[Federal Register Volume 73, Number 232 (Tuesday, December 2, 2008)]
[Rules and Regulations]
[Pages 73158-73165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28405]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD27


Assessment Dividends

AGENCY: Federal Deposit Insurance Corporation (``FDIC'').

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule to implement the assessment 
dividend requirements in the Federal Deposit Insurance Reform Act of 
2005 (the Reform Act) and the Federal Deposit Insurance Reform 
Conforming Amendments Act of 2005 (the Amendments Act). The final rule 
will take effect on January 1, 2009. It is the follow-up to the 
temporary final rule on assessment dividends that the FDIC issued in 
October 2006, which expires on December 31, 2008.

DATES: Effective Date: January 1, 2009.

FOR FURTHER INFORMATION CONTACT: Munsell W. St.Clair, Chief, Banking 
and Regulatory Policy Section, Division of Insurance and Research, 
(202) 898-8967; Missy Craig, Senior Program Analyst, Division of 
Insurance and Research, (202) 898-8724; Donna Saulnier, Manager, 
Assessment Policy Section, Division of Finance, (703) 562-6167; Joseph 
A. DiNuzzo, Counsel, Legal Division, (202) 898-7349; or Sheikha Kapoor, 
Senior Attorney, Legal Division, (202) 898-3960.

SUPPLEMENTARY INFORMATION:

I. Background

A. Reform Act Requirements

    Section 7(e)(2) of the Federal Deposit Insurance Act (the FDI Act), 
as amended by the Reform Act, requires the FDIC, under most 
circumstances, to declare dividends from the Deposit Insurance Fund 
(the fund or the DIF) when the DIF reserve ratio (the Reserve Ratio) at 
the end of a calendar year equals or exceeds 1.35 percent. When the 
Reserve Ratio equals or exceeds 1.35 percent, and is not higher than 
1.50 percent, the FDIC generally must 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. The FDIC Board of Directors (the Board) may suspend or 
limit dividends to be paid, however, if it determines in writing, after 
taking a number of statutory factors into account, that: \1\
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    \1\ The statutory factors that the Board must consider are:
    1. National and regional conditions and their impact on insured 
depository institutions;
    2. Potential problems affecting insured depository institutions 
or a specific group or type of depository institution;
    3. The degree to which the contingent liability of the 
Corporation for anticipated failures of insured institutions 
adequately addresses concerns over funding levels in the Deposit 
Insurance Fund; and
    4. Any other factors that the Board determines are appropriate.
    12 U.S.C. 1817(e)(2)(F).

    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

[[Page 73159]]

Reserve Ratio is between 1.35 and 1.50 percent or to exceed 1.50 
percent.\2\
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    \2\ This provision allows the FDIC's Board to suspend or limit 
dividends in circumstances where the Reserve Ratio exceeds 1.5 
percent, if the Board makes a determination to continue a suspension 
or limitation that it imposed initially when the reserve ratio was 
between 1.35 and 1.5 percent.
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    When the Reserve Ratio exceeds 1.50 percent at the end of a 
calendar quarter, the FDI Act requires the FDIC, absent certain limited 
circumstances (discussed in footnote 2), to declare a dividend equal to 
the excess of the amount required to maintain the Reserve Ratio at 1.50 
percent 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 (the BIF) or 
the Savings Association Insurance Fund (the 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 Reform Act expressly requires the FDIC to prescribe by regulation 
the method for calculating, declaring and paying dividends. The 
dividend regulation must include provisions allowing an insured 
depository institution a reasonable opportunity to challenge 
administratively the amount of dividends it is awarded. Under the 
Reform Act, any review by the FDIC pursuant to these administrative 
procedures is final and not subject to judicial review.

