[Federal Register Volume 81, Number 23 (Thursday, February 4, 2016)]
[Proposed Rules]
[Pages 6108-6155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01448]



[[Page 6107]]

Vol. 81

Thursday,

No. 23

February 4, 2016

Part II





Federal Deposit Insurance Corporation





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12 CFR Part 327





 Assessments; Proposed Rule

  Federal Register / Vol. 81 , No. 23 / Thursday, February 4, 2016 / 
Proposed Rules  

[[Page 6108]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AE37


Assessments

AGENCY:  Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY:  On July 13, 2015, the FDIC published a notice of proposed 
rulemaking in the Federal Register proposing to amend 12 CFR part 327 
to refine the deposit insurance assessment system for small insured 
depository institutions that have been federally insured for at least 5 
years (established small banks). In response to comments received 
regarding the notice, the FDIC is issuing this revised notice of 
proposed rulemaking (revised NPR or revised proposal) that would: Use a 
brokered deposit ratio (that treats reciprocal deposits the same as 
under current regulations) as a measure in the financial ratios method 
for calculating assessment rates for established small banks instead of 
the previously proposed core deposit ratio; remove the existing 
brokered deposit adjustment for established small banks; and revise the 
previously proposed one-year asset growth measure.
    The FDIC proposes that a final rule would take effect the quarter 
after the Deposit Insurance Fund (DIF) reserve ratio has reached 1.15 
percent (or the first quarter after a final rule is adopted that the 
rule can take effect, whichever is later).

DATES: Comments must be received by the FDIC no later than March 7, 
2016.

ADDRESSES: You may submit comments on the notice of proposed rulemaking 
using any of the following methods:
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the agency 
Web site.
     Email: [email protected]. Include RIN 3064-AE37 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 St. Clair, Chief, Banking and 
Regulatory Policy, Division of Insurance and Research, 202-898-8967; 
Ashley Mihalik, Senior Financial Economist, Division of Insurance and 
Research, 202-898-3793; Nefretete Smith, Senior Attorney, Legal 
Division, 202-898-6851; Thomas Hearn, Counsel, Legal Division, 202-898-
6967.

SUPPLEMENTARY INFORMATION: 

I. Background

The 2015 Notice of Proposed Rulemaking

    On June 16, 2015, the FDIC's Board of Directors (Board) authorized 
publication of a notice of proposed rulemaking (the 2015 NPR) to refine 
the deposit insurance assessment system for established small banks 
(that is, small banks other than new small banks and insured branches 
of foreign banks).\1\ The 2015 NPR was published in the Federal 
Register on July 13, 2015.\2\ In the 2015 NPR, the FDIC proposed to 
improve the assessment system by: (1) Revising the financial ratios 
method so that it would be based on a statistical model estimating the 
probability of failure over three years; (2) updating the financial 
measures used in the financial ratios method consistent with the 
statistical model; and (3) eliminating risk categories for all 
established small banks and using the financial ratios method to 
determine assessment rates for all such banks. CAMELS composite 
ratings,\3\ however, would be used to place a maximum on the assessment 
rates that CAMELS composite 1- and 2-rated banks can be charged and 
minimums on the assessment rates that CAMELS composite 3-, 4- and 5-
rated banks can be charged.
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    \1\ Subject to exceptions, an established insured depository 
institution is one that has been federally insured for at least five 
years as of the last day of any quarter for which it is being 
assessed. 12 CFR 327.8(k).
    \2\ See 80 FR 40838 (July 13, 2015).
    \3\ A financial institution is assigned a CAMELS composite 
rating based on an evaluation and rating of six essential components 
of an institution's financial condition and operations. These 
component factors address the adequacy of capital (C), the quality 
of assets (A), the capability of management (M), the quality and 
level of earnings (E), the adequacy of liquidity (L), and the 
sensitivity to market risk (S).
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    The FDIC received a total of 484 comment letters in response to the 
2015 NPR. Of these, 45 were from trade groups and 439 were from 
individuals or banks. The majority of commenters expressed concern 
regarding the proposed treatment of reciprocal deposits in the 2015 
NPR.
    The FDIC is issuing this revised NPR in response to comments 
received regarding the 2015 NPR. The broad outline of this revised NPR 
remains the same as the 2015 NPR, but this revised NPR revises the 
proposal by: (1) Using a brokered deposit ratio (that treats reciprocal 
deposits the same as under current regulations) as a measure in the 
financial ratios method for calculating assessment rates for 
established small banks instead of the previously proposed core deposit 
ratio; (2) removing the existing brokered deposit adjustment for 
established small banks; (3) revising the previously proposed one-year 
asset growth measure; (4) re-estimating the statistical model 
underlying the established small bank deposit insurance assessment 
system; (5) revising the uniform amount and pricing multipliers used in 
the financial ratios method; and (6) providing that any future changes 
to the statistical model underlying the established small bank deposit 
insurance assessment system would go through notice-and-comment 
rulemaking.
    The FDIC also received comments on parts of the proposal in the 
2015 NPR that have not changed in this revised NPR. These comments 
included suggestions to more heavily weight CAMELS supervisory ratings 
over various financial ratios and to tailor the loan mix index to 
individual banks, and assertions that the proposed minimum and maximum 
assessment rates are inappropriate. The FDIC will consider all comments 
submitted in response to the 2015 NPR, as well as comments submitted in 
response to this revised NPR, in developing a final rule. Thus, to 
reduce burden, those who submitted a comment on the 2015 NPR need not 
resubmit the comment for it to be considered by the FDIC in developing 
the final rule. Comments on any aspect of this revised NPR, however, 
are welcome.

Policy Objectives

    The primary purpose of the proposed rule, like the 2015 NPR, is to 
improve the risk-based deposit insurance assessment system applicable 
to small banks to more accurately reflect risk.\4\ Additional 
discussion of the policy objectives of the proposed rule can be found 
in the 2015 NPR.\5\
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    \4\ 12 U.S.C. 1817(b). A ``risk-based assessment system'' means 
a system for calculating an insured depository institution's 
assessment based on the institution's probability of causing a loss 
to the DIF due to the composition and concentration of the 
institution's assets and liabilities, the likely amount of any such 
loss, and the revenue needs of the DIF. See 12 U.S.C. 1817(b)(1)(C).
    \5\ See 80 FR at 40838 and 40842.

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[[Page 6109]]

Risk-Based Deposit Insurance Assessments for Established Small Banks

    Since 2007, assessment rates for established small banks have been 
determined by placing each bank into one of four risk categories, Risk 
Categories I, II, III, and IV.\6\ These four risk categories are based 
on two criteria: Capital levels and supervisory ratings. The three 
capital groups--well capitalized, adequately capitalized, and 
undercapitalized--are based on the leverage ratio and three risk-based 
capital ratios used for regulatory capital purposes.\7\ The three 
supervisory groups, termed A, B, and C, are based upon supervisory 
evaluations by the small bank's primary federal regulator, state 
regulator or the FDIC.\8\ Group A consists of financially sound 
institutions with only a few minor weaknesses (generally, banks with 
CAMELS composite ratings of 1 or 2); Group B consists of institutions 
that demonstrate weaknesses that, if not corrected, could result in 
significant deterioration of the institution and increased risk of loss 
to the DIF (generally, banks with CAMELS composite ratings of 3); and 
Group C consists of institutions that pose a substantial probability of 
loss to the DIF unless effective corrective action is taken (generally, 
banks with CAMELS composite ratings of 4 or 5). An institution's 
capital group and supervisory group determine its risk category as set 
out in Table 1 below.
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    \6\ On January 1, 2007, the FDIC instituted separate assessment 
systems for small and large banks. 71 FR 69282 (Nov. 30, 2006). See 
12 U.S.C. 1817(b)(1)(D) (granting the Board the authority to 
establish separate risk-based assessment systems for large and small 
insured depository institutions).
    As used in this revised proposal, the term ``bank'' is 
synonymous with the term ``insured depository institution'' as it is 
used in section 3(c)(2) of the FDI Act, 12 U.S.C 1813(c)(2). As used 
in this revised proposal, the term ``small bank'' is synonymous with 
the term ``small institution'' as it is used in 12 CFR 327.8. In 
general, a ``small bank'' is one with less than $10 billion in total 
assets.
    \7\ The common equity tier 1 capital ratio, a new risk-based 
capital ratio, was incorporated into the deposit insurance 
assessment system effective January 1, 2015. 79 FR 70427 (November 
26, 2014). Beginning January 1, 2018, a supplementary leverage ratio 
will also be used to determine whether an advanced approaches bank 
is: (a) Well capitalized, if the bank is subject to the enhanced 
supplementary leverage ratio standards under 12 CFR 
6.4(c)(1)(iv)(B), 12 CFR 208.43(c)(1)(iv)(B), or 12 CFR 
324.403(b)(1)(vi), as each may be amended from time to time; and (b) 
adequately capitalized, if the bank is subject to the advanced 
approaches risk-based capital rules under 12 CFR 6.4(c)(2)(iv)(B), 
12 CFR 208.43(c)(2)(iv)(B), or 12 CFR 324.403(b)(2)(vi), as each may 
be amended from time to time. 79 FR 70427, 70437 (November 26, 
2014). The supplementary leverage ratio is expected to affect the 
capital group assignment of few, if any, small banks.
    \8\ The term ``primary federal regulator'' is synonymous with 
the term ``appropriate federal banking agency'' as it is used in 
section 3(q) of the FDI Act, 12 U.S.C. 1813(q).

                                     Table 1--Determination of Risk Category
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                                                                   Supervisory group
            Capital group             --------------------------------------------------------------------------
                                           A CAMELS 1 or 2             B CAMELS 3            C CAMELS 4 or 5
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Well Capitalized.....................  Risk Category I........
                                      -------------------------
Adequately Capitalized...............                  Risk Category II                  Risk Category III.
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Under Capitalized....................                  Risk Category III                 Risk Category IV.
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    To further differentiate risk within Risk Category I (which 
includes most small banks), the FDIC uses the financial ratios method, 
which combines a weighted average of supervisory CAMELS component 
ratings \9\ with current financial ratios to determine a small Risk 
Category I bank's initial assessment rate.\10\
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    \9\ The weights applied to CAMELS components are as follows: 25 
percent each for Capital and Management; 20 percent for Asset 
quality; and 10 percent each for Earnings, Liquidity, and 
Sensitivity to market risk. These weights reflect the view of the 
FDIC regarding the relative importance of each of the CAMELS 
components for differentiating risk among institutions for deposit 
insurance purposes. The FDIC and other bank supervisors do not use 
such a system to determine CAMELS composite ratings.
    \10\ New small banks in Risk Category I, however, are charged 
the highest initial assessment rate in effect for that risk 
category. Subject to exceptions, a new bank is one that has been 
federally insured for less than five years as of the last day of any 
quarter for which it is being assessed. 12 CFR 327.8(j).
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    Within Risk Category I, those institutions that pose the least risk 
are charged a minimum initial assessment rate and those that pose the 
greatest risk are charged an initial assessment rate that is four basis 
points higher than the minimum. All other banks within Risk Category I 
are charged a rate that varies between these rates. In contrast, all 
banks in Risk Category II are charged the same initial assessment rate, 
which is higher than the maximum initial rate for Risk Category I. A 
single, higher, initial assessment rate applies to each bank in Risk 
Category III and another, higher, rate to each bank in Risk Category 
IV.\11\
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    \11\ In 2011, the Board revised and approved regular assessment 
rate schedules. See 76 FR 10672 (Feb. 25, 2011); 12 CFR 327.10.
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    To determine a Risk Category I bank's initial assessment rate, the 
weighted CAMELS components and financial ratios are multiplied by 
statistically derived pricing multipliers, the products are summed, and 
the sum is added to a uniform amount that applies to all Risk Category 
I banks. If, however, the rate is below the minimum initial assessment 
rate for Risk Category I, the bank will pay the minimum initial 
assessment rate; if the rate derived is above the maximum initial 
assessment rate for Risk Category I, then the bank will pay the maximum 
initial rate for the risk category.
    The financial ratios used to determine rates come from a 
statistical model that predicts the probability that a Risk Category I 
institution will be downgraded from a composite CAMELS rating of 1 or 2 
to a rating of 3 or worse within one year. The probability of a CAMELS 
downgrade is intended as a proxy for the bank's probability of failure. 
When the model was developed in 2006, the FDIC decided not to attempt 
to determine a bank's probability of failure because of the lack of 
bank failures in the years between the end of the bank and thrift 
crisis in the early 1990s and 2006.\12\
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    \12\ See 71 FR 41910, 41913 (July 24, 2006).
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    The financial ratios method does not apply to new small banks or to 
insured branches of foreign banks (insured branches).\13\
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    \13\ Insured branches are deemed small banks for purposes of the 
deposit insurance assessment system.
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Assessment Rates Under Current Rules

    In 2011, the FDIC adopted a schedule of assessment rates designed 
to ensure that the reserve ratio reaches 1.15

[[Page 6110]]

percent by September 30, 2020.\14\ On October 22, 2015, the FDIC 
authorized publication of a notice of proposed rulemaking to implement 
the Dodd-Frank Act requirements that the fund reserve ratio reach 1.35 
percent by September 30, 2020 and that the effect of the higher minimum 
reserve ratio on small banks be offset.\15\
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    \14\ See 76 FR 10672. Among other things, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (the Dodd-Frank Act), 
enacted in July 2010: (1) Raised the minimum designated reserve 
ratio (DRR), which the FDIC must set each year, to 1.35 percent 
(from the former minimum of 1.15 percent) and removed the upper 
limit on the DRR (which was formerly capped at 1.5 percent), 12 
U.S.C. 1817(b)(3)(B); (2) required that the fund reserve ratio reach 
1.35 percent by September 30, 2020 (rather than 1.15 percent by the 
end of 2016, as formerly required), Public Law 111-203, 334(d), 124 
Stat. 1376, 1539 (12 U.S.C. 1817(note)); and (3) required that, in 
setting assessments, the FDIC ``offset the effect of [requiring that 
the reserve ratio reach 1.35 percent by September 30, 2020 rather 
than 1.15 percent by the end of 2016] on insured depository 
institutions with total consolidated assets of less than 
$10,000,000,000'', Public Law 111-203, 334(e), 124 Stat. 1376, 1539 
(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, 12 U.S.C. 
1817(e), and (2) continued 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).
    \15\ See 80 FR 68780.
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    The initial assessment rates currently in effect for small and 
large banks are set forth in Table 2 below.\16\
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    \16\ Before adopting the assessment rate schedules currently in 
effect, the FDIC undertook a historical analysis to determine how 
high the reserve ratio would have to have been to have maintained 
both a positive balance and stable assessment rates from 1950 
through 2010. The historical analysis and long-term fund management 
plan are described at 76 FR at 10675 and 75 FR 66272, 66272-281 
(Oct. 27, 2010). The analysis shows that the fund reserve ratio 
would have needed to be approximately 2 percent or more before the 
onset of the 1980s and 2008 crises to maintain both a positive fund 
balance and stable assessment rates, assuming, in lieu of dividends, 
that the long-term industry average nominal assessment rate would 
have been reduced by 25 percent when the reserve ratio reached 2 
percent, and by 50 percent when the reserve ratio reached 2.5 
percent.

                                                         Table 2--Initial Base Assessment Rates
                                                               [In basis points per annum]
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                                                                                                Risk Category
                                                   -----------------------------------------------------------------------------------------------------
                                                                   I*                                                                     Large & highly
                                                   ----------------------------------        II              III               IV            complex
                                                        Minimum          Maximum                                                         institutions **
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Annual Rates (in basis points)....................               5                9               14               23               35             5-35
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* Initial base rates that are not the minimum or maximum will vary between these rates.
** See 12 CFR 327.8(f) and 12 CFR 327.8(g) for the definition of large and highly complex institutions.

    An institution's total assessment rate may vary from the initial 
assessment rate as the result of possible adjustments.\17\ After 
applying all possible adjustments, minimum and maximum total assessment 
rates for each risk category are set forth in Table 3 below.
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    \17\ A bank's total base assessment rate can vary from its 
initial base assessment rate as the result of three possible 
adjustments. Two of these adjustments--the unsecured debt adjustment 
and the depository institution debt adjustment (DIDA)--apply to all 
banks (except that the unsecured debt adjustment does not apply to 
new banks or insured branches). The unsecured debt adjustment lowers 
a bank's assessment rate based on the bank's ratio of long-term 
unsecured debt to the bank's assessment base. The DIDA increases a 
bank's assessment rate when it holds long-term, unsecured debt 
issued by another insured depository institution. The third possible 
adjustment--the brokered deposit adjustment--applies only to small 
banks in Risk Category II, III and IV (and to large and highly 
complex institutions that are not well capitalized or that are not 
CAMELS composite 1 or 2-rated). It does not apply to insured 
branches. The brokered deposit adjustment increases a bank's 
assessment when it holds significant amounts of brokered deposits. 
12 CFR 327.9(d).

                                                         Table 3--Total Base Assessment Rates *
                                                               [In basis points per annum]
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                                                                                                                                       Large & highly
                                         Risk Category I        Risk Category II       Risk Category III       Risk Category IV     complex institutions
                                                                                                                                             **
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Initial Assessment Rate............  5-9...................  14....................  23...................  35...................  5-35.
Unsecured Debt Adjustment ***......  -4.5 to 0.............  -5 to 0...............  -5 to 0..............  -5 to 0..............  -5 to 0.
Brokered Deposit Adjustment........  N/A...................  0 to 10...............  0 to 10..............  0 to 10..............  0 to 10.
Total Assessment Rate..............  2.5 to 9..............  9 to 24...............  18 to 33.............  30 to 45.............  2.5 to 45.
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* Total base assessment rates do not include the DIDA.
** See 12 CFR 327.8(f) and (g) for the definition of large and highly complex institutions.
*** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured depository institution's initial base
  assessment rate. The unsecured debt adjustment does not apply to new banks or insured branches.

    In 2011, consistent with the FDIC's long-term fund management plan, 
the Board adopted lower, moderate assessment rates that will go into 
effect when the DIF reserve ratio reaches 1.15 percent.\18\ Pursuant to 
the FDIC's authority to set assessments, regulations currently in 
effect provide that the initial base and total base assessment rates 
set forth in Table 4 below will take effect beginning the assessment 
period after the fund reserve ratio first meets or exceeds 1.15 
percent, without the necessity of further action by the Board. The 
rates are to remain in effect unless and until the reserve ratio meets 
or exceeds 2 percent.\19\
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    \18\ See 76 FR at 10717-720.
    \19\ For new banks, however, the rates will remain in effect 
even if the reserve ratio equals or exceeds 2 percent (or 2.5 
percent).

[[Page 6111]]



                                                   Table 4--Initial and Total Base Assessment Rates *
                                                               [In basis points per annum]
                                                   [Once the reserve ratio reaches 1.15 percent \20\]
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                                                                                                                                       Large & highly
                                         Risk Category I        Risk Category II       Risk Category III       Risk Category IV     complex institutions
                                                                                                                                             **
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Initial Base Assessment Rate.......  3-7...................  12....................  19...................  30...................  3-30.
Unsecured Debt Adjustment ***......  -3.5 to 0.............  -5 to 0...............  -5 to 0..............  -5 to 0..............  -5 to 0.
Brokered Deposit Adjustment........  N/A...................  0 to 10...............  0 to 10..............  0 to 10..............  0 to 10.
Total Base Assessment Rate.........  1.5 to 7..............  7 to 22...............  14 to 29.............  25 to 40.............  1.5 to 40.
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* Total base assessment rates do not include the DIDA.
** See 12 CFR 327.8(f) and (g) for the definition of large and highly complex institutions.
*** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured depository institution's initial base
  assessment rate; thus, for example, an insured depository institution with an initial base assessment rate of 3 basis points will have a maximum
  unsecured debt adjustment of 1.5 basis points and cannot have a total base assessment rate lower than 1.5 basis points. The unsecured debt adjustment
  does not apply to new banks or insured branches.

    In lieu of dividends, and pursuant to the FDIC's authority to set 
assessments and consistent with the FDIC's long-term fund management 
plan, the Board also adopted a lower schedule of assessment rates that 
will come into effect without further action by the Board when the fund 
reserve ratio at the end of the prior assessment period meets or 
exceeds 2 percent, but is less than 2.5 percent, and another, still 
lower, schedule of assessment rates that will come into effect, again, 
without further action by the Board when the fund reserve ratio at the 
end of the prior assessment period meets or exceeds 2.5 percent.\21\
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    \20\ The reserve ratio for the immediately prior assessment 
period must also be less than 2 percent.
    \21\ New small banks will remain subject to the assessment 
schedule in Table 4 when the reserve ratio reaches 2 percent and 2.5 
percent.
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    The Board has the authority to adopt rates without further notice 
and comment rulemaking that are higher or lower than the total 
assessment rates (also known as the total base assessment rates), 
provided that: (1) The Board cannot increase or decrease rates from one 
quarter to the next by more than two basis points; and (2) cumulative 
increases and decreases cannot be more than two basis points higher or 
lower than the total base assessment rates.\22\
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    \22\ See 12 CFR 327.10(f); 76 FR at 10684.
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II. The Proposed Rule

Description of the Proposed Rule

    The financial ratios method as revised would use the measures 
described in the right-hand column of Table 5 below. For comparison's 
sake, the measures currently used in the financial ratios method are 
set out on the left-hand column of the table. To avoid unnecessary 
burden, the proposal will not require established small banks to report 
any new data in their Reports of Condition and Income (Call Reports).

  Table 5--Comparison of Current and Proposed Measures in the Financial
                              Ratios Method
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   Current risk category I financial        Proposed financial ratios
             ratios method                            method
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 Weighted Average CAMELS          Weighted Average
 Component Rating.                        CAMELS Component Rating.
 Tier 1 Leverage Ratio.........   Tier 1 Leverage Ratio.
 Net Income before Taxes/Risk-    Net Income before
 Weighted Assets.                         Taxes/Total Assets.
 Nonperforming Assets/Gross       Nonperforming Loans
 Assets.                                  and Leases/Gross Assets.
                                          Other Real Estate
                                          Owned/Gross Assets.
 Adjusted Brokered Deposit        Brokered Deposit
 Ratio.                                   Ratio.
                                          One Year Asset Growth.
 Net Loan Charge-Offs/Gross
 Assets.
 Loans Past Due 30-89 Days/
 Gross Assets.
                                          Loan Mix Index.
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    All of the measures proposed in this revised NPR are derived from a 
statistical analysis that estimates a bank's probability of failure 
within three years. Each of the measures is statistically significant 
in predicting a bank's probability of failure over that period. The 
statistical analysis used bank financial data and CAMELS ratings from 
1985 through 2011, failure data from 1986 through 2014, and loan 
charge-off data from 2001 through 2014.\23\ Appendix 1 to the 
Supplementary Information section of the 2015 NPR, and Appendix 1 to 
the Supplementary Information Section and Appendix E of this proposed 
rule describe the statistical analysis and the derivation of these 
measures in detail.
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    \23\ For certain lagged variables, such as one-year asset growth 
rates, the statistical analysis also used bank financial data from 
1984.
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    Two of the measures proposed in this revised NPR--the weighted 
average CAMELS component rating and the tier 1 leverage ratio--are 
identical to the measures currently used in the financial ratios method 
and are as proposed in the 2015 NPR. The net income before taxes/total 
assets measure in this revised NPR is virtually identical to the 
measure proposed in the 2015 NPR and is also almost identical to the 
current measure. The denominator in the net income before taxes/total 
assets measure in the revised proposal is total assets rather than 
risk-weighted assets as under current rules. The definition of the 
measure in the revised proposal also differs from the definitions in 
both the 2015 NPR and current rules in that it no longer refers to 
extraordinary items.\24\

[[Page 6112]]

