[Federal Register Volume 80, Number 215 (Friday, November 6, 2015)]
[Proposed Rules]
[Pages 68780-68794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27287]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 80, No. 215 / Friday, November 6, 2015 / 
Proposed Rules  

[[Page 68780]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AE40


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking (NPR) and request for comment.

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SUMMARY: Pursuant to the requirements of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) and its authority 
under section 7 of the Federal Deposit Insurance Act (FDI Act), the 
FDIC proposes to impose a surcharge on the quarterly assessments of 
insured depository institutions with total consolidated assets of $10 
billion or more. The surcharges would begin the calendar quarter after 
the reserve ratio of the Deposit Insurance Fund (DIF or fund) first 
reaches or exceeds 1.15 percent--the same time that lower regular 
deposit insurance assessment (regular assessment) rates take effect--
and would continue through the quarter that the reserve ratio first 
reaches or exceeds 1.35 percent. The surcharge would equal an annual 
rate of 4.5 basis points applied to the institution's assessment base 
(with certain adjustments). The FDIC expects that these surcharges will 
commence in 2016 and that they should be sufficient to raise the 
reserve ratio to 1.35 percent in approximately eight quarters, i.e., 
before the end of 2018. If, contrary to the FDIC's expectations, the 
reserve ratio does not reach 1.35 percent by December 31, 2018 
(provided it is at least 1.15 percent), the FDIC would impose a 
shortfall assessment on insured depository institutions with total 
consolidated assets of $10 billion or more on March 31, 2019. Since the 
Dodd-Frank Act requires that the FDIC offset the effect of the increase 
in the reserve ratio from 1.15 percent to 1.35 percent on insured 
depository institutions with total consolidated assets of less than $10 
billion, the FDIC would provide assessment credits to insured 
depository institutions with total consolidated assets of less than $10 
billion for the portion of their regular assessments that contributed 
to growth in the reserve ratio between 1.15 percent and 1.35 percent. 
The FDIC would apply the credits each quarter that the reserve ratio is 
at least 1.40 percent to offset part of the assessments of each 
institution with credits.

DATES: Comments must be received by the FDIC no later than January 5, 
2016.

ADDRESSES: You may submit comments on the NPR using any of the 
following methods:
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow the instructions for submitting comments 
on the agency Web site.
     Email: [email protected]. Include RIN 3064-AE40 on 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: Comments may be hand delivered to the 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.
     Public Inspection: All comments received, including any 
personal information provided, will be posted generally without change 
to http://www.fdic.gov/regulations/laws/federal/.

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Chief, Banking 
and Regulatory Policy Section, Division of Insurance and Research, 
(202) 898-8967; and Nefretete Smith, Senior Attorney, Legal Division, 
(202) 898-6851.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

    The FDIC maintains a fund in order to assure the agency's capacity 
to meet its obligations as insurer of deposits and receiver of failed 
banks.\1\ The FDIC considers the adequacy of the DIF in terms of the 
reserve ratio, which is equal to the DIF balance divided by estimated 
insured deposits. A higher minimum reserve ratio reduces the risk that 
losses from bank failures during a downturn will exhaust the DIF and 
reduces the risk of large, procyclical increases in deposit insurance 
assessments to maintain a positive DIF balance.
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    \1\ As used in this NPR, the term ``bank'' has the same meaning 
as ``insured depository institution'' as defined in section 3 of the 
FDI Act, 12 U.S.C. 1813(c)(2).
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    The Dodd-Frank Act, enacted on July 21, 2010, contained several 
provisions to strengthen the DIF.\2\ Among other things, it: (1) Raised 
the minimum reserve ratio for the DIF to 1.35 percent (from the former 
minimum of 1.15 percent); \3\ (2) required that the reserve ratio reach 
1.35 percent by September 30, 2020; \4\ and (3) required that, in 
setting assessments, the FDIC ``offset the effect of [the increase in 
the minimum reserve ratio] on insured depository institutions with 
total consolidated assets of less than $10,000,000,000.'' \5\
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    \2\ Public Law 111-203, 334(e), 124 Stat. 1376, 1539 (12 U.S.C. 
1817(note)).
    \3\ 12 U.S.C. 1817(b)(3)(B). The Dodd-Frank Act also removed the 
upper limit on the designated reserve ratio (which was formerly 
capped at 1.5 percent).
    \4\ 12 U.S.C. 1817(note).
    \5\ 12 U.S.C. 1817(note). The Dodd-Frank Act also: (1) 
Eliminated the requirement that the FDIC provide dividends from the 
fund when the reserve ratio is between 1.35 percent and 1.5 percent; 
(2) eliminated the requirement that the amount in the DIF in excess 
of the amount required to maintain the reserve ratio at 1.5 percent 
of estimated insured deposits be paid as dividends; and (3) granted 
the FDIC's authority to declare dividends when the reserve ratio at 
the end of a calendar year is at least 1.5 percent, but granted the 
FDIC sole discretion in determining whether to suspend or limit the 
declaration of payment or dividends, 12 U.S.C. 1817(e)(2)(A)-(B).
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    Both the Dodd-Frank Act and the FDI Act grant the FDIC broad 
authority to implement the requirement to achieve the 1.35 percent 
minimum reserve ratio. In particular, under the Dodd-Frank Act, the 
FDIC is authorized to take such steps as may be necessary for the 
reserve ratio to reach 1.35 percent by September 30, 2020. Furthermore, 
under the FDIC's assessment authority in the FDI Act, the FDIC may 
impose special assessments in an amount determined to be necessary for 
any purpose that the FDIC may deem necessary.\6\
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    \6\ 12 U.S.C. 1817(b)(5).
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    In the FDIC's view, the Dodd-Frank Act requirement to raise the 
reserve ratio to the minimum of 1.35 percent by September 30, 2020 
reflects the importance of building the DIF in a timely manner to 
withstand future economic shocks. Increasing the reserve ratio faster 
reduces the likelihood of

[[Page 68781]]

procyclical assessments, a key policy goal of the FDIC that is 
supported in the academic literature and acknowledged by banks.\7\ In 
meeting the requirements of the Dodd-Frank Act, the FDIC considered the 
tradeoff between building the DIF sooner rather than later and the 
potential cost of higher additional assessments for banks with $10 
billion or more in assets.
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    \7\ In 2011, the FDIC Board of Directors adopted a 
comprehensive, long-range management plan for the DIF that is 
designed to reduce procyclicality in the deposit insurance 
assessment system. Input from bank executives and industry trade 
group representatives favored steady, predictable assessments and 
found high assessment rates during crises objectionable. In 
addition, economic literature points to the role of regulatory 
policy in minimizing procyclical effects. See, for example: 75 FR 
66272 and George G. Pennacchi, 2004. ``Risk-Based Capital Standards, 
Deposit Insurance and Procyclicality,'' FDIC Center for Financial 
Research Working Paper No. 2004-05.
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    The purpose of the NPR is to meet the Dodd-Frank Act requirements 
in a manner that appropriately balances several considerations, 
including the goal of reaching the minimum reserve ratio reasonably 
promptly in order to strengthen the fund and reduce the risk of pro-
cyclical assessments, the goal of maintaining stable and predictable 
assessments for banks over time, and the projected effects on bank 
capital and earnings. The proposed primary mechanism described below 
for meeting the statutory requirements--surcharges on regular 
assessments--would ensure that the reserve ratio reaches 1.35 percent 
without inordinate delay (in 2018) and would ensure that assessments 
are allocated equitably among banks responsible for the cost of these 
requirements.

II. Background

    The Dodd-Frank Act gave the FDIC greater discretion to manage the 
DIF than it had previously, including greater discretion in setting the 
target reserve ratio, or designated reserve ratio (DRR), which the FDIC 
must set annually.\8\ The FDIC Board of Directors (Board) has set a 2 
percent DRR for each year starting with 2011.\9\ The Board views the 2 
percent DRR as a long-term goal.
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    \8\ 12 U.S.C. 1817(b)(3)(A)(i).
    \9\ A DRR of 2 percent was based on a historical analysis as 
well as on the statutory factors that the FDIC must consider when 
setting the DRR. In its historical analysis, the FDIC analyzed 
historical fund losses and used simulated income data from 1950 to 
2010 to determine how high the reserve ratio would have to have been 
before the onset of the two banking crises that occurred during this 
period to maintain a positive fund balance and stable assessment 
rates.
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    By statute, the FDIC also operates under a Restoration Plan while 
the reserve ratio remains below 1.35 percent.\10\ The Restoration Plan, 
originally adopted in 2008 and subsequently revised, is designed to 
ensure that the reserve ratio will reach 1.35 percent by September 30, 
2020.\11\
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    \10\ 12 U.S.C. 1817(b)(3)(E).
    \11\ 75 FR 66293 (Oct. 27, 2010).
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    In February 2011, the FDIC adopted a final rule that, among other 
things, contained a schedule of deposit insurance assessment rates that 
apply to regular assessments that banks pay. The FDIC noted when it 
adopted these rates that, because of the requirement making banks with 
$10 billion or more in assets responsible for increasing the reserve 
ratio from 1.15 percent to 1.35 percent, ``assessment rates applicable 
to all insured depository institutions need only be set high enough to 
reach 1.15 percent'' before the statutory deadline of September 30, 
2020.\12\ The February 2011 final rule left to a later date the method 
for assessing banks with $10 billion or more in assets for the amount 
needed to reach 1.35 percent.\13\
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    \12\ 76 FR at 10683.
    \13\ See 76 FR 10673, 10683 (Feb. 25, 2011). The Restoration 
Plan originally stated that the FDIC would pursue rulemaking on the 
offset in 2011, 75 FR 66293 (Oct. 27, 2010), but in 2011 the Board 
decided to postpone rulemaking until a later date.
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    The FDIC also adopted a schedule of lower regular assessment rates 
in the February 2011 final rule that will go into effect once the 
reserve ratio of the DIF reaches 1.15 percent.\14\ These lower regular 
assessment rates will apply to all banks' regular assessments. Regular 
assessments paid under the schedule of lower rates are intended to 
raise the reserve ratio gradually to the long-term goal of 2 percent.
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    \14\ 76 FR at 10717; see also 12 CFR 327.10(b). The FDIC adopted 
this schedule of lower assessment rates following its historical 
analysis of the long-term assessment rates that would be needed to 
ensure that the DIF would remain positive without raising assessment 
rates even during a banking crisis of the magnitude of the two 
banking crises of the past 30 years. On June 16, 2015, the Board 
adopted a notice of proposed rulemaking that would revise the risk-
based pricing methodology for established small institutions, but 
would leave the overall range of rates and the assessment revenue 
expected to be generated unchanged. See 80 FR 40838 (July 13, 2015).
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    In the FDIC's most recent semiannual update of the DIF's loss and 
income projections in October 2015, the FDIC projects that, under the 
current assessment rate schedule, the DIF reserve ratio is most likely 
to reach 1.15 percent in the first quarter of 2016, but may reach that 
level as early as the fourth quarter of this year.

