[Federal Register Volume 61, Number 201 (Wednesday, October 16, 1996)]
[Proposed Rules]
[Pages 53867-53876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26506]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 61, No. 201 / Wednesday, October 16, 1996 / 
Proposed Rules  

[[Page 53867]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AB94


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed rule.

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SUMMARY: The FDIC is proposing to lower the rates on assessments paid 
to the Savings Association Insurance Fund (SAIF), and to widen the 
spread of the rates, in order to avoid collecting more than needed to 
maintain the SAIF's capitalization at 1.25 percent of aggregate insured 
deposits, and improve the effectiveness of the risk-based assessment 
system.
    The proposed rule would establish a base assessment schedule for 
the SAIF with rates ranging from 4 to 31 basis points, and an adjusted 
assessment schedule that reduces these rates by 4 basis points. In 
general, the effective SAIF rates would range from 0 to 27 basis 
points, beginning October 1, 1996. The proposed rule would also 
establish a special interim schedule of rates ranging from 18 to 27 
basis points for SAIF-member savings associations for just the last 
quarter of 1996, reflecting the fact that the Financing Corporation's 
assessments are included in the SAIF rates for these institutions 
during that interval. Excess assessments collected under the prior 
assessment schedule would be refunded or credited, with interest.
    The proposed rule would enable the FDIC to make limited adjustments 
to the base assessment rates, both for the SAIF and for the Bank 
Insurance Fund (BIF), by a limited amount without notice-and-comment 
rulemaking.
    The proposed rule would clarify and correct certain provisions 
without making substantive changes.

DATES: Comments must be received by the FDIC on or before November 15, 
1996.

ADDRESSES: Send comments to the Office of the Executive Secretary, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429. Comments may be hand-delivered to Room F-400, 
1776 F Street, NW., Washington, DC, on business days between 8:30 a.m. 
and 5:00 p.m. (FAX number: 202/898-3838. Internet address: 
[email protected]). Comments will be available for inspection in the 
FDIC Public Information Center, Room 100, 801-17th Street, NW., 
Washington, DC between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Allan Long, Assistant Director, 
Division of Finance, (202) 416-6991; James McFadyen, Senior Financial 
Analyst, (202) 898-7027; Christine Blair, Financial Economist, (202) 
898-3936, Division of Research and Statistics; Stephen Ledbetter, 
Chief, Assessments Evaluation Section, Division of Insurance (202) 898-
8658; Richard Osterman, Senior Counsel, (202) 898-3736; Jules Bernard, 
Counsel, (202) 898-3731, Legal Division, Federal Deposit Insurance 
Corporation, Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

I. The Proposed Rule

A. Background

    Under the assessment schedule currently in effect, SAIF members are 
assessed rates for FDIC insurance ranging from 23 basis points for 
institutions with the best assessment risk classification to 31 basis 
points for the riskiest institutions. This assessment schedule 
implements the risk-based assessment program required by section 7 of 
the Federal Deposit Insurance (FDI Act), 12 U.S.C. 1817, and has been 
designed to increase the reserve ratio of the SAIF--the ratio of the 
SAIF's net worth to aggregate SAIF-insured deposits, see id. 
1817(l)(7)--to the DRR.1
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    \1\ The DRR is a target ratio that has a fixed value for each 
year. The value is either 1.25 percent or such higher percentage as 
the Board determines to be justified for that year by circumstances 
raising a significant risk of substantial future losses to the Fund. 
Id. 1817(b)(2)(A)(iv). The Board has not altered the statutory DRR 
for either fund.
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    Since the creation of the SAIF and through the end of 1992, 
however, all assessments from SAIF-member institutions were diverted to 
other needs. While some SAIF-assessment revenue began flowing into the 
SAIF on January 1, 1993, the amounts authorized to be assessed against 
SAIF-member savings associations by the SAIF were reduced by the 
amounts assessed by the FICO in order to service the interest on its 
bond obligations. At $793 million per year, the FICO draw was 
substantial, and contributed to the slow growth in the SAIF reserve 
ratio, which only increased from .28 percent to .47 percent in 1995.
    With the capitalization of the BIF in 1995, the Board has lowered 
the assessment rate schedule for BIF members, creating a significant 
disparity in the assessment rates paid by BIF and SAIF members. This 
disparity has created incentives for institutions to move deposits from 
SAIF-insured status to BIF-insured status, raising the question of 
whether a shrinking SAIF-assessable deposit base could continue both to 
service the interest on FICO debt and to capitalize the SAIF.
    On September 30, 1996, the Deposit Insurance Funds Act of 1996 
(Funds Act), Pub. L. 104-208, 110 Stat. 3009 et seq., was enacted, 
requiring the FDIC to impose a one-time special assessment on SAIF-
assessable deposits to capitalize the SAIF at 1.25 percent of SAIF-
insured deposits as of October 1, 1996. The FDIC is issuing a final 
rule to impose the special assessment; the special assessment is to be 
collected on November 27, 1996.
    The Funds Act also eliminates the statutory link between the FICO's 
assessments and amounts authorized to be assessed by the SAIF, 
effective January 1, 1997. Accordingly, the rate-setting process for 
the SAIF takes the FICO's draw into account until that date, but not 
afterward.
    In response to these developments, the FDIC is proposing to lower 
the regular SAIF assessment rates as of October 1, 1996, and to refund 
or credit any excess SAIF assessments collected for the second 
semiannual period of 1996.

B. Statutory Framework for Setting Assessment Rates

    Section 7(b)(1) of the FDI Act, id. 1817(b)(1), requires the Board 
to establish a risk-based assessment system for all insured 
institutions, and to set semiannual assessments for each institution 
based on: (1) The probability that the institution will cause a loss to 
the BIF or to the SAIF, (2) the likely

[[Page 53868]]

amount of the loss, and (3) the revenue needs of the appropriate fund. 
Id. 1817(b)(1)(C).
    Section 7(b)(2)(A) requires the Board to set assessments to 
maintain each fund's reserve ratio at the DRR (or, if the fund's 
reserve ratio is below the DRR, to increase the ratio to that level). 
Id. 1817(b)(2)(A)(i).2 The Board must take into consideration the 
fund's: (1) Expected operating expenses; (2) case resolution 
expenditures and income; (3) the effect of assessments on members' 
earnings and capital; and (4) any other factors that the Board deems 
appropriate. Id. 1817(b)(2)(A)(ii). Once the SAIF's reserve ratio is at 
the DRR, the FDIC may not set SAIF assessments in excess of the amount 
necessary to maintain that ratio (although the Board may set higher 
rates for institutions that exhibit weakness or are not well 
capitalized). Id. 1817(b)(2)(A)(iii) & (v).
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    \2\ The Board may set higher rates for institutions that exhibit 
weakness or are not well capitalized, however. Id. 1817(b)(2)(A)(v).
---------------------------------------------------------------------------

    Until January 1, 1997, the amounts assessed by the FICO may not 
exceed the amount ``authorized to be assessed'' by the FDIC against 
SAIF member savings associations pursuant to section 7 of the FDI Act. 
Conversely, the amount of a SAIF assessment ``shall be reduced'' by the 
amount of the FICO draw. Id. 1441(f)(2).
    Finally, until December 31, 1998, the assessment rate for a SAIF 
member may not be less than the assessment rate for a BIF member that 
poses a comparable risk to the deposit insurance fund. Id. 
1817(b)(2)(E).

