[Federal Register Volume 75, Number 84 (Monday, May 3, 2010)]
[Proposed Rules]
[Pages 23516-23556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10161]



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Part III





Federal Deposit Insurance Corporation





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12 CFR Part 327



Assessments; Proposed Rule

  Federal Register / Vol. 75 , No. 84 / Monday, May 3, 2010 / Proposed 
Rules  

[[Page 23516]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD57


Assessments

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: The FDIC proposes to amend our regulations to revise the 
assessment system applicable to large institutions to better 
differentiate institutions by taking a more forward-looking view of 
risk; to better take into account the losses that the FDIC will incur 
if an institution fails; to revise the initial base assessment rates 
for all insured depository institutions; and to make technical and 
other changes to the rules governing the risk-based assessment system.

DATES: Comments must be received on or before 60 days after 
publication.

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. Comments will be posted only to the extent 
practicable and, in some instances, the FDIC may post summaries of 
categories of comments, with the comments themselves available in the 
FDIC's reading room. Comments will be posted at: http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal 
information provided with the comment.

FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Chief, Large Bank Pricing 
Section, Division of Insurance and Research, (202) 898-3538; Heather L. 
Etner, Financial Analyst, Banking and Regulatory Policy Section, 
Division of Insurance and Research, (202) 898-6796; Robert L. Burns, 
Chief, Exam Support and Analysis, Division of Supervision and Consumer 
Protection (704) 333-3132 x4215; Christopher Bellotto, Counsel, Legal 
Division, (202) 898-3801; Sheikha Kapoor, Senior Attorney, Legal 
Division, (202) 898-3960.

SUPPLEMENTARY INFORMATION:

I. Background

The Reform Act

    On February 8, 2006, the President signed the Federal Deposit 
Insurance Reform Act of 2005 into law; on February 15, 2006, he signed 
the Federal Deposit Insurance Reform Conforming Amendments of 2005 
(collectively, the Reform Act).\1\ The Reform Act, among other things, 
gives the FDIC, through its rulemaking authority, the opportunity to 
better price deposit insurance for risk.\2\
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    \1\ Federal Deposit Insurance Reform Act of 2005, Public Law 
109-171, 120 Stat. 9; Federal Deposit Insurance Conforming 
Amendments of 2005, Public Law 109-173, 119 Stat. 3601.
    \2\ Section 2109(a)(5) of the Reform Act. Section 7(b) of the 
Federal Deposit Insurance Act (12 U.S.C. 1817(b)).
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    The Federal Deposit Insurance Act, as amended by the Reform Act, 
requires that the assessment system be risk-based and allows the FDIC 
to define risk broadly. It defines a risk-based system as one based on 
an institution's probability of causing a loss to the Deposit Insurance 
Fund (the Fund or the DIF) due to the composition and concentration of 
the institution's assets and liabilities, the likely amount of any such 
loss, and the revenue needs of the DIF. The Reform Act leaves in place 
the statutory provision allowing the FDIC to ``establish separate risk-
based assessment systems for large and small members of the Deposit 
Insurance Fund.'' \3\ But the Reform Act provides that ``[n]o insured 
depository institution shall be barred from the lowest-risk category 
solely because of size.'' \4\
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    \3\ Section 7(b)(1)(D) of the Federal Deposit Insurance Act (12 
U.S.C. 1817(b)(1)(D)).
    \4\ Section 2104(a)(2) of the Reform Act amending Section 
7(b)(2)(D) of the Federal Deposit Insurance Act (12 U.S.C. 
1817(b)(2)(D)).
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2006 Assessments Rule

    On November 30, 2006, pursuant to the requirements of the Reform 
Act, the FDIC adopted by regulation (the 2006 assessments rule) an 
assessment system that placed insured depository institutions into risk 
categories (Risk Category I, II, III or IV), depending upon supervisory 
ratings and capital levels.\5\ Within Risk Category I, the 2006 
assessments rule created different assessment systems for large and 
small institutions that combined supervisory ratings with other risk 
measures to further differentiate risk and determine assessment 
rates.\6\
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    \5\ 71 FR 69282. (Nov. 30, 2006). The FDIC also adopted several 
other final rules implementing the Reform Act, including a final 
rule on operational changes to part 327. 71 FR 69270 (Nov. 30, 
2006).
    \6\ The 2006 final rule defined a large institution as an 
institution (other than an insured branch of a foreign bank) with 
$10 billion or more in assets as of December 31, 2006 (although an 
institution with at least $5 billion in assets could request 
treatment as a large institution). If, after December 31, 2006, an 
institution classified as small reports assets of $10 billion or 
more in its report of condition for four consecutive quarters, the 
FDIC will reclassify the institution as large beginning in the 
following quarter. If, after December 31, 2006, an institution 
classified as large reports assets of less than $10 billion in its 
report of condition for four consecutive quarters, the FDIC will 
reclassify the institution as small beginning the following quarter. 
12 CFR 327.8(g) and (h) (2009) and 327.9(d)(6) (2009).
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    To determine assessment rates for large Risk Category I 
institutions that had a long-term debt issuer rating, the 2006 
assessments rule combined the institution's weighted average CAMELS 
component rating and any current long-term debt issuer rating or 
ratings assigned by the major U.S. rating agencies (the debt ratings 
method). For large institutions that did not have a long-term debt 
issuer rating, the rule set initial assessment rates using a financial 
ratios method, which combined the weighted average CAMELS component 
rating and certain financial ratios. (This method was also applied to 
all small institutions.) The 2006 assessments rule allowed the FDIC to 
adjust initial assessment rates for large Risk Category I institutions 
to ensure that the relative levels of risk posed by these institutions 
were consistently reflected in assessment rates; the adjustment is 
known as the large bank adjustment.\7\ The FDIC provided additional 
detail on the calculation of the large bank adjustment in its 
Guidelines for Large Institutions and Insured Foreign Branches in Risk 
Category I (the large bank guidelines).\8\
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    \7\ 71 FR 69282, 69292-69294 (Nov. 30, 2006).
    \8\ 72 FR 27122 (May 14, 2007).
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2009 Assessments Rule

    Effective April 1, 2009, the FDIC amended its assessments rule (the 
2009 assessments rule) to create the current assessment system. Under 
this assessment system, the initial base assessment rate for a Risk 
Category I institution is determined by either the financial ratios 
method applicable to all small institutions or, for institutions with 
at least one long-term debt rating, by a new large bank method.\9\ The 
new

[[Page 23517]]

large bank method incorporates a financial ratios score. For a large 
institution in Risk Category I with a long-term debt issuer rating, the 
initial base assessment rate combines the institution's weighted 
average CAMELS component rating, its average long-term debt issuer 
ratings, and its financial ratios score, each equally weighted (the 
large bank method). The 2009 assessments rule also increased the 
maximum large bank adjustment of the initial base assessment rate from 
0.50 basis points to 1 basis point.\10\
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    \9\ The financial ratios method also applies to large 
institutions without at least one long-term debt rating. The 2009 
assessments rule added a new measure--the adjusted brokered deposit 
ratio--to the financial ratios that were considered under the 2006 
assessments rule. The adjusted brokered deposit ratio measures the 
extent to which certain brokered deposits are used to fund rapid 
asset growth. The adjusted brokered deposit ratio excludes deposits 
that a Risk Category I institution receives through a deposit 
placement network on a reciprocal basis, such that: (1) For any 
deposit received, the institution (as agent for depositors) places 
the same amount with other insured depository institutions through 
the network; and (2) each member of the network sets the interest 
rate to be paid on the entire amount of funds it places with other 
network members (reciprocal deposits).
    \10\ 74 FR 9525, 9535-9536 (Mar. 4, 2009).
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    Initial base assessment rates as of April 1, 2009, are set forth in 
Table 1 below.

                           Table 1--Initial Base Assessment Rates as of April 1, 2009
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                                                  Risk category
-----------------------------------------------------------------------------------------------------------------
                                                            I *
                                                --------------------------      II          III           IV
                                                   Minimum      Maximum
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Annual Rates (in basis points).................           12           16           22           32           45
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* Rates for institutions that do not pay the minimum or maximum rate will vary between these rates.

    The 2009 assessments rule provided for adjustments to the initial 
base assessment rate for institutions in all risk categories. An 
institution's total base assessment rate can vary from its initial base 
assessment rate as the result of an unsecured debt adjustment and a 
secured liability adjustment. The unsecured debt adjustment lowers an 
institution's initial base assessment rate using its ratio of long-term 
unsecured debt (and, for small institutions, certain amounts of Tier 1 
capital) to domestic deposits.\11\ The secured liability adjustment 
increases an institution's initial base assessment rate if the 
institution's ratio of secured liabilities to domestic deposits is 
greater than 25 percent (the secured liability adjustment).\12\ In 
addition, institutions in Risk Categories II, III and IV are subject to 
an adjustment for large levels of brokered deposits (the brokered 
deposit adjustment).\13\
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    \11\ Unsecured debt excludes debt guaranteed by the FDIC under 
its Temporary Liquidity Guarantee Program.
    \12\ The initial base assessment rate cannot increase more than 
50 percent as a result of the secured liability adjustment.
    \13\ 74 FR 9522, 9541 (Mar. 4, 2009).
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    After applying all possible adjustments, the minimum and maximum 
total base assessment rates for each risk category under the 2009 
assessments rule are set out in Table 2 below.

                                Table 2--Initial and Total Base Assessment Rates
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                                                   Risk category   Risk category   Risk category   Risk category
                                                         I              II              III             IV
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Initial base assessment rate....................           12-16              22              32              45
Unsecured debt adjustment.......................            -5-0            -5-0            -5-0            -5-0
Secured liability adjustment....................             0-8            0-11            0-16          0-22.5
Brokered deposit adjustment.....................  ..............            0-10            0-10            0-10
                                                 ---------------------------------------------------------------
    Total Base Assessment Rate..................          7-24bp         17-43bp         27-58bp       40-77.5bp
----------------------------------------------------------------------------------------------------------------
All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates.

II. Overview of the Proposal

    The FDIC proposes to revise the assessment system applicable to 
large institutions to better capture risk at the time an institution 
assumes the risk, to better differentiate institutions during periods 
of good economic and banking conditions based on how they would fare 
during periods of stress or economic downturns, and to better take into 
account the losses that the FDIC may incur if an institution fails.
    The FDIC has carefully considered the measurements that should be 
used to assess large banks' risk. The proposal includes quantitative 
measures that are readily available and statistically significant in 
predicting an institution's long-term performance. The FDIC believes 
that other considerations--such as stress testing, underwriting 
characteristics, and risk management practices--are also important in 
the risk assessment of large institutions, and they should be factored 
into the risk-based assessment system. While the FDIC has already 
identified some key metrics for these additional considerations, the 
FDIC is seeking further input in a request for comments included in 
this proposed rulemaking. The FDIC also anticipates that any final rule 
issued pursuant to this notice of proposed rulemaking would be followed 
by discussions with the industry on ways to improve the system adopted, 
as well as coordination with other regulators. Ultimately, the FDIC 
anticipates a further round of rulemaking may be needed to improve the 
large bank assessment system adopted pursuant to this rulemaking.
    The FDIC proposes to eliminate risk categories for large 
institutions to allow the FDIC to draw finer distinctions among large 
institutions based upon the risk that they pose. For all large 
institutions, the FDIC proposes to eliminate use of long-term debt 
issuer ratings. The FDIC has found that debt issuer ratings, 
particularly for the largest institutions, do not respond quickly to an 
institution's changing risk profile. The FDIC proposes to continue to 
rely

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upon CAMELS ratings and financial measures to determine assessment 
rates.\14\
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    \14\ The proposed rule clarifies that if the FDIC disagrees with 
the ratings changes to an institution's risk assignment by its 
primary federal regulator or, for state-chartered institutions, by 
the state banking supervisor, the FDIC will notify the institution 
of its decision and any resulting change to an institution's risk 
assignment is effective as of the date of FDIC's transmittal notice.
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    The FDIC proposes to combine CAMELS ratings and certain financial 
measures into two scorecards--one for most large institutions and 
another for large institutions that are structurally and operationally 
complex or that pose unique challenges and risks in case of failure 
(Highly Complex Institutions). Each scorecard would consist of a 
performance component, which would measure an institution's financial 
performance and its ability to withstand stress, and a loss severity 
component, which would correspond to the level of potential losses in 
case of failure. The data underlying these measures are readily 
available. Most of the data are publicly available, but some are 
gathered during the examination process. Under the proposal, the FDIC 
would have the ability to adjust each component where necessary to 
produce accurate relative risk rankings.
    Because some of the financial measures that the FDIC is proposing 
focus on long-term risk, they should mitigate the pro-cyclicality of 
the current system. Over the long term, institutions that pose higher 
long-term risk will pay higher assessments when they assume these 
risks--usually during economic expansions--rather than facing large 
assessment increases when conditions deteriorate. In so doing, they 
should provide incentives for institutions to avoid excessive risk 
during economic expansions.
    As shown in Chart 1, the proposed measures were useful in 
predicting long-term performance of large institutions over the 2005 to 
2009 period. The chart contrasts the predictive values of the proposed 
measures with weighted-average CAMELS component ratings and with the 
existing financial ratios method. (The financial ratios method is based 
on a statistical model that predicts downgrades of small banks within 
12 months, but the method also applies to large Risk Category I banks.) 
The proposed measures predict the FDIC's view, based on its experience 
and judgment, of the proper rank ordering of risk for large 
institutions do significantly better than the other two methods and, 
thus, better than the current system used for most large Risk Category 
I institutions, which combines weighted-average CAMELS composite 
scores, the financial ratios method and long-term debt issuer ratings. 
(As noted above, debt issuer ratings, particularly for the largest 
institutions, do not respond quickly to an institution's changing risk 
profile.) For example, in 2006, the proposed measures would have 
predicted the FDIC's expert judgment-based risk ranking of large 
institutions as of year-end 2009 nearly two and one-half times better 
than the risk measures in the existing financial ratios method, which 
applies to large banks without debt ratings.
[GRAPHIC] [TIFF OMITTED] TP03MY10.005

    The FDIC also proposes to alter assessment rates applicable to all 
insured depository institutions to ensure that the revenue collected 
under the new assessment system would approximately equal that under 
the existing assessment system and also to ensure that the lowest rate 
applicable to both small and large institutions would be the same. The 
FDIC would retain its flexibility to raise assessment rates up to 3 
basis points above or below base assessment rates without the necessity 
of further rulemaking.
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    \15\ The expert judgment ranking is a risk ranking of large 
institutions based on FDIC's current analyses. The ranking is 
largely based on the information available through the FDIC's Large 
Insured Depository Institution (LIDI) program. Large institutions 
that failed or received significant government support over the 
period are assigned the worst risk ranking and are included in the 
statistical analysis. Appendix 1 describes the statistical analysis 
in detail.

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III. Risk-Based Assessment System for Large Insured Depository 
Institutions

    A ``large institution'' would continue to be defined under the 
proposal as an insured depository institution with $10 billion or 
greater in total assets for at least four consecutive quarters. The 
proposal would apply to all large institutions regardless of whether 
they are defined as new.\16\ Insured branches of foreign banks would 
not be defined as large institutions.
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    \16\ In almost all cases, an institution that has had $10 
billion or greater in total assets for four consecutive quarters 
will have CAMELS ratings. However, in the rare event that a large 
institution has not yet received CAMELS ratings, it would be given a 
weighted average CAMELS rating of 2 for assessment purposes until 
actual CAMELS ratings are assigned.
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A. Scorecard for Large Institutions (Other Than Highly Complex 
Institutions)

    The scorecard method would use risk measures to derive an 
assessment rate reflective of the risk that an institution poses to the 
insurance fund. Each scorecard would produce two scores: A performance 
score and a loss severity score. To arrive at a performance score, the 
scorecard would combine CAMELS ratings and financial measures into a 
single performance score between 0 and 100. The FDIC would have limited 
ability to adjust an institution's performance score based upon 
quantitative or qualitative measures not adequately captured in the 
scorecard.
    The scorecard would also combine loss severity measures into a 
single loss severity score between 0 and 100. The loss severity score 
would then be converted into a loss severity measure. The FDIC would 
also have limited ability to alter an institution's loss severity score 
based upon quantitative or qualitative measures not adequately captured 
in the scorecard. Multiplying the performance score by the loss 
severity measure would produce a combined score, which would then be 
converted to an initial assessment rate.
    In general, a risk measure value reflecting lower risk than the 
cutoff value that results in a score of 0 would also receive a score of 
0, where 0 equals the lowest risk for that measure. A risk measure 
value reflecting higher risk than the cutoff value that results in a 
score of 100 would also receive a score of 100, where 100 equals the 
highest risk for that measure. A risk measure value between the cutoff 
values would be converted to a score between 0 and 100, which would be 
rounded to 3 decimal points.
    Table 3 shows scorecard measures and the possible range of scores.

                Table 3--Scorecard for Large Institutions
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            Components                Scorecard measures        Score
------------------------------------------------------------------------
CAMELS...........................  Weighted Average CAMELS.       25-100
------------------------------------------------------------------------
Ability to Withstand Asset-        Tier 1 Common Capital           0-100
 Related Stress.                    Ratio (Tier 1 Common
                                    Capital/Total Average
                                    Assets less Disallowed
                                    Intangibles).
                                  --------------------------------------
                                   Concentration Measure...        0-100
                                    Higher Risk
                                    Concentrations; or.
                                    Growth-Adjusted
                                    Portfolio
                                    Concentrations..
                                  --------------------------------------
                                   Core Earnings/Average           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Credit Quality Measure..        0-100
                                    Criticized and
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                    or.
                                    Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves..
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Criticized and                     30
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                    or
                                   Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves.
                                  --------------------------------------
                                   Higher Risk                        30
                                    Concentrations.
                                  --------------------------------------
                                     Total ability to              0-160
                                   withstand asset-related
                                   stress score
------------------------------------------------------------------------
Ability to Withstand Funding-      Core Deposits/Total             0-100
 Related Stress.                    Liabilities.
                                  --------------------------------------
                                   Unfunded Commitments/           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Liquid Assets/Short-term        0-100
                                    Liabilities (liquidity
                                    coverage ratio).
------------------------------------------------------------------------
                                     Total ability to              0-100
                                   withstand funding-
                                   related stress score
------------------------------------------------------------------------
                                   Total Performance Score.        0-100
------------------------------------------------------------------------
Potential Loss Severity..........  Potential Losses/Total          0-100
                                    Domestic Deposits (loss
                                    severity measure).
                                  --------------------------------------
                                   Secured Liabilities/            0-100
                                    Total Domestic Deposits.
------------------------------------------------------------------------
                                   Total loss severity             0-100
                                    score.
------------------------------------------------------------------------


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1. Performance Score
    The first component of the scorecard for large institutions would 
be the performance score. The performance score for large institutions 
would be the weighted average of three inputs: (1) Weighted average 
CAMELS rating; (2) ability to withstand asset-related stress measures; 
and (3) ability to withstand funding-related stress measures. Table 4 
shows the weight given to each of these three inputs.

              Table 4--Performance Score Inputs and Weights
------------------------------------------------------------------------
                                                                Weight
                  Performance score inputs                     (percent)
------------------------------------------------------------------------
CAMELS Rating...............................................          30
Ability to Withstand Asset-Related Stress...................          50
Ability to Withstand Funding-Related Stress.................          20
------------------------------------------------------------------------

a. Weighted Average CAMELS Score
    To derive the weighted average CAMELS score, a weighted average of 
an institution's CAMELS component ratings would first be calculated 
using the weights that are applied in the current rule as shown in 
Table 5 below.

              Table 5--Weights for CAMELS Component Ratings
------------------------------------------------------------------------
                                                                Weight
                      CAMELS component                         (percent)
------------------------------------------------------------------------
C...........................................................          20
A...........................................................          20
M...........................................................          25
E...........................................................          10
L...........................................................          10
S...........................................................          10
------------------------------------------------------------------------

    A weighted average CAMELS rating would be converted to a score that 
ranges from 25 to 100. A weighted average rating of 1 would equal a 
score of 25 and a weighted average of 3.5 or greater would equal a 
score of 100. Weighted average CAMELS ratings between 1 and 3.5 would 
be assigned a score between 25 and 100. The score would increase at an 
increasing rate as the weighted average CAMELS rating increases.
    Weighted average CAMELS ratings between 1 and 3.5 would be assigned 
a score between 25 and 100 according to the following equation:

S = 25 + [(20/3) * (C\2\ - 1)],

Where:

S = the weighted average CAMELS score and
C = the weighted average CAMELS rating.

    This equation normalizes the weighted average CAMELS score to 
the same range as the other components described below so that it 
can be added to these components, resulting in a performance score. 
This conversion from a weighted average CAMELS rating to a score is 
a non-linear conversion. Other conversions used in this proposal 
would be linear. The non-linear conversion recognizes that the 
difference between higher CAMELS ratings (e.g., a CAMELS 3 versus a 
CAMELS 4) represents a greater difference in risk than the 
difference between lower CAMELS ratings (e.g., a CAMELS 1 versus a 
CAMELS 2).
b. Ability To Withstand Asset-Related Stress Component
    The ability to withstand asset-related stress component would 
contain measures that are most relevant to assessing a large 
institution's ability to withstand such stress. These measures would be 
the following:
     Tier 1 common capital ratio;
     Concentration measure (the higher of the higher-risk 
concentrations measure or growth-adjusted portfolio concentrations 
measures);
     Core earnings/average total assets; and
     Credit quality measure (the higher of the criticized and 
classified items/Tier 1 capital and reserves or underperforming assets/
Tier 1 capital and reserves).
    In general, these measures proved to be the most statistically 
significant measures of an institution's ability to withstand asset-
related stress, as described in Appendix 1. Appendix B describes these 
measures in detail and gives the source of the data used to determine 
them.
    Each risk measure within the ability to withstand asset-related 
stress portion of the scorecard would be converted linearly to a score 
between 0 and 100 where 100 equals the highest risk and 0 equals the 
lowest risk for that measure.\17\ For each risk measure, a value 
reflecting lower risk than the cutoff value that results in a score of 
0 will also receive a score of 0, where 0 equals the lowest risk for 
that measure. A value reflecting higher risk than the cutoff value that 
results in a score of 100 will also receive a score of 100, where 100 
equals the highest risk for that measure. A risk measure value between 
the minimum and maximum cutoff values is converted linearly to a score 
between 0 and 100. For the Concentration Measure and Credit Quality 
Measures, a lower ratio implies lower risk and a higher ratio implies 
higher risk. For these measures, a value between the minimum and 
maximum cutoff values will be converted linearly to a score between 0 
and 100, according to the following formula:
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    \17\ This process, in effect, normalizes all the ratios to the 
same range of values and allows the numbers to be added together.