B. The Temporary Final Rule on Assessment Dividends

    In October 2006, the FDIC issued a temporary final rule to 
implement the dividend requirements of the Reform Act (the Temporary 
Final Rule).\5\
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    \5\ 71 FR 61385 (October 18, 2006).
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    The Temporary Final Rule, which expires on December 31, 2008, 
provides definitions and details on how an institution may request FDIC 
review of a determination of the institution's dividend and how an 
institution may appeal the FDIC's response to that request. In the 
Temporary Final Rule, the FDIC adopted a simple system for allocating 
any dividends that might be declared during the two-year duration of 
the regulation. Any dividends awarded before January 1, 2009, will be 
distributed simply in proportion to an institution's 1996 assessment 
base ratio, as determined pursuant to the one-time assessment credit 
rule.\6\
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    \6\ 12 CFR 327.53. No dividend has or will be issued under the 
Temporary Final Rule.
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C. The Advance Notice of Proposed Rulemaking and Notice of Proposed 
Rulemaking

    At the time it adopted the Temporary Final Rule, the FDIC stated 
its intention to initiate a second, more comprehensive notice-and-
comment rulemaking on dividends beginning with an advanced notice of 
proposed rulemaking to explore alternative methods for distributing 
future dividends after the temporary dividend rules expires on December 
31, 2008. The publication of the assessment dividend advance notice of 
rulemaking in September 2007 (the ANPR) commenced that process.\7\ 
Subsequently in March 2008, based upon comments received on the ANPR, 
the FDIC issued a proposed rule on the distribution of future dividends 
(the NPR).\8\
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    \7\ 72 FR 53181 (September 18, 2007).
    \8\ 73 FR 15459 (Mar. 24, 2008).
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II. The Final Rule

    The FDIC is adopting a final rule identical to the proposed rule, 
with a few exceptions described below.
    The FDIC received three comment letters on the proposed rule: two 
from banking trade associations and one from a savings association. The 
savings association generally supported the proposed rule. One trade 
association stated that the proposal generally met the specifications 
that the association had suggested in its comments on the ANPR, 
although the association would not endorse the NPR. The other trade 
association supported many specific provisions of the proposed rule. 
Each of the comments had some specific suggestions that are discussed 
further below.

Annual Determination of Whether Dividends Are Required/Declaration of 
Dividends

    The process under the final rule for the annual determination of 
dividends and declaration of dividends is identical with the process 
under the proposed rule. The FDIC will determine annually whether the 
reserve ratio at the end of the prior year equaled or exceeded 1.35 
percent of estimated insured deposits or 1.50 percent, thereby 
triggering a dividend requirement. If a dividend is triggered, the FDIC 
will determine, based on statutory factors, whether payment of 
dividends should be limited or suspended. If the FDIC does not limit or 
suspend payment, or does not renew such a determination, the aggregate 
amount of the dividend under the final rule will be determined as 
provided by the Reform Act. The FDIC will declare any dividend on or 
before May 10th of the year following the year in which the reserve 
ratio exceeded 1.35 percent or 1.50 percent.\9\
    The FDIC received one specific comment on this part of the 
proposal. One of the trade associations endorsed an accelerated annual 
process for determination and distribution of dividends.
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    \9\ The two banking trade associations generally promoted 
conservative fund management as the optimal strategy for solving the 
dividend allocation issue. They both stated that FDIC fund 
management should ensure that the fund be kept beneath the 1.35 
percent statutory level so that dividends were not triggered. Low, 
smooth, steady premiums that prevent a dividend trigger would 
obviate the issue of how to equitably distribute dividends between 
the older and newer segments of the banking industry. One of the 
associations stated that such a policy would benefit the insurance 
fund, the industry in general, and consumers.
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Allocation of Dividends

    The final rule adopts the proposed rule's methodology for 
allocation of dividends. The total dividend in any year will be divided 
into two parts. One of the two parts will be allocated based on the 
ratio of each institution's (including any predecessors') 1996 
assessment base compared to the total of all existing eligible 
institutions' 1996