C. The SAIF Assessment Schedule

1. New Rate Spread
    Risk-based assessment rates have a dual purpose: to reflect the 
risk posed to each Fund by individual institutions, and to provide 
institutions with proper incentives to control risk-taking. The FDIC 
has considered whether a spread of 8 basis points is sufficient for 
achieving these goals. In December 1992, the FDIC proposed to establish 
risk-based premium matrices of 23 to 31 basis points for both the BIF 
and the SAIF. The Board asked for comment on whether the proposed 
assessment rate spread of 8 basis points should be widened. See 57 FR 
62502 (Dec. 31, 1992). Ninety-six commenters addressed this issue; 75 
of them favored a wider rate spread. In the final rule, the Board 
expressed its conviction that widening the rate spread was desirable in 
principle, but chose to implement the 8-basis point rate spread. The 
Board expressed concern that widening the spread while keeping 
assessment revenue constant might unduly burden the weaker institutions 
that would be subject to greatly increased rates. See 58 FR 34357, 
34361 (June 25, 1993).
    The 8-basis point rate spread has continued to be criticized by 
bankers, banking scholars and regulators as unduly narrow. There is 
considerable empirical support for this criticism. Using a variety of 
methodologies and different sample periods, the vast majority of 
relevant studies of deposit-insurance pricing have produced results 
that are consistent with the conclusion that the rate spread between 
healthy and troubled institutions should exceed 8 basis points. The 
precise estimates vary; but there is a clear consensus from this 
evidence that the rate spread should be widened.3
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    \3\ The FDIC's research also suggests that a substantially 
larger spread would be necessary to establish an ``actuarially 
fair'' assessment rate system. See Gary S. Fissel, ``Risk 
Measurement, Actuarially Fair Deposit Insurance Premiums and the 
FDIC's Risk-Related Premium System'', FDIC Banking Review 16-27, 
Table 5, Panel B (1994).
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    There also is a concern that rate differences between adjacent 
cells in the current matrix do not provide adequate incentives for 
institutions to improve their condition. Larger differences are 
consistent with historical variations in failure rates across cells of 
the matrix, as seen in the following table:

                          Table 1.--Historical Thrift Failure Rates by Cell 1988-1993*                          
----------------------------------------------------------------------------------------------------------------
                                                                    Supervisory risk subgroup         Not rated 
                  Tangible capital category                  --------------------------------------- as of 12/31/
                                                                   A            B            C            87    
----------------------------------------------------------------------------------------------------------------
1. Well:                                                                                                        
    Thrifts.................................................        1,189          172           21           25
    Failures................................................           43           28            9            5
    Failure Rate............................................         2.9%        16.3%        42.9%        20.0%
2. Adequate:                                                                                                    
    Thrifts.................................................          215           73           14            1
    Failures................................................           26           20            7            0
    Failure Rate............................................        12.1%        27.4%        50.0%         0.0%
3. Under:                                                                                                       
    Thrifts.................................................          460          389          541           37
    Failures................................................          134          205          447           35
    Failure Rate............................................        29.1%        52.7%        82.6%       94.6% 
----------------------------------------------------------------------------------------------------------------
Average failure rate: 30.6%                                                                                     
* Percentage of thrifts in cell at year-end 1987 that failed during 1988-1993. These figures reflect different  
  examination policies and procedures than exist today. In particular, examinations may have been relatively    
  infrequent for some institutions during this period.                                                          

    The precise magnitude of the proper rate differences is open to 
debate, given the sensitivity of estimates to small changes in 
assumptions and to the selection of the sample periods. However, the 
evidence indicates that larger rate differences between adjacent cells 
of the risk-based assessment matrix are warranted.
    Because of concern for the impact of a wider spread on weaker SAIF-
insured institutions, the FDIC has performed analyses on increasing the 
spread from 8 to 27 basis points and has found that, apart from 
institutions already recognized as likely failures, the wider spread is 
expected to have a minimal impact in terms of additional failures. The 
FDIC therefore proposes that a 27-basis point spread be adopted for 
members of the SAIF.
2. Spreading Risk Over Time
    The FDIC has recognized that, in setting deposit insurance 
premiums, the risk of adverse events that may occur beyond the 
immediate semiannual assessment period must be considered, in order to 
spread risk over time and to moderate the cyclical effects of insurance 
losses on insured institutions. A strict ``pay-as-you-go'' insurance

[[Page 53869]]

system-- one that attempts only to balance revenue and expense over the 
current assessment period--can result in rate volatility that would 
adversely impact weak institutions in periods of economic stress, 
increasing the risk of loss to the fund. Historical evidence shows that 
in peak loss years, pay-as-you-go rates would substantially exceed the 
rates required to balance revenues and expenses over the longer term.
    The FDIC believes that, for the purpose of estimating future losses 
for the thrift industry, the industry's loss experience in the 1980s is 
not likely to be especially informative. The insurance losses 
associated with thrifts far exceeded insurance losses from banks during 
this period both in dollars and, to an even greater extent, as a 
percentage of the size of the industry.
    The losses prompted Congress to adopt a number of legislative 
reforms that have the effect of placing thrifts in a regulatory context 
that resembles that of the banks much more closely. The FDIC has 
replaced the Federal Savings and Loan Insurance Corporation (FSLIC) as 
insurer for the thrift industry. The Office of Thrift Supervision, an 
office within the Department of the Treasury, has replaced the Federal 
Home Loan Bank Board as the supervisor for thrift institutions. Thrifts 
are now subject to stronger capital standards, which are set at the 
same levels as required of banks. Thrifts, like banks, now pay 
assessments based on risk. The losses generated in thrift failures are 
limited by the same safeguards as those that apply to bank failures--
notably, the early-closure rule of the prompt corrective action 
statute, the cross-guarantees among affiliates, the least-cost 
resolution requirement, and the depositor-preference statute. In view 
of these changes in the regulatory and insurance environment for 
thrifts, the failure experience of commercial banks is likely to be 
more illuminating for the purpose of estimating future thrift losses.
    The FDIC has recently analyzed its historical loss experience with 
banks, and has considered the likely effect of recently enacted 
statutory provisions that are expected to moderate deposit insurance 
losses going forward. The FDIC has concluded that an assessment rate of 
4 to 5 basis points would be appropriate to achieve a long-run balance 
between BIF revenues and expenses. See 60 FR 42680 (Aug. 16, 1995). 
These rates reflect the experience of the FDIC during the period from 
1950 to 1980. From 1980 through 1994, rates in the range of 10 to 13 
basis points would have been required to balance revenues and expenses: 
but for banks as well as thrifts, failures during this period were 
attributable to extraordinary conditions brought on by volatile 
interest rates, ineffective supervision and real-estate values that 
first soared and then collapsed. While regulators still may not have 
the ability to foresee a real-estate collapse or other severe economic 
adversities, the statutory and regulatory safeguards now in place are 
likely to limit losses to the funds under such extreme conditions. 
Accordingly, average assessment rates in the range of 4 to 5 basis 
points are thought to be adequate to balance long-range revenues and 
expenses for the BIF.
    The FDIC expects that this same range is an appropriate benchmark 
for SAIF rates as well. From 1950 to 1980, the rates paid by FSLIC-
insured thrifts were about twice the effective rate paid by FDIC-
insured banks, reflecting higher annual rates of deposit growth for 
thrifts and a somewhat higher loss experience for the FSLIC.4 But 
differences between the banking and thrift industries are less 
significant today than they were in the period from 1950 to 1980; 
thrifts generally are better protected than they were from the effects 
of interest-rate swings; regulatory and accounting standards are more 
exacting; and deposits have generally declined since 1989. The FDIC 
recognizes that structural weaknesses of the SAIF, including a 
relatively small membership base and geographic and product 
concentrations, suggest that the appropriate SAIF assessment rate to 
achieve a long-range balance may be higher than the BIF rate. Lacking a 
compelling empirical basis for determining different assessment 
structures for the two industries, however, the FDIC currently expects 
that an assessment rate of 4 to 5 basis points would likely result in a 
long-range balance of revenues and expenses for the SAIF as well as for 
the BIF.
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     4  See James R. Barth, John J. Feid, Gabriel Riedel and M. 
Hampton Tunis, Alternative Federal Deposit Insurance Schemes, Office 
of Policy and Economic Research, Federal Home Loan Bank Board, 
(January 1989), at 12-20.
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3. Maintaining the SAIF Reserve Ratio at the DRR
    In setting assessments to maintain the reserve ratio at the DRR the 
Board is required to consider the following factors:
    a. Expected operating expenses and revenues. With a balance of 
approximately $8.6 billion, the SAIF will be fully capitalized at 1.25 
percent as of October 1, 1996. Table 2 shows the projected SAIF reserve 
ratio on June 30, 1997, under pessimistic, optimistic and moderate 
conditions. The pessimistic conditions combine relatively high loss 
provisions, high deposit growth and low investment earnings; the 
optimistic conditions combine zero loss provisions, negative deposit 
growth and high investment earnings. Table 2 indicates that, under 
pessimistic conditions, an assessment rate range of 4 to 31 basis 
points falls just short of maintaining the DRR of 1.25 percent. But 
under moderate conditions, which can be viewed as more likely than 
either the pessimistic or optimistic scenarios, rates of 0 to 27 basis 
points would result in a SAIF reserve ratio of 1.27 percent:

