[Federal Register Volume 74, Number 40 (Tuesday, March 3, 2009)]
[Rules and Regulations]
[Pages 9338-9341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4585]



[[Page 9337]]

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Part II





Federal Deposit Insurance Corporation





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12 CFR Part 327



Assessments; Interim Rule

  Federal Register / Vol. 74, No. 40 / Tuesday, March 3, 2009 / Rules 
and Regulations  

[[Page 9338]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD35


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comment.

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SUMMARY: The FDIC is adopting an interim rule to impose a 20 basis 
point emergency special assessment under 12 U.S.C. 1817(b)(5) on June 
30, 2009. The assessment will be collected on September 30, 2009. The 
interim rule also provides that, after June 30, 2009, if the reserve 
ratio of the Deposit Insurance Fund is estimated to fall to a level 
that the Board believes would adversely affect public confidence or to 
a level which shall be close to zero or negative at the end of a 
calendar quarter, an emergency special assessment of up to 10 basis 
points may be imposed by a vote of the Board on all insured depository 
institutions based on each institution's assessment base calculated 
pursuant to 12 CFR 327.5 for the corresponding assessment period. The 
FDIC seeks comment on the interim rule.

DATES: Effective April 1, 2009. Comments must be received on or before 
April 2, 2009.

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

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Chief, Banking 
and Regulatory Policy Section, Division of Insurance and Research, 
(202) 898-8967; and Christopher Bellotto, Counsel, Legal Division, 
(202) 898-3801 or Sheikha Kapoor, Senior Attorney, Legal Division, 
(202) 898-3960.

SUPPLEMENTARY INFORMATION:

I. Background

    Recent and anticipated failures of FDIC-insured institutions 
resulting from deterioration in banking and economic conditions have 
significantly increased losses to the Deposit Insurance Fund (the fund 
or the DIF). The reserve ratio of the DIF declined from 1.19 percent as 
of March 31, 2008, to 1.01 percent as of June 30, 0.76 percent as of 
September 30, and 0.40 percent (preliminary) as of December 31. Twenty-
five institutions failed in 2008, and the FDIC projects a substantially 
higher rate of institution failures in the next few years, leading to a 
further decline in the reserve ratio. Because the fund reserve ratio 
fell below 1.15 percent as of June 30, 2008, and was expected to remain 
below 1.15 percent, the Reform Act required the FDIC to establish and 
implement a Restoration Plan that would restore the reserve ratio to at 
least 1.15 percent within five years, absent extraordinary 
circumstances.\1\
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    \1\ Section 7(b)(3)(E) of the Federal Deposit Insurance Act, 12 
U.S.C. 1817(b)(3)(E).
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    On October 7, 2008, the FDIC established a Restoration Plan for the 
DIF. The Restoration Plan called for the FDIC to set assessment rates 
such that the reserve ratio would return to 1.15 percent within five 
years. The plan also required the FDIC to update its loss and income 
projections for the fund and, if needed to ensure that the fund reserve 
ratio reaches 1.15 percent within five years, increase assessment 
rates.
    Simultaneously with the adoption of this interim rule, the FDIC has 
amended the Restoration Plan and extended the time within which the 
reserve ratio must be returned to 1.15 percent to 7 years due to 
extraordinary circumstances. Also, again simultaneously with the 
adoption of this interim rule, the FDIC has adopted a final rule (the 
assessments final rule) that, among other things, sets initial base 
assessment rates at 12 to 45 basis points.
    However, given the FDIC's estimated losses from projected 
institution failures, the assessment rates adopted in the final rule 
are not sufficient to return the fund reserve ratio to 1.15 percent 
within 7 years and are unlikely to prevent the DIF fund balance and 
reserve ratio from falling to near zero or becoming negative this year.