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S = (V - Min)*100/(Max - Min),

where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    For the Tier 1 Common Capital Ratio and Core Earnings to Average 
Total Assets Ratio, a lower value represents higher risk and a higher 
value represents lower risk. For these measures, a value between the 
minimum and maximum cutoff values is converted linearly to a score 
between 0 and 100, according to the following formula:

S = (Max - V)*100/(Max - Min),

where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    The concentration measure score would equal the higher of the two 
scores that make up the concentration measure score, as would the 
credit quality score.\18\ The credit quality score would be based upon 
the higher of the criticized and classified items ratio score or the 
underperforming assets ratio score.\19\ Table 6 shows each of the 
measures, gives the cutoff values for each measure and shows the weight 
assigned to the measure to derive a score for an institution's ability 
to withstand asset-related stress. Most of the minimum and maximum 
cutoff values for each risk measure equal the 10th and 90th percentile 
values of the particular measure among large institutions based upon 
data from the period between the first quarter of 2000 and the fourth 
quarter of 2009.20 21
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    \18\ The higher-risk concentration measure gauges concentrations 
that are currently deemed to be high risk. The growth-adjusted 
portfolio concentration measure does not solely consider high-risk 
portfolios, but considers all portfolio concentrations.
    \19\ The criticized and classified items ratio measures 
commercial credit quality while the underperforming assets ratio is 
often a better indicator for consumer portfolios.
    \20\ Cutoff values are rounded to one decimal point.
    \21\ The measures in which the 10th and 90th percentiles would 
not be used would be the higher-risk concentration measure and the 
criticized and classified asset ratio due to data availability. Data 
on the higher-risk concentration measure are available consistently 
since second quarter 2008, and criticized and classified assets are 
only available consistently since first quarter 2007. For the 
higher-risk concentration measure, the 85th percentile value is used 
as a maximum cutoff value. The maximum cutoff value for the 
criticized and classified asset ratio is close to but does not equal 
the 90th percentile value. These alternative cutoff values are 
partly based on recent experience.

[[Page 23521]]



            Table 6--Cutoff Values and Weights for Ability To Withstand Asset-Related Stress Measures
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                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Tier 1 Common Capital Ratio.....................................             5.8            12.9              15
Concentration Measure...........................................  ..............  ..............              35
    Higher Risk Concentrations; or..............................             0.0             3.2  ..............
    Growth-Adjusted Portfolio Concentrations....................             7.6           154.7  ..............
Core Earnings/Average Total Assets..............................             0.0             2.3              15
Credit Quality Measure..........................................  ..............  ..............              35
    Criticized and Classified Items/Tier 1 Capital and Reserves;             6.5           100.0  ..............
     or.........................................................
    Underperforming Assets/Tier 1 Capital and Reserves..........             2.3            35.1  ..............
----------------------------------------------------------------------------------------------------------------

    Each score would be multiplied by a respective weight and the 
resulting weighted score for each measure would be summed to arrive at 
an ability to withstand asset-related stress score, which could range 
from 0 to 100. The FDIC recognizes that extreme values for some 
measures should have an additional effect on the final scorecard total. 
For extreme values of certain measures reflecting particularly high 
risk, this score could increase through an outlier add-on. 
Specifically, if an institution's ratio of criticized and classified 
items to Tier 1 capital and reserves exceeded 100 percent or its ratio 
of underperforming assets to Tier 1 capital and reserves exceeded 50.2 
percent, the ability to withstand asset-related stress component score 
would be increased by 30 points. Additionally, if the higher risk 
concentration measure exceeded 4.8, the ability to withstand asset-
related stress component score would be increased by 30 points. These 
increases (outlier add-ons) would be determined separately and could 
increase the ability to withstand asset-related stress score by up to 
60 points; thus, the ability to withstand asset-related stress 
component score could be as high as 160 points.\22\
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    \22\ That is, the statistical analysis shows that a significant 
amount of criticized and classified items or underperforming assets, 
or concentrations in high risk portfolios are the most significant 
(having coefficients with the largest absolute value) measures that 
help differentiate the risk profiles of large institutions and 
predict an institution's long-term performance. In addition, recent 
experience suggests that a small number of institutions with very 
high levels of criticized and classified items or underperforming 
assets, or high risk portfolio concentrations are particularly 
vulnerable to unexpected asset-related stress. The value that 
triggers the outlier add-on for the criticized and classified items 
to Tier 1 capital and reserves was determined using FDIC's judgment. 
The value that triggers the outlier add-on for the underperforming 
assets to Tier 1 capital and reserves is the 95th percentile value 
for the distribution of values of that measure for large 
institutions from 2000 to 2009. The value that triggers the outlier 
add-on for the higher risk concentration measure is the 90th 
percentile value for the distribution of values of that measure for 
large institutions from second quarter 2008 to fourth quarter 2009. 
A lower value was chosen for this measure due to a short history of 
available data.
---------------------------------------------------------------------------

    Table 7 illustrates how the ability to withstand asset-related 
stress score would be calculated for a hypothetical bank, Bank A.

                     Table 7--Ability to Withstand Asset-Related Stress Component for Bank A
----------------------------------------------------------------------------------------------------------------
                                                                                      Weight
               Scorecard measures                      Value           Score         (percent)    Weighted score
----------------------------------------------------------------------------------------------------------------
Tier 1 Common Capital Ratio.....................            7.62           74.37              15           11.15
Concentration Measure...........................  ..............           78.13              35           27.35
    Higher Risk Concentrations; or..............            2.50           78.13  ..............  ..............
    Growth-Adjusted Portfolio Concentrations....           45.00           25.42  ..............  ..............
Core Earnings/Average Total Assets..............            0.50           78.26              15           11.74
Credit Quality Measure..........................  ..............          100.00              35           35.00
    Criticized and Classified Items/Tier 1                104.32          100.00  ..............  ..............
     Capital and Reserves; or...................
    Underperforming Assets/Tier 1 Capital and              33.76           95.91  ..............  ..............
     Reserves...................................
                                                 ---------------------------------------------------------------
        Subtotal................................  ..............  ..............  ..............           85.24
----------------------------------------------------------------------------------------------------------------
Outlier Add-ons:
----------------------------------------------------------------------------------------------------------------
    Criticized and Classified Items/Tier 1                104.32  ..............  ..............           30.00
     Capital and Reserves; or...................
----------------------------------------------------------------------------------------------------------------
    Underperforming Assets/Tier 1 Capital and              33.76           30.00  ..............  ..............
     Reserves...................................
Higher Risk Concentrations......................            2.50            0.00  ..............  ..............
----------------------------------------------------------------------------------------------------------------
        Total ability to withstand asset-related stress score...................................          115.24
----------------------------------------------------------------------------------------------------------------

    Bank A's higher risk concentrations score (78.13) is higher than 
its growth-adjusted portfolio concentration score (25.42). Thus, the 
higher risk concentration score is multiplied by the 35 percent weight 
to get a weighted score of 27.35 and the growth-adjusted portfolio 
concentration score would be ignored. Similarly, Bank A's criticized 
and classified items to Tier 1 capital and reserves ratio score (100) 
is higher than its underperforming assets to Tier 1 capital and 
reserves ratio score (95.91). Therefore, the criticized and classified 
items to Tier 1 capital and reserves ratio score would be multiplied by 
the 35 percent weight to get a weighted score of 35.00 and the 
underperforming assets to Tier 1 capital and reserves ratio score would 
be ignored. These weighted scores, along with the weighted scores for 
the Tier 1 common capital ratio (11.15) and core earnings to average 
total assets ratio (11.74), would be

[[Page 23522]]

added together, resulting in the subtotal of 85.24. Because Bank A's 
criticized and classified items to Tier 1 capital and reserves ratio 
score is greater than 100, the criticized and classified items to Tier 
1 capital and reserves ratio outlier add-on would be triggered, and an 
additional 30 points would be added to Bank A's score. Bank A's higher 
risk concentrations measure score does not exceed 4.8; therefore, the 
second outlier add-on would not be triggered. Thus, only the outlier 
add-on for the criticized and classified items to Tier 1 capital and 
reserves ratio would be added to the subtotal to arrive at the asset 
vulnerability component score of 115.24 for Bank A.
c. Ability To Withstand Funding-Related Stress
    The ability to withstand funding-related stress component would 
contain three measures that are most relevant to assessing a large 
institution's ability to withstand such stress--a core deposits to 
total liabilities ratio, an unfunded commitments to total assets ratio, 
and a liquid assets to short-term liabilities (liquidity coverage) 
ratio. These ratios are significant in predicting a large institution's 
long-term performance in the statistical test described in Appendix 1. 
Appendix B describes these ratios in detail and gives the source of the 
data used to determine them.
    Each risk measure would be converted to a score between 0 and 100 
where 100 equals the highest risk and 0 equals the lowest risk for that 
measure. A risk measure value reflecting lower risk than the cutoff 
value that results in a score of 0, will also receive a score of 0, 
where 0 equals the lowest risk for that measure. A risk measure value 
reflecting higher risk than the cutoff value that results in a score of 
100, will also receive a score of 100, where 100 equals the highest 
risk for that measure. For the Core Deposits/Liabilities measure and 
the Liquidity Coverage Ratio, a lower ratio implies higher risk and a 
higher ratio implies lower risk. For these measures, a value between 
the minimum and maximum cutoff values will be converted linearly to a 
score between 0 and 100, according to the following formula:

S = (Max - V)*100/(Max - Min)

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    For the Unfunded Commitments/Assets measure, a lower value 
represents lower risk and a higher value represents higher risk. For 
these measures, a value between the minimum and maximum cutoff values 
is converted linearly to a score between 0 and 100, according to the 
following formula:

S = (V - Min)*100/(Max - Min)

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    The ability to withstand funding-related stress component score 
would be the weighted average of the three measure scores. Table 8 
shows the cutoff values and weights for these measures.

           Table 8--Cutoff Values and Weights for Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................             3.2            79.1              40
Unfunded Commitments/Total Assets...............................             0.3            42.2              40
Liquid Assets/Short-term Liabilities (liquidity coverage ratio).             5.6           170.9              20
----------------------------------------------------------------------------------------------------------------

d. Calculation of Performance Score
    The weighted average CAMELS score, the ability to withstand asset-
related stress score, and the ability to withstand funding-related 
stress score would then be multiplied by their weights and the results 
would be summed to arrive at the performance score. This score would 
not be less than 0 or more than 100 under the proposal. In the example 
in Table 9, Bank A's performance score would be 81.70.

                  Table 9--Performance Score for Bank A
------------------------------------------------------------------------
                                        Weight                 Weighted
    Performance score components       (percent)     Score       score
------------------------------------------------------------------------
Weighted Average CAMELS Score.......          30       65.15       19.54
Ability to Withstand Asset-Related            50      115.24       57.62
 Stress Score.......................
Ability to Withstand Funding-Related          20       22.69        4.54
 Stress Score.......................
                                     -----------------------------------
    Total Performance Score.........  ..........  ..........       81.70
------------------------------------------------------------------------

    The performance score could be adjusted, up or down, by a maximum 
of 15 points, based upon significant risk factors that are not 
adequately captured in the scorecard. The resulting score, however, 
could not be less than 0 or more than 100. The FDIC would use a process 
similar to the current large bank adjustment to determine the amount of 
the adjustment to the performance score.\23\ This discretionary 
adjustment is discussed in more detail below.
---------------------------------------------------------------------------

    \23\ 12 CFR 327.9(d)(4) (2009).
---------------------------------------------------------------------------

2. Loss Severity Score
    The loss severity score would measure the relative magnitude of 
potential losses to the FDIC in the event of an institution's failure. 
The loss severity score would be based on two measures that are most 
relevant to assessing an institution's potential loss severity. The 
loss severity measure is the ratio of possible losses to the FDIC in 
the event of an institution's failure to total domestic deposits, 
averaged over three quarters. A standardized set of assumptions--based 
on recent failures--regarding liability runoffs and the recovery value 
of asset categories are applied to calculate possible losses to the 
FDIC. (Appendix D to the NPR describes the calculation of the measure

[[Page 23523]]

in detail.) A loss severity measure is used as part of the current 
large bank adjustment. The second measure is the ratio of secured 
liabilities to total domestic deposits. (The greater an institution's 
secured liabilities relative to domestic deposits, the greater the 
FDIC's potential rate of loss in the event of failure, since secured 
liabilities have priority in payment over deposits at failure.) These 
measures are quantitative measures that are derived from readily 
available data. Appendix B defines these measures and gives the source 
of the data used to calculate them.
    Each risk measure would be converted to a score between 0 and 100 
where 100 equals the highest risk and 0 equals the lowest risk for that 
measure. A risk measure value reflecting lower risk than the minimum 
cutoff value results in a score of 0, where 0 equals the lowest risk 
for that measure. A risk measure value reflecting higher risk than the 
maximum cutoff value results in a score of 100, where 100 equals the 
highest risk for that measure. A risk measure value between the minimum 
and maximum cutoff values is converted linearly to a score between 0 
and 100, according to the following formula:

S = (V - Min)*100/(Max - Min),

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    The loss severity score would be the weighted average of these 
scores. Table 10 shows cutoff values and weights for these measures. 
The loss severity score would not be less than 0 or more than 100 under 
the proposal.

                      Table 10--Cutoff Values and Weights for Loss Severity Score Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Potential Losses/Total Domestic Deposits (Loss Severity Measure)             0.0            30.1              50
Secured Liabilities/Total Domestic Deposits.....................             0.0            75.7              50
----------------------------------------------------------------------------------------------------------------

    In the example in Table 11, Bank A's loss severity score would be 
36.04.

                                    Table 11--Loss Severity Score for Bank A
----------------------------------------------------------------------------------------------------------------
                                                                                      Weight
               Scorecard measures                      Ratio           Score         (percent)    Weighted score
----------------------------------------------------------------------------------------------------------------
Potential Losses/Total Domestic Deposits (Loss             15.20           50.50              50           25.25
 severity measure)..............................
Secured Liabilities/Total Domestic Deposits.....           16.34           21.59              50           10.79
                                                 ---------------------------------------------------------------
    Total Loss Severity Score...................  ..............  ..............  ..............           36.04
----------------------------------------------------------------------------------------------------------------

    Similar to the performance score, the loss severity score could be 
adjusted, up or down, by a maximum of 15 points, based on significant 
risk factors specific to the institution that are not adequately 
captured in the scorecard. The resulting score, however, could not be 
less than 0 or more than 100. The FDIC would use a process similar to 
the current large bank adjustment to determine the amount of the 
adjustment to the loss severity score.\24\ This discretionary 
adjustment is discussed in more detail below.
---------------------------------------------------------------------------

    \24\ 12 CFR 327.9(d)(4) (2009).
---------------------------------------------------------------------------

3. Initial Base Assessment Rate
    Under the proposal, once the performance and loss severity scores 
are calculated, and potentially adjusted, these scores would be 
converted to an initial base assessment rate using the following 
method:
    First, the loss severity score would be converted into a loss 
severity measure that ranges from 0.8 (score of 5 or lower) to 1.2 
(score of 85 or higher). Scores that fall at or below the minimum 
cutoff of 5 would receive a loss severity measure of 0.8 and scores 
that fall at or above the maximum cutoff of 85 would receive a loss 
severity score of 1.2. Again, a linear interpolation would be used to 
convert loss severity scores between the cutoffs into a loss severity 
measure. The conversion would be made using the following formula:

Loss Severity Measure = 0.8 + [(Loss Severity Score - 5) x 0.005]

    For example, if Bank A's loss severity score is 36.04, its loss 
severity measure would be 0.96, calculated as follows:

0.8 + [(36.04 - 5) * 0.005] = 0.96.

    Next, the performance score would be multiplied by the loss 
severity measure to produce a total score (total score = performance 
score * loss severity measure). Since the loss severity measure ranges 
from 0.8 to 1.2, the total score could be up to 20 percent higher or 
lower than the performance score. The total score would be capped at 
100 under the proposal and would be rounded to two decimal places. For 
example, if Bank A's performance score is 81.70 and its loss severity 
measure is 0.96, its total score would be 78.43, calculated as follows:

81.70 * 0.96 = 78.43

    A large institution with a total score of 30 or lower would pay the 
minimum initial base assessment rate and an institution with a total 
score of 90 or greater would pay the maximum initial base assessment 
rate.\25\ For total scores between 30 and 90, initial base assessment 
rates would rise at an increasing rate as the total score increased. 
The initial base assessment rate (in basis points) would be calculated 
according to the following formula (assuming that the maximum initial 
base assessment rate was 40 basis points higher than the minimum rate): 
\26\
---------------------------------------------------------------------------

    \25\ The score of 30 and 90 equals about the 20th and about the 
97th percentile values, respectively, based on scorecard results as 
of first quarter 2005 through fourth quarter 2006.
    \26\ The rate of increase in the initial base assessment rate is 
based on a statistical analysis of failure probabilities as 
described in Appendix 2.

---------------------------------------------------------------------------

[[Page 23524]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.006

    For example, if Bank A's total score were 78.43, and the minimum 
and maximum initial base assessment rates were 10 basis points and 50 
basis points, respectively, its initial base assessment rate would be 
30.02 basis points, calculated as follows:
---------------------------------------------------------------------------

    \27\ The initial base assessment rate would be rounded to two 
decimal points.
[GRAPHIC] [TIFF OMITTED] TP03MY10.007

    This calculation of an initial assessment rate is based on an 
approximated statistical relationship between an institution's total 
score and its estimated three-year cumulative failure probability.
    Chart 2 illustrates the initial base assessment rate based on a 
range of total scores and Bank A's assessment rate is indicated on the 
curve.
[GRAPHIC] [TIFF OMITTED] TP03MY10.008

    The initial base assessment rate could be adjusted as a result of 
the unsecured debt adjustment, secured liability adjustment and 
brokered deposit adjustment (discussed below).

B. Scorecard for Highly Complex Institutions

    As mentioned above, those institutions that are structurally and 
operationally complex or that pose unique challenges and risks in case 
of failure (highly complex institutions) would have a different 
scorecard under the proposal. A ``highly complex institution'' would be 
defined as: (1) An insured depository institution (excluding a credit 
card bank) with greater than $50 billion in total assets that is wholly 
owned by a parent company with more than $500 billion in total assets, 
or wholly owned by one or more intermediate parent companies that are 
wholly owned by a holding company with more than $500 billion in 
assets, or (2) a processing bank and trust company with greater than 
$10 billion in total assets, provided that the information required to 
calculate assessment rates as a highly complex institution is readily 
available to the FDIC.\28\ Under the proposal, highly complex 
institutions would have a

[[Page 23525]]

scorecard with measures tailored to the risks posed by these 
institutions, but the methodology involved would be the same for both 
scorecards.
---------------------------------------------------------------------------

    \28\ A parent company would be defined as a bank holding company 
under the Bank Holding Company Act of 1956 or a savings and loan 
holding company under the Home Owners' Loan Act. A credit card bank 
would be defined as a bank for which credit card plus securitized 
receivables exceed 50 percent of assets plus securitized 
receivables. A processing bank and trust company would be defined as 
an institution whose last 3 years' non-lending interest income plus 
fiduciary revenues plus investment banking fees exceed 50 percent of 
total revenues (and last 3 years' fiduciary revenues are non-zero).
---------------------------------------------------------------------------

    The scorecard for highly complex institutions has four additional 
measures that do not appear in the scorecard for other large 
institutions (the senior bond spread, the institution's parent 
company's tangible common equity (TCE) ratio, the 10-day 99 percent 
Value at Risk (VaR), and the short-term funding to total assets ratio). 
These measures were designed to measure vulnerability to changes in the 
market and would be incorporated into the calculation of a highly 
complex institution's initial base assessment rate because of the 
institution's greater involvement in market activities. Appendix B 
describes these measures in detail and gives the source of the data 
used to calculate the measures.
    The scorecard for highly complex institutions, like the scorecard 
for other large institutions, would contain a performance component and 
a loss severity component. However, the performance score for highly 
complex institutions would contain an additional component--the market 
indicators component. Table 12 shows the scorecard measures and the 
possible range of scores that would be used for these institutions. 
Table 13 gives the weights associated with the four components of the 
performance scorecard for highly complex institutions.

