5380 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Proposed Rules
1 12 U.S.C. 1817(b). Generally, a ‘‘risk-based
assessment system’’ means a system for calculating
a depository institution’s assessment based on the
institution’s probability of causing a loss to the
Deposit Insurance Fund (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).
2 57 FR 45263 (Oct. 1, 1992).
3 See 57 FR at 45264.
4 In this proposal, the term ‘‘CBLR framework’’
refers to the simplified measure of capital adequacy
provided in the CBLR NPR, as well as any
subsequent changes to that proposal that are
adopted during the rulemaking process.
5 As used in this NPR, 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. 1817(c)(2).
6 See 12 CFR 327.3(b)(1).
7 See 84 FR 3062 (February 8, 2019).
List of Subjects in 7 CFR Part 1206
Administrative practice and
procedure, Advertising, Consumer
information, Marketing agreements,
Mango promotion, Reporting and
recordkeeping requirements.
Authority: 7 U.S.C. 7411–7425 and 7
U.S.C. 7401.
Dated: February 14, 2019.
Bruce Summers,
Administrator.
[FR Doc. 2019–02851 Filed 2–20–19; 8:45 am]
BILLING CODE 3410–02–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE98
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The Federal Deposit
Insurance Corporation (FDIC) invites
public comment on a notice of proposed
rulemaking (NPR or proposal) that
would amend its deposit insurance
assessment regulations to apply the
community bank leverage ratio (CBLR)
framework to the deposit insurance
assessment system. The FDIC, the Board
of Governors of the Federal Reserve
System (Federal Reserve) and the Office
of the Comptroller of the Currency
(OCC) (collectively, the Federal banking
agencies) recently issued an interagency
proposal to implement the community
bank leverage ratio (the CBLR NPR).
Under this proposal, the FDIC would
assess all banks that elect to use the
CBLR framework (CBLR banks) as small
banks. Through amendments to the
assessment regulations and
corresponding changes to the
Consolidated Reports of Condition and
Income (Call Report), CBLR banks
would have the option of using either
CBLR tangible equity or tier 1 capital for
their assessment base calculation, and
using either the CBLR or the tier 1
leverage ratio for the Leverage Ratio that
the FDIC uses to calculate an
established small bank’s assessment
rate. Through this NPR, the FDIC also
would clarify that a CBLR bank that
meets the definition of a custodial bank
would have no change to its custodial
bank deduction or reporting items
required to calculate the deduction; and
the assessment regulations would
continue to reference the prompt
corrective action (PCA) regulations for
the definitions of capital categories used
in the deposit insurance assessment
system, with technical amendments to
align with the CBLR NPR. To assist
banks in understanding the effects of the
NPR, the FDIC plans to provide on its
website an assessment estimation tool
that estimates deposit insurance
assessment amounts under the proposal.
DATES: Comments must be received on
or before April 22, 2019.
ADDRESSES: You may submit comments,
identified by RIN 3064–AE98, by any of
the following methods:
• Agency website: https://
www.fdic.gov/regulations/laws/federal/.
Follow the instructions for submitting
comments on the Agency website.
• Email: Comments@FDIC.gov.
Include RIN 3064–AE98 in the subject
line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Include RIN 3064–AE98 in the subject
line of the letter.
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
NW building (located on F Street) on
business days between 7 a.m. and 5 p.m.
(EDT).
• Public Inspection: All comments
received, including any personal
information provided, will be posted
without change to https://www.fdic.gov/
regulations/laws/federal. Paper copies
of public comments may be ordered
from the FDIC Public Information
Center, 3501 North Fairfax Drive, Room
E–1002, Arlington, VA 22226 or by
telephone at (877) 275–3342 or (703)
562–2200.
FOR FURTHER INFORMATION CONTACT:
Ashley Mihalik, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
3793, amihalik@fdic.gov; Daniel
Hoople, Financial Economist, Banking
and Regulatory Policy Section, Division
of Insurance and Research, dhoople@
fdic.gov; (202) 898–3835; Nefretete
Smith, Counsel, Legal Division, (202)
898–6851, NefSmith@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system.1 Pursuant to this
requirement, the FDIC first adopted a
risk-based deposit insurance assessment
system effective in 1993 that applied to
all insured depository institutions
(IDIs).2 The FDIC implemented a risk-
based assessment system with the goals
of making the deposit insurance system
fairer to well-run institutions and
encouraging weaker institutions to
improve their condition, and thus,
promote the safety and soundness of
IDIs.3 Deposit insurance assessments
based on risk also provide incentives for
IDIs to monitor and reduce risks that
could increase potential losses to the
DIF. Since 1993, the FDIC has met its
statutory mandate and has pursued
these policy goals by periodically
introducing improvements to the
deposit insurance assessment system’s
ability to differentiate for risk.
