[Federal Register Volume 81, Number 98 (Friday, May 20, 2016)]
[Rules and Regulations]
[Pages 32180-32216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11181]



[[Page 32179]]

Vol. 81

Friday,

No. 98

May 20, 2016

Part III





Federal Deposit Insurance Corporation





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12 CFR Part 327





Assessments; Final Rule

  Federal Register / Vol. 81 , No. 98 / Friday, May 20, 2016 / Rules 
and Regulations  

[[Page 32180]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AE37


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its rules to refine the deposit insurance 
assessment system for small insured depository institutions that have 
been federally insured for at least five years (established small 
banks) by: Revising the financial ratios method so that it is based on 
a statistical model estimating the probability of failure over three 
years; updating the financial measures used in the financial ratios 
method consistent with the statistical model; and eliminating risk 
categories for established small banks and using the financial ratios 
method to determine assessment rates for all such banks (subject to 
minimum or maximum initial assessment rates based upon a bank's CAMELS 
composite rating). Under current regulations, deposit insurance 
assessment rates will decrease once the deposit insurance fund (DIF or 
fund) reserve ratio reaches 1.15 percent. The final rule preserves the 
range of initial assessment rates authorized under current regulations.

DATES: The final rule is effective July 1, 2016.
    Applicability date: If the reserve ratio reaches 1.15 percent 
before that date, the assessment system described in the final rule 
will become operative July 1, 2016. If the reserve ratio has not 
reached 1.15 percent by that date, the assessment system described in 
the final rule will become operative the first day of the calendar 
quarter after the reserve ratio reaches 1.15 percent.

FOR FURTHER INFORMATION CONTACT: Munsell St. Clair, Chief, Banking and 
Regulatory Policy, Division of Insurance and Research, 202-898-8967; 
Ashley Mihalik, Senior Policy Analyst, Division of Insurance and 
Research, 202-898-3793; Nefretete Smith, Counsel, Legal Division, 202-
898-6851; Thomas Hearn, Counsel, Legal Division, 202-898-6967.

SUPPLEMENTARY INFORMATION:

I. Background

Policy Objectives

    The primary purpose of the final rule is to improve the risk-based 
deposit insurance assessment system applicable to established small 
banks to more accurately reflect risk.\1\ Additional discussion of the 
policy objectives of the final rule can be found in the notice of 
proposed rulemaking adopted by the FDIC's Board of Directors (Board) on 
June 6, 2015.\2\
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    \1\ 12 U.S.C. 1817(b). A ``risk-based assessment system'' means 
a system for calculating an insured depository institution's deposit 
insurance 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).
    As used in this final rule, the term ``bank'' is synonymous with 
the term ``insured depository institution'' as it is used in section 
3(c)(2) of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 
1813(c)(2). As used in this final rule, 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.
    \2\ See 80 FR at 40838 and 40842 (July 13, 2015).
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Risk-Based Deposit Insurance Assessments for Established Small Banks

    Since 2007, assessment rates for established small banks (that is, 
small banks other than new small banks and insured branches of foreign 
banks) \3\ have been determined by placing each bank into one of four 
risk categories, Risk Categories I, II, III, and IV.\4\ 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.\5\ 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.\6\ 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).\7\ An institution's capital group and supervisory 
group determine its risk category as set out in Table 1 below.
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    \3\ 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).
    \4\ 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).
    \5\ The common equity tier 1 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.
    \6\ 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).
    \7\ 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 
sensitivity to market risk (S).

                                     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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[[Page 32181]]

 
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 \8\ with current financial ratios to determine a small Risk 
Category I bank's initial assessment rate.\9\
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    \8\ 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 assessment purposes. The FDIC and other bank supervisors 
do not use such a system to determine CAMELS composite ratings.
    \9\ 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.\10\
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    \10\ 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 CAMELS composite 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.\11\
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    \11\ 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).\12\
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    \12\ 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 percent by September 30, 
2020.\13\
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    \13\ 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), 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] on insured depository institutions with total consolidated 
assets of less than $10,000,000,000,'' 12 U.S.C. 1817(note). On 
March 15, 2016, the FDIC adopted a final rule 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 insured depository institutions with total 
consolidated assets of less than $10 billion be offset. See 81 FR 
16059 (Mar. 25, 2016).
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    The initial assessment rates currently in effect for small and 
large banks are set forth in Table 2 below.\14\
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    \14\ 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, 66272-66281 
(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
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                                                               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.


