[Federal Register Volume 71, Number 96 (Thursday, May 18, 2006)]
[Proposed Rules]
[Pages 28804-28809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-7585]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-ADO7


Dividends

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing to amend 12 CFR 327 to implement the 
dividend requirements in the recently enacted Federal Deposit Insurance 
Reform Act of 2005 (``Reform Act'') and the Federal Deposit Insurance 
Reform Conforming Amendments Act of 2005 (``Amendments Act'') for an 
initial two-year period. The proposed rule would sunset on December 31, 
2008. If this proposal is adopted, during 2007, the FDIC would plan to 
undertake a second notice-and-comment rulemaking beginning with an 
Advanced Notice of Proposed Rulemaking to explore alternative methods 
for distributing future dividends after this initial two-year period.

DATES: Comments must be received on or before July 17, 2006.

ADDRESSES: You may submit comments, identified by RIN number by any of 
the following methods:
     Agency Web Site: http://www.fdic.gov/regulations/laws/federal.propose.html. Follow instructions for submitting comments on 
the Agency Web site.
     E-mail: [email protected]. Include the RIN number in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m.
    Instructions: All submissions received must include the agency name 
and RIN for this rulemaking. All comments received will be posted 
without change to http://www.fdic.gov/regulations/laws/federal/propose.html including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Munsell W. St.Clair, Senior Policy 
Analyst, Division of Insurance and Research, (202) 898-8967; Donna M. 
Saulnier, Senior Assessment Policy Specialist, Division of Finance, 
(703) 562-6167; and Kymberly K. Copa, Counsel, Legal Division, (202) 
898-8832.

SUPPLEMENTARY INFORMATION:

I. Background

    The Reform Act requires the FDIC to prescribe final regulations, 
within 270 days of enactment, to implement the dividend requirements, 
including regulations governing the method for the calculation, 
declaration, and payment of dividends and administrative appeals of 
individual dividend amounts. See sections 2107(a) and 2109(a)(3) of the 
Reform Act.\1\
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    \1\ The Reform Act was included as Title II, Subtitle B, of the 
Deficit Reduction Act of 2005, Public Law 109-171, 120 Stat. 9, 
which was signed into law by the President on February 8, 2006. 
Section 2109 of the Reform Act also requires the FDIC to prescribe, 
within 270 days, rules on the designated reserve ratio, changes to 
deposit insurance coverage, the one-time assessment credit, and 
assessments. An interim final rule on deposit insurance coverage was 
published on March 23, 2006. See 71 FR 14629. A notice of proposed 
rulemaking on the one-assessment credit and a notice of proposed 
rulemaking on operational changes to the FDIC's assessment 
regulations are both being proposed by the FDIC at the same time as 
this notice on dividends. Additional rulemakings on the designated 
reserve ratio and risk-based assessments are expected to be proposed 
in the near future.
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    Section 7(e)(2) of the Federal Deposit Insurance Act (``FDI Act''), 
as amended by the Reform Act, requires that the FDIC, under most 
circumstances, declare dividends from the Deposit Insurance Fund 
(``DIF'' or ``fund'') when the reserve ratio at the end of a calendar 
year exceeds 1.35 percent, but is no greater than 1.5 percent. In that 
event, the FDIC must generally declare one-half of the amount in the 
DIF in excess of the amount required to maintain the reserve ratio at 
1.35 percent as dividends to be paid to insured depository 
institutions. However, the FDIC's Board of Directors (``Board'') may 
suspend or limit dividends to be paid, if the Board determines in 
writing, after taking a number of statutory factors into account, that:
    1. The DIF faces a significant risk of losses over the next year; 
and
    2. It is likely that such losses will be sufficiently high as to 
justify a finding by the Board that the reserve ratio should 
temporarily be allowed to grow without requiring dividends when the 
reserve ratio is between 1.35 and 1.5 percent or to exceed 1.5 
percent.\2\
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    \2\ This provision would allow the FDIC's Board to suspend or 
limit dividends in circumstances where the reserve ratio has 
exceeded 1.5 percent, if the Board made a determination to continue 
a suspension or limitation that it had imposed initially when the 
reserve ratio was between 1.35 and 1.5 percent.
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    In addition, the statute requires that the FDIC, absent certain 
limited circumstances (discussed in footnote 2), declare a dividend 
from the DIF when the reserve ratio at the end of a calendar year 
exceeds 1.5 percent. In that event, the FDIC must declare the amount in 
the DIF in excess of the amount required to maintain the reserve ratio 
at 1.5 percent