III. Description of the Proposed Rule

A. Surcharges

    To implement the requirements of the Dodd-Frank Act, and pursuant 
to the FDIC's authority in section 7 of the FDI Act,\15\ the FDIC 
proposes to add a surcharge to the regular assessments of banks with 
$10 billion or more in assets. The surcharge would begin the quarter 
after the DIF reserve ratio first reaches or exceeds 1.15 percent and 
would continue until the reserve ratio first reaches or exceeds 1.35 
percent, but no later than the fourth quarter of 2018.\16\ The FDIC 
would notify those banks that would be subject to the surcharge in any 
quarter and the amount of such surcharge within the timeframe that 
applies to notification of regular assessment amounts.\17\
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    \15\ 12 U.S.C. 1817.
    \16\ A final rule adopting this proposal will become effective 
on the first day of a calendar quarter. If a final rule adopting 
this proposal is not yet effective on the first day of the calendar 
quarter after the reserve ratio reaches 1.15 percent, surcharges 
would begin the first day of the calendar quarter in which a final 
rule becomes effective. Thus, for example, if the reserve ratio 
reaches 1.15 percent on March 31, 2016 and a final rule does not 
become effective until the third quarter of 2016, surcharges would 
begin effective July 1, 2016.
    \17\ As with regular assessments, surcharges would be paid one 
quarter in arrears, based on the bank's previous quarter data and 
would be due the last day of the quarter. (If the last day of the 
quarter was not a business day, the collection date would be the 
previous business day.) Thus, for example, if the surcharge were in 
effect for the first quarter of 2017, the FDIC would notify the 
banks that they are subject to the surcharge and the amount of each 
bank's surcharge obligation no later than June 15, 2017, 15 days 
before the first quarter 2017 surcharge payment due date of June 30, 
2017 date (and the payment due date for first quarter 2017 regular 
assessments). The notice could be included in the banks' invoice for 
their regular assessment.
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    The FDIC proposes an annual surcharge rate of 4.5 basis points, 
which it expects will be sufficient to raise the reserve ratio from 
1.15 percent to 1.35 percent in 8 quarters, before the end of 2018.
Banks Subject to the Surcharge
    The banks subject to the surcharge (large banks) would be 
determined each quarter based on whether the bank was a ``large 
institution'' or ``highly complex institution'' for purposes of that 
quarter's regular assessments; however, an insured branch of a foreign 
bank whose assets as reported in its most recent quarterly Report of 
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks 
equaled or exceeded $10 billion would also be a large 
bank.18 19 20
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    \18\ In general, a ``large institution'' is 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) or a small institution that reports 
assets of $10 billion or more in its quarterly reports of condition 
for four consecutive quarters. 12 CFR 327.8(f). If, after December 
31, 2006, an institution classified as large 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. 12 CFR 327.8(e). In general, 
a ``highly complex institution'' is: (1) an insured depository 
institution (excluding a credit card bank) that has had $50 billion 
or more in total assets for at least four consecutive quarters that 
is controlled by a U.S. parent holding company that has had $500 
billion or more in total assets for four consecutive quarters, or 
controlled by one or more intermediate U.S. parent holding companies 
that are controlled by a U.S. holding company that has had $500 
billion or more in assets for four consecutive quarters; or (2) a 
processing bank or trust company. If, after December 31, 2010, an 
institution classified as highly complex fails to meet the 
definition of a highly complex institution for four consecutive 
quarters (or reports assets of less than $10 billion in its 
quarterly reports of condition for four consecutive quarters), the 
FDIC will reclassify the institution beginning the following 
quarter. 12 CFR 327.8(g). In general, a ``small institution'' is an 
insured depository institution with assets of less than $10 billion 
as of December 31, 2006, or an insured branch of a foreign 
institution. 12 CFR 327.8(e).
    \19\ Assets for foreign banks are reported in FFIEC 002 report 
(Report of Assets and Liabilities of U.S. Branches and Agencies of 
Foreign Banks), Schedule RAL, line 3, column A.
    \20\ A large bank would also include a small institution if, 
while surcharges were in effect, the small institution was the 
surviving institution or resulting institution in a merger or 
consolidation with a large bank or if the small institution acquired 
all or substantially all of the assets or assumed all or 
substantially all of the deposits of a large bank.

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[[Page 68782]]

Banks' Assessment Bases for the Surcharge
    Pursuant to the broad authorities under the Dodd-Frank Act and the 
FDI Act, including the authority to determine the assessment amount, 
which includes defining an appropriate assessment base for the 
surcharge (the surcharge base), each large bank's surcharge base for 
any given quarter would equal its regular quarterly deposit insurance 
assessment base (regular assessment base) for that quarter with certain 
adjustments.\21\ The first adjustment would add the regular assessment 
bases for that quarter of any affiliated banks \22\ that are not large 
banks (affiliated small banks).\23\ \24\ The second adjustment would 
deduct $10 billion from the resulting amount to produce the surcharge 
base. In a banking organization that includes more than one large bank, 
however, the affiliated small banks' regular assessment bases and the 
$10 billion deduction would be apportioned among all large banks in the 
banking organization in proportion to each large bank's regular 
assessment base for that quarter.
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    \21\ For purposes of regular assessments, the Dodd-Frank Act 
defines the assessment base with respect to an insured depository 
institution as an amount equal to:
    (1) The average consolidated total assets of the insured 
depository institution during the assessment period; minus
    (2) the sum of
    (A) the average tangible equity of the insured depository 
institution during the assessment period, and
    (B) in the case of an insured depository institution that is a 
custodial bank (as defined by the FDIC, based on factors including 
the percentage of total revenues generated by custodial businesses 
and the level of assets under custody) or a banker's bank (as that 
term is used in . . . (12 U.S.C. 24)), an amount that the FDIC 
determines is necessary to establish assessments consistent with the 
definition under section 7(b)(1) of the [Federal Deposit Insurance] 
Act (12 U.S.C. 1817(b)(1)) for a custodial bank or a banker's bank.
    12 U.S.C. 1817(note).
    \22\ As used in this NPR, the term ``affiliate'' has the same 
meaning as defined in section 3 of the FDI Act, 12 U.S.C. 3(w)(6), 
which references the Bank Holding Company Act (``any company that 
controls, is controlled by, or is under common control with another 
company''). 12 U.S.C. 1841(k).
    \23\ The term ``small bank'' is synonymous with the term ``small 
institution'' as it is defined in 12 CFR 327.8(e) and used in 
existing portions of 12 CFR part 327 for purposes of regular 
assessments, except that it excludes: (1) an insured branch of a 
foreign bank whose assets as reported in its most recent most recent 
quarterly Call Report equaled or exceeded $10 billion; and (2) a 
small institution that, while surcharges were in effect, was the 
surviving or resulting institution in a merger or consolidation with 
a large bank or that acquired of all or substantially all of the 
assets or assumed all or substantially all of the deposits of a 
large bank.
    \24\ As of June 30, 2015, 19 banking organizations had both 
large and small banks.
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    Table 1.A gives an example of the calculation of the surcharge base 
for a banking organization that comprises three large banks but no 
affiliated small banks. Table 1.B gives an example of the calculation 
of the surcharge base for a banking organization that comprises three 
large banks and two affiliated small banks.

                  Table 1.A--Application of $10 Billion Deduction within a Banking Organization
                                                 [$ in billions]
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                                                    Assessment         Share of $10 billion       Surcharge base
                                                       base                  deduction           ---------------
                                                 ------------------------------------------------
             Affiliated large banks                                      %               $       ---------------
                                                 ------------------------------------------------
                                                         A          (A/$116)=B       (B*$10)=C          A-C
----------------------------------------------------------------------------------------------------------------
 #1.............................................          $25.00            21.6           $2.16          $22.84
#2..............................................           55.00            47.4            4.74           50.26
 #3.............................................           36.00            31.0            3.10           32.90
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
    Total.......................................          116.00             100           10.00          106.00
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                       Table 1.B--Application of $10 Billion Deduction for a Banking Organization Containing Large and Small Banks
                                                                     [$ in billions]
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                                                        Share of large bank          Addition of small bank         Share of $10 billion
  Affiliated large and small                              assessment base               assessment share                  deduction            Surcharge
             banks               Assessment base  -------------------------------------------------------------------------------------------    base
                                                      Calculation        B (%)       Calculation         C         Calculation         D
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Affiliated Large Bank #1.....  A1=$35.00........  A1/(A1+A2+A3)....        31.0  A1[B*(A4+A5)]...      $39.18  (C/$126.50)*$10.       $3.10      $36.08
Affiliated Large Bank #2......  A2=$22.00........  A2/(A1+A2+A3)....        19.5  A2[B*(A4+A5)]...       24.63  (C/$126.50)*$10.        1.95       22.68
 Affiliated Large Bank #3.....  A3=$56.00........  A3/(A1+A2+A3)....        49.6  A3[B*(A4+A5)]...       62.69  (C/$126.50)*$10.        4.96       57.73
Affiliated Small Bank #1......  A4=$8.00.........  .................  ..........  ................  ..........  ................  ..........  ..........
 Affiliated Small Bank #2.....  A5=$5.50.........  .................  ..........  ................  ..........  ................  ..........  ..........
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total.....................  $126.50..........  .................         100  ................      126.50  ................        10.0      116.50
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[[Page 68783]]

    Adding the assessment bases of affiliated small banks to those of 
their large bank affiliates would serve two purposes. First, it would 
prevent large banks from reducing their surcharges (and shifting costs 
to other large banks) either by transferring assets and liabilities to 
existing or new affiliated small banks or by growing the businesses of 
affiliated small banks instead of the large bank.\25\ Second, it would 
ensure that banking organizations of similar size (in terms of 
aggregate assessment bases) pay a similar surcharge. In other words, a 
banking organization with a large bank and one or more affiliated small 
banks would not have an advantage over a similarly sized banking 
organization that includes only a large bank but no affiliated small 
banks. For example, a banking organization that includes a large bank 
with $45 billion regular assessment base would pay the same as a 
banking organization that includes a large bank with a $35 billion 
regular assessment base and two affiliated small banks each with $5 
billion regular assessment bases. In this example, the large bank in 
each organization would pay a surcharge based on a $35 billion 
assessment base (after deducting $10 billion from the $45 billion total 
in regular assessment bases).
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    \25\ Some large banks, however, may be able to shift the burden 
of the surcharge by transferring assets and liabilities to a nonbank 
affiliate, or by shrinking or limiting growth.
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    Although the regular assessment bases of affiliated small banks 
would be added to those of the large banks for purposes of determining 
the surcharge base for large banks, only large banks would be assessed 
the quarterly surcharge and, as described below, all small banks, 
including small banks affiliated with large banks, would be entitled to 
credits for the portion of their assessments that contributed to the 
increase in the reserve ratio from 1.15 percent to 1.35 percent.
    Deducting $10 billion from each large bank's assessment base for 
the surcharge would avoid a ``cliff effect'' for banks near the $10 
billion asset threshold, thereby ensuring equitable treatment. 
Otherwise, a bank with just over $10 billion in assets would pay 
significant surcharges, while a bank with $9.9 billion in assets would 
pay none. The $10 billion reduction reduces incentives for banks to 
limit their growth to stay below $10 billion in assets, or to reduce 
their size to below $10 billion in assets, solely to avoid surcharges.
    Like the proposed treatment of affiliated small banks, allocating 
the $10 billion deduction among large banks in a single banking 
organization that includes more than one large bank would ensure that 
banking organizations of a similar size (in terms of assessment bases) 
pay a similar surcharge. For example, a banking organization with 
multiple large banks would not have an advantage over other similarly 
sized banking organizations that have only one large bank because, 
instead of deducting $10 billion from each large bank in the 
organization, the deduction would be apportioned among the multiple 
affiliated large banks.