                   Table 2.--SAIF Assessment Rates and Reserve Ratio Under Varying Conditions                   
----------------------------------------------------------------------------------------------------------------
                           Conditions                               Pessimistic     Optimistic       Moderate   
----------------------------------------------------------------------------------------------------------------
Deposit growth rate (%).........................................             4.0            -2.0             2.0
Loss provisions ($M)............................................             270               0              50
Investment rate (%).............................................             5.2             6.2             5.7
----------------------------------------------------------------------------------------------------------------


                                                                                                                
                      Assessment rates (bp)                         Estimated reserve ratio (%)  June 30, 1987  
----------------------------------------------------------------------------------------------------------------
                      Range                           Average       Pessimistic     Optimistic       Moderate   
4 to 31.........................................             4.7            1.24            1.36            1.30
2 to 29.........................................             2.7            1.23            1.34            1.28

[[Page 53870]]

                                                                                                                
0 to 27.........................................             0.7            1.21            1.33            1.27
----------------------------------------------------------------------------------------------------------------

Following is a discussion of each of the main variables affecting the 
estimated reserve ratio:
    Yield on investments: The SAIF is very liquid, not having had any 
significant receivership activity. Although FDIC policy limits the 
proportion of investments with maturities beyond five years, a fully 
capitalized SAIF will have significant investment earnings. Short-term 
interest rates have been generally stable in 1996, and the FDIC's 
recent investment yield of 5.7 percent may be a reasonable 
approximation for the expected yield through the first half of 1997. 
The investment rates utilized in Table 2 range from 5.2 percent to 6.2 
percent, or 50 basis points on either side of the recent experience. 
Estimated annual operating expenses are assumed to be $40 million, the 
same as in 1995.\5\
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    \5\ The FDIC presently is addressing the allocation of operating 
expenses between the BIF and the SAIF. A likely outcome is that the 
proportion of expenses borne by the SAIF will increase.
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    Growth of SAIF-insured deposits: For the 12 months ending December 
31, 1995, SAIF-insured deposits increased 2.5 percent, reversing a 
long-term decline that began with the inception of the SAIF in 1989. 
But insured deposit growth slowed in the first six months of 1996 to an 
annual rate of 0.3 percent. The FDIC regards an annual growth rate of 
2.5 percent as near the high end of the possible range of deposit 
growth for the near future. Accordingly, the FDIC's analysis uses a 
range of insured deposit growth from -2 percent to 4 percent 
(annualized).
    Provisions for loss: The FDIC has already established a reserve for 
losses within the SAIF, and has accordingly reduced SAIF's reported net 
worth by the amount of the reserve.\6\ This reserve represents the 
estimated loss for institutions that, absent some favorable event, are 
likely to fail within 18 months. That projection is subject to 
considerable uncertainty.
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    \6\ The SAIF loss reserve was $114 million on June 30, 1996.
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    The optimistic scenario assumes the existing reserve is adequate. 
Table 2 shows an additional loss provision of zero under this scenario.
    The pessimistic scenario has an additional loss provision of $270 
million. This scenario represents the long-range failure rate for SAIF-
insured institutions, which is estimated to be 22 basis points per year 
of total assets (or slightly more than $2 billion in failed assets per 
year). The pessimistic scenario is not a worst-case scenario. But given 
the currently favorable economic conditions and the relative health of 
the thrift industry, deterioration in the industry would have to be 
sudden and sharp for the SAIF to require additional loss reserves at 
the long-term rate.
    The moderate scenario reflects the fact that the FDIC has 
identified a few SAIF members as possible failures by year-end 1997 but 
has not yet established loss reserves for them. If loss reserves were 
established for these thrifts in 1996, the cost to the SAIF would be 
about $50 million.
    b. Case resolution expenditures and income. As noted above, the 
SAIF has no significant receivership activity. Accordingly, case 
resolution expenditures and income are negligible.
    c. Effect on SAIF members' earnings and capital. The proposed rule 
would reduce assessment rates for all institutions that pay assessments 
to the SAIF, and therefore would have a beneficial impact on all such 
institutions' earnings and capital.
    Thrifts had record earnings and a return on assets above 1 percent 
in each of the first two quarters of 1996. Nearly 98 percent of all 
SAIF members are well capitalized. The assets of ``problem'' SAIF 
members fell to $7 billion as of June 30, down from over $200 billion 
at the end of 1991. Only one SAIF member has failed in 1996.
    The commercial banking industry, which owns one-fourth of the SAIF 
assessment base, is even stronger. Based on net income for the first 
half of 1996, the banking industry is expected to have record annual 
earnings for the fifth consecutive year.
    d. Summary. As discussed above, while the appropriate long-term 
assessment rate would be 4 to 5 basis points, the analysis summarized 
in Table 2 indicates that, under current conditions, this rate would 
likely result in a reserve ratio well in excess of 1.25%. The Board is 
therefore proposing to lower the rate to a range of 0 to 27 basis 
points, which would yield an average rate of 0.6 basis points 
(annualized) and an estimated reserve ratio of 1.27 percent at midyear 
1997, under moderate conditions. With no significant receivership 
activity and a very liquid fund, investment earnings presently are more 
than adequate to maintain the DRR.
4. The Base Schedule and the Effective Rates
    The Funds Act requires the special assessment to be in an amount 
that capitalizes the SAIF at the DRR as of October 1, 1996. 
Accordingly, from that date forward the FDIC must set SAIF assessments 
no higher than necessary to maintain the SAIF's reserve ratio at the 
DRR (although the Board may set higher rates for institutions that 
exhibit certain kinds of weakness or are not well capitalized). 12 
U.S.C. 1817(b)(2)(A) (i), (iii) and (v). The FDIC must therefore lower 
the SAIF assessment schedule as a whole.\7\
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    \7\ The proposed rule would give the FDIC flexibility to delay 
issuing the invoices for the first quarterly payment for the first 
semiannual period of 1997, which is the first payment under the new 
schedule. As a rule, the FDIC must issue invoices not less than 30 
days prior to the collection date. 12 CFR 327.3(c)(1). A shorter 
interval is warranted in this case in order to afford time for 
notice and comment on the proposed regulation.
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    At the same time, in order to maintain a risk-based assessment 
system, the FDIC must set rates for riskier institutions at higher 
levels, even if the resulting collections would cause the SAIF's 
reserve ratio to rise above the DRR. The higher rates are required to 
preserve the incentive for those institutions to control risk-taking 
behavior, and also to cover the long-term costs of the obligations that 
the institutions present to the SAIF. The FDIC has explicit authority 
to set higher assessments for such institutions. See 12 U.S.C. 
1817(b)(2)(A)(v).
    The FDIC is proposing to fulfill these requirements by adopting a 
base assessment schedule that sets forth a permanent (and reduced) set 
of rates for the SAIF, and an adjusted assessment schedule that further 
lowers the SAIF rates to the level that is appropriate under current 
conditions. The FDIC is also proposing to adopt a procedure for making 
limited modifications to the adjusted assessment schedule in an 
expeditious manner (discussed in paragraph I.E., below). Finally, in 
order to accommodate the special circumstances of institutions that pay 
FICO assessments, the FDIC is