[[Page 73160]]

assessment bases (an institution's 1996 assessment base share). The 
other part of the total dividend will be allocated based on each 
institution's (including any predecessors') ratio of cumulative 
eligible premiums over the previous five years to the total of 
cumulative eligible premiums paid by all existing institutions (or 
their predecessors) over the previous five years (an institution's 
eligible premium share). The part of any potential dividend that will 
be allocated based upon 1996 assessment base shares will decline 
steadily from 100 percent to zero over 15 years; the part of any 
potential dividend that will be allocated based upon eligible premium 
shares will increase steadily over the same 15-year period from zero to 
100 percent. After the 15-year period, any dividend will be allocated 
solely based on eligible premium shares.
    The 15-year period will run from the end of 2006 to the end of 2021 
and will govern dividends based upon the reserve ratio at the end of 
the years 2008 through 2021. Actual dividends, if any, will be 
allocated and paid the following year. Table A shows the change in the 
allocation of potential dividends over time.

             Table A--Total DIF Dividend Distribution Table
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                                         Part of total DIF dividend
                                               determined by:
 Based upon the DIF reserve ratio  -------------------------------------
            at year-end              1996 Assessment    Eligible premium
                                       base shares           shares
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2006..............................         1 (100.0%)             0 (0%)
2007..............................      14/15 (93.3%)        1/15 (6.7%)
2008..............................      13/15 (86.7%)       2/15 (13.3%)
2009..............................        4/5 (80.0%)        1/5 (20.0%)
2010..............................      11/15 (73.3%)       4/15 (26.7%)
2011..............................        2/3 (66.7%)        1/3 (33.3%)
2012..............................        3/5 (60.0%)        2/5 (40.0%)
2013..............................       8/15 (53.3%)       7/15 (46.7%)
2014..............................       7/15 (46.7%)       8/15 (53.3%)
2015..............................        2/5 (40.0%)        3/5 (60.0%)
2016..............................        1/3 (33.3%)        2/3 (66.7%)
2017..............................       4/15 (26.7%)      11/15 (73.3%)
2018..............................        1/5 (20.0%)        4/5 (80.0%)
2019..............................       2/15 (13.3%)      13/15 (86.7%)
2020..............................        1/15 (6.7%)      14/15 (93.3%)
2021..............................             0 (0%)         1 (100.0%)
Thereafter........................                 0%             100.0%
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    The FDIC received three comments on the proposed method of 
allocating dividends. One banking trade association supported the 
balanced consideration of alternative dividend allocation schemes, 
taking into account the significant premiums paid in the early 1990s to 
recapitalize the FDIC. The second banking trade association stated that 
the FDIC proposal was a reasonable compromise between the fund balance 
method and the payments method described in the ANPR and that the 
proposed rule generally responded to their wishes that the method be 
simple but detailed enough so that community banks understood it, and 
that it not be subject to sudden or unexpected changes.\10\ It 
suggested one additional change: That the 15-year phase-out period 
begin in 2009 rather than 2006 as banks were operating under the 
existing rule on dividends for the years 2006 through 2008.
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    \10\ The ANPR sought comment on two general approaches to 
allocating dividends--the fund balance method and the payments 
method. The two allocation methods potentially differed most 
significantly in the way they balanced two of the statutory factors 
that the Board must consider--an institutions' relative 1996 
assessment bases and assessments paid after 1996--and, thus, in the 
way each method would treat older versus newer institutions. The 
terms ``older'' and ``newer,'' however, do not simply refer to age. 
An institution that had a large 1996 assessment base compared to its 
current assessment base is considered an older institution, and an 
institution that had no assessment base in 1996 or only a small 
assessment base compared to its present assessment base is 
considered a newer institution.
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    The commenting savings association generally supported the 
provisions of the proposed rule but recommended that the FDIC use a 10-
year rather than a 15-year transition period. The bank stated that 
parity dictated a 10-year phase-in period since a 10-year period 
elapsed with no general collection of premiums, and it would be 
punitive to other organizations to continue to count an institution's 
assessment credits after they have been used to offset premiums.
    The FDIC continues to believe that the 15-year phase-out transition 
period, beginning in 2006, is a reasonable compromise between the 
legitimate points of view of older and newer banking institutions and 
thus recommends adopting the allocation method proposed in the NPR.

