[Federal Register Volume 71, Number 201 (Wednesday, October 18, 2006)]
[Rules and Regulations]
[Pages 61374-61385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17305]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064--AD08


One-Time Assessment Credit

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its assessments regulations to implement 
the one-time assessment credit required by the Federal Deposit 
Insurance Act (FDI Act), as amended by the Federal Deposit Insurance 
Reform Act of 2005 (Reform Act). The final rule covers: The aggregate 
amount of the one-time credit; the institutions that are eligible to 
receive credits; and how to determine the amount of each eligible 
institution's credit, which for some institutions may be largely 
dependent on how the FDIC defines ``successor'' for these purposes. The 
final rule also establishes the qualifications and procedures governing 
the application of assessment credits, and provides a reasonable 
opportunity for an institution to challenge administratively the amount 
of the credit.

EFFECTIVE DATE: The final rule is effective on November 17, 2006.

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; or Joseph A. DiNuzzo, Counsel, Legal Division, (202) 
898-7349.

SUPPLEMENTARY INFORMATION: This supplementary information section 
contains a discussion of the statutory basis for this rulemaking and 
the proposed rule published in May 2006, a summary of the comments 
received on the proposed rule, and the final rule, which responds to 
the comments.

I. Background

    The Reform Act made numerous revisions to the deposit insurance 
assessment provisions of the FDI Act.\1\ Specifically, the Reform Act 
amended Section 7(e)(3) of the Federal Deposit Insurance Act to require 
that the FDIC's Board of Directors (Board) provide by regulation an 
initial, one-time assessment credit to each ``eligible'' insured 
depository institution (or its

[[Page 61375]]

successor) based on the assessment base of the institution as of 
December 31, 1996, as compared to the combined aggregate assessment 
base of all eligible institutions as of that date (the 1996 assessment 
base ratio), taking into account such other factors as the Board may 
determine to be appropriate. The aggregate amount of one-time credits 
is to equal the amount that the FDIC could have collected if it had 
imposed an assessment of 10.5 basis points on the combined assessment 
base of the Bank Insurance Fund (BIF) and Savings Association Insurance 
Fund (SAIF) as of December 31, 2001. 12 U.S.C. 1817(e)(3).
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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.
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    An ``eligible'' insured depository institution is one that: was in 
existence on December 31, 1996, and paid a Federal deposit insurance 
assessment prior to that date; \2\ or is a ``successor'' to any such 
insured depository institution. The FDI Act requires the Board to 
define ``successor'' for these purposes and provides that the Board 
``may consider any factors as the Board may deem appropriate.'' The 
amount of a credit to any eligible insured depository institution must 
be applied by the FDIC to the deposit insurance assessments imposed on 
such institution that become due for assessment periods beginning after 
the effective date of the one-time credit regulations required to be 
issued within 270 days after enactment.\3\ 12 U.S.C. 1817(e)(3)(D)(i).
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    \2\ Prior to 1997, the assessments that SAIF member institutions 
paid the SAIF were diverted to the Financing Corporation (FICO), 
which had a statutory priority to those funds. Beginning with 
enactment of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (FIRREA, Public Law 101-73, 103 Stat. 183) 
and ending with the Deposit Insurance Funds Act of 1996 (DIFA, 
Public Law 104-208, 110 Stat. 3009, 3009-479), FICO had authority, 
with the approval of the Board of Directors of the FDIC, to assess 
against SAIF members to cover anticipated interest payments, 
issuance costs, and custodial fees on FICO bonds. The FICO 
assessment could not exceed the amount authorized to be assessed 
against SAIF members pursuant to section 7 of the FDI Act, and FICO 
had first priority against the assessment. 12 U.S.C. 1441(f), as 
amended by FIRREA. Beginning in 1997, the FICO assessments were no 
longer drawn from SAIF. Rather, the FDIC began collecting a separate 
FICO assessment. 12 U.S.C. 1441(f), as amended by DIFA. Payments to 
SAIF prior to December 31, 1996, even if diverted to FICO, are 
considered deposit insurance assessments for purposes of the one-
time assessment credit. The new law does not change the existing 
process through which the FDIC collects FICO assessments.
    \3\ 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 dividend requirements, 
and assessments. The final rule on deposit insurance coverage was 
published on September 12, 2006, 71 FR 53547. The final rule on the 
dividend requirements is being published on the same day as this 
final rule. Final rules on the other matters are expected to be 
published in the near future.
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    There are three statutory restrictions on the use of credits. 
First, as a general rule, for assessments that become due for 
assessment periods beginning in fiscal years 2008, 2009, and 2010, 
credits may not be applied to more than 90 percent of an institution's 
assessment.\4\ 12 U.S.C. 1817(e)(3)(D)(ii). (This 90 percent limit does 
not apply to 2007 assessments.) Second, for an institution that 
exhibits financial, operational or compliance weaknesses ranging from 
moderately severe to unsatisfactory, or is not at least adequately 
capitalized (as defined pursuant to section 38 of the FDI Act) at the 
beginning of an assessment period, the amount of any credit that may be 
applied against the institution's assessment for the period may not 
exceed the amount the institution would have been assessed had it been 
assessed at the average rate for all institutions for the period. 12 
U.S.C. 1817(e)(3)(E). And, third, if the FDIC is operating under a 
restoration plan to recapitalize the Deposit Insurance Fund (DIF) 
pursuant to section 7(b)(3)(E) of the FDI Act, as amended by the Reform 
Act, the FDIC may elect to restrict credit use; however, an institution 
must still be allowed to apply credits up to three basis points of its 
assessment base or its actual assessment, whichever is less. 12 U.S.C. 
1817(b)(3)(E)(iii).
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    \4\ As proposed, the FDIC is interpreting a ``fiscal year'' as a 
calendar year.
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    The one-time credit regulations must include the qualifications and 
procedures governing the application of assessment credits. These 
regulations also must include provisions allowing a bank or thrift a 
reasonable opportunity to challenge administratively the amount of 
credits it is awarded.\5\ Any determination of the amount of an 
institution's credit by the FDIC pursuant to these administrative 
procedures is final and not subject to judicial review. 12 U.S.C. 
1817(e)(4).
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    \5\ Similarly, for dividends under the FDI Act, as amended by 
the Reform Act, the regulations must include provisions allowing a 
bank or thrift a reasonable opportunity to challenge 
administratively the amount of dividends it is awarded. 12 U.S.C. 
1817(e)(4).
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II. The Proposed Rule

    As part of this rulemaking, the FDIC was required, among other 
things, to: Determine the aggregate amount of the one-time credit; 
determine the institutions that are eligible to receive credits; and 
determine the amount of each eligible institution's credit, which for 
some institutions may be largely dependent on how the FDIC defines 
``successor'' for these purposes. The FDIC also must establish the 
qualifications and procedures governing the application of assessment 
credits, and provide a reasonable opportunity for an institution to 
challenge administratively the amount of the credit. The FDIC's 
determination after such challenge will be final and not subject to 
judicial review.
    As set out more fully in the proposed rule,\6\ the FDIC proposed 
to: (1) Rely on the 1996 assessment base figures contained in the 
Assessment Information Management System (AIMS) \7\; (2) define 
``successor'' as the resulting institution in a merger or 
consolidation, while seeking comment on alternative definitions; (3) 
automatically apply each institution's credit against future 
assessments to the maximum extent allowed consistent with the 
limitations in the FDI Act; and (4) provide an appeals process for 
administrative challenges to the amounts of credits that culminates in 
review by the FDIC's Assessment Appeals Committee.
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    \6\ 71 FR 28808 (May 18, 2006).
    \7\ The current Assessment Information Management Systems (AIMS) 
contains records from quarterly reports of condition data from 
institutions with bank and thrift charters. The FFIEC Central Data 
Repository (FFIEC-CDR) for banks and the Thrift Financial Report for 
thrifts provide AIMS with the values of the deposit line items that 
are used in the calculation of an institution's assessment base.
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    Shortly after publication of the proposed rule, the FDIC made 
available a searchable database with the FDIC's calculation of every 
institution's 1996 assessment base (if any) to give institutions the 
opportunity to review and verify both their 1996 assessment base and 
preliminary, estimated credit amount, as well as information related to 
mergers or consolidations to which it was a party.
    The comment period for the proposed rule was extended to August 16, 
2006, to allow all interested parties to consider the proposed rule 
while proposed rules on the designated reserve ratio and risk-based 
assessments were pending.

