1 As used in this NPR, the term ‘‘bank’’ has the
same meaning as ‘‘insured depository institution’’
as defined in section 3 of the FDI Act, 12 U.S.C.
1813(c)(2).
2 Public Law 111–203, 334(e), 124 Stat. 1376,
1539 (12 U.S.C. 1817(note)).
3 12 U.S.C. 1817(b)(3)(B). The Dodd-Frank Act
also removed the upper limit on the designated
reserve ratio (which was formerly capped at 1.5
percent).
4 12 U.S.C. 1817(note).
5 12 U.S.C. 1817(note). The Dodd-Frank Act also:
(1) Eliminated the requirement that the FDIC
provide dividends from the fund when the reserve
ratio is between 1.35 percent and 1.5 percent; (2)
eliminated the requirement that the amount in the
DIF in excess of the amount required to maintain
the reserve ratio at 1.5 percent of estimated insured
deposits be paid as dividends; and (3) granted the
FDIC’s authority to declare dividends when the
reserve ratio at the end of a calendar year is at least
1.5 percent, but granted the FDIC sole discretion in
determining whether to suspend or limit the
declaration of payment or dividends, 12 U.S.C.
1817(e)(2)(A)–(B).
6 12 U.S.C. 1817(b)(5).
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE40
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking
(NPR) and request for comment.
SUMMARY: Pursuant to the requirements
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-
Frank Act) and its authority under
section 7 of the Federal Deposit
Insurance Act (FDI Act), the FDIC
proposes to impose a surcharge on the
quarterly assessments of insured
depository institutions with total
consolidated assets of $10 billion or
more. The surcharges would begin the
calendar quarter after the reserve ratio of
the Deposit Insurance Fund (DIF or
fund) first reaches or exceeds 1.15
percent—the same time that lower
regular deposit insurance assessment
(regular assessment) rates take effect—
and would continue through the quarter
that the reserve ratio first reaches or
exceeds 1.35 percent. The surcharge
would equal an annual rate of 4.5 basis
points applied to the institution’s
assessment base (with certain
adjustments). The FDIC expects that
these surcharges will commence in 2016
and that they should be sufficient to
raise the reserve ratio to 1.35 percent in
approximately eight quarters, i.e., before
the end of 2018. If, contrary to the
FDIC’s expectations, the reserve ratio
does not reach 1.35 percent by
December 31, 2018 (provided it is at
least 1.15 percent), the FDIC would
impose a shortfall assessment on
insured depository institutions with
total consolidated assets of $10 billion
or more on March 31, 2019. Since the
Dodd-Frank Act requires that the FDIC
offset the effect of the increase in the
reserve ratio from 1.15 percent to 1.35
percent on insured depository
institutions with total consolidated
assets of less than $10 billion, the FDIC
would provide assessment credits to
insured depository institutions with
total consolidated assets of less than $10
billion for the portion of their regular
assessments that contributed to growth
in the reserve ratio between 1.15 percent
and 1.35 percent. The FDIC would
apply the credits each quarter that the
reserve ratio is at least 1.40 percent to
offset part of the assessments of each
institution with credits.
DATES: Comments must be received by
the FDIC no later than January 5, 2016.
ADDRESSES: You may submit comments
on the NPR using any of the following
methods:
• Agency Web site: http://www.fdic.
gov/regulations/laws/federal/
propose.html. Follow the instructions
for submitting comments on the agency
Web site.
• Email: comments@fdic.gov. Include
RIN 3064–AE40 on the subject line of
the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7 a.m. and 5 p.m.
• Public Inspection: All comments
received, including any personal
information provided, will be posted
generally without change to http://www.
fdic.gov/regulations/laws/federal/.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
8967; and Nefretete Smith, Senior
Attorney, Legal Division, (202) 898–
6851.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The FDIC maintains a fund in order
to assure the agency’s capacity to meet
its obligations as insurer of deposits and
receiver of failed banks.1 The FDIC
considers the adequacy of the DIF in
terms of the reserve ratio, which is equal
to the DIF balance divided by estimated
insured deposits. A higher minimum
reserve ratio reduces the risk that losses
from bank failures during a downturn
will exhaust the DIF and reduces the
risk of large, procyclical increases in
deposit insurance assessments to
maintain a positive DIF balance.