The current nonperforming assets/gross assets measure includes other 
real estate owned. In this revised NPR and in the 2015 NPR, other real 
estate owned/gross assets is a separate measure from nonperforming 
loans and leases/gross assets.
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    \24\ The numerator of the proposed net income measure definition 
is income before applicable income taxes and discontinued operations 
for the most recent twelve months, rather than income before income 
taxes and extraordinary items and other adjustments for the most 
recent twelve months as in the 2015 NPR and current rules. In the 
current Call Report, extraordinary items and discontinued operations 
are combined for reporting purposes. Income for the net income ratio 
is currently determined before both extraordinary items and 
discontinued operations. In January 2015, the Financial Accounting 
Standards Board (FASB) eliminated from U.S. generally accepted 
accounting principles (GAAP) the concept of extraordinary items, 
effective for fiscal years and interim periods within those fiscal 
years, beginning after December 15, 2015. In September 2015, the 
Federal banking agencies published a joint Paperwork Reduction Act 
(PRA) notice and request for comment on proposed changes to the Call 
Report, including the elimination of the concept of extraordinary 
items and revision of affected data items. See 80 FR 56539 (Sept. 
18, 2015). That PRA process is still in progress and the FDIC 
expects that, at some future time, references to extraordinary items 
will be removed from the Call Report. Nevertheless, items that would 
have met the criteria for classification as extraordinary before the 
effective date of the FASB's accounting change will no longer be 
reported as such in the Call Report income statement after the 
effective date of the change. Discontinued operations, however, will 
continue to be reported in the Call Report income statement as a 
separate item in the future and, under the revised proposal, income 
for the net income ratio would be determined before discontinued 
operations. See, e.g., 80 FR at 56547. Therefore, the FDIC is 
proposing to define the net income measure to reflect the 
anticipated Call Report changes. The FDIC recognizes that this 
revised proposal may be finalized and become effective before the 
Federal banking agencies finalize the proposed Call Report changes.
    Because the numerator of the proposed net income measure is 
defined to include income for the most recent twelve months, there 
may be a transition period in which income for the most recent 
twelve months may include income from periods before the elimination 
from GAAP of the concept of extraordinary items has taken effect. 
For those portions of the most recent twelve months before this 
elimination has taken effect, income will be determined as income 
before income taxes and extraordinary items and other adjustments.
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    The remaining three proposed financial measures, described in 
detail below, differ from the measures in the current established small 
bank deposit assessment system.\25\ The FDIC proposes to replace the 
adjusted brokered deposit ratio currently used in the financial ratios 
method with two separate measures: A brokered deposit ratio (rather 
than a core deposit ratio as proposed in the 2015 NPR) and a one-year 
asset growth measure. As stated above, these two financial measures--
the brokered deposit ratio and the one year asset growth measure--
differ from the measures proposed in the 2015 NPR. The third proposed 
new measure, the loan mix index, remains as proposed in the 2015 NPR.
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    \25\ Two measures in the current financial ratios method--net 
loan charge-offs/gross assets and loans past due 30-89 days/gross 
assets--are not used in the statistical analysis and are not among 
the measures in the 2015 NPR or this revised proposal.
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Brokered Deposit Ratio
    Under current assessment rules, brokered deposits affect a small 
bank's assessment rate based on its Risk Category. For established 
small banks that are assigned to Risk Category I (those that are well 
capitalized and have a CAMELS composite rating of 1 or 2), the adjusted 
brokered deposit ratio is one of the financial ratios used to determine 
a bank's initial assessment rate. The adjusted brokered deposit ratio 
increases a bank's initial assessment rate when a bank has brokered 
deposits that exceed 10 percent of its domestic deposits, combined with 
a high asset growth rate.\26\ Reciprocal deposits are not included with 
other brokered deposits in the adjusted brokered deposit ratio.
---------------------------------------------------------------------------

    \26\ The adjusted brokered deposit ratio can affect assessment 
rates only if a bank's brokered deposits (excluding reciprocal 
deposits) exceed 10 percent of its non-reciprocal brokered deposits 
and its assets have grown more than 40 percent in the previous 4 
years. 12 CFR 327 Appendix A to Subpart A.
    Few Risk Category I banks have both high levels of non-
reciprocal brokered deposits and high asset growth, so the adjusted 
brokered deposit ratio affects relatively few banks. As of September 
30, 2015, the adjusted brokered deposit ratio affected the 
assessment rate of 95 banks.
---------------------------------------------------------------------------

    Established small banks in Risk Categories II, III, and IV (those 
that are less than well capitalized or that have a CAMELS composite 
rating of 3, 4, or 5) are subject to the brokered deposit adjustment, 
one of three possible adjustments that can increase or decrease a 
bank's initial assessment rate. The brokered deposit adjustment 
increases a bank's assessment rate if it has brokered deposits in 
excess of 10 percent of its domestic deposits.\27\ Unlike the adjusted 
brokered deposit ratio, the brokered deposit adjustment includes all 
brokered deposits, including reciprocal deposits, and is not affected 
by asset growth rates. As the FDIC noted when it adopted the brokered 
deposit adjustment and included reciprocal deposits with other brokered 
deposits in the adjustment, ``The statutory restrictions on accepting, 
renewing or rolling over brokered deposits when an institution becomes 
less than well capitalized apply to all brokered deposits, including 
reciprocal deposits. Market restrictions may also apply to these 
reciprocal deposits when an institution's condition declines.'' \28\
---------------------------------------------------------------------------

    \27\ 12 CFR 327.9(d)(3); 12 U.S.C. 1831f.
    \28\ 74 FR 9525, 9541 (Mar. 9, 2009).
---------------------------------------------------------------------------

    The FDIC proposes to replace the adjusted brokered deposit ratio 
currently used in the financial ratios method with a brokered deposit 
ratio, measured as the ratio of brokered deposits to total assets. As 
discussed below, the FDIC also proposes to eliminate the existing 
brokered deposit adjustment for established small banks. Under the 
proposed brokered deposit ratio, brokered deposits would increase an 
assessment rate only for an established small bank that holds brokered 
deposits in excess of 10 percent of total assets. For a bank that is 
well capitalized and has a CAMELS composite rating of 1 or 2, 
reciprocal deposits would be deducted from brokered deposits. For a 
bank that is less than well capitalized or has a CAMELS composite 
rating of 3, 4 or 5, however, reciprocal deposits would be included 
with other brokered deposits.
    This treatment of reciprocal deposits is generally consistent with 
the 442 comment letters on the 2015 NPR arguing that reciprocal 
deposits should not be treated as brokered deposits for assessment 
purposes.\29\ Some commenters encouraged the FDIC to revise the 
proposal in the 2015 NPR so that it reflects the current treatment of 
reciprocal deposits, which this revised proposal does. As described 
above, in the current system, the adjusted brokered deposit, which 
applies to well-capitalized established small banks that have CAMELS 
composite ratings of 1 or 2, excludes reciprocal deposits.\30\ The 
brokered deposit adjustment, however, which applies to all established 
small banks that are less than well capitalized or have CAMELS 
composite ratings of 3, 4 or 5, includes reciprocal deposits.\31\ The 
proposed brokered deposit ratio makes the same distinction with respect 
to reciprocal deposits.
---------------------------------------------------------------------------

    \29\ On the other hand, four commenters asserted that the FDIC 
should not charge higher assessment rates to banks that hold 
brokered deposits, but should instead consider how banks used 
brokered deposits and whether they remain profitable and well-
capitalized. The FDIC's statistical analyses have consistently 
found, however, that brokered deposits are correlated with a higher 
probability of failure. See FDIC Study on Core Deposits and Brokered 
Deposits (2011), 46-47 and 66-68 (Appendix A: Excerpts from Material 
Loss Reviews And Summaries of OIG Semiannual Reports to Congress).
    \30\ 12 CFR part 327 Appendix A to Subpart A.
    \31\ 12 CFR 327.9(d)(3); 12 U.S.C. 1831f.
---------------------------------------------------------------------------

    The FDIC also received 40 comment letters on the 2015 NPR arguing 
that reciprocal deposits should be treated as core deposits or are the 
functional equivalent of core deposits. The FDIC analyzed the 
characteristics of reciprocal deposits in its Study on Core Deposits 
and Brokered Deposits and concluded that, ``While the FDIC agrees that 
reciprocal deposits do not present

[[Page 6113]]

all of the problems that traditional brokered deposits present, they 
pose sufficient potential problems--particularly their dependence on a 
network and the network's continued willingness to allow a bank to 
participate, and the potential of supporting rapid growth if not based 
upon a relationship--that they should not be considered core . . .'' 
\32\ (Emphasis added.) The proposed brokered deposit ratio, which 
deducts reciprocal deposits for well capitalized, well rated banks, is 
consistent with the Study on Core Deposits and Brokered Deposits and 
with the majority of comments received.
---------------------------------------------------------------------------

    \32\ FDIC Study on Core Deposits and Brokered Deposits (2011), 
54.
---------------------------------------------------------------------------

    Sixteen commenters, including banking trade associations, cautioned 
against penalizing the use of Federal Home Loan Bank advances in 
determining assessment rates. Some commenters also argued that lowering 
assessments for core deposits, as proposed in the 2015 NPR, would make 
Federal Home Loan Bank advances relatively more expensive. Replacing 
the previously proposed core deposit ratio with a brokered deposit 
ratio would not change the current treatment of Federal Home Loan Bank 
advances in the small bank deposit insurance assessment system. In 
contrast, treating reciprocal deposits as core deposits in the core 
deposit ratio would create an incentive for established small banks to 
switch Federal Home Loan Bank advances and other funding sources (other 
than core deposits) to reciprocal deposit funding, with unpredictable 
effects on banks' probability of failure.
One-Year Asset Growth Measure
    The FDIC received 18 comments on the proposed one-year asset growth 
measure in the 2015 NPR. Some commenters argued that the one-year asset 
growth rate should not penalize normal growth. One commenter suggested 
that asset growth should not affect assessments until it exceeds an 
industry-based norm, while other commenters suggested using the ``A'' 
(``Asset quality'') CAMELS component instead of a one-year asset growth 
rate or taking mitigating factors into account in the growth rate.
    In response to comments, the FDIC is proposing that the one-year 
asset growth measure increase the assessment rate only for an 
established small bank that has had one-year asset growth greater than 
10 percent. With this modification, the measure will raise assessment 
rates for established small banks that grow rapidly (other than through 
merger or by acquiring failed banks), but will not increase assessments 
for normal asset growth.\33\
---------------------------------------------------------------------------

    \33\ From 1985 through 2014, one-year asset growth rates greater 
than 10 percent represented approximately the 70th percentile of 
small banks. A 10 percent one-year asset growth rate measure is 
generally consistent with the adjusted brokered deposit ratio in the 
current Risk Category I financial ratios method, which raises 
assessment rates only when small banks have both four-year asset 
growth rates in excess of 40 percent and high levels of brokered 
deposits.
---------------------------------------------------------------------------

Loan Mix Index
    The proposed loan mix index is unchanged from the 2015 NPR. As 
described in the 2015 NPR, the loan mix index is a measure of the 
extent to which a bank's total assets include higher-risk categories of 
loans. The index uses historical charge-off rates to identify loan 
types with higher risk. Each category of loan in a bank's loan 
portfolio is divided by the bank's total assets to determine the 
percentage of the bank's assets represented by that category of loan. 
Each percentage is then multiplied by that category of loan's 
historical weighted average industry-wide charge-off rate. The products 
are then summed to determine the loan mix index value for that bank.
    The loan categories in the loan mix index were selected based on 
the availability of category-specific charge-off rates over a 
sufficiently lengthy period (2001 through 2014) to be representative. 
The loan categories exclude credit card loans.\34\ For each loan 
category, the weighted-average charge-off rate weights each industry-
wide charge-off rate for each year by the number of bank failures in 
that year. Thus, charge-off rates from 2008 through 2014, during the 
recent banking crisis, have a much greater influence on the weighted-
average charge-off rate than do charge-off rates from the years before 
the crisis, when few failures occurred. The weighted averages assure 
that types of loans that have high charge-off rates during downturns 
(i.e., periods marked by significant insurance fund losses) have an 
appropriate influence on assessment rates.
---------------------------------------------------------------------------

    \34\ Credit card loans were excluded from the loan mix index 
because they produced anomalously high assessment rates for banks 
with significant credit card loans. Credit card loans have very high 
charge-off rates, but they also tend to have very high interest 
rates to compensate. In addition, few small banks have significant 
concentrations of credit card loans. Consequently, credit card loans 
are omitted from the index.
---------------------------------------------------------------------------

    Table 6 below illustrates how the loan mix index is calculated for 
a hypothetical bank.
---------------------------------------------------------------------------

    \35\ As discussed above, the loan mix index uses loan charge-off 
data from 2001 through 2014.
    The table shows industry-wide weighted charge-off percentage 
rates, the loan category as a percentage of total assets, and the 
products to two decimal places. In fact, the FDIC proposes to use 
seven decimal places for industry-wide weighted charge-off 
percentage rates, and as many decimal places as permitted by the 
FDIC's computer systems for the loan category as a percentage of 
total assets and the products. The total (the loan mix index itself) 
would use three decimal places.

                              Table 6--Loan Mix Index for a Hypothetical Bank \35\
----------------------------------------------------------------------------------------------------------------
                                                                                   Loan category
                                                                                   as a percent
                                                                     Weighted           of        Product of two
                                                                    charge-off     hypothetical   columns to the
                                                                   rate percent    bank's total        left
                                                                                      assets
----------------------------------------------------------------------------------------------------------------
Construction & Development......................................            4.50            1.40            6.29
Commercial & Industrial.........................................            1.60           24.24           38.75
Leases..........................................................            1.50            0.64            0.96
Other Consumer..................................................            1.46           14.93           21.74
Loans to Foreign Government.....................................            1.34            0.24            0.32
Real Estate Loans Residual......................................            1.02            0.11            0.11
Multifamily Residential.........................................            0.88            2.42            2.14
Nonfarm Nonresidential..........................................            0.73           13.71            9.99
1-4 Family Residential..........................................            0.70            2.27            1.58
Loans to Depository banks.......................................            0.58            1.15            0.66
Agricultural Real Estate........................................            0.24            3.43            0.82
Agriculture.....................................................            0.24            5.91            1.44
                                                                 -----------------------------------------------

[[Page 6114]]

 
    SUM (Loan Mix Index)........................................  ..............           70.45           84.79
----------------------------------------------------------------------------------------------------------------

    The weighted charge-off rates in the table are the same for all 
established small banks. The remaining two columns vary from bank to 
bank, depending on the bank's loan portfolio. For each loan type, the 
value in the rightmost column is calculated by multiplying the weighted 
charge-off rate by the bank's loans of that type as a percent of its 
total assets. In this illustration, the sum of the right-hand column 
(84.79) is the loan mix index for this bank.

Calculating the Initial Assessment Rate

    As in the current methodology for Risk Category I small banks, and 
as proposed in the 2015 NPR, under the revised proposal the weighted 
CAMELS components and financial ratios would be multiplied by 
statistically derived pricing multipliers, the products would be 
summed, and the sum would be added to a uniform amount that would be: 
(a) Derived from the statistical analysis, (b) adjusted for assessment 
rates set by the FDIC, and (c) applied to all established small 
banks.\36\ The total would equal the bank's initial assessment rate. 
If, however, the resulting rate were below the minimum initial 
assessment rate for established small banks, the bank's initial 
assessment rate would be the minimum initial assessment rate; if the 
rate were above the maximum, then the bank's initial assessment rate 
would be the maximum initial rate for established small banks. In 
addition, if the resulting rate for an established small bank were 
below the minimum or above the maximum initial assessment rate 
applicable to banks with the bank's CAMELS composite rating, the bank's 
initial assessment rate would be the respective minimum or maximum 
assessment rate for an established small bank with its CAMELS composite 
rating. This approach would allow rates to vary incrementally across a 
wide range of rates for all established small banks. The conversion of 
the statistical model to pricing multipliers and the uniform amount is 
discussed further below and in detail in the proposed Appendix E. 
Appendix E also discusses the derivation of the pricing multipliers and 
the uniform amount.
---------------------------------------------------------------------------

    \36\ Current rules provide that: (1) Under specified conditions, 
certain subsidiary small banks will be considered established rather 
than new, 12 CFR 327.8(k)(4); and (2) the time that a bank has spent 
as a federally insured credit union is included in determining 
whether a bank is established, 12 CFR 327.8(k)(5). If a Risk 
Category I small bank is considered established under these rules, 
but has no CAMELS component ratings, its initial assessment rate is 
2 basis points above the minimum initial assessment rate applicable 
to Risk Category I (which is equivalent to 2 basis points above the 
minimum initial assessment rate for established small banks) until 
it receives CAMELS component ratings. Thereafter, the assessment 
rate is determined by annualizing, where appropriate, financial 
ratios obtained from all quarterly Call Reports that have been 
filed, until the bank files four quarterly Call Reports. As proposed 
in the 2015 NPR, for small banks that are considered established 
under these rules, but do not have CAMELS component ratings, the 
FDIC proposes the following:
    1. If the bank has no CAMELS composite rating, its initial 
assessment rate would be 2 basis points above the minimum initial 
assessment rate for established small banks until it receives a 
CAMELS composite rating; and
    2. If the bank has a CAMELS composite rating but no CAMELS 
component ratings, its initial assessment rate would be determined 
using the financial ratios method by substituting its CAMELS 
composite rating for its weighted average CAMELS component rating 
and, if the bank has not yet filed four quarterly Call Reports, by 
annualizing, where appropriate, financial ratios obtained from all 
quarterly Call Reports that have been filed.
---------------------------------------------------------------------------

Adjustments to Initial Base Assessment Rates

    As discussed above, the FDIC proposes to eliminate the brokered 
deposit adjustment for established small banks.\37\ Under current 
rules, the brokered deposit adjustment only applies to small banks if 
they are in Risk Category II, III, and IV. The brokered deposit 
adjustment increases a bank's assessment when it holds significant 
amounts of brokered deposits. To avoid assessing banks twice for 
holding brokered deposits (because the brokered deposit ratio would 
apply to all established small banks), the FDIC proposes eliminating 
the brokered deposit adjustment.
---------------------------------------------------------------------------

    \37\ As under rules currently in effect, the brokered deposit 
adjustment would continue to apply to all new small institutions in 
Risk Categories II, III, and IV, and all large and highly complex 
institutions, except large and highly complex institutions that are 
well capitalized and have a CAMELS composite rating of 1 or 2. As 
under rules currently in effect, the brokered deposit adjustment 
would not apply to insured branches.
---------------------------------------------------------------------------

    As under current rules, the DIDA would continue to apply to all 
banks, and the unsecured debt adjustment would continue to apply to all 
banks except new banks and insured branches.\38\
---------------------------------------------------------------------------

    \38\ As under rules currently in effect, however, no adjustments 
would apply to bridge banks or conservatorships. These banks would 
continue to be charged the minimum assessment rate applicable to 
small banks.
---------------------------------------------------------------------------

Proposed Assessment Rates

    Like the 2015 NPR, this revised proposal preserves the lower range 
of initial base assessment rates previously adopted by the Board. Under 
current regulations, once the reserve ratio reaches 1.15 percent, 
initial base assessment rates will fall automatically from the current 
5 basis point to 35 basis point range to a 3 basis point to 30 basis 
point range, as reflected in Table 4. The FDIC adopted the range of 
initial assessment rates in this rate schedule pursuant to its long-
term fund management plan as the FDIC's best estimate of the assessment 
rates that would have been needed from 1950 to 2010 to maintain a 
positive fund balance during the past two banking crises. This 
assessment rate schedule remains the FDIC's best estimate of the long-
term rates needed. Consequently, and as discussed in greater detail 
further below and in detail in Appendix E, the FDIC proposes to convert 
its statistical model to assessment rates within this 3 basis point to 
30 basis point assessment range in a revenue neutral way; that is, in a 
manner that does not materially change the aggregate assessment revenue 
collected from established small banks.
    As set out in the rate schedule in Table 7 below, for established 
small banks, the FDIC proposes to eliminate risk categories but 
maintain the range of initial assessment rates that the Board has 
previously determined will go into effect starting the quarter after 
the reserve ratio reaches 1.15 percent.\39\ Unless revised by the 
Board, these rates would remain in effect as long as the reserve ratio 
is less than 2 percent. Table 7 also includes a maximum assessment rate 
that would apply to

[[Page 6115]]

CAMELS composite 1- and 2-rated banks and minimum assessment rates that 
would apply to CAMELS composite 3-rated banks and CAMELS composite 4- 
and 5-rated banks.
---------------------------------------------------------------------------

    \39\ See 12 CFR 327.10(b); 76 FR at 10718.

                               Table 7--Initial and Total Base Assessment Rates *
                                           [In basis points per annum]
                               [Once the reserve ratio reaches 1.15 percent \40\]
----------------------------------------------------------------------------------------------------------------
                                                  Established small banks
                              ---------------------------------------------------------------   Large & highly
                                                      CAMELS composite                              complex
                              ---------------------------------------------------------------   institutions **
                                      1 or 2                 3                  4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate.  3 to 16............  6 to 30............  16 to 30...........  3 to 30.
Unsecured Debt Adjustment ***  -5 to 0............  -5 to 0............  -5 to 0............  -5 to 0.
Brokered Deposit Adjustment..  N/A................  N/A................  N/A................  0 to 10.
Total Base Assessment Rate...  1.5 to 16..........  3 to 30............  11 to 30...........  1.5 to 40.
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates in the table do not include the DIDA.
** See 12 CFR 327.8(f) and (g) for the definition of large and highly complex institutions.
*** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
  depository institution's initial base assessment rate; thus, for example, an insured depository institution
  with an initial base assessment rate of 3 basis points will have a maximum unsecured debt adjustment of 1.5
  basis points and cannot have a total base assessment rate lower than 1.5 basis points.

    The FDIC proposes to maintain the range of initial assessment 
rates, set out in the rate schedule in Table 8 below, that the Board 
previously determined will go into effect starting the quarter after 
the reserve ratio reaches or exceeds 2 percent and is less than 2.5 
percent. Unless revised by the Board, these rates would remain in 
effect as long as the reserve ratio is in this range. Table 8 also 
includes the maximum assessment rates that would apply to CAMELS 
composite 1- and 2-rated banks and the minimum assessment rates that 
would apply to CAMELS composite 3-rated banks and CAMELS composite 4- 
and 5-rated banks.
---------------------------------------------------------------------------

    \40\ The reserve ratio for the immediately prior assessment 
period must also be less than 2 percent.

                               Table 8--Initial and Total Base Assessment Rates *
                                           [In basis points per annum]
  [If the reserve ratio for the prior assessment period is equal to or greater than 2 percent and less than 2.5
                                                    percent]
----------------------------------------------------------------------------------------------------------------
                                                  Established small banks
                              ---------------------------------------------------------------   Large & highly
                                                      CAMELS composite                              complex
                              ---------------------------------------------------------------   institutions **
                                      1 or 2                 3                  4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate.  2 to 14............  5 to 28............  14 to 28...........  2 to 28.
Unsecured Debt Adjustment ***  -5 to 0............  -5 to 0............  -5 to 0............  -5 to 0.
Brokered Deposit Adjustment..  N/A................  N/A................  N/A................  0 to 10.
Total Base Assessment Rate...  1 to 14............  2.5 to 28..........  9 to 28............  1 to 38.
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates in the table do not include the DIDA.
** See 12 CFR 327.8(f) and (g) for the definition of large and highly complex institutions.
*** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
  depository institution's initial base assessment rate; thus, for example, an insured depository institution
  with an initial base assessment rate of 2 basis points will have a maximum unsecured debt adjustment of 1
  basis point and cannot have a total base assessment rate lower than 1 basis point.

    The FDIC proposes to maintain the range of initial assessment 
rates, set out in the rate schedule in Table 9 below, that the Board 
previously determined will go into effect, again without further action 
by the Board, when the fund reserve ratio at the end of the prior 
assessment period meets or exceeds 2.5 percent. Unless changed by the 
Board, these rates would remain in effect as long as the reserve ratio 
is at or above this level. Table 9 also includes the maximum assessment 
rates that would apply to CAMELS composite 1- and 2-rated banks and the 
minimum assessment rates that would apply to CAMELS composite 3-rated 
banks and CAMELS composite 4- and 5-rated banks.

[[Page 6116]]



                               Table 9--Initial and Total Base Assessment Rates *
                                           [In basis points per annum]
         [If the reserve ratio for the prior assessment period is equal to or greater than 2.5 percent]
----------------------------------------------------------------------------------------------------------------
                                                  Established small banks
                              ---------------------------------------------------------------   Large & highly
                                                      CAMELS composite                              complex
                              ---------------------------------------------------------------   institutions **
                                      1 or 2                 3                  4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate.  1 to 13............  4 to 25............  13 to 25...........  1 to 25.
Unsecured Debt Adjustment ***  -5 to 0............  -5 to 0............  -5 to 0............  -5 to 0.
Brokered Deposit Adjustment..  N/A................  N/A................  N/A................  0 to 10.
Total Base Assessment Rate...  0.5 to 13..........  2 to 25............  8 to 25............  0.5 to 35.
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates in the table do not include the DIDA.
** See 12 CFR 327.8(f) and (g) for the definition of large and highly complex institutions.
*** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
  depository institution's initial base assessment rate; thus, for example, an insured depository institution
  with an initial base assessment rate of 1 basis point will have a maximum unsecured debt adjustment of 0.5
  basis points and cannot have a total base assessment rate lower than 0.5 basis points.

    As proposed in the 2015 NPR, with respect to each of the three 
assessment rate schedules (Tables 7, 8 and 9), the FDIC proposes that 
the Board would retain its authority to uniformly adjust assessment 
rates up or down from the total base assessment rate schedule without 
further rulemaking, as long as the adjustment does not exceed 2 basis 
points. Also, with respect to each of the three schedules, the FDIC 
proposes that, if a bank's CAMELS composite or component ratings change 
during a quarter in a way that changes the institution's initial base 
assessment rate, then its assessment rate would be determined 
separately for each portion of the quarter in which it had different 
CAMELS composite or component ratings.