[[Page 28805]]

as dividends to be paid to insured depository institutions.
    If the Board decides to suspend or limit dividends, it must submit, 
within 270 days of making the determination, a report to the Committee 
on Banking, Housing, and Urban Affairs of the Senate and to the 
Committee on Financial Services of the House of Representatives. The 
report must include a detailed explanation for the determination and a 
discussion of the factors required to be considered.\3\
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    \3\ See section 5 of the Amendments Act. Public Law 109-173, 119 
Stat. 3601, which was signed into law by the President on February 
15, 2006.
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    The FDI Act directs the FDIC to consider each insured depository 
institution's relative contribution to the DIF (or any predecessor 
deposit insurance fund) when calculating such institution's share of 
any dividend. More specifically, when allocating dividends, the Board 
must consider:
    1. The ratio of the assessment base of an insured depository 
institution (including any predecessor) on December 31, 1996, to the 
assessment base of all eligible insured depository institutions on that 
date;
    2. The total amount of assessments paid on or after January 1, 
1997, by an insured depository institution (including any predecessor) 
to the DIF (and any predecessor fund); \4\
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    \4\ This factor is limited to deposit insurance assessments paid 
to the DIF (or previously to the Bank Insurance Fund (``BIF'') or 
the Savings Association Insurance Fund (``SAIF'')) and does not 
include assessments paid to the Financing Corporation (``FICO'') 
used to pay interest on outstanding FICO bonds, although the FDIC 
collects those assessments on behalf of FICO. Beginning in 1997, the 
FDIC collected separate FICO assessments from both SAIF and BIF 
members.
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    3. That portion of assessments paid by an insured depository 
institution (including any predecessor) that reflects higher levels of 
risk assumed by the institution; and
    4. Such other factors as the Board deems appropriate.
    The statute does not define the term ``predecessor'' for purposes 
of the distribution of dividends to insured depository institutions.
    Predecessor deposit insurance funds are the BIF and the SAIF, as 
those were the deposit insurance funds in existence after 1996 and 
prior to enactment of the Reform Act, and which merged into the DIF. 
That merger was effective on March 31, 2006.
    The statute expressly requires the FDIC to prescribe by regulation 
the method for calculating, declaring, and paying dividends. As with 
the one-time assessment credit, the dividend regulation must include 
provisions allowing a bank or thrift a reasonable opportunity to 
administratively challenge the amount of dividends it is awarded. Any 
review by the FDIC pursuant to these administrative procedures is to be 
considered final and not subject to judicial review.
    Accordingly, the FDIC today is requesting comment on proposed rules 
that would implement the dividend requirement added by the Reform Act.

II. Description of the Proposal

    As part of this rulemaking, the FDIC must establish the process for 
the Board's annual determination of whether a declaration of a dividend 
is required and consideration, to the extent appropriate, of whether 
circumstances indicate that a dividend should be limited or suspended. 
In addition, the FDIC must set forth the procedures for calculating the 
aggregate amount of any dividend, allocating that aggregate amount 
among insured depository institutions considering the factors provided, 
and paying such dividends to individual insured depository 
institutions. Furthermore, these regulations must allow an insured 
depository institution a reasonable opportunity to challenge the amount 
of its dividend.

