Vol. 81 Friday,
No. 98 May 20, 2016
Part III
Federal Deposit Insurance Corporation
12 CFR Part 327
Assessments; Final Rule
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No. 98 May 20, 2016
Part III
Federal Deposit Insurance Corporation
12 CFR Part 327
Assessments; Final Rule
VerDate Sep<11>2014 19:17 May 19, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\20MYR3.SGM 20MYR3
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32180 Federal Register / Vol. 81, No. 98 / Friday, May 20, 2016 / Rules and Regulations
1 12 U.S.C. 1817(b). A ‘‘risk-based assessment
system’’ means a system for calculating an insured
depository institution’s deposit insurance
assessment based on the institution’s probability of
causing a loss to the DIF due to the composition
and concentration of the institution’s assets and
liabilities, the likely amount of any such loss, and
the revenue needs of the DIF. See 12 U.S.C.
1817(b)(1)(C).
As used in this final rule, the term ‘‘bank’’ is
synonymous with the term ‘‘insured depository
institution’’ as it is used in section 3(c)(2) of the
Federal Deposit Insurance Act (FDI Act), 12 U.S.C.
1813(c)(2). As used in this final rule, the term
‘‘small bank’’ is synonymous with the term ‘‘small
institution’’ as it is used in 12 CFR 327.8. In
general, a ‘‘small bank’’ is one with less than $10
billion in total assets.
2 See 80 FR at 40838 and 40842 (July 13, 2015).
3 Subject to exceptions, an established insured
depository institution is one that has been federally
insured for at least five years as of the last day of
any quarter for which it is being assessed. 12 CFR
327.8(k).
4 On January 1, 2007, the FDIC instituted separate
assessment systems for small and large banks. 71 FR
69282 (Nov. 30, 2006). See 12 U.S.C. 1817(b)(1)(D)
(granting the Board the authority to establish
separate risk-based assessment systems for large
and small insured depository institutions).
5 The common equity tier 1 capital ratio was
incorporated into the deposit insurance assessment
system effective January 1, 2015. 79 FR 70427
(November 26, 2014). Beginning January 1, 2018, a
supplementary leverage ratio will also be used to
determine whether an advanced approaches bank
is: (a) Well capitalized, if the bank is subject to the
enhanced supplementary leverage ratio standards
under 12 CFR 6.4(c)(1)(iv)(B), 12 CFR
208.43(c)(1)(iv)(B), or 12 CFR 324.403(b)(1)(vi), as
each may be amended from time to time; and (b)
adequately capitalized, if the bank is subject to the
advanced approaches risk-based capital rules under
12 CFR 6.4(c)(2)(iv)(B), 12 CFR 208.43(c)(2)(iv)(B),
or 12 CFR 324.403(b)(2)(vi), as each may be
amended from time to time. 79 FR 70427, 70437
(November 26, 2014). The supplementary leverage
ratio is expected to affect the capital group
assignment of few, if any, small banks.
6 The term ‘‘primary federal regulator’’ is
synonymous with the term ‘‘appropriate federal
banking agency’’ as it is used in section 3(q) of the
FDI Act, 12 U.S.C. 1813(q).
7 A financial institution is assigned a CAMELS
composite rating based on an evaluation and rating
of six essential components of an institution’s
financial condition and operations. These
component factors address the adequacy of capital
(C), the quality of assets (A), the capability of
management (M), the quality and level of earnings
(E), the adequacy of liquidity (L), and sensitivity to
market risk (S).
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE37
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The FDIC is amending its
rules to refine the deposit insurance
assessment system for small insured
depository institutions that have been
federally insured for at least five years
(established small banks) by: Revising
the financial ratios method so that it is
based on a statistical model estimating
the probability of failure over three
years; updating the financial measures
used in the financial ratios method
consistent with the statistical model;
and eliminating risk categories for
established small banks and using the
financial ratios method to determine
assessment rates for all such banks
(subject to minimum or maximum
initial assessment rates based upon a
bank’s CAMELS composite rating).
Under current regulations, deposit
insurance assessment rates will decrease
once the deposit insurance fund (DIF or
fund) reserve ratio reaches 1.15 percent.
The final rule preserves the range of
initial assessment rates authorized
under current regulations.
DATES: The final rule is effective July 1,
2016.
Applicability date: If the reserve ratio
reaches 1.15 percent before that date,
the assessment system described in the
final rule will become operative July 1,
2016. If the reserve ratio has not reached
1.15 percent by that date, the
assessment system described in the final
rule will become operative the first day
of the calendar quarter after the reserve
ratio reaches 1.15 percent.