The primary objective of this proposal
is to incorporate the CBLR framework 4
into the current risk-based deposit
insurance assessment system in a
manner that: (1) Maximizes regulatory
relief for small institutions that use the
CBLR framework; and (2) minimizes
increases in deposit insurance
assessments that may arise without a
change in risk. The rulemaking also
would maintain fair and appropriate
pricing of deposit insurance for
institutions that use the CBLR.
II. Background
The FDIC assesses all IDIs an amount
for deposit insurance equal to the
bank’s 5 deposit insurance assessment
base multiplied by its risk-based
assessment rate.6 A bank’s assessment
base and risk-based assessment rate
depend in part, on tier 1 capital and the
tier 1 leverage ratio. This information
would no longer be reported on the
Consolidated Reports of Condition and
Income (Call Report) by banks that elect
the CBLR framework.
A. Notice of Proposed Rulemaking:
Community Bank Leverage Ratio
On February 8, 2019, the Federal
banking agencies published in the
Federal Register the CBLR NPR.7 The
CBLR NPR would provide for a
VerDate Sep<11>2014 16:27 Feb 20, 2019 Jkt 247001 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\21FEP1.SGM 21FEP1
amozie on DSK3GDR082PROD with PROPOSALS1
1 12 U.S.C. 1817(b). Generally, a ‘‘risk-based
assessment system’’ means a system for calculating
a depository institution’s assessment based on the
institution’s probability of causing a loss to the
Deposit Insurance Fund (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).
2 57 FR 45263 (Oct. 1, 1992).
3 See 57 FR at 45264.
4 In this proposal, the term ‘‘CBLR framework’’
refers to the simplified measure of capital adequacy
provided in the CBLR NPR, as well as any
subsequent changes to that proposal that are
adopted during the rulemaking process.
5 As used in this NPR, 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. 1817(c)(2).
6 See 12 CFR 327.3(b)(1).
7 See 84 FR 3062 (February 8, 2019).
List of Subjects in 7 CFR Part 1206
Administrative practice and
procedure, Advertising, Consumer
information, Marketing agreements,
Mango promotion, Reporting and
recordkeeping requirements.
Authority: 7 U.S.C. 7411–7425 and 7
U.S.C. 7401.
Dated: February 14, 2019.
Bruce Summers,
Administrator.
[FR Doc. 2019–02851 Filed 2–20–19; 8:45 am]
BILLING CODE 3410–02–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE98
Assessments
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The Federal Deposit
Insurance Corporation (FDIC) invites
public comment on a notice of proposed
rulemaking (NPR or proposal) that
would amend its deposit insurance
assessment regulations to apply the
community bank leverage ratio (CBLR)
framework to the deposit insurance
assessment system. The FDIC, the Board
of Governors of the Federal Reserve
System (Federal Reserve) and the Office
of the Comptroller of the Currency
(OCC) (collectively, the Federal banking
agencies) recently issued an interagency
proposal to implement the community
bank leverage ratio (the CBLR NPR).
Under this proposal, the FDIC would
assess all banks that elect to use the
CBLR framework (CBLR banks) as small
banks. Through amendments to the
assessment regulations and
corresponding changes to the
Consolidated Reports of Condition and
Income (Call Report), CBLR banks
would have the option of using either
CBLR tangible equity or tier 1 capital for
their assessment base calculation, and
using either the CBLR or the tier 1
leverage ratio for the Leverage Ratio that
the FDIC uses to calculate an
established small bank’s assessment
rate. Through this NPR, the FDIC also
would clarify that a CBLR bank that
meets the definition of a custodial bank
would have no change to its custodial
bank deduction or reporting items
required to calculate the deduction; and
the assessment regulations would
continue to reference the prompt
corrective action (PCA) regulations for
the definitions of capital categories used
in the deposit insurance assessment
system, with technical amendments to
align with the CBLR NPR. To assist
banks in understanding the effects of the
NPR, the FDIC plans to provide on its
website an assessment estimation tool
that estimates deposit insurance
assessment amounts under the proposal.
DATES: Comments must be received on
or before April 22, 2019.