           Table 12--Scorecard for Highly Complex Institutions
------------------------------------------------------------------------
            Components                Scorecard measures        Score
------------------------------------------------------------------------
CAMELS...........................  Weighted Average CAMELS.       25-100
------------------------------------------------------------------------
Market Indicator.................  Senior Bond Spread......        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Parent Company Tangible            30
                                    Common Equity (TCE)
                                    Ratio.
                                  --------------------------------------
                                   Total Market Indicator          0-130
                                    score.
------------------------------------------------------------------------
Ability to Withstand Asset-        Tier 1 Common Capital           0-100
 Related Stress.                    Ratio (Tier 1 Common
                                    Capital/Total Average
                                    Assets less Disallowed
                                    Intangibles).
                                  --------------------------------------
                                   Concentration Measure...        0-100
                                   Higher Risk
                                    Concentrations; or
                                   Growth-Adjusted
                                    Portfolio
                                    Concentrations
                                  --------------------------------------
                                   Core Earnings/Average           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Credit Quality Measure..        0-100
                                   Criticized and
                                    Classified Items/Tier 1
                                    Capital and Reserves
                                    Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves
                                  --------------------------------------
                                   10-day 99% VaR/Tier 1           0-100
                                    Capital.
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Criticized and                     30
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                    or
                                   Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves
                                  --------------------------------------
                                   Higher Risk                        30
                                    Concentrations Measure.
                                  --------------------------------------
                                   Total ability to                0-160
                                    withstand asset-related
                                    stress score.
------------------------------------------------------------------------
Ability to Withstand Funding-      Core Deposits/Total             0-100
 Related Stress.                    Liabilities.
                                  --------------------------------------
                                   Unfunded Commitments/           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Liquid Assets/Short-term        0-100
                                    Liabilities (liquidity
                                    coverage ratio).
                                  --------------------------------------
                                   Short-term Funding/Total        0-100
                                    Assets.
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Short-term funding/Total           30
                                    Assets.
------------------------------------------------------------------------
                                   Total ability to                0-130
                                    withstand funding-
                                    related stress score.
------------------------------------------------------------------------
                                   Total Performance Score.        0-100
------------------------------------------------------------------------
Potential Loss Severity..........  Potential Losses/Total          0-100
                                    Domestic Deposits (loss
                                    severity measure).
                                  --------------------------------------

[[Page 23526]]

 
                                   Secured Liabilities/            0-100
                                    Total Domestic Deposits.
------------------------------------------------------------------------
                                   Total loss severity             0-100
                                    score.
------------------------------------------------------------------------



           Table 13--Performance Score Components and Weights
------------------------------------------------------------------------
                                                                Weight
                Performance score components                  (percent)
------------------------------------------------------------------------
CAMELS Rating..............................................           20
Market Indicators..........................................           10
Ability to Withstand Asset-Related Stress..................           50
Ability to Withstand Funding-Related Stress................           20
------------------------------------------------------------------------

    The additional component, the market indicator component, would be 
added to the performance scorecard for highly complex institutions. The 
market indicator component contains only one measure, the senior bond 
spread score, and one outlier add-on. The FDIC would use the senior 
bond spread because this measure can be compared consistently across 
institutions. The senior bond spread would be converted linearly to a 
score between 0 and 100. The minimum and maximum cutoff values for the 
market indicator measure are shown in Table 14. The market indicator 
component score would be adjusted by up to 30 points if the 
institution's parent company's tangible common equity (TCE) ratio fell 
below 4 percent since the market generally perceives a parent company 
to be vulnerable if its TCE is less than 4 percent. Including the 
outlier add-on, the market indicator component score could be as high 
as 130 points.

     Table 14--Cutoff Values and Weight for Market indicator Measure
------------------------------------------------------------------------
                                         Cutoff values
        Scorecard measures         ------------------------    Weight
                                      Minimum     Maximum     (percent)
------------------------------------------------------------------------
Senior Bond Spread................        0.6         3.8           100
------------------------------------------------------------------------

    The scorecard for highly complex institutions adds one additional 
factor to the ability to withstand asset-related stress component--the 
10-day 99 percent Value at Risk (VaR)/Tier 1 capital--and one 
additional factor to the ability to withstand funding-related stress 
component--the short-term funding to total assets ratio. Table 15 and 
Table 16 show cutoff values and weights for ability to withstand asset-
related stress measures and ability to withstand funding-related stress 
measures, respectively.

           Table 15--Cutoff Values and Weights for Ability To Withstand Asset-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Tier 1 Common Capital Ratio.....................................             5.8            12.9              10
Concentration Measure:                                                                                        35
    Higher Risk Concentrations; or..............................             0.0             3.2
    Growth-Adjusted Portfolio Concentrations....................             7.6           154.7
Core Earnings/Average Total Assets..............................             0.0             2.3              10
Credit Quality Measure:                                                                                       35
    Criticized and Classified Items to Tier 1 Capital and                    6.5           100.0
     Reserves; or...............................................
    Underperforming Assets/Tier 1 Capital and Reserves..........             2.3            35.1
10-day 99 VaR/Tier 1 Capital....................................             0.1             0.5              10
----------------------------------------------------------------------------------------------------------------


          Table 16--Cutoff Values and Weights for Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................             3.2            79.1              30
Unfunded Commitments/Total Assets...............................             0.3            42.2              30
Liquid Assets/Short-term Liabilities (liquidity coverage ratio).             5.6           170.9              20
Short-term Funding/Total Assets.................................             0.0            19.1              20
----------------------------------------------------------------------------------------------------------------

    The scorecard for highly complex institutions also adds an 
additional outlier add-on. The ability to withstand funding-related 
stress component score for highly complex institutions would be 
adjusted by 30 points if the ratio of short-term funding to total 
assets exceeded 26.9 percent.\29\ The use of

[[Page 23527]]

short-term funding has proved to be highly unstable and the FDIC has 
found an increased vulnerability, particularly for institutions that 
are active participants, when there is a heavy reliance on this type of 
funding. Including the outlier add-on, the ability to withstand 
funding-related stress component score for highly complex institutions 
could be as high as 130 points.
---------------------------------------------------------------------------

    \29\ Historical analysis shows that a significant amount of 
short-term funding can increase the risk profile of an institution. 
External funding sources can be a critical source of liquidity but 
short-term funding exposes an institution to near-term price risk 
and rollover risk. These risks increase for an institution during 
periods of market disruption or when the institution itself is 
experiencing financial distress. The add-on is triggered when the 
level of short-term funding to total assets ratio exceeds 26.9%. 
This is the 95th percentile of this measure among large institutions 
based upon data from the period between the third quarter of 1999 
and the second quarter of 2009.
---------------------------------------------------------------------------

    To calculate the performance score for highly complex institutions, 
the weighted average CAMELS score, the market indicators score, the 
ability to withstand asset-related stress score, and the ability to 
withstand funding-related stress score would be multiplied by their 
weights and the results would be summed to arrive at the performance 
score. The score would be capped at 100 under the proposal. The loss 
severity score for highly complex institutions would be calculated the 
same way as the loss severity score for other large institutions.
    As is the case for other large institutions, the performance score 
and the loss severity score for highly complex institutions could be 
adjusted, up or down, by maximum of 15 points each, based upon 
significant risk factors that are not adequately captured in the 
scorecard. The resulting scores, however, could not be less than 0 or 
more than 100. The FDIC would use a process similar to the current 
large bank adjustment to determine the amount of any adjustments.\30\ 
This discretionary adjustment is discussed in more detail below.
---------------------------------------------------------------------------

    \30\ 12 CFR 327.9(d)(4)(2009).
---------------------------------------------------------------------------

    The initial base assessment rate for highly complex institutions 
would be calculated from the total score in the same manner as for 
other large institutions as described above. As in the case of other 
large institutions, the initial base assessment rate could also be 
adjusted as a result of the unsecured debt adjustment, the secured 
liability adjustment, and the brokered deposit adjustment (discussed 
below).

C. Large Bank Adjustment to the Performance Score and Loss Severity 
Score

    Under current rules, large institutions and insured branches of 
foreign banks within Category 1 are subject to an assessment rate 
adjustment (the large bank adjustment). The large bank adjustment was 
designed to preserve consistency in the relative risk rankings of large 
institutions as indicated by assessment rates, to ensure fairness among 
all large institutions, and to ensure that assessment rates take into 
account all available information that is relevant to the FDIC's risk-
based assessment decision. The FDIC proposes that a large bank 
adjustment be retained that would be imposed in the same manner (and 
subject to the same notice requirements) as under the current rule.\31\
---------------------------------------------------------------------------

    \31\ 12 CFR 327.9(d)(4) (2009).
---------------------------------------------------------------------------

    As proposed, the FDIC could adjust the performance score and/or the 
loss severity score for all large institutions and highly complex 
institutions, up or down, by a maximum of 15 points each, based upon 
significant risk factors that are not adequately captured in the 
scorecard. In determining whether to make a large bank adjustment, the 
FDIC may consider such information as financial performance and 
condition information and other market or supervisory information. The 
FDIC would also consult with an institution's primary Federal regulator 
and, for state chartered institutions, state banking supervisor. 
Appendix E lists some, but not all, criteria that could be considered 
in determining whether or not a discretionary adjustment is necessary.
    In general, the proposed adjustments to the performance and loss 
severity scores would have a proportionally greater effect on the 
assessment rate of those institutions with a higher total score. The 
effect of an upward adjustment to a score on the institution's 
assessment rate would be calculated as
[GRAPHIC] [TIFF OMITTED] TP03MY10.009

and the effect of a downward adjustment to a score on the institution's 
assessment rate would be
[GRAPHIC] [TIFF OMITTED] TP03MY10.010

where Au is an increase in the assessment rate, 
Ad is a decrease in the assessment rate, C is the amount 
of upward adjustment to score, and P is pre-adjustment score.

    Notifications involving an upward adjustment to an institution's 
assessment rate would be made in advance of implementing such an 
adjustment so that the institution has an opportunity to respond to or 
address the FDIC's rationale for proposing an upward adjustment. 
Adjustments would be implemented after considering the institution's 
response to this notification along with any subsequent changes either 
to the inputs or other risk factors that relate to the FDIC's decision.
    The FDIC acknowledges the need to clarify and make technical 
changes to its adjustment guidelines for large institutions to ensure 
consistency with this rulemaking.\32\
---------------------------------------------------------------------------

    \32\ 72 FR 27122 (May 14, 2007).
---------------------------------------------------------------------------

D. Liability-Based Adjustments

    The proposed rule would continue to allow for adjustments to an 
institution's initial base assessment rate as a result of certain long-
term unsecured debt, secured liabilities and brokered deposits. These 
adjustments are currently provided for in the 2009 assessments rule, 
except that the brokered deposit adjustment currently applies only to 
institutions in Risk Categories II, III and IV. The proposed rule would 
extend the brokered deposit adjustment to all large institutions since 
the adjusted brokered deposit ratio (which took brokered deposits and 
growth into account for large Risk Category I institutions) would no 
longer apply. The unsecured debt adjustment, secured liability 
adjustment and brokered deposit adjustment would be applicable to both 
large institutions and highly complex institutions under the proposal.

E. Calculation of Total Assessment Rate

    After making the adjustments just described, the resulting 
assessment rate would be the total assessment rate. Under the proposal, 
unlike the current rule for both large and small institutions, a large 
institution's total assessment rate could not be more than 50 percent 
lower than its initial base assessment rate. This change ensures that 
all institutions would pay assessments even if the minimum initial base 
assessment rate is set at 5 basis points or less.

F. Updating Scorecard

    The FDIC proposes that it have the flexibility to update the 
minimum and maximum cutoff values and weights used in each scorecard 
annually, without notice-and-comment rulemaking. In particular, the 
FDIC could add new data from each year to its analysis and could, from 
time to time, exclude some earlier years from its analysis. Updating 
the minimum and maximum cutoff values and weights would allow the FDIC 
to use the most

[[Page 23528]]

recent data, thereby improving the accuracy of the scorecard method.
    On the other hand, if, as a result of its review and analysis, the 
FDIC concludes that additional or alternative measures should be used 
to determine risk-based assessments or that a new method should be used 
to differentiate risk among large institutions and highly complex 
institutions, such changes would be made through notice-and-comment 
rulemaking.
    Financial ratios for any given quarter would continue to be 
calculated from the report of condition filed by each institution or 
data collected through the FDIC's LIDI program as of the last day of 
the quarter.\33\ CAMELS component rating changes would continue to be 
effective as of the date that the rating change is transmitted to the 
institution for purposes of determining assessment rates.\34\
---------------------------------------------------------------------------

    \33\ Reports of condition include Reports of Income and 
Condition and Thrift Financial Reports.
    \34\ Pursuant to existing supervisory practice, the FDIC does 
not assign a different component rating from that assigned by an 
institution's primary federal regulator, even if the FDIC disagrees 
with a CAMELS component assigned by an institution's primary federal 
regulator, unless: (1) The disagreement over the component rating 
also involves a disagreement over a CAMELS composite rating; and (2) 
the disagreement over the CAMELS composite rating is not a 
disagreement over whether the CAMELS composite rating should be a 1 
or a 2. The FDIC has no plans to alter this practice.
---------------------------------------------------------------------------

IV. Assessment Rates

    As discussed above, the FDIC proposes a wider range of assessment 
rates than under the current assessment system. To maintain 
approximately the same total revenue under the proposed rule as under 
the current system, the FDIC proposes that the Board adopt new initial 
and total base assessment rate schedules set out in Tables 17 and 18, 
effective January 1, 2011.
    Under the proposed rule, the range of initial base assessment rates 
for small institutions and insured branches of foreign banks in Risk 
Category I would be uniformly 2 basis points lower than under the 
current assessment system; the initial base assessment rate for 
institutions in Risk Category II would be unchanged; while the proposed 
initial base assessment rate for small institutions and insured 
branches in Risk categories III and IV would be somewhat higher. For 
large and highly complex institutions the minimum rate in the proposed 
range of rates would be 2 basis points lower than the current Risk 
Category I minimum assessment rate and the maximum rate in the range 
would be slightly higher than current maximum Risk Category IV 
assessment rates.\35\
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 1817(b)(2)(D) provides that ``No insured 
depository institution shall be barred from the lowest risk category 
solely because of size.''
---------------------------------------------------------------------------

    Actual total assessment rates will be set uniformly 3 basis points 
higher than the proposed rates in accordance with the Amended 
Restoration Plan that the FDIC adopted on September 29, 2009.\36\
---------------------------------------------------------------------------

    \36\ 74 FR 51062 (Oct. 2, 2009). Under current rules, the FDIC 
has discretion to increase or decrease assessment rates in effect up 
to 3 basis points above or below total base assessment rates without 
the need for additional rulemaking. The proposed rule would not 
affect this provision.

    Table 17--Proposed Initial and Total Base Assessment Rates for Small Institutions and Insured Branches of
                                                  Foreign Banks
----------------------------------------------------------------------------------------------------------------
                                                                                Risk category
                                           Risk category I  Risk category II         III        Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate............             10-14                22                34                50
Unsecured debt adjustment...............              -5-0              -5-0              -5-0              -5-0
Secured liability adjustment............               0-7              0-11              0-17              0-25
Brokered deposit adjustment.............  ................              0-10              0-10              0-10
                                         -----------------------------------------------------------------------
    Total Base Assessment Rate..........              5-21             17-43             29-61             45-85
----------------------------------------------------------------------------------------------------------------
All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates. All rates shown would increase 3 basis points on January 1, 2011,
  pursuant to the FDIC Amended Restoration Plan adopted on September 29, 2009. 74 FR 51062 (Oct. 2, 2009).


  Table 18--Proposed Initial and Total Base Assessment Rates for Large
                              Institutions
------------------------------------------------------------------------
                                                              Large
                                                          institutions
------------------------------------------------------------------------
Initial base assessment rate..........................             10-50
Unsecured debt adjustment.............................              -5-0
Secured liability adjustment..........................              0-25
Brokered deposit adjustment...........................              0-10
                                                       -----------------
    Total Base Assessment Rate........................              5-85
------------------------------------------------------------------------
All amounts are in basis points annually. Total base rates that are not
  the minimum or maximum rate will vary between these rates. All rates
  shown would increase 3 basis points on January 1, 2011, pursuant to
  the FDIC Amended Restoration Plan adopted on September 29, 2009. 74 FR
  51062 (Oct. 2, 2009).

    Based upon the analysis and projections below, the FDIC has 
concluded that the proposed assessment rate structure (including the 
previously announced 3 basis point uniform increase in assessment rates 
beginning January 1, 2011) should satisfy the FDIC's revenue and 
liquidity needs. Under the proposal, for the fourth quarter 2009 
assessment period, total base assessment rates would have been lower 
for about 52 percent of large institutions and 76 percent of small 
institutions.\37\ The rates would have been higher for about 48 percent 
of large institutions and 9 percent of small institutions. The rates 
would have remained the same for 15 percent of small institutions.
---------------------------------------------------------------------------

    \37\ For the purpose of this analysis, large institutions are 
those with total assets of $10 billion or greater as of December 31, 
2009. The estimates in the text regarding the effect of the proposal 
on assessment rates, the effect on industry capital and earnings 
discussed later in the text and the Regulatory Flexibility Act 
analysis discussed later in the text, are based in part on 
approximations of a few risk measures.
---------------------------------------------------------------------------

Fund Balance and Reserve Ratio Projections

    In September 2009, the FDIC projected that both the Fund balance

[[Page 23529]]

and the reserve ratio as of September 30, 2009, would be negative, 
owing, in part, to an increase in provisioning for anticipated 
failures. The FDIC also projected the Fund balance and reserve ratio 
for each quarter over the next several years using the then most 
recently available information on expected failures and loss rates and 
statistical analyses of trends in CAMELS downgrades, failure rates and 
loss rates. The FDIC projected that, over the period 2009 through 2013, 
the Fund could incur approximately $100 billion in failure costs; the 
FDIC projected that most of these costs would occur in 2009 and 2010.
    Partly as a result of these projections, the FDIC increased risk-
based assessment rates uniformly by 3 basis points effective January 1, 
2011. Despite this increase, the FDIC projected that the Fund balance 
would become significantly negative in 2010 and would remain negative 
until first quarter 2013. According to these projections, the reserve 
ratio would return to the statutorily mandated minimum reserve ratio of 
1.15 percent in the first quarter of 2017.
    As projected, the Fund balance and reserve ratio as of September 
30, 2009, and December 31, 2009, were negative. (The Fund balance on 
December 31, 2009 was negative $20.9 billion; the reserve ratio was -
0.39 percent.) In February 2010, the FDIC reexamined its projections 
using the most recently available information on expected failures and 
loss rates, and statistical analyses of trends in CAMELS downgrades, 
failure rates and loss rates. This reexamination resulted in no 
material changes to the FDIC's projections. However, these projections 
are subject to considerable uncertainty. Losses could be less than or 
exceed projected amounts, for example, if conditions affecting the 
national or regional economies, prove less or more severe than is 
currently anticipated.

Effect on Industry Capital and Earnings

    The proposed changes involve increases in premiums for some 
institutions and reductions in premiums for other institutions. Because 
overall revenue remains almost constant, the effect on aggregate 
earnings and capital is small. Projections show that imposition of the 
new premiums will increase aggregate capital by 2 one-hundredths of one 
percent (0.02 percent) over one year. For 6,042 institutions, 
assessment rates would decrease and earnings and capital would 
increase; for 771 institutions, assessment rates would increase and 
earnings and capital would decline. For institutions whose initial 
earnings are positive, the change in premiums will increase earnings by 
an average of 0.87 percent (on an asset weighted basis). For 
institutions whose initial earnings are negative, the change in 
premiums will increase losses by an average of 0.85 percent (on an 
asset weighted basis).\38\
---------------------------------------------------------------------------

    \38\ The proposed changes to assessment rates would not take 
effect until January 1, 2011. For two reasons, the analysis in the 
text examines the effect on earnings and capital had proposed rates 
been in effect on January 1, 2010. First, it is difficult to project 
2011 institution income so far in advance. Second, as discussed in 
the text, because overall assessment revenue under the proposed 
system would remain approximately the same as the current system, 
the effect on earnings and capital is small for almost all 
institutions. This conclusion holds true for 2011, as well, because 
both current and proposed assessment rates will increase uniformly 
by three basis points beginning January 1, 2011. (A detailed 
analysis of the projected effects of the payment of proposed 
assessment on the capital and earnings of insured institutions is 
contained in Appendix 3.)
---------------------------------------------------------------------------

    Imposition of the proposed assessment rates would make a critical 
difference for two institutions, whose tier 1 capital ratio would fall 
below 2 percent over a one-year horizon (assuming the proposed rule 
were adopted for 2010). No institution's equity-to-capital ratio would 
fall below 4 percent over a one-year horizon.\39\
---------------------------------------------------------------------------

    \39\ In setting assessment rates, the FDIC's Board of Directors 
of the FDIC is authorized to set assessments for insured depository 
institutions in such amounts as the Board of Directors may determine 
to be necessary. 12 U.S.C. 1817(b)(2)(A). In so doing, the Board 
shall consider: (1) The estimated operating expenses of the DIF; (2) 
the estimated case resolution expenses and income of the DIF; (3) 
the projected effects of the payment on the capital and earnings of 
insured depository institutions; (4) the risk factors and other 
factors taken into account pursuant to 12 U.S.C. 1817(b) (1) under 
the risk-based assessment system, including the requirement under 
such paragraph to maintain a risk-based system; and (5) any other 
factors the Board of Directors may determine to be appropriate. 12 
U.S.C. 1817(b)(2)(B). As reflected in the text, in making its 
projections of the Fund balance and liquidity needs, and in making 
its recommendations regarding assessment rates, the Board has taken 
into account these statutory factors.
---------------------------------------------------------------------------

V. Effective Date

    January 1, 2011.

VI. Request for Comments

    The FDIC seeks comment on every aspect of this proposed rule. In 
particular, the FDIC seeks comment on the questions set out below. The 
FDIC asks that commenters include reasons for their positions.\40\ The 
FDIC specifically requests comment on the following:
---------------------------------------------------------------------------

    \40\ The FDIC may not address all of the questions posed in the 
current rulemaking, but may consider the information gathered in 
future actions.
---------------------------------------------------------------------------

A. Questions for Future Rulemakings

    As mentioned above, the FDIC seeks input on additional measures 
that could be incorporated into the assessment system in future 
rulemakings.
    a. The FDIC would like to factor into the scorecard credit, 
liquidity, market, and interest rate stress tests. How should these 
stress tests be factored into the scorecard? What methodology and 
assumptions should be used?
    b. Underwriting is a key determinant of credit quality. The FDIC 
would like to develop metrics to measure underwriting quality. How 
could underwriting quality best be measured?
    c. A high level of counterparty risk can significantly increase an 
institution's ability to withstand stress. How could counterparty risk 
best be measured?
    d. A high level of market risk can significantly increase an 
institution's ability to withstand stress. How could market risk best 
be measured?
    e. How could liquidity risk best be measured?
    f. How should the exposure of individual banks to systemic risk be 
measured? What activities and behavior constitute exposure to systemic 
risk?
    g. How is the capability of risk management best assessed?
    h. Should the FDIC review the assessment system applicable to small 
institutions to determine whether improvements, including improvements 
analogous to those being proposed for the large institution assessment 
system, should be made to the assessment system used for small 
institutions?

B. Questions About the Proposal

    1. Deposit Insurance Pricing System:
    (a) Should the risk categories be eliminated as proposed?
    (b) Should the two scorecards be combined?
    (c) Should highly complex institutions be defined as proposed?
    (d) Should the risk measures, particularly the components of the 
high risk concentrations measure, be defined as proposed?
    (e) Should the performance score and loss severity score be 
combined as proposed?
    (f) Should the initial base assessment rate be calculated as 
proposed?
    2. Performance Scorecard:
    (a) Are the proposed weights assigned to performance score 
components and measures appropriate?
    (b) Are the cut-off values for the risk measures and the outlier 
add-ons appropriate?
    (c) Should any other measures be added? Should any measures be 
removed or replaced?
    (d) For the growth-adjusted portfolio concentration measure, are 
the risk weights assigned to each portfolio as described in Appendix C 
appropriate?