Eligible Premiums

    As under the proposed rule, an eligible premium will be defined as 
that part of an assessment that was charged at no more than the maximum 
rate then applicable to a Risk Category I institution. Whether an 
institution paid its assessment in cash or offset it with assessment 
credits will not affect its eligible premium. An institution's eligible 
premium will include eligible premiums paid by a predecessor.
    The final rule clarifies that eligible premiums would not include 
any assessments or fees paid by insured depository institutions for the 
Temporary Liquidity Guarantee Program or any emergency special 
assessments paid by insured depository institutions pursuant to the 
systemic risk provisions of the Federal Deposit Insurance Act, whether 
related to the Temporary Liquidity Guarantee Program or not. \11\
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    \11\ The systemic risk emergency special assessment provision is 
Section 13(c)(4)(G) of the FDI Act, 12 U.S.C. 1823(c)(4)(G).
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    The FDIC received three comments on this part of the proposal. The 
banking trade associations supported the proposal. The commenting 
savings association suggested that the FDIC only count payments made 
with ``real dollars'' rather than assessment credits in calculating 
eligible premiums.

[[Page 73161]]

    The FDIC continues to believe that allowing an eligible premium to 
include premiums offset with assessment credits is also part of the 
reasonable compromise between the legitimate points of view of older 
and newer banking institutions and thus recommends adopting the 
definition of an eligible premium proposed in the NPR. In any event, 
most assessment credits have already been used. Staff estimates that at 
the end of 2008 only four percent of the original assessment credits 
will remain. Given the small likelihood of a dividend within the next 
several years, including premiums offset with assessment credits within 
the definition of an eligible premium will have little practical effect 
for most institutions.

Definition of a ``Predecessor'' Insured Depository Institution

    Under the final rule, consistent with the requirements of the 
Reform Act, the allocation of dividends to an insured depository 
institution will in part be based on the 1996 assessment base ratio of, 
and the post-1996 assessments paid by, insured depository institutions 
of which the insured depository institution is the successor. As in the 
Temporary Final Rule, the final rule defines a predecessor insured 
depository institution by cross referencing the definition of successor 
insured depository institution in the one-time assessment credit rule. 
(See 12 CFR 327, subpart B.) In effect, a predecessor institution is 
the mirror image of a successor institution. Notably, the definition of 
successor in the one-time credit regulation includes a de facto rule, 
applicable in transactions in which an insured depository institution 
assumes substantially all of the deposit liabilities and acquires 
substantially all of the assets of another insured depository 
institution.
    The FDIC received one specific comment on this part of the 
proposal. The banking trade association that submitted the comment 
supported the proposal.

Notification and Payment of Dividends

    The process for notifying institutions of their dividend amounts 
and paying dividends will be as proposed in the NPR, with one minor 
change. The FDIC will advise each institution of its dividend as soon 
as practicable after the Board's declaration of a dividend on or before 
May 10th. However, individual dividend amounts will be paid to 
institutions on June 30 (in connection with the deposit insurance 
assessment process), rather than within 45 days after the issuance of 
the special notice (or as soon as practicable thereafter) as proposed 
in the NPR.
    This change is intended to simplify the distribution process. 
Dividends will be paid through the Automated Clearing House (ACH) and 
offset against assessment payments. If an institution owes additional 
assessments, there will be a net debit (resulting in payment to the 
FDIC). Conversely, if the FDIC owed additional dividend amounts, there 
will be a net credit (resulting in payment from the FDIC).
    Under the final rule, the FDIC will freeze the payment of any 
disputed portion of dividends. Any adjustment to an individual 
institution's dividend resulting from its request for review will be 
handled through ACH in the same manner as existing procedures for 
underpayment or overpayment of assessments.
    The proposed final rule states that the FDIC intends, beginning no 
later than 2010, to include with its quarterly assessment invoices the 
institution's 1996 assessment base share and its rolling five-year 
eligible premium share.
    The FDIC received only one specific comment on this part of the 
proposal. The banking trade association that submitted the comment 
supported the ``acceleration of the annual process for determination 
and distribution of dividends, so that any dividends will be 
distributed in the first quarter following the year-end declaration.'' 
Staff notes that dividends cannot be declared at year-end, since the 
year-end fund reserve ratio will not be known until some time in the 
following February. However, under the final rule, dividends will be 
distributed in the same quarter as the declaration (when the Board 
declares a dividend in the second quarter, since payment will be made 
on June 30th), and will be always be distributed as least as soon as 
the quarter after the declaration.

