[Federal Register Volume 64, Number 241 (Thursday, December 16, 1999)]
[Rules and Regulations]
[Pages 70178-70181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32587]


=======================================================================
-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AC31


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Board of Directors of the FDIC (Board) is amending its 
regulation governing assessments to change the reporting date used to 
determine the capital component of the assessment risk classifications 
assigned by the FDIC to insured depository institutions. This change 
moves that date closer by one calendar quarter to the semiannual 
assessment period for which the capital component is assigned, and it 
permits the FDIC to use more up-to-date information in determining 
institutions' assessment risk classifications. The new date coincides 
with the date currently used to determine the supervisory component of 
the assessment risk classification.
    To permit the use of more current capital information, the Board is 
further amending the assessments regulation to shorten from 30 days to 
15 days the prior notice the FDIC sends to institutions advising them 
of their assessment risk classifications for the following semiannual 
assessment period. The Board is adopting the same reduction for the 
invoice sent by the FDIC each quarter showing the amount of the 
assessment payment due for the next quarterly collection. At the other 
end of the process, the Board is increasing from 30 days to 90 days the 
time within which an institution may request review of its assessment 
risk classification.
    Additionally, to reflect a shift of certain assessment functions 
within the FDIC, the Board is revising two of the references to FDIC 
offices in the regulation. Also, as proposed, the amendment corrects a 
typographical error in the form of a misstated cross-reference to 
another FDIC regulation.
    Finally, in response to concerns raised by comments that the FDIC

[[Page 70179]]

received on the proposal, the final rule is additionally amended to 
increase from 15 to 30 days the time between announcement of limited 
changes in deposit insurance rates and the date of the assessment 
notice sent to insured institutions by the FDIC.

EFFECTIVE DATE: The final rule is effective April 1, 2000.

FOR FURTHER INFORMATION CONTACT: James W. Thornton, Senior Banking 
Analyst, Division of Insurance, (202) 898-6707; or Claude A. Rollin, 
Senior Counsel, Legal Division, (202) 898-8741, Federal Deposit 
Insurance Corporation, Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

The Proposed Rule

    On September 8, 1999, the Board issued for public comment a 
proposal to make several revisions to its assessments regulation. 64 FR 
48719 (September 8, 1999). The primary change proposed by the Board 
involved the reporting date for data used in determining the capital 
component of the assessment risk classifications that the FDIC assigns 
semiannually to FDIC-insured institutions. At present, the FDIC's risk-
based assessments regulation specifies that the capital component of 
the assessment risk classification assigned to an institution for a 
semiannual assessment period will be determined on the basis of data 
reported by the institution in its Consolidated Reports of Condition 
and Income, Thrift Financial Report, or Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks 
(collectively, call report) for the quarter ending six months earlier 
(12 CFR 327.4(a)(1)). The Board proposed to amend the regulation by 
basing capital-group determinations on data reported by institutions in 
their call reports for the period ending three months before the 
beginning of the semiannual period to which that data would apply.
    To allow use of the more current capital data in assigning 
assessment risk classifications, the Board also proposed to shorten--
from 30 days to 15 days--the time between the date institutions are 
notified of their assessment risk classifications for the upcoming 
assessment period and the date the assessment is collected for the 
first quarter of that upcoming period. The same reduction was proposed, 
for both the first and second quarters of each semiannual assessment 
period, in the time between the date of the quarterly assessment 
invoice and date the invoiced amount is collected.
    As the Board explained in its proposal, moving the capital 
reporting date forward by 90 days would leave the FDIC as little as 15 
to 30 days to receive the reported data, scan the reports, input the 
information into the FDIC's system, perform capital-group calculations 
for more than 10,000 institutions, and prepare and mail the assessment 
notices. 64 FR 48720. Because that is not sufficient time for 
completing this process, the alternatives are to leave the capital 
reporting date as it is or mail the assessment notices somewhat later. 
As the Board noted, the proposal anticipated that reduction of the 
notice period from 30 to 15 days would not have a significantly adverse 
impact on insured institutions, as institutions typically know (or can 
anticipate with reasonable certainty) the assessment risk 
classification they will be assigned for the next assessment period. 
Id.
    With regard to the assessment the FDIC collects on behalf of the 
Financing Corporation (FICO), institutions are also able, under normal 
circumstances, to estimate with reasonable accuracy the assessment 
amount due for each upcoming payment date. However, the proposal noted 
the FDIC's intent, in the event of significant developments that could 
cause material changes in the FICO assessment rate, to provide notice 
of the changes as early as possible through such means as mailings to 
insured institutions. Id.
    Another timing change proposed by the Board was an increase in the 
period during which an institution may seek review and revision of its 
assessment risk classification. Under the existing regulation, an 
institution may file a review request within 30 days after the date of 
the FDIC notice informing the institution of its assessment risk 
classification. The proposal would expand that period to 90 days.
    The two remaining changes proposed by the Board were office 
redesignations to reflect the shift of certain assessment functions 
within the FDIC, and correction of a typographical error in the form of 
a misstated cross-reference.