A. Aggregate Amount of One-Time Assessment Credit

    The aggregate amount of the one-time assessment credit is 
$4,707,580,238.19, which was calculated by applying an assessment rate 
of 10.5 basis points to the combined assessment base of BIF and SAIF as 
of December 31, 2001. The FDIC proposed to rely on the assessment base 
numbers available from each institution's certified statement (or 
amended certified statement), filed quarterly and preserved in AIMS, 
which records the assessment base for each insured depository 
institution as of that

[[Page 61376]]

date. AIMS is the FDIC's official system of records for determination 
of assessment bases and assessments due.

B. Determination of Eligible Insured Depository Institutions and Each 
Institution's 1996 Assessment Base Ratio

    The FDIC must determine the assessment base of each eligible 
institution as of December 31, 1996, and any successor institutions, to 
determine the eligible institution's 1996 assessment base ratio. In 
making these determinations, the Board has the authority to take into 
account such factors as the Board may determine to be appropriate. 12 
U.S.C. 1817(e)(3)(A).
    As described in the proposed rule, the denominator of the 1996 
assessment base ratio is the combined aggregate assessment base of all 
eligible insured depository institutions and their successors. The 
numerator of each eligible institution's 1996 assessment base ratio is 
its assessment base as of December 31, 1996, combined with the 
assessment base on December 31, 1996, of each institution (if any) to 
which it is a successor. An eligible insured depository institution is 
one in existence as of December 31, 1996, that paid a deposit insurance 
assessment prior to that date (or a successor to such institution).
1. Determination of Eligible Institutions
    Similar to the determination of the aggregate amount of the credit, 
the FDIC proposed to use the December 31, 1996 assessment base for each 
institution, as it appears on the institution's certified statement or 
as subsequently amended and as recorded in AIMS, to identify eligible 
institutions. Those numbers reflect the bases on which institutions 
that existed on December 31, 1996, paid assessments. As of June 30, 
2006, there were approximately 7,300 active insured depository 
institutions that may be eligible for the one-time assessment credit--
that is, they were in existence on December 31, 1996, and had paid an 
assessment prior to that date or are a successor to such an 
institution.
a. Effect of Voluntary Termination or Failure
    The FDIC identified institutions that voluntarily terminated their 
insurance or failed since December 31, 1996, which otherwise would have 
been considered eligible insured depository institutions for purposes 
of the one-time credit. Whether an institution that voluntarily 
terminated would have a successor would depend on the specific 
circumstances surrounding its termination. The FDIC proposed that an 
insured depository institution that has failed would not have a 
successor.
b. De Novo Institutions
    The FDIC also identified institutions newly in existence as of 
December 31, 1996 (de novo institutions) that did not pay deposit 
insurance premiums prior to December 31, 1996. Under the statute, those 
institutions could not be eligible insured depository institutions for 
purposes of the one-time assessment credit. However, the FDIC proposed 
that certain de novo institutions, which did not directly pay 
assessments prior to December 31, 1996, but which acquired by merger or 
consolidation before that date another insured depository institution 
that had paid assessments, would be considered eligible insured 
depository institutions. The FDIC viewed those de novo institutions as 
having stepped into the shoes of the existing institution for purposes 
of determining eligibility for the one-time assessment credit, 
consistent with the proposed successor definition.
2. Definition of ``Successor''
    Many institutions that existed at the end of 1996 no longer exist. 
Some have disappeared through merger or consolidation. In fact, it 
appears that approximately 4,000 institutions that were in existence on 
December 31, 1996, have since combined with other institutions. In 
addition, 38 institutions have failed and no longer exist, while the 
FDIC has to date identified approximately 100 institutions that 
voluntarily relinquished Federal deposit insurance coverage or had 
their coverage terminated. The FDIC does not maintain complete records 
on sales of branches or blocks of deposits, but various sources suggest 
that at least 1,400 and possibly over 1,800 branch or deposit 
transactions have occurred since 1996.
    Section 7(e)(3)(F) of the FDI Act expressly charges the FDIC with 
defining ``successor'' by regulation for purposes of the one-time 
credit, and it provides the FDIC with broad discretion to do so. The 
Board may consider any factors it deems appropriate. The FDIC's 
proposed definition of ``successor'' reflected its consideration of 
what would be most consistent with the purpose of the one-time credit 
and what would be operationally viable. While a number of definitions 
of ``successor'' are possible in light of the discretion accorded the 
FDIC in defining the term, on balance, the FDIC concluded that the 
definition that focused on the institution and relied on traditional 
principles of corporate law was both more consistent with the purpose 
of the credit and more operationally viable.
    For a number of reasons (discussed more fully in the proposed 
rule), the FDIC proposed to define ``successor'' for purposes of the 
one-time credit as the resulting institution in a merger or 
consolidation occurring after December 31, 1996. As proposed, the 
definition would not include a purchase and assumption transaction, 
even if substantially all of the assets and liabilities of an 
institution were acquired by the assuming institution. However, the 
FDIC requested comment on whether to include in this definition a 
regulatory definition of a de facto merger to recognize that the 
results of some transactions, which are not technically or legally 
mergers or consolidations, may largely mirror the results of a merger 
or consolidation. The FDIC also requested comment on a definition that 
would link credits to deposits, sometimes referred to as a ``follow-
the-deposits'' approach.
    If there is no successor to an institution that would have been 
eligible for the one-time assessment credit before the effective date 
of the final rule, because an otherwise eligible institution ceased to 
be an insured depository institution before that date, then the FDIC 
proposed that that portion of the aggregate one-time credit amount be 
redistributed among the eligible institutions. On the other hand, if 
there is no successor to an eligible insured depository institution 
that ceases to exist after the Board issues the final rule and 
allocates the one-time assessment credit among eligible insured 
depository institutions, it is proposed that that institution's credits 
expire unused.

C. Notification of 1996 Assessment Base Ratio and Credit Amount

    Along with the publication of the proposed rule, the FDIC made 
available a searchable database provided through the FDIC's public Web 
site (http://www.fdic.gov) that shows each currently existing 
institution and its predecessors by merger or consolidation from 
January 1, 1997, onward, based on information contained in certified 
statements, AIMS, and the FDIC's Structure Information Management 
System (``SIMS'').\8\ The database included corresponding December 31, 
1996 assessment base

[[Page 61377]]

amounts for each institution and its predecessors and preliminary 
estimates of the amount of one-time credit that the existing 
institution would receive based on the proposed definition of 
successor.
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    \8\ SIMS maintains current and historical non-financial data for 
all institutions that is retrieved by AIMS to identify the current 
assessable universe for each quarterly assessment invoice cycle. 
SIMS offers institution-specific demographic data, including a 
complete set of information on merger or consolidation transactions. 
SIMS, however, does not contain complete information about deposit 
or branch sales.
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    The database could be searched by institution name or insurance 
certificate number to ascertain which current institution (if any) 
would be considered a successor to an institution that no longer 
exists. Institutions had the opportunity to review this information, 
but were advised that this preliminary estimate could change, for 
example, because of a change in the definition of ``successor'' adopted 
in the final rule or because of a change to the information available 
to the FDIC for determining successorship.
    As soon as practicable after the Board approves the final rule, the 
FDIC proposed to notify each insured depository institution of its 1996 
assessment base ratio and share of the one-time assessment credit. The 
notice would take the form of a Statement of One-Time Credit (or 
Statement): Informing every institution of its current, preliminary 
1996 assessment base ratio; itemizing the 1996 assessment bases to 
which the institution may now have claims pursuant to the successor 
rule based on existing successor information in the database; providing 
the preliminary amount of the institution's one-time credit based on 
that 1996 assessment base ratio as applied to the aggregate amount of 
the credit; and providing the explanation as to how ratios and 
resulting amounts were calculated generally. The FDIC proposed to 
provide the Statement of One-Time Credit through FDICconnect and by 
mail in accordance with existing practices for assessment invoices.