[[Page 53871]]

proposing to adopt a special interim set of rates that apply to these 
institutions from October 1, 1996, through the end of the year. (See 
discussion at paragraph I.C.4.d., below).
    a. The SAIF Base Assessment Schedule. The SAIF rates currently 
range from 23 basis points for institutions with the most favorable 
assessment risk classification to 31 basis points for the riskiest 
institutions:

                    Current SAIF Assessment Schedule                    
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................       23       26       29
2............................................       26       29       30
3............................................       29       30       31
------------------------------------------------------------------------

See 12 CFR 327.9(d)(1). The proposed rule would retain the basic 
framework of this schedule and name it the ``SAIF Base Assessment 
Schedule''.
    The proposed SAIF Base Assessment Schedule would have generally 
lower rates, however, and would also have a wider range between the 
highest and lowest rates:

                 Proposed SAIF Base Assessment Schedule                 
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................        4        7       21
2............................................        7       14       28
3............................................       14       28       31
------------------------------------------------------------------------

    Until January 1, 1999, SAIF rates may not be lower than the BIF 
rates for institutions that pose comparable risks to their funds. 12 
U.S.C. 1817(b)(2)(E)(iii). Accordingly, the rates in the proposed SAIF 
Base Assessment Schedule are as low as, but no lower than, the 
permanent (or base) BIF rates set forth in Rate Schedule 2.8 See 
id. 327.9(a).
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     8  The proposed rule would redesignate Rate Schedule 2 as 
the BIF Base Assessment Schedule.
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    The SAIF Base Assessment Schedule would, in principle, apply 
immediately to all institutions. As described below, however, the rates 
set forth in the SAIF Base Assessment Schedule would not be the rates 
that are actually effective upon adoption of the proposed rule.
    b. Effective rates. The FDIC is proposing to modify the rates in 
the SAIF Base Assessment Schedule in two ways. Both modifications would 
be effective as of October 1, 1996. The first proposed modification is 
a general adjustment to the rates in the SAIF Base Assessment Schedule 
that lowers these rates by 4 basis points. The adjusted rate schedule 
would immediately apply to all institutions other than those that pay 
assessments to the FICO. The second proposed modification is a special 
interim set of rates for institutions that pay assessments to the FICO. 
The special interim rates would apply to these institutions from 
October 1, 1996, through December 31, 1996. After the end of 1996, the 
special interim rates would terminate, and these institutions--like 
other institutions that pay SAIF assessments--would pay the rates 
prescribed in the SAIF Base Assessment Schedule as reduced by the 4-
basis-point adjustment.
    The SAIF Adjusted Assessment Schedule. When the SAIF's reserve 
ratio is at the DRR, the FDIC cannot lawfully impose regular semiannual 
assessments with respect to the SAIF in excess of the amount needed to 
maintain the SAIF at the DRR (although the Board may set such 
assessments for institutions that exhibit weakness or are not well 
capitalized). Id. 1817(b)(2)(A)(iii) and (v). Accordingly, the FDIC is 
proposing to adopt an immediate adjustment to the SAIF Base Assessment 
Schedule that would avoid collecting such excess amounts. Like the SAIF 
Base Assessment Schedule, the adjusted assessment schedule would take 
effect on October 1, 1996.
    The adjusted assessment schedule would apply at that time to all 
institutions other than institutions that pay FICO assessments. On and 
after January 1, 1997, the adjusted assessment schedule would apply to 
all institutions. The adjustment would reduce each SAIF assessment rate 
by 4 basis points.
    The FDIC may not lower the rates in the SAIF Base Assessment 
Schedule by more than the proposed 4 basis-point adjustment. Any 
further reduction would cause the lowest rate to be less than zero, and 
would also cause the effective SAIF rates to fall below the current 
rates for BIF members.
    Interim schedule for institutions paying FICO assessments. SAIF-
member savings associations must pay assessments to the FICO to fund 
the FICO's interest obligations. 12 U.S.C. 1441(f)(2); see id. 
1441(k)(1). Through year-end 1996, the FICO's assessments serve to 
reduce the amounts that the SAIF is authorized to assess against these 
institutions. Accordingly, in order to maintain a risk-based system of 
rates for these institutions, the FDIC is setting each rate in the 
system at a level that is sufficient to pay the FICO's requirements, 
and also to establish the incentives and generate the revenues 
necessary to carry out the mission of the risk-based assessment 
program.
    Other institutions--BIF members and SAIF-member banks--do not make 
such payments to the FICO, even though these institutions may pay SAIF 
assessments. See ``Treatment of Assessments Paid by `Oakar' Banks and 
`Sasser' Banks on SAIF-Insured Deposits, General Counsel's Opinion No. 
7'', 60 FR 7059 (February 6, 1995).9 If the FDIC were to extend 
the special interim rates for SAIF-member savings associations to other 
institutions, the FDIC would collect amounts in excess of the amount 
needed to preserve the SAIF's reserve ratio at the DRR. But if the FDIC 
were to subject SAIF-member savings associations to the schedule that 
applies to these other institutions, the SAIF would not receive the 
amounts necessary to compensate it for the risk that the institutions 
present to it. Accordingly, the FDIC cannot adopt a single rate-
schedule for all SAIF-assessable institutions between October 1, 1996, 
and year-end 1996.
---------------------------------------------------------------------------

     9  A prior version of the Funds Act, which was contained 
in the ``Balanced Budget Act of 1995'' (H.R. 2491) but vetoed by the 
President on December 6, 1995, would have required pro rata sharing 
of the FICO payments by savings associations and banks essentially 
immediately, as that provision would have been effective January 1, 
1996. Later on, however, Congress altered the effective date for the 
FICO sharing provision to apply to semiannual periods beginning 
after December 31, 1996. By implication, banks do not share in the 
FICO assessment payments prior to that date.
---------------------------------------------------------------------------