A. Annual Determination of Whether Dividends Are Required/Declaration 
of Dividends

    The statute requires the FDIC to determine whether at the end of 
each calendar year the reserve ratio of the DIF equals or exceeds 1.35 
percent or exceeds 1.5 percent, thereby triggering a dividend 
requirement.
    If the reserve ratio equals or exceeds 1.35 percent of estimated 
insured deposits, then the FDIC generally is required to declare the 
amount that is equal to one-half the amount in excess of the amount 
required to maintain the reserve ratio at 1.35 percent as dividends to 
be paid to insured depository institutions.\5\ As a practical matter, 
when the reserve ratio is at or only slightly above 1.35 percent, the 
aggregate amount of a potential dividend would be relatively small, and 
an individual institution's share would be very small. Nonetheless, the 
statute expressly provides that the Board may elect to suspend or limit 
such dividends only in certain circumstances, as discussed further 
below.
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    \5\ The FDIC, thus, would have to determine how much is 
necessary to maintain the reserve ratio at 1.35 percent, once the 
dividend requirement is triggered by the year-end reserve ratio.
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    If the reserve ratio exceeds 1.5 percent of estimated insured 
deposits, then the FDIC generally is required to declare the amount in 
the DIF in excess of the amount required to maintain the reserve ratio 
at 1.5 percent as dividends to be paid to insured depository 
institutions.
    In order to limit or suspend the payment of dividends when the 
reserve ratio is at or above 1.35 percent, the Board must determine in 
writing that a significant risk of losses to DIF exists over the next 
year and that it is likely that such losses will be high enough to 
justify allowing the reserve ratio either--(1) to grow temporarily 
without requiring dividends; or (2) to exceed the upper end of the 
range for the reserve ratio (that is, 1.5 percent). The statute directs 
the Board to consider certain factors in making a determination to 
limit or suspend dividends:
    (1) National and regional conditions and their effect on insured 
depository institutions;
    (2) Potential problems affecting institutions or a specific group 
or type of institutions;
    (3) The degree to which the contingent liability of the FDIC for 
anticipated failures adequately addresses funding levels in the DIF; 
and
    (4) Any other factors the Board deems appropriate.
    As noted above, if the Board elects to suspend or limit dividends 
pursuant to this authority, it must report to Congress within 270 days 
of that decision giving a detailed explanation, including a discussion 
of the statutory factors required to be considered.
    A determination to limit or suspend dividends will have to be 
reviewed annually and must be justified to renew or make a new 
determination to limit or suspend dividends. Each year, if the decision 
is to continue to limit or suspend dividends, the Board must report to 
Congress. If the FDIC does not justify renewal or a new determination, 
it is required to provide cash dividends based on the amount of the 
reserve ratio.
    The FDIC proposes that the Board announce its determination 
regarding dividends by May 15th of each year, which will allow for the 
Board's consideration of the dividend determination using complete data 
for the reserve ratio for the preceding December 31st. Depending on 
circumstances, such announcements could include: (1) A determination 
that no dividend is required because the reserve ratio is below 1.35 
percent as of the end of the preceding calendar year; (2) a declaration 
of a dividend; or (3) a determination that a dividend would otherwise 
be required, but that circumstances warrant the limitation or 
suspension of that dividend, to be followed by the required report to 
Congress.

[[Page 28806]]

    Absent a Board determination that dividends should be limited or 
foregone, the aggregate amount of a dividend must be calculated as set 
forth in the statute. If the reserve ratio is between 1.35 percent and 
1.5 percent, the FDIC must dividend half of the amount in excess of the 
amount required to maintain the reserve ratio at 1.35 percent. If the 
reserve ratio exceeds 1.5 percent, the FDI Act requires the FDIC to 
dividend the excess of the amount required to maintain the reserve 
ratio at 1.5 percent.\6\
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    \6\ In most circumstances, if the reserve ratio exceeds 1.5 
percent, the FDIC would declare a dividend of the excess, as 
determined by the FDIC, above 1.5 percent. At the same time, the 
FDIC would generally expect to declare a dividend of half of the 
amount necessary to maintain the reserve ratio at 1.35 percent, 
unless the Board makes a determination that suspension or limitation 
of that dividend is justified under section 7(e)(2)(E) of the FDI 
Act. That might happen, for example, if based on its consideration 
of the various statutory factors, the Board determines that it is 
appropriate to set the designated reserve ratio at 1.5 percent and 
set assessments to maintain the reserve ratio at that point. 
Sections 2104(a) and 2105(a) of the Reform Act (to be codified at 12 
U.S.C. 1817(b)(2) and (3), respectively).
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B. Allocation of Dividends