Requests for Review

    The final rule's provisions for challenging dividend shares and 
amounts are as proposed in the NPR and are similar to those in the 
Temporary Final Rule, except that they reflect the FDIC's intention to 
provide, beginning in 2010, quarterly dividend-related information with 
each assessment invoice. Under the final rule, if a dividend is 
declared before 2010, an institution will have 30 days from the date of 
the notice of its dividend to request review.
    Once the quarterly invoice updates become available, an institution 
generally will have 90 days from the date of the invoice to request 
review of that dividend-related information, except in a year in which 
a dividend is declared. If the FDIC declares a dividend, the 
institution will have 30 days from the date of its notice of dividend 
amount to request review either of that amount or of any dividend-
related information in its March invoice for that year; the institution 
will not have the full 90-day period following the March invoice to 
request review.
    The rule requires that, when quarterly dividend-related information 
becomes available in 2010, an institution will have to request review 
of its dividend-related information within 90 days of the first invoice 
that fails to reflect accurate information. If it does not submit a 
timely request for review, it will be barred from subsequently 
requesting review of that information.
    The requirement that insured depository institutions monitor their 
dividend-related information quarterly and promptly request review is 
necessitated by the proposed timing for the payment of dividends. In 
the absence of such a strict quarterly requirement, the FDIC would have 
needed to reconsider both the timing of dividend payment and possibly 
the look-back period for calculating institutions' dividend shares, 
which at 5 years is longer than the 3-year recordkeeping requirement in 
the FDI Act and longer than the 3-year statute of limitations for 
bringing an action on assessment underpayments and overpayments.
    The rule requires that at the time of the request for review the 
requesting institution must notify all institutions that will be 
directly and materially affected, and that it provide those 
institutions with copies of the request for review, supporting 
documentation, and FDIC procedures for requests for review. The FDIC 
will make reasonable efforts to determine that these institutions had 
been identified and notified.
    Institutions will 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 
notified through this process does not submit a timely response, that 
institution will 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 institution from which such 
information is requested will be required to supply that information 
within 21 days of the date of the FDIC's request.

[[Page 73162]]

    The rule requires a written response from the FDIC's Director of 
the Division of Finance (the Director), or his or her designee, 
notifying 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 review; (2) within 60 days of 
the date of the last response to the notification if additional 
institutions are notified by the requesting institution or the FDIC; or 
(3) within 60 days of its receipt of the additional information, 
whichever date is latest.
    If a requesting institution disagrees with the determination of the 
Director, that institution may appeal to the FDIC's Assessment Appeals 
Committee (the AAC). Notice of the procedures applicable to appeals to 
the AAC will be included with the Director's written determination. 
Under the final rule, an appeal to the AAC must be filed within 30 
calendar days of the date of the Director's written determination. The 
AAC's determination will be final and not subject to judicial review.
    The FDIC will freeze temporarily the distribution of any dividend 
amount in dispute for the institutions involved in the challenge until 
the challenge is resolved.
    The FDIC received specific comments on this part of the proposal 
from only one source. The banking trade association that submitted the 
comment supported ``quarterly notification of each bank's share of 
future dividends'' and ``clarification of the dispute resolution 
process to be consistent with that for risk-based premium 
classification.''
    The association also requested that the quarterly notification 
provide enough information for banks to understand how their dividend 
shares were computed. Given that a bank will be provided with a 
relatively short time period of 90 days to challenge its share, the 
notification needed to provide sufficient data so that a bank could 
readily check its allocation, and the notification should provide the 
deadline for filing a challenge. Staff concurs with this request. It is 
staff's intention that the quarterly notification will provide the 
necessary data.