II. Emergency Special Assessment

    The FDIC believes that it is important that the fund not decline to 
a level that could undermine public confidence in federal deposit 
insurance. Even though the FDIC has significant authority to borrow 
from the Treasury to cover losses, a fund balance and reserve ratio 
that are near zero or negative could create public confusion about the 
FDIC's ability to move quickly to resolve problem institutions and 
protect insured depositors. The FDIC views the Treasury line of credit 
as available to cover unforeseen losses, not as a source of financing 
projected losses.
    The FDIC projects that the reserve ratio will fall to close to zero 
or become negative in 2009 unless the FDIC receives more revenue than 
regular quarterly assessments will produce, given the rates adopted in 
the final rule on assessments. Therefore, the FDIC will impose an 
emergency special assessment equal to 20 basis points of an 
institution's assessment base on June 30, 2009.\2\ The special 
assessment will be collected on September 30, 2009, at the same time 
that the risk-based assessments for the second quarter of 2009 are 
collected. The assessment base for the special assessment shall be the 
same as the assessment base for the second quarter risk-based 
assessment.
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    \2\ 12 U.S.C. 1817(b)(5) provides: Emergency special 
assessments.--In addition to the other assessments imposed on 
insured depository institutions under this subsection, the 
Corporation may impose 1 or more special assessments on insured 
depository institutions in an amount determined by the Corporation 
if the amount of any such assessment is necessary--
    (A) to provide sufficient assessment income to repay amounts 
borrowed from the Secretary of the Treasury under [12 U.S.C. 
1824(a)] in accordance with the repayment schedule in effect under 
[12 U.S.C. 1824(c)] during the period with respect to which such 
assessment is imposed;
    (B) to provide sufficient assessment income to repay obligations 
issued to and other amounts borrowed from insured depository 
institutions under [12 U.S.C. 1824(d)]; or
    (C) for any other purpose that the Corporation may deem 
necessary.
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    The FDIC has extended the period of the Restoration Plan to seven 
years due to the extraordinary circumstances facing the banking 
industry--including the severe problems in the financial markets and 
the prospects of a lengthy recession. If the Restoration Plan period 
remained at its original five years, the FDIC estimates that initial 
assessment rates would have had to range from 20 to 45 basis points, 
compared to the actual initial assessment rates adopted in the 
assessments final rule, which range from 12 to 45 basis points.
    A 20 basis point special assessment rate should increase the 
reserve ratio by approximately 32 basis points.

[[Page 9339]]

According to the FDIC's projections, the 20 basis point special 
assessment combined with the rates adopted in the final assessments 
rule would return the reserve ratio to 1.15 percent by the end of 2015, 
consistent with the amended seven-year Restoration Plan period.
    As part of the Restoration Plan, the FDIC has the authority to 
restrict credit use while the plan is in effect, providing that 
institutions may still apply credits against their assessments equal to 
the lesser of their assessment or 3 basis points.\3\ The FDIC has 
decided not to restrict credit use in the Restoration Plan. The FDIC 
projects that the amount of credits remaining at the time that the 
special assessment is imposed will be very small and that their use 
will have very little effect on the assessment revenue necessary to 
meet the requirements of the plan.\4\
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    \3\ Section 7(b)(3)(E)(iv) of the Federal Deposit Insurance Act 
(12 U.S.C. 1817(b)(3)(E)(iv)).
    \4\ For 2009 and 2010, credits may not offset more than 90 
percent of an institution's assessment. Section 7(e)(3)(D)(ii) of 
the Federal Deposit Insurance Act (12 U.S.C. 1817(e)(3)(D)(ii)).
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Effect on Capital and Earnings

    The FDIC has analyzed the effect of a 20 basis point special 
assessment on the capital and earnings of insured institutions. For 
this analysis, it relied on the projected range of industry earnings in 
2009 described in Appendix 2 of the preamble to the final rule on 
assessments. Given the assumptions in the analysis, for the industry as 
a whole, the special assessment in 2009 would result in year-end 2009 
capital that would be approximately 0.7 percent lower than in the 
absence of a special assessment. Based on the range of projected 
industry earnings, a 20 basis point special assessment would cause 9 to 
13 institutions (with $3 billion to $5 billion in aggregate assets) 
whose equity-to-assets ratio would have exceeded 4 percent in the 
absence of such an assessment to fall below that percentage and 3 to 4 
institutions (with about $1 billion in aggregate assets) to fall below 
2 percent.
    For profitable institutions, the special assessment in 2009 would 
result in pre-tax income that would be between 10 percent and 13 
percent lower than if the FDIC did not charge such the special 
assessment. For unprofitable institutions, pre-tax losses would 
increase by an average of between 3 percent and 6 percent.