[[Page 23530]]

    (e) For the higher-risk concentration measure, should 
concentrations in other portfolios be considered?
    (f) Should purchased impaired loans under SOP 03-3 be excluded from 
the definition of criticized and classified items or underperforming 
assets?
    (g) Should the liquidity coverage ratio be computed as proposed?
    (h) Are the outlier add-ons appropriate measures? Is the score 
addition for add-ons appropriate?
    (i) Is the size of the discretionary adjustment to the performance 
score appropriate?
    3. Loss Severity Scorecard:
    (a) Are asset haircuts, runoff, and secured liability assumptions 
for the loss severity measure as described in Appendix D appropriate?
    (b) Are asset adjustments due to liability runoff and capital 
reductions as described in Appendix D applied appropriately?
    (c) Are the proposed weights assigned to loss severity measures 
appropriate?
    (d) Are cut-off values for risk measures and outlier add-ons 
appropriate?
    (e) Should any other measures be added? Should any measures be 
removed or replaced?
    (f) Is the size of the discretionary adjustment to the loss 
severity score appropriate?
    4. Assessment Rate Schedule:
    (a) Should the entire proposed assessment rate schedule be adjusted 
to make it revenue neutral overall?
    (b) Is the basis point range for assessments appropriate?
    5. Regulatory Matters:
    (a) What is the extent of regulatory burden with implementation of 
the proposed deposit insurance pricing system?
    (b) Are the requirements in the proposed regulation clearly stated? 
If not, how could the regulation be more clearly stated?
    (c) Does the proposed regulation contain language or jargon that is 
not clear? If so, which language requires clarification?

VII. 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. 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 proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
     Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could the FDIC do to make the regulation easier 
to understand?

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency either certify that a proposed rule would not, if adopted in 
final form, have a significant economic impact on a substantial number 
of small entities or prepare an initial regulatory flexibility analysis 
of the rule and publish the analysis for comment.\41\ 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.\42\ The proposed rule relates directly to the 
rates imposed on insured depository institutions for deposit insurance, 
and to the risk-based assessment system components that measure risk 
and weigh that risk in determining each institution's assessment rate, 
and includes technical and other changes to the FDIC's assessment 
regulations. Nonetheless, the FDIC is voluntarily undertaking an 
initial regulatory flexibility analysis of the proposed rule for 
publication.
---------------------------------------------------------------------------

    \41\ See 5 U.S.C. 603, 604 and 605.
    \42\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    As of December 31, 2009, of the 8,012 insured commercial banks and 
savings associations, there were 4,427 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
those with $175 million or less in assets).
    For purposes of this analysis, whether the FDIC were to collect 
needed assessments under the existing rule or under the proposed rule, 
the total amount of assessments collected would be the same. The FDIC's 
total assessment needs are driven by statutory requirements and by the 
FDIC's aggregate insurance losses, expenses, investment income, and 
insured deposit growth, among other factors. Given the FDIC's total 
assessment needs, the proposed rule would merely alter the distribution 
of assessments among insured institutions. Using data as of December 
31, 2009, the FDIC calculated the total assessments that would be 
collected under the base rate schedule in the proposed rule.
    The economic impact of the final rule on each small institution for 
RFA purposes (i.e., institutions with assets of $175 million or less) 
was then calculated as the difference in basis points and annual 
assessments under the proposed rule compared to the existing rule, 
assuming the same total assessments collected by the FDIC from the 
banking industry.43 44
---------------------------------------------------------------------------

    \43\ Throughout this regulatory flexibility analysis (unlike the 
rest of the final rule), a ``small institution'' refers to an 
institution with assets of $175 million or less.
    \44\ The proposed rule would not go into effect until January 1, 
2011. Under the existing assessment system and under the proposed 
rule, assessment rates would increase uniformly by three basis 
points beginning on that date. Because the increase is uniform in 
both cases, the analysis in the text, which compares current 
assessment rates with proposed base assessment rates, should apply 
equally to 2011.
---------------------------------------------------------------------------

    Based on the December 2009 data, under the proposed rule, the 
change in the assessment system would result in lower assessments for 
the majority of small institutions. Small institutions would experience 
an average drop of 1.39 basis points in their assessment rates under 
the proposed rule. More than 86 percent of these institutions would 
face a lower assessment rate, with 76 percent of them being charged 1 
to 2 basis points lower than the current pricing rule. Of the total 
4,427 small institutions, only 13 percent would experience an increase 
and only 173 institutions would experience an assessment rate increase 
of more than 2 basis points. These figures indicate that the proposed 
rule will have a positive economic impact for a substantial number of 
small insured institutions. Table 19 below sets forth the results of 
the analysis in more detail.

[[Page 23531]]



   Table 19--Change in Basis Point Assessments Under the Proposed Rule
------------------------------------------------------------------------
                                          Number of        Percent of
  Change in basis point assessments     institutions      institutions
------------------------------------------------------------------------
More than -2 basis points lower.....               114              2.58
-2 to -1 basis points lower.........             3,377             76.28
-1 to 0 basis points lower..........               356              8.04
0 to 1 basis points higher..........               243              5.49
1 to 2 basis points higher..........               164              3.70
More than 2 basis points higher.....               173              3.91
                                     -----------------------------------
    Total...........................             4,427            100.00
------------------------------------------------------------------------

    The FDIC performed a similar analysis to determine the impact on 
profits for small institutions. Based on December 2009 data, under the 
final rule, 96 percent of the 3,039 small institutions with reported 
profits would experience a positive change in their annual profits. 
Table 20 sets forth the results of the analysis in more detail.

  Table 20--Change in Assessments Under the Proposal as a Percentage of
                                Profit *
------------------------------------------------------------------------
     Change in assessments as a           Number of        Percent of
        percentage of profit            institutions      institutions
------------------------------------------------------------------------
More than .2 percent lower..........                18              0.59
.1 to .2 percent lower..............                18              0.59
.05 to .1 percent lower.............                41              1.35
0 to .05 percent lower..............             2,841             93.48
0 to 1 percent higher...............               121              3.98
                                     -----------------------------------
    Total...........................             3,039            100.00
------------------------------------------------------------------------
* Institutions with negative or no profit were excluded. These
  institutions are shown separately in the next table.

    Of those small institutions with reported profits, less than 4 
percent would have experienced a decrease in their profits under the 
proposed rule. More than 96 percent of these small institutions would 
have an increase in their profits. Again, these figures indicate a 
positive economic impact on profits for the majority of small insured 
institutions.
    Table 21 excludes small institutions that either show no profit or 
show a loss, because a percentage cannot be calculated. The FDIC 
analyzed the effect of the proposed rule on these institutions by 
determining the annual assessment change that would result. Table 21 
below shows that only 2.81 percent (39) of the 1,388 small insured 
institutions in this category would experience an increase in annual 
assessments of $10,000 or more. More than 10 percent of these 
institutions would experience a decrease of $5,000 or more.

Table 21--Change in Assessments Under the Proposed Rule for Institutions
                   With Negative or No Reported Profit
------------------------------------------------------------------------
                                          Number of        Percent of
        Change in assessments           institutions      institutions
------------------------------------------------------------------------
$5,000-$10,000 decrease.............               147             10.59
$1,000-$5,000 decrease..............               468             33.72
$0-$1,000 decrease..................               334             24.06
$0-$1,000 increase..................               151             10.88
$1,000-$10,000 increase.............               249             17.94
$10,000 increase or more............                39              2.81
                                     -----------------------------------
    Total...........................             1,388            100.00
------------------------------------------------------------------------

    The proposed rule does not directly impose any ``reporting'' or 
``recordkeeping'' requirements within the meaning of the Paperwork 
Reduction Act. The compliance requirements for the proposed 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.
    The initial regulatory flexibility analysis set forth above 
demonstrates that the proposed rule would not have a significant 
economic impact on a substantial number of small institutions within 
the meaning of those terms as used in the RFA.\45\
---------------------------------------------------------------------------

    \45\ 5 U.S.C. 605.
---------------------------------------------------------------------------

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 proposed rule.

[[Page 23532]]

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

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

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

PART 327--ASSESSMENTS

    1. 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, Pubic Law 
109-173, 119 Stat. 3605.

    2. In Sec.  327.4, revise paragraphs (c) and (f) to read as 
follows:


Sec.  327.4  Assessment rates.

* * * * *
    (c) Requests for review. An institution that believes any 
assessment risk assignment provided by the Corporation pursuant to 
paragraph (a) of this section is incorrect and seeks to change it must 
submit a written request for review of that risk assignment. An 
institution cannot request review through this process of the CAMELS 
ratings assigned by its primary Federal regulator or challenge the 
appropriateness of any such rating; each Federal regulator has 
established procedures for that purpose. An institution may also 
request review of a determination by the FDIC to assess the institution 
as a large or a small institution (12 CFR 327.9(d)(9)) or a 
determination by the FDIC that the institution is a new institution (12 
CFR 327.9(d)(10)). Any request for review must be submitted within 90 
days from the date the assessment risk assignment being challenged 
pursuant to paragraph (a) of this section appears on the institution's 
quarterly certified statement invoice. The request shall be submitted 
to the Corporation's Director of the Division of Insurance and Research 
in Washington, DC, and shall include documentation sufficient to 
support the change sought by the institution. If additional information 
is requested by the Corporation, such information shall be provided by 
the institution within 21 days of the date of the request for 
additional information. Any institution submitting a timely request for 
review will receive written notice from the Corporation regarding the 
outcome of its request. Upon completion of a review, the Director of 
the Division of Insurance and Research (or designee) or the Director of 
the Division of Supervision and Consumer Protection (or designee), as 
appropriate, shall promptly notify the institution in writing of his or 
her determination of whether a change is warranted. If the institution 
requesting review disagrees with that determination, it may appeal to 
the FDIC's Assessment Appeals Committee. Notice of the procedures 
applicable to appeals will be included with the written determination.
* * * * *
    (f) Effective date for changes to risk assignment. Changes to an 
insured institution's risk assignment resulting from a supervisory 
ratings change become effective as of the date of written notification 
to the institution by its primary Federal regulator or state authority 
of its supervisory rating (even when the CAMELS component ratings have 
not been disclosed to the institution), if the FDIC, after taking into 
account other information that could affect the rating, agrees with the 
rating. If the FDIC does not agree, the FDIC will notify the 
institution of the FDIC's supervisory rating; resulting changes to an 
insured institution's risk assignment become effective as of the date 
of written notification to the institution by the FDIC.
* * * * *
    3. In Sec.  327.8, revise paragraphs (g), (h), (i), (m), (n), (o), 
(p), (q), and (r), and add paragraphs (t), (u) and (v) to read as 
follows:


Sec.  327.8  Definitions.

* * * * *
    (g) Small Institution. An insured depository institution with 
assets of less than $10 billion as of December 31, 2006, and an insured 
branch of a foreign institution, shall be classified as a small 
institution. If, after December 31, 2006, an institution classified as 
large under paragraph (h) of this section (other than an institution 
classified as large for purposes of Sec.  327.9(d)(8)) reports assets 
of less than $10 billion in its quarterly reports of condition for four 
consecutive quarters, the FDIC will reclassify the institution as small 
beginning the following quarter.
    (h) Large Institution. An institution classified as large for 
purposes of Sec.  327.9(d)(9) or an insured depository institution with 
assets of $10 billion or more as of December 31, 2006 (other than an 
insured branch of a foreign bank or a highly complex institution) shall 
be classified as a large institution. If, after December 31, 2006, an 
institution classified as small under paragraph (g) of this section 
reports assets of $10 billion or more in its quarterly reports of 
condition for four consecutive quarters, the FDIC will reclassify the 
institution as large beginning the following quarter.
    (i) Highly Complex Institution. A highly complex institution is an 
insured depository institution with greater than $50 billion in total 
assets that is not a credit card bank and is wholly owned by a parent 
company with more than $500 billion in total assets, or wholly owned by 
one or more intermediate parent companies that are wholly owned by a 
holding company with more than $500 billion in assets, or a processing 
bank and trust company with greater than $10 billion in total assets, 
provided that the information required to calculate assessment rates as 
a highly complex institution is readily available to the FDIC. If, 
after December 31, 2010, an institution classified as highly complex 
falls below $50 billion in total assets in its quarterly reports of 
condition for four consecutive quarters, or its parent company or 
companies fall below $500 billion in total assets for four consecutive 
quarters, or a processing bank and trust company falls below $10 
billion in total assets in its quarterly reports of condition for four 
consecutive quarters, the FDIC will reclassify the institution 
beginning the following quarter.
* * * * *
    (m) Established depository institution. An established insured 
depository institution is a bank or savings association that has been 
federally insured for at least five years as of the last day of any 
quarter for which it is being assessed.
    (1) Merger or consolidation involving new and established 
institution(s). Subject to paragraphs (m)(2), (3), (4), and (5) of this 
section and Sec.  327.9(d)(10)(iii), (iv), when an established 
institution merges into or consolidates with a new institution, the 
resulting institution is a new institution unless:
    (i) The assets of the established institution, as reported in its 
report of condition for the quarter ending immediately before the 
merger, exceeded the assets of the new institution, as reported in its 
report of condition for the quarter ending immediately before the 
merger; and
    (ii) Substantially all of the management of the established

[[Page 23533]]

institution continued as management of the resulting or surviving 
institution.
    (2) Consolidation involving established institutions. When 
established institutions consolidate, the resulting institution is an 
established institution.
    (3) Grandfather exception. If a new institution merges into an 
established institution, and the merger agreement was entered into on 
or before July 11, 2006, the resulting institution shall be deemed to 
be an established institution for purposes of this part.
    (4) Subsidiary exception. Subject to paragraph (m)(5) of this 
section, a new institution will be considered established if it is a 
wholly owned subsidiary of:
    (i) A company that is a bank holding company under the Bank Holding 
Company Act of 1956 or a savings and loan holding company under the 
Home Owners' Loan Act, and:
    (A) At least one eligible depository institution (as defined in 12 
CFR 303.2(r)) that is owned by the holding company has been chartered 
as a bank or savings association for at least five years as of the date 
that the otherwise new institution was established; and
    (B) The holding company has a composite rating of at least ``2'' 
for bank holding companies or an above average or ``A'' rating for 
savings and loan holding companies and at least 75 percent of its 
insured depository institution assets are assets of eligible depository 
institutions, as defined in 12 CFR 303.2(r); or
    (ii) An eligible depository institution, as defined in 12 CFR 
303.2(r), that has been chartered as a bank or savings association for 
at least five years as of the date that the otherwise new institution 
was established.
    (5) Effect of credit union conversion. In determining whether an 
insured depository institution is new or established, the FDIC will 
include any period of time that the institution was a federally insured 
credit union.
    (n) Risk assignment. For all small institutions and insured 
branched of foreign banks, risk assignment includes assignment to Risk 
Category I, II, III, or IV, and, within Risk Category I, assignment to 
an assessment rate or rates. For all large institutions and highly 
complex institutions, risk assignment includes assignment to an 
assessment rate or rates.
    (o) Unsecured debt. For purposes of the unsecured debt adjustment 
as set forth in Sec.  327.9(d)(6), unsecured debt shall include senior 
unsecured liabilities and subordinated debt.
    (p) Senior unsecured liability. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6), senior unsecured 
liabilities shall be the unsecured portion of other borrowed money as 
defined in the quarterly report of condition for the reporting period 
as defined in paragraph (b) of this section, but shall not include any 
senior unsecured debt that the FDIC has guaranteed under the Temporary 
Liquidity Guarantee Program, 12 CFR Part 370.
    (q) Subordinated debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6), subordinated debt shall 
be as defined in the quarterly report of condition for the reporting 
period; however, subordinated debt shall also include limited-life 
preferred stock as defined in the quarterly report of condition for the 
reporting period.
    (r) Long-term unsecured debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6), long-term unsecured debt 
shall be unsecured debt with at least one year remaining until 
maturity.
* * * * *
    (t) Processing bank and trust company. A processing bank and trust 
company is an institution whose last 3 years' non-lending interest 
income plus fiduciary revenues plus investment banking fees exceed 50 
percent of total revenues (and its last 3 years' fiduciary revenues are 
non-zero).
    (u) Parent company. A parent company is a bank holding company 
under the Bank Holding Company Act of 1956 or a savings and loan 
holding company under the Home Owners' Loan Act.
    (v) Credit Card Bank. A credit card bank is a bank for which credit 
card plus securitized receivables exceed 50 percent of assets plus 
securitized receivables.
    4. Revise Sec.  327.9 to read as follows:


Sec.  327.9  Assessment risk categories and pricing methods.

    (a) Risk Categories. Each small insured depository institution and 
each insured branch of a foreign bank shall be assigned to one of the 
following four Risk Categories based upon the institution's capital 
evaluation and supervisory evaluation as defined in this section.
    (1) Risk Category I. Institutions in Supervisory Group A that are 
Well Capitalized;
    (2) Risk Category II. Institutions in Supervisory Group A that are 
Adequately Capitalized, and institutions in Supervisory Group B that 
are either Well Capitalized or Adequately Capitalized;
    (3) Risk Category III. Institutions in Supervisory Groups A and B 
that are Undercapitalized, and institutions in Supervisory Group C that 
are Well Capitalized or Adequately Capitalized; and
    (4) Risk Category IV. Institutions in Supervisory Group C that are 
Undercapitalized.
    (b) Capital evaluations. Each small institution and each insured 
branch of a foreign bank will receive one of the following three 
capital evaluations on the basis of data reported in the institution's 
Consolidated Reports of Condition and Income, Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks, or Thrift 
Financial Report dated as of March 31 for the assessment period 
beginning the preceding January 1; dated as of June 30 for the 
assessment period beginning the preceding April 1; dated as of 
September 30 for the assessment period beginning the preceding July 1; 
and dated as of December 31 for the assessment period beginning the 
preceding October 1.
    (1) Well Capitalized. (i) Except as provided in paragraph 
(b)(1)(ii) of this section, a Well Capitalized institution is one that 
satisfies each of the following capital ratio standards: Total risk-
based ratio, 10.0 percent or greater; Tier 1 risk-based ratio, 6.0 
percent or greater; and Tier 1 leverage ratio, 5.0 percent or greater.
    (ii) For purposes of this section, an insured branch of a foreign 
bank will be deemed to be Well Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 108 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (b) of this section.
    (2) Adequately Capitalized. (i) Except as provided in paragraph 
(b)(2)(ii) of this section, an Adequately Capitalized institution is 
one that does not satisfy the standards of Well Capitalized under this 
paragraph but satisfies each of the following capital ratio standards: 
Total risk-based ratio, 8.0 percent or greater; Tier 1 risk-based 
ratio, 4.0 percent or greater; and Tier 1 leverage ratio, 4.0 percent 
or greater.
    (ii) For purposes of this section, an insured branch of a foreign 
bank will be deemed to be Adequately Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and

[[Page 23534]]

    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 106 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (b) of this section; and
    (C) Does not meet the definition of a Well Capitalized insured 
branch of a foreign bank.
    (3) Undercapitalized. An undercapitalized institution is one that 
does not qualify as either Well Capitalized or Adequately Capitalized 
under paragraphs (b)(1) and (b)(2) of this section.
    (c) Supervisory evaluations. Each small institution and each 
insured branch of a foreign bank will be assigned to one of three 
Supervisory Groups based on the Corporation's consideration of 
supervisory evaluations provided by the institution's primary Federal 
regulator. The supervisory evaluations include the results of 
examination findings by the primary Federal regulator, as well as other 
information that the primary Federal regulator determines to be 
relevant. In addition, the Corporation will take into consideration 
such other information (such as state examination findings, as 
appropriate) as it determines to be relevant to the institution's 
financial condition and the risk posed to the Deposit Insurance Fund. 
The three Supervisory Groups are:
    (1) Supervisory Group ``A.'' This Supervisory Group consists of 
financially sound institutions with only a few minor weaknesses;
    (2) Supervisory Group ``B.'' This Supervisory Group consists of 
institutions that demonstrate weaknesses which, if not corrected, could 
result in significant deterioration of the institution and increased 
risk of loss to the Deposit Insurance Fund; and
    (3) Supervisory Group ``C.'' This Supervisory Group consists of 
institutions that pose a substantial probability of loss to the Deposit 
Insurance Fund unless effective corrective action is taken.
    (d) Determining Assessment Rates for Insured Depository 
Institutions. A small insured depository institution in Risk Category I 
shall have its initial base assessment rate determined using the 
financial ratios method set forth in paragraph (d)(1) of this section. 
An insured branch of a foreign bank in Risk Category I shall have its 
assessment rate determined using the weighted average ROCA component 
rating method set forth in paragraph (d)(2) of this section. A large 
insured depository institution shall have its initial base assessment 
rate determined using the large institution method set forth in 
paragraph (d)(3) of this section. A highly complex insured depository 
institution shall have its initial base assessment rate determined 
using the highly complex institution method set forth at paragraph 
(d)(4) of this section.
    (1) Financial ratios method. Under the financial ratios method for 
small Risk Category I institutions, each of six financial ratios and a 
weighted average of CAMELS component ratings will be multiplied by a 
corresponding pricing multiplier. The sum of these products will be 
added to or subtracted from a uniform amount. The resulting sum shall 
equal the institution's initial base assessment rate; provided, 
however, that no institution's initial base assessment rate shall be 
less than the minimum initial base assessment rate in effect for Risk 
Category I institutions for that quarter nor greater than the maximum 
initial base assessment rate in effect for Risk Category I institutions 
for that quarter. An institution's initial base assessment rate, 
subject to adjustment pursuant to paragraphs (d)(6) and (7) of this 
section, as appropriate (resulting in the institution's total base 
assessment rate, which in no case can be lower than 50 percent of the 
institution's initial base assessment rate), and adjusted for the 
actual assessment rates set by the Board under Sec.  327.10(c), will 
equal an institution's assessment rate. The six financial ratios are: 
Tier 1 Leverage Ratio; Loans past due 30-89 days/gross assets; 
Nonperforming assets/gross assets; Net loan charge-offs/gross assets; 
Net income before taxes/risk-weighted assets; and the Adjusted brokered 
deposit ratio. The ratios are defined in Table A.1 of Appendix A to 
this subpart. The ratios will be determined for an assessment period 
based upon information contained in an institution's report of 
condition filed as of the last day of the assessment period as set out 
in Sec.  327.9(b). The weighted average of CAMELS component ratings is 
created by multiplying each component by the following percentages and 
adding the products: Capital adequacy--25%, Asset quality--20%, 
Management--25%, Earnings--10%, Liquidity--10%, and Sensitivity to 
market risk--10%. The following table sets forth the initial values of 
the pricing multipliers:

------------------------------------------------------------------------
                                                            Pricing
                   Risk measures *                       multipliers **
------------------------------------------------------------------------
Tier 1 Leverage Ratio................................            (0.056)
Loans Past Due 30-89 Days/Gross Assets...............             0.575
Nonperforming Assets/Gross Assets....................             1.074
Net Loan Charge-Offs/Gross Assets....................             1.210
Net Income before Taxes/Risk-Weighted Assets.........            (0.764)
Adjusted brokered deposit ratio......................             0.065
Weighted Average CAMELS Component Rating.............             1.095
------------------------------------------------------------------------
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.