D. Requests for Review of Credit Amounts

    As noted above, the statute requires the FDIC's credit regulations 
to include provisions allowing an institution a reasonable opportunity 
to challenge administratively the amount of its one-time credit. The 
FDIC's determination of the amount following any such challenge is to 
be final and not subject to judicial review.
    The proposed rule largely paralleled the procedures for requesting 
revision of computation of a quarterly assessment payment as shown on 
the quarterly invoice with requests for review being considered by the 
Director of the Division of Finance and appeals of those decisions made 
to the FDIC's Assessment Appeals Committee (``AAC''). As with the 
notice of proposed rulemaking on assessment dividends,\9\ the FDIC 
proposed shorter timeframes in the credit process so that requests for 
review could be resolved to allow application of credits against 
upcoming assessments to the extent possible. The FDIC further proposed 
to freeze temporarily the allocation of the credit amount in dispute 
for institutions involved in a challenge until the challenge is 
resolved. After determination of the request for review or appeal, if 
filed, appropriate adjustments would be reflected in the next quarterly 
invoice.
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    \9\ 71 FR 22804 (May 18, 2006).
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E. Using Credits

    The FDIC proposed to track each institution's one-time credit 
amount and automatically apply an institution's credits to its 
assessment to the maximum extent allowed by law. For 2007 assessment 
periods, all credits available to an institution may be used to offset 
the institution's insurance assessment, subject to certain statutory 
limitations described below. For assessments that become due for 
assessment periods beginning in fiscal years 2008, 2009, and 2010, the 
FDI Act provides that credits may not be applied to more than 90 
percent of an institution's assessment.
    For an institution that exhibits financial, operational or 
compliance weaknesses ranging from moderately severe to unsatisfactory, 
or is not adequately capitalized at the beginning of an assessment 
period, the amount of any credit that may be applied against the 
institution's assessment for the period may not exceed the amount the 
institution would have been assessed had it been assessed at the 
average assessment rate for all institutions for the period. The FDIC 
proposed to interpret the phrase ``average assessment rate'' to mean 
the aggregate assessment charged all institutions in a period divided 
by the aggregate assessment base for that period.
    As described above, the FDIC further has the discretion to limit 
the application of the one-time credit when the FDIC establishes a 
restoration plan to restore the reserve ratio of the DIF to the range 
established for it.\10\
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    \10\ Section 2105 of the Reform Act, amending section 7(b)(3) of 
the FDI Act to establish a range for the reserve ratio of the DIF, 
will take effect on the date that final regulations implementing the 
legislation with respect to the designated reserve ratio become 
effective. Those regulations are required to be prescribed within 
270 days of enactment. Reform Act Section 2109(a)(1).
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    As the proposed rule recognized, credit amounts may not be used to 
pay FICO assessments pursuant to section 21(f) of the Federal Home Loan 
Bank Act, 12 U.S.C. 1441(f). The Reform Act does not affect the 
authority of FICO to impose and collect, with the approval of the 
FDIC's Board, assessments for anticipated interest payments, issuance 
costs, and custodial fees on obligations issued by FICO.

F. Transferring Credits

    In addition to the transfer of credits to successors, the FDIC 
proposed to allow transfer of credits and adjustments to 1996 
assessment base ratios by express agreement between insured depository 
institutions prior to the FDIC's final determination of an eligible 
insured depository institution's 1996 assessment base ratio and one-
time credit amount pursuant to these regulations. Under the proposal, 
the FDIC would require the institutions to submit a written agreement 
signed by legal representatives of the involved institutions. Upon the 
FDIC's receipt of the agreement, appropriate adjustments would be made 
to the institutions' affected one-time credit amounts and 1996 
assessment base ratios.
    Similarly, after an institution's credit share has been finally 
determined and no request for review is pending with respect to that 
credit amount, the FDIC proposed to recognize an agreement between 
insured depository institutions to transfer any portion of the one-time 
credit from the eligible institution to another institution. With 
respect to these transactions occurring after the final determination 
of each eligible institution's 1996 assessment base ratio and share of 
the one-time credit, the FDIC proposed not to adjust the transferring 
institution's 1996 assessment base ratio.

III. Comments on the Proposed Rule

    We received twenty-six comments on the proposed rule. Most of the 
comments focused to some extent on the definition of ``successor.''
    Five institutions and one trade association supported the proposed 
definition of successor, which relies on traditional principles of 
corporate law. Five institutions appeared to support including a de 
facto merger rule to recognize purchase and assumption transactions 
that may be viewed by some as the functional equivalent of a merger or 
consolidation. One institution emphasized that such a rule would have 
to be narrowly crafted. Four industry trade associations supported 
adding a de facto merger rule. Six institutions and a trade association 
commented in favor of a definition that would link credits to deposits, 
arguing that assessments are paid on deposits and rights and 
responsibilities associated

[[Page 61378]]

with those deposits transfer when they are sold. One institution raised 
the question of so-called stripped charters, where one institution 
might acquire the assets and liabilities of another, while a third 
institution would merely merge with the charter of the acquired 
institution.
    Two United States Senators filed a joint comment letter asking the 
FDIC to reexamine its definition of successor, expressing their concern 
that the proposed rule ``provides absolutely no opportunity for a bank 
that purchased deposits to receive credits for those deposits, whether 
deposits are easily traceable, or whether awarding credits to the 
selling bank would create a windfall for that selling bank and create a 
new free rider on the Fund.'' One institution requested that the FDIC 
reconsider the definitions of ``eligible insured depository 
institution'' and ``successor,'' as well as the redistribution of 
credits where no successor exists, to recognize the actual assessments 
paid before December 31, 1996, by institutions that no longer had the 
deposits on which those assessments were paid on December 31, 1996, the 
date established by the statute. A trade association commented that the 
time-frames for the request for review process should be extended to 
parallel those applicable to requests for review of assessments.
    Six letters suggested that the FDIC phase in the one-time credit 
and some suggested three approaches for phasing in the application of 
credits--allowing institutions to use fifty percent of credits against 
assessments; allowing institutions to use a certain number of basis 
points of credit to offset assessments in any one year; or implementing 
a graduated credit schedule to offset assessments. These commenters 
argued that the proposal to apply credits to quarterly assessments to 
the maximum extent allowed by law would disproportionately adversely 
affect institutions chartered since 1996. One trade association 
supported the proposed rule, under which the FDIC would automatically 
offset quarterly assessments with the maximum amount of credits 
available and allowed by law. Another trade association suggested that 
the FDIC allow institutions to elect to restrict the application of 
their credits to budget for future expected expenses.
    One institution took the position that credits should not expire 
unused if an institution terminated after the effective date of the 
final rule; rather, that institution recommended that any remaining 
credit from that institution be redistributed among all eligible 
institutions.
    One institution opposed allowing the transfer of credits except to 
successors. Two trade associations supported the transferability 
described in the proposed rule. A trade association also opined that it 
was critical that the accounting treatment of these credits be 
determined before the effective date of the final rule and further 
offered its opinion that credits should not be considered assets or 
income.
    All of the comment letters have been considered and are available 
on the FDIC's Web site, http://www.fdic.gov/regulations/laws/federal/propose.html.