The Dodd-Frank Act, enacted on July
21, 2010, contained several provisions
to strengthen the DIF.2 Among other
things, it: (1) Raised the minimum
reserve ratio for the DIF to 1.35 percent
(from the former minimum of 1.15
percent); 3 (2) required that the reserve
ratio reach 1.35 percent by September
30, 2020; 4 and (3) required that, in
setting assessments, the FDIC ‘‘offset the
effect of [the increase in the minimum
reserve ratio] on insured depository
institutions with total consolidated
assets of less than $10,000,000,000.’’ 5
Both the Dodd-Frank Act and the FDI
Act grant the FDIC broad authority to
implement the requirement to achieve
the 1.35 percent minimum reserve ratio.
In particular, under the Dodd-Frank Act,
the FDIC is authorized to take such
steps as may be necessary for the reserve
ratio to reach 1.35 percent by September
30, 2020. Furthermore, under the FDIC’s
assessment authority in the FDI Act, the
FDIC may impose special assessments
in an amount determined to be
necessary for any purpose that the FDIC
may deem necessary.6
In the FDIC’s view, the Dodd-Frank
Act requirement to raise the reserve
ratio to the minimum of 1.35 percent by
September 30, 2020 reflects the
importance of building the DIF in a
timely manner to withstand future
economic shocks. Increasing the reserve
ratio faster reduces the likelihood of
VerDate Sep<11>2014 16:42 Nov 05, 2015 Jkt 238001 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 E:\FR\FM\06NOP1.SGM 06NOP1
mstockstill on DSK4VPTVN1PROD with PROPOSALS
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.
Proposed Rules Federal Register
68780
Vol. 80, No. 215
Friday, November 6, 2015
1 As used in this NPR, the term ‘‘bank’’ has the
same meaning as ‘‘insured depository institution’’
as defined in section 3 of the FDI Act, 12 U.S.C.
1813(c)(2).
2 Public Law 111–203, 334(e), 124 Stat. 1376,
1539 (12 U.S.C. 1817(note)).
3 12 U.S.C. 1817(b)(3)(B). The Dodd-Frank Act
also removed the upper limit on the designated
reserve ratio (which was formerly capped at 1.5
percent).
4 12 U.S.C. 1817(note).
5 12 U.S.C. 1817(note). The Dodd-Frank Act also:
(1) Eliminated the requirement that the FDIC
provide dividends from the fund when the reserve
ratio is between 1.35 percent and 1.5 percent; (2)
eliminated the requirement that the amount in the
DIF in excess of the amount required to maintain
the reserve ratio at 1.5 percent of estimated insured
deposits be paid as dividends; and (3) granted the
FDIC’s authority to declare dividends when the
reserve ratio at the end of a calendar year is at least
1.5 percent, but granted the FDIC sole discretion in
determining whether to suspend or limit the
declaration of payment or dividends, 12 U.S.C.
1817(e)(2)(A)–(B).
6 12 U.S.C. 1817(b)(5).
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE40
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking
(NPR) and request for comment.
