[Federal Register Volume 74, Number 102 (Friday, May 29, 2009)]
[Rules and Regulations]
[Pages 25639-25645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-12549]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD35


Special Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: Pursuant to section 7(b)(5) of the Federal Deposit Insurance 
Act, 12 U.S.C. 1817(b)(5), the FDIC is adopting a final rule to impose 
a 5 basis point special assessment on each insured depository 
institution's assets minus Tier 1 capital as of June 30, 2009. The 
amount of the special assessment for any institution, however, will not 
exceed 10 basis points times the institution's assessment base for the 
second quarter 2009 risk-based assessment. The special assessment will 
be collected on September 30, 2009. The final rule also provides that 
if, 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 that shall be close to 
or below zero at the end of any calendar quarter, the Board, by vote, 
may impose additional special assessments of up to 5 basis points on 
all insured depository institutions based on each institution's total 
assets minus Tier 1 capital reported on the report of condition for 
that calendar quarter. Any single additional special assessment will 
not exceed 10 basis points times the institution's assessment base for 
the corresponding quarter's risk-based assessment. The earliest 
possible date for imposing any such additional special assessment under 
the final rule would be September 30, 2009, with collection on December 
30, 2009. The latest possible date for imposing any such additional 
special assessment under the final rule would be December 31, 2009, 
with collection on March 30, 2010. Authority to impose any additional 
special assessments under the final rule terminates on January 1, 2010.

DATES: Effective Date: June 30, 2009.

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Acting Chief, 
Fund Analysis and Pricing Section, Division of Insurance and Research, 
(202) 898-8967; Christopher Bellotto, Counsel, Legal Division, (202) 
898-3801 or Sheikha Kapoor, Senior Attorney, Legal Division, (202) 898-
3960; Donna Saulnier, Manager, Assessment Policy Section, Division of 
Finance (703) 562-6167.

[[Page 25640]]


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 1.22 percent as 
of December 31, 2007, to 0.40 percent (preliminary) as of December 31, 
2008, and is expected to decline further by March 31, 2009. Twenty-five 
institutions failed in 2008, and the FDIC projects a substantially 
higher rate of institution failures this year and in the next few 
years, leading to a further decline in the reserve ratio. (As of May 
15, 2009, 33 institutions had failed in 2009.) 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 Federal Deposit Insurance Reform Act of 
2005 (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.\2\ 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 reached 1.15 percent within five years, increase 
assessment rates. The FDIC amended the Restoration Plan on February 27, 
2009, and extended the time within which the reserve ratio must be 
returned to 1.15 percent from five years to seven years due to 
extraordinary circumstances.\3\ The FDIC also adopted a final rule (the 
assessments final rule) that, among other things, set quarterly initial 
base assessment rates at 12 to 45 basis points beginning in the second 
quarter of 2009.\4\ However, given the FDIC's estimated losses from 
projected institution failures, these assessment rates will not be 
sufficient to return the fund reserve ratio to 1.15 percent within 
seven years and are unlikely to prevent the DIF fund balance and 
reserve ratio from falling to near zero or becoming negative in 2009.
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    \2\ 74 FR 61598 (October 16, 2008).
    \3\ 74 FR 9564 (Mar. 4, 2009).
    \4\ 74 FR 9525 (Mar. 4, 2009).
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II. Interim Rule With Request for Comment

    On February 27, 2009, the FDIC, using its statutory authority under 
section 7(b)(5) of the FDI Act (12 U.S.C. 1817(b)(5)), adopted an 
interim rule with request for comment imposing a 20 basis point special 
assessment on June 30, 2009, to be collected on September 30, 2009, at 
the same time that the regular quarterly risk-based assessments for the 
second quarter of 2009 are collected.\5\ Under the interim rule with 
request for comment, the assessment base for the special assessment was 
the same as the assessment base for the second quarter risk-based 
assessment.
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    \5\ 74 FR 9338 (Mar. 4, 2009).
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    The interim rule with request for comment also provided that, after 
June 30, 2009, if the reserve ratio of the DIF 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 or below zero at the 
end of any calendar quarter, the Board, by vote, may impose a special 
assessment of up to 10 basis points as of the end of any such quarter 
based on each institution's assessment base calculated pursuant to 12 
CFR 327.5 for the corresponding assessment period.

III. Comments Received

    The FDIC sought comments on every aspect of the interim rule with 
request for comment, with six particular issues posed. The FDIC 
received over 14,000 comments, which are discussed in section V below.