Conversion of Statistical Model to Pricing Multipliers and Uniform 
Amount

    As discussed above, and as proposed in the 2015 NPR, the FDIC 
proposes to convert the statistical model to the assessment rates set 
out in Table 7 in a revenue neutral manner.\41\ Specifically, and as 
described in detail in Appendix E, the FDIC proposes to convert the 
statistical model to assessment rates to ensure that aggregate 
assessments for an assessment period shortly before adoption of a final 
rule would have been approximately the same under a final rule as they 
would have been under the assessment rate schedule set forth in Table 4 
(the rates that, under current rules, will automatically go into effect 
when the reserve ratio reaches 1.15 percent).
---------------------------------------------------------------------------

    \41\ The FDIC proposes to convert a linear version of the model, 
which was estimated in a non-linear manner. (See Appendix E.) The 
conversion using a linear version of the model preserves the same 
rank ordering as the non-linear model, but using the linear version 
of the model allows initial assessment rates to be expressed as a 
linear function of the model variables. The FDIC also used a linear 
version of its original non-linear downgrade probability statistical 
model when it instituted variable rates within Risk Category 1 
effective January 1, 2007.
---------------------------------------------------------------------------

    To illustrate the conversion, Table 10 below sets out the pricing 
multipliers and uniform amounts that would have resulted if the FDIC 
had converted the statistical model to the assessment rate schedule set 
out in Table 7 (with a range of assessment rates from 3 basis points to 
30 basis points). The pricing multipliers and uniform amount have been 
set so that, for the third quarter of 2015, aggregate assessments for 
all established small banks under the revised proposal would have 
equaled, as closely as reasonably possible, aggregate assessments for 
all established small banks had the assessment rate schedule in Table 4 
been in effect for that assessment period.\42\
---------------------------------------------------------------------------

    \42\ Initial assessment rates under the rate schedule actually 
in effect for the third quarter of 2015 ranged from 5 basis points 
to 35 basis points, since the DIF reserve ratio was under 1.15 
percent.
---------------------------------------------------------------------------

    The pricing multipliers and uniform amount in Table 10 differ from 
those in the 2015 NPR because the FDIC has re-estimated the statistical 
model for this revised proposal using a revised definition of the one-
year asset growth measure and a brokered deposit ratio in place of a 
core deposit ratio.
    Partly because the actual conversion will be based upon a later 
quarter, the pricing multipliers and the uniform amount shown in Table 
10 are likely to differ somewhat from those in a final rule.

      Table 10--Pricing Multipliers and the Uniform Amount Under a
  Hypothetical Conversion of the Statistical Model to Assessment Rates
                   Based on the Third Quarter of 2015
------------------------------------------------------------------------
               Model measures                     Pricing multiplier
------------------------------------------------------------------------
Weighted Average CAMELS Component Rating...  1.443
Tier 1 Leverage Ratio......................  -1.201
Net Income Before Taxes/Total Assets.......  -0.684
Nonperforming Loans and Leases/Gross Assets  0.895
Other Real Estate Owned/Gross Assets.......  0.506
Brokered Deposit Ratio.....................  0.251
One Year Asset Growth......................  0.058
Loan Mix Index.............................  0.077
Uniform Amount.............................  7.398
------------------------------------------------------------------------

Updating the Statistical Model, Pricing Multipliers and Uniform Amount

    As discussed above, the statistical analysis used bank financial 
data and CAMELS ratings from 1985 through 2011, failure data from 1986 
through 2014 and loan charge-off data from 2001 through 2014.\43\ In 
response to comments on the 2015 NPR, the FDIC proposes that any 
changes to the small bank deposit insurance pricing model would go 
through notice-and-comment rulemaking. The FDIC does not anticipate a 
need for annual updates, since variables and coefficients in the 
underlying model are not likely to change much absent a significant 
number of failures.
---------------------------------------------------------------------------

    \43\ Also as discussed above, for certain lagged variables, such 
as one-year asset growth rates, the statistical analysis also used 
bank financial data from 1984.

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

[[Page 6117]]

Insured Branches of Foreign Banks and New Small Banks

    As discussed in the 2015 NPR, this revised proposal makes no 
changes to the current rules governing the assessment rate schedules 
applicable to insured branches or to the assessment rate schedule 
applicable to new small banks. The revised proposal also makes no 
changes to the way in which assessment rates for insured branches and 
new small banks are determined.

Implementation of the Proposed Rule

    The FDIC is proposing that a final rule would take effect the 
quarter after the Deposit Insurance Fund (DIF) reserve ratio has 
reached 1.15 percent (or the first quarter after a final rule is 
adopted that the rule can take effect, whichever is later).

III. Expected Effects of the Revised Proposal

Effect on Assessment Rates

    To illustrate the effects of the revised proposal on established 
small bank assessment rates, the FDIC compared actual assessment rates 
under the current system for established small banks for the third 
quarter of 2015, using a range of initial assessment rates of 5 basis 
points to 35 basis points, with the proposed assessment rates in Table 
7 of this revised NPR, which has an overall range of initial assessment 
rates of 3 basis points to 30 basis points; the assessment rates in 
Table 7 would take effect the quarter after the DIF reserve ratio 
reaches 1.15 percent.\44\ The proportion (and number) of established 
small banks paying the minimum initial assessment rate would have 
increased significantly, from 26 percent (1,611 small banks) to 56 
percent under the revised proposal (3,475 small banks). The proportion 
(and number) of established small banks paying the maximum initial 
assessment rate would have decreased from 0.5 percent of established 
small banks (31 small banks) to 0.1 percent of established small banks 
under the revised proposal (5 small banks). Chart 1 below graphically 
compares the distribution of established small bank initial assessment 
rates under this illustration. The horizontal axis in the chart 
represents established small banks ranked by risk, from the least risky 
on the left to the most risky on the right. Because actual risk 
rankings under the current system differ from risk rankings under the 
revised proposal, a particular point on the horizontal axis is not 
likely to represent the same bank for the current system and the 
proposed rule. Thus, the chart does not show how an individual bank's 
assessment would change under the revised proposal; it simply compares 
the distribution of assessment rates under the current system to the 
distribution under the revised proposal.
---------------------------------------------------------------------------

    \44\ The revised proposal assumes a range of initial assessment 
rates from 3 basis points to 30 basis points. For purposes of 
determining assessment rates for the illustration, the FDIC 
converted the statistical model to a range of assessment rates from 
3 basis points to 30 basis points so that, for the third quarter of 
2015, aggregate assessments for all established small banks under 
the revised proposal would have equaled, as closely as reasonably 
possible, aggregate assessments for all established small banks 
under the rate schedule in Table 4 (the rates that, under current 
rules, will automatically go into effect when the reserve ratio 
reaches 1.15 percent). Initial assessment rates under the rate 
schedule actually in effect for the fourth quarter of 2014 ranged 
from 5 basis points to 35 basis points, since the DIF reserve ratio 
was under 1.15 percent.
---------------------------------------------------------------------------

    Chart 1--Illustrative, Hypothetical Comparison of Distribution of 
Assessment Rates for Established Small Banks (Comparing Actual Third 
Quarter of 2015 Initial Assessment Rates for the Current System to the 
Revised Proposal)

[[Page 6118]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.000

    Due in large part to the overall decline in rates once the reserve 
ratio reaches 1.15 percent, most established small banks (5,729 or 93 
percent) would have had lower total assessment rates.\45\ Among Risk 
Category I established small banks, 92 percent would have had rate 
decreases; the average decrease for these banks would have been 2.6 
basis points. Of the Risk Category II, III, and IV established small 
banks, 99 percent would have had rate decreases; the average decrease 
would have been 7.0 basis points. A total of 428 established small 
banks (7 percent of established small banks) would have had rate 
increases. Of the Risk Category I established small banks, 8 percent 
would have had rate increases; the average increase would have been 1.6 
basis points. Of the Risk Category II, III, and IV established small 
banks, 1 percent would have had rate increases; the average increase 
would have been 2.5 basis points. The results of the comparison are 
similar to those that would have resulted from a comparison of actual 
assessment rates to those proposed in the 2015 NPR.
---------------------------------------------------------------------------

    \45\ As discussed above, a bank's total assessment rate may vary 
from the initial assessment rate as the result of possible 
adjustments. Under the current system, there are three possible 
adjustments: The unsecured debt adjustment, the DIDA, and the 
brokered deposit adjustment. Under the revised proposal, the 
brokered deposit adjustment would be eliminated for established 
small banks, but the unsecured debt adjustment and the DIDA would 
remain.
---------------------------------------------------------------------------

    To further illustrate the effects of the revised proposal on small 
bank assessment rates, the FDIC compared hypothetical assessment rates 
under the revised proposal with the assessment rates established small 
banks would have been charged for the third quarter of 2015 under the 
current system if the assessment rate schedule that will go into effect 
when the reserve ratio reaches 1.15 percent had been in effect. The 
proportion of established small banks paying the minimum initial 
assessment rate would also have increased from 26 percent to 56 percent 
under the revised proposal and the proportion of established small 
banks paying the maximum initial assessment rate would also have 
decreased from 0.5 percent of established small banks to 0.1 percent of 
established small banks under the revised proposal. Chart 2 below 
graphically compares the distribution of established small bank initial 
assessment rates under this illustration.
    Chart 2--Illustrative, Hypothetical Comparison of Distribution of 
Assessment Rates for Established Small Banks Based on the Third Quarter 
of 2015 (Comparing Table 4 Initial Assessment Rates for the Current 
System to the Revised Proposal)

[[Page 6119]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.001

    Most established small banks (3,467 or 56 percent) would have had 
lower total assessment rates. Among Risk Category I established small 
banks, 52 percent would have had rate decreases; the average decrease 
for these banks would have been 1.3 basis points. Of the Risk Category 
II, III, and IV established small banks, 94 percent would have had rate 
decreases; the average decrease would have been 4.6 basis points. 1,282 
established small banks (21 percent of established small banks) would 
have had rate increases. Of the Risk Category I established small 
banks, 23 percent would have had rate increases; the average increase 
would have been 1.8 basis points. Of the Risk Category II, III, and IV 
established small banks, 5 percent would have had rate increases; the 
average increase would have been 2.4 basis points. Again, the results 
of the comparison are similar to those that would have resulted from a 
comparison of assessment rates that, under current rules, would have 
gone into effect when the reserve ratio reaches 1.15 percent with those 
proposed in the 2015 NPR.

Effect on Capital and Earnings

    Appendix 2 to the Supplementary Information section of this notice 
discusses the effect of the revised proposal on the capital and 
earnings of established small banks in detail. Using balance sheet and 
trailing twelve month income data as of the third quarter 2015, 
Appendix 2 analyzes the effects of the revised proposal on capital and 
income in two ways: (1) The effect of the revised proposal compared to 
the current small bank deposit insurance assessment system under the 
rate schedule in Table 3 (with an initial assessment rate range of 5 
basis points to 35 basis points) (the first comparison); and (2) the 
effect of the revised proposal compared to the current small bank 
deposit insurance assessment system under the rate schedule in Table 4 
(with an initial assessment rate range of 3 basis points to 30 basis 
points; this rate schedule is to go into effect the quarter after the 
DIF reserve ratio reaches 1.15 percent) (the second comparison).
    Under either comparison, the revised proposal would cause no small 
bank to fall below a 4 percent or 2 percent leverage ratio if the bank 
would otherwise be above these thresholds. Similarly, the revised 
proposal would cause no small bank to rise above a 4 percent or 2 
percent leverage ratio if the bank would otherwise be below these 
thresholds.
    In the first comparison, only approximately 7 percent of profitable 
established small banks and approximately 4 percent of unprofitable 
small banks would face a rate increase. All but a very few (16) of 
these banks would have resulting declines in income (or increases in 
losses, where the bank is unprofitable) of 5 percent or less. As 
discussed above, assessment rates for approximately 93 percent of 
established small banks would decline, resulting in increases in income 
(or decreases in losses), some of which would be substantial. The 
effect on earnings of established small banks under the revised 
proposal in this comparison does not differ materially from the 
corresponding effect in the 2015 NPR.
    In the second comparison, approximately 21 percent of profitable 
established small banks and approximately 15 percent of unprofitable 
established small banks would face a rate increase. All but 80 of these 
banks would have resulting declines in income (or increases in losses, 
where the bank is unprofitable) of 5 percent or less. As discussed 
above,

[[Page 6120]]

assessment rates for approximately 56 percent of established small 
banks would decline, resulting in increases in income (or decreases in 
losses), some of which would be substantial. The effect on earnings of 
established small banks under the revised proposal in this comparison 
does not differ materially from the corresponding effect in the 2015 
NPR.
    In sum, because the proposed revisions are intended to generate the 
same total revenue from small banks as would have been generated absent 
the revised proposal, the revisions should, overall, have no material 
effect on the capital and earnings of the banking industry, although 
the revisions will affect the earnings and capital of individual 
institutions.

IV. Backtesting

    To evaluate the proposed revisions to the risk-based deposit 
insurance assessment system for small banks, the FDIC tested how well 
the revised system would have differentiated between banks that failed 
and those that did not during the recent crisis compared to the current 
small bank deposit insurance assessment system.
    Table 11 compares accuracy ratios for the assessment system in the 
proposed system and the current system. An accuracy ratio compares how 
well each approach would have discriminated between banks that failed 
within the projection period and those that did not. The projection 
period in each case is the three years following the date of the 
projection (the first column), which is the last day of the year given. 
Thus, for example, the accuracy ratios for 2006 reflect how well each 
approach would have discriminated in its projection between banks that 
failed and those that did not from 2007 through 2009.\46\ A ``perfect'' 
projection would receive an accuracy ratio of 1; a random projection 
would receive an accuracy ratio of 0.\47\
---------------------------------------------------------------------------

    \46\ The current small bank deposit insurance assessment system 
did not exist at the end of 2006 and existed in somewhat different 
forms in years before 2011. The comparison assumes that the small 
bank deposit insurance assessment system in its current form existed 
in each year of the comparison.
    \47\ A ``perfect'' projection is defined as one where the 
projection rates every bank that fails over the projection period as 
more risky than every bank that does not fail. A random projection 
is one where the projection does no better than chance; that is, any 
given percentage of banks with projected higher risk will include 
the same percentage of banks that fail over the projection period. 
Thus, for example, in a random projection, the 10 percent of banks 
that receive the highest risk projections will include 10 percent of 
the banks that fail over the projection period; the 20 percent of 
banks that receive the highest risk projections will include 20 
percent of the banks that fail over the projection period, and so 
on.

  Table 11--Accuracy Ratio Comparison Between the Revised Proposal and the Current Small Bank Deposit Insurance
                                                Assessment System
----------------------------------------------------------------------------------------------------------------
                                                                        (A)                     (B)
                                                                 -----------------------------------------------
                                                                                                  Accuracy ratio
                                                                                  Accuracy ratio      for the
                                                                  Accuracy ratio      for the         revised
                       Year of projection                             for the      current small    proposal--
                                                                      revised          bank       accuracy ratio
                                                                    proposal *      assessment        for the
                                                                                      system      current system
                                                                                                       (A-B)
----------------------------------------------------------------------------------------------------------------
2006............................................................          0.6988          0.3491          0.3498
2007............................................................          0.7760          0.5616          0.2144
2008............................................................          0.9015          0.7825          0.1190
2009............................................................          0.9360          0.9015          0.0345
2010............................................................          0.9667          0.9394          0.0272
2011............................................................          0.9548          0.9323          0.0225
----------------------------------------------------------------------------------------------------------------
* The accuracy ratio for the revised proposal is based on the conversion of the statistical model as estimated
  based on bank data through 2011 and failure data through 2014.

    The table contains results that do not differ materially from the 
comparison of the assessment system proposed in the 2015 NPR and the 
current small bank deposit insurance assessment system. In each 
comparison, the table reveals that, while the current system did 
relatively well at capturing risk and predicting failures in more 
recent years, the proposed system would have not only done 
significantly better immediately before the recent crisis and at the 
beginning of the crisis, but also better overall.\48\ In the early part 
of the crisis, when CAMELS ratings had not fully reflected the 
worsening condition of many banks, the proposed system would have 
recognized risk far better than the current system, primarily because 
the rates under the proposed system are not constrained by risk 
categories. As the crisis progressed and CAMELS ratings more fully 
reflected crisis conditions, the superiority of the proposed system 
decreased, but it still performed better than the current system.
---------------------------------------------------------------------------

    \48\ As implied in the footnote to Table 11, the accuracy ratios 
in the table for the proposed system are based on in-sample 
backtesting. In-sample backtesting compares model forecasts to 
actual outcomes where those outcomes are included in the data used 
in model development. Out-of-sample backtesting is the comparison of 
model predictions against outcomes where those outcomes are not used 
as part of the model development used to generate predictions. Out-
of-sample backtesting, discussed in Appendix 1 of the Supplementary 
Information section of this notice, also shows that, while the 
current assessment system for small banks did relatively well at 
predicting failures in more recent years, the proposed system would 
have done significantly better immediately before the recent crisis 
and at the beginning of the crisis, but also better overall.
---------------------------------------------------------------------------

    Appendix 1 to the Supplementary Information section of this notice 
contains a more detailed description of the FDIC's backtests of the 
revised proposal.

V. Alternatives Considered

    In the 2015 NPR, the FDIC solicited comments on the following 
alternatives: different minimum and maximum assessment rates based on 
CAMELS composite ratings, including higher, lower, or no minimum or 
maximum initial assessment rates for banks with certain CAMELS ratings; 
the inclusion of loss given default (LGD) in the new statistical model; 
and no changes to the small bank deposit insurance assessment system. 
The discussion of these alternatives is found in the 2015 NPR.\49\
---------------------------------------------------------------------------

    \49\ 80 FR 40838, 40851-40854.

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

[[Page 6121]]

VI. Request for Comments

    The FDIC seeks comment on every aspect of this proposed rulemaking, 
particularly revisions made to the 2015 NPR, including the brokered 
deposit ratio and one-year asset growth measure.
    The FDIC received comments on parts of the proposal in the 2015 NPR 
that have not changed in this revised NPR. The FDIC will consider all 
comments submitted in response to the 2015 NPR, as well as comments 
submitted in response to this revised NPR, in developing a final rule. 
Thus, to reduce burden, those who submitted a comment on the 2015 NPR 
need not resubmit the comment for it to be considered by the FDIC in 
developing the final rule. However, comments on any aspect of the 
revised NPR are welcome.

VII. Regulatory Analysis and Procedure

A. Regulatory Flexibility Act

    The FDIC has carefully considered the potential impacts on all 
banking organizations, including community banking organizations, and 
has sought to minimize the potential burden of these changes where 
consistent with applicable law and the agencies' goals.
    The Regulatory Flexibility Act (RFA) requires that each federal 
agency either certify that a proposed rule would not, if adopted in 
final form, have a significant economic impact on a substantial number 
of small entities or prepare an initial regulatory flexibility analysis 
of the proposal and publish the analysis for comment.\50\ Certain types 
of rules, such as rules of particular applicability relating to rates 
or corporate or financial structures, or practices relating to such 
rates or structures, are expressly excluded from the definition of 
``rule'' for purposes of the RFA.\51\ The proposed rule relates 
directly to the rates imposed on insured depository institutions for 
deposit insurance and to the deposit insurance assessment system that 
measures risk and determines each established small bank's assessment 
rate. Nonetheless, the FDIC is voluntarily undertaking an initial 
regulatory flexibility analysis of the revised proposal and seeking 
comment on it.
---------------------------------------------------------------------------

    \50\ See 5 U.S.C. 603, 604 and 605.
    \51\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    As of September 30, 2015, of the 6,270 insured commercial banks and 
savings institutions, there were 5,015 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
those with $550 million or less in assets).\52\
---------------------------------------------------------------------------

    \52\ Throughout this RFA analysis (unlike the rest of this 
revised NPR), a ``small institution'' refers to an institution with 
assets of $550 million or less; a ``small bank,'' however, continues 
to refer to a small insured depository institution for purposes of 
deposit insurance assessments (generally, a bank with less than $10 
billion in assets).
---------------------------------------------------------------------------

    For purposes of this analysis, whether the FDIC were to collect 
needed assessments under the existing rule or under the proposed rule, 
the total amount of assessments collected would be the same. The FDIC's 
total assessment needs are driven by the FDIC's aggregate projected and 
actual insurance losses, expenses, investment income, and insured 
deposit growth, among other factors, and assessment rates are set 
pursuant to the FDIC's long-term fund management plan. This analysis 
demonstrates how the new pricing system under the proposed range of 
initial assessment rates of 3 basis points to 30 basis points (P330) 
could affect small entities relative to the current assessment rate 
schedule (C535) and relative to the rate schedule that under current 
regulations will be in effect when the reserve ratio exceeds 1.15 
percent (C330).\53\ Using data as of September 30, 2015, the FDIC 
calculated the total assessments that would be collected under both 
rate schedules and under the proposed rule.
---------------------------------------------------------------------------

    \53\ The analysis is based on total assessment rates, rather 
than initial assessment rates. A bank's total assessment rate may 
vary from its initial assessment rate as the result of possible 
adjustments. Under the current system, there are three possible 
adjustments: The unsecured debt adjustment, the DIDA, and the 
brokered deposit adjustment. Under revised proposal, the brokered 
deposit adjustment would be eliminated for established small banks, 
but the unsecured debt adjustment and the DIDA would remain.
---------------------------------------------------------------------------

    The economic impact of the revised proposal on each small 
institution for RFA purposes (i.e., institutions with assets of $550 
million or less) was then calculated as the difference in annual 
assessments under the proposed rule compared to the existing rule as a 
percentage of the institution's annual revenue and annual profits, 
assuming the same total assessments collected by the FDIC from the 
banking industry.\54\
---------------------------------------------------------------------------

    \54\ For purposes of the analysis, an institution's total 
revenue is defined as the sum of its interest income and noninterest 
income and an institution's profit is defined as income before taxes 
and extraordinary items.
---------------------------------------------------------------------------

Projected Effects on Small Entities Assuming No Change in Initial 
Assessment Rate Range (P330-C330)
    Based on the September 30, 2015 data, of the total of 5,015 small 
institutions, no institution would have experienced an increase in 
assessments equal to five percent or more of its total revenue. These 
figures do not reflect a significant economic impact on revenues for a 
substantial number of small insured institutions. Table 12 below sets 
forth the results of the analysis in more detail.

   Table 12--Percent Change in Assessments Resulting From the Revised
                                Proposal
            [Assuming no change in the assessment rate range]
------------------------------------------------------------------------
                                             Number of      Percent of
          Change in assessments            institutions    institutions
------------------------------------------------------------------------
More than 5 percent lower...............               0               0
0 to 5 percent lower....................           2,984              60
0 to 5 percent higher...................           2,031              40
More than 5 percent higher..............               0               0
                                         -------------------------------
    Total...............................           5,015             100
------------------------------------------------------------------------

    The FDIC performed a similar analysis to determine the impact on 
profits for small institutions. Based on September 30, 2015 data, of 
those small institutions with reported profits, 13 institutions would 
have an increase in assessments equal to 10 percent or more of their 
profits. Again, these figures do not reflect a significant economic 
impact on profits for a substantial number of small insured 
institutions. Table 13 sets forth the results of the analysis in more 
detail.

[[Page 6122]]



 Table 13 *--Assessment Changes Relative to Profits for Profitable Small
                 Institutions Under the Revised Proposal
        [Assuming no change in the initial assessment rate range]
------------------------------------------------------------------------
    Change in assessments relative to        Number of      Percent of
                 profits                   institutions    institutions
------------------------------------------------------------------------
Decrease in assessments equal to more                 56               1
 than 40 percent of profits.............
Decrease in assessments equal to 20 to                48               1
 40 percent of profits..................
Decrease in assessments equal to 10 to               111               2
 20 percent of profits..................
Decrease in assessments equal to 5 to 10             269               6
 percent of profits.....................
Decrease in assessments equal to 0 to 5            3,429              73
 percent of profits.....................
Increase in assessments equal to 0 to 5              741              16
 percent of profits.....................
Increase in assessments equal to 5 to 10              34               1
 percent of profits.....................
Increase in assessments equal to 10 to                 8               0
 20 percent of profits..................
Increase in assessments equal to 20 to                 2               0
 40 percent of profits..................
Increase in assessments equal to more                  3               0
 than 40 percent of profits.............
                                         -------------------------------
    Total...............................           4,701          ** 100
------------------------------------------------------------------------
* Institutions with negative or no profit were excluded. These
  institutions are shown in Table 14.
** Figures may not add to totals due to rounding.

    Table 13 excludes small institutions that either show no profit or 
show a loss, because a percentage cannot be calculated. The FDIC 
analyzed the effect of the revised proposal on these institutions by 
determining the annual assessment change (either an increase or a 
decrease) that would result. Table 14 below shows that 23 (seven 
percent) of the 314 small insured institutions with negative or no 
reported profits would have an increase of $20,000 or more in their 
annual assessments.

   Table 14--Change in Assessments for Unprofitable Small Institutions
                   Resulting From the Revised Proposal
        [Assuming no change in the initial assessment rate range]
------------------------------------------------------------------------
                                             Number of      Percent of
          Change in assessments            institutions    institutions
------------------------------------------------------------------------
$20,000 or more decrease................             136              43
$10,000-$20,000 decrease................              56              18
$5,000-$10,000 decrease.................              32              10
$1,000-$5,000 decrease..................              30              10
$0-$1,000 decrease......................              14               4
$0-$1,000 increase......................               6               2
$1,000-$5,000 increase..................               7               2
$5,000-$10,000 increase.................               4               1
$10,000-$20,000 increase................               6               2
$20,000 increase or more................              23               7
                                         -------------------------------
    Total...............................             314           * 100
------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

Projected Effects on Small Entities Assuming Change in the Initial 
Assessment Rate Range From 5-35 Bps to 3-30 Bps (P330-C535)
    Based on the September 30, 2015 data, of the total of 5,015 small 
institutions, no institution would have experienced an increase in 
assessments equal to five percent or more of its total revenue. These 
figures do not reflect a significant economic impact on revenues for a 
substantial number of small insured institutions. Table 15 below sets 
forth the results of the analysis in more detail.