III. Further Special Assessments

    The FDIC recognizes that there is considerable uncertainty about 
its projections for losses and insured deposit growth, and, therefore, 
of future fund reserve ratios. To further ensure that the fund reserve 
ratio does not decline to a level that could undermine public 
confidence in federal deposit insurance, the FDIC may impose an 
emergency special assessment of up to 10 basis points of an 
institution's assessment base whenever, after June 30, 2009, the 
reserve ratio of the Deposit Insurance Fund is estimated to fall to a 
level that the Board believes would adversely affect public confidence 
or to a level which shall be close to zero or negative at the end of a 
calendar quarter. Any such special assessment will be imposed on the 
last day of a quarter (March 31, June 30, September 30 or December 31) 
and will be collected approximately three months later, at the same 
time that risk-based assessments are collected. The earliest possible 
date for such a special assessment is September 30, 2009 (which would 
be collected December 30, 2009).
    The assessment base for any special assessment shall be the base 
for the risk-based assessment for the quarter ending the date the 
special assessment is imposed. Thus, for example, the assessment base 
for a special assessment imposed on September 30, 2009, would be the 
assessment base for the quarterly risk-based assessment for the third 
quarter of 2009 (collected December 30, 2009).
    Near the end of each quarter, the FDIC will estimate the reserve 
ratio for that quarter from available data on, or estimates of, 
insurance fund assessment income, investment income, operating 
expenses, other revenue and expenses, and loss provisions (including 
provisions for anticipated failures). Because no data on estimated 
insured deposits will be available until after the quarter-end, the 
FDIC will assume that estimated insured deposits will increase during 
the quarter at the average quarterly rate over the previous four 
quarters.
    If the FDIC estimates that the reserve ratio will fall to a level 
that the Board believes would adversely affect public confidence or to 
a level close to zero or negative at the end of a calendar quarter, and 
the Board decides to impose an emergency special assessment of up to 10 
basis points, the FDIC will announce the imposition and rate of the 
special assessment no later than the last day of the quarter. As soon 
as practicable after any such announcement, the FDIC will have a notice 
published in the Federal Register of the imposition of the special 
assessment.
    Thus, for example, if in late September 2009, the FDIC estimates 
that the reserve ratio on September 30, 2009, will fall to zero, and 
the FDIC's Board votes to impose a special assessment of up to 10 basis 
points, the FDIC will announce no later than September 30 that it is 
imposing a special assessment on September 30, 2009, and the rate of 
the assessment, and will collect the special assessment, along with the 
usual quarterly deposit insurance assessment, on December 30, 2009.
    The FDIC currently projects that the combination of regular 
quarterly assessments and the 20 basis point special assessment will 
prevent the fund reserve ratio from falling to a level that that the 
Board believes would adversely affect public confidence or to a level 
close to zero or negative during the period of the Restoration Plan. 
For this reason, the FDIC does not expect to impose a special 
assessment of up to 10 basis points. However, the FDIC will not make 
its estimates of quarter-end reserve ratios for purposes of any such 
special assessment, nor will the Board determine whether to impose such 
a special assessment, until shortly before the end of each quarter, in 
order to take advantage of the most recently available data.

IV. Requests for Comments

    The FDIC seeks comment on every aspect of this rulemaking. In 
particular, the FDIC seeks comment on the issues set out below. The 
FDIC asks that commenters include reasons for their positions.
    1. Should the June 30, 2009 special assessment be at a rate other 
than 20 basis points?
    2. Should there be a maximum rate that the combination of an 
institution's regular quarterly assessment rate and a special 
assessment could not exceed? For example, an institution in Risk 
Category IV could possibly be charged a regular quarterly assessment at 
the annual rate of 77.5 basis points beginning in the second quarter of 
2009. A 20 basis point special assessment would effectively increase 
the maximum possible annual rate to nearly 100 basis points. Should the 
rate be capped at a smaller amount?
    3. Should weaker institutions be exempted, in whole or in part, 
from the special assessment? For example, should institutions with 
CAMELS ratings of 4 or 5 be exempted? Should adequately or 
undercapitalized institutions be exempted? Should institutions that 
would become undercapitalized (or critically undercapitalized) as the 
result of the special assessment be exempted?
    4. Should special assessments be assessed on assets or some other 
measure, rather than the regular risk-based assessment base?

