[Federal Register Volume 67, Number 93 (Tuesday, May 14, 2002)]
[Rules and Regulations]
[Pages 34385-34387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11947]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AB92


Payment of Post-insolvency Interest In Receiverships With Surplus 
Funds

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation has adopted a final 
rule regarding the payment of post-insolvency interest in insured 
depository institution receiverships with surplus funds. The final rule 
establishes a single uniform interest rate, calculation method, and 
payment priority for post-insolvency interest. The final rule provides 
that where funds remain after the satisfaction of the principal amount 
of all creditor claims, post-insolvency interest will be paid in the 
order of priority set forth in section 11(d)(11)(A) of the Federal 
Deposit Insurance Act; paid at the coupon equivalent yield of the 
average discount rate set on the three-month Treasury bill at the last 
auction held by the United States Treasury Department during the 
preceding calendar quarter; adjusted each quarter after the 
receivership is established; and based on a simple interest method of 
calculation.

EFFECTIVE DATE: June 13, 2002.

FOR FURTHER INFORMATION CONTACT: Thomas Bolt, (202) 736-0168; or Rodney 
Ray, (202) 898-3556.

SUPPLEMENTARY INFORMATION:

I. Background

    In December 2000, Congress granted the FDIC express rulemaking 
authority regarding the payment of post-insolvency interest in 
receiverships with surplus funds. The American Homeownership and 
Economic Opportunity Act of 2000 added new subparagraph (C) to section 
11(d)(10) of the FDI Act, which reads as follows:

    (C) RULEMAKING AUTHORITY OF CORPORATION. The Corporation may 
prescribe such rules, including definitions of terms, as it deems 
appropriate to establish a single uniform interest rate for or to 
make payment of post-insolvency interest to creditors holding proven 
claims against the receivership estates of insured Federal or State 
depository institutions following satisfaction by the receiver of 
the principal amount of all creditor claims.

    By virtue of this rulemaking authority, the final rule regarding 
post-insolvency interest will preempt any inconsistent state law by 
providing a single uniform interest rate and priority of distribution 
for post-insolvency interest in receiverships established after the 
rule becomes effective. See City of New York v. FCC, 486 U.S. 57, 63 
(1988) (regulation promulgated by federal agency acting within the 
scope of its congressionally delegated authority may preempt state 
law). The final rule will apply to receiverships established after the 
effective date of the rule. Historically, relatively few receiverships 
have generated sufficient recoveries to enable post-insolvency interest 
to be paid. Consequently, the final rule will probably apply to only a 
small number of receiverships in the future.

II. Notice of proposed rulemaking

    On December 18, 2001 the FDIC caused to be published in the Federal 
Register a notice of proposed rulemaking regarding the payment of post-
insolvency interest in receiverships with surplus funds. See 66 FR 
65144 (December 18, 2001). The notice of proposed rulemaking discussed 
the features of a proposed rule and solicited comments from the public 
for a period of 60 days. The comment period expired on February 19, 
2001. The FDIC received one comment from the Co-operative Central Bank, 
which insures deposits that exceed FDIC deposit insurance limits in 75 
co-operative

[[Page 34386]]

banks in Massachusetts. The comment described the proposed rule as ``a 
fair and balanced approach to resolving the difficult issue of payment 
of post-insolvency interest in receiverships with surplus funds. It is 
entirely consistent with the public policy set forth in section 
11(d)(11)(A) of the Federal Deposit Insurance Act, the national 
depositor preference statute, and is in the public interest. By 
providing uniform interest rate and depositor priority for 
distributions of post-insolvency interest, the Proposed Regulation 
appropriately allocates post-insolvency interest more equitably than at 
present.''

III. Final rule

    The final rule is essentially identical to the proposed rule. The 
final rule provides that after the satisfaction of the principal amount 
of all creditor claims, post-insolvency interest will be paid in the 
order of priority set forth in section 11(d)(11)(A) of the Federal 
Deposit Insurance Act. This is consistent with how the principal 
amounts of creditor claims are paid and would be consistent with 
Congress's intent that deposit liabilities be preferred over other 
liabilities.
    The final rule further provides for the post-insolvency interest 
rate for all FDIC-administered receiverships to be based on the coupon 
equivalent yield of the average discount rate set on the 3-month 
Treasury bill. The 3-month Treasury bill is widely recognized as a 
performance benchmark for cash investment management and its yield has 
historically tracked to some degree changes in the rate of inflation. 
The post-insolvency interest rate will be adjusted quarterly in order 
to mitigate interest-rate risk due to changes in economic conditions 
during the life of the receivership. Post-insolvency interest 
distributions will be calculated using a simple interest method, which 
should provide a reasonable amount of interest to compensate 
receivership creditors for the time value of money owed from the time 
the receivership is established until dividend payments are received.
    The final rule contains a revision to paragraph (c)(3) of the 
proposed rule to clarify that post-insolvency interest will be 
calculated, not ``distributed,'' on proven claims from the date the 
receivership is established. Revised paragraph (c)(3) also provides 
that post-insolvency interest on a contingent claim will be calculated 
from the date that the claim becomes proven. A contingent claim is a 
claim that has not accrued as of the date of the appointment of the 
receiver, but is dependent on some future event. A contingent claim may 
become proven if the event triggering payment occurs in time for the 
claim to be paid by the receiver. In such case, post-insolvency 
interest will be calculated from the date the claim becomes proven, not 
from the date the receivership is established.