ADDRESSES: You may submit comments,
identified by RIN 3064–AE98, by any of
the following methods:
• Agency website: https://
www.fdic.gov/regulations/laws/federal/.
Follow the instructions for submitting
comments on the Agency website.
• Email: Comments@FDIC.gov.
Include RIN 3064–AE98 in the subject
line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Include RIN 3064–AE98 in the subject
line of the letter.
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
NW building (located on F Street) on
business days between 7 a.m. and 5 p.m.
(EDT).
• Public Inspection: All comments
received, including any personal
information provided, will be posted
without change to https://www.fdic.gov/
regulations/laws/federal. Paper copies
of public comments may be ordered
from the FDIC Public Information
Center, 3501 North Fairfax Drive, Room
E–1002, Arlington, VA 22226 or by
telephone at (877) 275–3342 or (703)
562–2200.
FOR FURTHER INFORMATION CONTACT:
Ashley Mihalik, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
3793, amihalik@fdic.gov; Daniel
Hoople, Financial Economist, Banking
and Regulatory Policy Section, Division
of Insurance and Research, dhoople@
fdic.gov; (202) 898–3835; Nefretete
Smith, Counsel, Legal Division, (202)
898–6851, NefSmith@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system.1 Pursuant to this
requirement, the FDIC first adopted a
risk-based deposit insurance assessment
system effective in 1993 that applied to
all insured depository institutions
(IDIs).2 The FDIC implemented a risk-
based assessment system with the goals
of making the deposit insurance system
fairer to well-run institutions and
encouraging weaker institutions to
improve their condition, and thus,
promote the safety and soundness of
IDIs.3 Deposit insurance assessments
based on risk also provide incentives for
IDIs to monitor and reduce risks that
could increase potential losses to the
DIF. Since 1993, the FDIC has met its
statutory mandate and has pursued
these policy goals by periodically
introducing improvements to the
deposit insurance assessment system’s
ability to differentiate for risk.
The primary objective of this proposal
is to incorporate the CBLR framework 4
into the current risk-based deposit
insurance assessment system in a
manner that: (1) Maximizes regulatory
relief for small institutions that use the
CBLR framework; and (2) minimizes
increases in deposit insurance
assessments that may arise without a
change in risk. The rulemaking also
would maintain fair and appropriate
pricing of deposit insurance for
institutions that use the CBLR.
II. Background
The FDIC assesses all IDIs an amount
for deposit insurance equal to the
bank’s 5 deposit insurance assessment
base multiplied by its risk-based
assessment rate.6 A bank’s assessment
base and risk-based assessment rate
depend in part, on tier 1 capital and the
tier 1 leverage ratio. This information
would no longer be reported on the
Consolidated Reports of Condition and
Income (Call Report) by banks that elect
the CBLR framework.
A. Notice of Proposed Rulemaking:
Community Bank Leverage Ratio
On February 8, 2019, the Federal
banking agencies published in the
Federal Register the CBLR NPR.7 The
CBLR NPR would provide for a
VerDate Sep<11>2014 16:27 Feb 20, 2019 Jkt 247001 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\21FEP1.SGM 21FEP1
amozie on DSK3GDR082PROD with PROPOSALS1
5381Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Proposed Rules
8 Public Law 115–174 (May 24, 2018).
9 See section 201(a)(3)(A) of the Act.
10 See section 201(a)(3)(B) of the Act.
11 See 84 FR at 3068–69.
12 In accordance with the Act, the Federal
banking agencies propose to define a qualifying
community bank generally as a depository
institution or depository institution holding
company with less than $10 billion in total
consolidated assets and that has limited amounts of
off-balance sheet exposures, trading assets and
liabilities, mortgage servicing assets, and certain
deferred tax assets. An advanced approaches
banking organization, including a subsidiary of a
depository institution, bank holding company, or
intermediate holding company that is an advanced
approaches banking organization, would not be a
qualifying community bank. See 84 FR at 3065–67.
13 In the CBLR NPR, the Federal banking agencies
state that they intend to separately seek comment
on the proposed changes to regulatory reports for
qualifying community banking organizations that
elect to use the CBLR framework; however, the
CBLR NPR provides an illustrative reporting form,
using the Call Report as an example, as an
indication of the potential reporting format and
potential reporting burden relief for CBLR banks.
See 84 FR at 3065 and 3074.