    The FDIC proposes initially adopting a simple system for allocating 
future dividends. Under the proposal, this system would remain in place 
for two years with a definite sunset date (December 31, 2008). During 
the two-year lifespan of the initial dividend regulations, the FDIC 
would undertake another rulemaking, beginning with the issuance of an 
advance notice of proposed rulemaking, seeking industry comment on more 
comprehensive alternatives for allocating future dividends.
    Specifically, the FDIC proposes that, initially, any dividends be 
awarded simply in proportion to an institution's 1996 assessment base 
ratio (including any predecessors' 1996 ratios), discussed more fully 
below. The FDI Act requires that the FDIC consider this ratio when 
allocating dividends.
    The statute also requires that the FDIC consider the total amount 
of assessments paid after 1996 and the portion of those assessments 
that reflects higher levels of risk. No institution while in the lowest 
risk category (sometimes referred to as ``the 1A category'') has paid 
any deposit insurance assessments since the end of 1996. All 
assessments paid since then have reflected higher levels of risk--that 
is, since year-end 1996 when the BIF and SAIF were both fully 
capitalized with reserve ratios in excess of the statutory minimum of 
1.25 percent, only those insured depository institutions that exhibited 
financial, operational, or compliance weaknesses ranging from 
moderately severe to unsatisfactory, or that were not well capitalized 
(as defined in section 38 of the FDI Act), were required to pay 
assessments.
    Within the proposed initial two-year period, any assessments that 
institutions pay that do not reflect higher levels of risk are likely 
to be small in comparison to the assessments that institutions paid 
over time to capitalize the deposit insurance funds, for which the 1996 
assessment base is intended to act as a proxy. As a result, the FDIC 
has concluded that payments since 1996 should not be included in the 
proposed temporary allocation method.\7\
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    \7\ It is in large part because post-2006 payments may become 
material over time that the FDIC proposes adoption of an interim 
rule, with the expectation that in 2007 the process of developing a 
more comprehensive long-term rule will begin.
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    Under the FDI Act, the Board also has discretion to consider such 
factors as it deems appropriate when allocating dividends. In the 
FDIC's view, other factors support an initially simple allocation based 
upon institutions' 1996 ratio. As a practical matter, it appears quite 
unlikely that the reserve ratio of the DIF will equal or exceed 1.35 
percent in the near future given the combined fund's current reserve 
ratio of 1.25 percent \8\ as of December 31, 2005, the continuing trend 
of high insured deposit growth rates, and the $4.7 billion one-time 
credit, which will constrain net assessment income. The FDIC has 
concluded that it is important to obtain and consider carefully public 
comment before instituting a more comprehensive allocation scheme that 
may not change for many years. Such a small likelihood of a dividend 
does not justify adoption of a more complex scheme within the 
relatively short timeframe required by the statute.
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    \8\ When the funds from the SAIF exit fee escrow account are 
included, the combined reserve ratio for December 31, 2005, would be 
1.26 percent.
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1. 1996 Assessment Base Ratio
    As noted above, the FDI Act sets forth three specific factors for 
consideration in distributing dividends. The first factor is the ratio 
of the assessment base of an insured depository institution (including 
any predecessor) on December 31, 1996, to the assessment base of all 
eligible insured depository institutions on that date. This factor 
essentially parallels the basis for distribution of the one-time 
assessment credit.
    The 1996 assessment base ratio for each insured depository 
institution will have been determined under the one-time assessment 
credit regulations and will continue in effect for dividend purposes, 
subject to subsequent adjustments for transactions that result in the 
combination of insured depository institutions, thereby recognizing 
``predecessor'' institutions as time goes by.
2. Predecessor Insured Depository Institutions
    The FDI Act does not define the term ``predecessor'' for purposes 
of the distribution of dividends to individual insured depository 
institutions. In addition, unlike the term ``successor'' used in the 
context of the one-time assessment credit, the FDI Act does not 
expressly charge the FDIC with defining ``predecessor.'' Nonetheless, 
in order to implement the dividend requirements, the FDIC must define 
``predecessor'' for these purposes when it is used in connection with 
an insured depository institution and the distribution of dividends.
    The FDIC proposes to adopt a definition of ``predecessor,'' that is 
consistent with general principles of corporate law and the proposed 
definition of ``successor'' in the one-time assessment credit notice of 
proposed rulemaking. Therefore, a ``predecessor'' would be defined as 
an institution that combined with another institution through merger or 
consolidation and did not survive as an entity. As with the definition 
of ``successor'' in the one-time assessment credit notice of proposed 
rulemaking, the FDIC is seeking comment on whether the definition of 
``predecessor'' should include an institution that combined with 
another institution through a de facto merger. In addition, if the FDIC 
were to adopt an alternative definition of ``successor'' for purposes 
of the one-time assessment credit rule, such as a definition that takes 
into account deposit or branch sales, the FDIC seeks comment on whether 
that alternative should similarly be applied to the definition of 
``predecessor'' for purposes of dividends.