IV. Final Rule

    The final rule differs in several ways from the interim rule with 
request for comment. The final rule imposes a 5 basis point special 
assessment on each institution's assets minus Tier 1 capital as 
reported on the report of condition as of June 30, 2009, rather than a 
20 basis point special assessment on each institution's assessment base 
for the second quarter 2009 risk-based assessment, as provided in the 
interim rule with request for comment. The amount of the special 
assessment for any institution, however, will not exceed 10 basis 
points times the institution's assessment base for the second quarter 
2009 risk-based assessment. The special assessment will be collected on 
September 30, 2009.
    The FDIC estimates that the total amount collected under the 
special assessment will approximately equal the amount that would have 
been collected by imposing approximately a 7 and one-third basis point 
special assessment on the aggregate industry assessment base for the 
second quarter 2009 risk-based assessment. For all institutions, the 
assessment rate in the final rule will result in a much smaller 
assessment than under the interim rule with request for comment.
    According to the FDIC's projections, the special assessment, 
combined with the rates adopted in the final assessment rule in 
February 2009, should result in maintaining a year-end 2009 fund 
balance and reserve ratio that are positive, albeit close to 
zero.6, 7 It is important, however, to recognize the 
inherent uncertainty in these projections. Given the importance of 
maintaining a positive fund balance and reserve ratio, it is probable 
that an additional special assessment will be necessary, although the 
amount and timing of such a special assessment is uncertain.
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    \6\ The Helping Families Save Their Homes Act of 2009, discussed 
below, extends the temporary deposit insurance coverage limit 
increase to $250,000 (from the permanent limit of $100,000 for 
deposits other than retirement accounts) through the end of 2013. 
The legislation allows the FDIC to factor in the increase in the 
coverage limit for assessment purposes. Institutions do not 
currently report the amount of deposits insured above $100,000 
(except for retirement accounts). Staff estimates that when 
institutions begin reporting estimated insured deposits that reflect 
the higher coverage limit (probably in their September 30, 2009 
reports of condition), projected reserve ratios (provided they are 
positive) will be somewhat lower than they would be using the 
$100,000 coverage limit. Taking the coverage limit increase into 
account would not, of course, convert a positive reserve ratio to a 
negative one.
    \7\ Also, according to staff's projections, the combination of 
the 5 basis points special assessment (without any additional 
special assessments) and regular assessments should return the 
reserve ratio to 1.15 percent in 2016, one year later than required 
by the amended Restoration Plan, which requires that the reserve 
ratio return to 1.15 percent by the end of 2015. It should be noted 
that the Restoration Plan allows the FDIC the flexibility to adjust 
assessment rates as needed throughout the plan period to ensure that 
the fund reserve ratio reaches 1.15 percent within seven years (loss 
and income projections must be updated at least semiannually).
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    Therefore, the final rule also provides that, if, after June 30, 
2009, but before January 1, 2010, the reserve ratio of the DIF 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 or below 
zero at the end of any calendar quarter, the Board, by vote, may impose 
an additional special assessment of up to 5 basis points as of the end 
of any such quarter on all insured depository institutions based on 
each institution's total assets minus Tier 1 capital as reported on the 
report of condition for that calendar quarter. Any single additional 
special assessment will not exceed 10 basis points times the 
institution's assessment base for the corresponding quarter's risk-
based

[[Page 25641]]

assessment. The interim rule with request for comment had allowed 
additional special assessments of up to 10 basis points on the 
assessment base used for quarterly risk-based assessments.
    The earliest any such additional special assessment could be 
imposed under the final rule would be September 30, 2009, with 
collection on December 30, 2009. An additional special assessment of up 
to 5 basis points may be needed and the FDIC will consider whether to 
impose such an additional special assessment later in 2009, but the 
amount and timing of any additional special assessment remain 
uncertain.
    Authority to impose any additional special assessments terminates 
under this rule on January 1, 2010. The FDIC's ability to collect any 
special assessments imposed prior to January 1, 2010, would not be 
affected by this termination date.