Comments Received

    The FDIC received nine comment letters in response to the proposal. 
Three of the letters were from depository institutions, two from state 
associations of bankers, three from national associations of bankers, 
and one from a state banking regulator. In general, these commenters 
supported the proposal. However, one commenter--a state association of 
bankers--neither supported nor opposed the proposal itself, but 
expressed its views on the proposal's implications for agricultural 
banks. This comment letter is not included in the discussion 
immediately below but rather is addressed separately, following the 
discussion below.
    The remaining eight commenters expressed unanimous support for the 
use of more current capital data. The seven commenters addressing the 
proposed extension of the deadline for filing requests for review of 
assessment risk classifications all supported that proposal. Of the two 
commenters specifically addressing either or both of the proposals to 
correct the typographical error and to revise two of the references in 
the regulation to FDIC offices, both supported those changes as well. 
Thus, the Board has decided to adopt each of these four amendments as 
proposed.
    The remaining element of the proposal is reduction of the 
assessment notice period from 30 to 15 days. In the proposal, the Board 
specifically requested comment on any adverse impact the shorter notice 
period might have. Comment was further requested on any alternative 
means of permitting the use of more current capital data without 
shortening the notice period.
    The eight commenters either generally supported or did not 
separately address the proposed reduction. None of the commenters 
offered an alternative to the reduction. Two of the commenters 
expressly recognized a necessary connection between the use of more 
current capital data and a reduction in the assessment notice period.
    Six commenters concluded that the proposed reduction in the notice 
period would not have a significant adverse impact. However, two of the 
eight expressed certain concerns. These two commenters--both of which 
are national associations of bankers--agreed that the proposed 
reduction generally would not present a problem. However, one noted 
that a shorter notice period could potentially present problems if 
assessment rates increase or become more complex, or in the event of 
volatile economic conditions. The other commenter suggested that the 
proposal be revised to require the FDIC to notify institutions of any 
changes in the assessment rate schedule at least 30 days before the 
assessment notice date, and that the FDIC be required to notify an 
institution of any changes in its supervisory category no later than 30 
days prior to each assessment collection date. This same commenter 
further recommended that the FDIC provide notice of any material 
changes in the FICO assessment rate at least 30 days before the 
relevant assessment payment date, including any advance notice of

[[Page 70180]]