    Conversely, the Federal Home Loan Bank Act currently provides--and 
will continue to provide until January 1, 1997--that the amount 
assessed by the FICO against SAIF-member savings associations ``shall 
not exceed the amount authorized to be assessed'' by the SAIF against 
those institutions, and that the amount of the applicable SAIF 
assessment ``shall be reduced'' by the amount of the FICO draw. 12 
U.S.C. 1441(f)(2)(A). If SAIF-member savings associations were subject 
to the rate-schedule for other institutions, the amounts collected from 
the SAIF-member savings associations would not be sufficient to cover 
the FICO draw.
    The FDIC is proposing to set rates for SAIF-member savings 
associations at a level that is sufficient to cover the FICO draw, yet 
does not cause these institutions to pay amounts to the SAIF that would 
cause the SAIF's reserve ratio to exceed the DRR. The rates in the 
risk-based assessment system for SAIF-member savings associations must 
also be high enough to carry out the policies that underlie such a 
system, but not so high as to constitute an excessive burden. The FDIC 
is therefore proposing

[[Page 53872]]

to retain, as a general matter, the relationships among the assessment-
risk categories in the current SAIF assessment schedule, while reducing 
each rate in the schedule by 5 basis points. The only exception to this 
principle is found in the relationship between the highest-risk 
category and adjacent categories. Section 7(b)(2)(E) of the FDI Act 
specifies that the assessment rate for a SAIF member may not be less 
than the assessment rate for a BIF member that poses a comparable risk 
to its fund. Id. 1817(b)(2)(E)(iii). Accordingly, the rate proposed for 
institutions in the highest-risk category schedule is not the current 
rate reduced by the full 5 basis points, but rather is set at the same 
level as that for BIF members in the highest-risk category.
    Summary. The effective rates applicable to institutions that pay 
assessments to the SAIF from October 1, 1996, through December 31, 
1996, are shown in the following table:

                    SAIF Adjusted Assessment Schedule                   
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................      018      321     1724
2............................................      321     1024     2425
3............................................     1024     2425     2727
------------------------------------------------------------------------

The rates in large type apply to all SAIF-assessable institutions from 
January 1, 1997, forward; these rates also apply from October 1, 1996, 
forward to institutions that are not SAIF-member savings associations. 
The rates in small type apply to SAIF member savings associations from 
October 1, 1996, through December 31, 1996.
5. Refund of Excess SAIF Assessments
    Both the proposed SAIF Adjusted Assessment Schedule and the interim 
rate schedule for SAIF-member savings associations would become 
effective as of October 1, 1996. The FDIC has already sent out invoices 
for the second quarterly payment for the current semiannual period 
(July-December 1996), however. These assessments were computed at the 
rates presently in effect, which are generally higher than the proposed 
rates.
    Accordingly, the proposed rule would provide for a refund or credit 
of the excess amount collected in the regular SAIF assessment, with 
interest. The excess amount would be refunded or credited in one or 
more installments. The refunds and credits would be made according to 
the procedures applicable to regular quarterly payments.

D. Assessments Paid by Certain Institutions

    Even if a fund has been capitalized, the FDIC may collect 
assessments for the fund from institutions ``that exhibit financial, 
operational, or compliance weaknesses ranging from moderately severe to 
unsatisfactory, or that are not well capitalized as defined in [FDI 
Act] section 38''. Id. 1817(b)(2)(A)(v). The FDIC proposes to interpret 
this clause in a manner that is consistent with the existing framework 
of the risk-based assessment program.
    ``Financial, operational, or compliance weaknesses''. For 
assessment purposes, the FDIC classifies each institution into one of 
three supervisory subgroups:

Subgroup A  Financially sound institutions with only a few minor 
weaknesses. 12 CFR 327.4(a)(2)(i).
Subgroup B  Institutions that demonstrate weaknesses which, if not 
corrected, could result in significant deterioration of the 
institution and increased loss to the BIF or SAIF. Id. 
327.4(a)(2)(ii).
Subgroup C  Institutions that pose a substantial probability of loss 
to the BIF or SAIF unless effective corrective action is taken. Id. 
327.4(a)(2)(iii).

    When Congress adopted the Funds Act, Congress was aware that the 
FDIC already had these standards and definitions in place, and that the 
FDIC already used them for the purpose of imposing risk-based 
assessments. Moreover, the standards and definitions focus on 
institutions'' financial and operational activities, and with their 
compliance with laws and regulations. The FDIC accordingly believes 
that it is reasonable and appropriate--and consistent with the intent 
of Congress--to apply these standards and definitions in determining 
whether an institution ``exhibit[s] * * * weaknesses ranging from 
moderately severe to unsatisfactory'' for assessment purposes.
    The FDIC considers that if an institution's weaknesses are so 
severe that ``if not corrected, [they] could result in significant 
deterioration of the institution and increased loss to the BIF or 
SAIF'', the weaknesses may properly be characterized as ``moderately 
severe'. The FDIC further considers that if the weaknesses ``pose a 
substantial probability of loss to the BIF or SAIF unless effective 
corrective action is taken', they may properly be regarded as 
``unsatisfactory''. The FDIC therefore proposes to interpret section 
7(b)(2)(A)(v) to include any institution that is classified in 
supervisory subgroup B or C.
    ``Not well capitalized''. Section 7(b)(2)(A)(v) also authorizes the 
FDIC to set higher rates for institutions ``that are not well 
capitalized as defined in [FDI Act] section 38''. Section 38 of the FDI 
Act, 12 U.S.C. 1831o, defines a ``well capitalized'' institution as one 
that ``significantly exceeds the required minimum level for each 
relevant capital measure''. 12 U.S.C. 1831o(b)(1)(A).
    Section 38 requires each agency to specify the relevant capital 
measure at which insured depository institution is well capitalized. 
Id. 1831o(c)(2). The FDIC has done so in subpart B of part 325 of its 
regulations, 12 CFR part 325 (``Capital Maintenance''). See id. 
325.103(b)(1). But subpart B--and therefore its definition of ``well 
capitalized''--only applies to state nonmember banks and to insured 
state branches of foreign banks for which the FDIC is the appropriate 
federal banking agency. Id. 325.101(c).
    The FDIC also defines the term ``well capitalized'' in part 327. 
See id. 327.4(a)(1)(i). Here the FDIC does so for the broader purpose 
of implementing a risk-based assessment system: accordingly, part 327's 
definition applies to all insured institutions.
    While the two definitions employ the same numerical ratios, part 
325's definition also includes an extra criterion: an institution may 
not be ``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''. Id. 325.103(b)(1)(v). 
Within the context of the assessment regulation, this kind of 
consideration helps to determine an institution's supervisory subgroup, 
but not its capital category. Accordingly, the FDIC considers that it 
is not appropriate to apply that criterion for the purpose of 
determining whether an institution is ``well capitalized'' for 
assessment purposes. The FDIC therefore proposes to apply part 327's 
current definition of ``well capitalized'' for the purpose of 
interpreting section 7(b)(2)(A)(v) of the FDI Act.