C. Notification and Payment of Dividends

    The FDIC proposes that the FDIC advise each institution of its 
dividend amount as soon as practicable after the Board's declaration of 
a dividend on or before May 15th. Depending on circumstances, 
notification would take place through a special notice of dividend or, 
at the latest, with the institution's next assessment invoice. To allow 
time for requests for review of dividend amounts, the FDIC proposes 
that the individual dividend amounts be paid to insured depository 
institutions

[[Page 28807]]

at the time of the assessment collection for the second calendar 
quarter beginning after the declaration of the dividend and offset each 
institution's assessment amount. Under the proposed rule, the 
settlement would be handled through the Automated Clearing House 
consistent with existing procedures for underpayment or overpayment of 
assessments. Thus, in the event that the institution owes assessments 
in excess of the dividend amount, there will be a net debit (resulting 
in payment to the FDIC). Conversely, if the FDIC owes an additional 
dividend amount in excess of the assessment to the institution, there 
will be a net credit (resulting in payment from the FDIC).
    If an institution requests review of the amount of its dividend (as 
discussed below), and that request is not finally resolved at the time 
of the collection of the assessment, the FDIC proposes to credit the 
institution with the dividend amount on the notice or invoice. To the 
extent that a dividend amount is in dispute between institutions, the 
FDIC proposes to freeze the availability of the amount in dispute. If 
the institution prevails on its request for review, then any additional 
amount of dividend will be remitted to the institution, with interest.

D. Requests for Review of Dividend Amounts

    Like the regulations governing the one-time assessment credit, the 
FDI Act requires the FDIC to include in its dividend regulations 
provisions allowing an insured depository institution a reasonable 
opportunity to challenge administratively the amount of its dividend. 
The FDIC's determination under such procedures is to be final and not 
subject to judicial review.
    It is proposed that the proposed rule largely parallel the 
procedures for requesting revision of computation of a quarterly 
assessment payment as shown on the quarterly invoice. As with the one-
time credit notice of proposed rulemaking, the FDIC proposes shorter 
timeframes in the dividend appeals process so that requests for review 
may be resolved by the time payment of dividends is due, to the extent 
possible. An institution would have 30 days from the date of the notice 
or invoice advising each institution of its dividend amount to request 
review of the dividend determination. Under the proposed rule, an 
institution could request review if (1) it disagrees with the 
computation of the dividend as stated on the notice or invoice, or (2) 
it believes that the notice or invoice does not fully or accurately 
reflect appropriate adjustments to the institution's 1996 assessment 
base ratio. For example, the institution may believe that its 1996 
assessment base ratio has not been adjusted to reflect its acquisition 
of an eligible insured depository institution. The FDIC proposes that, 
if an institution does not submit a timely request for review, the 
institution be barred from subsequently requesting review of its 
dividend amount.
    The proposed rule would require that a request for review be 
submitted to Division of Finance and include documentation sufficient 
to support the change sought by the institution. In addition, the 
requesting institution would have to identify all other institutions of 
which it knew or had reason to believe would be directly and materially 
affected by granting the request for review and provide those 
institutions with copies of the request for review, supporting 
documentation, and the FDIC's procedures for these requests for review.
    Under the proposal, the FDIC shall make reasonable efforts, based 
on its official systems of records, to determine that such institutions 
have been identified and notified. These institutions would then have 
30 days to submit a response and any supporting documentation to the 
FDIC's Division of Finance, copying the institution making the original 
request for review. The FDIC proposes that, if an institution is 
identified and notified through this process and does not submit a 
timely response, the institution be foreclosed from subsequently 
disputing the information submitted by any other institution on the 
transaction(s) at issue in the review process. The FDIC may request 
additional information as part of its review, and the proposed rule 
would require the institution to supply that information within 21 days 
of the date of the FDIC's request for additional information.
    As previously noted, the FDIC further proposes to freeze 
temporarily the distribution of the dividend amount in dispute for the 
institutions involved in the challenge until the challenge is resolved.
    The proposed rule requires a written response from the FDIC's 
Director of the Division of Finance (``Director''): (1) Within 60 days 
of receipt by the FDIC of the request for revision; (2) if additional 
institutions have been notified by the requesting institution or the 
FDIC, within 60 days of the date of the last response to the 
notification; or, (3) if additional information has been requested by 
the FDIC, within 60 days of receipt of the additional information, 
whichever is latest. Whenever feasible, the response is to notify the 
institution of the determination of the Director as to whether the 
requested change is warranted. In all instances in which a timely 
request for review is submitted, the Director will make a determination 
on the request as promptly as possible and notify the institution in 
writing of the determination. Notice of the procedures applicable to 
reviews will be included with the notice or invoice providing 
notification of the dividend.
    Under the proposed rule, an institution that disagrees with the 
determination of the Director may appeal its dividend determination to 
the FDIC's Assessment Appeals Committee (``AAC''). An appeal would have 
to be filed within 15 calendar days from the date of the Director's 
written determination. Notice of the procedures applicable to appeals 
will be included with that written determination. The AAC's 
determination would be final and not subject to judicial review.