B. Shortfall Assessment

    The FDIC expects that the proposed surcharges combined with regular 
assessments would raise the reserve ratio to 1.35 percent before 
December 31, 2018. It is possible, however, that unforeseen events 
could result in higher DIF losses or faster insured deposit growth than 
expected, or that banks may take steps to reduce or avoid quarterly 
surcharges. While not anticipated, these events or actions could 
prevent the reserve ratio from reaching 1.35 percent by the end of 
2018. In this case, provided the reserve ratio is at least 1.15 
percent, the FDIC would impose a shortfall assessment on large banks on 
March 31, 2019 and collect it on June 30, 2019.\26\ The aggregate 
amount of the shortfall assessment would equal 1.35 percent of 
estimated insured deposits on December 31, 2018 minus the actual fund 
balance on that date.
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    \26\ The FDIC would notify each bank subject to a shortfall 
assessment of its share of the shortfall assessment no later than 15 
days before payment is due.
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    If a shortfall assessment were needed, the FDIC proposes that it be 
imposed on any bank that was a large bank in any quarter during the 
period that surcharges are in effect (the surcharge period). Each large 
bank's share of any shortfall assessment would be proportional to the 
average of its surcharge bases (the average surcharge base) during the 
surcharge period. If a bank were not a large bank during a quarter of 
the surcharge period, its surcharge base would be deemed to equal zero 
for that quarter.27 28
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    \27\ Thus, for example, if a large bank were subject to a 
shortfall assessment because it had been subject to a surcharge for 
only one quarter of the surcharge period and assuming that the 
surcharge period lasted eight quarters, its surcharge base for seven 
quarters would be deemed to be zero and its average surcharge base 
would be its single positive surcharge base divided by eight.
    \28\ In the unlikely event that the reserve ratio had reached 
1.15 percent (but not 1.35 percent) but had fallen below 1.15 
percent on December 31, 2018 or had not reached 1.15 percent on or 
before December 31, 2018, the FDIC would impose a shortfall 
assessment at the end of the calendar quarter immediately following 
the calendar quarter in which the reserve ratio first reached or 
exceeded 1.15 percent. The aggregate amount of such a shortfall 
assessment would equal 0.2 percent of estimated insured deposits at 
the end of the calendar quarter in which the reserve ratio first 
reaches or exceeds 1.15 percent. If surcharges had been in effect, 
the shortfall assessment would be imposed on the banks described in 
the text using average surcharge bases as described in the text. If 
surcharges had never been in effect: (1) The shortfall assessment 
would be imposed on banks that were large banks as of the calendar 
quarter in which the reserve ratio first reached or exceeded 1.15 
percent; and (2) an individual large bank's share of the shortfall 
assessment would be proportional to the average of what its 
surcharge bases were or would have been over the four calendar 
quarters ending with the calendar quarter in which the reserve ratio 
first reached or exceeded 1.15 percent. The shortfall assessment 
would be collected at the end of the quarter after the assessment 
was imposed. If the last day of the quarter was not a business day, 
the collection date would be the previous business day.
    If the reserve ratio remains below 1.15 percent for a prolonged 
period after 2018 (and never reaches 1.35 percent), the FDIC Board 
may have to consider increases to regular assessment rates on all 
banks (in addition to the shortfall assessment on banks with $10 
billion or more in assets) in order to achieve the minimum reserve 
ratio of 1.35 percent by the September 30, 2020 statutory deadline.
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    If a bank of any size acquired--through merger or consolidation--a 
large bank that had paid surcharges for one or more quarters, the 
acquiring bank would be subject to a shortfall assessment and its 
average surcharge base would be increased by the average surcharge base 
of the acquired bank.\29\
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    \29\ With respect to surcharges and shares of any shortfall 
assessment, a surviving or resulting bank in a merger or 
consolidation would include any bank that acquires all or 
substantially all of another bank's assets or assumes all or 
substantially all of another bank's deposits.
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    A large bank's share of the total shortfall assessment would equal 
its average surcharge base divided by the sum of the average surcharge 
bases of all large banks subject to the shortfall assessment.
    Using an average of surcharge bases should ensure that anomalous 
growth or shrinkage in a large bank's assessment base would not subject 
it to a disproportionately large or small share of any shortfall 
assessment.

C. Payment Mechanism for the Surcharge and Any Shortfall Assessment

    Each large bank would be required to take any actions necessary to 
allow the FDIC to debit its share of the surcharge from the bank's 
designated deposit account used for payment of its regular assessment. 
Similarly, each large bank subject to any shortfall assessment would be 
required to take any actions necessary to allow the FDIC to debit its 
share of the shortfall assessment from the bank's designated deposit 
account used for payment of its regular assessment. Before the dates 
that

[[Page 68784]]

payments were due, each bank would have to ensure that sufficient funds 
to pay its obligations were available in the designated account for 
direct debit by the FDIC. Failure to take any such action or to fund 
the account would constitute nonpayment of the assessment. Penalties 
for nonpayment would be as provided for nonpayment of a bank's regular 
assessment.\30\
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    \30\ See 12 CFR 308.132(c)(3)(v).
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D. Additional Provisions Regarding Mergers, Consolidations and 
Terminations of Deposit Insurance

    First, under existing regulations, a bank that is not the resulting 
or surviving bank in a merger or consolidation must file a quarterly 
report of condition and income (Call Report) for every assessment 
period prior to the assessment period in which the merger or 
consolidation occurs. The surviving or resulting bank is responsible 
for ensuring that these Call Reports are filed. The surviving or 
resulting bank is also responsible and liable for any unpaid 
assessments on the part of the bank that is not the resulting or 
surviving bank.\31\ The FDIC proposes that unpaid assessments would 
also include any unpaid surcharges and shares of a shortfall 
assessment.
---------------------------------------------------------------------------

    \31\ 12 CFR 327.6(a).
---------------------------------------------------------------------------

    Thus, for example, a large bank's first quarter 2017 surcharge 
(assuming that the surcharge was in effect then), which would be 
collected on June 30, 2017, would include the large bank's own first 
quarter 2017 surcharge plus any unpaid first quarter 2017 or earlier 
surcharges owed by any large bank it acquired between April 1, 2017 and 
June 30, 2017 by merger or through the acquisition of all or 
substantially all of the acquired bank's assets. The acquired bank 
would be required to file Call Reports through the first quarter of 
2017 and the acquiring bank would be responsible for ensuring that 
these Call Reports were filed.
    Second, existing regulations also provide that, for an assessment 
period in which a merger or consolidation occurs, total consolidated 
assets for the surviving or resulting bank include the total 
consolidated assets of all banks that are parties to the merger or 
consolidation as if the merger or consolidation occurred on the first 
day of the assessment period. Tier 1 capital (which is deducted from 
total consolidated assets to determine a bank's regular assessment 
base) is to be reported in the same manner.\32\ The FDIC proposes that 
these provisions would also apply to surcharges and shares of any 
shortfall assessment.
---------------------------------------------------------------------------

    \32\ 12 CFR 327.6(b).
---------------------------------------------------------------------------

    Third, existing regulations provide that, when the insured status 
of a bank is terminated and the deposit liabilities of the bank are not 
assumed by another bank, the bank whose insured status is terminating 
must, among other things, continue to pay assessments for the 
assessment periods that its deposits are insured, but not 
thereafter.\33\ The FDIC proposes that these provisions would also 
apply to surcharges and shares of any shortfall assessment.
---------------------------------------------------------------------------

    \33\ 12 CFR 327.6(c).
---------------------------------------------------------------------------

    Finally, in the case of one or more transactions in which one bank 
voluntarily terminates its deposit insurance under the FDI Act and 
sells certain assets and liabilities to one or more other banks, each 
bank must report the increase or decrease in assets and liabilities on 
the Call Report due after the transaction date and be assessed 
accordingly under existing FDIC assessment regulations. The bank whose 
insured status is terminating must, among other things, continue to pay 
assessments for the assessment periods that its deposits are insured. 
The FDIC proposes that the same process would also apply to surcharges 
and shares of any shortfall assessment.

E. Credits for Small Banks \34\
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    \34\ Large banks would receive no refund or credit if surcharges 
brought the reserve ratio above 1.35 percent. Thus, for example, if 
the reserve ratio were at 1.34 percent at the end of September 2018 
and were at 1.37 percent at the end of 2018, large banks would 
receive no refund or credit for the two basis points in the reserve 
ratio above 1.35 percent. Similarly, large banks would receive no 
refund or credit if a shortfall assessment brought the reserve ratio 
above 1.35 percent.
---------------------------------------------------------------------------

    Under the proposal, while the reserve ratio remains between 1.15 
percent and 1.35 percent, some portion of the deposit insurance 
assessments paid by small banks would contribute to increasing the 
reserve ratio. To meet the Dodd-Frank Act requirement to offset the 
effect on small banks of raising the reserve ratio from 1.15 percent to 
1.35 percent, the FDIC proposes to provide assessment credits (credits) 
to these banks for the portion of their assessments that contribute to 
the increase from 1.15 percent to 1.35 percent.\35\ For purposes of 
awarding credits, a small bank would be a bank that was not a large 
bank in a quarter within the ``credit calculation period.'' The 
``credit calculation period'' covers the period beginning the quarter 
after the reserve ratio first reaches or exceeds 1.15 percent through 
the quarter that the reserve ratio first reaches or exceeds 1.35 
percent (or December 31, 2018, if the reserve ratio has not reached 
1.35 percent by then). Small bank affiliates of large banks would be 
small banks for purposes of this definition. The FDIC would apply 
credits to reduce future regular deposit insurance assessments.
---------------------------------------------------------------------------

    \35\ Small banks would not be entitled to any credits for the 
quarter in which a shortfall was assessed because large banks would 
be responsible for the entire remaining amount needed to raise the 
reserve ratio to 1.35 percent.
---------------------------------------------------------------------------

Aggregate Amount of Credits
    To determine the aggregate amount of credits awarded small banks, 
the FDIC would first calculate 0.2 percent of estimated insured 
deposits (the difference between 1.35 percent and 1.15 percent) on the 
date that the reserve ratio first reaches or exceeds 1.35 percent.\36\ 
The amount that small banks contributed to this increase in the DIF 
through regular assessments--and the resulting aggregate amount of 
credits to be awarded small banks--would equal the small banks' portion 
of all large and small bank regular assessments during the credit 
calculation period times an amount equal to the increase in the DIF 
calculated above less surcharges. Surcharges would be subtracted from 
the increase in the DIF calculated above before determining the amount 
by which small banks contributed to that increase because surcharges 
are intended to grow the reserve ratio above 1.15 percent, not to 
maintain it at 1.15 percent.\37\
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    \36\ If the reserve ratio had not reached 1.35 percent by 
December 31, 2018, the amount calculated would be the increase in 
the DIF needed to raise the DIF reserve ratio from 1.15 percent to 
the actual reserve ratio on December 31, 2018; that amount equals 
the DIF balance on December 31, 2018 minus 1.15 percent of estimated 
insured deposits on that date.
    \37\ If total assessments, including surcharges, during the 
credit calculation period were less than or equal to the increase in 
the DIF calculated above, the aggregate amount of credits to be 
awarded small banks would equal the aggregate amount of assessments 
paid by small banks during the credit calculation period.
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    This method of determining the aggregate small bank credit 
implicitly assumes that all non-assessment revenue (for example, 
investment income) during the credit calculation period would be used 
to maintain the fund at a 1.15 percent reserve ratio and that regular 
assessment revenue would be used to maintain the fund at that reserve 
ratio only to the extent that other revenue was insufficient. 
Essentially, the method attributes reserve ratio growth to assessment 
revenue as much as possible and, with one exception, maximizes the 
amount of the aggregate small bank assessment credit. The exception is 
the assumption that all surcharge payments contribute to growth of the 
reserve ratio (to the