Additional Comments on the Proposed Rule

    One of the banking trade associations also recommended that the 
FDIC establish a rule regarding the transferability of claims on future 
dividends; specifically, it recommended that the FDIC permit sales of 
dividend shares and promulgate rules clarifying the regulatory 
implications. The FDIC agrees that these claims should be transferable 
and has so provided in the final rule. However, the transfer of these 
claims will remain a matter of contract solely between the interested 
parties. The FDIC will pay dividends to institutions according to the 
FDIC's records without regard to whether claims on dividends have been 
transferred. Thus, the FDIC will not track sales or recognize 
assignments for payment purposes, since doing so would be labor-
intensive and require a substantial amount of resources. As the FDIC 
expects that only a very limited number of institutions will be 
interested in transferring claims to future dividends, it would be 
inequitable to make the entire banking industry subsidize the costs of 
tracking sales and recognizing assignments.

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 received no comments on how to make this rule 
easier to understand.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires a federal agency 
publishing a final rulemaking to prepare and make available for public 
comment an initial regulatory flexibility analysis that describes the 
impact of the rule on small entities. 5 U.S.C. 603(a). Pursuant to 
regulations issued by the Small Business Administration (13 CFR 
121.201), a ``small entity'' includes a bank holding company, 
commercial bank or savings association with assets of $165 million or 
less (collectively, small banking organizations). The RFA provides that 
an agency is not required to prepare and publish a regulatory 
flexibility analysis if the agency certifies that the rule will not 
have a significant impact on a substantial number of small entities. 5 
U.S.C. 605(b).
    Pursuant to section 605(b) of the RFA, the FDIC certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities. The final rule will 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 will have the 
opportunity to request review of the amount of its dividend each time a 
dividend is declared, the final rule will rely on information already 
collected and maintained by the FDIC in the regular course of business. 
The final rule will not directly or indirectly impose any reporting, 
recordkeeping or compliance requirements on insured depository 
institutions.

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 final rule.

 D. 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).

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, chapter III of title 12 of 
the Code of Federal Regulations is amended by revising subpart C of 
part 327 to read as follows:

PART 327--ASSESSMENTS

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.

    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 provides 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

[[Page 73163]]

institution's share of any declared dividend;
    (3) The time and manner for the FDIC's payments 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) Assessment base share means an insured depository institution's 
1996 assessment base ratio divided by the total of all existing, 
eligible insured depository institution's shares of the 1996 assessment 
base (rounded to 14 decimal places).
    (b) Board has the same meaning as under subpart B of this part.
    (c) DIF means the Deposit Insurance Fund.
    (d)(1) An eligible premium means an assessment paid by an insured 
depository institution (or its predecessor) that did not exceed, for 
the applicable assessment period, the maximum assessment applicable in 
that assessment period to a Risk Category 1 institution under subpart A 
of this part.
    (2) An eligible premium does not include any assessments or fees 
paid by insured depository institutions for the Temporary Liquidity 
Guarantee Program. An eligible premium also does not include any 
emergency special assessments paid by insured depository institutions 
pursuant to section 13(c)(4)(G) of the Federal Deposit Insurance Act, 
12 U.S.C. 1823(c)(4)(G), whether to repay any loss to the FDIC as a 
consequence of the Temporary Liquidity Guarantee Program or for any 
other reason.
    (e) An insured depository institution's eligible premium share 
means that institution's cumulative eligible premiums over the previous 
five years (ending on December 31st of the year prior to the year in 
which the dividend is declared) divided by the cumulative total of all 
eligible premiums paid by all existing insured depository institutions 
or their predecessors over that five-year period (rounded to 14 decimal 
places).
    (f) An insured depository institution's 1996 assessment base ratio 
means an institution's 1996 assessment base ratio, as determined 
pursuant to Sec.  327.33 of this part, adjusted as necessary to reflect 
subsequent transactions in which the institution succeeds to another 
institution's assessment base ratio, or a transfer of the assessment 
base ratio pursuant to Sec.  327.34. The 1996 assessment base ratio 
shall be rounded to seven decimal places.
    (g) Predecessor, when used in the context of insured depository 
institutions, refers to the institution merged with or into a resulting 
institution or acquired by an institution under Sec.  327.33(c) under 
the de facto rule, consistent with the definition of successor in Sec.  
327.31.