material changes in the rate expected for subsequent quarters.
    The Board appreciates the concerns expressed regarding the 
shortened notice period. At the same time, the Board believes that--as 
was suggested in the proposal and as more than one commenter expressly 
recognized--a reduction in the notice period is necessary if more 
current capital data is to be used. The eight commenters addressing the 
proposal unanimously supported the use of more up-to-date capital data, 
and only limited concerns were expressed by commenters regarding the 
reduced notice period. Accordingly, the Board has decided to adopt the 
proposed notice reduction.
    With regard to the concern that a 15-day notice period might not be 
sufficient for institutions for which there is a change in the 
supervisory category from one semiannual assessment period to the next, 
the FDIC is willing to consider what refinements might be warranted and 
feasible to address any significant problems. To this end, the FDIC 
will monitor implementation of the new notice schedule in June 2000 to 
determine any adverse impact. The results will be reviewed and 
alternative means of addressing any significant problems will be 
considered.
    In response to the concern raised by one commenter regarding 
material changes in the FICO assessment, the Board reiterates its 
intention, as noted in the proposal, that in instances in which 
significant developments are likely to result in material changes in 
FICO assessment rates, the FDIC will provide notice as early as 
possible, through mailings to insured institutions or similar means. 64 
FR 48720.
    The remaining issue raised by commenters regarding the reduced 
assessment notice period concerned notice of changes in the assessment 
rate schedule. At present, the assessments regulation requires that any 
change in the assessment rate schedule be announced by the FDIC at 
least 15 days before the date the assessment notice is to be provided 
to institutions for the first quarter of each semiannual assessment 
period.\1\ Thus, for example, under the existing regulation, an 
adjustment for the assessment period beginning July 1 would be 
announced by no later than May 16, which is 15 days before the existing 
assessment notice date of May 31.
---------------------------------------------------------------------------

    \1\ 12 CFR 327.9(c)(4). This provision applies only to 
adjustment (either increase or decrease) of the rate schedule up to 
a maximum of five basis points. Any change that exceeds this level 
would first be announced in the form of a proposal on which public 
comment would be invited.
---------------------------------------------------------------------------

    Because, in this example, the final rule moves the applicable 
assessment notice date to June 15, the amendment as proposed would have 
had the effect of moving the deadline for the rate-change announcement 
to May 31. However, if the announcement period were increased from 15 
to 30 days prior to the assessment notice date, that change, in 
conjunction with the reduction of the assessment notice period to 15 
days, would restore the announcement deadline to May 16, which is the 
existing date.
    Under these circumstances, the Board believes a revision of the 
existing announcement date is warranted. This change would serve merely 
to continue the existing situation, by adapting the announcement date 
to accommodate the new change in the assessment notice date. 
Accordingly, the Board is further amending the assessments regulation 
to require that any adjustment in the assessment rate schedule under 
this provision of the regulation be announced at least 30 days before 
the date the assessment notice is to be provided to institutions for 
the first quarter of each semiannual assessment period.
    As indicated above, one of the nine comment letters received by the 
FDIC in response to the proposal neither supported nor opposed any 
aspect of the proposal itself but expressed its views of the proposal's 
implications for agricultural banks. As noted in the letter, the focus 
of the comments ``is the need to address the adverse impacts of 
substantial increases in assessments if well-managed ag banks 
experience significant capital reductions because of ag loan losses''. 
The commenter ``does not challenge the concept that deposit assessments 
should be founded on the most current available data'' but does note 
that one of the effects of using more current information is that the 
assessments of a bank with declining capital is a more rapid increase 
in risk-based deposit insurance assessments. The commenter suggested 
that the assessment process be reviewed to determine whether additional 
revisions are necessary to reflect the likelihood that increased 
deposit assessments may increase, rather than reduce, the risk that 
some banks will fail.
    The commenter further suggested that the FDIC consider providing a 
means by which banks can benefit from funds paid as increased 
assessments in connection with loan losses from economic contraction 
rather than from poor management practices.
    In response, the Board notes that refinements to the risk-based 
assessment system are continually under consideration and that these 
comments will be reviewed and carefully considered in connection with 
that on-going process.

The Final Rule

    For the reasons stated above, the Board is adopting the amendments 
as proposed, with one addition. That addition is the revision of 
Sec. 327.9 to increase from 15 to 30 days the time by which an 
announcement of a limited adjustment to the assessment rate schedule 
must precede the date of the assessment notice sent to FDIC-insured 
institutions prior to the beginning of a semiannual assessment period.
    The date changes made by the final rule will be implemented with 
the assessment period beginning July 1, 2000. The following chart 
illustrates the new dates, as compared to the existing dates, using 
that initial assessment period as an example.