   Table 15--Percent Change in Assessments Resulting From the Revised
                                Proposal
[Assuming change in the initial assessment rate range from 5-35 bps to 3-
                                 30 bps]
------------------------------------------------------------------------
                                             Number of      Percent of
          Change in assessments            institutions    institutions
------------------------------------------------------------------------
More than 5 percent lower...............               1               0
0 to 5 percent lower....................           4,758              95
0 to 5 percent higher...................             256               5
More than 5 percent higher..............               0               0
                                         -------------------------------
    Total...............................           5,015             100
------------------------------------------------------------------------


[[Page 6123]]

    The FDIC performed a similar analysis to determine the impact on 
profits for small institutions. Based on September 30, 2015 data, of 
those small institutions with reported profits, 3 institutions would 
have an increase in assessments equal to 10 percent or more of their 
profits. Again, these figures do not reflect a significant economic 
impact on profits for a substantial number of small insured 
institutions. Table 16 sets forth the results of the analysis in more 
detail.

 Table 16 *--Assessment Changes Relative to Profits for Profitable Small
                 Institutions Under the Revised Proposal
[Assuming change in the initial assessment rate range from 5-35 bps to 3-
                                 30 bps]
------------------------------------------------------------------------
    Change in assessments relative to        Number of      Percent of
                 profits                   institutions    institutions
------------------------------------------------------------------------
Decrease in assessments equal to more                 91               2
 than 40 percent of profits.............
Decrease in assessments equal to 20 to                98               2
 40 percent of profits..................
Decrease in assessments equal to 10 to               268               6
 20 percent of profits..................
Decrease in assessments equal to 5 to 10             492              10
 percent of profits.....................
Decrease in assessments equal to 0 to 5            3,510              75
 percent of profits.....................
Increase in assessments equal to 0 to 5              235               5
 percent of profits.....................
Increase in assessments equal to 5 to 10               4               0
 percent of profits.....................
Increase in assessments equal to 10 to                 1               0
 20 percent of profits..................
Increase in assessments equal to 20 to                 1               0
 40 percent of profits..................
Increase in assessments equal to more                  1               0
 than 40 percent of profits.............
                                         -------------------------------
    Total...............................           4,701             100
------------------------------------------------------------------------
* Institutions with negative or no profit were excluded. These
  institutions are shown in Table 17.
** Figures may not add to totals due to rounding.

    Table 16 excludes small institutions that either show no profit or 
show a loss, because a percentage cannot be calculated. The FDIC 
analyzed the effect of the revised proposal on these institutions by 
determining the annual assessment change (either an increase or a 
decrease) that would result. Table 17 below shows that just 6 (2 
percent) of the 314 small insured institutions with negative or no 
reported profits would have an increase of $20,000 or more in their 
annual assessments. Again, these figures do not reflect a significant 
economic impact on profits for a substantial number of small insured 
institutions.

   Table 17--Change in Assessments for Unprofitable Small Institutions
                   Resulting From the Revised Proposal
[Assuming assessment change in the initial assessment rate range from 5-
                           35 bps to 3-30 bps]
------------------------------------------------------------------------
                                             Number of      Percent of
          Change in assessments            institutions    institutions
------------------------------------------------------------------------
$20,000 or more decrease................             208              66
$10,000-$20,000 decrease................              52              17
$5,000-$10,000 decrease.................              28               9
$1,000-$5,000 decrease..................              11               4
$0-$1,000 decrease......................               4               1
$0-$1,000 increase......................               1               0
$1,000-$5,000 increase..................               0               0
$5,000-$10,000 increase.................               2               1
$10,000-$20,000 increase................               2               1
$20,000 increase or more................               6               2
                                         -------------------------------
    Total...............................             314           * 100
------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

    The proposed rule does not directly impose any ``reporting'' or 
``recordkeeping'' requirements within the meaning of the Paperwork 
Reduction Act. The compliance requirements for the proposed rule would 
not exceed (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 unaware of any duplicative, 
overlapping or conflicting federal rules.
    The initial RFA analysis set forth above 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.\55\
---------------------------------------------------------------------------

    \55\ 5 U.S.C. 605.
---------------------------------------------------------------------------

    Commenters are invited to provide the FDIC with any information 
they may have about the likely quantitative effects of the revised 
proposal on small insured depository institutions (those with $550 
million or less in assets).

B. Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
(RCDRIA) 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

[[Page 6124]]

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.\56\
---------------------------------------------------------------------------

    \56\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    This revised NPR proposes no additional reporting or disclosure 
requirements on insured depository institutions, including small 
depository institutions, nor on the customers of depository 
institutions.

C. Paperwork Reduction Act

    The proposed rule does not create any new, or revise any existing 
collections of information pursuant to the Paperwork Reductions Act (44 
U.S.C. 3501 et seq.). Therefore, the FDIC will not be submitting any 
information collection request to the Office of Management and Budget.

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 rules published after 
January 1, 2000. The FDIC invites your comments on how to make this 
revised 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?

Appendix 1

Description of Statistical Model Underlying Proposed Method for 
Determining Deposit Insurance Assessments for Established Small Insured 
Depository Institutions

    Appendix 1 to the SUPPLEMENTARY INFORMATION section of the 2015 
NPR provided a technical description of the statistical model \57\ 
underlying the proposed method for determining deposit insurance 
assessments for established small banks. It provided background 
information, reviewed the data and methodology used to estimate the 
statistical model underlying the proposed method (including a 
discussion of variable selection, variables used in the model, 
variables considered but not used in the model, and variables 
excluded from the model), the estimation model (including a 
description of the model used to estimate failure probabilities, the 
time horizon chosen, and in-sample estimation), validation 
(including a backtest comparison of the proposal to the current 
small bank assessment system), and references. Appendix 1.1 to the 
SUPPLEMENTARY INFORMATION section of the 2015 NPR discussed the loan 
mix index and Appendix 1.2 SUPPLEMENTARY INFORMATION section of the 
2015 NPR listed the variables tested. Appendices 1, 1.1 and 1.2 to 
the SUPPLEMENTARY INFORMATION section of the 2015 NPR are 
incorporated by reference.\58\
---------------------------------------------------------------------------

    \57\ The preamble to the revised NPR refers to the new model as 
the ``statistical model.''
    \58\ 80 FR 40838, 40857-40873.
---------------------------------------------------------------------------

    This Appendix 1 to the SUPPLEMENTARY INFORMATION section of the 
revised proposal updates relevant portions of Appendix 1 to the 
SUPPLEMENTARY INFORMATION section of the 2015 NPR to account for the 
revisions to the definition of the asset growth variable and the 
introduction of the brokered deposit ratio variable.

I. Variables

    Table 1.1 lists and describes the variables that are included in 
the statistical model (the ``new model'') used in the revised 
proposal.

                Table 1.1--New Model Variable Description
------------------------------------------------------------------------
             Variables                           Description
------------------------------------------------------------------------
Tier 1 Leverage Ratio (%).........  Tier 1 capital divided by adjusted
                                     average assets. (Numerator and
                                     denominator are both based on the
                                     definition for prompt corrective
                                     action.)
Net Income before Taxes/Total       Income (before income taxes and
 Assets (%).                         extraordinary items and other
                                     adjustments) for the most recent
                                     twelve months divided by total
                                     assets.\1\
Nonperforming Loans and Leases/     Sum of total loans and lease
 Gross Assets (%).                   financing receivables past due 90
                                     or more days and still accruing
                                     interest and total nonaccrual loans
                                     and lease financing receivables
                                     (excluding, in both cases, the
                                     maximum amount recoverable from the
                                     U.S. Government, its agencies or
                                     government-sponsored enterprises,
                                     under guarantee or insurance
                                     provisions) divided by gross
                                     assets.\2\ \3\
Other Real Estate Owned/Gross       Other real estate owned divided by
 Assets (%).                         gross assets.\3\
Brokered Deposit Ratio............  The ratio of the difference between
                                     brokered deposits and 10 percent of
                                     total assets to total assets. For
                                     institutions that are well
                                     capitalized and have a CAMELS
                                     composite rating of 1 or 2,
                                     reciprocal deposits are deducted
                                     from brokered deposits.\4\ If the
                                     ratio is less than zero, the value
                                     is set to zero.
Weighted Average of C, A, M, E, L,  The weighted sum of the ``C,''
 and S Component Ratings.            ``A,'' ``M,'' ``E'', ``L'', and
                                     ``S'' CAMELS components, with
                                     weights of 25 percent each for the
                                     ``C'' and ``M'' components, 20
                                     percent for the ``A'' component,
                                     and 10 percent each for the ``E'',
                                     ``L'', and ``S'' components. In
                                     instances where the ``S'' component
                                     is missing, the remaining
                                     components are scaled by a factor
                                     of 10/9.\5\
Loan Mix Index....................  A measure of credit risk described
                                     below.

[[Page 6125]]

 
Asset Growth (%)..................  Percentage growth in assets (merger
                                     adjusted \6\) over the previous
                                     year in excess of 10 percent.\7\ If
                                     growth is less than 10 percent, the
                                     value is set to zero.
------------------------------------------------------------------------
\1\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the ratio of Net Income before Taxes to Total
  Assets is defined as income (before applicable income taxes and
  discontinued operations) for the most recent twelve months divided by
  total assets and is bounded below by (and cannot be less than) -25
  percent and is bounded above by (and cannot exceed) 3 percent. In
  January 2015, the Financial Accounting Standards Board (FASB)
  eliminated from U.S. generally accepted accounting principles (GAAP)
  the concept of extraordinary items, effective for fiscal years and
  interim periods within those fiscal years, beginning after December
  15, 2015. In September 2015, the Federal banking agencies published a
  joint PRA notice and request for comment on proposed changes to the
  Call Report, including the elimination of the concept of extraordinary
  items and revision of affected data items. That PRA process is still
  in progress and the FDIC expects that, at some future time, references
  to extraordinary items will be removed from the Call Report.
  Therefore, the FDIC is proposing to define the net income measure for
  purposes of calculating assessment rates to reflect the anticipated
  Call Report changes.
\2\ ``Gross assets'' are total assets plus the allowance for loan and
  lease financing receivable losses (ALLL); for purposes of estimating
  the statistical model, for years before 2001, when allocated transfer
  risk was not included in ALLL in Call Reports, allocated transfer risk
  was included in gross assets separately.
\3\ Delinquency and non-accrual data on government guaranteed loans are
  not available for the entire estimation period. As a result, the model
  is estimated without deducting delinquent or past-due government
  guaranteed loans from the nonperforming loans and leases to gross
  assets ratio.
\4\ For estimation purposes, the numerator does not subtract reciprocal
  brokered deposits because of a lack of data for most of the estimation
  period.
\5\ The component rating for sensitivity to market risk (the ``S''
  rating) is not available for years before 1997. As a result, and as
  described in the table, the model is estimated using a weighted
  average of five component ratings excluding the ``S'' component where
  the component is not available.
\6\ Growth in assets is also adjusted for acquisitions of failed banks.
\7\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the maximum value of the Asset Growth measure is
  230 percent; that is, asset growth (merger adjusted) over the previous
  year in excess of 240 percent (230 percentage points in excess of the
  10 percent threshold) will not further increase a bank's assessment
  rate.

    The Tier 1 Leverage Ratio, Net Income before Taxes/Total Assets, 
Nonperforming Loans and Leases/Gross Assets, Weighted Average of C, 
A, M, E, L, and S Component Ratings, and Loan Mix Index (``LMI'') 
are described and discussed in Appendix 1 to the Supplementary 
Information section of the 2015 NPR.\59\
---------------------------------------------------------------------------

    \59\ 80 FR 40838 at 40858-40860.
---------------------------------------------------------------------------

1. Asset Growth

    Among the variables included in the specifications was a one-
year asset growth rate. The FDIC also considered a two-year growth 
rate and lagged one- and two-year growth rates. The one-year growth 
rates generally had the most explanatory power and additional growth 
rates did not tend to improve the model's fit. To avoid penalizing 
normal asset growth, the variable uses only growth in excess of 10 
percent. If asset growth is less than 10 percent, the variable is 
set to zero. This variable has generally the same explanatory power 
as a variable measuring any positive growth.
    Mergers of troubled banks into healthier banks and purchases of 
failed banks help limit losses to the DIF. Penalizing banks for 
growth that occurs through the acquisition of troubled or failed 
banks would create a disincentive for such mergers. Consequently, 
bank asset growth was adjusted to remove growth resulting from 
mergers and failed bank acquisitions.

2. Brokered Deposit Ratio

    Early test versions of the new model used core deposits as a 
variable predictive of failure. This variable was statistically 
significant in-sample across all specifications with a positive 
correlation with failure. Subsequent versions used brokered deposits 
as the alternative variable. It provides similar predictive power, 
and is the variable used for estimating the new model in this 
revised proposal. Only the portion of brokered deposits above 10 
percent of assets is included in the brokered deposit ratio; if the 
ratio of brokered deposits to assets is less than 10 percent, then 
the variable is set to zero. For purposes of determining 
assessments, as opposed to estimation of the new model, reciprocal 
deposits are excluded from the numerator for banks that are well 
capitalized and have a CAMELS composite rating of 1 or 2.

II. In-Sample Estimation

    The in-sample estimation time period was chosen to be 1985 
through 2011, incorporating Call Report data through the end of 2011 
and failures through the end of 2014.
    To avoid having overlapping three-year look-ahead periods for a 
given regression, each regression uses data in which only every 
third year is included. One regression uses insured depository 
institutions' Call Report and TFR data for the end of 1985 and 
failures from 1986 through 1988; Call Report and TFR data for the 
end of 1988 and failures from 1989 through 1991; and so on, ending 
with Call Report data for the end of 2009 and failures from 2010 
through 2012. (See Table 1.2A below.) The second regression uses 
insured depository institutions' Call Report and TFR data for the 
end of 1986 and failures from 1987 through 1989, and so on, ending 
with Call Report data for the end of 2010 and failures from 2011 
through 2013. (See Table 1.2B below.) The third regression uses 
insured depository institutions' Call Report and TFR data for the 
end of 1987 and failures from 1988 through 1990, and so on, ending 
with Call Report data for the end of 2011 and failures from 2012 
through 2014. (See Table 1.2C below.) Since there is no particular 
reason for favoring any one of these three regressions over another, 
the actual model estimates are constructed as an average of each of 
the three regression estimates for each parameter.
    The regressions only include observations for institutions that 
are at least five years of age, since younger institutions will be 
subject to a different assessment methodology. Also, since the model 
will be applied to banks with under $10 billion in assets, larger 
banks are not included in the regressions.
    The data used for estimation is winsorized (that is, extreme 
values in the data are reset to reduce the effect of outliers) at 
the 1st percentile and 99th percentile levels for each year. For 
example, if a variable for a bank has a value greater than the 99th 
percentile value for that year, then the value for that bank is set 
to the 99th percentile value before estimation is made.
    The test statistics applied follow the analysis of Shumway 
(2001). In Shumway's formulation, the standard test statistics from 
a logistic regression used to assess statistical significance are 
divided by the average number of bank-years per bank; this 
adjustment corrects for the lack of independence between bank-year 
observations. That is, an adjustment is made to account for a bank 
no longer being observed after failure. In Tables 1.2A, 1.2B, and 
1.2C below, ``WaldChiSq2'' shows the adjusted [chi]-square 
statistic, and ``ProbChiSq2'' the associated probability value. (The 
lower the value of ProbChisSq2, the more statistically significant 
is the parameter estimate. Parameter estimates with a ProbChiSq2 
below .05 are considered to be statistically significant at the .05 
level.)
    As reported in Tables 1.2A, 1.2B, and 1.2C, banks with a higher 
leverage ratio are less likely to fail within the next three years. 
Similarly, banks' earnings before taxes and their core deposits to 
assets ratios are negatively correlated with failure probability. In 
contrast, nonperforming loans and the other real estate owned to 
assets ratios are positively correlated with failure probability.

[[Page 6126]]

Moreover, banks with a higher LMI, faster asset growth, and worse 
weighted CAMELS component ratings are more likely to fail within the 
next three years.
    The estimated coefficients of the variables are statistically 
significant at the 5% level for all three regression sets except for 
the asset growth rate variable. The asset growth rate is 
statistically significant for two out of the three regressions.

             Table 1.2A--Regression With December 2009 as Last Data Point for Independent Variables
----------------------------------------------------------------------------------------------------------------
                      Variable description                           Estimate       WaldChiSq2      ProbChiSq2
----------------------------------------------------------------------------------------------------------------
Intercept.......................................................         -5.1717        122.9993        0.000000
Tier 1 Leverage Ratio (%).......................................         -0.3195         72.1987        0.000000
Net Income before Taxes/Assets (%)..............................         -0.1347         10.5889        0.001138
Loan Mix Index..................................................          0.0184         68.0000        0.000000
Brokered Deposit Ratio (%)......................................          0.0470          4.8123        0.028257
Nonperforming Assets/Gross Assets (%)...........................          0.2604         54.7635        0.000000
Other Real Estate Owned/Gross Assets (%)........................          0.1357          9.1723        0.002457
Asset Growth (%)................................................          0.0217         13.0579        0.000302
Weighted Average of C, A, M, E, L and S Component Ratings.......          0.4604         18.5915        0.000016
----------------------------------------------------------------------------------------------------------------


             Table 1.2B--Regression With December 2010 as Last Data Point for Independent Variables
----------------------------------------------------------------------------------------------------------------
                      Variable description                           Estimate       WaldChiSq2      ProbChiSq2
----------------------------------------------------------------------------------------------------------------
Intercept.......................................................         -4.9279        113.2177        0.000000
Tier 1 Leverage Ratio (%).......................................         -0.3381         73.0771        0.000000
Net Income before Taxes/Assets (%)..............................         -0.1635         13.8092        0.000202
Loan Mix Index..................................................          0.0240        144.1270        0.000000
Brokered Deposit Ratio (%)......................................          0.0840         17.9979        0.000022
Nonperforming Assets/Gross Assets (%)...........................          0.2268         36.6508        0.000000
Other Real Estate Owned/Gross Assets (%)........................          0.1495         12.5637        0.000393
Asset Growth (%)................................................          0.0081          1.2169        0.269976
Weighted Average of C, A, M, E, L and S Component Ratings.......          0.2786          6.6049        0.010170
----------------------------------------------------------------------------------------------------------------


             Table 1.2C--Regression With December 2011 as Last Data Point for Independent Variables
----------------------------------------------------------------------------------------------------------------
                      Variable description                           Estimate       WaldChiSq2      ProbChiSq2
----------------------------------------------------------------------------------------------------------------
Intercept.......................................................         -5.4491        127.5634        0.000000
Tier 1 Leverage Ratio (%).......................................         -0.3073         63.3053        0.000000
Net Income before Taxes/Assets (%)..............................         -0.2518         35.5448        0.000000
Loan Mix Index..................................................          0.0195         68.4211        0.000000
Brokered Deposit Ratio (%)......................................          0.0707         20.3491        0.000006
Nonperforming Assets/Gross Assets (%)...........................          0.2318         38.1453        0.000000
Other Real Estate Owned/Gross Assets (%)........................          0.1215          7.3735        0.006619
Asset Growth (%)................................................          0.0170          6.9063        0.008589
Weighted Average of C, A, M, E, L and S Component Ratings.......          0.4207         14.4167        0.000146
----------------------------------------------------------------------------------------------------------------

    The parameter estimates applied for the assessments are the 
average of the estimates from the three regressions above. These 
average values are show in Table 1.2D.

  Table 1.2D--Average of the Parameter Estimates Over Three Regressions
------------------------------------------------------------------------
                    Variable description                       Estimate
------------------------------------------------------------------------
Intercept...................................................     -5.1829
Tier 1 Leverage Ratio (%)...................................     -0.3216
Net Income before Taxes/Assets (%)..........................     -0.1833
Loan Mix Index..............................................      0.0206
Brokered Deposit Ratio (%)..................................      0.0672
Nonperforming Assets/Gross Assets (%).......................      0.2397
Other Real Estate Owned/Gross Assets (%)....................      0.1356
Asset Growth (%)............................................      0.0156
Weighted Average of C, A, M, E, L and S Component Ratings...      0.3866
------------------------------------------------------------------------

    When the new model is used to determine assessment rates, the 
variables Asset Growth and Net Income before Taxes/Total Assets are 
each bounded as follows:

Asset Growth <= 230

-25 <= Net Income before Taxes/Total Assets <= 3.

    For example, if Asset Growth in excess of the 10 percent 
threshold is greater than 230 (percent), then it is reset to 230 to 
determine assessment rates. After the parameters shown in Table 1.2D 
were obtained, the values of these bounds were determined by 
performing an iterative series of backtests covering data from 1985 
to 2011, with each iteration testing a different combination of 
bounds; the combination of bounds that resulted in the best rank 
correlation (Kendall's tau) between probability of failure and 
actual failure is the combination of bounds selected.

III. Validation

A. Backtest Comparison of the Established Small Bank Assessment 
System in the Revised Proposal to the Current Small Bank Deposit 
Insurance Assessment System

    Using initial base assessment rates,\60\ the FDIC also compared 
the out-of-sample forecast accuracy of the established small bank 
assessment system in the revised proposal, which is based on the new 
model, to the current small bank deposit insurance system's 
assessment rankings.\61\ Comparisons

[[Page 6127]]

were made for projections as of the end of six different years, 2006 
through 2011, and are shown graphically using cumulative accuracy 
profile (CAP) curves. A CAP curve is illustrated in Figure 1.1. 
Suppose that banks are ranked on a percentile basis according to a 
model's predicted probability of failure, with the ranking in 
descending order. Thus the banks with the highest predicted 
probability of failure would have a percentile rank near zero, while 
the banks with the lowest predicted probability of failure would 
have a percentile rank near 100. In Figure 1.1, the horizontal axis 
represents this bank percentile rank. The vertical axis represents 
the cumulative percentage of actual failures. For example, the point 
marked by ``X'' indicates that the 30 percent of banks with the 
highest projected probability of failure included 50 percent of the 
banks that actually failed. In general, when comparing a CAP curve 
for alternative models, a model with a higher CAP curve (one with 
more area underneath it) would be the superior model.
---------------------------------------------------------------------------

    \60\ The current small bank deposit insurance assessment system 
did not exist at the end of 2006 and existed in somewhat different 
forms in years before 2011. The comparison assumes that the small 
bank deposit insurance assessment system in its current form and 
established small bank assessment system in the revised proposal 
(assuming a revenue neutral conversion to assessment rates as of the 
third quarter of 2015) had been in effect in each year of the 
comparison.
    \61\ For the out-of-sample backtests, the parameters applied are 
the average of the parameters from three separate regressions, as in 
the new model, except with more recent three-year periods omitted. 
Using Table 1.3 as an example, one regression uses data from the end 
of 1985 and failures from 1986 through 1988; data for the end of 
1988 and failures from 1989 through 1991; and so on, ending with 
data for the end of 2003 and failures from 2004 through 2006. The 
second regression uses data from the end of 1987 and failures from 
1988 through 1990, and so on, ending with data for the end of 2002 
and failures from 2003 through 2005. The third regression uses data 
from the end of 1986 and failures from 1987 through 1989, and so on, 
ending with data for the end of 2001 and failures from 2002 through 
2004.
[GRAPHIC] [TIFF OMITTED] TP04FE16.002

    Figure 1.2 shows the CAP curve for a model (dotted line) 
compared with two limiting CAP curves. The ``random'' curve (single 
straight line) shows what the CAP would look like if the model 
prediction were purely random; for example, the 30 percent of banks 
with the highest failure projections would include 30 percent of 
actual failures. At the other extreme, the two solid straight lines 
show a CAP curve for a model that perfectly differentiates banks 
that fail from banks that do not in its projections; thus, for 
example, assuming that 20 percent of all banks actually failed, for 
the ``perfect'' model, the 20 percent of banks with the highest 
projected failure probability would identify 100 percent of 
failures.\62\
---------------------------------------------------------------------------

    \62\ The accuracy ratio can be derived from the CAP curve. For 
the model depicted by the curved line in Figure 1.2, the area 
between the curved line and the dotted straight line is a measure of 
the superiority of the model over the random benchmark. The area 
between the solid line and the dotted straight line is a measure of 
the superiority of a ``perfect'' model over the random benchmark. 
The ratio of these two areas is the accuracy ratio for the model 
depicted by the curved line. The value is normalized so that it is 
always less than or equal to 1. An accuracy ratio of 1 occurs in the 
case of a perfect model, and is 0 in the case of a model that does 
no better than random guessing. (For the illustrative example in 
Figure 1.2, the accuracy ratio of the model depicted by the curved 
line is .396.)