[[Page 9340]]

    5. Should there be special assessments of up to10 basis points? 
Should some other rate be used? For example, should the rate be the 
rate needed to maintain the fund reserve ratio at particular value for 
the reserve ratio?
    6. Should FDIC assessments, including emergency special 
assessments, take into account the assistance being provided to 
systemically important institutions?

V. Effective Date

    This interim rule will take effect April 1, 2009.

VI. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    Pursuant to section 553(b)(B) of the Administrative Procedure Act 
(APA), notice and comment are not required prior to the issuance of a 
final rule if an agency for good cause finds that notice and public 
procedure thereon are impracticable, unnecessary, or contrary to the 
public interest. The FDIC finds good cause to adopt this interim rule 
without prior notice and comment.
    The FDIC believes that it is important that the fund not decline to 
a level that could undermine public confidence in federal deposit 
insurance. A fund balance and reserve ratio that are near zero or 
negative could create public confusion about the FDIC's ability to move 
quickly to resolve problem institutions and protect insured depositors. 
Without additional revenue other than quarterly risk-based assessments 
based on the rates adopted in the Final Rule, the FDIC projects the 
reserve ratio will fall close to zero or become negative in 2009. 
Therefore, it is important for public confidence to have the interim 
rule in place quickly. Nevertheless, the FDIC desires to have the 
benefit of public comment and thus invites interested parties to submit 
comments during a 30-day comment period. The 30-day comment period will 
allow the FDIC to receive comments in a timely manner, given that the 
interim rule will be on April 1, 2009. The FDIC will revise the interim 
rule, if appropriate, in light of the comments received.

B. 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. The FDIC invites your comments on how to make this 
proposal easier to understand. For example:
     Has the FDIC organized the material to suit your needs? If 
not, how could this material be better organized?
     Are the requirements in the regulation clearly stated? If 
not, how could the regulation be more clearly stated?
     Does the regulation contain language or jargon that is not 
clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could the FDIC do to make the regulation easier 
to understand?

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that each federal 
agency either certify that a final rule would not have a significant 
economic impact on a substantial number of small entities or prepare an 
initial regulatory flexibility analysis of the proposal and publish the 
analysis for comment.\5\ 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.\6\ The interim rule relates directly to the rates imposed on 
insured depository institutions for deposit insurance. In addition, 
this interim rule does not involve the issuance of a notice of proposed 
rulemaking. For these reasons, the requirements of the RFA do not 
apply. Nonetheless, the FDIC is voluntarily undertaking a regulatory 
flexibility analysis and is seeking comment on it.
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    \5\ See 5 U.S.C. 603, 604 and 605.
    \6\ 5 U.S.C. 601.
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    As of December 31, 2008, of the 8,305 insured commercial banks and 
savings institutions, 4,567 were small insured depository institutions 
as that term is defined for purposes of the RFA (i.e., those with $165 
million or less in assets).
    The FDIC's total assessment needs are driven by the statutory 
requirement that the FDIC adopt a Restoration Plan that provides that 
the fund reserve ratio reach at least 1.15 percent within five years 
absent extraordinary circumstances and by the FDIC's aggregate 
insurance losses, expenses, investment income, and insured deposit 
growth, among other factors. Under the interim rule, each institution 
would be subject to a special assessment at a uniform rate to help meet 
FDIC assessment revenue needs. Apart from the uniform special 
assessment on all institutions to help meet the FDIC's total revenue 
needs, the interim rule makes no other changes in rates for any insured 
institution, including small insured depository institutions. In 
effect, the interim rule would uniformly increase each institution's 
assessment rate by 20 basis points for one assessment collection 
(including each small institution's assessment rate, as a small 
institution is defined for RFA purposes), and would not alter the 
present distribution of assessment rates.\7\ The interim rule does not 
directly impose any ``reporting'' or ``recordkeeping'' requirements 
within the meaning of the Paperwork Reduction Act. The compliance 
requirements for the interim rule would not exceed existing compliance 
requirements for the present system of FDIC deposit insurance 
assessments, which, in any event, are governed by separate regulations. 
The FDIC is unaware of any duplicative, overlapping or conflicting 
federal rules.
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    \7\ Additional special assessments of up to 10 basis points 
could uniformly increase each institution's assessment rate up to 10 
basis points for additional assessment collections.
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D. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the interim 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996 
(SBREFA) Public Law 110-28 (1996). As required by law, the FDIC will 
file the appropriate reports with Congress and the Government 
Accountability Office so that the interim rule may be reviewed.