SUMMARY: Pursuant to the requirements
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-
Frank Act) and its authority under
section 7 of the Federal Deposit
Insurance Act (FDI Act), the FDIC
proposes to impose a surcharge on the
quarterly assessments of insured
depository institutions with total
consolidated assets of $10 billion or
more. The surcharges would begin the
calendar quarter after the reserve ratio of
the Deposit Insurance Fund (DIF or
fund) first reaches or exceeds 1.15
percent—the same time that lower
regular deposit insurance assessment
(regular assessment) rates take effect—
and would continue through the quarter
that the reserve ratio first reaches or
exceeds 1.35 percent. The surcharge
would equal an annual rate of 4.5 basis
points applied to the institution’s
assessment base (with certain
adjustments). The FDIC expects that
these surcharges will commence in 2016
and that they should be sufficient to
raise the reserve ratio to 1.35 percent in
approximately eight quarters, i.e., before
the end of 2018. If, contrary to the
FDIC’s expectations, the reserve ratio
does not reach 1.35 percent by
December 31, 2018 (provided it is at
least 1.15 percent), the FDIC would
impose a shortfall assessment on
insured depository institutions with
total consolidated assets of $10 billion
or more on March 31, 2019. Since the
Dodd-Frank Act requires that the FDIC
offset the effect of the increase in the
reserve ratio from 1.15 percent to 1.35
percent on insured depository
institutions with total consolidated
assets of less than $10 billion, the FDIC
would provide assessment credits to
insured depository institutions with
total consolidated assets of less than $10
billion for the portion of their regular
assessments that contributed to growth
in the reserve ratio between 1.15 percent
and 1.35 percent. The FDIC would
apply the credits each quarter that the
reserve ratio is at least 1.40 percent to
offset part of the assessments of each
institution with credits.
DATES: Comments must be received by
the FDIC no later than January 5, 2016.
ADDRESSES: You may submit comments
on the NPR using any of the following
methods:
• Agency Web site: http://www.fdic.
gov/regulations/laws/federal/
propose.html. Follow the instructions
for submitting comments on the agency
Web site.
• Email: comments@fdic.gov. Include
RIN 3064–AE40 on the subject line of
the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7 a.m. and 5 p.m.
• Public Inspection: All comments
received, including any personal
information provided, will be posted
generally without change to http://www.
fdic.gov/regulations/laws/federal/.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
8967; and Nefretete Smith, Senior
Attorney, Legal Division, (202) 898–
6851.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The FDIC maintains a fund in order
to assure the agency’s capacity to meet
its obligations as insurer of deposits and
receiver of failed banks.1 The FDIC
considers the adequacy of the DIF in
terms of the reserve ratio, which is equal
to the DIF balance divided by estimated
insured deposits. A higher minimum
reserve ratio reduces the risk that losses
from bank failures during a downturn
will exhaust the DIF and reduces the
risk of large, procyclical increases in
deposit insurance assessments to
maintain a positive DIF balance.
The Dodd-Frank Act, enacted on July
21, 2010, contained several provisions
to strengthen the DIF.2 Among other
things, it: (1) Raised the minimum
reserve ratio for the DIF to 1.35 percent
(from the former minimum of 1.15
percent); 3 (2) required that the reserve
ratio reach 1.35 percent by September
30, 2020; 4 and (3) required that, in
setting assessments, the FDIC ‘‘offset the
effect of [the increase in the minimum
reserve ratio] on insured depository
institutions with total consolidated
assets of less than $10,000,000,000.’’ 5
Both the Dodd-Frank Act and the FDI
Act grant the FDIC broad authority to
implement the requirement to achieve
the 1.35 percent minimum reserve ratio.
In particular, under the Dodd-Frank Act,
the FDIC is authorized to take such
steps as may be necessary for the reserve
ratio to reach 1.35 percent by September
30, 2020. Furthermore, under the FDIC’s
assessment authority in the FDI Act, the
FDIC may impose special assessments
in an amount determined to be
necessary for any purpose that the FDIC
may deem necessary.6
In the FDIC’s view, the Dodd-Frank
Act requirement to raise the reserve
ratio to the minimum of 1.35 percent by
September 30, 2020 reflects the
importance of building the DIF in a
timely manner to withstand future
economic shocks. Increasing the reserve
ratio faster reduces the likelihood of
VerDate Sep<11>2014 16:42 Nov 05, 2015 Jkt 238001 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 E:\FR\FM\06NOP1.SGM 06NOP1
mstockstill on DSK4VPTVN1PROD with PROPOSALS
68781Federal Register / Vol. 80, No. 215 / Friday, November 6, 2015 / Proposed Rules
7 In 2011, the FDIC Board of Directors adopted a
comprehensive, long-range management plan for
the DIF that is designed to reduce procyclicality in
the deposit insurance assessment system. Input
from bank executives and industry trade group
representatives favored steady, predictable
assessments and found high assessment rates
during crises objectionable. In addition, economic
literature points to the role of regulatory policy in
minimizing procyclical effects. See, for example: 75
FR 66272 and George G. Pennacchi, 2004. ‘‘Risk-
Based Capital Standards, Deposit Insurance and
Procyclicality,’’ FDIC Center for Financial Research
Working Paper No. 2004–05.