FOR FURTHER INFORMATION CONTACT:
Munsell St. Clair, Chief, Banking and
Regulatory Policy, Division of Insurance
and Research, 202–898–8967; Ashley
Mihalik, Senior Policy Analyst, Division
of Insurance and Research, 202–898–
3793; Nefretete Smith, Counsel, Legal
Division, 202–898–6851; Thomas Hearn,
Counsel, Legal Division, 202–898–6967.
SUPPLEMENTARY INFORMATION:
I. Background
Policy Objectives
The primary purpose of the final rule
is to improve the risk-based deposit
insurance assessment system applicable
to established small banks to more
accurately reflect risk.1 Additional
discussion of the policy objectives of the
final rule can be found in the notice of
proposed rulemaking adopted by the
FDIC’s Board of Directors (Board) on
June 6, 2015.2
Risk-Based Deposit Insurance
Assessments for Established Small
Banks
Since 2007, assessment rates for
established small banks (that is, small
banks other than new small banks and
insured branches of foreign banks) 3
have been determined by placing each
bank into one of four risk categories,
Risk Categories I, II, III, and IV.4 These
four risk categories are based on two
criteria: Capital levels and supervisory
ratings. The three capital groups—well
capitalized, adequately capitalized, and
undercapitalized—are based on the
leverage ratio and three risk-based
capital ratios used for regulatory capital
purposes.5 The three supervisory
groups, termed A, B, and C, are based
upon supervisory evaluations by the
small bank’s primary federal regulator,
state regulator, or the FDIC.6 Group A
consists of financially sound
institutions with only a few minor
weaknesses (generally, banks with
CAMELS composite ratings of 1 or 2);
Group 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 DIF
(generally, banks with CAMELS
composite ratings of 3); and Group C
consists of institutions that pose a
substantial probability of loss to the DIF
unless effective corrective action is
taken (generally, banks with CAMELS
composite ratings of 4 or 5).7 An
institution’s capital group and
supervisory group determine its risk
category as set out in Table 1 below.
TABLE 1—DETERMINATION OF RISK CATEGORY
Capital group
Supervisory group
A
CAMELS 1 or 2 B
CAMELS 3 C
CAMELS 4 or 5
Well Capitalized ............................. Risk Category I.
Adequately Capitalized .................. Risk Category II Risk Category III.
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1 12 U.S.C. 1817(b). A ‘‘risk-based assessment
system’’ means a system for calculating an insured
depository institution’s deposit insurance
assessment based on the institution’s probability of
causing a loss to the DIF due to the composition
and concentration of the institution’s assets and
liabilities, the likely amount of any such loss, and
the revenue needs of the DIF. See 12 U.S.C.
1817(b)(1)(C).
As used in this final rule, the term ‘‘bank’’ is
synonymous with the term ‘‘insured depository
institution’’ as it is used in section 3(c)(2) of the
Federal Deposit Insurance Act (FDI Act), 12 U.S.C.
1813(c)(2). As used in this final rule, the term
‘‘small bank’’ is synonymous with the term ‘‘small
institution’’ as it is used in 12 CFR 327.8. In
general, a ‘‘small bank’’ is one with less than $10
billion in total assets.
2 See 80 FR at 40838 and 40842 (July 13, 2015).
3 Subject to exceptions, an established insured
depository institution is one that has been federally
insured for at least five years as of the last day of
any quarter for which it is being assessed. 12 CFR
327.8(k).
4 On January 1, 2007, the FDIC instituted separate
assessment systems for small and large banks. 71 FR
69282 (Nov. 30, 2006). See 12 U.S.C. 1817(b)(1)(D)
(granting the Board the authority to establish
separate risk-based assessment systems for large
and small insured depository institutions).
5 The common equity tier 1 capital ratio was
incorporated into the deposit insurance assessment
system effective January 1, 2015. 79 FR 70427
(November 26, 2014). Beginning January 1, 2018, a
supplementary leverage ratio will also be used to
determine whether an advanced approaches bank
is: (a) Well capitalized, if the bank is subject to the
enhanced supplementary leverage ratio standards
under 12 CFR 6.4(c)(1)(iv)(B), 12 CFR
208.43(c)(1)(iv)(B), or 12 CFR 324.403(b)(1)(vi), as
each may be amended from time to time; and (b)
adequately capitalized, if the bank is subject to the
advanced approaches risk-based capital rules under
12 CFR 6.4(c)(2)(iv)(B), 12 CFR 208.43(c)(2)(iv)(B),
or 12 CFR 324.403(b)(2)(vi), as each may be
amended from time to time. 79 FR 70427, 70437
(November 26, 2014). The supplementary leverage
ratio is expected to affect the capital group
assignment of few, if any, small banks.