IV. The Final Rule

    Upon considering the comments on the proposed rule, the FDIC is 
adopting the final rule. Under the final rule, the FDIC will rely on 
the 1996 assessment base figures as contained in AIMS in determining 
the aggregate amount of the one-time assessment credit and each 
institution's share of that aggregate amount; define ``successor'' as 
the resulting institution in a merger or consolidation, as well as the 
acquiring institution under a de facto rule; automatically apply each 
institution's credit against future assessments to the maximum extent 
allowed by the statute; and provide an appeals process for 
administrative challenges to individual institution's credit amounts 
that culminates in review by the AAC.

A. Eligible Insured Depository Institutions and Their Successors

    To be eligible to receive a share of the one-time assessment 
credit, an insured depository institution must have been in existence 
on December 31, 1996, and paid a deposit insurance assessment prior to 
that date or be a successor to such an institution. The statute, in 
essence, takes a snapshot of the industry as of year-end 1996, and uses 
that as a proxy to recognize the assessments that had been paid by some 
institutions to recapitalize the deposit insurance funds at that time. 
Because it is a proxy, there may not be perfect alignment between 
institutions that paid significant assessments over years and their 
credit amounts.
    As the comments reflect, the principal issue in this rulemaking has 
been the definition of ``successor.'' In the proposed rule, the FDIC 
proposed to define successor for purposes of the one-time credit as the 
resulting institution in a merger or consolidation occurring after 
December 31, 1996. We requested specific comment on whether to include 
in the definition of ``successor'' a regulatory definition of a de 
facto merger to recognize that the results of some transactions, which 
are not technically or legally mergers or consolidations, may largely 
mirror the results of a merger or consolidation. A number of approaches 
were possible, and the FDIC carefully considered the alternatives 
presented in the proposed rule and the comments on them. The final rule 
defines successor as (1) the resulting institution in a merger or 
consolidation or (2) as an insured depository institution that acquired 
part of another insured depository institution's 1996 assessment base 
ratio under a de facto rule, as described below.
    The FDIC believes this definition is consistent with the purpose of 
the one-time credit--that is, to recognize the contributions that 
certain institutions made to capitalize the Bank Insurance Fund and 
Savings Association Insurance Fund, now merged into the Deposit 
Insurance Fund. Thus, a resulting institution in a merger occurring 
after December 31, 1996, will be considered a successor to an eligible 
insured depository institution. This definition also is consistent with 
traditional principles of corporate law. 15 William Meade Fletcher et 
al., Fletcher Cyclopedia of the Law of Private Corporations Sec. Sec.  
7041-7100 (perm. ed., rev. vol. 1999).
    Under the statute, Congress has provided the FDIC with broad 
discretion to define ``successor'' considering any factors that the 
Board deems appropriate. Several commenters noted, and the Board 
recognizes, the consolidation of the industry, the numerous 
transactions that have occurred since 1996, and that parties would not 
have taken into account future credits when structuring transactions. 
Accordingly, under the final rule, ``successor'' is defined as the 
acquiring, assuming or resulting institution in a merger \11\ or the 
acquiring institution under a de facto rule. The de facto rule applies 
to any transaction in which an insured depository institution assumes 
substantially all of the deposit liabilities and acquires substantially 
all of the assets of any other insured depository institution.
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    \11\ The definition of merger in the final rule specifically 
excludes transactions in which an insured depository institution 
either directly or indirectly acquires the assets of, or assumes 
liability to pay any deposits made in, any other insured depository 
institution where there is not a legal merger or consolidation of 
the two insured depository institutions.
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    For these purposes, the FDIC considers an assumption and 
acquisition of at least 90 percent of the transferring institution's 
deposit liabilities and assets at the time of

[[Page 61379]]

transfer as substantially all of that institution's assets and deposit 
liabilities. Any successor institution qualifying under that threshold 
would be entitled to a pro rata share, based on the deposit liabilities 
assumed, of the transferring institution's remaining 1996 assessment 
base ratio at the time of the transfer.
    The FDIC recognizes that including a de facto rule in the 
definition of successor departs, to a certain extent, from the clear, 
bright line that a strictly applied merger definition would provide. 
However, in keeping with the comments we received in favor of defining 
mergers to include de facto mergers, the FDIC believes this approach is 
fairer than excluding de facto transactions from the definition of 
successor. It is also consistent with Congressional intent in giving 
the FDIC broad discretion to define successor institutions for purposes 
of the one-time assessment credit. As some commenters point out, the 
insurance fund benefited from certain of these transactions by avoiding 
failure of an insured depository institution and associated losses.
    The FDIC believes that the merger and consolidation approach for 
successor is the most consistent with the purpose of the one-time 
assessment credit; however, a strict merger definition would exclude 
certain transactions that are also consistent with the purpose of the 
one-time credit. A de facto rule recognizes that a transfer of at least 
90 percent of an institution's assets and deposit liabilities indicates 
a substantial divestiture of the transferring institution's business. 
We recognize some institutions that assumed deposit liabilities would 
not qualify, but a lower threshold would be less consistent with the 
purpose of the one-time credit in recognizing past contributions by 
institutions.
    Although the FDIC does not have records evidencing all transactions 
that would qualify under the de facto rule, we expect these situations 
to be limited and, as some commenters noted, the acquiring institutions 
in such transactions should be able to provide supporting documents to 
the FDIC. We note, however, that institutions will have thirty days 
from the effective date of the final rule to advise the FDIC if they 
disagree with the computation of the credit amount, or their claim will 
be barred. It is important to have a final determination regarding any 
de facto rule credit claims in order to determine the amounts 
institutions will be entitled to under the one-time assessment credit.
    Some commenters suggested a more expansive definition of successor 
up to and including the very inclusive ``follow the deposits.'' 
Ultimately, the FDIC believes, for the reasons stated below, that if 
the term ``successor'' were expanded to include deposit acquisitions 
other than through merger or under the de facto rule, it would become 
very difficult to distinguish on a principled basis who should be 
included and who should be excluded, and that a ``follow-the-deposits'' 
approach which brings with it a potentially large administrative 
complication is incompatible with the need to timely and efficiently 
administer the credit.
    As noted above, the FDIC has significant discretion under the 
statute to define ``successor'' for these purposes, and a single, 
clear, easily administered Federal standard is essential to allow the 
FDIC to implement and administer the one-time credit requirement in a 
timely and efficient manner. As one trade association wrote, 
institutions on ``opposite sides of deposit sales transactions * * * 
have strong and legitimate arguments for why they would be the 
successor.'' In contrast, if a ``follow-the-deposits'' approach were 
adopted, because the aggregate one-time assessment credit is a finite 
pool, disputes over credits resulting from deposit/branch purchases 
would have to be identified and to some extent resolved before the 
universe of eligible insured depository institutions could even be 
identified, which is essential to determining each institution's share 
based on its 1996 assessment base as adjusted for successorship. Under 
that scenario, until the 1996 assessment base for all eligible 
institutions was finalized, use of credits could be delayed and 
administration would be complicated. Record deposit growth could 
further complicate these determinations because, in addition to tracing 
deposits sometimes through numerous transactions, the FDIC might need 
to account for deposit growth over time attributable to the 
transferring deposits. One of the trade groups that supports the 
``follow the deposits'' approach acknowledged that `` `following the 
deposits' significantly complicates the FDIC's job of allocating the 
credit * * *.''
    Some commenters suggest that the merger rule ``discriminates'' and 
``arbitrarily places institutions which acquired deposits through asset 
acquisition at a competitive disadvantage based merely on the method by 
which they acquired deposits.'' The FDIC disagrees with that 
characterization. The adopted definition recognizes past payments made 
by depository institutions to build the insurance funds. By providing 
the credit to depository institutions that actually paid the 
assessments or the institution resulting from their merger or 
consolidation into another insured institution, the final rule ensures 
that credits are awarded to the entity that bore the financial burden 
of recapitalizing the funds, either by directly paying into the funds 
or acquiring the institutions that did. Similarly, a successor under 
the de facto rule may be viewed as acquiring substantially all of the 
business of the transferring institution.
    Some commenters that would benefit from a ``follow the deposits'' 
approach argue that the adopted definition of ``successor'' is not 
consistent with congressional intent. Contrary to the contention of 
some commenters, Congress's broad delegation of authority to the FDIC 
to define ``successor'' does not evidence Congressional intent either 
to expand or contract the group of qualified institutions. Rather, the 
broad delegation ensured that the FDIC could consider the full range of 
facts and circumstances in developing a definition of successor--which 
we have done.
    The adopted definition is well within the broad discretion Congress 
gave the FDIC to implement the statute and with our understanding of 
the intent. The statute uses the term ``eligible insured depository 
institution'' and defines it to include those that paid assessments 
prior to December 31, 1996. The legislative history is replete with 
statements indicating that credits were intended to recognize those 
institutions that recapitalized the funds. In testimony before 
Congress, then-Chairman Powell stated, ``Institutions that never paid 
premiums would receive no assessment credit.'' Testimony of Chairman 
Powell before the Senate Committee on Banking, Housing and Urban 
Affairs (April 23, 2002); see also Testimony of Chairman Powell before 
the House Financial Services Committee (October 17, 2001) (indicating 
that an acquiring institution would get credit for past assessments 
paid by the acquired institution). In a statement before the House, one 
of the co-sponsors of the legislation stated, ``We have reforms in this 
bill that compensate banks for the adverse effect of these so-called 
free riders. We give transition assessment credits, recognizing the 
contribution of those banks to the insurance reserves that they made 
during the early and mid-1990s, and those credits will offset future 
premiums for all but the newest and the most recent new institutions 
and also