Sec.  327.52  Annual dividend determination.

    (a) If the DIF reserve ratio as of December 31st of 2008 or any 
later year equals or exceeds 1.35 percent, then on or before May 10th 
of the following year, 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 1.50 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) Except as provided in paragraph (d) of this section, if the 
reserve ratio of the DIF exceeds 1.50 percent of estimated insured 
deposits, the Board shall declare the amount in excess of the amount 
required to maintain the reserve ratio at 1.50 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 1.50 percent; or
    (B) To exceed 1.50 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 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)(1) The allocation of any dividend among insured depository 
institutions shall be based on the institution's 1996 assessment base 
share and the institution's eligible premium share.
    (2) As set forth in the following table, the part of a dividend 
allocated based upon an institution's 1996 assessment base share shall 
decline steadily from 100 percent to zero over fifteen years, and the 
part of a dividend allocated based upon an institution's eligible 
premium share shall increase steadily over the same fifteen-year period 
from zero to 100 percent. The 15-year period shall begin as if it had 
applied to a dividend based upon the reserve ratio at the end of 2006 
and shall end with respect to any dividend based upon the reserve ratio 
at the end of 2021. Dividends based upon the reserve ratio as of 
December 31, 2021, and thereafter shall be allocated among insured 
depository institutions based solely on eligible premium shares.

[[Page 73164]]



                  Total DIF Dividend Distribution Table
------------------------------------------------------------------------
                                         Part of total DIF dividend
                                               determined by:
 Based upon the DIF reserve ratio  -------------------------------------
            at year-end              1996 Assessment    Eligible premium
                                       base shares           shares
------------------------------------------------------------------------
2006 \1\..........................         1 (100.0%)             0 (0%)
2007 \1\..........................      14/15 (93.3%)        1/15 (6.7%)
2008..............................      13/15 (86.7%)       2/15 (13/3%)
2009..............................        4/5 (80.0%)        1/5 (20.0%)
2010..............................      11/15 (73.3%)       4/15 (26.7%)
2011..............................        2/3 (66.7%)        1/3 (33.3%)
2012..............................        3/5 (60.0%)        2/5 (40.0%)
2013..............................       8/15 (53.3%)       7/15 (46.7%)
2014..............................       7/15 (46.7%)       8/15 (53.3%)
2015..............................        2/5 (40.0%)        3/5 (60.0%)
2016..............................        1/3 (33.3%)        2/3 (66.7%)
2017..............................       4/15 (26.7%)      11/15 (73.3%)
2018..............................        1/5 (20.0%)        4/5 (80.0%)
2019..............................       2/15 (13.3%)      13/15 (86.7%)
2020..............................        1/15 (6.7%)      14/15 (93.3%)
2021..............................             0 (0%)         1 (100.0%)
Thereafter........................             0 (0%)          1 (100%)
------------------------------------------------------------------------
\1\ The 15-year period shall be computed as if it had applied to
  dividends based upon the reserve ratios at the end of 2006 and 2007.