    The six financial ratios and the weighted average CAMELS component 
rating will be multiplied by the respective pricing multiplier, and the 
products will be summed. To this result will be added the uniform 
amount of 9.861. The resulting sum shall equal the institution's 
initial base assessment rate; provided, however, that no institution's 
initial base assessment rate shall be less than the minimum initial 
base assessment rate in effect for Risk Category I institutions for 
that quarter nor greater than the maximum initial base assessment rate 
in effect for Risk Category I institutions for that quarter. Appendix A 
to this subpart describes the derivation of the pricing multipliers and 
uniform amount and explains how they will be periodically updated.
    (i) Publication and uniform amount and pricing multipliers. The 
FDIC will publish notice in the Federal Register whenever a change is 
made to the uniform amount or the pricing multipliers for the financial 
ratios method.
    (ii) Implementation of CAMELS rating changes--(A) Changes between 
risk categories. If, during a quarter, a CAMELS composite rating change 
occurs that results in an institution whose Risk Category I assessment 
rate is

[[Page 23535]]

determined using the financial ratios method moving from Risk Category 
I to Risk Category II, III or IV, the institution's initial base 
assessment rate for the portion of the quarter that it was in Risk 
Category I shall be determined using the supervisory ratings in effect 
before the change and the financial ratios as of the end of the 
quarter, subject to adjustment pursuant to paragraphs (d)(6) and (7) of 
this section, as appropriate, and adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(c). For the portion of the 
quarter that the institution was not in Risk Category I, the 
institution's initial base assessment rate, which shall be subject to 
adjustment pursuant to paragraphs (d)(6), (7) and (8) of this section, 
shall be determined under the assessment schedule for the appropriate 
Risk Category. If, during a quarter, a CAMELS composite rating change 
occurs that results in an institution moving from Risk Category II, III 
or IV to Risk Category I, and its initial base assessment rate would be 
determined using the financial ratios method, then that method shall 
apply for the portion of the quarter that it was in Risk Category I, 
subject to adjustment pursuant to paragraphs (d)(6) and (7) of this 
section, as appropriate, and adjusted for the actual assessment rates 
set by the Board under Sec.  327.10(c). For the portion of the quarter 
that the institution was not in Risk Category I, the institution's 
initial base assessment rate, which shall be subject to adjustment 
pursuant to paragraphs (d)(6), (7) and (8) of this section, shall be 
determined under the assessment schedule for the appropriate Risk 
Category.
    (B) Changes within Risk Category I. If, during a quarter, an 
institution's CAMELS component ratings change in a way that would 
change the institution's initial base assessment rate within Risk 
Category I, the initial base assessment rate for the period before the 
change shall be determined under the financial ratios method using the 
CAMELS component ratings in effect before the change, subject to 
adjustment pursuant to paragraphs (d)(6) and (7) of this section, as 
appropriate. Beginning on the date of the CAMELS component ratings 
change, the initial base assessment rate for the remainder of the 
quarter shall be determined using the CAMELS component ratings in 
effect after the change, again subject to adjustment pursuant to 
paragraphs (d)(6) and (7) of this section, as appropriate.
    (2) Assessment rate for insured branches of foreign banks--(i) 
Insured branches of foreign banks in Risk Category I. Insured branches 
of foreign banks in Risk Category I shall be assessed using the 
weighted average ROCA component rating.
    (ii) Weighted average ROCA component rating. The weighted average 
ROCA component rating shall equal the sum of the products that result 
from multiplying ROCA component ratings by the following percentages: 
Risk Management--35%, Operational Controls--25%, Compliance--25%, and 
Asset Quality--15%. The weighted average ROCA rating will be multiplied 
by 5.076 (which shall be the pricing multiplier). To this result will 
be added 1.873 (which shall be a uniform amount for all insured 
branches of foreign banks). The resulting sum--the initial base 
assessment rate--will equal an institution's total base assessment 
rate; provided, however, that no institution's total base assessment 
rate will be less than the minimum total base assessment rate in effect 
for Risk Category I institutions for that quarter nor greater than the 
maximum total base assessment rate in effect for Risk Category I 
institutions for that quarter.
    (iii) No insured branch of a foreign bank in any risk category 
shall be subject to the unsecured debt adjustment, the secured 
liability adjustment, the brokered deposit adjustment, or the 
adjustment in paragraph (d)(5) of this section.
    (iv) Implementation of changes between Risk Categories for insured 
branches of foreign banks. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category I to Risk Category II, III or IV, the institution's 
initial base assessment rate for the portion of the quarter that it was 
in Risk Category I shall be determined using the weighted average ROCA 
component rating. For the portion of the quarter that the institution 
was not in Risk Category I, the institution's initial base assessment 
rate shall be determined under the assessment schedule for the 
appropriate Risk Category. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category II, III or IV to Risk Category I, the institution's 
assessment rate for the portion of the quarter that it was in Risk 
Category I shall equal the rate determined as provided using the 
weighted average ROCA component rating. For the portion of the quarter 
that the institution was not in Risk Category I, the institution's 
initial base assessment rate shall be determined under the assessment 
schedule for the appropriate Risk Category.
    (v) Implementation of changes within Risk Category I for insured 
branches of foreign banks. If, during a quarter, an insured branch of a 
foreign bank remains in Risk Category I, but a ROCA component rating 
changes that would affect the institution's initial base assessment 
rate, separate assessment rates for the portion(s) of the quarter 
before and after the change(s) shall be determined under paragraph 
(d)(2) of this section.
    (3) Assessment scorecard for large institutions (other than highly 
complex institutions). All large institutions other than highly complex 
institutions shall have their quarterly assessments determined using 
the scorecard for large institutions.

                    Scorecard for Large Institutions
------------------------------------------------------------------------
            Components                Scorecard measures        Score
------------------------------------------------------------------------
CAMELS...........................  Weighted Average CAMELS.       25-100
------------------------------------------------------------------------
Ability to Withstand Asset-        Tier 1 Common Capital           0-100
 Related Stress.                    Ratio (Tier 1 Common
                                    Capital/Total Average
                                    Assets less Disallowed
                                    Intangibles).
                                  --------------------------------------
                                   Concentration Measure...        0-100
                                   Higher Risk
                                    Concentrations; or
                                    Growth-Adjusted
                                    Portfolio
                                    Concentrations.
                                  --------------------------------------
                                   Core Earnings/Average           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Credit Quality Measure..        0-100
                                   Criticized and
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                    or

[[Page 23536]]

 
                                   Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves.
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Criticized and                     30
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                    or.
                                  --------------------------------------
                                   Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves
                                   Higher Risk                        30
                                    Concentrations.
                                  --------------------------------------
                                   Total ability to                0-160
                                    withstand asset-related
                                    stress score.
------------------------------------------------------------------------
Ability to Withstand Funding-      Core Deposits/Total             0-100
 Related Stress.                    Liabilities.
                                  --------------------------------------
                                   Unfunded Commitments/           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Liquid Assets/Short-Term        0-100
                                    Liabilities (liquidity
                                    coverage ratio).
------------------------------------------------------------------------
                                   Total ability to                0-100
                                    withstand funding-
                                    related stress score.
------------------------------------------------------------------------
                                   Total Performance Score.        0-100
------------------------------------------------------------------------
Potential Loss Severity..........  Potential Losses/Total          0-100
                                    Domestic Deposits (loss
                                    severity measure).
                                  --------------------------------------
                                   Secured Liabilities/            0-100
                                    Total Domestic Deposits.
------------------------------------------------------------------------
    Total loss severity score....  ........................        0-100
------------------------------------------------------------------------
Note: The large institution scorecard produces two scores: Performance
  and loss severity.

    (i) Performance score. The performance score for large institutions 
is the weighted average of three inputs: Weighted average CAMELS rating 
(30%); ability to withstand asset-related stress measures (50%); and 
ability to withstand funding-related stress measures (20%).
    (A) Weighted Average CAMELS score. To derive the weighted average 
CAMELS score, a weighted average of an institution's CAMELS component 
ratings is calculated using the following weights:

------------------------------------------------------------------------
                                                                Weight
                      CAMELS component                        (percent)
------------------------------------------------------------------------
C..........................................................           25
A..........................................................           20
M..........................................................           25
E..........................................................           10
L..........................................................           10
S..........................................................           10
------------------------------------------------------------------------

    A weighted average CAMELS rating is converted to a score that 
ranges from 25 to 100. A weighted average rating of 1 equals a score of 
25 and a weighted average of 3.5 or greater equals a score of 100. 
Weighted average CAMELS ratings between 1 and 3.5 are assigned a score 
between 25 and 100 according to the following equation:


S = 25 + [(20/3)*(C\2\ - 1)],

Where:

S = the weighted average CAMELS score and
C = the weighted average CAMELS rating.

    (B) Ability to Withstand Asset-Related Stress. The ability to 
withstand asset-related stress component contains four measures: Tier 1 
common ratio; Concentration measure (the higher of the higher-risk 
concentrations measure or growth-adjusted portfolio concentrations 
measures); Core earnings to average assets; and Credit quality measure 
(the higher of the criticized and classified assets to Tier 1 capital 
and reserves or underperforming assets to Tier 1 capital and reserves). 
Appendices B and C define these measures in detail and give the source 
of the data used to determine them.
    The concentration measure score is the higher of the scores of the 
two measures that make up the concentration measure score (higher risk 
concentrations or growth adjusted portfolio concentrations). The credit 
quality score is the higher of the criticized and classified items 
ratio score or the underperforming assets ratio score. Each asset 
related stress measure is assigned the following cutoff values and 
weight to derive a score for an institution's ability to withstand 
asset-related stress:

                Cutoff Values and Weights for Ability To Withstand Asset-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Tier 1 Common Capital Ratio.....................................             5.8            12.9              15
Concentration Measure:..........................................  ..............  ..............              35
    Higher Risk Concentrations; or..............................             0.0             3.2  ..............
    Growth-Adjusted Portfolio Concentrations....................             7.6           154.7  ..............
Core Earnings/Average Total Assets..............................             0.0             2.3              15
Credit Quality Measure:.........................................  ..............  ..............              35
    Criticized and Classified Items/Tier 1 Capital and Reserves;             6.5           100.0  ..............
     or.........................................................

[[Page 23537]]

 
    Underperforming Assets/Tier 1 Capital and Reserves..........             2.3            35.1  ..............
----------------------------------------------------------------------------------------------------------------

    For each of the risk measures within the ability to withstand 
asset-related stress portion of the scorecard, a value reflecting lower 
risk than the cutoff value that results in a score of 0 will also 
receive a score of 0, where 0 equals the lowest risk for that measure. 
A value reflecting higher risk than the cutoff value that results in a 
score of 100 will also receive a score of 100, where 100 equals the 
highest risk for that measure. A risk measure value between the minimum 
and maximum cutoff values is converted linearly to a score between 0 
and 100. For the Concentration Measure and Credit Quality Measures, a 
lower ratio implies lower risk and a higher ratio implies higher risk. 
For these measures, a value between the minimum and maximum cutoff 
values will be converted linearly to a score between 0 and 100, 
according to the following formula:


S = (V - Min)*100/(Max - Min),

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    For the Tier 1 Common Capital Ratio and Core Earnings to Average 
Total Assets Ratio, a lower value represents higher risk and a higher 
value represents lower risk. For these measures, a value between the 
minimum and maximum cutoff values is converted linearly to a score 
between 0 and 100, according to the following formula:


S = (Max - V)*100/(Max - Min),

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    Each score is multiplied by a respective weight and the resulting 
weighted score for each measure is summed to arrive at an ability to 
withstand asset-related stress score, which ranges from 0 to 100.
    For extreme values of certain measures reflecting particularly high 
risk, this score can increase through an outlier add-on. If an 
institution's ratio of criticized and classified items to Tier 1 
capital and reserves exceeds 100 percent or its ratio of 
underperforming assets to Tier 1 capital and reserves exceeds 50.2 
percent, the ability to withstand asset-related stress component score 
is increased by 30 points. Additionally, if the higher risk 
concentration measure exceeds 4.8, the ability to withstand asset-
related stress component score is increased by 30 points. These 
increases (outlier add-ons) are determined separately and can increase 
the ability to withstand asset-related score by up to 60 points; thus, 
the ability to withstand asset-related component score can be as high 
as 160 points.
    (C) Ability to Withstand Funding-Related Stress. The ability to 
withstand funding-related stress component contains three risk 
measures: A core deposits to liabilities ratio, an unfunded commitments 
to total assets ratio, and a liquidity coverage ratio. Appendix B 
describes these ratios in detail and gives the source of the data used 
to determine them. The ability to withstand funding-related stress 
component score is the weighted average of the three measure scores. 
Each measure is assigned the following cutoff values and weights to 
derive a score for an institution's ability to withstand funding-
related stress:

               Cutoff Values and Weights for Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................             3.2            79.1              40
Unfunded Commitments/Total Assets...............................             0.3            42.2              40
Liquid Assets/Short-term Liabilities (Liquidity Coverage Ratio).             5.6           170.9              20
----------------------------------------------------------------------------------------------------------------

    A risk measure value reflecting lower risk than the cutoff value 
that results in a score of 0, will also receive a score of 0, where 0 
equals the lowest risk for that measure. A risk measure value 
reflecting higher risk than the cutoff value that results in a score of 
100, will also receive a score of 100, where 100 equals the highest 
risk for that measure. For the Core Deposits/Liabilities measure and 
the Liquidity Coverage Ratio, a lower ratio implies higher risk and a 
higher ratio implies lower risk. For these measures, a value between 
the minimum and maximum cutoff values will be converted linearly to a 
score between 0 and 100, according to the following formula:

S = (Max - V)*100/(Max - Min)

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    For the Unfunded Commitments/Assets measure, a lower value 
represents lower risk and a higher value represents higher risk. For 
these measures, a value between the minimum and maximum cutoff values 
is converted linearly to a score between 0 and 100, according to the 
following formula:

S = (V - Min)*100/(Max - Min)

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    (D) Calculation of Performance Score. The weighted average CAMELS 
score, the ability to withstand asset-related stress score, and the 
ability to withstand funding-related stress score are multiplied by 
their weights and the results are summed to arrive at the performance 
score. The performance score cannot exceed 100. The performance score 
is subject to adjustment, up or down, by a maximum of 15 points, as set 
forth in section (d)(5). The resulting score cannot be less than 0 or 
more than 100.
    (ii) Loss severity score. The loss severity score is based on two 
measures: Loss severity measure and secured liabilities to total 
domestic deposits ratio. Appendices B and D describe

[[Page 23538]]

these measures in detail. The loss severity score is the weighted 
average of these scores. Each measure is assigned the following cutoff 
values and weight to derive a score for an institution's loss severity 
score:

                           Cutoff Values and Weights for Loss Severity Score Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Potential Losses/Total Domestic Deposits (loss severity measure)             0.0            30.1              50
Secured Liabilities/Total Domestic Deposits.....................             0.0            75.7              50
----------------------------------------------------------------------------------------------------------------

    A risk measure value reflecting lower risk than the minimum cutoff 
value results in a score of 0, where 0 equals the lowest risk for that 
measure. A risk measure value reflecting higher risk than the maximum 
cutoff value results in a score of 100, where 100 equals the highest 
risk for that measure. A risk measure value between the minimum and 
maximum cutoff values is converted linearly to a score between 0 and 
100, according to the following formula:

S = (V - Min)*100/(Max - Min)

Where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    The loss severity score is subject to adjustment, up or down, by a 
maximum of 15 points, as set forth in section (d)(5). The resulting 
score cannot be less than 0 or more than 100.
    (iii) Initial base assessment rate. The performance and loss 
severity scores, with any adjustments under paragraph (d)(5) of this 
section, are converted to an initial base assessment rate. The loss 
severity score is converted into a loss severity measure that ranges 
from 0.8 (score of 5 or lower) and 1.2 (score of 85 or higher). Scores 
that fall at or below the minimum cutoff of 5 receive a loss severity 
measure of 0.8 and scores that falls at or above the maximum cutoff of 
85 receive a loss severity score of 1.2. The following linear 
interpolation converts loss severity scores between the cutoffs into a 
loss severity measure: (Loss Severity Measure = 0.8 + [(Loss Severity 
Score - 5) x 0.005]. The performance score is multiplied by the loss 
severity measure to produce a total score (total score = performance 
score * loss severity measure). The total score cannot exceed 100. A 
large institution with a total score of 30 or lower pays the minimum 
initial base assessment rate and an institution with a total score of 
90 or greater pays the maximum initial base assessment rate. For total 
scores between 30 and 90, initial base assessment rates rise at an 
increasing rate as the total score increases, calculated according to 
the following formula:
[GRAPHIC] [TIFF OMITTED] TP03MY10.011

Where Rate is the initial base assessment rate and Minimum Rate is 
the minimum initial base assessment rate then in effect. Initial 
base assessment rates are subject to adjustment pursuant to sections 
(d)(6), (d)(7), and (d)(8), resulting in the institution's total 
base assessment rate, which in no case can be lower than 50 percent 
of the institution's initial base assessment rate.

    (4) Assessment scorecard for highly complex institutions. All 
highly complex institutions shall have their quarterly assessments 
determined using the scorecard for highly complex institutions.

                Scorecard for Highly Complex Institutions
------------------------------------------------------------------------
            Components                Scorecard measures        Score
------------------------------------------------------------------------
CAMELS...........................  Weighted Average CAMELS.       25-100
------------------------------------------------------------------------
Market Indicator.................  Senior Bond Spread......        0-100
                                  --------------------------------------
                                        Outlier Add-ons
------------------------------------------------------------------------
                                   Parent Company Tangible            30
                                    Common Equity (TCE)
                                    Ratio.
                                  --------------------------------------
                                   Total Market Indicator          0-130
                                    score.
------------------------------------------------------------------------
Ability to Withstand Asset-        Tier 1 Common Capital           0-100
 Related Stress.                    Ratio (Tier 1 Common
                                    Capital/Total Average
                                    Assets less Disallowed
                                    Intangibles).
                                  --------------------------------------
                                   Concentration Measure...        0-100
                                   Higher Risk
                                    Concentrations; or
                                      Growth-Adjusted
                                       Portfolio
                                       Concentrations.
                                     -----------------------------------
                                   Core Earnings/Average           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Credit Quality Measure..        0-100
                                      Criticized and
                                       Classified Items/
                                       Tier 1 Capital and
                                       Reserves.

[[Page 23539]]

 
                                      Underperforming
                                       Assets/Tier 1
                                       Capital and Reserves.
                                     -----------------------------------
                                   10-day 99% VaR/Tier 1           0-100
                                    Capital.
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Criticized and                     30
                                    Classified Items/Tier 1
                                    Capital and Reserves;
                                   or
                                   Underperforming Assets/
                                    Tier 1 Capital and
                                    Reserves
                                  --------------------------------------
                                   Higher Risk                        30
                                    Concentrations Measure.
                                  --------------------------------------
                                   Total ability to                0-160
                                    withstand asset-related
                                    stress score.
------------------------------------------------------------------------
Ability to Withstand Funding-      Core Deposits/Total             0-100
 Related Stress.                    Liabilities.
                                  --------------------------------------
                                   Unfunded Commitments/           0-100
                                    Total Assets.
                                  --------------------------------------
                                   Liquid Assets/Short-term        0-100
                                    Liabilities (liquidity
                                    coverage ratio).
                                  --------------------------------------
                                   Short-term Funding/Total        0-100
                                    Assets.
                                  --------------------------------------
                                   Subtotal................        0-100
                                  --------------------------------------
                                        Outlier Add-ons
                                  --------------------------------------
                                   Short-term funding/Total           30
                                    Assets.
------------------------------------------------------------------------
                                   Total ability to                0-130
                                    withstand funding-
                                    related stress score.
------------------------------------------------------------------------
                                   Total Performance Score.        0-100
------------------------------------------------------------------------
Potential Loss Severity..........  Potential Losses/Total          0-100
                                    Domestic Deposits (loss
                                    severity measure).
                                  --------------------------------------
                                   Secured Liabilities/            0-100
                                    Total Domestic Deposits.
------------------------------------------------------------------------
                                   Total loss severity             0-100
                                    score.
------------------------------------------------------------------------

    The scorecard for highly complex institutions contains the 
performance components and the loss severity components of the large 
bank scorecard and employs the same methodology. The assessment process 
set forth in section (d)(3) for the large bank scorecard applies to 
highly complex institutions, modified as follows. The scorecard for 
highly-complex institutions contains an additional component--market 
indicator--in the performance score; an additional component--10-day 99 
percent Value at Risk (VaR)/Tier 1 capital--in the ability to withstand 
asset-related stress; and an additional component--short-term funding 
to total assets ratio--in the ability to withstand funding-related 
stress.
    (i) Performance score for highly complex institutions. The 
performance score for highly complex institutions is the weighted 
average of four inputs: Weighted average CAMELS rating (20%); market 
indicator score (10%); ability to withstand asset-related stress score 
(50%); and ability to withstand funding-related stress score (20%). To 
calculate the performance score for highly complex institutions, the 
weighted average CAMELS score, the market indicator score, the ability 
to withstand asset-related stress score, and ability to withstand 
funding-related stress score are multiplied by their weights and the 
results are summed to arrive at the performance score. The resulting 
score cannot exceed 100.
    (A) Market indicator. The market indicator component contains one 
component--the senior bond spread score, and one outlier add-on--the 
Parent Tangible Common Equity (TCE) ratio. The senior bond spread is 
converted to a score according to the linear interpolation method used 
for the large bank scorecard. The minimum and maximum cutoff values for 
the market indicator measure are:

                             Cutoff Values and Weights for Market Indicator Measure
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Senior Bond Spread..............................................             0.6             3.8             100
----------------------------------------------------------------------------------------------------------------


[[Page 23540]]

    A risk measure value reflecting lower risk than the minimum cutoff 
value results in a score of 0, where 0 equals the lowest risk for that 
measure. A risk measure value reflecting higher risk than the maximum 
cutoff value results in a score of 100, where 100 equals the highest 
risk for that measure. A value between the minimum and maximum cutoff 
values will be converted linearly to a score between 0 and 100, 
according to the following formula:

S = (V - Min)*100/(Max - Min)

    The market indicator component score can be adjusted by up to 30 
points if the outlier add-on--institution's parent company's TCE 
ratio--falls below 4 percent. Including the outlier add-on, the market 
indicator component score can be as high as 130 points.
    (B) Ability to withstand asset-related stress. The scorecard for 
highly complex institutions adds one additional factor to the ability 
to withstand asset-related stress component--the 10-day 99 percent 
Value at Risk (VaR)/Tier 1 capital. The cutoff values and weights for 
ability to withstand asset-related stress measures are set forth below.