[[Page 61380]]

those fast-growing institutions.'' Statement of Rep. Spencer Bachus, 
148 Cong. Rec. H 2799 (daily ed. May 21, 2002). Also in a statement 
before the House, another co-sponsor of the legislation stated, ``The 
bill includes a mechanism for determining credits for past 
contributions to the insurance funds * * *. This is a very, very 
important provision as a matter of fairness to institutions that 
recapitalized the funds.'' Statement of Rep. Carolyn Maloney, 151 Cong. 
Rec. 2019, at 8-9 (2005).
    The successor definition adopted in this rule responds to comments 
supportive of a de facto merger rule by providing an opportunity for an 
acquirer of all or substantially all deposits to share in the credit 
for those deposits, absent a merger or consolidation.
    As indicated in the proposed rule, if there is no successor to an 
institution that would have been eligible for the one-time assessment 
credit before the effective date of the final rule, because an 
otherwise eligible institution ceased to be an insured depository 
institution before that date, then that portion of the aggregate one-
time credit amount will be redistributed among the eligible 
institutions. On the other hand, if there is no successor to an 
eligible insured depository institution that ceases to exist after the 
effective date of the final rule, that institution's credits will 
expire unused.

B. Notice of Credit Amount

    As soon as practicable after the publication date of the final 
rule, the FDIC will notify each insured depository institution of its 
1996 assessment base ratio and preliminary determination of its share 
of the one-time assessment credit, based on the information derived 
from its official system of records (AIMS). The Statement of One-Time 
Credit: Will inform each institution of its current, preliminary 1996 
assessment base ratio; itemize the 1996 assessment bases to which the 
institution is believed to have claims pursuant to the definition of 
successor; provide the preliminary amount of the institution's one-time 
credit based on the institution's 1996 assessment base ratio as applied 
to the aggregate amount of the credit; and explain how the ratios and 
resulting amounts were calculated generally. The FDIC will provide the 
Statement through FDICconnect and by mail in accordance with existing 
practices for assessment invoices.
    After the initial notification by the Statement described above, 
periodic updated notices will be provided to reflect the adjustments 
that may be made up or down as a result of requests for review of 
credit amounts, as well as subsequent adjustments reflecting the 
application of credits to assessments and any appropriate adjustment to 
an institution's 1996 assessment base ratio due to a subsequent merger 
or consolidation. If the FDIC's responses to individual institutions' 
requests for review of their initial credit amount are not finalized 
prior to the invoices for collection of assessments for the first 
calendar quarter of 2007, the FDIC will freeze the credit amounts in 
dispute while making any credits not in dispute available for use. From 
that point on, an individual institution's credit share might increase, 
but it should not generally decrease except when its credits are used 
or transferred.
    Adjustments to credits would be included with each quarterly 
assessment invoice until an institution's credits have been exhausted. 
The initial Statement and any subsequent updates notices or assessment 
invoices advising of an adjustment to the assessment base ratio would 
also advise institutions of their right to challenge the calculation 
and the procedures to follow.

C. Requests for Review Involving Credits

    Within 30 days from the effective date of the final rule (or an 
adjusted invoice), an institution may request review if--
    (1) It disagrees with the FDIC's determination of eligibility or 
ineligibility for the credit;
    (2) It disagrees with the computation of the credit amount on the 
initial Statement or any subsequent invoice; or
    (3) It believes that the Statement, an updated notice, or a 
subsequently updated invoice does not fully or accurately reflect 
appropriate adjustments to the institution's 1996 assessment base 
ratio.
    One commenter requested that this time frame be extended to 
parallel the assessment appeals process. Because institutions have had 
access to the online search tool since May, the FDIC does not believe 
the 30-day deadline for requests for review will be overly burdensome. 
In addition, compressing the schedule for reviews is necessary to 
resolve as many requests as possible before the collection of 
assessments for the first calendar quarter of 2007, thereby allowing 
most institutions to offset those assessments with available credits.
    The request for review must be filed with the Division of Finance 
and be accompanied by any documentation supporting the institution's 
claim. If an institution does not submit a timely request for review, 
the institution is barred from subsequently requesting review of its 
one-time assessment credit amount.
    In addition, the requesting institution must 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 and 
supporting documentation, as well as the FDIC's procedures for these 
requests for review. In addition, the FDIC will also make reasonable 
efforts, based on its official systems of records, to determine that 
such institutions have been identified and notified. These institutions 
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. If an institution identified and notified 
through this process does not submit a timely response, that 
institution would be: (1) Foreclosed from subsequently disputing the 
information submitted by any other institution on the transaction(s) at 
issue in the review process; and (2) foreclosed from any appeal of the 
decision by the Director of the Division of Finance (discussed below).
    Upon receipt of a request for review or a response from a 
potentially affected institution, the FDIC also may request additional 
information as part of its review and require the institution to supply 
that information within 21 days of the date of the FDIC's request for 
additional information. The FDIC will freeze temporarily the amount of 
the proposed credit in controversy for the institutions involved in the 
request for review until the request is resolved.
    The final rule requires a written response from the FDIC's Director 
of the Division of Finance (Director), or his or her designee, which 
notifies the requesting institution and any materially affected 
institutions of the determination of the Director as to whether the 
requested change is warranted, whenever feasible: (1) Within 60 days of 
receipt by the FDIC of the request for revision; (2) if additional 
institutions have been notified by the FDIC, within 60 days of the last 
response; or (3) if additional information has been requested by the 
FDIC, within 60 days of receipt of any additional information due to 
such request, whichever is later.
    The requesting institution, or an institution materially affected 
by the Director's decision, that disagrees with that decision may 
appeal its credit determination to the AAC. The final rule extends the 
time for filing an appeal; an appeal to the AAC must be

[[Page 61381]]

filed within 30 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 will 
be final and not subject to judicial review.
    As noted in the proposed rule, the FDIC believes that a number of 
challenges may arise in connection with the distribution of the one-
time assessment credit, in large part because many transactions 
occurred after 1996 and before the Reform Act provided for a one-time 
credit, and because this will be the first time that an institution's 
1996 assessment base ratio is calculated. Once those challenges are 
resolved, and each institution's 1996 assessment base ratio for 
purposes of its one-time credit share is established, unforeseen 
circumstances or issues may lead to other challenges of credit share, 
and administrative procedures will remain in place to address those 
challenges.
    Once the Director or the AAC, as appropriate, has made the final 
determination, the FDIC will make appropriate adjustments to credit 
amounts or shares consistent with that determination and 
correspondingly update each affected institution's next invoice. 
Adjustments to credit amounts will not be applied retroactively to 
reduce or increase prior period assessments.