IV. Paperwork Reduction Act

    The proposed rule will not involve any collection of information 
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Consequently, no information has been submitted to the Office of 
Management and Budget for review.

V. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) the FDIC has certified that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. The final rule will only apply to FDIC-administered 
receiverships established after the effective date of the rule, and it 
does not impose new reporting, recordkeeping or other compliance 
requirements on receivership creditors. The final rule continues the 
FDIC's existing practice of making post-insolvency interest 
distributions to creditors holding proven claims in surplus 
receiverships prior to making distributions to equityholders, based on 
their equity interests, in a failed insured depository institution. In 
addition, the final rule will provide interested parties, including 
small entities, with greater certainty in future FDIC-administered 
receiverships by establishing a single uniform interest rate and method 
for making post-insolvency interest distributions. Accordingly, the 
Act's requirements relating to an initial regulatory flexibility 
analysis are not applicable.

VI. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

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

VII. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) (Pub. L. 104-121) provides generally for agencies to report 
rules to Congress for review. The reporting requirement is triggered 
when the FDIC issues a final rule as defined by the Administrative 
Procedure Act (APA) at 5 U.S.C. 551. Because the FDIC is issuing a 
final rule as defined by the APA, the FDIC will file the reports 
required by SBREFA. The Office of Management and Budget has determined 
that this final rule does not constitute a ``major rule'' as defined by 
SBREFA.

List of Subjects in 12 CFR Part 360

    Banks, banking, Savings associations.

    For the reasons set forth in the preamble, the FDIC Board of 
Directors amends 12 CFR part 360 as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

    1. The authority for part 360 is revised to read as follows:

    Authority: 12 U.S.C. 1821(d)(1), 1821(d)(10)(C), 1821(d)(11), 
1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), 
Pub.L. 101-73, 103 Stat. 357.


    2. Section 360.7 is added to part 360 to read as follows:


Sec. 360.7  Post-insolvency interest.

    (a) Purpose and scope. This section establishes rules governing the 
calculation and distribution of post-insolvency interest to creditors 
with proven claims in all FDIC-administered receiverships established 
after June 13, 2002.
    (b) Definitions. (1) Equityholder. The owner of an equity interest 
in a failed depository institution, whether such ownership is 
represented by stock, membership in a mutual association, or otherwise.
    (2) Post-insolvency interest. Interest calculated from the date the 
receivership is established on proven creditor claims in receiverships 
with surplus funds.
    (3) Post-insolvency interest rate. For any calendar quarter, the 
coupon equivalent yield of the average discount rate set on the three-
month Treasury bill at the last auction held by the United States 
Treasury Department during the preceding calendar quarter, and adjusted 
each quarter thereafter.
    (4) Principal amount. The proven claim amount and any interest 
accrued thereon as of the date the receivership is established.
    (5) Proven claim. A claim that is allowed by a receiver or upon 
which a final non-appealable judgment has been entered in favor of a 
claimant against a receivership by a court with jurisdiction to 
adjudicate the claim.

[[Page 34387]]

    (c) Post-insolvency interest distributions. (1) Post-insolvency 
interest shall only be distributed following satisfaction by the 
receiver of the principal amount of all creditor claims.
    (2) The receiver shall distribute post-insolvency interest at the 
post-insolvency interest rate prior to making any distribution to 
equityholders. Post-insolvency interest distributions shall be made in 
the order of priority set forth in section 11(d)(11)(A) of the Federal 
Deposit Insurance Act, 12 U.S.C. 1821(d)(11)(A).
    (3) Post-insolvency interest distributions shall be made at such 
time as the receiver determines that such distributions are appropriate 
and only to the extent of funds available in the receivership estate. 
Post-insolvency interest shall be calculated on the outstanding balance 
of a proven claim, as reduced from time to time by any interim dividend 
distributions, from the date the receivership is established until the 
principal amount of a proven claim has been fully distributed but not 
thereafter. Post-insolvency interest shall be calculated on a 
contingent claim from the date such claim becomes proven.
    (4) Post-insolvency interest shall be determined using a simple 
interest method of calculation.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, this 7th day of May, 2002.
Robert E. Feldman,
 Executive Secretary.
[FR Doc. 02-11947 Filed 5-13-02; 8:45 am]
BILLING CODE 6714-01-P