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

[[Page 6128]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.003

    To illustrate the application of CAP curves to the assessment 
system, Figure 1.3 shows a CAP curve for the current small bank 
deposit insurance system based on its risk ranking (as reflected in 
assessment rates) as of 2006 and on failures over the next three 
years (2007 through 2009). The horizontal axis coordinates for four 
points on this curve, ``IV'', ``III'', ``II'', and ``I Max'', 
corresponding to the percentage of small banks reported in Column 
(A) in Table 1.3 below, and the vertical axis coordinates for the 
points correspond to the percentage of failures contained within 
these percentages of small banks, as shown in column (B) in Table 
1.3. For example, the point in Figure 1.3 marked ``IV'' is 0.06 
(percentage of small banks in Risk Category IV) on the horizontal 
axis and 0.65 (percentage of actual failures among small banks in 
Risk Category IV) on the vertical axis. Similarly, all points to the 
left of the point marked ``III'' in Figure 1.3 are Risk Category III 
and IV rated small banks.
    The banks along the horizontal axis corresponding to the 
horizontal axis coordinates between the points ``II'' and ``I Max'' 
represent Risk Category I small banks that are assessed at the 
maximum assessment rate for that category. The banks corresponding 
to the horizontal axis coordinates between the points ``I Max'' and 
``I Var'' represent Risk Category I small banks that are 
differentially assessed between the maximum and minimum assessment 
rates for Risk Category I. (Point ``I Var'' is not included in Table 
1.3.) Banks to the right of the horizontal axis coordinate for the 
point ``I Var'' represent Risk Category I small banks that were 
assessed at the minimum assessment rate.

 Table 1.3--Comparisons of Out-of-Sample Projection of New Model to the Small Bank Deposit Insurance Assessment
                                          System's Rankings for 2006 *
----------------------------------------------------------------------------------------------------------------
                                                                        (A)             (B)             (C)
                                                                 -----------------------------------------------
                                                                                                   Percentage of
                                                                                                      actual
                                                                   Percentage of   Percentage of  failures among
                                                                  small banks in      actual        riskiest X
                                                                       risk       failures among    percent of
                                                                   categories (X   the X percent    banks under
                                                                     percent)                       the revised
                                                                                                     proposal
----------------------------------------------------------------------------------------------------------------
Risk Category IV................................................            0.06            0.65            0.65
Risk Categories IV and III......................................            0.66            3.23            4.86
Risk Categories IV, III, and II.................................            5.35           14.19           36.77
Risk Categories IV, III, II, and Max. Rate RC I.................           12.79           34.19           60.00
----------------------------------------------------------------------------------------------------------------
* New Model Projections use 2003 as Last Year of Estimation Data.


[[Page 6129]]

    Where a group of banks along the horizontal axis all have the 
same risk ranking (that is, where they would all pay the same 
assessment rate), the CAP curve is constructed as if the failures 
that occur within this group are uniformly distributed, resulting in 
a straight line (shown as two parallel lines in CAP curve). Thus, 
for example, the 26 failures that occurred among the banks on the 
horizontal axis to the right of ``I Var'', which represent the 3,011 
Risk Category I small banks that were assessed at the minimum 
assessment rate as of the end of 2006, are shown as uniformly 
distributed among this group (that is, as if each successive bank 
represented 26/3,011 of a failure). This representation results in 
the straight line between point ``I Var'' and the point to the 
extreme upper right of the curve.
[GRAPHIC] [TIFF OMITTED] TP04FE16.004

    Figure 1.4 shows the same CAP curve as Figure 1.3, but adds a 
CAP curve based on the revised proposal's risk ranking (as reflected 
in assessment rates) as of 2006 and on failures over the next three 
years (2007 through 2009).\63\ Just as Table 1.3 implies, the 
revised proposal is superior to the current system at almost all 
points. For example, the revised proposal is obviously superior 
between the points marked by ``III'', ``II'', ``I Max'' and ``I 
Var'' and between ``I Var'' and the upper right of the curve. As 
discussed earlier, for the current small bank deposit insurance 
assessment system, banks along the horizontal axis corresponding to 
the horizontal axis coordinates between the points ``I Max'' and ``I 
Var'' represent Risk Category I small banks that are assessed 
between the maximum and minimum assessment rates for Risk Category 
I. The revised proposal is superior in this entire range for 2006.
---------------------------------------------------------------------------

    \63\ The horizontal axis shows the risk rank order percentile 
for each model (the current small bank deposit insurance assessment 
system and established small bank assessment system in the revised 
proposal), but, because the rankings are different under the two 
models, as a general rule, the bank that corresponds to any given 
point along the horizontal axis is likely to be different from one 
model to the other.

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

[[Page 6130]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.005

    Figure 1.5 shows the same CAP curve based on the revised 
proposal's projections as of 2007 and on failures over the next 
three years (2008 through 2010). The revised proposal is superior at 
all points except ``IV'' and the points to the left of that point, 
where the two models yield identical results.

[[Page 6131]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.006

    Figure 1.6 shows the same CAP curve based on the revised 
proposal's projections as of 2008 and on failures over the next 
three years (2009 through 2011). The revised proposal is superior at 
most points, except for a few points on the extreme left and extreme 
right, where the two models are nearly identical.

[[Page 6132]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.007

    Figure 1.7 shows CAP curves for 2009. (Note that the vertical 
axis is not zero based.) The revised proposal is superior at most 
points and approximately equal to the current model at some points 
(near IV, and at points to the right of the ``X'').

[[Page 6133]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.008

    Figure 1.8 shows CAP curves for 2010. When using 2010 data to 
rank-order small banks based on failure likelihood, the revised 
proposal performs worse than the current small bank deposit 
insurance system for the 2.76 percent of worst-rated small banks 
(the percentage of banks in Risk Category IV). Bank failures after 
2010 occurred in the earlier part of the three-year horizon (more 
failures in 2011 than in 2013). In such instances, the current small 
bank deposit insurance system, which has a one-year forecast 
horizon, can perform better than the revised proposal with a longer 
forecast horizon. However, the revised proposal performs better than 
or as well as the current model for all points to the right of the 
intersection of the two curves (near the point marked ``IV'').

[[Page 6134]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.009

    Projections from 2011 are shown in Figure 1.9. The current small 
bank deposit insurance system is slightly superior at point IV. At 
most other points, the revised proposal is superior or equal to the 
current model.

[[Page 6135]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.010

    Overall, the accuracy of the established small bank assessment 
system in the revised proposal is superior to the current small bank 
deposit insurance system. The superiority of the new model is much 
stronger for projections from the years 2006, 2007, and 2008 than in 
the years 2010 and 2011. By 2010, CAMELS ratings largely reflected 
the weakened condition of many banks. Furthermore, for projections 
from 2010 and 2011, a large portion of the failures of the 
subsequent three-year horizon were near term--that is, in the 
earlier part of the three-year horizon. For projections done from 
2006, 2007 and 2008, a larger portion of the actual failures were 
further out in the three-year horizon. Thus, while CAMELS 4 and 5 
ratings can be good predictors of near-term failures, the additional 
indicators from the new model contribute more to forecasting 
accuracy when the failures are further out in time.

Appendix 2

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

I. Introduction

    This analysis estimates the effect of the changes in the deposit 
insurance assessment system and assessment rates in the proposed 
rule on the equity capital and profitability of banks.\64\ The 
changes considered in the proposed rule affect only established 
small banks; they do not affect new banks, large banks or insured 
branches of foreign banks.
---------------------------------------------------------------------------

    \64\ As it is elsewhere in this revised NPR, in this appendix, 
the term ``bank'' is synonymous with the term ``insured depository 
institution'' and the term ``established small bank'' is synonymous 
with the term ``established small depository institution'' as it is 
used in 12 CFR part 327. In general, an ``established small bank'' 
is one that has less than $10 billion in assets and that has been 
federally insured for at least five years as of the last day of any 
quarter for which it is being assessed.
---------------------------------------------------------------------------

    This appendix analyzes how banks' total assessments under the 
new assessment system using the proposed range of initial base 
assessment rates of 3 basis points to 30 basis points (P330) could 
increase or decrease earnings and capital relative to the current 
initial base assessment rate schedule of 5 basis points to 35 basis 
points (C535) and relative to the initial base assessment rate 
schedule of 3 basis points to 30 basis points (C330) that will take 
effect when the reserve ratio exceeds 1.15 percent under current 
regulations.\65\ The proposed rule (P330) is intended to maintain 
approximate revenue neutrality compared to C330. Therefore, for 
insured established small banks in aggregate, the proposed rule will 
not affect aggregate earnings and capital compared to C330. Compared 
to the current system under current assessment rates, however, banks 
in the aggregate will have higher earnings and capital under the 
revised proposal. This analysis focuses on the magnitude of 
increases or decreases to individual established small banks' 
earnings and capital resulting from the proposed rule.
---------------------------------------------------------------------------

    \65\ A bank's total assessment rate may vary from its initial 
assessment rate as the result of possible adjustments. Under the 
current system, there are three possible adjustments: The unsecured 
debt adjustment, the DIDA, and the brokered deposit adjustment. 
Under the revised proposal, the brokered deposit adjustment would be 
eliminated for established small banks, but the unsecured debt 
adjustment and the DIDA would remain.
---------------------------------------------------------------------------

II. Assumptions and Data

    The analysis assumes that annual pre-tax income for each 
established small bank is equal to trailing twelve month income as 
of the third quarter of 2015. The analysis also assumes that the 
effects of changes in assessments are not transferred to customers 
in the form of changes in borrowing rates, deposit rates, or service 
fees. Since deposit insurance assessments are a tax-deductible 
operating expense, increases in the assessment expense can lower 
taxable

[[Page 6136]]

income and decreases in the assessment expense can increase taxable 
income. Therefore, the analysis considers the effective after-tax 
cost of assessments in calculating the effect on capital.
    The effect of the change in assessments on an established small 
bank's income is measured by the change in deposit insurance 
assessments as a percent of income before assessments, taxes, and 
extraordinary items and other adjustments (hereafter referred to as 
``income'').\66\ This income measure is used in order to eliminate 
the potentially transitory effects of extraordinary items and taxes 
on profitability. To facilitate a comparison of the effect of 
assessment changes, established small banks were assigned to one of 
two groups: Those that were profitable and those that were 
unprofitable for the twelve months ending September 30, 2015. For 
this analysis, data as of September 30, 2015 are used to calculate 
each bank's assessment base and risk-based assessment rate. The base 
and rate are assumed to remain constant throughout the one-year 
projection period. An established small bank's earnings retention 
and dividend policies also influence the extent to which assessments 
affect equity levels. If an established small bank maintains the 
same dollar amount of dividends when it pays a higher deposit 
insurance assessment under the proposed rule, equity (retained 
earnings) will be less by the full amount of the after-tax cost of 
the increase in the assessment. This analysis instead assumes that 
an established small bank will maintain its dividend rate (that is, 
dividends as a fraction of net income) unchanged from the weighted 
average rate reported over the four quarters ending September 30, 
2015.
---------------------------------------------------------------------------

    \66\ At present, the Call Report combines extraordinary items 
with two other adjustments: (1) The results of discontinued 
operations; and (2) the cumulative effect of changes in accounting 
principles not reported elsewhere in the Call Report. As discussed 
in a previous footnote, however, in January 2015, the concept of 
extraordinary items was eliminated from GAAP for fiscal years and 
interim periods within those fiscal years beginning after December 
15, 2015, and extraordinary items will no longer be reported as such 
in the Call Report. In addition, the cumulative effect of changes in 
accounting principles will no longer be reported as an adjustment. 
The results of discontinued operations, however, will continue to be 
reported as an adjustment. Because the three adjustments cannot be 
disaggregate in Call Report data, income in the analysis is measured 
before all three adjustments, even though only one adjustment will 
apply in the future. In any event, extraordinary items and the 
cumulative effect of changes in accounting principles are rarely 
reported and should have little effect on the analysis.
---------------------------------------------------------------------------

III. Projected Effects on Capital and Earnings Assuming a Change in the 
Initial Assessment Rate Range From 5 Basis Points to 35 Basis Points to 
3 Basis Points to 30 Basis Points (Assessment Change P330-C535)

    Under this scenario, the FDIC projects that no established small 
bank facing an increase in assessments would, as a result of the 
assessment increase, fall below a 4 percent or 2 percent leverage 
ratio. Furthermore, no established small bank facing a decrease in 
assessments would, as a result of the decrease, have its leverage 
ratio rise above a 4 percent or 2 percent leverage ratio.
    The FDIC projects that approximately 85 percent of established 
small banks that were profitable during the 12 months ending 
September 30, 2015, would have a decrease in assessments in an 
amount between 0 and 10 percent of income. Table 2.1 shows that 
another 8 percent of profitable established small banks would have a 
reduction in assessments exceeding 10 percent of their income. A 
total of 413 profitable established small banks would have an 
increase in assessments, with all but 6 of them facing assessment 
increases between 0 and 10 percent of their income.

           Table 2.1--Effect of the Revised Proposal on Income for Profitable Established Small Banks
                                             [P330 compared to C535]
----------------------------------------------------------------------------------------------------------------
                                                           Institutions                       Assets
                                                 ---------------------------------------------------------------
                                                                    Percent of                      Percent of
    Change in assessments relative to income                           total                       total assets
                                                      Number        profitable        Assets       of profitable
                                                                    established     ($billions)     established
                                                                    small banks                     small banks
----------------------------------------------------------------------------------------------------------------
Decrease over 40%...............................              92               2              14               0
Decrease 20% to 40%.............................             106               2              25               1
Decrease 10% to 20%.............................             287               5              71               2
Decrease 5% to 10%..............................             541               9             143               5
Decrease 0% to 5%...............................           4,383              75           2,303              79
No Change.......................................               2               0               1               0
Increase 0% to 5%...............................             402               7             349              12
Increase 5% to 10%..............................               5               0               3               0
Increase 10% to 20%.............................               3               0               7               0
Increase 20% to 40%.............................               2               0               1               0
Increase over 40%...............................               1               0               0               0
                                                 ---------------------------------------------------------------
    All.........................................           5,824             100         * 2,916           * 100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

    Table 2.2 provides the same analysis for established small banks 
that were unprofitable during the 12 months ending September 30, 
2015. Table 2.2 shows that 50 percent of unprofitable established 
small banks would have a decrease in assessments in an amount 
between 0 and 10 percent of their losses. Another 46 percent would 
have lower assessments in amounts exceeding 10 percent income. Only 
14 unprofitable banks would have assessment increases, all but 4 of 
them in amounts between 0 and 10 percent of losses.

[[Page 6137]]



          Table 2.2--Effect of the Revised Proposal on Income for Unprofitable Established Small Banks
                                             [P330 compared to C535]
----------------------------------------------------------------------------------------------------------------
                                                           Institutions                       Assets
                                                 ---------------------------------------------------------------
                                                                                                    Percent of
                                                                    Percent of                     total assets
     Change in assessment relative to losses                           total        Assets  ($          of
                                                      Number       unprofitable      billions)     unprofitable
                                                                    established                     established
                                                                    small banks                     small banks
----------------------------------------------------------------------------------------------------------------
Decrease over 40%...............................              40              12               7              10
Decrease 20% to 40%.............................              47              14              11              15
Decrease 10% to 20%.............................              66              20              14              20
Decrease 5% to 10%..............................              64              19              10              13
Decrease 0% to 5%...............................             102              31              17              23
No Change.......................................               1               0               0               0
Increase 0% to 5%...............................               9               3               8              11
Increase 5% to 10%..............................               1               0               5               7
Increase 10% to 20%.............................               2               1               0               1
Increase 20% to 40%.............................               1               0               0               0
Increase over 40%...............................               1               0               0               0
                                                 ---------------------------------------------------------------
    All.........................................             334             100            * 71             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

IV. Projected Effects on Capital and Earnings Assuming Same Initial 
Assessment Rate Range (P330-C330)

    Under this scenario, the FDIC projects that no established small 
bank facing an increase in assessments would, as a result of the 
assessment increase, fall below a 4 percent or 2 percent leverage 
ratio. No established small bank facing a decrease in assessments 
would, as a result of the assessment decrease, have its leverage 
ratio rise above the 4 percent or 2 percent threshold.
    Table 2.3 shows that 51 percent of established small banks that 
were profitable during the 12 months ended September 30, 2015, would 
have a decrease in assessments in an amount between 0 and 10 percent 
of income. Another 4 percent of profitable established small banks 
would have a reduction in assessments exceeding 10 percent of their 
income. A total of 1,238 profitable established small banks would 
have an increase in assessments, with all but 16 facing assessment 
increases between 0 and10 percent of their income.

           Table 2.3--Effect of the Revised Proposal on Income for Profitable Established Small Banks
                                             [P330 compared to C330]
----------------------------------------------------------------------------------------------------------------
                                                           Institutions                       Assets
                                                 ---------------------------------------------------------------
                                                                    Percent of                      Percent of
    Change in assessments relative to income                           total                       total assets
                                                      Number        profitable      Assets  ($     of profitable
                                                                    established      billions)      established
                                                                    small banks                     small banks
----------------------------------------------------------------------------------------------------------------
Decrease over 40%...............................              56               1               7               0
Decrease 20% to 40%.............................              50               1              10               0
Decrease 10% to 20%.............................             121               2              29               1
Decrease 5% to 10%..............................             293               5              81               3
Decrease 0% to 5%...............................           2,669              46           1,148              39
No Change.......................................           1,397              24             522              18
Increase 0% to 5%...............................           1,173              20           1,084              37
Increase 5% to 10%..............................              49               1              25               1
Increase 10% to 20%.............................               9               0               2               0
Increase 20% to 40%.............................               4               0               7               0
Increase over 40%...............................               3               0               0               0
                                                 ---------------------------------------------------------------
    All.........................................           5,824             100       \*\ 2,916         \*\ 100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

    Table 2.4 provides the same analysis for established small banks 
that were unprofitable during the 12 months ending September 30, 
2015. Table 2.4 shows that 58 percent of unprofitable established 
small banks would have a decrease in assessments in an amount 
between 0 and 10 percent of their losses. Another 25 percent would 
have lower assessments in amounts exceeding 10 percent of their 
losses. Only 51 unprofitable banks would face assessment increases, 
all but 10 of them in amounts between 0 and 10 percent of losses.

[[Page 6138]]



          Table 2.4--Effect of the Revised Proposal on Income for Unprofitable Established Small Banks
                                             [P330 compared to C330]
----------------------------------------------------------------------------------------------------------------
                                                           Institutions                       Assets
                                                 ---------------------------------------------------------------
                                                                                                    Percent of
                                                                    Percent of                     total assets
    Change in assessments relative to losses                           total        Assets  ($          of
                                                      Number       unprofitable      billions)     unprofitable
                                                                    established                     established
                                                                    small banks                     small banks
----------------------------------------------------------------------------------------------------------------
Decrease over 40%...............................              21               6               5               7
Decrease 20% to 40%.............................              26               8               4               5
Decrease 10% to 20%.............................              37              11              10              14
Decrease 5% to 10%..............................              58              17              10              14
Decrease 0% to 5%...............................             135              40              21              29
No Change.......................................               6               2               1               1
Increase 0% to 5%...............................              36              11              13              18
Increase 5% to 10%..............................               5               1               2               2
Increase 10% to 20%.............................               5               1               6               8
Increase 20% to 40%.............................               2               1               1               1
Increase over 40%...............................               3               1               0               1
                                                 ---------------------------------------------------------------
    All.........................................             334         \*\ 100          \*\ 71             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

VIII. Revisions to Code of Federal Regulations

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, 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.  327.3  [Amended]

0
2. Amend Sec.  327.3, in paragraph (b), by removing ``Sec. Sec.  
327.4(a) and 327.9'' and adding in its place ``Sec.  327.4(a) and Sec.  
327.9 or Sec.  327.16''.


Sec.  327.4  [Amended]

0
3. Amend Sec.  327.4:
0
a. In paragraph (a), by removing ``Sec.  327.9'' and adding in its 
place ``Sec.  327.9 or Sec.  327.16''.
0
b. In paragraph (c), by removing ``Sec.  327.9(e)(3)'' and adding in 
its place ``Sec. Sec.  327.9(e)(3) and 327.16 (f)(3)''.


Sec.  327.8  [Amended]

0
4. Amend Sec.  327.8:
0
a. In paragraph (e) and (f), by removing ``Sec.  327.9(e)'' and adding 
in its place ``Sec. Sec.  327.9(e) and 327.16 (f)''.
0
b. In paragraph (k)(1), by removing ``Sec.  327.9(f)(3) and (4)'' and 
adding in its place ``Sec. Sec.  327.9(f)(3) and (4) and 327.16 (g)(3) 
and (4)''.
0
c. By revising paragraph (l).
0
d. In paragraphs (m), (n), (o), and (p), by removing ``Sec.  
327.9(d)(1)'' and adding in its place ``Sec. Sec.  327.9(d)(1) and 
327.16(e)(1)'' and removing ``Sec.  327.9(d)(2)'' and adding in its 
place ``Sec. Sec.  327.9(d)(2) and 327.16(e)(2).''
0
e. By adding paragraphs (v) through (y).
    The revision and additions read as follows:


Sec.  327.8  Definitions.

* * * * *
    (l) Risk assignment. Under Sec.  327.9, for all small institutions 
and insured branches of foreign banks, risk assignment includes 
assignment to Risk Category I, II, III, or IV and, within Risk Category 
I, assignment to an assessment rate. Under Sec.  327.16, for all new 
small institutions and insured branches of foreign banks, risk 
assignment includes assignment to Risk Category I, II, III, or IV, and 
for insured branches of foreign banks within Risk Category I, 
assignment to an assessment rate or rates. For all established small 
institutions, large institutions and highly complex institutions, risk 
assignment includes assignment to an assessment rate.
* * * * *
    (v) Established small institution--An established small institution 
is a ``small institution'' as defined under paragraph (e) of this 
section that meets the definition of ``established depository 
institution'' under paragraph (k) of this section.
    (w) New small institution--A new small institution is a ``small 
institution'' as defined under paragraph (e) of this section that meets 
the definition of ``new depository institution'' under paragraph (j) of 
this section.
    (x) Deposit Insurance Fund and DIF--the Deposit Insurance Fund 
established pursuant to 12 U.S.C. 1813(y)(1).
    (y) Reserve ratio of the DIF--the reserve ratio as defined in 12 
U.S.C. 1813(y)(3).


Sec.  327.9  [Amended]

0
5. Amend Sec.  327.9 by adding introductory text to read as follows:


Sec.  327.9  Assessment pricing methods

    The following pricing methods shall apply through the calendar 
quarter in which the reserve ratio of the DIF reaches 1.15 percent for 
the first time after June 30, 2015.
* * * * *


Sec.  327.10  [Amended]

0
6. In Sec.  327.10, revise paragraphs (b) through (f) to read as 
follows:


Sec.  327.10  Assessment rate schedules

* * * * *
    (b) Assessment rate schedules for established small institutions 
and large and highly complex institutions applicable in the first 
calendar quarter after June 30, 2015, that the reserve ratio of the DIF 
reaches or exceeds 1.15 percent for the previous calendar quarter and 
in all subsequent quarters that the reserve ratio is less than 2 
percent.
    (1) Initial base assessment rate schedule for established small 
institutions and large and highly complex institutions. In the first 
calendar quarter after June 30, 2015, that the reserve ratio of the DIF 
reaches or exceeds 1.15 percent for the previous calendar quarter and 
for all subsequent quarters where the reserve ratio for the immediately 
prior assessment period is

[[Page 6139]]

less than 2 percent, the initial base assessment rate for established 
small institutions and large and highly complex institutions, except as 
provided in paragraph (f) of this section, shall be the rate prescribed 
in the following schedule:

  Initial Base Assessment Rate Schedule Beginning the First Quarter After June 30, 2015, That the Reserve Ratio
     Reaches 1.15 Percent and for All Subsequent Quarters Where the Reserve Ratio for the Immediately Prior
                                   Assessment Period Is Less Than 2 Percent *
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  3 to 16...........  6 to 30...........  16 to 30..........  3 to 30.
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 1 or 2 shall range from 3 to 16 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 3 shall range from 6 to 30 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Initial Base Assessment Rate Schedule. The annual initial 
base assessment rates for all established small institutions with a 
CAMELS composite rating of 4 or 5 shall range from 16 to 30 basis 
points.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 3 to 30 basis points.
    (2) Total base assessment rate schedule after adjustments. Once the 
reserve ratio of the DIF first reaches 1.15 percent, and for all 
subsequent quarters where the reserve ratio for the immediately prior 
assessment period is less than 2 percent, the total base assessment 
rates after adjustments for established small institutions and large 
and highly complex institutions shall be as prescribed in the following 
schedule.