Special Assessment

    The FDIC realizes that assessments are a significant expense, 
particularly during a financial crisis and recession when bank earnings 
are under pressure. Banks currently face tremendous challenges even 
without having to pay higher assessments. Assessments reduce the funds 
that banks can lend in their communities to help revitalize the 
economy. For that reason, the FDIC has found ways to reduce the size of 
the special assessment since adopting the interim rule with request for 
comment. The FDIC recently imposed a surcharge on senior unsecured debt 
guaranteed under the Temporary Liquidity Guarantee Program (TLGP). 
Funds collected and anticipated to be collected from this surcharge 
allow the FDIC to reduce somewhat the size of the special assessment.
    The FDIC also requested that Congress increase the FDIC's authority 
to borrow from Treasury. The size of the special assessment adopted in 
the interim rule with request for comment reflected the FDIC's need to 
maintain adequate resources to cover potential unforeseen losses. The 
FDIC had a thin cushion against unforeseen losses because its $30 
billion borrowing authority from Treasury for losses from bank failures 
had not increased since 1991, although industry assets had more than 
tripled.
    On May 20, 2009, Congress increased the FDIC's authority to borrow 
from Treasury from $30 billion to $100 billion as a part of the Helping 
Families Save Their Homes Act of 2009. In addition, this legislation 
authorized a temporary increase until December 31, 2010, in the FDIC's 
borrowing authority above $100 billion (but not to exceed $500 billion) 
based on a process that would require the concurrence of the FDIC's 
Board, the Federal Reserve Board, and the Secretary of the Treasury in 
consultation with the President. This increase in the FDIC's borrowing 
authority gives the FDIC a sufficient cushion against unforeseen bank 
failures to allow it to reduce the size of the special assessment 
significantly while continuing to assess at a level that maintains the 
DIF through industry funding. Although the industry would still pay 
assessments to cover projected losses and rebuild the fund over time, a 
lower special assessment will mitigate the pro-cyclical effects of 
assessments.
    Nevertheless, the FDIC still needs to impose a special assessment. 
The FDIC currently projects approximately $70 billion in losses due to 
insured depository institution failures over the next five years, the 
great majority of which are expected to occur in 2009 and 2010. The $70 
billion estimate of losses is about $5 billion higher than the FDIC's 
estimate in February 2009. The FDIC also currently projects that, 
without a special assessment, the reserve ratio of the DIF will become 
negative by the end of 2009. Given current projections, the FDIC 
expects that the special assessment will keep the DIF positive, albeit 
at a low level.\8\
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    \8\ The Helping Families Save Their Homes Act of 2009, discussed 
above, extends the temporary deposit insurance coverage limit 
increase to $250,000 (from the permanent limit of $100,000 for 
deposits other than retirement accounts) through the end of 2013. 
The legislation allows the FDIC to factor in the increase in the 
coverage limit for assessment purposes. Institutions do not 
currently report the amount of deposits insured above $100,000 
(except for retirement accounts). The FDIC estimates that when 
institutions begin reporting estimated insured deposits that reflect 
the higher coverage limit (probably in their September 30, 2009 
reports of condition), projected reserve ratios (provided they are 
positive) will be somewhat lower than they would be using the 
$100,000 coverage limit. Taking the coverage limit increase into 
account would not, of course, convert a positive reserve ratio to a 
negative one.
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    Section 7(b)(5) of the FDI Act, governing special assessments, 
allows the Corporation to impose one or more special assessments on 
insured depository institutions in an amount determined by the 
Corporation for any purpose that the Corporation may deem necessary. 
One of the FDIC's principal purposes in imposing special assessments 
under this rule is to prevent the reserve ratio of the fund from 
declining to zero or below. The statute does not define the assessment 
base to be used when imposing a special assessment. Thus, the FDIC has 
authority to define the appropriate assessment base for the special 
assessment by rulemaking. Chevron USA v. NRDC, 467 U.S. 837, 843 
(1984); 12 U.S.C. 1819 (a) Tenth. Moreover, prior to 1991, section 
7(b)(4) of the FDI Act defined a depository institution's assessment 
base as the institution's liability for deposits as reported on the 
institution's report of condition, subject to certain statutory 
adjustments. The Federal Deposit Insurance Corporation Improvement Act 
of 1991 repealed those provisions and substituted the current risk-
based assessment system provisions.\9\ No specific definition of the 
assessment base was put in its place, thus giving the FDIC the 
discretion to establish the appropriate base against which to charge 
assessments depending on circumstances.
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    \9\ Section 302(a), Pub. L. 102-242, 105 Stat. 2236, 2345-48 
(Dec. 19, 1991).
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    The interim rule with request for comment based the amount of the 
special assessment on the assessment base used for the regular 
quarterly risk-based assessments. In contrast, the final rule bases the 
special assessment on an institution's total assets less Tier 1 
capital. After careful consideration, the FDIC has concluded that a 
departure from the regular risk-based assessment base is appropriate in 
the current circumstances because it better balances the burden of the 
special assessment. The FDIC has excluded Tier 1 capital from the 
assessment base to ensure that no institution will be penalized for 
holding large amounts of capital.
    Unless additional special assessments are needed, all institutions 
will pay less than they would have under the interim rule with request 
for comment. Even if a second special assessment is needed, no 
institution will pay more than it would have paid under the interim 
rule with request for comment.
    A 5 basis point special assessment rate based on assets minus Tier 
1 capital should increase the reserve ratio as of the end of 2009 by 
approximately 10 basis points. According to the FDIC's projections, 
this 5 basis point special assessment (without any additional special 
assessments), combined with the rates adopted in the final assessment 
rule in February 2009, would return the reserve ratio to 1.15 percent 
in 2016, one year later than required by the amended Restoration Plan, 
which requires that the reserve ratio return to 1.15 percent by the end 
of 2015. It should be noted that the Restoration Plan allows the FDIC 
the flexibility to adjust assessment rates as needed throughout the 
plan period to ensure that the fund reserve ratio reaches 1.15 percent 
within seven years (loss and income projections must be updated at 
least semiannually).