6 The term ‘‘primary federal regulator’’ is
synonymous with the term ‘‘appropriate federal
banking agency’’ as it is used in section 3(q) of the
FDI Act, 12 U.S.C. 1813(q).
7 A financial institution is assigned a CAMELS
composite rating based on an evaluation and rating
of six essential components of an institution’s
financial condition and operations. These
component factors address the adequacy of capital
(C), the quality of assets (A), the capability of
management (M), the quality and level of earnings
(E), the adequacy of liquidity (L), and sensitivity to
market risk (S).
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE37
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The FDIC is amending its
rules to refine the deposit insurance
assessment system for small insured
depository institutions that have been
federally insured for at least five years
(established small banks) by: Revising
the financial ratios method so that it is
based on a statistical model estimating
the probability of failure over three
years; updating the financial measures
used in the financial ratios method
consistent with the statistical model;
and eliminating risk categories for
established small banks and using the
financial ratios method to determine
assessment rates for all such banks
(subject to minimum or maximum
initial assessment rates based upon a
bank’s CAMELS composite rating).
Under current regulations, deposit
insurance assessment rates will decrease
once the deposit insurance fund (DIF or
fund) reserve ratio reaches 1.15 percent.
The final rule preserves the range of
initial assessment rates authorized
under current regulations.
DATES: The final rule is effective July 1,
2016.
Applicability date: If the reserve ratio
reaches 1.15 percent before that date,
the assessment system described in the
final rule will become operative July 1,
2016. If the reserve ratio has not reached
1.15 percent by that date, the
assessment system described in the final
rule will become operative the first day
of the calendar quarter after the reserve
ratio reaches 1.15 percent.
FOR FURTHER INFORMATION CONTACT:
Munsell St. Clair, Chief, Banking and
Regulatory Policy, Division of Insurance
and Research, 202–898–8967; Ashley
Mihalik, Senior Policy Analyst, Division
of Insurance and Research, 202–898–
3793; Nefretete Smith, Counsel, Legal
Division, 202–898–6851; Thomas Hearn,
Counsel, Legal Division, 202–898–6967.
SUPPLEMENTARY INFORMATION:
I. Background
Policy Objectives
The primary purpose of the final rule
is to improve the risk-based deposit
insurance assessment system applicable
to established small banks to more
accurately reflect risk.1 Additional
discussion of the policy objectives of the
final rule can be found in the notice of
proposed rulemaking adopted by the
FDIC’s Board of Directors (Board) on
June 6, 2015.2
Risk-Based Deposit Insurance
Assessments for Established Small
Banks
Since 2007, assessment rates for
established small banks (that is, small
banks other than new small banks and
insured branches of foreign banks) 3
have been determined by placing each
bank into one of four risk categories,
Risk Categories I, II, III, and IV.4 These
four risk categories are based on two
criteria: Capital levels and supervisory
ratings. The three capital groups—well
capitalized, adequately capitalized, and
undercapitalized—are based on the
leverage ratio and three risk-based
capital ratios used for regulatory capital
purposes.5 The three supervisory
groups, termed A, B, and C, are based
upon supervisory evaluations by the
small bank’s primary federal regulator,
state regulator, or the FDIC.6 Group A
consists of financially sound
institutions with only a few minor
weaknesses (generally, banks with
CAMELS composite ratings of 1 or 2);
Group 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 DIF
(generally, banks with CAMELS
composite ratings of 3); and Group C
consists of institutions that pose a
substantial probability of loss to the DIF
unless effective corrective action is
taken (generally, banks with CAMELS
composite ratings of 4 or 5).7 An
institution’s capital group and
supervisory group determine its risk
category as set out in Table 1 below.
TABLE 1—DETERMINATION OF RISK CATEGORY
Capital group
Supervisory group
A
CAMELS 1 or 2 B
CAMELS 3 C
CAMELS 4 or 5
Well Capitalized ............................. Risk Category I.
Adequately Capitalized .................. Risk Category II Risk Category III.
VerDate Sep<11>2014 19:17 May 19, 2016 Jkt 238001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\20MYR3.SGM 20MYR3
mstockstill on DSK3G9T082PROD with RULES3