    (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.
    (c) The FDIC shall pay individual dividend amounts, unless they are 
the subject of a request for review under Sec.  327.54, to insured 
depository institutions on June 30 of the year the dividend is 
declared. The FDIC shall notify institutions whether dividends will 
offset the next collection of assessments at the time of the invoice. 
An institution's dividend amount will be settled with that 
institution's assessment. Any excess dividend amount will be a net 
credit to the institution and will be deposited into the deposit 
account designated by the institution for assessment payment purposes 
pursuant to subpart A of this part. If the dividend amount is less than 
the amount of assessment due, then the institution's account will be 
directly debited by the FDIC to reflect the net amount owed to the FDIC 
as an assessment.
    (d) If an insured depository institution's dividend amount is 
subject to review under Sec.  327.54, and that request is not finally 
resolved prior to the dividend payment date, the FDIC shall withhold 
the payment of the disputed portion of the dividend amount involved in 
the request for review. Adjustments to an individual institution's 
dividend amount based on the final determination of a request for 
review will be handled in the same manner as assessment underpayments 
and overpayments.
    (e) An institution may sell, assign, or otherwise transfer its 
right to a current or future dividend. However, the FDIC will pay 
dividend amounts to insured institutions without regard to any such 
sale, assignment or transfer, regardless of whether the FDIC has 
received notice of the sale, assignment or transfer.


Sec.  327.54  Requests for review.

    (a) An insured depository institution may submit a request for 
review of the FDIC's determination of the institution's 1996 assessment 
base share and/or its eligible premium share as shown on the 
institution's quarterly assessment invoice. Such requests shall be 
subject to the provisions of Sec.  327.3(f)(3) of this part, except for 
the invoice provided by the FDIC in March of any calendar year in which 
the FDIC declares a dividend. If the FDIC declares a dividend, any 
request for review of an institution's 1996 assessment base share and/
or its eligible premium share as shown on the institution's March 
quarterly assessment invoice must be filed within 30 days of the date 
that the FDIC notifies the institution of its dividend amount. If an 
institution does not submit a timely request for review for the first 
invoice in which the dividend-related information that forms the basis 
for the request appears, the institution shall be barred from 
subsequently requesting review of that information.
    (b) 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. 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
    (2) The institution believes that the 1996 assessment base ratio 
attributed to the institution is inaccurate or has not been adjusted to 
include the 1996 assessment base ratio of an institution acquired by 
merger or transfer pursuant to Sec. Sec.  327.33 and 327.34 of this 
part and Sec.  327.51(g), and the institution has not had a prior 
opportunity to request review or appeal under subpart B of this part or 
paragraph (a) of this section; or
    (3) The institution believes that the special notice does not fully 
or accurately reflect its eligible premiums or those of any of its 
predecessors and the institution has not had a prior opportunity to 
request review or appeal under subpart B of this part or paragraph (a) 
of this section.
    (c) Any such request for review under paragraph (b) of this section 
must be submitted within 30 days of the date of the special notice of 
dividend 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

[[Page 73165]]

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.
    (d) During the FDIC's consideration of a request for review, the 
amount of dividend in dispute will not be paid.
    (e) Within 30 days of receiving notice of the request for review 
under paragraph (b) of this section, 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) 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.
    (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 under 
paragraph (b) of this section will receive a written response from the 
FDIC's Director of the Division of Finance (``Director''), or his or 
her designee, notifying the 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 
review;
    (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. Notice of the procedures applicable to appeals under paragraph 
(g) of this section will be included with the Director's written 
determination.
    (h) 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 (b) of this section. Any such 
appeal must be submitted within 30 calendar days from the date of the 
Director's written determination. The decision of the Assessment 
Appeals Committee shall be the final determination of the FDIC.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
 [FR Doc. E8-28405 Filed 12-1-08; 8:45 am]
BILLING CODE 6714-01-P