[[Page 25642]]

    As part of the Restoration Plan, the FDIC has the authority to 
restrict the use of the one-time assessment credit while the plan is in 
effect, although an institution may still apply any remaining credit 
against its assessment to the lesser of its assessment or 3 basis 
points.\10\ The FDIC has decided not to restrict assessment credit use 
in the Restoration Plan. The FDIC projects that the amount of the 
assessment credit remaining at the time that the special assessment is 
imposed on June 30, 2009, will be very small and that its use will have 
very little effect on assessment revenue.\11\
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    \10\ Section 7(b)(3)(E)(iv) of the Federal Deposit Insurance Act 
(12 U.S.C. 1817(b)(3)(E)(iv)). Congress awarded the industry, in 
aggregate, approximately $4.7 billion in assessment credits in the 
Federal Deposit Insurance Reform Act of 2005. Almost all of these 
credits have been used.
    \11\ 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 5 basis point special 
assessment on assets minus Tier 1 capital (not to exceed 10 basis 
points on an institution's June 30, 2009, assessment base) on the 
capital and earnings of insured institutions. For this analysis, the 
FDIC has projected that insured institutions' earnings from April 1, 
2009, through March 31, 2010, will equal their earnings from April 1, 
2008, through March 31, 2009, a period that included several stressful 
quarters.\12\ Given this projection, for the industry as a whole, the 5 
basis point special assessment in 2009 would result in March 31, 2010, 
equity capital that would be approximately 0.2 percent lower than in 
the absence of a special assessment. Based on this projection for 
industry earnings, a 5 basis point special assessment would cause 2 
institutions (with $2.9 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. Of these institutions, the 
equity-to-assets ratio of one institution (with $0.2 billion in 
aggregate assets) would fall below 2 percent.
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    \12\ The FDIC excluded goodwill losses and amortization expenses 
and impairment losses for other intangible assets from earnings 
during this period, since many of these items were unusual, one-time 
charges.
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    For profitable institutions, the 5 basis point special assessment 
would result in pre-tax income for 2009 that would be 5.1 percent lower 
than if the FDIC did not charge the special assessment. For 
unprofitable institutions, pre-tax losses would increase by an average 
of 2.0 percent.