E. Adjustments to the Assessment Schedule

1. In General
    Section 327.9(b) sets forth a procedure under which the Board may 
increase or decrease the BIF Base Assessment Schedule without engaging 
in separate notice-and-comment rulemaking proceedings for each 
adjustment. 12 CFR 327.9(b).
    The allowable adjustments are subject to strict limits. No 
adjustment may, when aggregated with prior adjustments, cause the 
adjusted BIF rates to deviate ``over time'' by more than 5 basis points 
from those set forth

[[Page 53873]]

in Rate Schedule 2, which is the permanent or base rate schedule for 
the BIF. An adjustment may not result in a negative assessment rate. No 
one adjustment may constitute an increase or decrease of more than 5 
basis points. See id. 327.9(b)(1).
    The Board proposes to modify and clarify this process somewhat, and 
extend it to SAIF rates as well. The proposed regulation would not 
change the limits on allowable adjustments, but would clarify the 
following two points.
    First, the Board may not, without notice-and-comment rulemaking, 
establish an adjusted assessment schedule for a fund in which the 
adjusted rates differ by more than 5 basis points at any time from the 
base assessment schedule for that fund. For example, if the rate for 1A 
SAIF members in the SAIF Base Assessment Schedule were 4 basis points, 
the adjusted rate for 1A SAIF members could never rise above 9 basis 
points without a new notice-and-comment rulemaking proceeding.
    Second, the Board may not reduce the rates in either base 
assessment schedule any more than those rates have already been 
lowered, because in that event the lowest rate in the schedule would be 
less than zero. The proposed regulation makes it clear that zero serves 
as a lower bound on the most favorable rate, and prevents the other 
rates from being adjusted by the full 5 basis points.
2. Procedure
    The proposed regulation would alter the formal mechanism by which 
the Board would make an adjustment to the base assessment schedules.
    The current regulation calls for the Board to adopt the semiannual 
assessment schedule and any adjustment thereto by means of a 
resolution, a procedure that does not require public notice or comment. 
12 CFR 327.9(b)(3). Under the proposed rule, the Board would adopt the 
new assessment schedule pursuant to a rulemaking proceeding, but still 
without public notice and comment. The Board would present each current 
assessment schedule in an appendix to part 327.
    Consistent with the current rule, the proposed rule would provide 
that an adjustment to the base assessment schedule could not be applied 
only to selected risk classifications, but rather would be applied to 
each cell in the schedule uniformly. The differences between the 
respective cells in the rate schedule would therefore remain constant. 
Similarly, adjustments would neither expand nor contract the spread 
between the lowest- and highest-risk classifications.
    The adjustment for any particular semiannual period would be 
determined by: (1) The amount of assessment income necessary to 
maintain the SAIF reserve ratio at 1.25 percent (taking into account 
operating expenses and expected losses and the statutory mandate for 
the risk-based assessment system); and (2) the particular risk-based 
assessment schedule that would generate that amount considering the 
risk composition of the industry at the time. The Board expects to 
adjust the assessment schedule every six months by the amount (if any), 
up to and including the maximum adjustment of 5 basis points, necessary 
to maintain the reserve ratio at the DRR.
    Such adjustments would be adopted in a regulation that reflects 
consideration of the following statutory factors: (1) Expected 
operating expenses; (2) projected losses; (3) the effect on SAIF 
members' earnings and capital; and (4) any other factors the Board 
determined to be relevant. The regulation would be adopted and 
announced at least 15 days prior to the date the invoice is provided 
for the first quarter of the semiannual period for which the adjusted 
rate schedule would take effect.
    If the amount of the adjustment under consideration by the FDIC 
would result in an adjusted schedule exceeding the 5 basis-point 
maximum, then the Board would initiate a notice-and-comment rulemaking 
proceeding.
    As discussed in more detail in the preamble to the final rule in 
which the FDIC established the adjustment procedure for BIF rates, the 
FDIC fully recognizes and understands the concern for the possibility 
of assessment rate increases without the benefit of full notice-and-
comment rulemaking. See 60 FR 42680, 42739-42740 (Aug. 16, 1995). 
Nevertheless, for the reasons given below, the FDIC considers that 
notice and public participation with respect to an adjustment would 
generally be ``impracticable, unnecessary, or contrary to the public 
interest'' within the meaning of 5 U.S.C. 553(b). Furthermore, the FDIC 
considers that for the same reasons it has ``good cause'' within the 
meaning of id. 553(d) to make any such rule effective immediately, and 
not after a 30-day delay.
    Section 7(b)(2)(A)(i) of the FDI Act declares that the FDIC ``shall 
set rates when necessary, and only to the extent necessary'' to 
maintain each fund's reserve ratio at the DRR, or to raise a fund's 
reserve ratio to that level (although the Board may set higher rates 
for institutions that exhibit weakness or are not well capitalized, see 
id. 1817(b)(2)(A)(v)). Section 7(b)(2)(A)(iii) of the FDI Act restates 
the substance of this mandate in a different way: the FDIC ``shall not 
set assessment rates in excess of the amount needed'' for those 
purposes. These twin commands require the FDIC to monitor the size of 
each fund, the amount of deposits that each fund insures, and the 
relationship between them. Section 7(b)(2)(A) requires the FDIC to set 
``semiannual assessments''. Accordingly, the FDIC evaluates the 
assessment schedules every six months.
    Notice-and-comment rulemaking procedures are generally 
``unnecessary'' because institutions are already on notice with respect 
to the benchmark rates that are set forth in the base assessment 
schedules, with respect to the need for making semiannual adjustments 
to the rates, and with respect to the maximum amount of any such 
adjustments. Moreover, the adjustments would be limited: the FDIC would 
not be able to change a current assessment schedule by more than 5 
basis points, or to deviate from the base assessment schedule by more 
than 5 basis points.
    Notice-and-comment rulemaking procedures also are generally 
``unnecessary'' because they would not generate additional information 
that is relevant to the rate-setting process. The institutions already 
provide part of the needed information in their quarterly reports of 
condition. The remainder of the needed information is data that the 
FDIC generates internally: e.g., the current balance and expected 
operating expenses of each fund, and each fund's case resolution 
expenditures and income.
    Finally, notice-and-comment rulemaking procedures are also 
generally ``impracticable'' and ``contrary to the public interest'' in 
this context because they are not compatible with the need to make 
frequent small adjustments to the assessment rates in order to maintain 
the funds' reserve ratios at the DRR. The FDIC must use data that is as 
current as possible to generate an assessment schedule that complies 
with the statutory standards. Notice-and-comment rulemaking procedures 
entail considerable delay. Such delay could force the FDIC to use out-
of-date information to compute the amount of revenue needed and to 
produce an appropriate assessment schedule. Using out-of-date 
information could cause the FDIC to set rates for a fund that were 
higher or lower than necessary to achieve the fund's target DRR.

[[Page 53874]]

    For these reasons, the FDIC is proposing that any adjustment to the 
base assessment schedule would be adopted as a final rule without 
notice and public procedure thereon. Any such final rule would be 
adopted at least 15 days before the invoice date for the first payment 
of a semiannual period (and 45 days before the collection date for that 
payment). The adjusted assessment schedule would be published in the 
Federal Register as an appendix to subpart A of part 327.

F. Effective Date

    The FDIC proposes that the rule, if adopted in final form, would 
become effective immediately upon adoption. The FDIC considers that an 
immediate effective date would be both necessary and appropriate 
because the FDIC must issue invoices reflecting the new lower rates, in 
order that institutions may know the amounts they are to pay for the 
first quarter of 1997. By making the rule effective immediately, the 
FDIC can issue the invoices as promptly as possible.