D. Application or Use of Credits

    The one-time assessment credits offset the collection of deposit 
insurance assessments beginning with the collection of assessments for 
the first assessment period of 2007. Under the final rule, the FDIC 
will track each institution's one-time credits and automatically apply 
them to that institution's assessment to the maximum extent allowed by 
law. For 2007 assessment periods, all credits available to an 
institution may be used to offset the institution's insurance 
assessment, subject to certain statutory limitations described below. 
For the following three years (2008, 2009, and 2010), the final rule, 
consistent with the statute, provides that credits may not be applied 
to more than 90 percent of an institution's assessment. Assuming that 
an institution has sufficient credits, those credits will automatically 
apply to 90 percent of that institution's assessment, subject to the 
two other statutory limitations on usage.\12\
---------------------------------------------------------------------------

    \12\ However, this rule will not affect or apply to deposit 
insurance assessment adjustments for assessment periods beginning 
before 2007 when these adjustments are made prior to the assessments 
imposed prior to the effective date of this rule.
---------------------------------------------------------------------------

    By statute, for an institution that exhibits financial, 
operational, or compliance weaknesses ranging from moderately severe to 
unsatisfactory, or is not adequately capitalized at the beginning of an 
assessment period, the amount of any credit that may be applied against 
that institution's assessment for the period may not exceed the amount 
the institution would have been assessed had it been assessed at the 
average assessment rate for all institutions for the period. The final 
rule interprets ``average assessment rate'' to mean the aggregate 
assessment charged all institutions in a period divided by the 
aggregate assessment base for that period.
    The final statutory limit on the use of credits may be imposed by 
the FDIC in a restoration plan when the reserve ratio falls below 1.15 
percent of estimated insured deposits. The FDIC's discretion to limit 
the use of credits during that period is, however, circumscribed by the 
statute. During the time that a restoration plan is in effect, the FDIC 
may elect to limit the use of credits, but an institution with credits 
could apply them against any assessment imposed on an institution for 
any assessment period in an amount equal to the lesser of (1) the 
amount of the assessment, or (2) the amount equal to three basis points 
of the institution's assessment base.
    Five letters on behalf of de novo institutions suggest that the 
FDIC should phase in the use of credits or allow credits to offset 
assessments only on a graduated scale--that is, the FDIC should, in 
some manner, further limit the use of credits over the next few years. 
These commenters argue that, if the credit regulation is implemented as 
proposed, ``it would have an immediate negative impact on rates paid on 
consumer savings accounts by new growth institutions because they will 
be required to bear the burden on the cost of deposit insurance not 
just for their own institution, but also for utilizing assessment 
credits.'' In the FDIC's view, any such impact would be short-term. 
Moreover, the purpose of the credits, as previously discussed, is to 
recognize past payments by depository institutions to build the fund, 
so, by definition, institutions that did not pay assessments will be 
treated differently. As these commenters acknowledge, the proposal to 
apply credits against assessments to the maximum extent allowed by law 
is easily understood and simple to administer. In addition, the better 
reading of the statute indicates that there was no congressional intent 
to allow the FDIC to restrict further the use of credits, except in 
specifically enumerated circumstances. The FDI Act, as amended by the 
Reform Act, requires the FDIC to apply credit amounts to future 
assessments, mandates certain limits on the use of credits at specific 
times or in specific circumstances, and expressly provides the FDIC 
with the discretion to restrict the use of credits only during a 
restoration plan and only to a limited extent. This reading of the 
statute is more consistent with the intent of the one-time credit (also 
referred to as a ``transitional credit'' in the Conference Report on 
the legislation \13\), which, as noted above, was to recognize the 
contributions of certain institutions to capitalize the DIF.
---------------------------------------------------------------------------

    \13\ See H.R. Rep. No. 109-362, at 197 (2005).
---------------------------------------------------------------------------

    One commenter recommended that institutions be allowed to adjust 
their use of credits to budget for future expected expenses, so that if 
assessments climb significantly higher than the proposed base rates, 
institutions could choose to pay smaller assessments over time rather 
than large assessments all at once as credits are completely exhausted. 
The Board believes this flexibility in using credits would be 
undesirable because of its potential operational complexities for the 
FDIC. More importantly, the one-time credit is not interest bearing; 
therefore, application of the credit against an institution's future 
assessments other than to the maximum extent allowed consistent with 
the limitations in the FDI Act will reduce the economic benefit of the 
credit to the institution.
    In response to the comment on the characterization of credits for 
accounting purposes, the FDIC concurs that the determination and 
allocation of the one-time assessment credit to eligible insured 
depository institutions does not result in the recognition of an asset 
or income by these institutions, for accounting purposes. The FDIC does 
not believe that the one-time credit meets the characteristics of an 
asset described in Statement of Financial Accounting Concepts No. 6,  
Elements of Financial Statements. In this regard, the reduction in an 
institution's future insurance assessment payments from the application 
of the one-time credit does not represent a cash inflow to the 
institution, but rather represents contingent future relief from future 
cash outflows. The timing and ultimate recoverability of the one-time 
credit is not completely within the control of an eligible institution 
and no transaction or other event will have occurred at the date when 
the FDIC notifies the institution of the amount of its credit

[[Page 61382]]

that gives rise to the institution's right to or control of the 
benefit. The benefit is contingent on a future event, the payment of 
future insurance assessments. Moreover, the amount of benefit to an 
institution is dependent on the assessment rates charged by the FDIC 
and the applicability of the statutory restrictions on the use of the 
one-time credit, which is not interest-bearing.
    Credit amounts may not be used to pay FICO assessments.\14\ The 
Reform Act does not affect the authority of FICO to impose and collect, 
with the approval of the FDIC's Board, assessments for anticipated 
interest payments, issuance costs, and custodial fees on obligations 
issued by FICO.
---------------------------------------------------------------------------

    \14\ See section 21(f) of the Federal Home Loan Bank Act, 12 
U.S.C. 1441(f).
---------------------------------------------------------------------------

E. Transfer of Credits

    In addition to the transfer of credits to successors, the final 
rule allows transfers of credits and adjustments to 1996 assessment 
base ratios by express agreement between insured depository 
institutions prior to the FDIC's final determination of an eligible 
insured depository institution's 1996 assessment base ratio and one-
time credit amount pursuant to this final rule. While the statute does 
not expressly address transferability, the final rule recognizes that 
it is possible that such agreements might already be part of deposit 
transfer contracts drafted in anticipation of deposit insurance reform 
legislation, which was pending in Congress over several years. 
Alternatively, institutions involved in a dispute over successorship, 
their 1996 assessment base ratio, and their shares of the one-time 
credit might reach a settlement over the disposition of the one-time 
credit. Given the FDIC's role in administering credits, it is most 
efficient to allow the FDIC to recognize these contractual provisions 
or settlements. In either case, for the FDIC to recognize the transfer, 
the final rule requires the institutions to notify the FDIC and submit 
a written agreement signed by legal representatives of the involved 
institutions. The agreement must include documentation that each 
representative has the legal authority to bind the institution. Upon 
the FDIC's receipt of the agreement, appropriate adjustments will be 
made to the institutions' affected one-time credit amounts and 1996 
assessment base ratios. These adjustments will be reflected with the 
next quarterly assessment invoice, so long as the institutions submit 
the written agreement at least 10 days prior to the FDIC's issuance of 
the next invoices.
    Similarly, after an institution's credit share has been finally 
determined and no request for review is pending with respect to that 
credit amount, the FDIC will recognize an agreement between insured 
depository institutions to transfer any portion of the one-time credit 
from an eligible institution to another institution. Nothing in the 
statute suggests that such transfers are precluded. In addition, no 
compelling reasons to prevent such transfers have been raised by the 
commenters. Because credits do not earn interest, there may be some 
interest among eligible insured depository institutions to sell credits 
that could not otherwise be used promptly. The same rules for 
notification to the FDIC and adjustments to invoices would apply as 
under the prior discussion, except that the FDIC will not adjust 
institutions' 1996 assessment base ratios. Except as provided in the 
preceding paragraph, adjustments to 1996 ratios will be made only to 
reflect mergers or consolidations occurring after the effective date of 
these regulations.