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. As a result, the FDIC has concluded that 
the need for any further special assessments should be considered 
periodically beginning later this year when the FDIC can use the most 
recently available data on fund losses and the fund reserve ratio.
    Under the final rule, the Board may, by vote, impose additional 
special assessments of up to 5 basis points each on all insured 
depository institutions to further ensure that the fund reserve ratio 
does not decline to a level that could undermine public confidence in 
federal deposit insurance or to a level which shall be close to or 
below zero at the end of a calendar quarter. Any such special 
assessment would be imposed on the last day of a quarter for the 
remainder of 2009 (September 30 or December 31) and would be collected 
approximately three months later at the same time that quarterly risk-
based assessments are collected. The earliest possible date that the 
Board, by vote, may impose such an additional special assessment is 
September 30, 2009 (which would be collected December 30, 2009). The 
latest possible date for imposing any such special assessment under the 
final rule would be December 31, 2009 (which would be collected on 
March 30, 2010). The final rule reduces the maximum size of any such 
additional special assessment to 5 basis points from the 10 basis 
points allowed by the interim rule with request for comment, and also 
changes the base for calculating this special assessment.
    Any additional special assessment also would be based on an 
institution's total assets minus Tier 1 capital as reported on the 
report of condition for the quarter ending the date the special 
assessment is imposed rather than being based on the institution's 
assessment base. Thus, for example, a special assessment imposed on 
December 31, 2009, would be based on total assets minus Tier 1 capital 
reported for the fourth quarter of 2009 (and would be collected March 
30, 2010). Any single additional special assessment is capped at 10 
basis points of the institution's assessment base used for the 
corresponding quarter's risk-based assessment. If the FDIC needs to 
impose an additional special assessment larger than 5 basis points, it 
will do so by further rulemaking.
    Near the end of the third and fourth quarters of 2009, if there is 
a reasonable possibility that the reserve ratio has declined to a level 
that could undermine public confidence in federal deposit insurance or 
to a level which shall be close to or below zero, staff 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 or below zero at the end of a calendar quarter, and 
the Board decides to impose a special assessment of up to 5 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.
    For example, if the FDIC estimates in late December 2009 that the 
reserve ratio on December 31, 2009, will fall to close to or below 
zero, the FDIC's Board may vote to impose a special assessment of up to 
5 basis points. Should the Board so vote, the special assessment will 
be announced no later than December 31. The announcement will state 
that the special assessment is being imposed on December 31, 2009, the 
rate of the assessment, and that the assessment will be collected along 
with the regular quarterly deposit insurance assessment on March 30, 
2010. Notice of the special assessment will be published in the Federal 
Register as soon as practicable.
    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 current data available.
    Authority to impose any additional special assessments terminates 
under this rule on January 1, 2010. However, the FDIC's ability to 
collect any special assessments imposed prior to January 1, 2010, would 
not be affected by this termination date. Thus, in the previous

[[Page 25643]]

example, if the Board voted to impose an additional 5 basis point 
special assessment on December 31, 2009, the special assessment would 
be collected with the regular quarterly deposit insurance assessment on 
March 30, 2010.

V. Summary of Comments

    The FDIC received over 14,000 comment letters, the vast majority of 
which stated that the proposed 20 basis point special assessment could 
have a significant adverse effect on the industry at a very difficult 
time in the economic and business cycles. A number of letters from 
smaller institutions and their trade groups noted that the assessment 
would be particularly hard for community banks to absorb.