 Total Base Assessment Rate Schedule (After Adjustments) * Beginning The First Quarter After June 30, 2015, That
     the Reserve Ratio Reaches 1.15 Percent and for All Subsequent Quarters Where the Reserve Ratio for the
                          Immediately Prior Assessment Period Is Less Than 2 Percent **
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  3 to 16...........  6 to 30...........  16 to 30..........  3 to 30.
Unsecured Debt Adjustment.......  -5 to 0...........  -5 to 0...........  -5 to 0...........  -5 to 0.
Brokered Deposit Adjustment.....  N/A...............  N/A...............  N/A...............  0 to 10.
Total Base Assessment Rate......  1.5 to 16.........  3 to 30...........  11 to 30..........  1.5 to 40.
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Total Base Assessment Rate Schedule. The annual total base assessment 
rates for all established small institutions with a CAMELS composite 
rating of 1 or 2 shall range from 1.5 to 16 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions Total 
Base Assessment Rate Schedule. The annual total base assessment rates 
for all established small institutions with a CAMELS composite rating 
of 3 shall range from 3 to 30 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Total Base Assessment Rate Schedule. The annual total base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 4 or 5 shall range from 11 to 30 basis points.
    (iv) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 1.5 to 40 basis points.
    (c) Assessment rate schedules if the reserve ratio of the DIF for 
the prior assessment period is equal to or greater than 2 percent and 
less than 2.5 percent--(1) Initial base assessment rate schedule for 
established small institutions and large and highly complex 
institutions. If the reserve ratio of the DIF for the prior assessment 
period is equal to or greater than 2 percent and less than 2.5 percent, 
the initial base assessment rate for established small institutions and 
large and highly complex institutions, except as provided in paragraph 
(f) of this section, shall be the rate prescribed in the following 
schedule:

[[Page 6140]]



Initial Base Assessment Rate Schedule if Reserve Ratio for Prior Assessment Period Is Greater Than 2.5 Percent *
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  2 to 14...........  5 to 28...........  14 to 28..........  2 to 28.
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 1 or 2 shall range from 2 to 14 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 3 shall range from 5 to 28 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Initial Base Assessment Rate Schedule. The annual initial 
base assessment rates for all established small institutions with a 
CAMELS composite rating of 4 or 5 shall range from 14 to 28 basis 
points.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 2 to 28 basis points.
    (2) Total Base Assessment Rate Schedule after Adjustments for 
Established Small Institutions and Large and Highly Complex 
Institutions. If the reserve ratio of the DIF for the prior assessment 
period is equal to or greater than 2 percent and less than 2.5 percent, 
the total base assessment rates after adjustments for established small 
institutions and large and highly complex institutions, except as 
provided in paragraph (f) of this section, shall be as prescribed in 
the following schedule.

 Total Base Assessment Rate Schedule (After Adjustments) * if Reserve Ratio for Prior Assessment Period Is Equal
                            to or Greater Than 2 Percent but Less Than 2.5 Percent **
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  2 to 14...........  5 to 28...........  14 to 28..........  2 to 28.
Unsecured Debt Adjustment.......  -5 to 0...........  -5 to 0...........  -5 to 0...........  -5 to 0.
Brokered Deposit Adjustment.....  N/A...............  N/A...............  N/A...............  0 to 10.
Total Base Assessment Rate......  1 to 14...........  2.5 to 28.........  9 to 28...........  1 to 38.
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Total Base Assessment Rate Schedule. The annual total base assessment 
rates for all established small institutions with a CAMELS composite 
rating of 1 or 2 shall range from 1 to 14 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions Total 
Base Assessment Rate Schedule. The annual total base assessment rates 
for all established small institutions with a CAMELS composite rating 
of 3 shall range from 2.5 to 28 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Total Base Assessment Rate Schedule. The annual total base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 4 or 5 shall range from 9 to 28 basis points.
    (iv) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 1 to 38 basis points.
    (d) Assessment rate schedules if the reserve ratio of the DIF for 
the prior assessment period is greater than 2.5 percent--(1) Initial 
Base Assessment Rate Schedule. If the reserve ratio of the DIF for the 
prior assessment period is greater than 2.5 percent, the initial base 
assessment rate for established small institutions and a large and 
highly complex institutions, except as provided in paragraph (f) of 
this section, shall be the rate prescribed in the following schedule:

[[Page 6141]]



 Initial Base Assessment Rate Schedule if Reserve Ratio for Prior Assessment Period Is Greater Than or Equal to
                                                  2.5 Percent *
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  1 to 13...........  4 to 25...........  13 to 25..........  1 to 25.
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 1 or 2 shall range from 1 to 13 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions 
Initial Base Assessment Rate Schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 3 shall range from 4 to 25 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Initial Base Assessment Rate Schedule. The annual initial 
base assessment rates for all established small institutions with a 
CAMELS composite rating of 4 or 5 shall range from 13 to 25 basis 
points.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 1 to 25 basis points.
    (2) Total Base Assessment Rate Schedule after Adjustments. If the 
reserve ratio of the DIF for the prior assessment period is greater 
than 2.5 percent, the total base assessment rates after adjustments for 
established small institutions and large and highly complex 
institutions, except as provided in paragraph (f) of this section, 
shall be the rate prescribed in the following schedule.

    Total Base Assessment Rate Schedule (After Adjustments) * if Reserve Ratio for Prior Assessment Period Is
                                     Greater Than or Equal to 2.5 Percent **
----------------------------------------------------------------------------------------------------------------
                                                Established small institutions
                                 ------------------------------------------------------------   Large & highly
                                                       CAMELS Composite                             complex
                                 ------------------------------------------------------------    institutions
                                        1 or 2                 3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate....  1 to 13...........  4 to 25...........  13 to 25..........  1 to 25.
Unsecured Debt Adjustment.......  -5 to 0...........  -5 to 0...........  -5 to 0...........  -5 to 0.
Brokered Deposit Adjustment.....  N/A...............  N/A...............  N/A...............  0 to 10.
Total Base Assessment Rate......  .5 to 13..........  2 to 25...........  8 to 25...........  .5 to 35.
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) CAMELS Composite 1- and 2-rated Established Small Institutions 
Total Base Assessment Rate Schedule. The annual total base assessment 
rates for all established small institutions with a CAMELS composite 
rating of 1 or 2 shall range from 0.5 to 13 basis points.
    (ii) CAMELS Composite 3-rated Established Small Institutions Total 
Base Assessment Rate Schedule. The annual total base assessment rates 
for all established small institutions with a CAMELS composite rating 
of 3 shall range from 2 to 25 basis points.
    (iii) CAMELS Composite 4- and 5-rated Established Small 
Institutions Total Base Assessment Rate Schedule. The annual total base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 4 or 5 shall range from 8 to 25 basis points.
    (iv) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 0.5 to 35 basis points.
    (e) Assessment Rate Schedules for New Institutions and Insured 
Branches of Foreign Banks.
    (1) New depository institutions, as defined in 327.8(j), shall be 
subject to the assessment rate schedules as follows:
    (i) Prior to the reserve ratio of the DIF first reaching 1.15 
percent after June 30, 2015. Prior to the reserve ratio of the DIF 
reaching 1.15 percent for the first time after June 30, 2015, all new 
institutions shall be subject to the initial and total base assessment 
rate schedules provided for in paragraph (a) of this section.
    (ii) Assessment rate schedules for new large and highly complex 
institutions once the DIF reserve ratio first reaches 1.15 percent 
after June 30, 2015. Beginning the first calendar quarter after June 
30, 2015 in which the reserve ratio of the DIF reaches or exceeds 1.15 
percent in the previous calendar quarter, new large and highly complex 
institutions shall be subject to the initial and total base assessment 
rate schedules provided for in paragraph (b) of this section, even if 
the reserve ratio equals or exceeds 2 percent or 2.5 percent.
    (iii) Assessment rate schedules for new small institutions 
beginning the first quarter after June 30, 2015, that the DIF reserve 
ratio reaches 1.15 percent and for all subsequent quarters.
    (A) Initial Base Assessment Rate Schedule for New Small 
Institutions. Beginning the first calendar quarter after June 30, 2015 
in which the reserve ratio of the DIF reaches or exceeds 1.15 percent 
in the previous calendar quarter, and for all subsequent quarters, the 
initial base assessment rate for a new small institution shall be the 
rate prescribed in the following schedule,

[[Page 6142]]

even if the reserve ratio equals or exceeds 2 percent or 2.5 percent.

  Initial Base Assessment Rate Schedule Beginning the First Quarter After June 30, 2015, That the Reserve Ratio
                              Reaches 1.15 Percent and for All Subsequent Quarters
----------------------------------------------------------------------------------------------------------------
                                               Risk Category    Risk Category    Risk Category    Risk Category
                                                     I                II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.....................               7               12               19               30
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually.

    (1) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all new small institutions in 
Risk Category I shall be 7 basis points.
    (2) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for all new small 
institutions in Risk Categories II, III, and IV shall be 12, 19, and 30 
basis points, respectively.
    (3) All new small institutions in any one risk category, other than 
Risk Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (B) Total Base Assessment Rate Schedule for New Small Institutions. 
Beginning the first calendar quarter after June 30, 2015 in which the 
reserve ratio of the DIF reaches or exceeds 1.15 percent in the 
previous calendar quarter, and for all subsequent quarters, the total 
base assessment rates after adjustments for a new small institution 
shall be the rate prescribed in the following schedule, even if the 
reserve ratio equals or exceeds 2 percent or 2.5 percent.

 Total Base Assessment Rate Schedule (After Adjustments) * Beginning the First Quarter After June 30, 2015, That
                    the Reserve Ratio Reaches 1.15 Percent and for All Subsequent Quarters **
----------------------------------------------------------------------------------------------------------------
                                 Risk Category  I    Risk Category  II    Risk Category  III   Risk Category  IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate......  7..................  12.................  19.................  30.
Brokered Deposit Adjustment    N/A................  0 to 10............  0 to 10............  0 to 10.
 (added).
Total Assessment Rate........  7..................  12 to 22...........  19 to 29...........  30 to 40.
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (1) Risk Category I Total Assessment Rate Schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category I shall be 7 basis points.
    (2) Risk Category II Total Assessment Rate Schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category II shall range from 12 to 22 basis points.
    (3) Risk Category III Total Assessment Rate Schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category III shall range from 19 to 29 basis points.
    (4) Risk Category IV Total Assessment Rate Schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category IV shall range from 30 to 40 basis points.
    (2) Insured branches of foreign banks--(i) Assessment rate schedule 
for insured branches of foreign banks once the reserve ratio of the DIF 
first reaches 1.15 percent, and the reserve ratio for the immediately 
prior assessment period is less than 2 percent. In the first calendar 
quarter after June 30, 2015, that the reserve ratio of the DIF reaches 
or exceeds 1.15 percent for the previous calendar quarter and for all 
subsequent quarters where the reserve ratio for the immediately prior 
assessment period is less than 2 percent, the initial and total base 
assessment rates for an insured branch of a foreign bank, except as 
provided in paragraph (f) of this section, shall be the rate prescribed 
in the following schedule.

   Initial and Total Base Assessment Rate Schedule * Beginning the First Quarter after June 30, 2015, That the
 Reserve Ratio Reaches 1.15 Percent and for All Subsequent Quarters Where the Reserve Ratio for the Immediately
                                Prior Assessment Period Is Less Than 2 Percent **
----------------------------------------------------------------------------------------------------------------
                                               Risk Category    Risk Category    Risk Category    Risk Category
                                                     I                II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...........          3 to 7               12               19               30
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.


[[Page 6143]]

    (A) Risk Category I Initial and Total Base Assessment Rate 
Schedule. The annual initial and total base assessment rates for an 
insured branch of a foreign bank in Risk Category I shall range from 3 
to 7 basis points.
    (B) Risk Category II, III, and IV Initial and Total Base Assessment 
Rate Schedule. The annual initial and total base assessment rates for 
Risk Categories II, III, and IV shall be 12, 19, and 30 basis points, 
respectively.
    (C) All insured branches of foreign banks in any one risk category, 
other than Risk Category I, will be charged the same initial base 
assessment rate, subject to adjustment as appropriate.
    (ii) Assessment rate schedule for insured branches of foreign banks 
if the reserve ratio of the DIF for the prior assessment period is 
equal to or greater than 2 percent and less than 2.5 percent. If the 
reserve ratio of the DIF for the prior assessment period is equal to or 
greater than 2 percent and less than 2.5 percent, the initial and total 
base assessment rates for an insured branch of a foreign bank, except 
as provided in paragraph (f), shall be the rate prescribed in the 
following schedule.

  Initial and Total Base Assessment Rate Schedule * if Reserve Ratio for Prior Assessment Period Is Equal to or
                               Greater Than 2 Percent But Less Than 2.5 Percent **
----------------------------------------------------------------------------------------------------------------
                                               Risk Category    Risk Category    Risk Category    Risk Category
                                                     I                II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...........          2 to 6               10               17               28
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

    (A) Risk Category I Initial and Total Base Assessment Rate 
Schedule. The annual initial and total base assessment rates for an 
insured branch of a foreign bank in Risk Category I shall range from 2 
to 6 basis points.
    (B) Risk Category II, III, and IV Initial and Total Base Assessment 
Rate Schedule. The annual initial and total base assessment rates for 
Risk Categories II, III, and IV shall be 10, 17, and 28 basis points, 
respectively.
    (C) All insured branches of foreign banks in any one risk category, 
other than Risk Category I, will be charged the same initial base 
assessment rate, subject to adjustment as appropriate.
    (iii) Assessment rate schedule for insured branches of foreign 
banks if the reserve ratio of the DIF for the prior assessment period 
is greater than 2.5 percent. If the reserve ratio of the DIF for the 
prior assessment period is greater than 2.5 percent, the initial and 
total base assessment rate for an insured branch of foreign bank, 
except as provided in paragraph (f) of this section, shall be the rate 
prescribed in the following schedule:

 Initial and Total Base Assessment Rate Schedule * if Reserve Ratio for Prior Assessment Period Is Greater Than
                                           or Equal to 2.5 Percent **
----------------------------------------------------------------------------------------------------------------
                                               Risk Category    Risk Category    Risk Category    Risk Category
                                                     I                II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.....................          1 to 5                9               15               25
----------------------------------------------------------------------------------------------------------------
* The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
** All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

    (A) Risk Category I Initial and Total Base Assessment Rate 
Schedule. The annual initial and total base assessment rates for an 
insured branch of a foreign bank in Risk Category I shall range from 1 
to 5 basis points.
    (B) Risk Category II, III, and IV Initial and Total Base Assessment 
Rate Schedule. The annual initial and total base assessment rates for 
Risk Categories II, III, and IV shall be 9, 15, and 25 basis points, 
respectively.
    (C) All insured branches of foreign banks in any one risk category, 
other than Risk Category I, will be charged the same initial base 
assessment rate, subject to adjustment as appropriate.
    (f) Total Base Assessment Rate Schedule adjustments and 
procedures--(1) Board Rate Adjustments. The Board may increase or 
decrease the total base assessment rate schedule in paragraphs (a) 
through (e) of this section up to a maximum increase of 2 basis points 
or a fraction thereof or a maximum decrease of 2 basis points or a 
fraction thereof (after aggregating increases and decreases), as the 
Board deems necessary. Any such adjustment shall apply uniformly to 
each rate in the total base assessment rate schedule. In no case may 
such rate adjustments result in a total base assessment rate that is 
mathematically less than zero or in a total base assessment rate 
schedule that, at any time, is more than 2 basis points above or below 
the total base assessment schedule for the Deposit Insurance Fund in 
effect pursuant to paragraph (b) of this section, nor may any one such 
adjustment constitute an increase or decrease of more than 2 basis 
points.
    (2) Amount of revenue. In setting assessment rates, the Board shall 
take into consideration the following:
    (i) Estimated operating expenses of the Deposit Insurance Fund;
    (ii) Case resolution expenditures and income of the Deposit 
Insurance Fund;
    (iii) The projected effects of assessments on the capital and 
earnings of the institutions paying assessments to the Deposit 
Insurance Fund;
    (iv) The risk factors and other factors taken into account pursuant 
to 12 U.S.C. 1817(b)(1); and
    (v) Any other factors the Board may deem appropriate.
    (3) Adjustment procedure. Any adjustment adopted by the Board

[[Page 6144]]

pursuant to this paragraph will be adopted by rulemaking, except that 
the Corporation may set assessment rates as necessary to manage the 
reserve ratio, within set parameters not exceeding cumulatively 2 basis 
points, pursuant to paragraph (f)(1) of this section, without further 
rulemaking.
    (4) Announcement. The Board shall announce the assessment schedules 
and the amount and basis for any adjustment thereto not later than 30 
days before the quarterly certified statement invoice date specified in 
Sec.  327.3(b) of this part for the first assessment period for which 
the adjustment shall be effective. Once set, rates will remain in 
effect until changed by the Board.
0
7. Add Sec.  327.16 to read as follows:


Sec.  327.16  Assessment pricing methods--beginning the first calendar 
quarter after the calendar quarter in which the reserve ratio of the 
DIF reaches 1.15 percent.

    (a) Established small institutions. Beginning the first calendar 
quarter after June 30, 2015 in which the reserve ratio of the DIF 
reached or exceeded 1.15 percent in the previous calendar quarter, an 
established small institution shall have its initial base assessment 
rate determined by using the financial ratios methods set forth in 
paragraph (a)(1) of this section.
    (1) Under the financial ratios method, each of seven financial 
ratios and a weighted average of CAMELS component ratings will be 
multiplied by a corresponding pricing multiplier. The sum of these 
products will be added to a uniform amount. The resulting sum shall 
equal the institution's initial base assessment rate; provided, 
however, that no institution's initial base assessment rate shall be 
less than the minimum initial base assessment rate in effect for 
established small institutions with a particular CAMELS composite 
rating for that quarter nor greater than the maximum initial base 
assessment rate in effect for established small institutions with a 
particular CAMELS composite rating for that quarter. An institution's 
initial base assessment rate, subject to adjustment pursuant to 
paragraphs (e)(1) and (2) of this section, as appropriate (resulting in 
the institution's total base assessment rate, which in no case can be 
lower than 50 percent of the institution's initial base assessment 
rate), and adjusted for the actual assessment rates set by the Board 
under Sec.  327.10(f), will equal an institution's assessment rate. The 
seven financial ratios are: Tier 1 Leverage Ratio (%); Net Income 
before Taxes/Total Assets (%); Nonperforming Loans and Leases/Gross 
Assets (%); Other Real Estate Owned/Gross Assets (%); Brokered Deposit 
Ratio (%); One Year Asset Growth (%); and Loan Mix Index. The ratios 
are defined in Table E.1 of Appendix E to this subpart. The ratios will 
be determined for an assessment period based upon information contained 
in an institution's report of condition filed as of the last day of the 
assessment period as set out in paragraph (a)(2) of this section. The 
weighted average of CAMELS component ratings is created by multiplying 
each component by the following percentages and adding the products: 
Capital adequacy--25%, Asset quality--20%, Management--25%, Earnings--
10%, Liquidity--10%, and Sensitivity to market risk--10%. The following 
tables set forth the values of the pricing multipliers:

 Pricing Multipliers Applicable Beginning the [First Quarter After June
30, 2015 That the Reserve Ratio Reaches 1.15 Percent] and All Subsequent
  Quarters Where the Reserve Ratio for the Immediately Prior Assessment
                      Period Is Less Than 2 Percent
------------------------------------------------------------------------
                                                              Pricing
                     Risk measures *                      multipliers **
------------------------------------------------------------------------
Tier 1 Leverage ratio...................................             [ ]
Net Income before Taxes/Total Assets....................             [ ]
Nonperforming Loans and Leases/Gross Assets.............             [ ]
Other Real Estate Owned/Gross Assets....................             [ ]
Brokered Deposit Ratio..................................             [ ]
One Year Asset Growth...................................             [ ]
Loan Mix Index..........................................             [ ]
Weighted Average CAMELS Component Rating................             [ ]
------------------------------------------------------------------------
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.


   Pricing Multipliers Applicable When the Reserve Ratio for the Prior
Assessment Period Is Equal to or Greater Than 2 Percent But Is Less Than
                               2.5 Percent
------------------------------------------------------------------------
                                                              Pricing
                     Risk measures *                      multipliers **
------------------------------------------------------------------------
Tier 1 Leverage Ratio...................................             [ ]
Net Income before Taxes/Total Assets....................             [ ]
Nonperforming Loans and Leases/Gross Assets.............             [ ]
Other Real Estate Owned/Gross Assets....................             [ ]
Brokered Deposit Ratio..................................             [ ]
One Year Asset Growth...................................             [ ]
Loan Mix Index..........................................             [ ]
Weighted Average CAMELS Component Rating................             [ ]
------------------------------------------------------------------------
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.


   Pricing Multipliers Applicable When the Reserve Ratio for the Prior
        Assessment Period Is Greater Than or Equal to 2.5 Percent
------------------------------------------------------------------------
                                                            Pricing
                   Risk measures *                       multipliers **
------------------------------------------------------------------------
Tier 1 Leverage Ratio................................                [ ]
Net Income before Taxes/Total Assets.................                [ ]
Nonperforming Loans and Leases/Gross Assets..........                [ ]
Other Real Estate Owned/Gross Assets.................                [ ]
Brokered Deposit Ratio...............................                [ ]
One Year Asset Growth................................                [ ]
Loan Mix Index.......................................                [ ]
Weighted Average CAMELS Component Rating.............                [ ]
------------------------------------------------------------------------
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.

    (i) Uniform amount. Except as adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(f), the uniform amount shall 
be:
    (A) __Whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (B) __whenever the assessment rate schedule set forth in Sec.  
327.10(c) is in effect; or
    (C) __whenever the assessment rate schedule set forth in Sec.  
327.10(d) is in effect.
    (ii) Implementation of CAMELS rating changes--(A) Composite rating 
change. If, during a quarter, a CAMELS composite rating change occurs 
in a way that changes the institution's initial base assessment rate, 
then the institution's initial base assessment rate for the portion of 
the quarter prior to the change shall be determined using the 
assessment schedule for the appropriate CAMELS composite rating in 
effect before the change, including any minimum or maximum initial base 
assessment rates, and subject to adjustment pursuant to paragraphs 
(e)(1)

[[Page 6145]]

and (e)(2) of this section, as appropriate, and adjusted for actual 
assessment rates set by the Board under Sec.  327.10(f). For the 
portion of the quarter after the CAMELS composite rating change, the 
institution's initial base assessment rate shall be determined using 
the assessment schedule for the applicable CAMELS composite rating in 
effect, including any minimum or maximum initial base assessment rates, 
and subject to adjustment pursuant to paragraphs (e)(1) and (e)(2) of 
this section, as appropriate, and adjusted for actual assessment rates 
set by the Board under Sec.  327.10(f).
    (B) Component ratings changes. If, during a quarter, a CAMELS 
component rating change occurs in a way that changes the institution's 
initial base assessment rate, the initial base assessment rate for the 
period before the change shall be determined under the financial ratios 
method using the CAMELS component ratings in effect before the change, 
subject to adjustment under paragraphs (e)(1) and (e)(2) of this 
section, as appropriate. Beginning on the date of the CAMELS component 
rating change, the initial base assessment rate for the remainder of 
the quarter shall be determined under the financial ratios method using 
the CAMELS component ratings in effect after the change, again subject 
to adjustment under paragraphs (e)(1) and (e)(2), as appropriate.
    (iii) No CAMELS composite rating or no CAMELS component ratings--
(A) No CAMELS composite rating. If, during a quarter, an institution 
has no CAMELS composite rating, its initial assessment rate would be 2 
basis points above the minimum initial assessment rate for established 
small institutions until it receives a CAMELS composite rating.
    (B) No CAMELS component ratings. If, during a quarter, an 
institution has a CAMELS composite rating but no CAMELS component 
ratings, the initial base assessment rate for that institution shall be 
determined under the financial ratios method using the CAMELS composite 
rating for its weighted average CAMELS component rating and, if the 
institution has not yet filed four quarterly Call Reports, by 
annualizing, where appropriate, financial ratios obtained from all 
quarterly Call Reports that have been filed.
    (2) Applicable reports of condition. The financial ratios used to 
determine the assessment rate for an established small institution 
shall be based upon information contained in an institution's 
Consolidated Reports of Condition and Income or Thrift Financial Report 
(or successor report, as appropriate) dated as of March 31 for the 
assessment period beginning the preceding January 1; dated as of June 
30 for the assessment period beginning the preceding April 1; dated as 
of September 30 for the assessment period beginning the preceding July 
1; and dated as of December 31 for the assessment period beginning the 
preceding October 1.
    (b) Large and Highly Complex institutions--(1) Assessment scorecard 
for large institutions (other than highly complex institutions). (i) A 
large institution other than a highly complex institution shall have 
its initial base assessment rate determined using the scorecard for 
large institutions.

                    Scorecard for Large Institutions
------------------------------------------------------------------------
                            Scorecard         Measure        Component
                          measures and        weights         weights
                           components        (percent)       (percent)
------------------------------------------------------------------------
P.....................  Performance       ..............  ..............
                         Score.
P.1...................  Weighted Average             100              30
                         CAMELS Rating.
P.2...................  Ability to        ..............              50
                         Withstand Asset-
                         Related Stress.
                        Leverage ratio..              10  ..............
                        Concentration                 35  ..............
                         Measure.
                        Core Earnings/                20  ..............
                         Average Quarter-
                         End Total
                         Assets *.
                        Credit Quality                35  ..............
                         Measure.
P.3...................  Ability to        ..............              20
                         Withstand
                         Funding-Related
                         Stress.
                        Core Deposits/                60  ..............
                         Total
                         Liabilities.
                        Balance Sheet                 40  ..............
                         Liquidity Ratio.
L.....................  Loss Severity     ..............  ..............
                         Score.
L.1...................  Loss Severity     ..............             100
                         Measure.
------------------------------------------------------------------------
* Average of five quarter-end total assets (most recent and four prior
  quarters).