V. Regulatory Analysis and Procedure

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. 6801 et 
seq., requires the Federal banking agencies to use plain language in 
all proposed and final rules published after January 1, 2000. The 
proposed rule requested comments on how the rule might be changed to 
reflect the requirements of GLBA. No GLBA comments were received.

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
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 flexibility 
analysis of the proposal and publish the analysis for comment. See 
U.S.C. 603-605. Certain types of rules, such as rules of particular 
applicability relating to rates or corporate or financial structures, 
or practices relating to such rates or structures, are expressly 
excluded from the definition of ``rule'' for purposes of the RFA. 5 
U.S.C. 601. The one-time assessment credit rule relates directly to the 
rates imposed on insured depository institutions for deposit insurance, 
as they will offset future deposit insurance assessments. Nonetheless, 
the FDIC has voluntarily undertaken an initial and final regulatory 
flexibility analysis of the final rule.
    Pursuant to 5 U.S.C. 605(b), the FDIC certifies that the final rule 
will not have a significant economic impact on a substantial number of 
small businesses within the meaning of the RFA. No comments on this 
issue were received. The final rule affects all ``eligible'' insured 
depository institutions. Of the approximately 8,790 insured depository 
institutions as of June 30, 2006, approximately 5,269 institutions fell 
within the definition of ``small entity'' in the RFA--that is, having 
total assets of no more than $165 million. Approximately 4,280 small 
institutions appear to be eligible for the one-time credit under the 
FDI Act definition of ``eligible insured depository institution.'' 
These institutions would have approximately $239 million in one-time 
credits out of a total of approximately $4.7 billion in one-time 
credits, given the FDI Act definition of ``eligible insured depository 
institution'' and the definition of ``successor'' in this 
rulemaking.\15\ These one-time credits represent approximately 9.5 
basis points of the combined assessment base of eligible small 
institutions as of June 30, 2006. Assuming, for purposes of 
illustration, that small institutions were charged an average annual 
assessment rate of 2 basis points, these one-time credits would last, 
on average, approximately 4.75 years. Clearly, if small institutions 
are charged a higher average annual assessment rate, given the final 
rule's requirement that credits be applied to assessment payments to 
the maximum extent allowed by law, the one-time credits would not last 
as long. Not all small institutions will benefit from one-time credits. 
New institutions, in particular, will not have credits unless they are 
a successor to an eligible institution or have purchased them. Most 
small, eligible institutions, however, would benefit to some extent 
from the final rule.
---------------------------------------------------------------------------

    \15\ The present value of these one-time credits depends upon 
when they are used, which in turn depends on the assessment rates 
charged. The one-time credits do not earn interest; therefore, the 
higher the assessment rate charged--and the faster credits are 
used--the greater their present value. These one-time assessment 
credits are transferable, which could increase their present value.
---------------------------------------------------------------------------

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.), the FDIC may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid Office of Management and Budget (OMB) control number. 
The information collection

[[Page 61383]]

occurs when an institution participates in a transaction that results 
in the transfer of one-time credits or an institution's 1996 assessment 
base, as permitted under the final rule, and seeks the FDIC's 
recognition of that transfer. Institutions are required to notify the 
FDIC of these transactions so that the FDIC can accurately track the 
transfer of credits, apply available credits appropriately against 
institutions' deposit insurance assessments, and determine an 
institution's 1996 assessment base if the transaction involved both the 
base and the credit amount. The need for credit transfer information 
will expire when the credit pool has been exhausted. Moreover, it is 
expected that most transactions will occur during the first year.
    The FDIC solicited public comment on this information collection in 
accordance with 44 U.S.C. 3506(c)(2)(B). No comments were received on 
this information collection. The FDIC also submitted the information 
collection to OMB for review in accordance with 44 U.S.C. 3507(d). The 
OMB has approved the information collection under control number 3065-
0151.
    Respondents: Insured depository institutions.
    Frequency of response: Occasional.
    Annual burden estimate:
    Number of responses: 200-500 during the first year with fewer than 
10 per year thereafter.
    Average number of hours to prepare a response: 2 hours.
    Total annual burden: 400-1,000 hours the first year, and fewer than 
100 hours thereafter.

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

    The FDIC has determined that the final 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).

Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the Government 
Accountability Office so that the final rule may be reviewed.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

Authority and Issuance

0
For the reasons set forth in the preamble, the FDIC is amending chapter 
III of title 12 of the Code of Federal Regulations as follows:
0
1. Revise subpart B, consisting of Sec. Sec.  327.30 through 327.36, to 
read as follows:

PART 327--ASSESSMENTS

Subpart B--Implementation of One-Time Assessment Credit
Sec.
327.30 Purpose and scope.
327.31 Definitions.
327.32 Determination of aggregate credit amount.
327.33 Determination of eligible institution's credit amount.
327.34 Transferability of credits.
327.35 Application of credits.
327.36 Requests for review of credit amount.

Subpart B--Implementation of One-Time Assessment Credit

    Authority: 12 U.S.C. 1817(e)(3).


Sec.  327.30  Purpose and scope.

    (a) Scope. This subpart B of part 327 implements the one-time 
assessment credit required by section 7(e)(3) of the Federal Deposit 
Insurance Act, 12 U.S.C. 1817(e)(3) and applies to insured depository 
institutions.
    (b) Purpose. This subpart B of part 327 sets forth the rules for:
    (1) Determination of the aggregate amount of the one-time credit;
    (2) Identification of eligible insured depository institutions;
    (3) Determination of the amount of each eligible institution's 
December 31, 1996 assessment base ratio and one-time credit;
    (4) Transferability of credit amounts among insured depository 
institutions;
    (5) Application of such credit amounts against assessments; and
    (6) An institution's request for review of the FDIC's determination 
of a credit amount.


Sec.  327.31  Definitions.

    For purposes of this subpart and subpart C:
    (a) The average assessment rate for any assessment period means the 
aggregate assessment charged all insured depository institutions for 
that period divided by the aggregate assessment base for that period.
    (b) Board means the Board of Directors of the FDIC.
    (c) De facto rule means any transaction in which an insured 
depository institution assumes substantially all of the deposit 
liabilities and acquires substantially all of the assets of any other 
insured depository institution at the time of the transaction.
    (d) An eligible insured depository institution:
    (1) Means an insured depository institution that:
    (i) Was in existence on December 31, 1996, and paid a deposit 
insurance assessment before December 31, 1996; or
    (ii) Is a successor to an insured depository institution referred 
to in paragraph (d)(1)(i) of this section; and
    (2) does not include an institution if its insured status has 
terminated as of or after the effective date of this regulation.
    (e) Merger means any transaction in which an insured depository 
institution merges or consolidates with any other insured depository 
institution. Notwithstanding part 303, subpart D, for purposes of this 
subpart B and subpart C of this part, merger does not include 
transactions in which an insured depository institution either directly 
or indirectly acquires the assets of, or assumes liability to pay any 
deposits made in, any other insured depository institution, but there 
is not a legal merger or consolidation of the two insured depository 
institutions.
    (f) Resulting institution refers to the acquiring, assuming, or 
resulting institution in a merger.
    (g) Successor means a resulting institution or an insured 
depository institution that acquired part of another insured depository 
institution's 1996 assessment base ratio under paragraph 327.33(c) of 
this subpart under the de facto rule.