Alternatives

    While recognizing that the banking industry stands behind the DIF, 
most of the comments suggested alternatives to reduce or eliminate a 
large, one-time special assessment. Proposed alternatives included 
spreading out payments over a number of quarters or years, increasing 
the amount of time needed to recapitalize the fund, borrowing from the 
Treasury, issuing FICO-like bonds, borrowing from the industry, 
allowing the industry to take an equity stake in the FDIC similar to 
the credit union model implemented by the National Credit Union 
Administration (NCUA) for the National Credit Union Share Insurance 
Fund (NCUSIF), using revenue from the TLGP, Legacy Loan Program and 
Troubled Asset Relief Program (TARP) initiatives, and reducing FDIC 
operational and resolutions costs.
    The FDIC is aware, and has acknowledged, that a 20 basis point 
special assessment would be a significant expense for the industry, 
particularly given current conditions. For the reasons discussed 
earlier, the FDIC has decided to reduce the size of the special 
assessment to 5 basis points on each insured depository institution's 
assets minus Tier 1 capital as of June 30, 2009, with the potential for 
imposing additional special assessments of up to 5 basis points on each 
institution's total assets minus Tier 1 capital should the FDIC's Board 
determine that the fund has declined to a level that would undermine 
public confidence in the deposit insurance system or to a level close 
to or below zero at the end of a calendar quarter. This decision, in 
effect, reduces the special assessment and spreads it out (if more than 
one assessment becomes necessary), thereby avoiding a large one time 
fee and the effect of that fee on earnings and capital.
    While the increase in the FDIC's borrowing authority from the 
Treasury gives the FDIC a sufficient cushion against unforeseen bank 
failures to allow it to reduce the size of the special assessment, the 
FDIC continues to believe that the line of credit with Treasury should 
be used to fund unexpected losses, not expected losses.
    Many of the other proposed alternative funding mechanisms would 
require legislative changes, as the FDIC does not currently have the 
statutory authority to issue equity or create an entity to issue FICO-
like bonds. Even if the FDIC had the authority to issue equity, insured 
institutions would need to determine regularly whether their equity 
investment was impaired and, if so, whether the impairment was other 
than temporary. If the investment were other-than-temporarily impaired, 
institutions would have to recognize an impairment loss in earnings and 
write down the asset (as credit unions have recently had to do with 
respect to their deposits in the NCUSIF). Given the FDIC's current 
projections for the fund balance, banks may have to recognize an other-
than-temporary impairment loss on equity investments in the FDIC soon 
after the issuance of the equity.
    While FICO-like bonds, if properly structured, could allow insured 
institutions to finance recapitalization of the DIF over a long period, 
Congress is not currently considering this option (or the possibility 
of allowing the FDIC to issue equity). Consequently, this option would 
probably not solve the FDIC's short-term need for funds to keep the 
fund balance positive.
    Regarding the proposals to use funds from various financial 
stability initiatives, as previously discussed, anticipated funds 
collected from the TLGP surcharge have allowed the FDIC to reduce 
somewhat the size of the special assessment. The FDIC does not have 
access to TARP funds.
    Borrowing from the industry would create both an asset and 
offsetting liability for the FDIC and this would not increase the fund 
or the reserve ratio.
    Several commenters, including a national trade association, 
expressed concern about the potential for a negative feedback loop 
where the special assessment causes deterioration in performance ratios 
leading by extension to CAMELS downgrades and a subsequent increase in 
premiums. The FDIC is aware of this and will issue guidance to 
examiners following the adoption of this rule instructing them to 
assign component and composite ratings without regard to payment of the 
special assessment.

Maximum Rate/Exemption for Weaker Institutions

    In addition to requesting comments on the special assessment, the 
FDIC sought specific comment on whether there should be a maximum rate 
that the combination of an institution's regular quarterly assessment 
rate and a special assessment could not exceed and whether weaker 
institutions should be exempted, in whole or in part, from the special 
assessment.
    The FDIC received a few comments on whether there should be a cap, 
or maximum rate, that the combination of an institution's regular 
quarterly assessment rate and a special assessment should not exceed. 
Several state trade groups noted that, for institutions whose rate is 
close to 100 basis points, there should be a cap, suggesting 50 basis 
points. Regarding whether weaker banks should be exempted, many 
commenters noted that the special assessment should be risk based so 
that less of the burden would be placed on healthy, well-run banks. 
However, in response to both questions, some national trade groups 
noted that the industry needs as many viable institutions as possible 
to limit costs to recapitalize the DIF.
    Given the significant reduction in the amount of the special 
assessment, the FDIC does not believe that either a cap (other than the 
general cap of 10 basis points of an institution's assessment base used 
for its risk-based assessment) or an exemption for weaker institutions 
is warranted. In addition, the FDIC does not favor using a risk-based 
system in this situation. The special assessment is intended to rebuild 
the fund, not to reflect risk of failure. Moreover, a risk-based 
special assessment would result in too large a premium for the riskiest 
institutions, particularly when taken in combination with regular 
premiums.

Alternative Assessment Base/Assistance to Systemically Important 
Institutions

    The FDIC also asked for comments on whether FDIC assessments, 
including special assessments, should take into account the assistance 
being provided to systemically important institutions and whether 
special assessments should be assessed on assets or some other measure, 
rather than the regular assessment base.
    In response, a large number of commenters stated that the special 
assessment should be based on total assets for two reasons: (1) Assets 
are a more accurate gauge of risk; and (2) it would place less of the 
burden on

[[Page 25644]]

smaller institutions. Several large banks and trade groups whose 
clients are predominantly large institutions objected to a new 
assessment base, arguing that deviation from the current assessment 
base would be inconsistent with the purpose of the DIF, which is to 
insure deposits. Several state bankers associations commented that 
weaker systemically important institutions should pay more, given the 
amount of assistance already received. A community bank trade group 
advocated a systemic risk premium.
    For the reasons discussed earlier, the FDIC agrees that the special 
assessment should be based on assets (minus Tier 1 capital).
    In response to the question regarding additional assessments, some 
commenters, including several national trade groups and a large bank, 
thought that the FDIC should go through a comment period before 
implementation of additional special assessments.
    The FDIC believes the current rule making has provided the public 
and the industry with sufficient opportunity to comment. Further, the 
mechanism adopted for additional special assessments allows the FDIC to 
act quickly, using the most up-to-date data, which reduces the chances 
that the FDIC would have to impose a special assessment that could have 
been avoided with better data.