G. Technical Adjustments

    The proposed rule would update, clarify, and correct various 
references in part 327. For example, Sec. 327.4(a) refers to 
Sec. 327.9(a) and to Sec. 327.9(c); the proposed rule would replace the 
references with a single reference to Sec. 327.9. Section 327.4(c) 
speaks of institutions for which either the FDIC or the Resolution 
Trust Corporation (RTC) has been appointed conservator; the proposed 
rule would eliminate the reference to the RTC, and would speak instead 
of institutions for which the FDIC either has been appointed or serves 
as conservator. The proposed rule would remove the definitions for 
``adjustment factor'' and ``assessment schedule,'' which are found in 
Sec. 327.8(i), on the ground they are not needed. Finally, the proposed 
rule would delete certain obsolete provisions relating to the BIF after 
the BIF achieved its DRR.

H. Capital Calculation for Risk-Based Assessment Purposes

    The FDIC recognizes that payment of the special assessment could 
negatively impact the capital ratings of some institutions, affecting 
their risk classification under the risk-based assessment system. The 
risk classification for the first semiannual assessment period of 1997 
will be based on an institution's capital as of June 30, 1996, and 
would be unaffected by payment of the special assessment. But the risk 
classification for the second semiannual assessment period of 1997 will 
be based on an institution's capital as of December 30, 1996, and 
therefore would reflect payment of the special assessment. Given the 
extraordinary nature of the special assessment, the FDIC is seeking 
comment on whether, for purposes of assigning an institution's risk 
classification under the risk-based assessment system for the second 
semiannual period of calendar year 1997 only, the FDIC should calculate 
the institution's capital as if the special assessment had not been 
paid, while taking into account other capital fluctuations.

II. Request for Public Comment

    The FDIC is hereby requesting comment on all aspects of the 
proposed rule. The FDIC is particularly interested in receiving 
comments on whether it is appropriate to lower SAIF assessment rates 
from a range of 23 to 31 basis points to a range of 4 to 31 basis 
points, and then through application of the adjustment factor, to 
further reduce the SAIF assessment rates to a range of 0 to 27 basis 
points; whether the proposed spread of 27 basis points from the lowest 
to the highest assessment rates is appropriate; whether the 5-basis 
point adjustment factor should be extended to SAIF members; whether it 
is appropriate to establish an interim schedule for SAIF-member savings 
associations from October 1, 1996, through December 31, 1996; and 
whether the proposed rate-spread therein is appropriate. The FDIC also 
seeks particular comment on its proposed revision to the procedure for 
adjusting the base assessment schedules of the funds. Finally, the FDIC 
seeks comment on the propriety and advisability of determining an 
institution's risk classification under the risk-based assessment 
system, the second semiannual period of calendar year 1997 only, based 
on a calculation of the institution's capital as if the special 
assessment had not been paid, while taking into account other capital 
fluctuations.

III. Paperwork Reduction Act

    No collections of information pursuant to section 3504(h) of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.) are contained 
in this proposed rule. Consequently, no information has been submitted 
to the Office of Management and Budget (OMB) for review.

IV. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., does 
not apply to the proposed rule. The RFA's definition of the term 
``rule'' excludes ``a rule of particular applicability relating to 
rates.'' Id. 601(2). The FDIC considers that the proposed rule is 
governed by this exclusion.
    In addition, the legislative history of the RFA indicates that its 
requirements are inappropriate to this proceeding. The RFA focuses on 
the ``impact'' that a rule will have on small entities. The legislative 
history shows that the ``impact'' at issue is a differential impact--
that is, an impact that places a disproportionate burden on small 
businesses:

    Uniform regulations applicable to all entities without regard to 
size or capability of compliance have often had a disproportionate 
adverse effect on small concerns. The bill, therefore, is designed 
to encourage agencies to tailor their rules to the size and nature 
of those to be regulated whenever this is consistent with the 
underlying statute authorizing the rule.

126 Cong. Rec. 21453 (1980) (``Description of Major Issues and Section-
by-Section Analysis of Substitute for S. 299'').
    The proposed rule would not impose a uniform cost or requirement on 
all institutions regardless of size. Rather, it would impose an 
assessment that is directly proportional to each institution's size. 
Nor would the proposed rule cause an affected institution to incur any 
ancillary costs of compliance (such as the need to develop new 
recordkeeping or reporting systems, to seek out the expertise of 
specialized accountants, lawyers, or managers) that might cause 
disproportionate harm to small entities. As a result, the purposes and 
objectives of the RFA are not affected, and an initial regulatory 
flexibility analysis is not required.

V. Riegle Community Development and Regulatory Improvement Act

    Section 302(b) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 requires that, as a general rule, new and 
amended regulations that impose additional reporting, disclosure, or 
other new requirements on insured depository institutions shall take 
effect on the first day of a calendar quarter. See 12 U.S.C. 4802(b). 
This restriction is inapplicable because the final rule would not 
impose such additional or new requirements.

List of Subjects in 12 CFR Part 327

    Assessments, Bank deposit insurance, Banks, banking, Financing 
Corporation, Savings associations.

    For the reasons set forth in the preamble, the Board of Directors 
of the Federal Deposit Insurance Corporation proposes to amend part 327 
of title 12

[[Page 53875]]

of the Code of Federal Regulations as follows:

PART 327--ASSESSMENTS

    1-2. The authority citation for part 327 continues to read as 
follows:

    Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Deposit 
Insurance Funds Act of 1996, Pub. L. 104-208, 110 Stat. 3009 et seq.

    3. Section 327.3 is amended by revising the first sentence of 
paragraph (c)(1) to read as follows:


Sec. 327.3  Payment of semiannual assessments.

* * * * *
    (c) First-quarterly payment--(1) Invoice. Unless the Board 
determines that special and exigent circumstances require a shorter 
period with respect to the invoice for the first quarterly payment for 
the first semiannual period of 1997, no later than 30 days prior to the 
payment date specified in paragraph (c)(2) of this section, the 
Corporation will provide to each insured depository institution an 
invoice showing the amount of the assessment payment due from the 
institution for the first quarter of the upcoming semiannual period, 
and the computation of that amount. * * *
* * * * *
    4. Section 327.4 is amended by revising the first sentence of 
paragraph (a) introductory text and paragraph (c) to read as follows:


Sec. 327.4  Annual assessment rate.

    (a) Assessment risk classification. For the purpose of determining 
the annual assessment rate for insured depository institutions under 
Sec. 327.9, each insured depository institution will be assigned an 
``assessment risk classification''. * * *
* * * * *
    (c) Classification for certain types of institutions. The annual 
assessment rate applicable to institutions that are bridge banks under 
12 U.S.C. 1821(n) and to institutions for which the Corporation has 
been appointed or serves as conservator shall in all cases be the rate 
applicable to the classification designated as ``2A'' in the 
appropriate assessment schedule prescribed pursuant to Sec. 327.9.
* * * * *


Sec. 327.8  [Amended]

    5. Section 327.8 is amended by removing paragraph (i).
    6. Section 327.9 is revised to read as follows:


Sec. 327.9  Assessment schedules.