Sec.  327.32  Determination of aggregate credit amount.

    The aggregate amount of the one-time credit shall equal 
$4,707,580,238.19.


Sec.  327.33  Determination of eligible institution's credit amount.

    (a) Subject to paragraph (c) of this section, allocation of the 
one-time credit shall be based on each eligible insured depository 
institution's 1996 assessment base ratio.
    (b) Subject to paragraph (c) of this section, an eligible insured 
depository institution's 1996 assessment base ratio shall consist of:
    (1) Its assessment base as of December 31, 1996 (adjusted as 
appropriate to reflect the assessment base of December 31, 1996, of all 
institutions for which it is the successor), as the numerator; and

[[Page 61384]]

    (2) The combined aggregate assessment bases of all eligible insured 
depository institutions, including any successor institutions, as of 
December 31, 1996, as the denominator.
    (c) If an insured depository institution is a successor to an 
eligible insured depository institution under the de facto rule, as 
defined in paragraph 327.31(c) of this subpart, the successor and the 
eligible insured depository institution will divide the eligible 
insured depository institution's 1996 assessment base ratio pro rata, 
based on the deposit liabilities assumed in the transaction. In any 
subsequent transaction involving an insured depository institution that 
previously engaged in a transaction to which the de facto rule applied, 
the insured depository institution may not be deemed to have 
transferred more than its remaining 1996 assessment base ratio. If the 
transferring institution is no longer an insured depository institution 
after the transfer, the last successor will acquire the transferring 
institution's remaining 1996 assessment base ratio.


Sec.  327.34  Transferability of credits.

    (a) Any remaining amount of the one-time assessment credit and the 
associated 1996 assessment base ratio shall transfer to a successor of 
an eligible insured depository institution.
    (b) Prior to the final determination of its 1996 assessment base 
and one-time assessment credit amount by the FDIC, an eligible insured 
depository institution may enter into an agreement to transfer any 
portion of such institution's one-time credit amount and 1996 
assessment base ratio to another insured depository institution. The 
parties to the agreement shall notify the FDIC's Division of Finance 
and submit a written agreement, signed by legal representatives of both 
institutions. The parties must include documentation stating that each 
representative has the legal authority to bind the institution. The 
adjustment to credit amount and the associated 1996 assessment base 
ratio shall be made in the next assessment invoice that is sent at 
least 10 days after the FDIC's receipt of the written agreement.
    (c) An eligible insured depository institution may enter into an 
agreement after the final determination of its 1996 assessment base 
ratio and one-time credit amount by the FDIC to transfer any portion of 
such institution's one-time credit amount to another insured depository 
institution. The parties to the agreement shall notify the FDIC's 
Division of Finance and submit a written agreement, signed by legal 
representatives of both institutions. The parties must include 
documentation stating that each representative has the legal authority 
to bind the institution. The adjustment to the credit amount shall be 
made in the next assessment invoice that is sent at least 10 days after 
the FDIC's receipt of the written agreement.


Sec.  327.35  Application of credits.

    (a) Subject to the limitations in paragraph (b) of this section, 
the amount of an eligible insured depository institution's one-time 
credit shall be applied to the maximum extent allowable by law against 
that institution's quarterly assessment payment under subpart A of this 
part, until the institution's credit is exhausted.
    (b) The following limitations shall apply to the application of the 
credit against assessment payments.
    (1) For assessments that become due for assessment periods 
beginning in calendar years 2008, 2009, and 2010, the credit may not be 
applied to more than 90 percent of the quarterly assessment.
    (2) For an insured depository institution that exhibits financial, 
operational, or compliance weaknesses ranging from moderately severe to 
unsatisfactory, or is not at least adequately capitalized (as defined 
pursuant to section 38 of the Federal Deposit Insurance Act) at the 
beginning of an assessment period, the amount of the credit that may be 
applied against the institution's quarterly assessment for that period 
shall not exceed the amount that the institution would have been 
assessed if it had been assessed at the average assessment rate for all 
insured institutions for that period. The FDIC shall determine the 
average assessment rate for an assessment period based upon its best 
estimate of the average rate for the period. The estimate shall be made 
using the best information available, but shall be made no earlier than 
30 days and no later than 20 days prior to the payment due date for the 
period.
    (3) If the FDIC has established a restoration plan pursuant to 
section 7(b)(3)(E) of the Federal Deposit Insurance Act, the FDIC may 
elect to restrict the application of credit amounts, in any assessment 
period, up to the lesser of:
    (i) The amount of an insured depository institution's assessment 
for that period; or
    (ii) The amount equal to 3 basis points of the institution's 
assessment base.


Sec.  327.36  Requests for review of credit amount.

    (a)(1) As soon as practicable after the publication date of this 
rule, the FDIC shall notify each insured depository institution by 
FDICconnect or mail of its 1996 assessment base ratio and credit amount 
in a Statement of One-Time Credit (``Statement''), if any. An insured 
depository institution may submit a request for review of the FDIC's 
determination of the institution's 1996 assessment base ratio or credit 
amount as shown on the Statement within 30 days after the effective 
date of this rule. Such review may be requested if:
    (i) The institution disagrees with a determination as to 
eligibility for the credit that relates to that institution's credit 
amount;
    (ii) The institution disagrees with the calculation of the credit 
as stated on the Statement; or
    (iii) The institution believes that the 1996 assessment base ratio 
attributed to the institution on the Statement does not fully or 
accurately reflect its own 1996 assessment base or appropriate 
adjustments for successors.
    (2) If an institution does not submit a timely request for review, 
that institution is barred from subsequently requesting review of its 
credit amount, subject to paragraph (e) of this section.
    (b)(1) An insured depository institution may submit a request for 
review of the FDIC's adjustment to the credit amount in a quarterly 
invoice within 30 days of the date on which the FDIC provides the 
invoice. Such review may be requested if:
    (i) The institution disagrees with the calculation of the credit as 
stated on the invoice; or
    (ii) The institution believes that the 1996 assessment base ratio 
attributed to the institution due to the adjustment to the invoice does 
not fully or accurately reflect appropriate adjustments for successors 
since the last quarterly invoice.
    (2) If an institution does not submit a timely request for review, 
that institution is barred from subsequently requesting review of its 
credit amount, subject to paragraph (e) of this section.
    (c) 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. 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. In addition, the FDIC also shall make reasonable efforts, 
based on its official systems of records, to

[[Page 61385]]

determine that such institutions have been identified and notified.
    (d) During the FDIC's consideration of the request for review, the 
amount of credit in dispute shall not be available for use by any 
institution.
    (e) Within 30 days of being notified 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 (c) does not submit a response to the 
request for review, that institution may not:
    (1) Subsequently dispute the information submitted by other 
institutions on the transaction(s) at issue in the review process; or
    (2) Appeal the decision by the Director of the Division of Finance.
    (f) 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.
    (g) Any institution submitting a timely request for review will 
receive a written response from the FDIC's Director of the Division of 
Finance, (or his or her designee), notifying the requesting and 
affected institutions of the determination of the Director as to 
whether the requested change is warranted. Notice of the procedures 
applicable to appeals under paragraph (h) of this section will be 
included with the Director's written determination. Whenever feasible, 
the FDIC will provide the institution with the aforesaid written 
response the later of:
    (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.
    (h) Subject to paragraph (e) of this section, the insured 
depository institution that requested review under this section, or an 
insured depository institution materially affected by the Director's 
determination, that disagrees with that determination may appeal 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 30 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.
    (i) Any adjustment to an institution's credits resulting from a 
determination by the Director of the FDIC's Assessment Appeals 
Committee shall be reflected in the institution's next assessment 
invoice. The adjustment to credits shall affect future assessments only 
and shall not result in a retroactive adjustment of assessment amounts 
owed for prior periods.

    Dated at Washington, DC, this 10th day of October, 2006.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E6-17305 Filed 10-17-06; 8:45 am]
BILLING CODE 6714-01-P