8 12 U.S.C. 1817(b)(3)(A)(i).
9 A DRR of 2 percent was based on a historical
analysis as well as on the statutory factors that the
FDIC must consider when setting the DRR. In its
historical analysis, the FDIC analyzed historical
fund losses and used simulated income data from
1950 to 2010 to determine how high the reserve
ratio would have to have been before the onset of
the two banking crises that occurred during this
period to maintain a positive fund balance and
stable assessment rates.
10 12 U.S.C. 1817(b)(3)(E).
11 75 FR 66293 (Oct. 27, 2010).
12 76 FR at 10683.
13 See 76 FR 10673, 10683 (Feb. 25, 2011). The
Restoration Plan originally stated that the FDIC
would pursue rulemaking on the offset in 2011, 75
FR 66293 (Oct. 27, 2010), but in 2011 the Board
decided to postpone rulemaking until a later date.
14 76 FR at 10717; see also 12 CFR 327.10(b). The
FDIC adopted this schedule of lower assessment
rates following its historical analysis of the long-
term assessment rates that would be needed to
ensure that the DIF would remain positive without
raising assessment rates even during a banking
crisis of the magnitude of the two banking crises of
the past 30 years. On June 16, 2015, the Board
adopted a notice of proposed rulemaking that
would revise the risk-based pricing methodology for
established small institutions, but would leave the
overall range of rates and the assessment revenue
expected to be generated unchanged. See 80 FR
40838 (July 13, 2015).
15 12 U.S.C. 1817.
16 A final rule adopting this proposal will become
effective on the first day of a calendar quarter. If a
final rule adopting this proposal is not yet effective
on the first day of the calendar quarter after the
reserve ratio reaches 1.15 percent, surcharges would
begin the first day of the calendar quarter in which
a final rule becomes effective. Thus, for example,
if the reserve ratio reaches 1.15 percent on March
31, 2016 and a final rule does not become effective
until the third quarter of 2016, surcharges would
begin effective July 1, 2016.
17 As with regular assessments, surcharges would
be paid one quarter in arrears, based on the bank’s
previous quarter data and would be due the last day
of the quarter. (If the last day of the quarter was not
a business day, the collection date would be the
previous business day.) Thus, for example, if the
surcharge were in effect for the first quarter of 2017,
the FDIC would notify the banks that they are
subject to the surcharge and the amount of each
bank’s surcharge obligation no later than June 15,
2017, 15 days before the first quarter 2017 surcharge
payment due date of June 30, 2017 date (and the
payment due date for first quarter 2017 regular
assessments). The notice could be included in the
banks’ invoice for their regular assessment.
18 In general, a ‘‘large institution’’ is 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 or a highly
complex institution) or a small institution that
reports assets of $10 billion or more in its quarterly
reports of condition for four consecutive quarters.
12 CFR 327.8(f). If, after December 31, 2006, an
institution classified as large reports assets of less
than $10 billion in its quarterly reports of condition
for four consecutive quarters, the FDIC will
Continued
procyclical assessments, a key policy
goal of the FDIC that is supported in the
academic literature and acknowledged
by banks.7 In meeting the requirements
of the Dodd-Frank Act, the FDIC
considered the tradeoff between
building the DIF sooner rather than later
and the potential cost of higher
additional assessments for banks with
$10 billion or more in assets.