III. Regulatory Analysis and Procedure

A. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. We invite your comments on how to make this proposal 
easier to understand. For example:
     Have we organized the material to suit your needs? If not, 
how could this material be better organized?
     Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
     Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could we do to make the regulation easier to 
understand?

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that each Federal 
agency either certify that a proposed rule would not, if adopted in 
final form, have a significant impact on a substantial number of small 
entities or prepare an initial regulatory flexibility analysis of the 
proposal and publish the

[[Page 28808]]

analysis for comment. See 5 U.S.C. 603, 605. This proposed rule, if 
adopted in final form, would provide the procedures for the FDIC's 
declaration, distribution, and payment of dividends to insured 
depository institutions under the circumstances set forth in the FDI 
Act. While each insured depository institution would have the 
opportunity to request review of the amount of its dividend each time a 
dividend is declared, the proposed rule would rely on information 
already collected and maintained by the FDIC in the regular course of 
business. For the limited duration of the proposed rule, it appears 
unlikely that a dividend would be required. On this basis, the FDIC 
certifies that this proposal, if it is adopted in final form, would not 
have a significant impact on a substantial number of small entities, 
within the meaning of those terms as used in the RFA. Commenters are 
invited to provide the FDIC with any information they may have about 
the likely quantitative effects of the proposal.

C. Paperwork Reduction Act

    No collections of information pursuant to the Paperwork Reduction 
Act (44 U.S.C. Ch. 3501 et seq.) are contained in the proposed rule.

D. 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).

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the preamble, the FDIC proposes to 
amend chapter III of title 12 of the Code of Federal Regulations as 
follows:

PART 327--ASSESSMENTS

    1. Add subpart C, consisting of Sec.  327.50 through 327.55, to 
read as follows:
Subpart C--Implementation of Dividend Requirements
Sec.
327.50 Purpose and scope.
327.51 Definitions.
327.52 Annual dividend determination.
327.53 Allocation and payment of dividends.
327.54 Requests for review of dividend amount.
327.55 Sunset date.

Subpart C--Implementation of Dividend Requirements

    Authority: 12 U.S.C. 1817(e)(2), (4).


Sec.  327.50  Purpose and scope.

    (a) Scope. This subpart C of part 327 implements the dividend 
provisions of section 7(e)(2) of the Federal Deposit Insurance Act, 12 
U.S.C. 1817(e)(2), and applies to insured depository institutions.
    (b) Purpose. This subpart C of part 327 sets forth the rules for:
    (1) The FDIC's annual determination of whether to declare a 
dividend and the aggregate amount of any dividend;
    (2) The FDIC's determination of the amount of each insured 
depository institution's share of any declared dividend;
    (3) The time and manner for the FDIC's payment of dividends; and
    (4) An institution's appeal of the FDIC's determination of its 
dividend amount.


Sec.  327.51  Definitions.