[[Page 68785]]

extent of that growth), which is consistent with the purpose of the 
surcharge payments.
    The FDIC projects that the aggregate amount of credits would be 
approximately $900 million, but the actual amount of credits may 
differ.
Individual Small Banks' Credits
    Credits would be awarded to any bank that was a small bank at any 
time during the credit calculation period. An individual small bank's 
share of the aggregate credit (a small bank's credit share) would be 
proportional to its credit base, which would be defined as the average 
of its regular assessment bases during the credit calculation 
period.38 39 If, before the DIF reserve ratio reached 1.35 
percent, a small bank acquired another small bank through merger or 
consolidation, the acquiring small bank's regular assessment bases for 
purposes of determining its credit base would include the acquired 
bank's regular assessment bases for those quarters during the credit 
calculation period that were before the merger or consolidation. No 
small bank could receive more in credits than it (and any bank acquired 
through merger or consolidation) paid during the credit calculation 
period in regular assessments while it was a small bank not subject to 
the surcharge.
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    \38\ When determining the credit base, a small bank's assessment 
base would be deemed to equal zero for any quarter in which it was a 
large bank.
    \39\ Call Report amendments after the payment date for the final 
quarter of the surcharge period would not affect an institution's 
credit share.
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    By making a small bank's credit share proportional to its credit 
base rather than, for example, its actual assessments paid, the 
proposal reduces the chances that a riskier bank assessed at higher 
than average rates would receive credits for these higher rates, thus 
reducing the incentive for banks to take on higher risk.
Successors
    If any bank acquired a bank with credits through merger or 
consolidation after the DIF reserve ratio reached 1.35 percent, the 
acquiring bank would acquire the credits of the acquired small bank. 
Other than through merger or consolidation, credits would not be 
transferrable. Credits held by a bank that failed or ceased being an 
insured depository institution would expire.
Use of Credits
    After the reserve ratio reaches 1.40 percent (and provided that it 
remains at or above 1.40 percent), the FDIC would automatically apply a 
small bank's credits to reduce its regular deposit insurance assessment 
by 2 basis points (annual rate) times its regular assessment base, to 
the extent that the small bank had sufficient credits remaining to do 
so.\40\ If a small bank's deposit insurance assessment rate were less 
than 2 basis points (annual rate), the credit would be used to fully 
offset the bank's quarterly deposit insurance assessment, but the 
assessment could never be less than zero.\41\
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    \40\ The amount of credits applied each quarter would not be 
recalculated as a result of amendments to the quarterly Call Reports 
or the quarterly Reports of Assets and Liabilities of U.S. Branches 
and Agencies of Foreign Banks pertaining to any quarter in which 
credits have been applied.
    \41\ The FDIC expects that few small banks will have credits 
remaining after 12 quarters of credit use. Any remaining credits 
after 12 quarters of credit use would be used to fully offset a 
bank's entire deposit insurance assessments in future quarters until 
credits were exhausted, as long as the reserve ratio exceeded 1.40 
percent.
---------------------------------------------------------------------------

    Under the FDI Act, the Board is required to adopt a restoration 
plan if the reserve ratio falls below 1.35 percent. Allowing credit use 
only when the reserve ratio is at or above 1.40 percent would provide a 
cushion for the DIF to remain above 1.35 percent in the event of rapid 
growth in insured deposits or an unanticipated spike in bank failures, 
and therefore would reduce the likelihood of triggering the need for a 
restoration plan.
Notices of Credits
    As soon as practicable after the DIF reserve ratio reaches 1.35 
percent or December 31, 2018, whichever occurs earlier, the FDIC would 
notify each small bank of the FDIC's preliminary estimate of the small 
bank's credit and the manner in which the credit was calculated, based 
on information derived from the FDIC's official system of records (the 
notice). The FDIC would provide the notice through FDICconnect or other 
means in accordance with existing practices for assessment 
invoices.\42\
---------------------------------------------------------------------------

    \42\ See generally 12 CFR 327.2(b).
---------------------------------------------------------------------------

    After the initial notice, periodic updated notices would be 
provided to reflect the adjustments that may be made up or down as a 
result of requests for review of credit amounts, as well as subsequent 
adjustments reflecting the application of credits to assessments and 
any appropriate adjustment to a small bank's credits due to a 
subsequent merger or consolidation.
Requests for Review and Appeals
    Proposed procedures under which a small bank that disagreed with 
the FDIC's computation of, or basis for, its credits could request 
review or appeal are set forth in Appendix 1.

Appendix 1

Requests for Review and Appeals

    A small bank could request review if it disagreed with the 
FDIC's computation of or basis for its credits within 30 days from: 
(1) The initial notice stating the FDIC's preliminary estimate of a 
small bank's credit and the manner in which the credit was 
calculated; or (2) any updated notice. A request for review would 
have to be filed with the FDIC's Division of Finance and be 
accompanied by any documentation supporting the bank's claim. If a 
bank did not submit a timely request for review, the bank would be 
barred from subsequently requesting review of its credit amount.
    Upon receipt of a request for review, the FDIC also could 
request additional information as part of its review and require the 
bank to supply that information within 21 days of the date of the 
FDIC's request for additional information. The FDIC would 
temporarily freeze the amount of the proposed credit in controversy 
for the banks involved in the request for review until the request 
was resolved.
    The FDIC's Director of the Division of Finance (Director), or 
his or her designee, would notify the requesting bank of the 
determination of the Director as to whether the requested change was 
warranted, whenever feasible: (1) Within 60 days of receipt by the 
FDIC of the request for revision; (2) if additional banks had been 
notified by the FDIC, within 60 days of the last response; or (3) if 
additional information had been requested by the FDIC, within 60 
days of receipt of any such additional information, whichever was 
later.
    The requesting bank that disagreed with that decision would be 
able to appeal its credit determination to the FDIC's Assessment 
Appeals Committee (AAC). An appeal to the AAC would have to be filed 
within 30 calendar days from the date of the Director's written 
determination. Notice of the procedures applicable to appeals would 
be included with that written determination.
    Once the Director or the AAC, as appropriate, had made the final 
determination, the FDIC would make appropriate adjustments to credit 
amounts consistent with that determination and correspondingly 
provide the affected bank[s] with notice or update in the next 
invoice. Adjustments to credit amounts would not be applied 
retroactively to reduce or increase prior period assessments.
    If the FDIC's responses to individual banks' requests for review 
of the preliminary estimate of their credit amount have not been 
finalized before the invoices for collection of assessments for the 
first calendar quarter following the quarter in which the reserve 
ratio reaches 1.40 percent, the FDIC would freeze the credit amounts 
in dispute while making any credits not in dispute available for 
use.

IV. Economic Effects

    The FDIC estimates that it would collect approximately $10 billion 
in surcharges and award approximately $900 million in credits to small 
banks, although actual amounts could vary

[[Page 68786]]

from these estimates. The FDIC projects that a shortfall assessment 
would be unnecessary.

A. Accounting Treatment

    The FDIC's analysis is that banks would not account for future 
surcharges or a possible shortfall assessment in the Call Report and 
other banking regulatory reports based on generally accepted accounting 
principles (GAAP) as a present liability or a recognized loss 
contingency within the meaning of Financial Accounting Standards Board 
Accounting Standards Codification (ASC) Topic 450--Contingencies 
because they do not relate to a current condition or event giving rise 
to a liability. Surcharges would become recognized loss contingencies 
in a then current quarter if (i) the bank is in existence during that 
quarter; and (ii) the bank is a large bank as of that quarter and 
therefore subject to the surcharge. Surcharges would be based on the 
bank's regular assessment bases in future periods, and recognized in 
regulatory reports for those periods, just as regular assessments are 
now (where each assessment is accounted for as a liability and expensed 
for the quarter it is assessed). A shortfall assessment would become a 
recognized loss contingency if (i) the reserve ratio had not reached 
1.35 percent by the end of 2018; and (ii) the bank had been subject to 
a surcharge.

B. Capital and Earnings Analysis

    Consistent with section 7(b)(2)(B) of the FDI Act, the analysis 
that follows estimates the effects of a 4.5 basis point surcharge on 
the equity capital and earnings of large banks.\43\ Because small banks 
would not pay surcharges, surcharges would affect neither their capital 
nor their earnings; however, the analysis also estimates the effect of 
credits on small bank earnings.
---------------------------------------------------------------------------

    \43\ Equity capital is defined as capital (stock and/or surplus 
earnings) that is free of debt, calculated as assets less 
liabilities.
---------------------------------------------------------------------------

    Staff estimated the effect of a 4.5 basis-point surcharge on large 
banks' earnings in two ways. First, as a percentage of adjusted 
earnings, to take into account the savings projected to result from 
lower assessment rates implemented in the future when the reserve ratio 
reaches 1.15 percent. Second, as a percentage of current earnings. 
Current earnings are assumed to equal pre-tax income before 
extraordinary and other items from July 1, 2014 through June 30, 2015. 
Adjusted earnings are current earnings plus the savings to be gained by 
large banks from lower future assessments that will result from the 
lower assessment rate schedule will apply to regular assessments once 
the reserve ratio reaches 1.15 percent.
Assumptions and Data
    The analysis is based on large banks as of June 30, 2015. As of 
that date, there were 108 large banks. Banks are merger-adjusted, 
except for failed bank acquisitions, for purposes of determining 
income.
    Although the surcharge is expected to continue for 8 quarters, the 
analysis examines the effect of the surcharge over one year. Each large 
bank's surcharge base is calculated as of June 30, 2015. Data from July 
1, 2014 through June 30, 2015 are used to calculate each large bank's 
current earnings and adjusted earnings. Capital for each large bank is 
the amount reported as of June 30, 2015. The analysis assumes that 
current earnings equal pre-tax income before extraordinary and other 
items from July 1, 2014 through June 30, 2015. Using this measure 
eliminates the potentially transitory effects of extraordinary items 
and taxes on profitability. In calculating the effect on capital and 
banks' ability to maintain a leverage ratio of at least 4 percent (the 
minimum capital requirement),\44\ however, the analysis considers the 
effective after-tax cost of assessments.\45\ The analysis assumes that 
the large banks do not transfer the one-time assessment to customers in 
the form of changes in borrowing rates, deposit rates, or service fees.
---------------------------------------------------------------------------

    \44\ See 12 CFR 324.10(a).
    \45\ Since deposit insurance assessments are a tax-deductible 
operating expense, increases in assessment expenses can lower 
taxable income and decreases in the assessment rate can raise 
taxable income.
---------------------------------------------------------------------------

Projected Effects
    For almost all large banks, the effective surcharge annual rate 
measured against large banks' regular assessment base would be less 
than the nominal surcharge rate of 4.5 basis points because of the $10 
billion deduction. The FDIC projects that the net effect of lower 
assessment rates that go into effect when the reserve ratio reaches 
1.15 percent and the imposition of the surcharge would result in lower 
assessments for nearly a third of all large banks. Specifically, the 
analysis estimates that 34 of the 108 large banks would pay lower 
assessments in the future.
    The analysis reveals no significant capital effects from the 
surcharge. All large institutions would continue to maintain a 4 
percent leverage ratio, at a minimum, both before and after the 
imposition of the surcharge.\46\
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    \46\ Of the 108 large banks, 107 continue to maintain a leverage 
ratio of at least 4 percent. The other large bank is an insured 
branch of a foreign bank and does not report income in its quarterly 
financial filings, so its regulatory capital ratios cannot be 
calculated.
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    The annual surcharge would also represent only a small percentage 
of bank earnings for most large banks. In the aggregate, the annual 
surcharge would absorb 2.39 percent of total large bank adjusted 
earnings and 2.42 percent of total large bank current earnings.
    Table 2.A shows that as of June 30, 2015, for 84 percent of all 
large banks (89 large banks) the surcharge would represent 3 percent or 
less of adjusted annual earnings. For more than 94 percent (100 large 
banks), the surcharge would represent 5 percent or less of adjusted 
annual earnings. Only 6 large banks' adjusted annual earnings would be 
affected by more than 5 percent, with the maximum effect on any single 
bank being 8.7 percent.