                Cutoff Values and Weights for Ability To Withstand Asset-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Tier 1 Common Ratio.............................................             5.8            12.9              10
Concentration Measure...........................................  ..............  ..............              35
    Higher Risk Concentrations; or..............................             0.0             3.2  ..............
    Growth-Adjusted Portfolio Concentrations....................             7.6           154.7  ..............
Core Earnings/Average Total Assets..............................             0.0             2.3              10
Credit Quality Measure..........................................  ..............  ..............              35
    Criticized and Classified Items/Tier 1 Capital and Reserves;             6.5           100.0  ..............
     or.........................................................
    Underperforming Assets/Tier 1 Capital and Reserves..........             2.3            35.1  ..............
10-day 99% VaR/Tier 1 Capital...................................             0.1             0.5              10
----------------------------------------------------------------------------------------------------------------

    Appendix B describes these measures in detail and gives the source 
of the data used to calculate the measures.
    (C) Ability to withstand funding related stress. The scorecard for 
highly complex institutions adds one additional factor to the ability 
to withstand funding-related stress component--the short-term funding 
to total assets ratio. The cutoff values and weights for ability to 
withstand funding-related stress measures for highly complex 
institutions are set forth below.

               Cutoff Values and Weights for Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................             3.2            79.1              30
Unfunded Commitments/Total Assets...............................             0.3            42.2              30
Liquid Assets/Short-term Liabilities (liquidity coverage ratio).             5.6           170.9              20
Short-term Funding/Total Assets.................................             0.0            19.1              20
----------------------------------------------------------------------------------------------------------------

    Appendix B describes these measures in detail and gives the source 
of the data used to calculate the measures.
    The scorecard for highly complex institutions adds an additional 
outlier add-on to the scorecard for large institutions. The ability to 
withstand funding-related stress component score for highly complex 
institutions is adjusted by 30 points if the ratio of short term 
funding to total assets exceeds 26.9 percent. The maximum ability to 
withstand funding-related stress component score for highly complex 
institutions, including the outlier add-on, is 130 points.
    (ii) Loss severity score for highly complex institutions. The loss 
severity score for highly complex institutions is calculated as 
provided for the loss severity score for large institutions in section 
(d)(3)(ii).
    (iii) The performance score and the loss severity score for highly 
complex institutions can be adjusted, up or down, by maximum of 15 
points each, as set forth in section (d)(5), resulting in the 
institution's initial base assessment rate.
    (iv) The initial base assessment rate for highly complex 
institutions is calculated from the total score in the same manner as 
for large institutions as set forth in section (d)(3). Initial base 
assessment rates are subject to adjustment pursuant to sections (d)(6), 
(d)(7), and (d)(8), resulting in the institution's total base 
assessment rate, which in no case can be lower than 50 percent of the 
institution's initial base assessment rate.
    (5) Adjustment to performance score and/or loss severity score for 
large institutions and highly complex institutions. The performance 
score and the loss severity score for large institutions and highly 
complex institutions are subject to adjustment under paragraph (d)(5) 
of this section, up or down, by a maximum of 15 points each, based upon 
significant risk factors that are not adequately captured in the 
appropriate scorecard. In making such adjustments, the FDIC may 
consider such information as financial performance and condition 
information and other market or supervisory information. Appendix E 
lists some, but not all, criteria that the FDIC may consider in 
determining whether to make such adjustments.
    (i) Prior notice of adjustments--(A) Prior notice of upward 
adjustment. Prior to making any upward adjustment to an institution's 
performance score and/or loss severity score because of considerations 
of additional risk information, the FDIC will formally notify the 
institution and its primary Federal regulator and provide an 
opportunity to respond. This notification will include the reasons for

[[Page 23541]]

the adjustment(s) and when the adjustment(s) will take effect.
    (B) Prior notice of downward adjustment. Prior to making any 
downward adjustment to an institution's performance score and/or loss 
severity score because of considerations of additional risk 
information, the FDIC will formally notify the institution's primary 
Federal regulator and provide an opportunity to respond.
    (ii) Determination whether to adjust upward; effective period of 
adjustment. After considering an institution's and the primary Federal 
regulator's responses to the notice, the FDIC will determine whether 
the adjustment to an institution's performance score and/or loss 
severity score is warranted, taking into account any revisions to 
scorecard measures, as well as any actions taken by the institution to 
address the FDIC's concerns described in the notice. The FDIC will 
evaluate the need for the adjustment each subsequent assessment period. 
The amount of adjustment will in no event be larger than that contained 
in the initial notice without further notice to, and consideration of, 
responses from the primary Federal regulator and the institution.
    (iii) Determination whether to adjust downward; effective period of 
adjustment. After considering the primary Federal regulator's responses 
to the notice, the FDIC will determine whether the adjustment to 
performance score and/or loss severity score is warranted, taking into 
account any revisions to scorecard measures, as well as any actions 
taken by the institution to address the FDIC's concerns described in 
the notice. Any downward adjustment in an institution's performance 
score and/or loss severity score will remain in effect for subsequent 
assessment periods until the FDIC determines that an adjustment is no 
longer warranted. Downward adjustments will be made without 
notification to the institution. However, the FDIC will provide advance 
notice to an institution and its primary Federal regulator and give 
them an opportunity to respond before removing a downward adjustment.
    (iv) Adjustment without notice. Notwithstanding the notice 
provisions set forth above, the FDIC may change an institution's 
performance score and/or loss severity score without advance notice 
under this paragraph, if the institution's supervisory ratings or the 
scorecard measures deteriorate.
    (6) Unsecured debt adjustment to initial base assessment rate for 
all institutions. All small, large, and highly complex institutions, 
except new small institutions as provided under paragraph (d)(10)(i) of 
this section, are subject to downward adjustment of assessment rates 
for unsecured debt, based on the ratio of long-term unsecured debt 
(and, for small institutions as defined in paragraph (d)(6)(ii) of this 
section, specified amounts of Tier 1 capital) to domestic deposits. Any 
unsecured debt adjustment shall be made after any adjustment under 
paragraph (d)(5) of this section. Insured branches of foreign banks are 
not subject to the unsecured debt adjustment as provided in paragraph 
(d)(2)(iii).
    (i) Large institutions and highly complex institutions. The 
unsecured debt adjustment for large institutions and highly complex 
institutions shall be determined by multiplying the institution's ratio 
of long-term unsecured debt to domestic deposits by 40 basis points.
    (ii) Small institutions--The unsecured debt adjustment for small 
institutions will factor in an amount of Tier 1 capital (qualified Tier 
1 capital) in addition to any long-term unsecured debt; the amount of 
qualified Tier 1 capital will be the sum of the amounts set forth 
below:

------------------------------------------------------------------------
                                                          Amount of Tier
                                                             1 capital
                                                           within range
   Range of Tier 1 capital to adjusted average assets        which is
                                                             qualified
                                                             (percent)
------------------------------------------------------------------------
<= 5%...................................................               0
> 5% and <= 6%..........................................              10
> 6% and <= 7%..........................................              20
> 7% and <= 8%..........................................              30
> 8% and <= 9%..........................................              40
> 9% and <= 10%.........................................              50
> 10% and <= 11%........................................              60
> 11% and <= 12%........................................              70
> 12% and <= 13%........................................              80
> 13% and <= 14%........................................              90
> 14%...................................................             100
------------------------------------------------------------------------

    For institutions that file Thrift Financial Reports, adjusted total 
assets will be used in place of adjusted average assets in the 
preceding table. The sum of qualified Tier 1 capital and long-term 
unsecured debt as a percentage of domestic deposits will be multiplied 
by 40 basis points to produce the unsecured debt adjustment for small 
institutions.
    (iii) Limitation--No unsecured debt adjustment for any institution 
shall exceed 5 basis points. No unsecured debt adjustment for any 
institution shall result in a total base assessment rate that is less 
than 50 percent of the institution's initial base assessment rate.
    (iv) Applicable quarterly reports of condition--Ratios for any 
given quarter shall be calculated from quarterly reports of condition 
(Call Reports and Thrift Financial Reports) filed by each institution 
as of the last day of the quarter.
    (7) Secured liability adjustment for all institutions. All 
institutions, except insured branches of foreign banks as provided 
under paragraph (d)(2)(iii) of this section, are subject to upward 
adjustment of their assessment rate based upon the ratio of their 
secured liabilities to domestic deposits. Any such adjustment shall be 
made after any applicable adjustment under paragraph (d)(5) or (d)(6) 
of this section.
    (i) Secured liabilities for banks--Secured liabilities for banks 
include Federal Home Loan Bank advances, securities sold under 
repurchase agreements, secured Federal funds purchased and other 
borrowings that are secured as reported in banks' quarterly Call 
Reports.
    (ii) Secured liabilities for savings associations--Secured 
liabilities for savings associations include Federal Home Loan Bank 
advances as reported in quarterly Thrift Financial Reports (``TFRs''). 
Secured liabilities for savings associations also include securities 
sold under repurchase agreements, secured Federal funds purchased or 
other borrowings that are secured.
    (iii) Calculation--An institution's ratio of secured liabilities to 
domestic deposits will, if greater than 25 percent, increase its 
assessment rate, but any such increase shall not exceed 50 percent of 
its assessment rate before the secured liabilities adjustment. For an 
institution that has a ratio of secured liabilities (as defined in 
paragraph (ii) above) to domestic deposits of greater than 25 percent, 
the institution's assessment rate (after taking into account any 
adjustment under paragraphs (d)(5) or (6) of this section) will be 
multiplied by the following amount: the ratio of the institution's 
secured liabilities to domestic deposits minus 0.25. Ratios of secured 
liabilities to domestic deposits shall be calculated from the report of 
condition, or similar report, filed by each institution.
    (8) Brokered Deposit Adjustment. All small institutions in Risk 
Categories II, III, and IV, all large institutions, and all highly 
complex institutions shall be subject to an assessment rate adjustment 
for brokered deposits. Any such brokered deposit adjustment shall be 
made after any adjustment under paragraph (d)(5), (d)(6) or (d)(7) of 
this section. The brokered deposit adjustment includes all brokered 
deposits as defined in Section 29 of the Federal Deposit Insurance Act 
(12 U.S.C. 1831f), and 12 CFR 337.6, including reciprocal deposits as 
defined

[[Page 23542]]

in Sec.  327.8(r), and brokered deposits that consist of balances swept 
into an insured institution by another institution. The adjustment 
under this paragraph is limited to those institutions whose ratio of 
brokered deposits to domestic deposits is greater than 10 percent; 
asset growth rates do not affect the adjustment. The adjustment is 
determined by multiplying by 25 basis points the difference between an 
institution's ratio of brokered deposits to domestic deposits and 0.10. 
The maximum brokered deposit adjustment will be 10 basis points. 
Brokered deposit ratios for any given quarter are calculated from the 
quarterly reports of condition filed by each institution as of the last 
day of the quarter. Insured branches of foreign banks are not subject 
to the brokered deposit adjustment as provided in section (d)(2)(iii).
    (9) Request to be treated as a large institution--(i) Procedure. 
Any institution in Risk Category I with assets of between $5 billion 
and $10 billion may request that the FDIC determine its assessment rate 
as a large institution. The FDIC will grant such a request if it 
determines that it has sufficient information to do so. Any such 
request must be made to the FDIC's Division of Insurance and Research. 
Any approved change will become effective within one year from the date 
of the request. If an institution whose request has been granted 
subsequently reports assets of less than $5 billion in its report of 
condition for four consecutive quarters, the FDIC will consider such 
institution to be a small institution subject to the financial ratios 
method.
    (ii) Time limit on subsequent request for alternate method. An 
institution whose request to be assessed as a large institution is 
granted by the FDIC shall not be eligible to request that it be 
assessed as a small institution for a period of three years from the 
first quarter in which its approved request to be assessed as a large 
bank became effective. Any request to be assessed as a small 
institution must be made to the FDIC's Division of Insurance and 
Research.
    (iii) An institution that disagrees with the FDIC's determination 
that it is a large or small institution may request review of that 
determination pursuant to Sec.  327.4(c).
    (10) New and established institutions and exceptions--(i) New small 
institutions. A new small institution that is well capitalized shall be 
assessed the Risk Category I maximum initial base assessment rate for 
the relevant assessment period, except as provided in Sec.  
327.8(m)(1), (2), (3), (4), (5) and paragraphs (d)(10)(ii) and (iii) of 
this section. No new small institution in any risk category shall be 
subject to the unsecured debt adjustment as determined under paragraph 
(d)(6) of this section. All new small institutions in any Risk Category 
shall be subject to the secured liability adjustment as determined 
under paragraph (d)(7) of this section. All new small institutions in 
Risk Categories II, III, and IV shall be subject to the brokered 
deposit adjustment as determined under paragraph (d)(8) of this 
section.
    (ii) New large institutions and new highly complex institutions. 
All new large institutions and all new highly complex institutions 
shall be assessed under the appropriate method provided at paragraph 
(d)(3) or (d)(4) of this section and subject to the adjustments 
provided at paragraphs (d)(5), (d)(7), and (d)(8) of this section. No 
new Highly Complex or large institutions are entitled to adjustment 
under paragraph (d)(6) of this section. If a large or highly complex 
institution has not yet received CAMELS ratings, it will be given a 
weighted CAMELS rating of 2 for assessment purposes until actual CAMELS 
ratings are assigned.
    (iii) CAMELS ratings for the surviving institution in a merger or 
consolidation. When an established institution merges with or 
consolidates into a new institution, if the FDIC determines the 
resulting institution to be an established institution under Sec.  
327.8(m)(1), its CAMELS ratings for assessment purposes will be based 
upon the established institution's ratings prior to the merger or 
consolidation until new ratings become available.
    (iv) Rate applicable to institutions subject to subsidiary or 
credit union exception. If a small institution is considered 
established under Sec.  327.8(m)(4) and (5), but does not have CAMELS 
component ratings, it shall be assessed at two basis points above the 
minimum initial base assessment rate applicable to Risk Category I 
institutions until it receives CAMELS component ratings. Thereafter, 
the assessment rate will be determined by annualizing, where 
appropriate, financial ratios obtained from all quarterly reports of 
condition that have been filed, until the institution files four 
quarterly reports of condition. If a large or highly complex 
institution is considered established under Sec.  327.8(m)(4) and (5), 
but does not have CAMELS component ratings, it will be given a weighted 
CAMELS rating of 2 for assessment purposes until actual CAMELS ratings 
are assigned.
    (v) Request for review. An institution that disagrees with the 
FDIC's determination that it is a new institution may request review of 
that determination pursuant to Sec.  327.4(c).
    (11) Assessment rates for bridge depository institutions and 
conservatorships. Institutions that are bridge depository institutions 
under 12 U.S.C. 1821(n) and institutions for which the Corporation has 
been appointed or serves as conservator shall, in all cases, be 
assessed at the Risk Category I minimum initial base assessment rate, 
which shall not be subject to adjustment under paragraphs (d)(5), (6), 
(7) or (8) of this section.
    5. Revise Sec.  327.10 to read as follows:


Sec.  327.10  Assessment rate schedules.

    (a) Initial and Total Base Assessment Rate Schedule for Small 
Institutions and Insured Branches of Foreign Banks. The initial and 
total base assessment rate for a small insured depository institution 
or an insured branch of a foreign bank shall be the rate prescribed in 
the following schedule:

----------------------------------------------------------------------------------------------------------------
                                                                                Risk category
                                           Risk category I  Risk category II         III        Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate............             10-14                22                34                50
Unsecured debt adjustment...............              -5-0              -5-0              -5-0              -5-0
Secured liability adjustment............               0-7              0-11              0-17              0-25
Brokered deposit adjustment.............  ................              0-10              0-10              0-10
                                         -----------------------------------------------------------------------
    TOTAL BASE ASSESSMENT RATE..........              5-21             17-43             29-61             45-85
----------------------------------------------------------------------------------------------------------------
All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates. All rates shown will increase 3 basis points on January 1, 2011,
  pursuant to the FDIC Restoration Plan adopted on September 29, 2009 (74 FR 51062 (Oct. 2, 2009)).


[[Page 23543]]

    (1) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all institutions in Risk 
Category I shall range from 10 to 14 basis points.
    (2) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for Risk Categories 
II, III, and IV shall be 22, 34, and 50 basis points, respectively.
    (3) Risk Category I Total Base Assessment Rate Schedule after 
Adjustments. The annual total base assessment rates after adjustments 
for all institutions in Risk Category I shall range from 5 to 21 basis 
points.
    (4) Risk Category II Total Base Assessment Rate Schedule after 
Adjustments. The annual total base assessment rates after adjustments 
for all institutions in Risk Category II shall range from 17 to 43 
basis points.
    (5) Risk Category III Total Base Assessment Rate Schedule after 
Adjustments. The annual total base assessment rates after adjustments 
for all institutions in Risk Category III shall range from 29 to 61 
basis points.
    (6) Risk Category IV Total Base Assessment Rate Schedule after 
Adjustments. The annual total base assessment rates after adjustments 
for all institutions in Risk Category IV shall range from 45 to 85 
basis points.
    (7) All institutions in any one risk category, other than Risk 
Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (b) Initial and Total Base Assessment Rate Schedule for Large 
Institutions and Highly Complex Institutions. The annual initial base 
assessment rate and total base assessment rate for a large insured 
depository institution or a highly complex insured depository 
institution shall be the rate prescribed in the following schedule:

------------------------------------------------------------------------
                                                              Large
                                                          institutions
------------------------------------------------------------------------
Initial base assessment rate..........................             10-50
Unsecured debt adjustment.............................              -5-0
Secured liability adjustment..........................              0-25
Brokered deposit adjustment...........................              0-10
                                                       -----------------
    TOTAL BASE ASSESSMENT RATE........................              5-85
------------------------------------------------------------------------
All amounts are in basis points annually. Total base rates that are not
  the minimum or maximum rate will vary between these rates. All rates
  shown will increase 3 basis points on January 1, 2011, pursuant to the
  FDIC Restoration Plan adopted on September 29, 2009 (74 FR 51062 (Oct.
  2, 2009)).

    (1) Initial Base Assessment Rate Schedule for Large Institutions 
and Highly Complex Institutions. The annual initial base assessment 
rates for all large institutions and highly complex institutions shall 
range from 10 to 50 basis points.
    (2) Total Base Assessment Rate Schedule for Large Institutions and 
Highly Complex Institutions. The annual total base assessment rates for 
all large institutions and highly complex institutions shall range from 
5 to 85 basis points.
    (c) Total Base Assessment Rate Schedule adjustments and 
procedures--(1) Board Rate Adjustments. The Board may increase or 
decrease the total base assessment rate schedule for all insured 
depository institutions up to a maximum increase of 3 basis points or a 
fraction thereof or a maximum decrease of 3 basis points or a fraction 
thereof (after aggregating increases and decreases), as the Board deems 
necessary. Any such adjustment shall apply uniformly to each rate in 
the total base assessment rate schedule. In no case may such Board rate 
adjustments result in a total base assessment rate that is 
mathematically less than zero or in a total base assessment rate 
schedule that, at any time, is more than 3 basis points above or below 
the total base assessment schedule for the Deposit Insurance Fund, nor 
may any one such Board adjustment constitute an increase or decrease of 
more than 3 basis points.
    (2) Amount of revenue. In setting assessment rates, the Board shall 
take into consideration the following:
    (i) Estimated operating expenses of the Deposit Insurance Fund;
    (ii) Case resolution expenditures and income of the Deposit 
Insurance Fund;
    (iii) The projected effects of assessments on the capital and 
earnings of the institutions paying assessments to the Deposit 
Insurance Fund;
    (iv) The risk factors and other factors taken into account pursuant 
to 12 U.S.C. 1817(b)(1); and
    (v) Any other factors the Board may deem appropriate.
    (3) Adjustment procedure. Any adjustment adopted by the Board 
pursuant to this paragraph will be adopted by rulemaking, except that 
the Corporation may set assessment rates as necessary to manage the 
reserve ratio, within set parameters not exceeding cumulatively 3 basis 
points, pursuant to paragraph (c)(1) of this section, without further 
rulemaking.
    (4) Announcement. The Board shall announce the assessment schedules 
and the amount and basis for any adjustment thereto not later than 30 
days before the quarterly certified statement invoice date specified in 
Sec.  327.3(b) of this part for the first assessment period for which 
the adjustment shall be effective. Once set, rates will remain in 
effect until changed by the Board.
    6. Revise Appendix A to Subpart A of Part 327 to read as follows:

Appendix A to Subpart A

Method To Derive Pricing Multipliers and Uniform Amount

I. Introduction

    The uniform amount and pricing multipliers are derived from:
     A model (the Statistical Model) that estimates the 
probability that a Risk Category I institution will be downgraded to 
a composite CAMELS rating of 3 or worse within one year;
     Minimum and maximum downgrade probability cutoff 
values, based on data from June 30, 2008, that will determine which 
small institutions will be charged the minimum and maximum initial 
base assessment rates applicable to Risk Category I; and
     The maximum initial base assessment rate for Risk 
Category I, which is four basis points higher than the minimum rate.