    For purposes of this subpart:
    (a) Board has the same meaning as under subpart B of this part.
    (b) DIF means the Deposit Insurance Fund.
    (c) An insured depository institution's 1996 assessment base ratio 
means the share of an insured depository institution in the one-time 
assessment credit under subpart B of this part, adjusted as necessary 
after the effective date of subpart B of this part to reflect mergers 
in which the institution succeeds to another institution's share of the 
one-time assessment credit.
    (d) Merger has the same meaning as under subpart B of this part.
    (e) Predecessor, when used in the context of insured depository 
institutions, refers to the institution merged with or into a resulting 
institution.
    (f) Resulting institution has the same meaning as under subpart B 
of this part.
    (g) Successor, when used in the context of insured depository 
institutions, has the same meaning as under subpart B of this part.


Sec.  327.52  Annual dividend determination.

    (a) Before May 15th of each calendar year, beginning in 2007, the 
Board shall determine whether to declare a dividend based upon the 
reserve ratio of the DIF as of December 31st of the preceding year, and 
the amount of the dividend, if any.
    (b) Except as provided in paragraph (d) of this section, if the 
reserve ratio of the DIF equals or exceeds 1.35 percent of estimated 
insured deposits and does not exceed 1.5 percent, the Board shall 
declare the amount that is equal to one-half of the amount in excess of 
the amount required to maintain the reserve ratio at 1.35 percent as 
the aggregate dividend to be paid to insured depository institutions.
    (c) If the reserve ratio of the DIF exceeds 1.5 percent of 
estimated insured deposits, except as provided in paragraph (d) of this 
section, the Board shall declare the amount in excess of the amount 
required to maintain the reserve ratio at 1.5 percent as the aggregate 
dividend to be paid to insured depository institutions and shall 
declare a dividend under paragraph (b) of this section.
    (d)(1) The Board may suspend or limit a dividend otherwise required 
to be paid if the Board determines that:
    (i) A significant risk of losses to the DIF exists over the next 
one-year period; and
    (ii) It is likely that such losses will be sufficiently high as to 
justify the Board concluding that the reserve ratio should be allowed:
    (A) To grow temporarily without requiring dividends when the 
reserve ratio is between 1.35 and 1.5 percent; or
    (B) To exceed 1.5 percent.
    (2) In making a determination under this paragraph, the Board shall 
consider:
    (i) National and regional conditions and their impact on insured 
depository institutions;
    (ii) Potential problems affecting insured depository institutions 
or a specific group or type of depository institution;
    (iii) The degree to which the contingent liability of the FDIC for 
anticipated failures of insured institutions adequately addresses 
concerns over funding levels in the DIF; and
    (iv) Any other factors that the Board may deem appropriate.
    (3) Within 270 days of making a determination under this paragraph, 
the Board shall submit a report to the Committee on Financial Services 
and the Committee on Banking, Housing, and Urban Affairs, providing a 
detailed explanation of its determination, including a discussion of 
the factors considered.
    (e) The Board shall annually review any determination to suspend or 
limit dividend payments and must either:
    (1) Make a new finding justifying the renewal of the suspension or 
limitation

[[Page 28809]]

under paragraph (d) of this section, and submit a report as required 
under paragraph (d)(3) of this section; or
    (2) Reinstate the payment of dividends as required by paragraph (b) 
or (c) of this section.


Sec.  327.53  Allocation and payment of dividends.

    (a) For any dividend declared before January 1, 2009, allocation of 
such dividend among insured depository institutions shall be based 
solely on an insured depository institution's 1996 assessment base 
ratio.
    (b) The FDIC shall notify each insured depository institution of 
the amount of such institution's dividend payment based on its share as 
determined pursuant to paragraph (a) of this section. Notice shall be 
given as soon as practicable after the Board's declaration of a 
dividend through a special notice of dividend or, at the latest, with 
the institution's next assessment invoice.
    (c) The FDIC shall pay individual dividend amounts to insured 
depository institutions at the time of the collection by the FDIC of 
the assessments for the second calendar quarter beginning after the 
declaration of the dividend. An institution's dividend amount shall be 
remitted with that institution's assessment. Any excess dividend amount 
will be a net credit of the FDIC and will be deposited into the deposit 
account designated by the institution for assessment payment purposes 
pursuant to subpart A. If the dividend amount is less than the amount 
of assessment due, then the institution's account will be directly 
debited to the FDIC to reflect the net amount owed to the FDIC as an 
assessment.
    (d) If an insured depository institution requests review of its 
dividend amount under Sec.  327.54, and that request is not finally 
resolved prior to the dividend payment date, the FDIC shall credit the 
institution with the dividend amount provided on the invoice. If the 
institution prevails on its request for review, then any additional 
amount of dividend will be remitted to the institution, with interest, 
with the institution's assessment in the next calendar quarter after 
the final determination has been made.