              Table 2.A--The Effect of the Proposal on Adjusted Earnings of Individual Large Banks
----------------------------------------------------------------------------------------------------------------
                                                   LARGE BANKS
-----------------------------------------------------------------------------------------------------------------
                                                            Population                        Assets
                                                 ---------------------------------------------------------------
     Surcharge relative to adjusted earnings                       Percentage of                   Percentage of
                                                      Number        total large     Total ($ in     total large
                                                                       banks         billions)         banks
----------------------------------------------------------------------------------------------------------------
Between 0% to 1%................................              22              21             546               4
Between 1% to 2%................................              36              34           2,026              16
Between 2% to 3%................................              31              29           6,806              53
Between 3% to 4%................................               5               5           2,248              18

[[Page 68787]]

 
Between 4% to 5%................................               6               6             439               3
Over 5%.........................................               6               6             663               5
All Large Banks.................................             106             100          12,728             100
----------------------------------------------------------------------------------------------------------------
Notes:
(1) Effect of Surcharge on Adjusted Earnings: Mean = 2.19%; Median = 1.92%; Max = 8.70%; Min = 0.04%
(2) Two large banks were excluded from the original population of 108. One large bank is an insured branch of a
  foreign bank and does not report income in its quarterly financial filings an the second large bank reported
  negative income.

    When evaluating the effect of the surcharge on current earnings 
(that is, excluding the gains projected from lower future regular 
assessments), the effect of surcharges is slightly greater, as 
expected, but the results are not materially different. Table 2.B shows 
that, for 83 percent of large banks as of June 30, 2015, (88 large 
banks), the surcharge would represent 3 percent or less of current 
earnings. For 92 percent (98 large banks), the surcharge would 
represent 5 percent or less of current earnings. Only 8 large banks' 
current earnings would be affected by more than 5 percent, with the 
maximum effect on any single bank being 9.09 percent.

               Table 2.B--The Effect of the Proposal on Current Earnings of Individual Large Banks
----------------------------------------------------------------------------------------------------------------
                                                   LARGE BANKS
-----------------------------------------------------------------------------------------------------------------
                                                            Population                        Assets
                                                 ---------------------------------------------------------------
     Surcharge relative to current earnings                        Percentage of                   Percentage of
                                                      Number        total large    Total  ($ in     total large
                                                                       banks         billions)         banks
----------------------------------------------------------------------------------------------------------------
Between 0% to 1%................................              22              21             546               4
Between 1% to 2%................................              35              33           2.007              16
Between 2% to 3%................................              31              29           6,810              43
Between 3% to 4%................................               5               5           2,232              18
Between 4% to 5%................................               5               5             401               3
Over 5%.........................................               8               8             733               6
All Large Banks.................................             106             100          12,728             100
----------------------------------------------------------------------------------------------------------------
Notes:
(1) Impact of Surcharge on Current Earnings: Mean = 2.24%; Median = 1.95%; Max = 9.09%; Min = 0.04%
(2) Two large banks were excluded from the original population of 108. One large bank is an insured branch of a
  foreign bank and does not report income in its quarterly financial filings an the second large bank reported
  negative income.

    Finally, credits would result in a small increase in small bank 
income. Almost every small bank would be able to use credits for at 
least five quarters. Small bank annual earnings, on average would 
increase by about 2.3 percent.

V. Evaluation of the Proposal

    In 2011, when the FDIC adopted the lower assessment rate schedule 
that will go into effect when the reserve ratio reaches 1.15 percent, 
the FDIC projected that the reserve ratio would reach 1.15 percent at 
the end of 2018, not long before the statutory deadline for the reserve 
ratio to reach 1.35 percent.\47\ The FDIC now projects that the reserve 
ratio is most likely to reach 1.15 percent in the first quarter of 
2016, but may reach that level as early as the fourth quarter of this 
year, leaving additional time for the reserve ratio to reach the 
statutory target.
---------------------------------------------------------------------------

    \47\ 76 FR at 10684.
---------------------------------------------------------------------------

    In all likelihood, under the proposal, the reserve ratio will reach 
1.35 percent not later than the end of 2018. Reaching the statutory 
target reasonably promptly and in advance of the statutory deadline has 
benefits. First, it would strengthen the fund so that it could better 
withstand an unanticipated spike in losses from bank failures or the 
failure of one or more large banks.
    Second, it would reduce the risk of the banking industry facing 
unexpected, large assessment rate increases in the future. Once the 
reserve ratio reaches 1.35 percent, the September 30, 2020 deadline 
will have been met and will no longer apply. If the reserve ratio later 
falls below 1.35 percent, even if that occurs before September 30, 
2020, the FDIC would have a minimum of eight years to return the 
reserve ratio to 1.35 percent, reducing the likelihood of a large 
increase in assessment rates.\48\ In contrast, if a spike in losses 
occurs before the reserve ratio reaches 1.35 percent, the Dodd-Frank 
Act deadline would remain in place, which could require that the 
banking industry--including banks with less than $10 billion in assets, 
if the reserve ratio fell below 1.15 percent--pay for the increase in 
the reserve ratio within a relatively short time. The proposal, 
therefore, reduces the risk of higher assessments being imposed at a 
time when the industry might not be as healthy and prosperous and can 
least afford to pay.
---------------------------------------------------------------------------

    \48\ See generally 12 U.S.C. 1817(b)(3)(E)(ii).
---------------------------------------------------------------------------

    In addition, large banks would account for future surcharges in the 
Call Report and other banking regulatory reports based on GAAP as 
quarterly expenses, as they do for regular assessments, effectively 
spreading the

[[Page 68788]]

cost of the requirement over approximately eight quarters.
    As discussed above, FDIC analysis reveals no significant capital 
effects on large banks from the surcharge. On average, the annual 
surcharge would absorb approximately 2.4 percent of large bank annual 
income.

VI. Alternatives Considered

    Described below are several alternatives that the FDIC considered 
while developing this proposal. The FDIC also invites comment on these 
alternatives and any views as to whether and why an alternative, rather 
than the proposal, should be adopted as a final rule.

A. Shortfall Assessment Immediately After the Reserve Ratio Reaches 
1.15 Percent

Description of the Alternative
    As an alternative to the proposal, the FDIC considered foregoing 
surcharges and imposing a one-time assessment, similar to a shortfall 
assessment, on large banks at the end of the quarter after the DIF 
reserve ratio first reaches or exceeds 1.15 percent. Thus, for example, 
if the reserve ratio first reaches or exceeds 1.15 percent as of June 
30, 2016, the FDIC would impose the one-time assessment on September 
30, 2016, and collect it on December 30, 2016.49 50 The 
aggregate amount of a one-time assessment would equal 1.35 percent of 
estimated insured deposits as of the date that the reserve ratio first 
reaches or exceeds 1.15 percent minus the actual fund balance on that 
date.
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    \49\ As under the proposal, if the las day of the quarter was 
not a business day, the collection date would be the previous 
business day.
    \50\ A large bank might, however, have the option of paying (or 
be required to pay) its share of a one-time assessment in equal 
quarterly installments. One possibility would be to allow or require 
payment over four quarters; another would be to allow or require 
payment over eight quarters.
---------------------------------------------------------------------------

    The large banks that would be subject to a one-time assessment 
would be determined based upon their total consolidated assets for a 
period before the date of the NPR or their average total consolidated 
assets for several periods before the date of the NPR, such as average 
total consolidated assets over the last two quarters of 2014 and the 
first two quarters of 2015. While a large bank's assessment base for a 
one-time assessment would be determined similarly to the assessment 
base used for surcharges or a shortfall assessment, it would have to be 
determined based upon an assessment period before the date of the NPR 
or averaged over several assessment periods before the date of the NPR. 
Using assets and assessment bases for a period before the date of the 
NPR would prevent large banks from avoiding the assessment (and 
shifting costs to other large banks) by transferring assets to a 
nonbank affiliate or by shrinking or limiting growth.
    In other respects, a one-time assessment would generally be treated 
the same as a shortfall assessment under the proposal.\51\
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    \51\ However: (1) Call Report amendments received by the FDIC 
after 30 days before the collection date would not affect the 
determination of whether a bank met the definition of a large bank; 
and (2) Call Report amendments received by the FDIC after 30 days 
before the collection date would not affect the size of a large 
bank's assessment base for the one-time assessment.
---------------------------------------------------------------------------

    Because large banks would be assessed for the entire increase in 
the reserve ratio from 1.15 percent to 1.35 percent under a one-time 
assessment, small banks would not contribute to increasing the reserve 
ratio and would not receive credits.
Economic Effects of a One-Time Assessment on Banks
    The FDIC estimates that a one-time assessment under this 
alternative would likely be approximately $13 billion, and would 
represent approximately 12 basis points of large banks' aggregate 
regular assessment base.
Accounting Treatment
    As discussed above, the FDIC is of the view that large banks would 
account for surcharges as quarterly expenses and would not have to 
recognize in the Call Report and other banking regulatory reports based 
on GAAP a liability for them in advance. In contrast, the FDIC believes 
that a large bank's share of a one-time assessment would relate to a 
current period event or condition and could be probable and reasonably 
estimable. Therefore, under ASC Topic 450, if the FDIC adopted this 
alternative, large banks might have to recognize a liability for a one-
time assessment. Recognition of such a liability could be as early as 
the date that the FDIC adopts a final rule (assuming that the FDIC 
adopts a one-time assessment in the final rule) or no later than when 
the FDIC determines that the reserve ratio has reached 1.15 percent.
Capital, Earnings and Liquidity Analysis
    The FDIC estimates that, on average, a one-time assessment \52\ 
would reduce large banks' annual earnings by approximately six-and-a-
quarter percent,\53\ would not materially affect these banks 
liquidity,\54\ and would leave Tier 1 leverage ratios above the 4 
percent regulatory minimum for all large banks.\55\ The FDIC estimates 
that a one-time assessment would equal less than 10 percent of annual 
earnings for 90 large banks, would not exceed 20 percent of annual 
earnings for 13 such banks, and would exceed 20 percent of annual 
earnings for only 3 such banks. The FDIC estimates that a one-time 
assessment would represent, on average, 0.30 percent of large banks' 
liquid assets and would not be more than 1.07 percent of any large 
bank's liquid assets.
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    \52\ The estimate assumes an aggregate one-time assessment of 
approximately $12.7 billion, which is 0.2 percent of estimated 
insured deposits as of June 30, 2015.
    \53\ Earnings or income are annual income before assessments, 
taxes, and extraordinary items. Annual income is assumed to equal 
income from July 1, 2014 through June 30, 2015.
    \54\ Liquidity (or liquid assets) are defined as cash balances, 
federal funds and repos sold, and securities. Liquid assets are 
assumed to be the same as they were on June 30, 2015.
    \55\ Capital and liquid assets are assumed to be the same as 
they were on June 30, 2015. The estimate considers the effective 
after-tax cost of assessments in calculating the effect on capital. 
One covered bank is an insured branch of a foreign bank and is not 
required to report earnings and capital as part of its financial 
filings and, therefore, its Tier 1 leverage ratio cannot be 
determined.
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Evaluation of a One-Time Assessment
    The alternative of a one-time assessment when the reserve ratio 
reaches 1.15 percent has several benefits. It would ensure that the DIF 
reserve ratio reaches 1.35 percent immediately after the reserve ratio 
reaches 1.15 percent rather than later, as would occur using 
surcharges, which would: (1) Strengthen the fund more quickly, so that 
it would be in an even better position to withstand the effects of an 
unanticipated spike in bank failures; and (2) further reduce the risk 
of the banking industry facing unexpected, large assessment rate 
increases in the future when it may not be as healthy and prosperous as 
it is currently.
    On the other hand, large banks would have to recognize in the Call 
Report and other banking regulatory reports based on GAAP a large 
liability for a one-time assessment in advance, reducing income 
materially for the quarter in which the liability is recognized. In 
addition, because regular assessments would not contribute to 
increasing the reserve ratio from 1.15 percent to 1.35 percent if a 
one-time assessment were imposed, the amount collected from large banks 
in a one-time assessment is estimated to exceed the estimated total 
amount of proposed surcharges.
    The FDIC considers a one-time assessment when the reserve ratio 
reaches 1.15 percent a reasonable alternative to the proposal in this 
NPR and is interested in comments on this approach. On balance, 
however, the