    (a) Base assessment schedules--(1) In general. Subject to 
Sec. 327.4(c) and subpart B of this part, and except as provided in 
paragraph (c) of this section, the base annual assessment rate for an 
insured depository institution shall be the rate prescribed in the 
appropriate base assessment schedule set forth in paragraph (a)(2) of 
this section applicable to the assessment risk classification assigned 
by the Corporation under Sec. 327.4(a) to that institution. Each base 
assessment schedule utilizes the group and subgroup designations 
specified in Sec. 327.4(a).
    (2) Assessment schedules--(i) BIF members. The following base 
assessment schedule applies with respect to assessments paid to the BIF 
by BIF members and by other institutions that are required to make 
payments to the BIF pursuant to subpart B of this part:

                      BIF Base Assessment Schedule                      
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................        4        7       21
2............................................        7       14       28
3............................................       14       28       31
------------------------------------------------------------------------

    (ii) SAIF members. Except as provided in paragraph (c) of this 
section, the following base assessment schedule applies with respect to 
assessments paid to the SAIF by SAIF members and by other institutions 
that are required to make payments to the SAIF pursuant to subpart B of 
this part:

                      SAIF Base Assessment Schedule                     
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................        4        7       21
2............................................        7       14       28
3............................................       14       28       31
------------------------------------------------------------------------

    (b) Rate adjustments; procedures--(1) Semiannual adjustment. The 
Board may increase or decrease the BIF Base Assessment Schedule set 
forth in paragraph (a)(2)(i) of this section or the SAIF Base 
Assessment Schedule set forth in paragraph (a)(2)(ii) of this section 
up to a maximum increase of 5 basis points or a fraction thereof or a 
maximum decrease of 5 basis points or a fraction thereof (after 
aggregating increases and decreases), as the Board deems necessary to 
maintain the reserve ratio of an insurance fund at the designated 
reserve ratio for that fund. Any such adjustment shall apply uniformly 
to each rate in the base assessment schedule. In no case may such 
adjustments result in an assessment rate that is mathematically less 
than zero or in a rate schedule for an insurance fund that, at any 
time, is more than 5 basis points above or below the base assessment 
schedule for that fund, nor may any one such adjustment constitute an 
increase or decrease of more than 5 basis points. The adjustment for 
any semiannual period for a fund shall be determined by:
    (i) The amount of assessment revenue necessary to maintain the 
reserve ratio at the designated reserve ratio; and
    (ii) The assessment schedule that would generate the amount of 
revenue in paragraph (b)(1)(i) of this section considering the risk 
profile of the institutions required to pay assessments to the fund.
    (2) Amount of revenue. In determining the amount of assessment 
revenue in paragraph (b)(1)(i) of this section, the Board shall take 
into consideration the following:
    (i) Expected operating expenses of the insurance fund;
    (ii) Case resolution expenditures and income of the insurance fund;
    (iii) The effect of assessments on the earnings and capital of the 
institutions paying assessments to the insurance fund; and
    (iv) Any other factors the Board may deem appropriate.
    (3) Adjustment procedure. Any adjustment adopted by the Board 
pursuant to this paragraph (b) will be adopted by rulemaking. 
Nevertheless, because the Corporation is required by statute to set 
assessment rates as necessary (and only to the extent necessary) to 
maintain or attain the designated reserve ratio, and because the 
Corporation must do so in the face of constantly changing conditions, 
and because the purpose of the adjustment procedure is to permit the 
Corporation to act expeditiously and frequently to maintain or attain 
the designated reserve ratio in an environment of constant change, but 
within set parameters not exceeding 5 basis points, without the delays 
associated with full notice-and-comment rulemaking, the Corporation has 
determined that it is ordinarily impracticable, unnecessary and not in 
the public interest to follow the procedure for notice and public 
comment in such a rulemaking, and that accordingly notice and public 
procedure thereon are not required as provided in 5 U.S.C. 553(b). For 
the same reasons, the Corporation has determined that the requirement 
of a 30-day delayed effective date is not required under 5 U.S.C. 
553(d). Any adjustment adopted by the Board pursuant to a rulemaking 
specified in this paragraph (b) will be reflected in an adjusted 
assessment

[[Page 53876]]

schedule set forth in appendix A to this subpart A.
    (4) Announcement. The Board shall announce the semiannual 
assessment schedule and the amount and basis for any adjustment thereto 
not later than 15 days before the invoice date specified in 
Sec. 327.3(c) for the first quarter of the semiannual period for which 
the adjustment shall be effective.
    (c) Special provisions--(1) Interim assessment schedule for SAIF-
member savings associations. From October 1, 1996, through December 31, 
1996, savings associations that are members of the SAIF shall pay 
assessments according to the schedule in effect for such institutions 
on September 30, 1996, except that each rate in the schedule shall be 
reduced by 5 basis points (0.50 percent). No rate prescribed under this 
paragraph (c) shall be applied for the purpose of Sec. 327.32(a)(2)(i).
    (2) Refunds or credits of certain assessments. If the amount paid 
by an institution for the regular semiannual assessment for the second 
semiannual period of 1996 exceeds, as a result of the reduction in the 
rate schedule for a portion of that semiannual period, the amount due 
from the institution for that semiannual period, the Corporation will 
refund or credit any such excess payment and will provide interest on 
the excess payment in accordance with the provisions of Sec. 327.7. 
Notwithstanding Sec. 327.7(a)(3)(ii), such interest will accrue 
beginning on the date as of which the reserve ratio of the Savings 
Association Insurance Fund has reached the designated reserve ratio.
    7. A new Sec. 327.10 is added to subpart A to read as follows:


Sec. 327.10  Interpretive rule: section 7(b)(2)(A)(v).

    This interpretive rule explains certain phrases used in section 
7(b)(2)(A)(v) of the Federal Deposit Insurance Act, 12 U.S.C. 
1817(b)(2)(A)(v).
    (a) An institution classified in supervisory subgroup B or C 
pursuant to Sec. 327.4(a)(2) exhibits ``financial, operational, or 
compliance weaknesses ranging from moderately severe to 
unsatisfactory'' within the meaning of such section 7(b)(2)(A)(v).
    (b) An institution classified in capital group 2 or 3 pursuant to 
Sec. 327.4(a)(1) is not well capitalized within the meaning of such 
section 7(b)(2)(A)(v).
    8. Subpart A of part 327 is amended by adding appendix A to read as 
follows:

Appendix A to Subpart A of Part 327--Adjusted Assessment Schedules

    (a) BIF members. The Board has determined to adjust the BIF Base 
Assessment Schedule by reducing the rates therein by 4 basis points. 
The following adjusted assessment schedule applies to BIF members for 
the second semiannual period of 1996 and for subsequent semiannual 
periods:

                    BIF Adjusted Assessment Schedule                    
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................        0        3       17
2............................................        3       10       24
3............................................       10       24       27
------------------------------------------------------------------------

    (b) SAIF members. The Board has determined to adjust the SAIF Base 
Assessment Schedule by reducing the rates therein by 4 basis points, 
and has determined to present the adjusted rates in the following 
schedule. The Board has further determined to present the interim rates 
prescribed by Sec. 327.9(c) in the same schedule. Accordingly, the 
following schedule sets forth in large type the adjusted rate schedule 
that applies to SAIF members generally on and after October 1, 1996, 
and also sets forth in small type the rates that apply to SAIF members 
that are savings associations pursuant to Sec. 327.9(c) from October 1, 
1996, through December 31, 1996:

                    SAIF Adjusted Assessment Schedule                   
------------------------------------------------------------------------
                                                  Supervisory subgroup  
                Capital group                 --------------------------
                                                  A        B        C   
------------------------------------------------------------------------
1............................................     0/18     3/21    17/24
2............................................     3/21    10/24    24/25
3............................................    10/24    24/25    27/27
------------------------------------------------------------------------

    By order of the Board of Directors.

    Dated at Washington, D.C., this 8th day of October 1996.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-26506 Filed 10-11-96; 10:23 am]
BILLING CODE 6714-01-P