Sec.  327.54  Requests for review of dividend amount.

    (a) An insured depository institution may submit a request for 
review of the FDIC's determination of the institution's dividend amount 
as shown on the special notice of dividend or assessment invoice, as 
appropriate. Such review may be requested if:
    (1) The institution disagrees with the calculation of the dividend 
as stated on the special notice of dividend or invoice; or
    (2) The institution believes that the 1996 assessment base ratio 
attributed to the institution does not fully or accurately reflect 
appropriate adjustments for predecessors resulting from transactions 
involving the institution after the FDIC's final determination of the 
1996 assessment base ratio under subpart B of this part.
    (b) Any such request for review must be submitted within 30 days of 
the date of the special notice of dividend or invoice for which a 
change is requested. The request for review shall be submitted to the 
Division of Finance and shall provide documentation sufficient to 
support the change sought by the institution. If an institution does 
not submit a timely request for review, that institution may not 
subsequently request review of its dividend amount, subject to 
paragraph (d) of this section. At the time of filing with the FDIC, the 
requesting institution shall notify, to the extent practicable, any 
other insured depository institution that would be directly and 
materially affected by granting the request for review and provide such 
institution with copies of the request for review, the supporting 
documentation, and the FDIC's procedures for requests under this 
subpart. The FDIC shall make reasonable efforts, based on its official 
systems of records, to determine that such institutions have been 
identified and notified.
    (c) During the FDIC's consideration of the request for review, the 
amount of dividend in dispute shall not be available for use by any 
institution.
    (d) Within 30 days of the filing of the request for review, those 
institutions identified as potentially affected by the request for 
review may submit a response to such request, along with any supporting 
documentation, to the Division of Finance, and shall provide copies to 
the requesting institution. If an institution that was notified under 
paragraph (b) of this section does not submit a response to the request 
for review, that institution may not subsequently:
    (1) Dispute the information submitted by any other institution on 
the transaction(s) at issue in that review process; or
    (2) Appeal the decision by the Director of the Division of Finance.
    (e) If additional information is requested of the requesting or 
affected institutions by the FDIC, such information shall be provided 
by the institution within 21 days of the date of the FDIC's request for 
additional information.
    (f) Any institution submitting a timely request for review will 
receive a written response from the FDIC's Director of the Division of 
Finance (``Director''):
    (1) Within 60 days of receipt by the FDIC of the request for 
revision;
    (2) If additional institutions have been notified by the requesting 
institution or the FDIC, within 60 days of the date of the last 
response to the notification; or
    (3) If additional information has been requested by the FDIC, 
within 60 days of receipt of the additional information,whichever is 
later. Whenever feasible, the response will notify the institution of 
the determination of the Director as to whether the requested change is 
warranted. In all instances in which a timely request for review is 
submitted, the Director will make a determination on the request as 
promptly as possible and notify the institution in writing of the 
determination. Notice of the procedures applicable to reviews will be 
included with the special notice of dividend or assessment invoice 
providing notification of the dividend.
    (g) An insured depository institution may appeal the determination 
of the Director to the FDIC's Assessment Appeals Committee on the same 
grounds as set forth under paragraph (a) of this section. Any such 
appeal must be submitted within 15 calendar days from the date of the 
Director's written determination. Notice of the procedures applicable 
to appeals under this section will be included with the Director's 
written determination. The decision of the Assessment Appeals Committee 
shall be the final determination of the FDIC.


Sec.  327.55  Sunset date.

    Subpart C shall cease to be effective on December 31, 2008.

    Dated at Washington, DC, this 9th day of May, 2006.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E6-7585 Filed 5-17-06; 8:45 am]
BILLING CODE 6714-01-P