[[Page 68789]]

FDIC considers the proposal the better alternative. As described above, 
in the FDIC's view, the proposal appropriately balances several 
considerations, including the goal of reaching the statutory minimum 
reserve ratio reasonably promptly in order to strengthen the fund and 
reduce the risk of pro-cyclical assessments, the goal of maintaining 
stable and predictable assessments for banks over time, and the 
projected effects on bank capital and earnings.

B. Delayed Shortfall Assessment Without Surcharges

    A second alternative would be to impose no surcharges after the 
reserve ratio reaches 1.15 percent and if the reserve ratio does not 
reach 1.35 percent by a deadline sometime near the statutory deadline, 
to impose a shortfall assessment at the end of the following quarter, 
and to collect it at the end of the next quarter. Thus, for example, if 
the reserve ratio had not reached 1.35 percent by December 31, 2019, 
then the FDIC would impose a shortfall assessment on March 31, 2020, 
and collect it on June 30, 2020. The aggregate amount of such a 
shortfall assessment would equal the difference between 1.35 percent 
and the reserve ratio as of December 31, 2019 times the estimated 
insured deposits as of the deadline.
    As under the proposal, to ensure that the effect on small banks of 
raising the reserve ratio from 1.15 percent to 1.35 percent was fully 
offset, the FDIC would provide assessment credits to small banks for 
the portion of their assessments that contributed to the increase in 
the reserve ratio from 1.15 percent to 1.35 percent. Assessment credits 
to small banks would be determined and applied as described above in 
the proposal.
Size of a Delayed Shortfall Assessment
    The FDIC cannot accurately predict the size of a delayed shortfall 
assessment so far in advance of one. The size of a delayed shortfall 
assessment could vary widely depending on the condition of the banking 
industry and the economy. For example, if fund losses from failed banks 
remain relatively low, the amount of a delayed shortfall assessment 
could be less than the amount of aggregate surcharges under the 
proposal, since regular assessments would contribute longer toward 
raising the reserve ratio from 1.15 percent.\56\ Thus, if estimated 
insured deposits grow to $7.65 trillion on December 31, 2019 (a growth 
rate of approximately 4.2 percent per year from June 30, 2015), and the 
reserve ratio is 1.26 percent at December 31, 2019, then a delayed 
shortfall assessment imposed on March 31, 2020, would be approximately 
$7.2 billion, less than the estimated $10 billion aggregate amount of 
surcharges under the proposal.
---------------------------------------------------------------------------

    \56\ The FDIC reached this conclusion assuming that the lower 
regular assessment rates scheduled to go into effect when the 
reserve ratio reaches 1.15 percent.
---------------------------------------------------------------------------

    On the other hand, the amount of a delayed shortfall could be much 
larger than the amount of aggregate surcharges under the proposal, if, 
for example, fund losses increase. Thus, assuming again that estimated 
insured deposits grow to $7.65 trillion on December 31, 2019, if the 
reserve ratio as the result of increased losses is only 1.00 percent at 
December 31, 2019, a delayed shortfall assessment imposed on March 31, 
2020, would be approximately $15.3 billion in order to raise the 
reserve ratio from 1.15 percent to 1.35 percent, more than the 
aggregate amount of proposed surcharges. Moreover, in this example, all 
banks, including small banks, would be responsible for approximately 
$11.5 billion in additional assessments to increase the reserve ratio 
from 1.00 percent to 1.15 percent. If losses between now and the end of 
2019 were as large as they were during the recent financial crisis, a 
possibility that the FDIC is not predicting but cannot preclude, the 
amount of additional assessments that would be levied on all banks 
would be much larger than under the example. The actual amount of a 
delayed shortfall assessment would likely differ from any of these 
examples.
    For similar reasons (the difficulty of predicting insured deposit 
growth and fund losses over a lengthy period, for example), the FDIC 
cannot accurately predict the aggregate amount of credits that would be 
awarded small banks under this alternative.
Evaluation of a Delayed Shortfall Assessment
    For several reasons, the FDIC is not proposing this alternative. 
First, compared to either surcharges or a one-time assessment, a 
delayed shortfall assessment is likely to significantly delay the 
reserve ratio's reaching 1.35 percent, leaving the fund more exposed to 
a spike in losses from future bank failures.
    Second, because the reserve ratio is likely to take significantly 
longer to reach 1.35 percent under this alternative, it increases the 
risk, as illustrated above, that banks--including small banks--might 
face sharp increases in assessments during a stressful period when they 
are less healthy and prosperous than they are now. As discussed 
earlier, once the reserve ratio reaches 1.35 percent, the September 30, 
2020 deadline will have been met and will no longer apply. If the 
reserve ratio later falls below 1.35 percent, even if that occurs 
before September 30, 2020, the FDIC will have, under the FDI Act, a 
minimum of eight years to return the reserve ratio to 1.35 percent, 
reducing the likelihood of a large and potentially procyclical increase 
in assessment rates.\57\
---------------------------------------------------------------------------

    \57\ See generally 12 U.S.C. 1817(b)(3)(E)(ii).
---------------------------------------------------------------------------

C. Alternatives Based on Surcharges

    The FDIC has considered other alternatives that are essentially 
variations on certain aspects of the surcharge proposal.
Method of Determining Surcharge Base
    To determine a large bank's surcharge base for a quarter, the 
proposal would use the bank's regular assessment base, but would add 
the regular assessment bases for that quarter of any affiliated small 
banks and deduct $10 billion from the resulting amount to produce the 
surcharge base. In a banking organization that includes more than one 
large bank, however, the affiliated small banks' regular assessment 
bases and the $10 billion deduction would be apportioned among all 
large banks in the banking organization in proportion to each large 
bank's regular assessment base for that quarter. Including affiliated 
small banks' regular assessment bases in a large bank's surcharge base 
would prevent a large bank from reducing its surcharges either by 
transferring assets and liabilities to existing or new affiliated small 
banks or by growing the businesses of affiliated small banks instead of 
the large bank. It would also ensure that that banking organizations of 
similar size (in terms of aggregate assessment bases) pay a similar 
surcharge.
    Rather than adding the entire regular assessment bases of 
affiliated small banks to those of large banks, an alternative would be 
to add to a large bank's assessment base each quarter only the amount 
of any increase in the regular assessment bases of affiliated small 
banks above their regular assessment bases as of June 30, 2015. Then 
$10 billion would also be deducted as under the proposal. Also, as 
under the proposal, in a banking organization that includes more than 
one large bank, the increase in affiliated small banks' regular 
assessment bases and the $10 billion deduction would be apportioned 
among all large banks in the banking organization in proportion

[[Page 68790]]

to each large bank's regular assessment base for that quarter.
    Like the proposal, this alternative would prevent a large bank from 
reducing its surcharges by transferring assets and liabilities to 
existing or new affiliated small banks, or by growing the businesses of 
affiliated small banks instead of the large bank. Unlike the proposal, 
however, it would not ensure that that banking organizations of similar 
size (in terms of aggregate assessment bases) pay a similar surcharge. 
In addition, because the full amount of affiliated small banks' 
assessment bases would not be included in their large bank affiliates' 
surcharge bases, the risk that the reserve ratio will take longer than 
eight quarters to reach 1.35 percent or that a shortfall assessment 
would be needed would be increased, thus shifting some of the burden of 
surcharges to large banks without affiliated small banks.
    The FDIC also considered alternatives that would impose various 
types of documentation requirements on large banks to explain changes 
in assessment bases between quarters during the surcharge period. 
Although such an approach may help prevent or discourage a large bank 
from reducing its surcharges by transferring assets and liabilities to 
existing or new affiliated small banks, it likely would not be as 
effective as the proposed approach. Moreover, a documentation-based 
approach would introduce additional complexity to the rule and impose 
burden and recordkeeping requirements on large banks that are not 
associated with the proposed option. Finally, unlike the proposal, this 
alternative would not ensure that that banking organizations of similar 
size (in terms of aggregate assessment bases) pay a similar surcharge. 
For these reasons, the FDIC does not favor an alternative based on 
imposing additional documentation requirements.
Method of Allocating Credits
    The proposal would allocate credits to small banks based upon their 
assessment bases during the surcharge period. An alternative would be 
to allocate credits based upon a small bank's actual assessment 
payments. Doing so, however, would grant relatively larger credits to 
riskier banks, since these banks would have paid higher assessment 
rates. For this reason, the FDIC does not favor this alternative.
Length of Surcharge Period
    Under the proposal, surcharges would start the quarter after the 
DIF reserve ratio first reaches or exceeds 1.15 percent, would be set 
at an annual rate of 4.5 basis points, and would continue until the 
reserve ratio first reaches or exceeds 1.35 percent, but no later than 
the fourth quarter of 2018. If necessary, a shortfall assessment would 
be imposed at the end of the first quarter of 2019.
    An alternative would be to charge surcharges at a somewhat lower 
rate for a longer period and only impose a shortfall assessment if the 
reserve ratio had not reached 1.35 percent by a date nearer the 
statutory deadline (the end of 2019, for example).
    The FDIC does not favor this alternative. In the FDIC's view, the 
proposal strikes the right balance after considering the statutory 
deadline for reaching the minimum reserve ratio and the goals of 
strengthening the fund's ability to withstand a spike in losses and 
minimizing the risk of larger assessments for the entire industry, as 
well as the effects on capital and earnings for surcharged banks.

VII. Effective Date

    A final rule following this NPR would become effective on the first 
day of the calendar quarter that begins 30 or more days after 
publication of a final rule.

VIII. Request for Comment

    The FDIC seeks comment on every aspect of this rulemaking, 
including the alternatives presented. In addition, the FDIC seeks 
comment on whether there are additional advantages, disadvantages or 
other effects of the proposal or an alternative that should be 
considered and why.