The purpose of the NPR is to meet the
Dodd-Frank Act requirements in a
manner that appropriately balances
several considerations, including the
goal of reaching the minimum reserve
ratio reasonably promptly in order to
strengthen the fund and reduce the risk
of pro-cyclical assessments, the goal of
maintaining stable and predictable
assessments for banks over time, and the
projected effects on bank capital and
earnings. The proposed primary
mechanism described below for meeting
the statutory requirements—surcharges
on regular assessments—would ensure
that the reserve ratio reaches 1.35
percent without inordinate delay (in
2018) and would ensure that
assessments are allocated equitably
among banks responsible for the cost of
these requirements.
II. Background
The Dodd-Frank Act gave the FDIC
greater discretion to manage the DIF
than it had previously, including greater
discretion in setting the target reserve
ratio, or designated reserve ratio (DRR),
which the FDIC must set annually.8 The
FDIC Board of Directors (Board) has set
a 2 percent DRR for each year starting
with 2011.9 The Board views the 2
percent DRR as a long-term goal.
By statute, the FDIC also operates
under a Restoration Plan while the
reserve ratio remains below 1.35
percent.10 The Restoration Plan,
originally adopted in 2008 and
subsequently revised, is designed to
ensure that the reserve ratio will reach
1.35 percent by September 30, 2020.11
In February 2011, the FDIC adopted a
final rule that, among other things,
contained a schedule of deposit
insurance assessment rates that apply to
regular assessments that banks pay. The
FDIC noted when it adopted these rates
that, because of the requirement making
banks with $10 billion or more in assets
responsible for increasing the reserve
ratio from 1.15 percent to 1.35 percent,
‘‘assessment rates applicable to all
insured depository institutions need
only be set high enough to reach 1.15
percent’’ before the statutory deadline of
September 30, 2020.12 The February
2011 final rule left to a later date the
method for assessing banks with $10
billion or more in assets for the amount
needed to reach 1.35 percent.13
The FDIC also adopted a schedule of
lower regular assessment rates in the
February 2011 final rule that will go
into effect once the reserve ratio of the
DIF reaches 1.15 percent.14 These lower
regular assessment rates will apply to all
banks’ regular assessments. Regular
assessments paid under the schedule of
lower rates are intended to raise the
reserve ratio gradually to the long-term
goal of 2 percent.
In the FDIC’s most recent semiannual
update of the DIF’s loss and income
projections in October 2015, the FDIC
projects that, under the current
assessment rate schedule, the DIF
reserve ratio is most likely to reach 1.15
percent in the first quarter of 2016, but
may reach that level as early as the
fourth quarter of this year.
III. Description of the Proposed Rule
A. Surcharges
To implement the requirements of the
Dodd-Frank Act, and pursuant to the
FDIC’s authority in section 7 of the FDI
Act,15 the FDIC proposes to add a
surcharge to the regular assessments of
banks with $10 billion or more in assets.
The surcharge would begin the quarter
after the DIF reserve ratio first reaches
or exceeds 1.15 percent and would
continue until the reserve ratio first
reaches or exceeds 1.35 percent, but no
later than the fourth quarter of 2018.16
The FDIC would notify those banks that
would be subject to the surcharge in any
quarter and the amount of such
surcharge within the timeframe that
applies to notification of regular
assessment amounts.17
The FDIC proposes an annual
surcharge rate of 4.5 basis points, which
it expects will be sufficient to raise the
reserve ratio from 1.15 percent to 1.35
percent in 8 quarters, before the end of
2018.