14 See 84 FR at 3064 and 3071. However, to be
considered and treated as well capitalized under
the CBLR framework, and consistent with the
Federal banking agencies’ current PCA rule, the
qualifying community banking organization must
demonstrate that it is not subject to any written
agreement, order, capital directive, or prompt
corrective action directive to meet and maintain a
specific capital level for any capital measure. See
84 FR at 3064.
15 See 84 FR at 3071–72.
16 See 84 FR at 3073–74.
17 See 84 FR at 3073.
18 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 331(b), 124
Stat. 1376, 1538 (codified at 12 U.S.C. 1817(note)).
19 See 76 FR 10673, 10678 (Feb. 25, 2011)
(‘‘Defining tangible equity as Tier 1 capital provides
a clearly understood capital buffer for the DIF in the
event of the institution’s failure, while avoiding an
increase in regulatory burden that a new definition
of capital could cause.’’).
20 Generally, a custodial bank is defined as an IDI
with previous calendar year-end trust assets (that is,
fiduciary and custody and safekeeping assets, as
reported on Schedule RC–T of the Call Report) of
at least $50 billion or those insured depository
institutions that derived more than 50 percent of
their revenue (interest income plus non-interest
income) from trust activity over the previous
calendar year. See 12 CFR 327.5(c)(1).
21 The adjustment to the assessment base for
banker’s banks under 12 CFR 327.5(b) would not be
affected by this proposal.
22 See 12 CFR 327.16(e)(2).
23 12 U.S.C. 1817(b)(1)(D).
24 Under the assessment regulations, a ‘‘small
institution’’ generally is an institution with less
than $10 billion in total assets, and a ‘‘large
institution’’ generally is an institution with $10
billion or more in total assets. See 12 CFR 327.8(e)
and (f). A separate system for highly complex
institutions has been in place since 2011. See 12
CFR 326.16(b)(2).
25 Generally, an established institution is one that
has been federally insured for at least five years. See
12 CFR 327.8(v).
26 See 12 CFR 327.16(a)(1).
simplified measure of capital adequacy
for qualifying community banking
organizations, consistent with Section
201 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA or the Act).8 The Act defines
a qualifying community banking
organization as a depository institution
or depository institution holding
company with total consolidated assets
of less than $10 billion.9 In addition, the
Act states that the Federal banking
agencies may determine that a banking
organization is not a qualifying
community bank based on its risk
profile.10 A qualifying community
banking organization that reports a
community bank leverage ratio, or CBLR
(defined as the ratio of tangible equity
capital to average total consolidated
assets, both as reported on an
institution’s applicable regulatory
filing), exceeding the level established
by the Federal banking agencies of not
less than 8 percent and not more than
10 percent would be considered well
capitalized. The CBLR NPR proposed to
define tangible equity capital (CBLR
tangible equity) as total bank equity
capital, prior to including minority
interests, and excluding accumulated
other comprehensive income (AOCI),
deferred tax assets arising from net
operating loss and tax credit
carryforwards, goodwill, and certain
other intangible assets, calculated in
accordance with a qualifying
community bank organization’s
regulatory reports.11 The Federal
banking agencies further proposed that
qualifying community banking
organizations 12 that elect to use the
CBLR framework (CBLR banks) would
report their CBLR and other relevant
information on a simpler regulatory
capital schedule in the Call Report, as
opposed to the current schedule RC–R
of the Call Report.13 Finally, under the
CBLR NPR, a CBLR bank must have a
CBLR greater than 9 percent to be
considered well capitalized.14 The
Federal banking agencies also proposed
proxy CBLR thresholds for the
adequately capitalized,
undercapitalized, and significantly
undercapitalized PCA categories.15
In the interagency CBLR NPR, the
Federal banking agencies noted that
deposit insurance assessment
regulations would be affected by the
proposed CBLR framework.16 CBLR
banks would no longer be required to
calculate or report the components of
regulatory capital used in the
calculation of the tier 1 leverage ratio or
risk-based capital, such as tier 1 capital
or risk weighted assets.17
B. Use of Capital Measures in the
Current Deposit Insurance Assessment
System
Assessment Base
In 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) required that the FDIC
amend its regulations to redefine the
assessment base to equal average
consolidated total assets minus average
tangible equity.18 In implementing this
requirement, the FDIC defined tangible
equity as tier 1 capital, in part, because
it minimized regulatory reporting.19 The
FDIC also provides a deduction to the
assessment base for custodial banks 20
equal to a certain amount of low risk-
weighted assets.21
In addition, the FDIC applies certain
adjustments to a bank’s assessment rate
as part of the risk-based assessment
system to better account for risk among
banks based on their funding sources.