E. Paperwork Reduction Act

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

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

    The FDIC has determined that the interim 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).

[[Page 9341]]

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

0
For the reasons set forth in the preamble, the FDIC proposes to amend 
chapter III of title 12 of the Code of Federal Regulations as follows:

PART 327--ASSESSMENTS

0
1. The authority citation for part 327 continues to read as follows:

    Authority: 12 U.S.C. 1441, 1813, 1815, 1817-1819, 1821; Sec. 
2101-2109, Pub. L. 109-171, 120 Stat. 9-21, and Sec. 3, Pub. L. 109-
173, 119 Stat. 3605.


0
2. In part 327 add new Sec.  327.15 to Subpart A to read as follows:


Sec.  327.11  Emergency special assessments.

    (a) Emergency special assessment imposed on June 30, 2009. On June 
30, 2009, the FDIC shall impose an emergency special assessment of 20 
basis points on each insured depository institution based on the 
institution's assessment base calculated pursuant to Sec.  327.5 for 
the second assessment period of 2009.
    (b) Emergency special assessments after June 30, 2009. After June 
30, 2009, if the reserve ratio of the Deposit Insurance Fund is 
estimated to fall to a level that that the Board believes would 
adversely affect public confidence or to a level which shall be close 
to zero or negative at the end of a calendar quarter, an emergency 
special assessment of up to 10 basis points may be imposed by a vote of 
the Board on all insured depository institutions based on each 
institution's assessment base calculated pursuant to Sec.  327.5 for 
the corresponding assessment period.
    (1) Estimation process. For purposes of any emergency special 
assessment under this paragraph (b), the FDIC shall estimate the 
reserve ratio of the Deposit Insurance Fund for the applicable calendar 
quarter end from available data on, or estimates of, insurance fund 
assessment income, investment income, operating expenses, other revenue 
and expenses, and loss provisions, including provisions for anticipated 
failures. The FDIC will assume that estimated insured deposits will 
increase during the quarter at the average quarterly rate over the 
previous four quarters.
    (2) Imposition and announcement of emergency special assessments. 
Any emergency special assessment under this paragraph (b) shall be on 
the last day of a calendar quarter and shall be announced by the end of 
such quarter. As soon as practicable after announcement, the FDIC will 
have a notice published in the Federal Register of the emergency 
special assessment.
    (c) Invoicing of any emergency special assessments. The FDIC shall 
advise each insured depository institution of the amount and 
calculation of any emergency special assessment imposed under paragraph 
(a) or (b) of this section. This information shall be provided at the 
same time as the institution's quarterly certified statement invoice 
for the assessment period in which the emergency special assessment was 
imposed.
    (d) Payment of any emergency special assessment. Each insured 
depository institution shall pay to the Corporation any emergency 
special assessment imposed under paragraph (a) or (b) of this section 
in compliance with and subject to the provisions of Sec. Sec.  327.3, 
327.6 and 327.7 of subpart A, and the provisions of subpart B. The 
payment date for any emergency special assessment shall be the date 
provided in Sec.  327.3(b)(2) for the institution's quarterly certified 
statement invoice for the calendar quarter in which the emergency 
special assessment was imposed.

    By order of the Board of Directors.

    Dated at Washington, DC, this 27th day of February, 2009.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
 [FR Doc. E9-4585 Filed 3-2-09; 8:45 am]
BILLING CODE 6714-01-P