IX. Regulatory Analysis and Procedure

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that each federal 
agency either certify that a proposed or final rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities or prepare an initial regulatory flexibility analysis 
of the proposal and publish the analysis for comment.\58\ 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 the 
term ``rule'' for purposes of the RFA.\59\ This NPR relates directly to 
the rates imposed on insured depository institutions for deposit 
insurance. For this reason, the requirements of the RFA do not apply. 
Nonetheless, the FDIC is voluntarily undertaking a regulatory 
flexibility analysis and is seeking comment on it.
---------------------------------------------------------------------------

    \58\ See 5 U.S.C. 603, 604, 605.
    \59\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    As of June 30, 2015, of the 6,348 insured commercial banks and 
savings institutions, there were 5,088 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
those with $550 million or less in assets).\60\ As described in the 
Supplementary Information section of the preamble, the purpose of this 
NPR is to meet the Dodd-Frank Act requirements to increase the DIF 
reserve ratio from 1.15 to 1.35 by September 30, 2020, and offset the 
effect of that increase on banks with less than $10 billion in total 
consolidated assets. The FDIC proposes to meet those requirements in a 
manner that appropriately balances several considerations, including 
the goal of reaching the statutory minimum reserve ratio reasonably 
promptly in order to strengthen the fund and reduce the risk of pro-
cyclical assessments, the goal of maintaining stable and predictable 
assessments for banks over time, and the projected effects on bank 
capital and earnings. Both the Dodd-Frank Act and the FDI Act grant the 
FDIC broad authority to implement the offset requirement.
---------------------------------------------------------------------------

    \60\ Throughout this RFA analysis, a ``small institution'' or 
``small insured depository institution'' refers to an institution 
with assets of $550 million or less. As of June 30, 2015, one 
insured branch of a foreign bank also had less than $550 million in 
assets.
---------------------------------------------------------------------------

    The proposed rule would affect small entities only to the extent 
that they would be eligible for credits in exchange for their 
contributions toward raising the deposit insurance reserve ratio from 
1.15 percent to 1.35 percent. For purposes of awarding credits, a small 
bank would be a bank that was not a large bank in a quarter within the 
credit calculation period. The FDIC is proposing to apply these credits 
to future regular assessments, resulting in estimated average savings 
of 2.2 percent of annual earnings. Thus, this initial RFA analysis 
demonstrates that, if adopted in final form, 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 and 
the FDIC so certifies.\61\
---------------------------------------------------------------------------

    \61\ 5 U.S.C. 605.
---------------------------------------------------------------------------

    The proposed rule does not directly impose any ``reporting'' or 
``recordkeeping'' requirements. The compliance requirements for the 
proposed rule would not exceed (and, in fact, would be the same as) 
existing compliance requirements for the current risk-based deposit 
insurance assessment system for small banks. The FDIC is

[[Page 68791]]

unaware of any duplicative, overlapping or conflicting federal rules.

B. Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
requires that the FDIC, in determining the effective date and 
administrative compliance requirements of new regulations that impose 
additional reporting, disclosure, or other requirements on insured 
depository institutions, consider, consistent with principles of safety 
and soundness and the public interest, any administrative burdens that 
such regulations would place on depository institutions, including 
small depository institutions, and customers of depository 
institutions, as well as the benefits of such regulations.\62\
---------------------------------------------------------------------------

    \62\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    This NPR proposes no additional reporting or disclosure 
requirements on insured depository institutions, including small 
depository institutions, or on the customers of depository 
institutions.

C. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(``PRA'') of 1995, 44 U.S.C. 3501-3521, the FDIC may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (``OMB'') control number. This NPR does not 
modify FDIC's Assessments information collection 3064-0057, Quarterly 
Certified Statement Invoice for Deposit Insurance Assessment. 
Therefore, no submission to OMB need be made.

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).

E. 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 rulemakings published 
in the Federal Register 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 the material be better organized?
     Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
     Does the proposed regulation contain language or jargon 
that is unclear? 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?

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

    For the reasons set forth above, the FDIC proposes to amend part 
327 as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR part 327 continues to read as follows:

    Authority:  12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.


Sec.  327.11   [Amended]

0
2. Revise Sec.  327.11 to read as follows:


Sec.  327.11  Surcharges and Assessments Required to Raise the Reserve 
Ratio of the DIF to 1.35 Percent.

    (a) Surcharge.--
    (1) Institutions Subject to Surcharge. The following insured 
depository institutions are subject to the surcharge described in this 
paragraph:
    (i) Large institutions, as defined in Sec.  327.8(f);
    (ii) Highly complex institutions, as defined in Sec.  327.8(g); and
    (iii) Insured branches of foreign banks whose assets are equal to 
or exceed $10 billion, as reported in Schedule RAL of the branch's most 
recent quarterly Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks.
    (2) Surcharge Period. The surcharge period shall begin the later of 
either the first day of the assessment period following the assessment 
period in which the reserve ratio of the DIF first reaches or exceeds 
1.15 percent, or the assessment period ending on September 30, 2016. 
The surcharge period shall continue through the earlier of the 
assessment period ending December 31, 2018, or the end of the 
assessment period in which the reserve ratio of the DIF first reaches 
or exceeds 1.35 percent.
    (3) Notification of Surcharge. The FDIC shall notify each insured 
depository institution subject to the surcharge of the amount of such 
surcharge no later than 15 days before such surcharge is due, as 
described in paragraph (a)(4) of this section.
    (4) Payment of Any Surcharge. Each insured depository institution 
subject to the surcharge shall pay to the Corporation any surcharge 
imposed under paragraph (a) of this section in compliance with and 
subject to the provisions of Sec. Sec.  327.3, 327.6 and 327.7. The 
payment date for any surcharge shall be the date provided in Sec.  
327.3(b)(2) for the institution's quarterly certified statement invoice 
for the assessment period in which the surcharge was imposed.
    (5) Calculation of Surcharge. An insured depository institution's 
surcharge for each assessment period during the surcharge period shall 
be determined by multiplying 1.125 basis points times the institution's 
surcharge base for the assessment period.
    (i) Surcharge Base--Insured Depository Institution That Has No 
Affiliated Insured Depository Institution Subject to the Surcharge. The 
surcharge base for an assessment period for an insured depository 
institution subject to the surcharge that has no affiliated insured 
depository institution subject to the surcharge shall equal:
    (A) The institution's deposit insurance assessment base for the 
assessment period, determined according to Sec.  327.5; plus
    (B) The total deposit insurance assessment base for the assessment 
period, determined according to Sec.  327.5, of any affiliated insured 
depository institutions that are not subject to the surcharge; minus
    (C) $10 billion; provided, however, that an institution's surcharge 
base for an assessment period cannot be negative.
    (ii) Surcharge Base--Insured Depository Institution That Has One or 
More Affiliated Insured Depository Institutions Subject to the 
Surcharge. The surcharge base for an assessment period for an insured 
depository institution subject to the surcharge that has one or more 
affiliated insured depository institutions subject to the surcharge 
shall equal:
    (A) The institution's deposit insurance assessment base for the 
assessment period, determined according to Sec.  327.5; plus
    (B) The institution's portion of the total deposit insurance 
assessment base of all affiliated insured depository

[[Page 68792]]

institutions that are not subject to the surcharge, determined 
according toSec.  327.5, obtained by apportioning the total deposit 
insurance assessment base of institutions not subject to the surcharge, 
determined according to Sec.  327.5, among all institutions and 
affiliated insured depository institutions that are subject to the 
surcharge, in proportion to the respective deposit insurance assessment 
bases, determined according to Sec.  327.5, of the institutions subject 
to the surcharge; minus
    (C) The institution's portion of a $10 billion deduction, obtained 
by apportioning the deduction among all institutions and affiliated 
insured depository institutions that are subject to the surcharge, in 
proportion to those institutions' respective deposit insurance 
assessment bases, determined according to Sec.  327.5; provided, 
however, that an institution's surcharge base for an assessment period 
cannot be negative.
    (D) For the purposes of this section, an affiliated insured 
depository institution is an insured depository institution that meets 
the definition of ``affiliate'' in section 3 of the FDI Act, 12 U.S.C. 
1813(w)(6).
    (6) Effect of Mergers and Consolidations on Surcharge Base.
    (i) If an insured depository institution acquires another insured 
depository institution through merger or consolidation during the 
surcharge period, the acquirer's surcharge base will be calculated 
consistent with Sec.  327.6 and Sec.  327.11(a)(5). For the purposes of 
the surcharge, a merger or consolidation means any transaction in which 
an insured depository institution mergers or consolidates with any 
other insured depository institution, and includes transactions in 
which an insured depository institution either directly or indirectly 
acquires all or substantially all of the assets, or assumes all or 
substantially all of the deposit liabilities of any other insured 
depository institution, but there is not a legal merger or 
consolidation of the two insured depository institutions.
    (ii) If an insured depository institution not subject to the 
surcharge is the surviving or resulting institution in a merger or 
consolidation with an insured depository institution that is subject to 
the surcharge or acquires all or substantially all of the assets, or 
assumes all or substantially all of the deposit liabilities, of an 
insured depository institution subject to the surcharge, then the 
surviving or resulting insured deposit institution or the insured 
depository institution that acquires such assets or assumes such 
deposit liabilities is subject to the surcharge.
    (b) Shortfall Assessment.--
    (1) Institutions Subject to Shortfall Assessment. Any insured 
depository institution that was subject to a surcharge under paragraph 
(a)(1) of this section, in any assessment period during the surcharge 
period described in paragraph (a)(2) of this section, shall be subject 
to the shortfall assessment described in paragraph (b) of this section. 
If surcharges under paragraph (a) of this section have not been in 
effect, the shortfall assessment described in paragraph (b) of this 
section will be imposed on insured depository institutions described in 
paragraph (a)(1) of this section as of the assessment period in which 
the reserve ratio of the DIF reaches or exceeds 1.15 percent.
    (2) Notification of Shortfall. The FDIC shall notify each insured 
depository institution subject to the shortfall assessment of the 
amount of such institution's share of the shortfall assessment as 
described in paragraph (b)(5) of this section no later than 15 days 
before such shortfall assessment is due, as described in paragraph 
(b)(3) of this section.
    (3) Payment of Any Shortfall Assessment. Each insured depository 
institution subject to the shortfall assessment shall pay to the 
Corporation such institution's share of any shortfall assessment as 
described in paragraph (b)(5) of this section in compliance with and 
subject to the provisions of Sec. Sec.  327.3, 327.6 and 327.7. The 
payment date for any shortfall assessment shall be the date provided in 
Sec.  327.3(b)(2) for the institution's quarterly certified statement 
invoice for the assessment period in which the shortfall assessment is 
imposed.
    (4) Amount of Aggregate Shortfall Assessment.--
    (i) If the reserve ratio of the DIF is at least 1.15 percent but 
has not reached or exceeded 1.35 percent as of December 31, 2018, the 
FDIC shall impose a shortfall assessment on March 31, 2019, equal to 
1.35 percent of estimated insured deposits as of December 31, 2018, 
minus the actual DIF balance as of that date.
    (ii) If the reserve ratio of the DIF is less than 1.15 percent and 
has not reached or exceeded 1.35 percent by December 31, 2018, the FDIC 
shall impose a shortfall assessment equal to 0.2 percent of estimated 
insured deposits at the end of the assessment period immediately 
following the assessment period during which the reserve ratio first 
reaches or exceeds 1.15 percent.
    (5) Institutions' Shares of Aggregate Shortfall Assessment. Each 
insured depository institution's share of the aggregate shortfall 
assessment shall be determined by apportioning the aggregate amount of 
the shortfall assessment among all institutions subject to the 
shortfall assessment in proportion to each institution's shortfall 
assessment base as described in this paragraph.
    (i) Shortfall Assessment Base if Surcharges Have Been in Effect. If 
surcharges have been in effect, an institution's shortfall assessment 
base shall equal the average of the institution's surcharge bases 
during the surcharge period. For purposes of determining the average 
surcharge base, if an institution was not subject to the surcharge 
during any assessment period of the surcharge period, its surcharge 
base shall equal zero for that assessment period.
    (ii) Shortfall Assessment Base if Surcharges Have Not Been in 
Effect. If surcharges have not been in effect, an institution's 
shortfall assessment base shall equal the average of what its surcharge 
bases would have been over the four assessment periods ending with the 
assessment period in which the reserve ratio first reaches or exceeds 
1.15 percent. If an institution would not have been subject to a 
surcharge during one of those assessment periods, its surcharge base 
shall equal zero for that assessment period.
    (6) Effect of Mergers and Consolidations on Shortfall Assessment.
    (i) If an insured depository institution, through merger or 
consolidation, acquires another insured depository institution that 
paid surcharges for one or more assessment periods, the acquirer will 
be subject to a shortfall assessment and its average surcharge base 
will be increased by the average surcharge base of the acquired 
institution, consistent with paragraph (b)(5) of this section.
    (ii) For the purposes of the shortfall assessment, a merger or 
consolidation means any transaction in which an insured depository 
institution mergers or consolidates with any other insured depository 
institution, and includes transactions in which an insured depository 
institution either directly or indirectly acquires all or substantially 
all of the assets, or assumes all or substantially all of the deposit 
liabilities of any other insured depository institution, but there is 
not a legal merger or consolidation of the two insured depository 
institutions.
    (c) Assessment Credits.--
    (1) Eligible Institutions. For the purposes of this paragraph (c) 
of this