II. The Statistical Model

    The Statistical Model is defined in equations 1 and 3 below:

Equation 1

Downgrade (0,1)i,t = [beta]0 + 
[beta]1 (Tier 1 Leverage RatioT) +
    [beta]2 (Loans past due 30 to 89 days 
ratioi,t) +
    [beta]3 (Nonperforming asset ratioi,t) +
    [beta]4 (Net loan charge-off ratioi,t) +
    [beta]5 (Net income before taxes ratioi,t) 
+
    [beta]6 (Adjusted brokered deposit 
ratioi,t) +
    [beta]7 (Weighted average CAMELS component 
ratingi,t)

Where Downgrade(01)i,t (the dependent variable--the event 
being explained) is the incidence of downgrade from a composite 
rating of 1 or 2 to a rating of 3 or worse during an on-site 
examination for an institution i between 3 and 12 months after time 
t. Time t is the end of

[[Page 23544]]

a year within the multi-year period over which the model was 
estimated (as explained below). The dependent variable takes a value 
of 1 if a downgrade occurs and 0 if it does not.

    The explanatory variables (regressors) in the model are six 
financial ratios and a weighted average of the ``C,'' ``A,'' ``M,'' 
``E'' and ``L'' component ratings. The six financial ratios included 
in the model are:
     Tier 1 leverage ratio
     Loans past due 30-89 days/Gross assets
     Nonperforming assets/Gross assets
     Net loan charge-offs/Gross assets
     Net income before taxes/Risk-weighted assets
     Brokered deposits/domestic deposits above the 10 
percent threshold, adjusted for the asset growth rate factor
    Table A.1 defines these six ratios along with the weighted 
average of CAMELS component ratings. The adjusted brokered deposit 
ratio (Bi,T) is calculated by multiplying the ratio of brokered 
deposits to domestic deposits above the 10 percent threshold by an 
asset growth rate factor that ranges from 0 to 1 as shown in 
Equation 2 below. The asset growth rate factor (Ai,T) is 
calculated by subtracting 0.4 from the four-year cumulative gross 
asset growth rate (expressed as a number rather than as a 
percentage), adjusted for mergers and acquisitions, and multiplying 
the remainder by 3\1/3\. The factor cannot be less than 0 or greater 
than 1.

Equation 2
[GRAPHIC] [TIFF OMITTED] TP03MY10.012

Where
[GRAPHIC] [TIFF OMITTED] TP03MY10.013

subject to

0 <= Ai,r <= 1 and Bi,r >= 0.
    The component rating for sensitivity to market risk (the ``S'' 
rating) is not available for years prior to 1997. As a result, and 
as described in Table A.1, the Statistical Model is estimated using 
a weighted average of five component ratings excluding the ``S'' 
component. Delinquency and non-accrual data on government guaranteed 
loans are not available before 1993 for Call Report filers and 
before the third quarter of 2005 for TFR filers. As a result, and as 
also described in Table A.1, the Statistical Model is estimated 
without deducting delinquent or past-due government guaranteed loans 
from either the loans past due 30-89 days to gross assets ratio or 
the nonperforming assets to gross assets ratio. Reciprocal deposits 
are not presently reported in the Call Report or TFR. As a result, 
and as also described in Table A.1, the Statistical Model is 
estimated without deducting reciprocal deposits from brokered 
deposits in determining the adjusted brokered deposit ratio.

                  Table A.1--Definitions of Regressors
------------------------------------------------------------------------
          Regressor                           Description
------------------------------------------------------------------------
Tier 1 Leverage Ratio (%)....  Tier 1 capital for Prompt Corrective
                                Action (PCA) divided by adjusted average
                                assets based on the definition for
                                prompt corrective action.
Loans Past Due 30-89 Days/     Total loans and lease financing
 Gross Assets (%).              receivables past due 30 through 89 days
                                and still accruing interest divided by
                                gross assets (gross assets equal total
                                assets plus allowance for loan and lease
                                financing receivable losses and
                                allocated transfer risk).
Nonperforming Assets/Gross     Sum of total loans and lease financing
 Assets (%).                    receivables past due 90 or more days and
                                still accruing interest, total
                                nonaccrual loans and lease financing
                                receivables, and other real estate owned
                                divided by gross assets.
Net Loan Charge-Offs/Gross     Total charged-off loans and lease
 Assets (%).                    financing receivables debited to the
                                allowance for loan and lease losses less
                                total recoveries credited to the
                                allowance to loan and lease losses for
                                the most recent twelve months divided by
                                gross assets.
Net Income before Taxes/Risk-  Income before income taxes and
 Weighted Assets (%).           extraordinary items and other
                                adjustments for the most recent twelve
                                months divided by risk-weighted assets.
Adjusted brokered deposit      Brokered deposits divided by domestic
 ratio (%).                     deposits less 0.10 multiplied by the
                                asset growth rate factor (which is the
                                term Ai,T as defined in equation 2
                                above) that ranges between 0 and 1.
Weighted Average of C, A, M,   The weighted sum of the ``C,'' ``A,''
 E and L Component Ratings.     ``M,'' ``E'' and ``L'' CAMELS
                                components, with weights of 28 percent
                                each for the ``C'' and ``M'' components,
                                22 percent for the ``A'' component, and
                                11 percent for the ``E'' and ``L''
                                components. (For the regression, the
                                ``S'' component is omitted.)
------------------------------------------------------------------------

    7. Revise Appendix B to Subpart A of Part 327 to read as 
follows:

Appendix B to Subpart A

Description of Scorecard Measures

(1) Scorecard Measures Applied to All Large Banks

------------------------------------------------------------------------
    Quantitative measures (Data
              Source)                            Description
------------------------------------------------------------------------
Tier 1 Common Capital Ratio (Call/  The ratio is calculated as Tier 1
 TFR Reports).                       capital less perpetual preferred
                                     stock and related surplus divided
                                     by average total assets less
                                     disallowed intangibles.
Concentration Measure.............  Concentration score takes a higher
                                     score of the following two:
(1) Higher-Risk Concentrations      The measure is a sum of following
 Measure (LIDI).                     ratios squared: construction and
                                     development loans (C&D), leveraged
                                     loans, nontraditional mortgages,
                                     subprime consumer loans, and total
                                     exposure (outstanding loan balances
                                     and unfunded commitments) to top 20
                                     single-name borrowers, all as a
                                     ratio to tier 1 capital and
                                     reserves.

[[Page 23545]]

 
(2) Growth-Adjusted Portfolio       The measure is calculated in
 Concentrations (Call/TFR Reports).  following steps:
                                    (1) Concentration levels (as a ratio
                                     to total risk-based capital) are
                                     calculated for each broad portfolio
                                     category (C&D, other commercial
                                     real estate loans, residential
                                     mortgage (including mortgage-backed
                                     securities), commercial and
                                     industrial loans, credit card and
                                     other consumer loans).
                                    (2) Three-year merger-adjusted
                                     portfolio growth rates are then
                                     scaled to a growth factor of 1 and
                                     1.5. If three years of data are not
                                     available, a growth factor of 1
                                     would be assigned.
                                    (3) Risk weights are assigned to
                                     each category based on relative
                                     SCAP loss rates.
                                    (4) Concentration levels are
                                     multiplied by risk weights and
                                     growth factor and the resulting
                                     value for each portfolio is squared
                                     and summed.
                                    Both concentration measures are
                                     described in detail in Appendix C.
Core Earnings/Average Total Assets  Core earnings are defined as
 (Call/TFR Reports).                 quarterly net income less
                                     extraordinary items and realized
                                     gains and losses on available-for-
                                     sale (AFS) and held-to-maturity
                                     (HTM) securities, adjusted for
                                     mergers. The ratio takes a four-
                                     quarter sum of merger-adjusted core
                                     earnings and divides it by a five-
                                     quarter average of total assets. If
                                     four quarters of data on core
                                     earnings are not available, data
                                     for quarters that are available
                                     would be added and annualized. If
                                     five quarters of data on total
                                     assets are not available, data for
                                     quarters that are available would
                                     be averaged.
Credit Quality Measure:...........  Asset quality score takes a higher
                                     score of the following two:
a. Criticized and Classified Items/ The sum of criticized and classified
 Tier 1 Capital and Reserves         items divided by a sum of Tier 1
 (LIDI).                             capital and reserves. Criticized
                                     and classified items include items
                                     with an internal grade of ``Special
                                     Mention'' or worse and include
                                     retail items under Uniform Retail
                                     Classification Guidelines,
                                     securities that are rated sub-
                                     investment grade, and marked-to-
                                     market counterparty positions with
                                     an internal grade of ``Special
                                     Mention'' or worse, or an external
                                     rating of sub-investment grade less
                                     credit valuation allowances (CVA).
                                     Criticized and classified items
                                     exclude loans and securities in
                                     trading books, and the maximum
                                     amount recoverable from the U.S.
                                     government, its agencies, or
                                     government-sponsored agencies,
                                     under guarantee or insurance
                                     provisions.
b. Underperforming Assets/Tier 1    Sum of loans past due 30-89 days,
 Capital and Reserves (Call/TFR      loans past due 90+ days, nonaccrual
 Reports).                           loans, restructured loans,
                                     restructured 1-4 family loans, and
                                     ORE (excluding the maximum amount
                                     recoverable from the U.S.
                                     government, its agencies, or
                                     government-sponsored agencies,
                                     under guarantee or insurance
                                     provisions) divided by a sum of
                                     Tier 1 capital and reserves.
Core Deposits/Total Liabilities     The core deposit ratio is a sum of
 (Call/TFR Reports).                 demand deposits, NOW accounts,
                                     MMDA, other savings deposits, CDs
                                     under $100M less insured brokered
                                     deposits under $100,000 divided by
                                     total liabilities.
Unfunded Commitments/Total Assets   Unfunded commitments are unused
 (Call/TFR Reports).                 portions of commitments to make or
                                     purchase extensions of credit in
                                     the form of loans or participations
                                     in loans, lease financing
                                     receivables, or similar
                                     transactions and include unused
                                     commitments for home equity line of
                                     credit, commercial real estate,
                                     construction and land development
                                     loans either secured or not secured
                                     by real estate, securities
                                     underwriting and others, excluding
                                     unused commitments for credit card
                                     lines. Total amount of unfunded
                                     commitments is divided by total
                                     assets.
Liquid Assets/Short-term            Liquid assets are defined as the sum
 Liabilities (Liquidity Coverage     of cash and balances due from
 Ratio) (Call/TFR Reports).          depository institutions, Federal
                                     funds sold and securities purchased
                                     under agreements to resell, and
                                     agency securities (securities
                                     issued by the U.S. Treasury, U.S.
                                     government agencies, and US
                                     government-sponsored enterprises)
                                     less securities sold under
                                     agreements to repurchase or agency
                                     securities, whichever is smaller.
                                     ``Short-term'' liabilities are
                                     defined as a sum of large CDs
                                     (larger than $100,000) with a
                                     remaining maturity of one year or
                                     less, fed funds purchased and
                                     repos, unsecured borrowings with a
                                     remaining maturity of one year or
                                     less, foreign deposits and unused
                                     commitments for asset-backed
                                     commercial paper with a remaining
                                     maturity of one year or less.
Potential Losses/Total Domestic     The loss severity ratio is a ratio
 Deposits (Loss Severity Measure)    of potential losses to the DIF--as
 (Call/TFR Reports).                 calculated in the FDIC's loss
                                     severity model--to domestic
                                     deposits. Appendix D describes the
                                     loss severity model in detail.
Secured Liabilities/Total Domestic  The secured liability ratio is a sum
 Deposits (Call/TFR Reports).        of secured liabilities (FHLB
                                     advances, securities sold under
                                     repurchase agreements, secured
                                     Federal funds purchased, and other
                                     secured borrowings) divided by
                                     domestic deposits.
------------------------------------------------------------------------

(2) Scorecard Measures Applied to Highly Complex Institutions Only

------------------------------------------------------------------------
       Quantitative measures                     Description
------------------------------------------------------------------------
10-day 99% VaR/Tier 1 Capital       The ratio is defined as 10-day
 (LIDI Reports).                     99%VaR based on banks' internal
                                     model divided by Tier 1 capital.
Short-term Funding/Total Assets     The short-term funding ratio is a
 (Call/TFR Reports).                 ratio of a sum of Federal funds
                                     purchased and repos to total
                                     assets. If more granular maturity
                                     data are available, we may want to
                                     include non-deposit liabilities
                                     with a remaining maturity of three
                                     months or less.
Senior Bond Spread (IDC)..........  Quarterly average of median weekly
                                     spreads for senior bonds with three
                                     to ten years remaining to maturity
                                     issued by the parent company over
                                     comparable-maturity Treasuries.
Parent TCE Ratio (9-Y Reports)....  The parent TCE ratio is a ratio of a
                                     sum of common stock, surplus,
                                     undivided profits, accumulated
                                     other comprehensive income, and
                                     other equity capital components
                                     less intangible assets to tangible
                                     assets (total assets less
                                     intangible assets).
------------------------------------------------------------------------


[[Page 23546]]

    8. Revise Appendix C to Subpart A of Part 327 to read as follows:

APPENDIX C TO SUBPART A

Concentration Measures

    The concentration measure score is a higher of the two 
concentration scores: a higher-risk concentration measure and a 
growth-adjusted portfolio concentration measure.

1. Higher-Risk Concentration Measure

    The higher-risk concentration measure is the sum of the squared 
value of concentrations in each of five risk areas and is calculated 
as:
[GRAPHIC] [TIFF OMITTED] TP03MY10.014

Where:
H is institution i's higher-risk concentration measure and
k is a risk area.\1\ The five risk areas (k) are defined as:
---------------------------------------------------------------------------

    \1\ The high-risk concentration measure is rounded to two 
decimal points.
---------------------------------------------------------------------------

     Construction and development loans;
     Leveraged lending;
     Nontraditional mortgages;
     Subprime consumer loans; and
     Total exposure (outstanding loan balances, unfunded 
commitments and counterparty credit risk) to top 20 single-name 
borrowers.
    Data on higher-risk lending, other than construction and 
development loans, are obtained through an examination process and 
defined according to the interagency guidance for a given product. A 
loan is considered to be leveraged when the obligor's post-financing 
leverage as measured by debt-to-assets, debt-to-equity, cash flow-
to-total debt, or other such standards unique to particular 
industries significantly exceeds industry norms for leverage.\2\ 
Nontraditional mortgages are mortgage products that allow borrowers 
to defer payment of principal and, sometimes, interest. These 
products include ``interest-only'' mortgages and ``payment option''' 
adjustable-rate mortgages.\3\ Subprime loans are consumer loans that 
are typically made to borrowers with weakened credit histories, 
including a combination of payment delinquencies, charge-offs, 
judgments, and bankruptcies who may also display reduced repayment 
capacity as measured by credit scores, debt-to-income ratios, or 
other criteria.\4\
---------------------------------------------------------------------------

    \2\ http://www.fdic.gov/news/news/press/2001/pr0901a.html.
    \3\ http://www.fdic.gov/regulations/laws/federal/2006/06noticeFINAL.html.
    \4\ Generally, subprime borrowers will display a range of credit 
risk characteristics that may include one or more of the following: 
(1) Two or more 30-day delinquencies in the last 12 months, or one 
or more 60-day delinquencies in the last 24 months; (2) judgment, 
foreclosure, repossession, or charge-off in the prior 24 months; (3) 
bankruptcy in the last 5 years; (4) relatively high default 
probability as evidenced by, for example, a Fair Isaac and Co. risk 
score (FICO) of 660 or below (depending on the product/collateral), 
or other bureau or proprietary scores with an equivalent default 
probability likelihood; and/or (5) debt service-to-income ratio of 
50 percent or greater, or otherwise limited ability to cover family 
living expenses after deducting total monthly debt-service 
requirements from monthly income. http://www.fdic.gov/news/news/press/2001/pr0901a.html.
---------------------------------------------------------------------------

2. Growth-adjusted Portfolio Concentration Measure

    The growth-adjusted concentration measure is the sum of the 
squared values of concentrations in each of seven portfolios, each 
of the squared values being first adjusted for growth and risk 
weights before summing. The measure is calculated as:
[GRAPHIC] [TIFF OMITTED] TP03MY10.015

Where:
N is institution i's growth-adjusted portfolio concentration measure 
\5\;
---------------------------------------------------------------------------

    \5\ The growth-adjusted portfolio concentration measure is 
rounded to two decimal points.
---------------------------------------------------------------------------

k is a portfolio;
g is a growth factor for institution i's portfolio k; and,
w is a risk weight for portfolio k.
    The seven portfolios (k) are defined based on the Call Report 
data and they are:
     First-lien residential mortgages and mortgage-backed 
securities;
     Closed-end junior liens and home equity lines of credit 
(HELOCs);
     Construction and development loans;
     Other commercial real estate loans;
     Commercial and industrial loans;
     Credit card loans; and
     Other consumer loans.
    The growth factor, g, is based on a three-year merger-adjusted 
growth rate for a given portfolio; g ranges from 1 to 1.5 where a 20 
percent growth rate equals a factor of 1 and an 80 percent growth 
rate equals a factor of 1.5.6 7 For growth rates less 
than 20 percent, g is 1; for growth rates greater than 80 percent, g 
is 1.5. For growth rates of 20 percent to 80 percent, the growth 
factor is calculated as:
---------------------------------------------------------------------------

    \6\ The cut-off values of 0.2 and 0.8 correspond to about 45th 
percentile and 80th percentile among the large institutions, 
respectively, based on the data from 2000 to 2009.
    \7\ The growth factor is rounded to two decimal points.
    [GRAPHIC] [TIFF OMITTED] TP03MY10.016
    
Where
[GRAPHIC] [TIFF OMITTED] TP03MY10.017

V is the portfolio amount as reported on the Call Report
and t is the quarter for which the assessment is being determined.
    The risk weight for each portfolio reflects relative loss rates 
and is based on the mid-point of two-year cumulative indicative loss 
rate ranges used in the adverse scenario for the interagency 
Supervisory Capital Assessment Program (SCAP) in early 
2009.8 9
---------------------------------------------------------------------------

    \8\ Board of Governors of the Federal Reserve System, ``The 
Supervisory Capital Assessment Program: Overview of Results,'' May 
7, 2009. http://www.federalreserve.gov/newsevents/speech/bcreg20090507a1.pdf.
    \9\ The risk weights are based on loss rates for each portfolio 
relative to the loss rate for C&I loans, which is given a risk 
weight of 1.

[[Page 23547]]



                   Table C.1--Two-Year Cumulative Indicative Loss Range: SCAP Adverse Scenario
----------------------------------------------------------------------------------------------------------------
                                          Two-year cumulative loss range
            Portfolio            ------------------------------------------------  Risk weights
                                      Minimum         Maximum        Midpoint
-------------------------------------------------------------------------------------------------
First-Lien Mortgages*...........             4.3             5.8             5.1             0.8
Second/Junior Lien Mortgages....            12.0            16.0            14.0             2.2
Commercial and Industrial (C&I)              5.0             8.0             6.5             1.0
 Loans..........................
Construction and Development                15.0            18.0            16.5             2.5
 (C&D) Loans....................
Commercial Real Estate Loans,                7.6             9.4             8.5             1.3
 excluding C&D**................
Credit Card Loans...............            18.0            20.0            19.0             2.9
Other Consumer Loans............             8.0            12.0            10.0             1.5
----------------------------------------------------------------------------------------------------------------

    * Assumes that 80 percent of first liens are prime and the 
remaining 20 percent at Alt-A.
    ** Assumes that 80 percent of CRE portfolio are nonfarm non-
residential and the remaining 20 percent are multifamily. The 
allocation is based on the aggregate bank data.
    9. Add Appendix D to Subpart A of Part 327 to read as follows:

Appendix D to Subpart A

Description of the Loss Severity Model

    The FDIC's loss severity model applies a standardized set of 
assumptions to an institution's balance sheet for a given quarter to 
measure possible losses to the FDIC in the event of an institution's 
failure. To determine an institution's loss severity rate, the size 
and composition of an institution's liabilities are adjusted to 
reflect expected changes (due to uninsured deposit and other 
unsecured liability runoff and growth in insured deposits) as an 
institution approaches failure. Assets are then reduced to match any 
reduction in liabilities.\1\ The institution's asset values are then 
further reduced until the Tier 1 leverage ratio reaches 2 
percent.\2\ Asset adjustments are made pro rata to asset categories 
to preserve the institution's relative proportion of assets by asset 
categories. Assumptions regarding asset losses at failure and the 
extent of secured liabilities are then applied to the estimated 
balance sheet at failure to determine whether the institution has 
enough unencumbered assets to cover domestic deposits. Any projected 
shortfall is divided by current domestic deposits to obtain an end-
of-period loss severity ratio, which is then averaged over the three 
most recent quarters to produce the loss severity measure for the 
scorecard.
---------------------------------------------------------------------------

    \1\ In most cases, the model would yield reductions in 
liabilities and assets prior to failure. Exceptions may occur for 
institutions primarily funded through insured deposits, which the 
model assumes to grow prior to failure.
    \2\ Of course, in reality, runoff and capital declines occur 
more or less simultaneously as an institution approaches failure. 
The loss severity measure assumptions simplify this process for ease 
of modeling.
---------------------------------------------------------------------------

Runoff and Capital Adjustment Assumptions

    Table D.1 contains run-off assumptions.

                   Table D.1--Runoff Rate Assumptions
------------------------------------------------------------------------
                                                           Runoff rate*
                     Liability type                          (percent)
------------------------------------------------------------------------
Insured Deposits........................................           -32.0
Uninsured Deposits......................................            28.6
Foreign Deposits........................................            80.0
Fed Funds Purchased.....................................            40.0
Repurchase Agreements...................................            25.0
Trading Liabilities.....................................            50.0
Federal Home Loan Bank Borrowings <= 1 Year.............            25.0
Federal Home Loan Bank Borrowings > 1 Year..............             0.0
Other Borrowings <= 1 Year..............................            50.0
Other Borrowings > 1 Year...............................             0.0
Subordinated Debt and Limited Liability Preferred Stock.            15.0
Other Liabilities.......................................             0.0
------------------------------------------------------------------------
* A negative rate implies growth.