    (ii) The scorecard for large institutions produces two scores: 
Performance score and loss severity score.
    (A) Performance score for large institutions. The performance score 
for large institutions is a weighted average of the scores for three 
measures: The weighted average CAMELS rating score, weighted at 30 
percent; the ability to withstand asset-related stress score, weighted 
at 50 percent; and the ability to withstand funding-related stress 
score, weighted at 20 percent.
    (1) Weighted average CAMELS rating score. (i) To compute the 
weighted average CAMELS rating score, a weighted average of an 
institution's CAMELS component ratings is calculated using the 
following weights:

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

    (ii) A weighted average CAMELS rating converts to a score that 
ranges from 25 to 100. A weighted average rating of 1 equals a score of 
25 and a weighted average of 3.5 or greater equals a score of 100. 
Weighted average CAMELS ratings between 1 and 3.5 are assigned a score 
between 25 and 100. The score increases at an increasing rate as the 
weighted average CAMELS rating increases. Appendix B of this subpart 
describes the conversion of a weighted average CAMELS rating to a 
score.
    (2) Ability to withstand asset-related stress score. (i) The 
ability to withstand asset-related stress score is a weighted average 
of the scores for four measures: Leverage ratio; concentration measure; 
the ratio of core earnings to average quarter-end total assets; and the 
credit quality measure. Appendices A and C of this subpart define these 
measures.
    (ii) The Leverage ratio and the ratio of core earnings to average 
quarter-end total assets are described in appendix A and the method of 
calculating the scores is described in appendix C of this subpart.

[[Page 6146]]

    (iii) The score for the concentration measure is the greater of the 
higher-risk assets to Tier 1 capital and reserves score or the growth-
adjusted portfolio concentrations score. Both ratios are described in 
appendix C.
    (iv) The score for the credit quality measure is the greater of the 
criticized and classified items to Tier 1 capital and reserves score or 
the underperforming assets to Tier 1 capital and reserves score.
    (v) The following table shows the cutoff values and weights for the 
measures used to calculate the ability to withstand asset-related 
stress score. Appendix B of this subpart describes how each measure is 
converted to a score between 0 and 100 based upon the minimum and 
maximum cutoff values, where a score of 0 reflects the lowest risk and 
a score of 100 reflects the highest risk.

       Cutoff Values and Weights for Measures To Calculate Ability To Withstand Asset-Related Stress Score
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                                                                 --------------------------------     Weights
    Measures of the ability to withstand asset-related stress         Minimum         Maximum        (percent)
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Leverage ratio..................................................               6              13              10
Concentration Measure...........................................  ..............  ..............              35
    Higher-Risk Assets to Tier 1 Capital and Reserves; or.......               0             135  ..............
    Growth-Adjusted Portfolio Concentrations....................               4              56  ..............
Core Earnings/Average Quarter-End Total Assets *................               0               2              20
Credit Quality Measure..........................................  ..............  ..............              35
    Criticized and Classified Items/Tier 1 Capital and Reserves;               7             100  ..............
     or.........................................................
    Underperforming Assets/Tier 1 Capital and Reserves..........               2              35  ..............
----------------------------------------------------------------------------------------------------------------
* Average of five quarter-end total assets (most recent and four prior quarters).

    (vi) The score for each measure in the table in paragraph 
(b)(1)(ii)(A)(2)(v) of this section is multiplied by its respective 
weight and the resulting weighted score is summed to arrive at the 
score for an ability to withstand asset-related stress, which can range 
from 0 to 100, where a score of 0 reflects the lowest risk and a score 
of 100 reflects the highest risk.
    (3) Ability to withstand funding-related stress score. Two measures 
are used to compute the ability to withstand funding-related stress 
score: a core deposits to total liabilities ratio, and a balance sheet 
liquidity ratio. Appendix A of this subpart describes these measures. 
Appendix B of this subpart describes how these measures are converted 
to a score between 0 and 100, where a score of 0 reflects the lowest 
risk and a score of 100 reflects the highest risk. The ability to 
withstand funding-related stress score is the weighted average of the 
scores for the two measures. In the following table, cutoff values and 
weights are used to derive an institution's ability to withstand 
funding-related stress score:

            Cutoff Values and Weights To Calculate Ability To WIthstand Funding-Related Stress Score
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                                                                 --------------------------------     Weights
   Measures of the ability to withstand funding-related stress        Minimum         Maximum        (percent)
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................               5              87              60
Balance Sheet Liquidity Ratio...................................               7             243              40
----------------------------------------------------------------------------------------------------------------

    (4) Calculation of Performance Score. In paragraph (b)(1)(ii)(A)(3) 
of this section, the scores for the weighted average CAMELS rating, the 
ability to withstand asset-related stress, and the ability to withstand 
funding-related stress are multiplied by their respective weights (30 
percent, 50 percent and 20 percent, respectively) and the results are 
summed to arrive at the performance score. The performance score cannot 
be less than 0 or more than 100, where a score of 0 reflects the lowest 
risk and a score of 100 reflects the highest risk.
    (B) Loss severity score. The loss severity score is based on a loss 
severity measure that is described in appendix D of this subpart. 
Appendix B also describes how the loss severity measure is converted to 
a score between 0 and 100. The loss severity score cannot be less than 
0 or more than 100, where a score of 0 reflects the lowest risk and a 
score of 100 reflects the highest risk. Cutoff values for the loss 
severity measure are:

             Cutoff Values To Calculate Loss Severity Score
------------------------------------------------------------------------
                                                  Cutoff values
                                       ---------------------------------
       Measure of loss severity             Minimum          Maximum
                                           (percent)        (percent)
------------------------------------------------------------------------
Loss Severity.........................               0               28
------------------------------------------------------------------------

    (C) Total score. (1) The performance and loss severity scores are 
combined to produce a total score. The loss severity score is converted 
into a loss severity factor that ranges from 0.8 (score of 5 or lower) 
to 1.2 (score of 85 or higher).

[[Page 6147]]

Scores at or below the minimum cutoff of 5 receive a loss severity 
factor of 0.8, and scores at or above the maximum cutoff of 85 receive 
a loss severity factor of 1.2. The following linear interpolation 
converts loss severity scores between the cutoffs into a loss severity 
factor:

(Loss Severity Factor = 0.8 + [0.005 * (Loss Severity Score - 5)].

    (2) The performance score is multiplied by the loss severity factor 
to produce a total score (total score = performance score * loss 
severity factor). The total score can be up to 20 percent higher or 
lower than the performance score but cannot be less than 30 or more 
than 90. The total score is subject to adjustment, up or down, by a 
maximum of 15 points, as set forth in paragraph (b)(3) of this section. 
The resulting total score after adjustment cannot be less than 30 or 
more than 90.
    (D) Initial base assessment rate. A large institution with a total 
score of 30 pays the minimum initial base assessment rate and an 
institution with a total score of 90 pays the maximum initial base 
assessment rate. For total scores between 30 and 90, initial base 
assessment rates rise at an increasing rate as the total score 
increases, calculated according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP04FE16.011


where Rate is the initial base assessment rate (expressed in basis 
points), Maximum Rate is the maximum initial base assessment rate then 
in effect (expressed in basis points), and Minimum Rate is the minimum 
initial base assessment rate then in effect (expressed in basis 
points). Initial base assessment rates are subject to adjustment 
pursuant to paragraphs (b)(3), (e)(1), (e)(2), of this section; large 
institutions that are not well capitalized or have a CAMELS composite 
rating of 3, 4 or 5 shall be subject to the adjustment at paragraph 
(e)(3) of this section; these adjustments shall result in the 
institution's total base assessment rate, which in no case can be lower 
than 50 percent of the institution's initial base assessment rate.
    (2) Assessment scorecard for highly complex institutions. (i) A 
highly complex institution shall have its initial base assessment rate 
determined using the scorecard for highly complex institutions.

                Scorecard for Highly Complex Institutions
------------------------------------------------------------------------
                                              Measure        Component
                         Measures and         weights         weights
                          components         (percent)       (percent)
------------------------------------------------------------------------
P...................  Performance Score.  ..............  ..............
P.1.................  Weighted Average               100              30
                       CAMELS Rating.
P.2.................  Ability To          ..............              50
                       Withstand Asset-
                       Related Stress.
                      Leverage ratio....              10  ..............
                      Concentration                   35  ..............
                       Measure.
                      Core Earnings/                  20  ..............
                       Average Quarter-
                       End Total Assets.
                      Credit Quality                  35  ..............
                       Measure and
                       Market Risk
                       Measure.
P.3.................  Ability To          ..............              20
                       Withstand Funding-
                       Related Stress.
                      Core Deposits/                  50  ..............
                       Total Liabilities.
                      Balance Sheet                   30  ..............
                       Liquidity Ratio.
                      Average Short-Term              20  ..............
                       Funding/Average
                       Total Assets.
L...................  Loss Severity       ..............  ..............
                       Score.
L.1.................  Loss Severity.....  ..............             100
------------------------------------------------------------------------

    (ii) The scorecard for highly complex institutions produces two 
scores: performance and loss severity.
    (A) Performance score for highly complex institutions. The 
performance score for highly complex institutions is the weighted 
average of the scores for three components: weighted average CAMELS 
rating, weighted at 30 percent; ability to withstand asset-related 
stress score, weighted at 50 percent; and ability to withstand funding-
related stress score, weighted at 20 percent.
    (1) Weighted average CAMELS rating score. (i) To compute the score 
for the weighted average CAMELS rating, a weighted average of an 
institution's CAMELS component ratings is calculated using the 
following weights:

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

    (ii) A weighted average CAMELS rating converts to a score that 
ranges from 25 to 100. A weighted average rating of 1 equals a score of 
25 and a weighted average of 3.5 or greater equals a score of 100. 
Weighted average CAMELS ratings between 1 and 3.5 are assigned a score 
between 25 and 100. The score increases at an increasing rate as the 
weighted average CAMELS rating increases. Appendix B of this subpart 
describes the conversion of a weighted average CAMELS rating to a 
score.
    (2) Ability to withstand asset-related stress score. (i) The 
ability to withstand asset-related stress score is a weighted average 
of the scores for four measures: Leverage ratio; concentration measure; 
ratio of core earnings to average quarter-end total assets; credit 
quality measure and market risk measure. Appendix A of this subpart 
describes these measures.
    (ii) The Leverage ratio and the ratio of core earnings to average 
quarter-end total assets are described in appendix A and the method of 
calculating the scores is described in appendix B of this subpart.

[[Page 6148]]

    (iii) The score for the concentration measure for highly complex 
institutions is the greatest of the higher-risk assets to the sum of 
Tier 1 capital and reserves score, the top 20 counterparty exposure to 
the sum of Tier 1 capital and reserves score, or the largest 
counterparty exposure to the sum of Tier 1 capital and reserves score. 
Each ratio is described in appendix A of this subpart. The method used 
to convert the concentration measure into a score is described in 
appendix C of this subpart.
    (iv) The credit quality score is the greater of the criticized and 
classified items to Tier 1 capital and reserves score or the 
underperforming assets to Tier 1 capital and reserves score. The market 
risk score is the weighted average of three scores--the trading revenue 
volatility to Tier 1 capital score, the market risk capital to Tier 1 
capital score, and the level 3 trading assets to Tier 1 capital score. 
All of these ratios are described in appendix A of this subpart and the 
method of calculating the scores is described in appendix B. Each score 
is multiplied by its respective weight, and the resulting weighted 
score is summed to compute the score for the market risk measure. An 
overall weight of 35 percent is allocated between the scores for the 
credit quality measure and market risk measure. The allocation depends 
on the ratio of average trading assets to the sum of average 
securities, loans and trading assets (trading asset ratio) as follows:
    (v) Weight for credit quality score = 35 percent * (1--trading 
asset ratio); and,
    (vi) Weight for market risk score = 35 percent * trading asset 
ratio.
    (vii) Each of the measures used to calculate the ability to 
withstand asset-related stress score is assigned the following cutoff 
values and weights:

     Cutoff Values and Weights for Measures To Calculate the Ability To Withstand Asset-Related Stress Score
----------------------------------------------------------------------------------------------------------------
                                                 Cutoff values
 Measures of the ability to withstand  --------------------------------   Market risk
         asset-related stress               Minimum         Maximum         measure         Weights (percent)
                                           (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Leverage ratio........................               6              13  ..............  10.
Concentration Measure.................  ..............  ..............  ..............  35.
    Higher Risk Assets/Tier 1 Capital                0             135
     and Reserves;.
    Top 20 Counterparty Exposure/Tier                0             125
     1 Capital and Reserves; or.
    Largest Counterparty Exposure/Tier               0              20
     1 Capital and Reserves.
Core Earnings/Average Quarter-end                    0               2  ..............  20.
 Total Assets.
Credit Quality Measure *..............  ..............  ..............  ..............  35 * (1 - Trading Asset
                                                                                         Ratio).
    Criticized and Classified Items to               7             100
     Tier 1 Capital and Reserves; or.
    Underperforming Assets/Tier 1                    2              35
     Capital and Reserves.
Market Risk Measure *.................  ..............  ..............  ..............  35 * Trading Asset
                                                                                         Ratio.
    Trading Revenue Volatility/Tier 1                0               2              60  ........................
     Capital.
    Market Risk Capital/Tier 1 Capital               0              10              20  ........................
    Level 3 Trading Assets/Tier 1                    0              35              20  ........................
     Capital.
----------------------------------------------------------------------------------------------------------------
* Combined, the credit quality measure and the market risk measure are assigned a 35 percent weight. The
  relative weight of each of the two scores depends on the ratio of average trading assets to the sum of average
  securities, loans and trading assets (trading asset ratio).

    (viii) [Reserved]
    (ix) The score of each measure is multiplied by its respective 
weight and the resulting weighted score is summed to compute the 
ability to withstand asset-related stress score, which can range from 0 
to 100, where a score of 0 reflects the lowest risk and a score of 100 
reflects the highest risk.
    (3) Ability to withstand funding related stress score. Three 
measures are used to calculate the score for the ability to withstand 
funding-related stress: a core deposits to total liabilities ratio, a 
balance sheet liquidity ratio, and average short-term funding to 
average total assets ratio. Appendix A of this subpart describes these 
ratios. Appendix B of this subpart describes how each measure is 
converted to a score. The ability to withstand funding-related stress 
score is the weighted average of the scores for the three measures. In 
the following table, cutoff values and weights are used to derive an 
institution's ability to withstand funding-related stress score:

           Cutoff Values and Weights To Calculate Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                                                                 --------------------------------     Weights
   Measures of the ability to withstand funding-related stress        Minimum         Maximum        (percent)
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................               5              87              50
Balance Sheet Liquidity Ratio...................................               7             243              30
Average Short-term Funding/Average Total Assets.................               2              19              20
----------------------------------------------------------------------------------------------------------------

    (4) Calculation of Performance Score. The weighted average CAMELS 
score, the ability to withstand asset-related stress score, and the 
ability to withstand funding-related stress score are multiplied by 
their respective weights (30 percent, 50 percent and 20 percent, 
respectively) and the results are summed to arrive at the performance 
score, which cannot be less than 0 or more than 100.

[[Page 6149]]

    (B) Loss severity score. The loss severity score is based on a loss 
severity measure described in appendix D of this subpart. Appendix B of 
this subpart also describes how the loss severity measure is converted 
to a score between 0 and 100. Cutoff values for the loss severity 
measure are:

                 Cutoff Values for Loss Severity Measure
------------------------------------------------------------------------
                                                  Cutoff values
                                       ---------------------------------
       Measure of loss severity             Minimum          Maximum
                                           (percent)        (percent)
------------------------------------------------------------------------
Loss Severity.........................               0               28
------------------------------------------------------------------------

    (C) Total score. The performance and loss severity scores are 
combined to produce a total score. The loss severity score is converted 
into a loss severity factor that ranges from 0.8 (score of 5 or lower) 
to 1.2 (score of 85 or higher). Scores at or below the minimum cutoff 
of 5 receive a loss severity factor of 0.8, and scores at or above the 
maximum cutoff of 85 receive a loss severity factor of 1.2. The 
following linear interpolation converts loss severity scores between 
the cutoffs into a loss severity factor: (Loss Severity Factor = 0.8 + 
[0.005 * (Loss Severity Score - 5)]. The performance score is 
multiplied by the loss severity factor to produce a total score (total 
score = performance score * loss severity factor). The total score can 
be up to 20 percent higher or lower than the performance score but 
cannot be less than 30 or more than 90. The total score is subject to 
adjustment, up or down, by a maximum of 15 points, as set forth in 
paragraph (b)(3) of this section. The resulting total score after 
adjustment cannot be less than 30 or more than 90.
    (D) Initial base assessment rate. A highly complex institution with 
a total score of 30 pays the minimum initial base assessment rate and 
an institution with a total score of 90 pays the maximum initial base 
assessment rate. For total scores between 30 and 90, initial base 
assessment rates rise at an increasing rate as the total score 
increases, calculated according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP04FE16.012


where Rate is the initial base assessment rate (expressed in basis 
points), Maximum Rate is the maximum initial base assessment rate then 
in effect (expressed in basis points), and Minimum Rate is the minimum 
initial base assessment rate then in effect (expressed in basis 
points). Initial base assessment rates are subject to adjustment 
pursuant to paragraphs (b)(3), (e)(1), and (e)(2) of this section; 
highly complex institutions that are not well capitalized or have a 
CAMELS composite rating of 3, 4 or 5 shall be subject to the adjustment 
at paragraph (e)(3) of this section; these adjustments shall result in 
the institution's total base assessment rate, which in no case can be 
lower than 50 percent of the institution's initial base assessment 
rate.
    (3) Adjustment to total score for large institutions and highly 
complex institutions. The total score for large institutions and highly 
complex institutions is subject to adjustment, up or down, by a maximum 
of 15 points, based upon significant risk factors that are not 
adequately captured in the appropriate scorecard. In making such 
adjustments, the FDIC may consider such information as financial 
performance and condition information and other market or supervisory 
information. The FDIC will also consult with an institution's primary 
federal regulator and, for state chartered institutions, state banking 
supervisor.
    (i) Prior notice of adjustments--(A) Prior notice of upward 
adjustment. Prior to making any upward adjustment to an institution's 
total score because of considerations of additional risk information, 
the FDIC will formally notify the institution and its primary federal 
regulator and provide an opportunity to respond. This notification will 
include the reasons for the adjustment and when the adjustment will 
take effect.
    (B) Prior notice of downward adjustment. Prior to making any 
downward adjustment to an institution's total score because of 
considerations of additional risk information, the FDIC will formally 
notify the institution's primary federal regulator and provide an 
opportunity to respond.
    (ii) Determination whether to adjust upward; effective period of 
adjustment. After considering an institution's and the primary federal 
regulator's responses to the notice, the FDIC will determine whether 
the adjustment to an institution's total score is warranted, taking 
into account any revisions to scorecard measures, as well as any 
actions taken by the institution to address the FDIC's concerns 
described in the notice. The FDIC will evaluate the need for the 
adjustment each subsequent assessment period. Except as provided in 
paragraph (b)(3)(iv) of this section, the amount of adjustment cannot 
exceed the proposed adjustment amount contained in the initial notice 
unless additional notice is provided so that the primary federal 
regulator and the institution may respond.
    (iii) Determination whether to adjust downward; effective period of 
adjustment. After considering the primary federal regulator's responses 
to the notice, the FDIC will determine whether the adjustment to total 
score is warranted, taking into account any revisions to scorecard 
measures. Any downward adjustment in an institution's total score will 
remain in effect for subsequent assessment periods until the FDIC 
determines that an adjustment is no longer warranted. Downward 
adjustments will be made without notification to the institution. 
However, the FDIC will provide advance notice to an institution and its 
primary federal regulator and give them an opportunity to respond 
before removing a downward adjustment.
    (iv) Adjustment without notice. Notwithstanding the notice 
provisions set forth above, the FDIC may change an institution's total 
score without advance notice under this paragraph, if the

[[Page 6150]]

institution's supervisory ratings or the scorecard measures 
deteriorate.
    (c) New small institutions--(1) Risk Categories. Each new small 
institution shall be assigned to one of the following four Risk 
Categories based upon the institution's capital evaluation and 
supervisory evaluation as defined in this section.
    (i) Risk Category I. New small institutions in Supervisory Group A 
that are Well Capitalized will be assigned to Risk Category I.
    (ii) Risk Category II. New small institutions in Supervisory Group 
A that are Adequately Capitalized, and new small institutions in 
Supervisory Group B that are either Well Capitalized or Adequately 
Capitalized will be assigned to Risk Category II.
    (iii) Risk Category III. New small institutions in Supervisory 
Groups A and B that are Undercapitalized, and new small institutions in 
Supervisory Group C that are Well Capitalized or Adequately Capitalized 
will be assigned to Risk Category III.
    (iv) Risk Category IV. New small institutions in Supervisory Group 
C that are Undercapitalized will be assigned to Risk Category IV.
    (2) Capital evaluations. Each new small institution will receive 
one of the following three capital evaluations on the basis of data 
reported in the institution's Consolidated Reports of Condition and 
Income or Thrift Financial Report (or successor report, as appropriate) 
dated as of March 31 for the assessment period beginning the preceding 
January 1; dated as of June 30 for the assessment period beginning the 
preceding April 1; dated as of September 30 for the assessment period 
beginning the preceding July 1; and dated as of December 31 for the 
assessment period beginning the preceding October 1.
    (i) Well Capitalized. A Well Capitalized institution is one that 
satisfies each of the following capital ratio standards: Total risk-
based capital ratio, 10.0 percent or greater; tier 1 risk-based capital 
ratio, 8.0 percent or greater; leverage ratio, 5.0 percent or greater; 
and common equity tier 1 capital ratio, 6.5 percent or greater, and 
after January 1, 2018, if the institution is an insured depository 
institution subject to the enhanced supplementary leverage ratio 
standards under 12 CFR 6.4(c)(1)(iv)(B), 12 CFR 208.43(c)(1)(iv)(B), or 
12 CFR 324.403(b)(1)(vi), as each may be amended from time to time, a 
supplementary leverage ratio of 6.0 percent or greater.
    (ii) Adequately Capitalized. An Adequately Capitalized institution 
is one that does not satisfy the standards of Well Capitalized in 
paragraph (c)(2)(i) of this section but satisfies each of the following 
capital ratio standards: Total risk-based capital ratio, 8.0 percent or 
greater; tier 1 risk-based capital ratio, 6.0 percent or greater; 
leverage ratio, 4.0 percent or greater; and common equity tier 1 
capital ratio, 4.5 percent or greater, and after January 1, 2018, if 
the institution is an insured depository institution subject to the 
advanced approaches risk-based capital rules under 12 CFR 
6.4(c)(2)(iv)(B), 12 CFR 208.43(c)(2)(iv)(B), or 12 CFR 
324.403(b)(2)(vi), as each may be amended from time to time, a 
supplementary leverage ratio of 3.0 percent or greater.
    (iii) Undercapitalized. An undercapitalized institution is one that 
does not qualify as either Well Capitalized or Adequately Capitalized 
under paragraphs (c)(2)(i) and (ii) of this section.
    (3) Supervisory evaluations. Each new small institution will be 
assigned to one of three Supervisory Groups based on the Corporation's 
consideration of supervisory evaluations provided by the institution's 
primary federal regulator. The supervisory evaluations include the 
results of examination findings by the primary federal regulator, as 
well as other information that the primary federal regulator determines 
to be relevant. In addition, the Corporation will take into 
consideration such other information (such as state examination 
findings, as appropriate) as it determines to be relevant to the 
institution's financial condition and the risk posed to the Deposit 
Insurance Fund. The three Supervisory Groups are:
    (i) Supervisory Group ``A.'' This Supervisory Group consists of 
financially sound institutions with only a few minor weaknesses;
    (ii) Supervisory Group ``B.'' This Supervisory Group consists of 
institutions that demonstrate weaknesses which, if not corrected, could 
result in significant deterioration of the institution and increased 
risk of loss to the Deposit Insurance Fund; and
    (iii) Supervisory Group ``C.'' This Supervisory Group consists of 
institutions that pose a substantial probability of loss to the Deposit 
Insurance Fund unless effective corrective action is taken.
    (4) Assessment method for new small institutions in Risk Category 
I--(i) Maximum Initial Base Assessment Rate for Risk Category I New 
Small Institutions. A new small institution in Risk Category I shall be 
assessed the maximum initial base assessment rate for Risk Category I 
small institutions in the relevant assessment period.
    (ii) New small institutions not subject to certain adjustments. No 
new small institution in any risk category shall be subject to the 
adjustment in paragraph (e)(1) of this section.
    (iii) Implementation of CAMELS rating changes--Changes between risk 
categories. If, during a quarter, a CAMELS composite rating change 
occurs that results in a Risk Category I institution moving from Risk 
Category I to Risk Category II, III or IV, the institution's initial 
base assessment rate for the portion of the quarter that it was in Risk 
Category I shall be the maximum initial base assessment rate for the 
relevant assessment period, subject to adjustment pursuant to paragraph 
(e)(2) of this section, as appropriate, and adjusted for the actual 
assessment rates set by the Board under Sec.  327.10(g). For the 
portion of the quarter that the institution was not in Risk Category I, 
the institution's initial base assessment rate, which shall be subject 
to adjustment pursuant to paragraphs (e)(2) and (3) of this section, as 
appropriate, shall be determined under the assessment schedule for the 
appropriate Risk Category. If, during a quarter, a CAMELS composite 
rating change occurs that results in an institution moving from Risk 
Category II, III or IV to Risk Category I, then the maximum initial 
base assessment rate for new small institutions in Risk Category I 
shall apply for the portion of the quarter that it was in Risk Category 
I, subject to adjustment pursuant to paragraph (e)(2) of this section, 
as appropriate, and adjusted for the actual assessment rates set by the 
Board under Sec.  327.10(g). For the portion of the quarter that the 
institution was not in Risk Category I, the institution's initial base 
assessment rate, which shall be subject to adjustment pursuant to 
paragraphs (e)(2) and (3) of this section shall be determined under the 
assessment schedule for the appropriate Risk Category.
    (d) Insured branches of foreign banks--(1) Risk categories for 
insured branches of foreign banks. Insured branches of foreign banks 
shall be assigned to risk categories as set forth in paragraph (c)(1) 
of this section.
    (2) Capital evaluations for insured branches of foreign banks. Each 
insured branch of a foreign bank will receive one of the following 
three capital evaluations on the basis of data reported in the 
institution's Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks dated as of March 31 for the assessment 
period beginning the preceding January 1;