VI. Effective Date

    This final rule will take effect June 30, 2009.

VII. Regulatory Analysis and Procedure

A. 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.\13\ 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.\14\ The final rule relates directly to the rates imposed on 
insured depository institutions for deposit insurance. In addition, 
this final 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.
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    \13\ See 5 U.S.C. 603, 604 and 605.
    \14\ 5 U.S.C. 601.
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    As of March 31, 2009, of the 8,247 insured commercial banks and 
savings institutions, 4,479 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. (The FDIC adopted an amended Restoration 
Plan extending the time within which the reserve ratio must be returned 
to 1.15 percent from five years to seven years due to extraordinary 
circumstances). Under the final 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, the final rule makes no other changes in rates for any 
insured institution, including small insured depository institutions. 
In effect, the final rule would uniformly increase each institution's 
assessment by 5 basis points of the institution's total assets minus 
Tier 1 capital for one assessment collection (including small 
institutions as defined for RFA purposes), and would alter the present 
distribution of assessments by reducing the percentage of the special 
assessment borne by small institutions. Using the standard assessment 
base of deposits as reported in the institution's report of condition 
(subject to certain statutory adjustments) and applying a 7.33 \15\ 
basis point charge, smaller institutions, as defined here, would bear 
3.8 percent of the total cost of the special assessment. Applying a 5 
basis point charge on assets minus Tier 1 capital, as provided in the 
final rule, smaller institutions would bear 2.8 percent of the total 
cost of the special assessment.
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    \15\ The FDIC estimates that the total amount collected under 
the special assessment will approximately equal the amount that 
would have been collected by imposing approximately a 7.33 basis 
point special assessment on the aggregate industry assessment base 
for the second quarter 2009 risk-based assessment.
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    The final rule does not directly impose any ``reporting'' or 
``recordkeeping'' requirements within the meaning of the Paperwork 
Reduction Act. The compliance requirements for the final 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.

B. 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 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 final rule may be reviewed.

C. Paperwork Reduction Act

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

F. 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

0
For the reasons set forth in the preamble, the FDIC amends 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.  327.11 to Subpart A to read as follows:


Sec.  327.11  Special assessments.

    (a) Special assessment imposed on June 30, 2009. On June 30, 2009, 
the FDIC shall impose a special assessment on each insured depository 
institution of 5 basis points based on the institution's total assets 
less Tier 1 capital as reported on the report of condition for the 
second assessment

[[Page 25645]]

period of 2009. The special assessment paid by any institution shall 
not exceed 10 basis points times the institution's assessment base for 
the second quarter 2009 risk-based assessment.
    (b) Special assessments after June 30, 2009--(1) Authority for 
additional special assessments. 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 or below zero at the end of a calendar 
quarter, a special assessment of up to 5 basis points on total assets 
less Tier 1 capital as reported on the report of condition for that 
calendar quarter may be imposed by a vote of the Board on all insured 
depository institutions. For any institution, the amount of such a 
special assessment shall not exceed 10 basis points times the 
institution's assessment base reported as of the date that the special 
assessment is imposed.
    (2) Termination of authority. The authority to impose additional 
special assessments under this paragraph (b) shall terminate on January 
1, 2010, but such termination of authority shall not prevent the 
Corporation from thereafter collecting any special assessment imposed 
prior to January 1, 2010.
    (3) Estimation process. For purposes of any 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.
    (4) Imposition and announcement of special assessments. Any special 
assessment under this paragraph (b) shall be imposed 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 
of the special assessment published in the Federal Register.
    (c) Invoicing of any special assessments. The FDIC shall advise 
each insured depository institution of the amount and calculation of 
any 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 special assessment was imposed.
    (d) Payment of any special assessment. Each insured depository 
institution shall pay to the Corporation any 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 
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 special assessment was imposed.

    Dated at Washington, DC this 22nd day of May, 2009.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-12549 Filed 5-27-09; 11:15 am]
BILLING CODE 6714-01-P