    Given the resulting total liabilities after runoff, assets are 
then reduced pro rata to preserve the relative amount of assets in 
each of the following asset categories and to achieve a Tier 1 
leverage of 2 percent:
     Cash and Interest Bearing Balances;
     Trading Account Assets;
     Fed Funds Sold and Repurchase Agreements;
     Treasury and Agency Securities;
     Municipal Securities;
     Other Securities;
     Construction and Development Loans;
     Nonresidential Real Estate Loans;
     Multifamily Real Estate Loans;
     1-4 Family Closed-End First Liens;
     1-4 Family Closed-End Junior Liens;
     Revolving Home Equity Loans; and
     Agricultural Real Estate Loans.

Recovery Value of Assets at Failure

    Table D.2 shows loss rates applied to each of the asset 
categories as adjusted above.

                 Table D.2--Asset Loss Rate Assumptions
------------------------------------------------------------------------
                                                             Loss rate
                     Asset category                          (percent)
------------------------------------------------------------------------
Cash and Interest Bearing Balances......................             0.0
Trading Account Assets..................................             0.0
Fed Funds Sold and Repurchase Agreements................             0.0
Treasury and Agency Securities..........................             0.0
Municipal Securities....................................            10.0
Other Securities........................................            15.0
Construction and Development Loans......................            38.2
Nonresidential Real Estate Loans........................            17.6
Multifamily Real Estate Loans...........................            10.8
1-4 Family Closed-End First Liens.......................            19.4
1-4 Family Closed-End Junior Liens......................            41.0
Revolving Home Equity Loans.............................            41.0
Agricultural Real Estate Loans..........................            19.7
Agricultural Loans......................................            11.8
Commercial and Industrial Loans.........................            21.5
Credit Card Loans.......................................            18.3
Other Consumer Loans....................................            18.3
All Other Loans.........................................            51.0
Other Assets............................................            75.0
------------------------------------------------------------------------

Secured Liabilities at Failure

    Table D.3 shows the percentage of each liability category that 
is assumed to be secured.

                Table D.3--Secured Liability Assumptions
------------------------------------------------------------------------
                                                            Percentage
                                                            secured at
                     Liability type                           failure
                                                             (percent)
------------------------------------------------------------------------
Foreign Deposits........................................             100
Repurchase Agreements...................................             100
Federal Home Loan Bank Borrowings <= 1 Year.............             100

[[Page 23548]]

 
Federal Home Loan Bank Borrowings > 1 Year..............             100
Other Borrowings <= 1 Year..............................              50
Other Borrowings > 1 Year...............................              50
------------------------------------------------------------------------

Loss Severity Ratio Calculation

    The FDIC's loss given failure (LGD) is calculated as:
    [GRAPHIC] [TIFF OMITTED] TP03MY10.018
    
    An end-of-quarter loss severity ratio is LGD divided by total 
domestic deposits at quarter-end and the loss severity measure for 
the scorecard is an average of end-of-period loss severity ratio for 
three most recent quarters.

    9. Add Appendix E to Subpart A of Part 327 to read as follows:

Appendix E to Subpart A

Additional Risk Considerations for Large Institutions

------------------------------------------------------------------------
                                         Examples of Associated Risk
        Information Source                Indicators or Information
------------------------------------------------------------------------
                                      Adequacy of Capital to Withstand
                                    Stress (Level and Trend)
                                       Regulatory capital ratios
                                       Capital composition
                                       Unrealized losses on
                                    securities
                                       Dividend payout ratios
                                       Internal capital growth
                                    rates relative to asset growth
                                       Robustness of internal
                                    stress testing models and reserve
                                    methodology
                                      Adequacy and Stability of Earnings
                                    to Withstand Stress (Level and
                                    Trend)
                                       Return on assets and
                                    return on risk-adjusted assets
                                       Concentration of revenue
                                    sources
                                       Earning composition
                                    including noncash earnings e.g.,
                                    mortgage servicing rights (MSR),
                                    income from interest reserves)
                                    relative to core income
                                       Net interest margins,
                                    funding costs and volumes, earning
                                    asset yields and volumes
                                       Loan loss provisions
                                    relative to problem loans
                                       Historical volatility of
                                    various earnings sources
 Additional Performance Indicators    Ability to Withstand Credit-
                                    Related Stress (Level and Trend)
                                       Loan and securities
                                    portfolio composition and volume of
                                    higher risk lending activities or
                                    securities
                                       Loan performance measures
                                    (past due, nonaccrual, classified
                                    and criticized, and renegotiated
                                    loans)
                                       Portfolio characteristics
                                    such as internal loan rating and
                                    credit score distributions, internal
                                    estimates of default, internal
                                    estimates of loss given default, and
                                    internal estimates of exposures in
                                    the event of default
                                       Portfolio underwriting
                                    characteristics and trends
                                    (including portfolio growth)
                                       Robustness of credit
                                    administration and credit risk
                                    monitoring (e.g., internal loan
                                    classification)
                                       Off-balance sheet credit
                                    exposure measures (unfunded loan
                                    commitments, securitization
                                    activities, counterparty derivatives
                                    exposures) and hedging activities
                                      Ability to Withstand Liquidity-
                                    Related Stress (Level and Trend)
                                       Composition of deposit
                                    and non-deposit funding sources
                                       Liquid resources relative
                                    to short-term obligations,
                                    undisbursed credit lines, and
                                    contingent liabilities
                                       Reliance on
                                    securitization as a funding source
                                       Level of contingent
                                    liabilities
                                       Robustness of contingency
                                    or emergency funding strategies and
                                    analyses
                                      Ability to Withstand Interest Rate
                                    Shocks
                                       Maturity and repricing
                                    information on assets and
                                    liabilities, interest rate risk
                                    analyses
                                       Robustness of internal
                                    interest rate models
                                      Ability to Withstand Trading
                                    Stress (Level and Trend)
                                       Assessment of trading
                                    desk composition and revenue
                                    dependency (prop trading compared to
                                    customer flow, liquid products
                                    compared to illiquid products)
                                       Assessment of VaR
                                    framework, stress testing framework
                                    and results
                                       Appropriateness of desk
                                    limits.
                                      Ability to Withstand Stress to
                                    Counterparties (Level and Trend)
                                       Gross current exposure
                                    (Top 5 and Total by Client Types and
                                    Ratings) to capital
                                       Current net exposure (Top
                                    5 and Total by Client Types and
                                    Ratings) to capital
                                       Peak potential exposure
                                    (Top 5 and Total by Client Types and
                                    Ratings) to capital
                                       Exposure aggregation
                                    reporting
                                       Margining policies,
                                    netting enforceability and hedging
                                    capabilities.
                                      Market indicator of the
                                    institution's ability to withstand
                                    stress (Level and Trend)

[[Page 23549]]

 
                                       Subordinated debt spreads
                                       Credit default swap
                                    spreads
                                       Parent's equity price
                                    volatility
                                       Market-based measures of
                                    default probabilities
                                       Rating agency watch lists
                                       Market analyst reports
 
Additional Loss Severity               Ability to identify and
 Indicators.                        describe discreet business units
                                    within the banking legal entity
                                       Funding structure
                                    considerations relating to the order
                                    of claims in the event of
                                    liquidation (including the extent of
                                    subordinated claims and priority
                                    claims).
                                       Volumes of brokered
                                    deposits, potentially more volatile
                                    deposits such as Internet or money
                                    desk or high-cost deposits.
                                       Potential for significant
                                    ring-fencing of foreign assets.
                                       Volume of hard-to-value
                                    assets (Level 3 assets)
------------------------------------------------------------------------


    Note: The following Appendices will not appear in the Code of 
Federal Regulations.

Appendix 1

Statistical Analysis of Measures

    The risk measures included in the scorecard and the weights 
assigned to those measures are generally based on the results of an 
ordinary least square (OLS) model, and in some cases, a logistic 
regression model. The OLS model estimates how well a set of risk 
measures in 2005 through 2009 can predict the FDIC's view, based on 
its experience and judgment, of the proper rank ordering of risk 
(the expert judgment ranking) for large institutions as of year-end 
2009.
    The OLS model is specified as:
    [GRAPHIC] [TIFF OMITTED] TP03MY10.019
    
Where:

k is a risk measure;
n is the number of risk measures; and
t is the quarter that is being assessed

    The logistic regression model estimates how well the same set of 
risk measures in 2005 through 2008 can predict whether a large bank 
fails and it is specified as:
[GRAPHIC] [TIFF OMITTED] TP03MY10.020

Where:
Fail is whether an institution i failed on or prior to year-end 2009 
or not.\1\
---------------------------------------------------------------------------

    \1\ For the purpose of regression analysis, large institutions 
that received significant government support or merged with another 
entity with government support.
---------------------------------------------------------------------------

Selecting Risk Measures\2\
---------------------------------------------------------------------------

    \2\ The FDIC has conducted a number of robustness tests with 
alternative ratios for capital and earnings, a log transformation of 
several variables--the liquidity coverage ratio, the brokered 
deposit ratio and the growth-adjusted concentration ratio--and 
alternative dependent variables--CAMELS and the FDIC's internal risk 
ratings. These robustness tests show that the same set of variables 
are generally statistically significant in most models; that 
converting to a score from a raw ratio generally resolves any 
potential concern related to a nonlinear relationship between the 
dependent variable and several explanatory variables; and, finally, 
that alternative ratios for capital and earnings are not better in 
predicting expert judgment ranking or failure.
---------------------------------------------------------------------------

    To select the risk measures for the scorecard, the FDIC first 
selected a set of financial measures that were deemed to be most 
relevant to assessing large institutions' ability to withstand 
stress. Those measures were converted to a score between 0 and 100 
and then regressed against the expert judgment ranking. A stepwise 
selection method was used to select risk measures for each year that 
were statistically significant at a 15 percent confidence level or 
better.
    Table1.1 shows the risk measures that were considered and 
descriptive statistics of scores for those measures for large 
institutions based on data from 2005-2009. Most of these measures, 
other than concentration and credit quality measures, are based on 
report of condition and income data and defined in Appendix 1. The 
concentration measure is described in detail in Appendix 2. A 
distance-to-default measure is calculated as a sum of Tier 1 capital 
and 12-quarter average core earnings--both divided by total assets--
divided by the 12-quarter standard deviation in core earnings. The 
three-year merger-adjusted asset growth rate (AG) is calculated as:
[GRAPHIC] [TIFF OMITTED] TP03MY10.021

Where t is the quarter for which the assessment is being determined.

[[Page 23550]]



                            Table 1.1--Descriptive Statistics of Risk Measure Scores
----------------------------------------------------------------------------------------------------------------
                                                                                                     Standard
                          Risk measure                             Average score   Median score    deviation of
                                                                                                      scores
----------------------------------------------------------------------------------------------------------------
Weighted average CAMELS rating..................................            41.4            39.9            14.3
Tier 1 common leverage ratio....................................            65.4            74.7            30.5
Distance-to-default.............................................            62.2            73.7            34.8
Concentration measure...........................................            52.2            46.0            36.3
Three-year merger-adjusted asset growth rate....................            27.0            15.7            30.5
Core earnings/average assets....................................            56.6            55.4            30.0
Credit quality measure..........................................            43.2            33.7            35.2
Core deposits/total liabilities.................................            41.5            33.2            32.9
Liquidity coverage ratio........................................            75.1            89.9            31.5
Unfunded commitments/total assets...............................            49.1            51.4            32.1
Short-term funding/total assets.................................            32.8            24.8            31.8
Loss severity ratio.............................................            43.3            43.5            30.0
Secured liabilities/total domestic deposits.....................            31.3            21.2            31.7
Brokered deposits/total domestic deposits.......................            22.3             5.7            33.8
----------------------------------------------------------------------------------------------------------------

    Table 1.2 shows the results of the OLS models after a stepwise 
selection process and the statistical significance of each measure 
for years 2005 through 2009. The dependent variable for the model is 
an expert judgment ranking as of year-end 2009. The measures 
numbered (1) through (9) are statistically significant and have a 
positive sign in regression models for multiple years. Those 
measures include a weighted average CAMELS rating, a concentration 
measure, a core earnings to average total assets ratio, a credit 
quality measure, a core deposits to total liabilities ratio, an 
unfunded commitments to total assets ratio, a liquid assets to 
short-term liabilities ratio, a loss severity measure, and a secured 
liabilities to total domestic deposits ratio. The measures without 
coefficients are those that are not statistically significant at a 
15 percent confidence level.

[[Page 23551]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.022

    Table 1.3 shows the results of the logistic regression models 
with a stepwise selection process, and the statistical significance 
of each measure for years 2005 through 2008. The dependent variable 
for the model is whether an institution failed before year-end 2009 
or not. The risk measures numbered (1) through (5) are statistically 
significant and have a positive sign in regression models for 
multiple years. Two additional measures--credit quality measure and 
unfunded commitments/total assets-- are significant in a regression 
model for a single year. One measure--a Tier 1 common capital 
ratio--that is not significant in the OLS model are significant in 
the logistic regression model.

[[Page 23552]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.023

Determining Risk Measures Weights

    Table 1.4 shows the results of the OLS model with all ten risk 
measures that were significant in predicting either the expert 
judgment ranking or failure. The weights assigned to each of ten 
risk measures in the scorecard are generally, but not entirely, 
based on the coefficients for OLS models for 2006 and 2007. For 
example, the coefficient for the core earnings to average total 
asset ratio is 0.16 in 2007, and the proposal assigns a weight of 15 
percent to core earnings to calculate an institution's ability to 
withstand asset-related stress score. The coefficients for the 
concentration measure and credit quality measure are 0.34, and a 35-
percent weight is assigned to each of these measures. The 
coefficient for the liquid assets to short-term funding (liquidity 
coverage) ratio is 0.14 in 2007 and the proposal assigns a weight of 
20 percent to the liquidity coverage ratio to calculate an 
institution's ability to withstand funding-related stress score. The 
coefficients for the core deposits to total liabilities ratio and 
the unfunded commitments to total assets ratio are 0.20 and 0.12, 
respectively, in 2006 (and 0.10 and 0.16, respectively, in 2007), 
and a 40-percent weight is assigned to both these measures to 
calculate an institution's ability to withstand funding-related 
stress score.
    The weights assigned to the Tier 1 common capital ratio, the 10-
day 99-percent VaR to Tier 1 capital ratio, and the short-term 
funding to total assets ratio are not based on the OLS regression. 
For the Tier 1 common capital ratio, the 15-percent weight assigned 
in the large institution scorecard (and the 10-percent weight 
assigned in the highly complex institution scorecard) reflects its 
importance in predicting bank failure. A 10-day 99-percent VaR to 
Tier 1 capital ratio is a consistent measure of market risk that is 
important for highly complex institutions. Finally, while the OLS 
regression does not show a statistical significance, reliance on 
short-term funding had an effect on how highly complex institutions 
fared over the past four years.

[[Page 23553]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.024

OLS regression results: CAMELS and the Current Small Bank Financial 
Ratios

    Table 1.5 shows the results of the OLS regression model with the 
weighted average CAMELS rating only. These results show that while 
the weighted average CAMELS rating is statistically significant in 
predicting an expert judgment ranking as of year-end 2009, it only 
explains a small percentage of the variation in the year-end 2009 
expert judgment ranking--particularly in models for 2005 (10 
percent) through 2007 (19 percent).
[GRAPHIC] [TIFF OMITTED] TP03MY10.025

    Table 1.6 shows the results of the OLS regression model with a 
weighted average CAMELS rating and the current small bank financial 
ratios. These results show that adding financial ratios improves the 
ability to predict the year-end 2009 expert judgment ranking; 
however, the improvement is not as significant as in the model with 
proposed measures. For example, in 2006, the model with current 
small bank financial ratios would have predicted slightly over 20 
percent of the variation in the current expert judgment ranking. 
This compares to nearly 50 percent for the model with proposed 
measures.

[[Page 23554]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.026

Appendix 2

Conversion of Total Score Into Initial Base Assessment Rate

    The formula for converting an institution's total score into an 
initial assessment rate is based on a single-variable logistic 
regression model, which uses an institution's total score as of 
year-end 2006 to predict whether the institution has failed on or 
before year-end 2009. The logistic model is specified as:

Fail(0,1)i = -7.7660 + (0.0875 x Score i,2006)

Where:

Fail is whether an institution i failed on or before year-end 2009 
or not; and \3\
---------------------------------------------------------------------------

    \3\ For the purpose of regression analysis, large institutions 
that received significant government support or merged with another 
entity with government support are deemed to have failed.
---------------------------------------------------------------------------

Score is an institution i's total score as of year-end 2006.

    The plotted points in Chart 5.1 show the estimated failure 
probabilities for the actual total scores using the logistic model 
and the results are nonlinear.

[[Page 23555]]

[GRAPHIC] [TIFF OMITTED] TP03MY10.027

    The proposed calculation of the initial assessment rates 
approximates this nonlinear relationship for scores between 30 and 
90. A score of 30 or lower results in the minimum initial base 
assessment rate and a score of 90 or higher results in the maximum 
initial base assessment rate. Assuming an assessment rate range of 
40 basis points, the initial base assessment rate for an institution 
with a score greater than 30 and less than 90 would be:
[GRAPHIC] [TIFF OMITTED] TP03MY10.028

Appendix 3

Analysis of the Projected Effects of the Payment of Assessments on the 
Capital and Earnings of Insured Depository Institutions

    This analysis estimates the effect in 2010 of deposit insurance 
assessments on the equity capital and profitability of all insured 
institutions, based on the total base assessment rates adopted in 
the final rule. For purposes of determining pre-tax, pre-assessment 
income in 2010, the analysis assumes that income in 2010 will equal 
annualized income for the second half of 2009, adjusted for mergers.
    While deposit insurance assessments (whatever the rate) 
generally will result in reduced institution profitability and 
capitalization compared to the absence of assessments, the reduction 
will not necessarily equal the full amount of the assessment. Two 
factors can mitigate the effect of assessments on institutions' 
profits and capital. First, a portion of the assessment may be 
transferred to customers in the form of higher borrowing rates, 
increased service fees and lower deposit interest rates. Since 
information is not readily available on the extent to which 
institutions are able to share assessment costs with their 
customers, however, this analysis assumes that institutions bear the 
full after-tax cost of the assessment. Second, deposit insurance 
assessments are a tax-deductible operating expense; therefore, the 
assessment expense can lower taxable income. This analysis considers 
the effective after-tax cost of assessments in calculating the 
effect on capital.
    An institution's earnings retention and dividend policies also 
influence the extent to which assessments affect equity levels. If 
an institution maintains the same dollar amount of dividends when it 
pays a deposit insurance assessment as when it does not, equity 
(retained earnings) will be less by the full amount of the after-tax 
cost of the assessment. This analysis instead assumes that an 
institution will maintain its dividend rate (that is, dividends as a 
fraction of net income) unchanged from the weighted average rate 
reported over the four quarters ending December 31, 2009. In the 
event that the ratio of equity to assets falls below 4 percent, 
however, this assumption is modified such that an institution 
retains the amount necessary to achieve a 4 percent minimum and 
distributes any remaining funds according to the dividend payout 
rate.
    The proposed changes involve increases in premiums for some 
institutions and reductions in premiums for other institutions. 
Because overall revenue remains almost constant, the effect on 
aggregate earnings and capital is small. Projections show that 
imposition of the new premiums will increase aggregate capital by 2 
one-hundredths of one percent (0.02 percent) over one year. For 
institutions whose initial earnings are positive, the change in 
premiums will increase earnings by an average of 0.87 percent (on an 
asset weighted basis). For institutions whose initial earnings are 
negative, the change in premiums will increase losses by an average 
of 0.85 percent (on an asset weighted basis).
    There are two institutions for which the imposition of the new 
premiums would make a critical difference that would cause their 
tier 1 capital ratio to fall below 2 percent over a one-year 
horizon. A check was also made whether the imposition of the new 
premiums would make a difference in whether an institution's equity-
to-capital ratio would fall below 4 percent in a one-year horizon, 
but there are no institutions critically affected in this way.
    Among current Risk Category I institutions, 6,030 institutions' 
assessment rates would

[[Page 23556]]

decrease, 28 institutions' assessment rates would increase and 2 
institutions' assessment rates would remain unchanged. All of the 
institutions whose rates would increase are large institutions as 
currently defined. For institutions whose assessment rates would 
decrease and whose earnings would otherwise be positive, earnings 
would increase by an average of 1.2 percent (on an asset weighted 
basis). For institutions whose assessment rates would decrease and 
whose earnings would otherwise be negative, losses would decline by 
an average of 1.0 percent (on an asset weighted basis). For 
institutions whose assessment rates would increase and whose 
earnings would otherwise be positive, earnings would decrease by an 
average of 1.6 percent. For institutions whose assessment rates 
would increase and whose earnings would otherwise be negative, 
losses would increase by an average of 4.8 percent.
    Among current Risk Category II institutions, 11 institutions' 
assessment rates would decrease, 16 institutions' assessment rates 
would increase and 1,182 institutions' assessment rates (including 
the rates for all small Risk Category II institutions) would remain 
unchanged. For institutions whose assessment rates would decrease 
and whose earnings would otherwise be positive, earnings would 
increase by an average of 25.5 percent (on an asset weighted basis). 
For institutions whose assessment rates would decrease and whose 
earnings would otherwise be negative, losses would decline by an 
average of 2.1 percent (on an asset weighted basis). For 
institutions whose assessment rates would increase and whose 
earnings would otherwise be positive, earnings would decrease by an 
average of 2.5 percent (on an asset weighted basis). For 
institutions whose assessment rates would increase and whose 
earnings would otherwise be negative, losses would increase by an 
average of 4.1 percent (on an asset weighted basis).
    Among current Risk Category III and IV institutions, 728 out of 
729 institutions' assessment rates would increase. For institutions 
whose assessment rates would increase and whose earnings would 
otherwise be positive, earnings would be reduced by an average of 
0.9 percent (on an asset weighted basis). For institutions whose 
assessment rates would increase and whose earnings would otherwise 
be negative, losses would increase by an average of 1.0 percent (on 
an asset weighted basis).

    By order of the Board of Directors.
    Dated at Washington, DC, this 13th day of April 2010.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

[FR Doc. 2010-10161 Filed 4-30-10; 8:45 am]
BILLING CODE 6714-01-P