                                                   Semiannual Assessment Period Beginning July 1, 2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Deadline for
                                                      Controlling       announcing       Assessment                         Start of       Deadline to
                                                      call report      limited rate     notification    Payment  date      assessment       request a
                                                          date            change            date                             period           review
--------------------------------------------------------------------------------------------------------------------------------------------------------
Old Dates.........................................       12-31-1999        5-16-2000        5-31-2000        6-30-2000         7-1-2000        6-30-2000
New Dates.........................................        3-31-2000        5-16-2000        6-15-2000        6-30-2000         7-1-2000        9-13-2000
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 70181]]

Regulatory Flexibility Act

    The Board hereby certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.). No new or increased reporting, recordkeeping, or other 
compliance requirements are imposed by the rule. Of the amendments 
adopted by the Board, only one--lengthening the time for filing 
requests for review of assessment risk classifications--addresses 
actions to be initiated by insured institutions. The remaining 
amendments address actions to be undertaken by the FDIC. The amendments 
addressing actions to be initiated by institutions relax an existing 
time restriction, and it is expected that any impact on insured 
institutions, of whatever size, will be favorable rather than adverse.

Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this amendment will not affect family 
well-being within the meaning of section 654 of the Treasury Department 
Appropriations Act, 1999, enacted as part of the Omnibus Consolidated 
and Emergency Supplemental Appropriations Act, 1999 (Pub. L. 105-277, 
112 Stat. 2681).

List of Subjects in 12 CFR Part 327

    Assessments, Bank deposit insurance, Banks, banking, Reporting and 
recordkeeping requirements, Savings associations.

    For the reasons stated in the preamble, 12 CFR part 327 is amended 
as follows:

PART 327--ASSESSMENTS

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

    Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L. 
104-208, 110 Stat. 3009-479 (12 U.S.C. 1812).


Sec. 327.3  [Amended]

    2. Section 327.3 is amended by removing the phrase ``30 days'' and 
adding in its place the phrase ``15 days'' in paragraphs (c)(1) and 
(d)(1), respectively.
    3. Section 327.4 is amended by removing the citation 
``309.5(c)(8)'' in paragraph (e) and adding in its place the citation 
``309.5(g)(8)'', and revising paragraphs (a)(1) introductory text and 
(d) to read as follows:


Sec. 327.4  Annual assessment rate.

    (a) * * *
    (1) Capital factors. Institutions will be assigned to one of the 
following three capital groups on the basis of data reported in the 
institution's Consolidated Reports of Condition and Income, Report of 
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, 
or Thrift Financial Report dated as of March 31 for the assessment 
period beginning the following July and as of September 30 for the 
assessment period beginning the following January 1.
* * * * *
    (d) Requests for review. An institution may submit a written 
request for review of its assessment risk classification. Any such 
request must be submitted within 90 days of the date of the assessment 
risk classification notice provided by the Corporation pursuant to 
paragraph (a) of this section. The request shall be submitted to the 
Corporation's Director of the Division of Insurance in Washington, 
D.C., and shall include documentation sufficient to support the 
reclassification sought by the institution. If additional information 
is requested by the Corporation, such information shall be provided by 
the institution within 21 days of the date of the request for 
additional information. Any institution submitting a timely request for 
review will receive written notice from the Corporation regarding the 
outcome of its request. Upon completion of a review, the Director of 
the Division of Insurance (or designee) or the Director of the Division 
of Supervision (or designee), as appropriate, shall promptly notify the 
institution in writing of his or her determination of whether 
reclassification is warranted. Notice of the procedures applicable to 
reviews will be included with the assessment risk classification notice 
to be provided pursuant to paragraph (a) of this section.


Sec. 327.9  [Amended]

    4. Section 327.9 is amended by removing the phrase ``15 days'' and 
adding in its place the phrase ``30 days'' in paragraph (c)(4).

    By order of the Board of Directors.

    Dated at Washington, DC, this 6th day of December, 1999.

Federal Deposit Insurance Corporation.
James D. LaPierre,
Deputy Executive Secretary.
[FR Doc. 99-32587 Filed 12-15-99; 8:45 am]
BILLING CODE 6714-01-P