The adjustments are calculated, in part,
using a bank’s assessment base. One
adjustment, the depository institution
debt adjustment (DIDA), is limited
based on a bank’s tier 1 capital.22
Assessment Rate
Under the FDI Act, the FDIC has the
authority to ‘‘establish separate risk-
based assessment systems for large and
small members of the Deposit Insurance
Fund.’’ 23 Separate systems for large
banks and small banks have been in
place since 2007.24 Assessment rates for
established small banks 25 are calculated
based on a formula that uses financial
measures and a weighted average of
supervisory ratings (CAMELS).26 The
financial measures are derived from a
statistical model estimating the
probability of failure over three years.
The measures are shown in Table 1
below.
TABLE 1—FINANCIAL MEASURES USED
TO DETERMINE ASSESSMENT RATES
FOR ESTABLISHED SMALL BANKS
Financial measures
• Leverage Ratio.
• Net Income before Taxes/Total Assets.
• Nonperforming Loans and Leases/Gross
Assets.
• Other Real Estate Owned/Gross Assets.
• Brokered Deposit Ratio.
• One Year Asset Growth.
• Loan Mix Index.
One of the measures, the Leverage
Ratio, is defined as tier 1 capital divided
by adjusted average assets (herein
referred to as the tier 1 leverage ratio).
The numerator and denominator of the
Leverage Ratio are both based on the
VerDate Sep<11>2014 16:27 Feb 20, 2019 Jkt 247001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 E:\FR\FM\21FEP1.SGM 21FEP1
amozie on DSK3GDR082PROD with PROPOSALS1
8 Public Law 115–174 (May 24, 2018).
9 See section 201(a)(3)(A) of the Act.
10 See section 201(a)(3)(B) of the Act.
11 See 84 FR at 3068–69.
12 In accordance with the Act, the Federal
banking agencies propose to define a qualifying
community bank generally as a depository
institution or depository institution holding
company with less than $10 billion in total
consolidated assets and that has limited amounts of
off-balance sheet exposures, trading assets and
liabilities, mortgage servicing assets, and certain
deferred tax assets. An advanced approaches
banking organization, including a subsidiary of a
depository institution, bank holding company, or
intermediate holding company that is an advanced
approaches banking organization, would not be a
qualifying community bank. See 84 FR at 3065–67.
13 In the CBLR NPR, the Federal banking agencies
state that they intend to separately seek comment
on the proposed changes to regulatory reports for
qualifying community banking organizations that
elect to use the CBLR framework; however, the
CBLR NPR provides an illustrative reporting form,
using the Call Report as an example, as an
indication of the potential reporting format and
potential reporting burden relief for CBLR banks.
See 84 FR at 3065 and 3074.
14 See 84 FR at 3064 and 3071. However, to be
considered and treated as well capitalized under
the CBLR framework, and consistent with the
Federal banking agencies’ current PCA rule, the
qualifying community banking organization must
demonstrate that it is not subject to any written
agreement, order, capital directive, or prompt
corrective action directive to meet and maintain a
specific capital level for any capital measure. See
84 FR at 3064.
15 See 84 FR at 3071–72.
16 See 84 FR at 3073–74.
17 See 84 FR at 3073.
18 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 331(b), 124
Stat. 1376, 1538 (codified at 12 U.S.C. 1817(note)).
19 See 76 FR 10673, 10678 (Feb. 25, 2011)
(‘‘Defining tangible equity as Tier 1 capital provides
a clearly understood capital buffer for the DIF in the
event of the institution’s failure, while avoiding an
increase in regulatory burden that a new definition
of capital could cause.’’).
20 Generally, a custodial bank is defined as an IDI
with previous calendar year-end trust assets (that is,
fiduciary and custody and safekeeping assets, as
reported on Schedule RC–T of the Call Report) of
at least $50 billion or those insured depository
institutions that derived more than 50 percent of
their revenue (interest income plus non-interest
income) from trust activity over the previous
calendar year. See 12 CFR 327.5(c)(1).
21 The adjustment to the assessment base for
banker’s banks under 12 CFR 327.5(b) would not be
affected by this proposal.
22 See 12 CFR 327.16(e)(2).
23 12 U.S.C. 1817(b)(1)(D).
24 Under the assessment regulations, a ‘‘small
institution’’ generally is an institution with less
than $10 billion in total assets, and a ‘‘large
institution’’ generally is an institution with $10
billion or more in total assets. See 12 CFR 327.8(e)
and (f). A separate system for highly complex
institutions has been in place since 2011. See 12
CFR 326.16(b)(2).