[[Page 6151]]

dated as of June 30 for the assessment period beginning the preceding 
April 1; dated as of September 30 for the assessment period beginning 
the preceding July 1; and dated as of December 31 for the assessment 
period beginning the preceding October 1.
    (i) Well Capitalized. An insured branch of a foreign bank is Well 
Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 108 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (d)(2) of this section.
    (ii) Adequately Capitalized. An insured branch of a foreign bank is 
Adequately Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 106 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (d)(2) of this section; and
    (C) Does not meet the definition of a Well Capitalized insured 
branch of a foreign bank.
    (iii) Undercapitalized. An insured branch of a foreign bank is 
undercapitalized institution if it does not qualify as either Well 
Capitalized or Adequately Capitalized under paragraphs (d)(2)(i) and 
(ii) of this section.
    (3) Supervisory evaluations for insured branches of foreign banks. 
Each insured branch of a foreign bank will be assigned to one of three 
supervisory groups as set forth in paragraph (c)(3) of this section.
    (4) Assessment method for insured branches of foreign banks in Risk 
Category I. Insured branches of foreign banks in Risk Category I shall 
be assessed using the weighted average ROCA component rating.
    (i) Weighted average ROCA component rating. The weighted average 
ROCA component rating shall equal the sum of the products that result 
from multiplying ROCA component ratings by the following percentages: 
Risk Management--35%, Operational Controls--25%, Compliance--25%, and 
Asset Quality--15%. The weighted average ROCA rating will be multiplied 
by 5.076 (which shall be the pricing multiplier). To this result will 
be added a uniform amount. The resulting sum--the initial base 
assessment rate--will equal an institution's total base assessment 
rate; provided, however, that no institution's total base assessment 
rate will be less than the minimum total base assessment rate in effect 
for Risk Category I institutions for that quarter nor greater than the 
maximum total base assessment rate in effect for Risk Category I 
institutions for that quarter.
    (ii) Uniform amount. Except as adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(g), the uniform amount for 
all insured branches of foreign banks shall be:
    (A) -3.127 whenever the assessment rate schedule set forth in Sec.  
327.10(a) is in effect;
    (B) -5.127 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (C) --6.127 whenever the assessment rate schedule set forth in 
Sec.  327.10(c) is in effect; or
    (D) -7.127 whenever the assessment rate schedule set forth in Sec.  
327.10(d) is in effect.
    (iii) Insured branches of foreign banks not subject to certain 
adjustments. No insured branch of a foreign bank in any risk category 
shall be subject to the adjustments in paragraphs (b)(3) or (e)(1) or 
(3) of this section.
    (iv) Implementation of changes between Risk Categories for insured 
branches of foreign banks. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category I to Risk Category II, III or IV, the institution's 
initial base assessment rate for the portion of the quarter that it was 
in Risk Category I shall be determined using the weighted average ROCA 
component rating. For the portion of the quarter that the institution 
was not in Risk Category I, the institution's initial base assessment 
rate shall be determined under the assessment schedule for the 
appropriate Risk Category. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category II, III or IV to Risk Category I, the institution's 
assessment rate for the portion of the quarter that it was in Risk 
Category I shall equal the rate determined as provided using the 
weighted average ROCA component rating. For the portion of the quarter 
that the institution was not in Risk Category I, the institution's 
initial base assessment rate shall be determined under the assessment 
schedule for the appropriate Risk Category.
    (v) Implementation of changes within Risk Category I for insured 
branches of foreign banks. If, during a quarter, an insured branch of a 
foreign bank remains in Risk Category I, but a ROCA component rating 
changes that will affect the institution's initial base assessment 
rate, separate assessment rates for the portion(s) of the quarter 
before and after the change(s) shall be determined under this paragraph 
(d)(4) of this section.
    (e) Adjustments--(1) Unsecured debt adjustment to initial base 
assessment rate for all institutions. All institutions, except new 
institutions as provided under paragraphs (g)(1) and (2) of this 
section and insured branches of foreign banks as provided under 
paragraph (d)(4)(iii) of this section, shall be subject to an 
adjustment of assessment rates for unsecured debt. Any unsecured debt 
adjustment shall be made after any adjustment under paragraph (b)(3) of 
this section.
    (i) Application of unsecured debt adjustment. The unsecured debt 
adjustment shall be determined as the sum of the initial base 
assessment rate plus 40 basis points; that sum shall be multiplied by 
the ratio of an insured depository institution's long-term unsecured 
debt to its assessment base. The amount of the reduction in the 
assessment rate due to the adjustment is equal to the dollar amount of 
the adjustment divided by the amount of the assessment base.
    (ii) Limitation. No unsecured debt adjustment for any institution 
shall exceed the lesser of 5 basis points or 50 percent of the 
institution's initial base assessment rate.
    (iii) Applicable quarterly reports of condition. Unsecured debt 
adjustment ratios for any given quarter shall be calculated from 
quarterly reports of condition (Consolidated Reports of Condition and 
Income and Thrift Financial Reports, or any successor reports to 
either, as appropriate) filed by each institution as of the last day of 
the quarter.
    (2) Depository institution debt adjustment to initial base 
assessment rate for all institutions. All institutions shall be subject 
to an adjustment of assessment rates for unsecured debt held that is 
issued by another depository institution. Any such depository 
institution debt adjustment shall be made after any adjustment under 
paragraphs (b)(3) and (e)(1) of this section.
    (i) Application of depository institution debt adjustment. An 
insured depository institution shall pay a 50 basis point adjustment on 
the amount of unsecured debt it holds that was issued by another 
insured depository institution to the extent that such debt

[[Page 6152]]

exceeds 3 percent of the institution's Tier 1 capital. The amount of 
long-term unsecured debt issued by another insured depository 
institution shall be calculated using the same valuation methodology 
used to calculate the amount of such debt for reporting on the asset 
side of the balance sheets.
    (ii) Applicable quarterly reports of condition. Depository 
institution debt adjustment ratios for any given quarter shall be 
calculated from quarterly reports of condition (Consolidated Reports of 
Condition and Income and Thrift Financial Reports, or any successor 
reports to either, as appropriate) filed by each institution as of the 
last day of the quarter.
    (3) Brokered Deposit Adjustment. All new small institutions in Risk 
Categories II, III, and IV, all large institutions and all highly 
complex institutions, except large and highly complex institutions 
(including new large and new highly complex institutions) that are well 
capitalized and have a CAMELS composite rating of 1 or 2, shall be 
subject to an assessment rate adjustment for brokered deposits. Any 
such brokered deposit adjustment shall be made after any adjustment 
under paragraphs (b)(3) and (e)(1) and (2) of this section. The 
brokered deposit adjustment includes all brokered deposits as defined 
in Section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f), 
and 12 CFR 337.6, including reciprocal deposits as defined in Sec.  
327.8(p), and brokered deposits that consist of balances swept into an 
insured institution from another institution. The adjustment under this 
paragraph is limited to those institutions whose ratio of brokered 
deposits to domestic deposits is greater than 10 percent; asset growth 
rates do not affect the adjustment. Insured branches of foreign banks 
are not subject to the brokered deposit adjustment as provided in 
paragraph (d)(4)(iii) of this section.
    (i) Application of brokered deposit adjustment. The brokered 
deposit adjustment shall be determined by multiplying 25 basis points 
by the ratio of the difference between an insured depository 
institution's brokered deposits and 10 percent of its domestic deposits 
to its assessment base.
    (ii) Limitation. The maximum brokered deposit adjustment will be 10 
basis points; the minimum brokered deposit adjustment will be 0.
    (iii) Applicable quarterly reports of condition. The brokered 
deposit adjustment for any given quarter shall be calculated from the 
quarterly reports of condition (Call Reports and Thrift Financial 
Reports, or any successor reports to either, as appropriate) filed by 
each institution as of the last day of the quarter.
    (f) Request to be treated as a large institution--(1) Procedure. 
Any institution with assets of between $5 billion and $10 billion may 
request that the FDIC determine its assessment rate as a large 
institution. The FDIC will consider such a request provided that it has 
sufficient information to do so. Any such request must be made to the 
FDIC's Division of Insurance and Research. Any approved change will 
become effective within one year from the date of the request. If an 
institution whose request has been granted subsequently reports assets 
of less than $5 billion in its report of condition for four consecutive 
quarters, the institution shall be deemed a small institution for 
assessment purposes.
    (2) Time limit on subsequent request for alternate method. An 
institution whose request to be assessed as a large institution is 
granted by the FDIC shall not be eligible to request that it be 
assessed as a small institution for a period of three years from the 
first quarter in which its approved request to be assessed as a large 
institution became effective. Any request to be assessed as a small 
institution must be made to the FDIC's Division of Insurance and 
Research.
    (3) Request for Review. An institution that disagrees with the 
FDIC's determination that it is a large, highly complex, or small 
institution may request review of that determination pursuant to Sec.  
327.4(c).
    (g) New and established institutions and exceptions--(1) New small 
institutions. A new small Risk Category I institution shall be assessed 
the Risk Category I maximum initial base assessment rate for the 
relevant assessment period. No new small institution in any risk 
category shall be subject to the unsecured debt adjustment as 
determined under paragraph (e)(1) of this section. All new small 
institutions in any Risk Category shall be subject to the depository 
institution debt adjustment as determined under paragraph (e)(2) of 
this section. All new small institutions in Risk Categories II, III, 
and IV shall be subject to the brokered deposit adjustment as 
determined under paragraph (e)(3) of this section.
    (2) New large institutions and new highly complex institutions. All 
new large institutions and all new highly complex institutions shall be 
assessed under the appropriate method provided at paragraph (b)(1) or 
(2) of this section and subject to the adjustments provided at 
paragraphs (b)(3) and (e)(2) and (3) of this section. No new highly 
complex or large institutions are entitled to adjustment under 
paragraph (e)(1) of this section. If a large or highly complex 
institution has not yet received CAMELS ratings, it will be given a 
weighted CAMELS rating of 2 for assessment purposes until actual CAMELS 
ratings are assigned.
    (3) CAMELS ratings for the surviving institution in a merger or 
consolidation. When an established institution merges with or 
consolidates into a new institution, if the FDIC determines the 
resulting institution to be an established institution under Sec.  
327.8(k)(1), its CAMELS ratings for assessment purposes will be based 
upon the established institution's ratings prior to the merger or 
consolidation until new ratings become available.
    (4) Rate applicable to institutions subject to subsidiary or credit 
union exception--(i) Established small institutions. A small 
institution that is established under Sec.  327.8(k)(4) or (5) shall be 
assessed as follows:
    (A) If the institution does not have a CAMELS composite rating, its 
initial base assessment rate shall be 2 basis points above the minimum 
initial base assessment rate applicable to established small 
institutions until it receives a CAMELS composite rating.
    (B) If the institution has a CAMELS composite rating but no CAMELS 
component ratings, its initial assessment rate shall be determined 
using the financial ratios method, as set forth in (a)(1) of this 
section, but its CAMELS composite rating will be substituted for its 
weighted average CAMELS component rating and, if the institution has 
not filed four quarterly reports of condition, then the assessment rate 
will be determined by annualizing, where appropriate, financial ratios 
from all quarterly reports of condition that have been filed.
    (ii) Large or highly complex institutions. If a large or highly 
complex institution is considered established under Sec.  327.8(k)(4) 
or (5), but does not have CAMELS component ratings, it will be given a 
weighted CAMELS rating of 2 for assessment purposes until actual CAMELS 
ratings are assigned.
    (5) Request for review. An institution that disagrees with the 
FDIC's determination that it is a new institution may request review of 
that determination pursuant to Sec.  327.4(c).
    (h) Assessment rates for bridge depository institutions and 
conservatorships. Institutions that are bridge depository institutions 
under 12 U.S.C. 1821(n) and institutions for which the Corporation has 
been appointed or serves as conservator shall,

[[Page 6153]]

in all cases, be assessed at the Risk Category I minimum initial base 
assessment rate, which shall not be subject to adjustment under 
paragraphs (b)(3), (e)(1), (2), or (3) of this section.
0
8. Add Appendix E to part 327 to read as follows:

Appendix E

Method To Derive Pricing Multipliers and Uniform Amount

I. Introduction

    The uniform amount and pricing multipliers are derived from:
     A model (the Statistical Model) that estimates the 
probability of failure of an institution over a three-year horizon;
     The minimum initial base assessment rate;
     The maximum initial base assessment rate;
     Thresholds marking the points at which the maximum and 
minimum assessment rates become effective.

II. The Statistical Model

    The Statistical Model estimates the probability of an insured 
depository institution failing within three years using a logistic 
regression and pooled time-series cross-sectional data; \1\ that is, 
the dependent variable in the estimation is whether an insured 
depository institution failed during the following three-year 
period. Actual model parameters for the Statistical Model are an 
average of each of three regression estimates for each parameter. 
Each of the three regressions uses end-of-year data from insured 
depository institutions' quarterly reports of condition and income 
(Call Reports and Thrift Financial Reports or TFRs \2\) for every 
third year to estimate probability of failure within the ensuing 
three years. One regression (Regression 1) uses insured depository 
institutions' Call Report and TFR data for the end of 1985 and 
failures from 1986 through 1988; Call Report and TFR data for the 
end of 1988 and failures from 1989 through 1991; and so on, ending 
with Call Report data for the end of 2009 and failures from 2010 
through 2012. The second regression (Regression 2) uses insured 
depository institutions' Call Report and TFR data for the end of 
1986 and failures from 1987 through 1989, and so on, ending with 
Call Report data for the end of 2010 and failures from 2011 through 
2013. The third regression (Regression 3) uses insured depository 
institutions' Call Report and TFR data for the end of 1987 and 
failures from 1988 through 1990, and so on, ending with Call Report 
data for the end of 2011 and failures from 2012 through 2014. The 
regressions include only Call Report data and failures for 
established small institutions.
---------------------------------------------------------------------------

    \1\ Tests for the statistical significance of parameters use 
adjustments discussed by Tyler Shumway (2001) ``Forecasting 
Bankruptcy More Accurately: A Simple Hazard Model,'' Journal of 
Business 74:1, 101-124.
    \2\ Beginning in 2012, all insured depository institutions began 
filing quarterly Call Reports and the TFR was no longer filed.
---------------------------------------------------------------------------

    Table E.1 lists and defines the explanatory variables 
(regressors) in the Statistical Model and the measures used in Sec. 
327.16(a)(1).

 Table E.1--Definitions of Measures Used in the Financial Ratios Method
------------------------------------------------------------------------
               Variables                           Description
------------------------------------------------------------------------
Tier 1 Leverage Ratio (%)..............  Tier 1 capital divided by
                                          adjusted average assets.
                                          (Numerator and denominator are
                                          both based on the definition
                                          for prompt corrective action.)
Net Income before Taxes/Total Assets     Income (before applicable
 (%).                                     income taxes and discontinued
                                          operations) for the most
                                          recent twelve months divided
                                          by total assets.\1\
Nonperforming Loans and Leases/Gross     Sum of total loans and lease
 Assets (%).                              financing receivables past due
                                          90 or more days and still
                                          accruing interest and total
                                          nonaccrual loans and lease
                                          financing receivables
                                          (excluding, in both cases, the
                                          maximum amount recoverable
                                          from the U.S. Government, its
                                          agencies or government-
                                          sponsored enterprises, under
                                          guarantee or insurance
                                          provisions) divided by gross
                                          assets.2 3
Other Real Estate Owned/Gross Assets     Other real estate owned divided
 (%).                                     by gross assets.\2\
Brokered Deposit Ratio.................  The ratio of the difference
                                          between brokered deposits and
                                          10 percent of total assets to
                                          total assets. For institutions
                                          that are well capitalized and
                                          have a CAMELS composite rating
                                          of 1 or 2, reciprocal deposits
                                          are deducted from brokered
                                          deposits. If the ratio is less
                                          than zero, the value is set to
                                          zero.
Weighted Average of C, A, M, E, L, and   The weighted sum of the ``C,''
 S Component Ratings.                     ``A,'' ``M,'' ``E'', ``L'',
                                          and ``S'' CAMELS components,
                                          with weights of 25 percent
                                          each for the ``C'' and ``M''
                                          components, 20 percent for the
                                          ``A'' component, and 10
                                          percent each for the ``E'',
                                          ``L'', and ``S'' components.
                                          In instances where the ``S''
                                          component is missing, the
                                          remaining components are
                                          scaled by a factor of 10/9.\4\
Loan Mix Index.........................  A measure of credit risk
                                          described below.
Asset Growth (%).......................  Growth in assets (adjusted for
                                          mergers \5\) over the previous
                                          year in excess of 10
                                          percent.\6\ If growth is less
                                          than 10 percent, the value is
                                          set to zero.
------------------------------------------------------------------------
\1\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the ratio of Net Income before Taxes to Total
  Assets is bounded below by (and cannot be less than) -25 percent and
  is bounded above by (and cannot exceed) 3 percent. For purposes of
  model estimation only, the ratio of Net Income before Taxes to Total
  Assets is defined as income (before income taxes and extraordinary
  items and other adjustments) for the most recent twelve months divided
  by total assets.
\2\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), ``Gross assets'' are total assets plus the
  allowance for loan and lease financing receivable losses (ALLL); for
  purposes of estimating the Statistical Model, for years before 2001,
  when allocated transfer risk was not included in ALLL in Call Reports,
  allocated transfer risk is included in gross assets separately.
\3\ Delinquency and non-accrual data on government guaranteed loans are
  not available for the entire estimation period. As a result, the
  Statistical Model is estimated without deducting delinquent or past-
  due government guaranteed loans from the nonperforming loans and
  leases to gross assets ratio.
\4\ The component rating for sensitivity to market risk (the ``S''
  rating) is not available for years before 1997. As a result, and as
  described in the table, the Statistical Model is estimated using a
  weighted average of five component ratings excluding the ``S''
  component where the component is not available.
\5\ Growth in assets is also adjusted for acquisitions of failed banks.
\6\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the maximum value of the Asset Growth measure is
  230 percent; that is, asset growth (merger adjusted) over the previous
  year in excess of 240 percent (230 percentage points in excess of the
  10 percent threshold) will not further increase a bank's assessment
  rate.


[[Page 6154]]

    The financial variable measures used to estimate the failure 
probabilities are obtained from Call Reports and TFRs. The weighted 
average of the ``C,'' ``A,'' ``M,'' ``E'', ``L'', and ``S'' 
component ratings measure is based on component ratings obtained 
from the most recent bank examination conducted within 24 months 
before the date of the Call Report or TFR.
    The Loan Mix Index assigns loans to the categories of loans 
described in Table E.2. For each loan category, a charge-off rate is 
calculated for each year from 2001 through 2014. The charge-off rate 
for each year is the aggregate charge-off rate on all such loans 
held by small institutions in that year. A weighted average charge-
off rate is then calculated for each loan category, where the weight 
for each year is based on the number of small-bank failures during 
that year.\3\ A Loan Mix Index for each established small 
institution is calculated by: (1) Multiplying the ratio of the 
institution's amount of loans in a particular loan category to its 
total assets by the associated weighted average charge-off rate for 
that loan category; and (2) summing the products for all loan 
categories. Table E.2 gives the weighted average charge-off rate for 
each category of loan, as calculated through the end of 2014. The 
Loan Mix Index excludes credit card loans.
---------------------------------------------------------------------------

    \3\ An exception is ``Real Estate Loans Residual,'' which 
consists of real estate loans held in foreign offices. Few small 
insured depository institutions report this item and a statistically 
reliable estimate of the weighted average charge-off rate could not 
be obtained. Instead, a weighted average of the weighted average 
charge-off rates of the other real estate loan categories is used. 
(The other categories are construction & development, multifamily 
residential, nonfarm nonresidential, 1-4 family residential, and 
agricultural real estate.) The weight for each of the other real 
estate loan categories is based on the aggregate amount of the loans 
held by small insured depository institutions as of December 31, 
2014.

                  Table E.2--Loan Mix Index Categories
------------------------------------------------------------------------
                                                             Weighted
                                                            charge-off
                                                           rate percent
------------------------------------------------------------------------
Construction & Development..............................       4.4965840
Commercial & Industrial.................................       1.5984506
Leases..................................................       1.4974551
Other Consumer..........................................       1.4559717
Loans to Foreign Government.............................       1.3384093
Real Estate Loans Residual..............................       1.0169338
Multifamily Residential.................................       0.8847597
Nonfarm Nonresidential..................................       0.7286274
1-4 Family Residential..................................       0.6973778
Loans to Depository banks...............................       0.5760532
Agricultural Real Estate................................       0.2376712
Agriculture.............................................       0.2432737
------------------------------------------------------------------------

    For each of the three regression estimates (Regression 1, 
Regression 2 and Regression 3), the estimated probability of failure 
(over a three-year horizon) of institution i at time T is
[GRAPHIC] [TIFF OMITTED] TP04FE16.013

Where
[GRAPHIC] [TIFF OMITTED] TP04FE16.014

where the [beta] variables are parameter estimates. As stated 
earlier, for actual assessments, the [beta] values that are applied 
are averages of each of the individual parameters over three 
separate regressions. Pricing multipliers (discussed in the next 
section) are based on ZiT.\4\
---------------------------------------------------------------------------

    \4\ The ZiT values have the same rank ordering as the 
probability measures PiT.
---------------------------------------------------------------------------

III. Derivation of uniform amount and pricing multipliers

    The uniform amount and pricing multipliers used to compute the 
annual initial base assessment rate in basis points, RiT, for any 
such institution i at a given time T will be determined from the 
Statistical Model as follows:
[GRAPHIC] [TIFF OMITTED] TP04FE16.015

where [alpha]0 and [alpha]1 are a constant term and a scale factor 
used to convert ZiT to an assessment rate, Max is the maximum 
initial base assessment rate in effect and Min is the minimum 
initial base assessment rate in effect. (RiT is expressed as an 
annual rate, but the actual rate applied in any quarter will be RiT/
4.)
---------------------------------------------------------------------------

    \5\ RiT is also subject to the minimum and maximum 
assessment rates applicable to established small institutions based 
upon their CAMELS composite ratings.
---------------------------------------------------------------------------

    Solving equation 3 for minimum and maximum initial base 
assessment rates simultaneously,

    Min = [alpha]0 + [alpha]1 * ZN 
and Max = [alpha]0 + [alpha]1 * ZX

where ZX is the value of ZiT above which the 
maximum initial assessment rate (Max) applies and ZN is 
the value of ZiT below which the minimum initial 
assessment rate (Min) applies, results in values for the constant 
amount, [alpha]0, and the scale factor, 
[alpha]1:

[[Page 6155]]

[GRAPHIC] [TIFF OMITTED] TP04FE16.016

[GRAPHIC] [TIFF OMITTED] TP04FE16.017

    The values for ZX and ZN will be selected 
to ensure that, for an assessment period shortly before adoption of 
a final rule, aggregate assessments for all established small 
institutions would have been approximately the same under the final 
rule as they would have been under the assessment rate schedule 
that--under rules in effect before adoption of the final rule--will 
automatically go into effect when the reserve ratio reaches 1.15 
percent. As an example, using aggregate assessments for all 
established small institutions for the third quarter of 2013 to 
determine ZX and ZN, and assuming that Min had 
equaled 3 basis points and Max had equaled 30 basis points, the 
value of ZX would have been 0.87 and the value of 
ZN -6.36. Hence based on equations 4 and 5,
    [alpha]0 = 26.751 and
    [alpha]1 = 3.734.
    Therefore from equation 3, it follows that
    [GRAPHIC] [TIFF OMITTED] TP04FE16.018
    
    Substituting equation 2 produces an annual initial base 
assessment rate for institution i at time T, RiT, in terms of the 
uniform amount, the pricing multipliers and model variables:
[GRAPHIC] [TIFF OMITTED] TP04FE16.019

again subject to 3 <= RiT <= 30 \6\
---------------------------------------------------------------------------

    \6\ As stated above, RiT is also subject to the minimum and 
maximum assessment rates applicable to established small 
institutions based upon their CAMELS composite ratings.
---------------------------------------------------------------------------

where 26.751 + 3.734 * [beta]0 equals the uniform amount, 
3.734 * [beta]j is a pricing multiplier for the 
associated risk measure j, and T is the date of the report of 
condition corresponding to the end of the quarter for which the 
assessment rate is computed.

    By order of the Board of Directors.

    Dated at Washington, DC, this 21st day of January, 2016.

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

[FR Doc. 2016-01448 Filed 2-3-16; 8:45 am]
 BILLING CODE 6714-01-P