Banks Subject to the Surcharge
The banks subject to the surcharge
(large banks) would be determined each
quarter based on whether the bank was
a ‘‘large institution’’ or ‘‘highly complex
institution’’ for purposes of that
quarter’s regular assessments; however,
an insured branch of a foreign bank
whose assets as reported in its most
recent quarterly Report of Assets and
Liabilities of U.S. Branches and
Agencies of Foreign Banks equaled or
exceeded $10 billion would also be a
large bank.18 19 20
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mstockstill on DSK4VPTVN1PROD with PROPOSALS
7 In 2011, the FDIC Board of Directors adopted a
comprehensive, long-range management plan for
the DIF that is designed to reduce procyclicality in
the deposit insurance assessment system. Input
from bank executives and industry trade group
representatives favored steady, predictable
assessments and found high assessment rates
during crises objectionable. In addition, economic
literature points to the role of regulatory policy in
minimizing procyclical effects. See, for example: 75
FR 66272 and George G. Pennacchi, 2004. ‘‘Risk-
Based Capital Standards, Deposit Insurance and
Procyclicality,’’ FDIC Center for Financial Research
Working Paper No. 2004–05.
8 12 U.S.C. 1817(b)(3)(A)(i).
9 A DRR of 2 percent was based on a historical
analysis as well as on the statutory factors that the
FDIC must consider when setting the DRR. In its
historical analysis, the FDIC analyzed historical
fund losses and used simulated income data from
1950 to 2010 to determine how high the reserve
ratio would have to have been before the onset of
the two banking crises that occurred during this
period to maintain a positive fund balance and
stable assessment rates.
10 12 U.S.C. 1817(b)(3)(E).
11 75 FR 66293 (Oct. 27, 2010).
12 76 FR at 10683.
13 See 76 FR 10673, 10683 (Feb. 25, 2011). The
Restoration Plan originally stated that the FDIC
would pursue rulemaking on the offset in 2011, 75
FR 66293 (Oct. 27, 2010), but in 2011 the Board
decided to postpone rulemaking until a later date.
14 76 FR at 10717; see also 12 CFR 327.10(b). The
FDIC adopted this schedule of lower assessment
rates following its historical analysis of the long-
term assessment rates that would be needed to
ensure that the DIF would remain positive without
raising assessment rates even during a banking
crisis of the magnitude of the two banking crises of
the past 30 years. On June 16, 2015, the Board
adopted a notice of proposed rulemaking that
would revise the risk-based pricing methodology for
established small institutions, but would leave the
overall range of rates and the assessment revenue
expected to be generated unchanged. See 80 FR
40838 (July 13, 2015).
15 12 U.S.C. 1817.
16 A final rule adopting this proposal will become
effective on the first day of a calendar quarter. If a
final rule adopting this proposal is not yet effective
on the first day of the calendar quarter after the
reserve ratio reaches 1.15 percent, surcharges would
begin the first day of the calendar quarter in which
a final rule becomes effective. Thus, for example,
if the reserve ratio reaches 1.15 percent on March
31, 2016 and a final rule does not become effective
until the third quarter of 2016, surcharges would
begin effective July 1, 2016.
17 As with regular assessments, surcharges would
be paid one quarter in arrears, based on the bank’s
previous quarter data and would be due the last day
of the quarter. (If the last day of the quarter was not
a business day, the collection date would be the
previous business day.) Thus, for example, if the
surcharge were in effect for the first quarter of 2017,
the FDIC would notify the banks that they are
subject to the surcharge and the amount of each
bank’s surcharge obligation no later than June 15,
2017, 15 days before the first quarter 2017 surcharge
payment due date of June 30, 2017 date (and the
payment due date for first quarter 2017 regular
assessments). The notice could be included in the
banks’ invoice for their regular assessment.
18 In general, a ‘‘large institution’’ is 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 or a highly
complex institution) or a small institution that
reports assets of $10 billion or more in its quarterly
reports of condition for four consecutive quarters.
12 CFR 327.8(f). If, after December 31, 2006, an
institution classified as large reports assets of less
than $10 billion in its quarterly reports of condition
for four consecutive quarters, the FDIC will
Continued
procyclical assessments, a key policy
goal of the FDIC that is supported in the
academic literature and acknowledged
by banks.7 In meeting the requirements
of the Dodd-Frank Act, the FDIC
considered the tradeoff between
building the DIF sooner rather than later
and the potential cost of higher
additional assessments for banks with
$10 billion or more in assets.