25 Generally, an established institution is one that
has been federally insured for at least five years. See
12 CFR 327.8(v).
26 See 12 CFR 327.16(a)(1).
simplified measure of capital adequacy
for qualifying community banking
organizations, consistent with Section
201 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA or the Act).8 The Act defines
a qualifying community banking
organization as a depository institution
or depository institution holding
company with total consolidated assets
of less than $10 billion.9 In addition, the
Act states that the Federal banking
agencies may determine that a banking
organization is not a qualifying
community bank based on its risk
profile.10 A qualifying community
banking organization that reports a
community bank leverage ratio, or CBLR
(defined as the ratio of tangible equity
capital to average total consolidated
assets, both as reported on an
institution’s applicable regulatory
filing), exceeding the level established
by the Federal banking agencies of not
less than 8 percent and not more than
10 percent would be considered well
capitalized. The CBLR NPR proposed to
define tangible equity capital (CBLR
tangible equity) as total bank equity
capital, prior to including minority
interests, and excluding accumulated
other comprehensive income (AOCI),
deferred tax assets arising from net
operating loss and tax credit
carryforwards, goodwill, and certain
other intangible assets, calculated in
accordance with a qualifying
community bank organization’s
regulatory reports.11 The Federal
banking agencies further proposed that
qualifying community banking
organizations 12 that elect to use the
CBLR framework (CBLR banks) would
report their CBLR and other relevant
information on a simpler regulatory
capital schedule in the Call Report, as
opposed to the current schedule RC–R
of the Call Report.13 Finally, under the
CBLR NPR, a CBLR bank must have a
CBLR greater than 9 percent to be
considered well capitalized.14 The
Federal banking agencies also proposed
proxy CBLR thresholds for the
adequately capitalized,
undercapitalized, and significantly
undercapitalized PCA categories.15
In the interagency CBLR NPR, the
Federal banking agencies noted that
deposit insurance assessment
regulations would be affected by the
proposed CBLR framework.16 CBLR
banks would no longer be required to
calculate or report the components of
regulatory capital used in the
calculation of the tier 1 leverage ratio or
risk-based capital, such as tier 1 capital
or risk weighted assets.17
B. Use of Capital Measures in the
Current Deposit Insurance Assessment
System
Assessment Base
In 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) required that the FDIC
amend its regulations to redefine the
assessment base to equal average
consolidated total assets minus average
tangible equity.18 In implementing this
requirement, the FDIC defined tangible
equity as tier 1 capital, in part, because
it minimized regulatory reporting.19 The
FDIC also provides a deduction to the
assessment base for custodial banks 20
equal to a certain amount of low risk-
weighted assets.21
In addition, the FDIC applies certain
adjustments to a bank’s assessment rate
as part of the risk-based assessment
system to better account for risk among
banks based on their funding sources.
The adjustments are calculated, in part,
using a bank’s assessment base. One
adjustment, the depository institution
debt adjustment (DIDA), is limited
based on a bank’s tier 1 capital.22
Assessment Rate
Under the FDI Act, the FDIC has the
authority to ‘‘establish separate risk-
based assessment systems for large and
small members of the Deposit Insurance
Fund.’’ 23 Separate systems for large
banks and small banks have been in
place since 2007.24 Assessment rates for
established small banks 25 are calculated
based on a formula that uses financial
measures and a weighted average of
supervisory ratings (CAMELS).26 The
financial measures are derived from a
statistical model estimating the
probability of failure over three years.
The measures are shown in Table 1
below.
TABLE 1—FINANCIAL MEASURES USED
TO DETERMINE ASSESSMENT RATES
FOR ESTABLISHED SMALL BANKS
Financial measures
• Leverage Ratio.
• Net Income before Taxes/Total Assets.
• Nonperforming Loans and Leases/Gross
Assets.
• Other Real Estate Owned/Gross Assets.
• Brokered Deposit Ratio.
• One Year Asset Growth.
• Loan Mix Index.
One of the measures, the Leverage
Ratio, is defined as tier 1 capital divided
by adjusted average assets (herein
referred to as the tier 1 leverage ratio).
The numerator and denominator of the
Leverage Ratio are both based on the
VerDate Sep<11>2014 16:27 Feb 20, 2019 Jkt 247001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 E:\FR\FM\21FEP1.SGM 21FEP1
amozie on DSK3GDR082PROD with PROPOSALS1