[[Page 68793]]

section, an insured depository institution will be considered an 
eligible institution, if, for any assessment period during the credit 
calculation period, the institution was not subject to a surcharge 
under paragraph (a) of this section.
    (2) Credit Calculation Period. The credit calculation period shall 
begin the assessment period after the reserve ratio of the DIF reaches 
or exceeds 1.15 percent, and shall continue through the earlier of the 
assessment period that the reserve ratio of the DIF reaches or exceeds 
1.35 percent or the assessment period that ends December 31, 2018.
    (3) Determination of Aggregate Assessment Credit Awards to All 
Eligible Institutions. The FDIC shall award an aggregate amount of 
assessment credits equal to the amount resulting from multiplying the 
fraction of quarterly regular deposit insurance assessments paid by 
eligible institutions during the credit calculation period and the 
amount by which the DIF increase exceeds total surcharges imposed under 
paragraph (b) of this section; provided, however, that the aggregate 
amount of assessment credits cannot exceed the aggregate amount of 
quarterly deposit insurance assessments paid by eligible institutions 
during the credit calculation period.
    (i) Fraction of Quarterly Regular Deposit Insurance Assessments 
Paid by Eligible Institutions. The fraction of assessments paid by 
eligible institutions shall equal quarterly deposit insurance 
assessments, as determined under Sec.  327.9, paid by eligible 
institutions during the credit calculation period divided by the total 
amount of quarterly deposit insurance assessments paid by all insured 
depository institutions during the credit calculation period, excluding 
the aggregate amount of surcharges imposed under paragraph (b) of this 
section.
    (ii) DIF Increase if the DIF Reserve Ratio Has Reached 1.35 Percent 
by December 31, 2018. The DIF increase shall equal 0.2 percent of 
estimated insured deposits as of the date that the DIF reserve ratio 
first reaches or exceeds 1.35 percent.
    (iii) DIF Increase if the DIF Reserve Ratio Has Not Reached 1.35 
Percent by December 31, 2018. The DIF increase shall equal the DIF 
balance on December 31, 2018, minus 1.15 percent of estimated insured 
deposits on that date.
    (4) Determination of Individual Eligible Institutions' Shares of 
Aggregate Assessment Credit.--
    (i) Assessment Credit Share. To determine an eligible institution's 
assessment credit share, the aggregate assessment credits awarded by 
the FDIC shall be apportioned among all eligible institutions in 
proportion to their respective assessment credit bases, as described in 
paragraph (c)(5)(ii) of this section.
    (ii) Assessment Credit Base. An eligible institution's assessment 
credit base shall equal the average of its quarterly deposit insurance 
assessment bases, as determined under Sec.  327.5, during the credit 
calculation period. An eligible institution's credit base shall be 
deemed to equal zero for any assessment period during which the 
institution was subject to a surcharge under subsection (a).
    (iii) Limitation. The assessment credits awarded to an eligible 
institution shall not exceed the total amount of quarterly deposit 
insurance assessments paid by that institution for assessment periods 
during any part of the credit calculation period that it was an 
eligible institution.
    (5) Effect of Merger or Consolidation on Assessment Credit Base. If 
an eligible institution acquires another eligible institution through 
merger or consolidation before the reserve ratio of the DIF reaches 
1.35 percent, the acquirer's quarterly deposit insurance assessment 
base (for purposes of calculating the acquirer's assessment credit 
base) shall be deemed to include the acquired institution's deposit 
insurance assessment base for the assessment periods prior to the 
merger or consolidation that the acquired institution was an eligible 
institution.
    (6) Effect of Call Report Amendments. Amendments to the quarterly 
Reports of Condition and Income or the quarterly Reports of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks that occur 
subsequent to the payment date for the final assessment period of the 
credit calculation period shall not affect an eligible institution's 
credit share.
    (7) Award and Notice of Assessment Credits.--
    (i) Award of Assessment Credits. As soon as practicable after the 
earlier of either December 31, 2018, or the date on which the reserve 
ratio of the DIF reaches 1.35 percent, the FDIC shall notify an 
eligible institution of the FDIC's preliminary estimate of such 
institution's assessment credits and the manner in which the FDIC 
calculated such credits.
    (ii) Notice of Assessment Credits. The FDIC shall provide eligible 
institutions with periodic updated notices reflecting adjustments to 
the institution's assessment credits resulting from requests for review 
or appeals, mergers or consolidations, or the FDIC's application of 
credits to an institution's quarterly deposit insurance assessments.
    (8) Requests for Review and Appeal of Assessment Credits. Any 
institution that disagrees with the FDIC's computation of or basis for 
its assessment credits, as determined under paragraph (c) of this 
section, may request review of the FDIC's determination or appeal that 
determination. Such requests for review or appeal shall be filed 
pursuant to the procedures set forth in paragraph (d) of this section.
    (9) Successors. If an insured depository institution acquires an 
eligible institution through merger or consolidation as described in 
paragraph (c)(5) of this section, after the reserve ratio of the DIF 
reaches 1.35 percent, the acquirer is successor to any assessment 
credits of the acquired institution. Other than through merger or 
consolidation, as described in paragraph (c)(5) of this section, 
credits awarded to an eligible institution under this paragraph (c) of 
this section are not transferable.
    (10) Mergers and Consolidation Include Only Legal Mergers and 
Consolidation. For the purposes of this paragraph (c) of this section, 
a merger or consolidation does not include transactions in which an 
insured depository institution either directly or indirectly acquires 
the assets of, or assumes liability to pay any deposits made in, any 
other insured depository institution, but there is not a legal merger 
or consolidation of the two insured depository institutions.
    (11) Use of Credits.--
    (i) The FDIC shall apply assessment credits awarded under this 
paragraph (c) to an institution's deposit insurance assessments, as 
calculated under Sec.  327.9, only for assessment periods in which the 
reserve ratio of the DIF exceeds 1.40 percent.
    (ii) The FDIC shall apply assessment credits to reduce an 
institution's quarterly deposit insurance assessments by the lesser of 
each institution's remaining credits or 0.5 basis points multiplied by 
the institution's deposit insurance assessment base in the assessment 
period. The assessment credit applied to each institution's deposit 
insurance assessment for any assessment period shall not exceed the 
institution's total deposit insurance assessment for that assessment 
period.
    (iii) Any credits remaining 12 assessment periods after the FDIC 
begins to apply the assessment credits under this section will be 
applied to the full amount of the assessment due for the following 
assessment period, and subsequent assessment periods, as

[[Page 68794]]

determined under Sec.  327.9, until the credits are exhausted.
    (iv) The amount of credits applied each quarter will not be 
recalculated as a result of amendments to the quarterly Reports of 
Condition and Income or the quarterly Reports of Assets and Liabilities 
of U.S. Branches and Agencies of Foreign Banks pertaining to any 
quarter in which credits have been applied.
    (d) Request for Review and Appeals of Assessment Credits--
    (1) An institution that disagrees with the basis for its assessment 
credits, or the Corporation's computation of its assessments credits, 
under paragraph (c) of this section and seeks to change it must submit 
a written request for review and any supporting documentation to the 
FDIC's Director of the Division of Finance.
    (2) Timing. Any request for review under this paragraph must:
    (i) Be submitted within 30 days from
    (A) The initial notice provided by the FDIC to the insured 
depository institution under paragraph (c)(6) of this section stating 
the FDIC's preliminary estimate of an eligible institution's assessment 
credit and the manner in which the assessment credit was calculated; or
    (B) Any updated notice provided by the FDIC to the insured 
depository institution under paragraph (c)(6) of this section.
    (ii) Any requests submitted after the deadline in paragraph 
(d)(2)(i) of this section will be considered untimely filed and the 
institution will be subsequently barred from submitting a request for 
review of its assessment credit.
    (3) Process of Review.
    (i) Upon receipt of a request for review, the FDIC would 
temporarily freeze the amount of the assessment credit being reviewed 
until a final determination is made by the Corporation.
    (ii) The FDIC may request, as part of its review, additional 
information from the insured depository institution involved in the 
request and any such information must be submitted to the FDIC within 
21 days of the FDIC's request.
    (iii) The FDIC's Director of the Division of Finance, or his or her 
designee, will notify the requesting institution of his or her 
determination of whether a change is warranted within the latter of the 
following timeframes:
    (A) 60 days of receipt by the FDIC of the request for review; or
    (B) If additional information had been requested from the FDIC, 
within 60 days of receipt of any such additional information.
    (4) Appeal. If the requesting institution disagrees with the final 
determination from the Director of the Division of Finance, that 
institution may appeal its assessment credit determination to the 
FDIC's Assessment Appeals Committee within 30 days from the date of the 
Director's written determination. Notice of the procedures applicable 
to an appeal before the Assessment Appeals Committee will be included 
in the Director's written determination.
    (5) Adjustments to Assessment Credits. Once the Director of the 
Division of Finance, or the Assessment Appeals Committee, as 
appropriate, has notified the requesting bank of its final 
determination, then the FDIC will make appropriate adjustments to 
assessment credit amounts consistent with that determination. 
Adjustments to an insured depository institution's assessment credit 
amounts will not be applied retroactively to reduce or increase the 
quarterly deposit insurance assessment for a prior assessment period.
0
4. In Sec.  327.35 revise paragraph (a) to read as follows:


Sec.  327.35  Application of credits.

    (a) Subject to the limitations in paragraph (b) of this section, 
the amount of an eligible insured depository institution's one-time 
credit shall be applied to the maximum extent allowable by law against 
that institution's quarterly assessment payment under subpart A of this 
part, after applying assessment credits awarded under Sec.  327.11(c), 
until the institution's credit is exhausted.
* * * * *

    By order of the Board of Directors.

    Dated at Washington, DC, this 22nd day of October, 2015.

Federal Deposit Insurance Corporation.
Robert Feldman,
Executive Secretary.
[FR Doc. 2015-27287 Filed 11-5-15; 8:45 am]
 BILLING CODE 6714-01-P