The purpose of the NPR is to meet the
Dodd-Frank Act requirements in a
manner that appropriately balances
several considerations, including the
goal of reaching the minimum reserve
ratio reasonably promptly in order to
strengthen the fund and reduce the risk
of pro-cyclical assessments, the goal of
maintaining stable and predictable
assessments for banks over time, and the
projected effects on bank capital and
earnings. The proposed primary
mechanism described below for meeting
the statutory requirements—surcharges
on regular assessments—would ensure
that the reserve ratio reaches 1.35
percent without inordinate delay (in
2018) and would ensure that
assessments are allocated equitably
among banks responsible for the cost of
these requirements.
II. Background
The Dodd-Frank Act gave the FDIC
greater discretion to manage the DIF
than it had previously, including greater
discretion in setting the target reserve
ratio, or designated reserve ratio (DRR),
which the FDIC must set annually.8 The
FDIC Board of Directors (Board) has set
a 2 percent DRR for each year starting
with 2011.9 The Board views the 2
percent DRR as a long-term goal.
By statute, the FDIC also operates
under a Restoration Plan while the
reserve ratio remains below 1.35
percent.10 The Restoration Plan,
originally adopted in 2008 and
subsequently revised, is designed to
ensure that the reserve ratio will reach
1.35 percent by September 30, 2020.11
In February 2011, the FDIC adopted a
final rule that, among other things,
contained a schedule of deposit
insurance assessment rates that apply to
regular assessments that banks pay. The
FDIC noted when it adopted these rates
that, because of the requirement making
banks with $10 billion or more in assets
responsible for increasing the reserve
ratio from 1.15 percent to 1.35 percent,
‘‘assessment rates applicable to all
insured depository institutions need
only be set high enough to reach 1.15
percent’’ before the statutory deadline of
September 30, 2020.12 The February
2011 final rule left to a later date the
method for assessing banks with $10
billion or more in assets for the amount
needed to reach 1.35 percent.13
The FDIC also adopted a schedule of
lower regular assessment rates in the
February 2011 final rule that will go
into effect once the reserve ratio of the
DIF reaches 1.15 percent.14 These lower
regular assessment rates will apply to all
banks’ regular assessments. Regular
assessments paid under the schedule of
lower rates are intended to raise the
reserve ratio gradually to the long-term
goal of 2 percent.
In the FDIC’s most recent semiannual
update of the DIF’s loss and income
projections in October 2015, the FDIC
projects that, under the current
assessment rate schedule, the DIF
reserve ratio is most likely to reach 1.15
percent in the first quarter of 2016, but
may reach that level as early as the
fourth quarter of this year.
III. Description of the Proposed Rule
A. Surcharges
To implement the requirements of the
Dodd-Frank Act, and pursuant to the
FDIC’s authority in section 7 of the FDI
Act,15 the FDIC proposes to add a
surcharge to the regular assessments of
banks with $10 billion or more in assets.
The surcharge would begin the quarter
after the DIF reserve ratio first reaches
or exceeds 1.15 percent and would
continue until the reserve ratio first
reaches or exceeds 1.35 percent, but no
later than the fourth quarter of 2018.16
The FDIC would notify those banks that
would be subject to the surcharge in any
quarter and the amount of such
surcharge within the timeframe that
applies to notification of regular
assessment amounts.17
The FDIC proposes an annual
surcharge rate of 4.5 basis points, which
it expects will be sufficient to raise the
reserve ratio from 1.15 percent to 1.35
percent in 8 quarters, before the end of
2018.
Banks Subject to the Surcharge
The banks subject to the surcharge
(large banks) would be determined each
quarter based on whether the bank was
a ‘‘large institution’’ or ‘‘highly complex
institution’’ for purposes of that
quarter’s regular assessments; however,
an insured branch of a foreign bank
whose assets as reported in its most
recent quarterly Report of Assets and
Liabilities of U.S. Branches and
Agencies of Foreign Banks equaled or
exceeded $10 billion would also be a
large bank.18 19 20
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