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    An institution's total assessment rate may vary from the initial 
assessment rate as the result of possible adjustments.\15\ 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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    \15\ 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 Base 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 Base 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.\16\ Pursuant to 
the FDIC's authority to set assessments, the regulations currently 
provide that the initial 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.\17\
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    \16\ See 76 FR at 10717-720.
    \17\ For new banks, however, the rates will remain in effect 
even if the reserve ratio equals or exceeds 2 percent (or 2.5 
percent).

                                                   Table 4--Initial and Total Base Assessment Rates *
                                                               [In basis points per annum]
                                                   [Once the reserve ratio reaches 1.15 percent \18\]
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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 take 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 take 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.
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    \18\ The reserve ratio for the immediately prior assessment 
period must also be less than 2 percent.
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    The Board, by regulation, may 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.\19\
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    \19\ See 12 CFR 327.10(f); 76 FR at 10684.
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The 2015 Notice of Proposed Rulemaking

    On June 16, 2015, the Board authorized publication of a notice of 
proposed rulemaking (2015 NPR) to refine the deposit insurance 
assessment system for established small banks. The 2015 NPR was 
published in the Federal Register on July 13, 2015.\20\ In the 2015 
NPR, the FDIC proposed to improve the assessment system applicable to 
established small banks by: (1) Revising the financial ratios method so 
that it would be based on a statistical model

[[Page 32183]]

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, however, would be used to place a maximum on the assessment 
rates that CAMELS composite 1- and 2-rated banks could be charged and 
minimums on the assessment rates that CAMELS composite 3-, 4- and 5-
rated banks could be charged.
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    \20\ See 80 FR 40838 (July 13, 2015).
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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. These comments addressed many aspects of the 
proposal, including the loan mix index and the one-year asset growth 
measure, but the majority of comments expressed concern regarding the 
proposed treatment of reciprocal deposits in the 2015 NPR.

The 2016 Notice of Proposed Rulemaking

    On January 21, 2016, the Board authorized publication of a second 
notice of proposed rulemaking (the 2016 revised NPR) to revise the 2015 
NPR in response to comments received. The 2016 revised NPR was 
published in the Federal Register on February 4, 2016.\21\ The broad 
outline of the 2016 revised NPR remained the same as the 2015 NPR, but 
revised the proposal by: (1) Using a brokered deposit ratio (that 
treats reciprocal deposits the same as under current regulations)--
rather than the core deposit ratio proposed in the 2015 NPR--as a 
measure in the proposed financial ratios method for calculating 
assessment rates for all established small banks; (2) removing the 
existing brokered deposit adjustment applicable to certain established 
small banks, which is made duplicative by the new brokered deposit 
ratio; (3) revising the one-year asset growth measure, another of the 
financial ratios method measures proposed in the 2015 NPR; (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.
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    \21\ See 81 FR 6108 (Feb. 4, 2016).
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    The FDIC received a total of 19 comment letters in response to the 
2016 revised NPR. Of these, 7 were from trade groups and 12 were from 
individuals or banks. Comments addressed both the revisions to the 
proposal made by the 2016 revised NPR and aspects of the proposal that 
remained unchanged from the 2015 NPR, such as the loan mix index.
    All comments, those received on the 2015 NPR and the 2016 revised 
NPR, were considered in developing this final rule. Comments are 
discussed in the relevant sections that follow.

II. The Final Rule

Description of the Final Rule

    The final rule adopts the proposals in the 2016 revised NPR as 
proposed.
    The financial ratios method in the final rule uses 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 final rule will not require established small banks to 
report any new data in their Reports of Condition and Income (Call 
Reports).
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    \22\ The tier 1 leverage ratio is now known as the leverage 
ratio.

 Table 5--Comparison of Current and Final Rule Measures in the Financial
                              Ratios Method
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   Current Risk Category I financial       Final rule financial ratios
             ratios method                            method
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 Weighted Average CAMELS          Weighted Average
 Component Rating.                        CAMELS Component Rating.
 Tier 1 Leverage Ratio.........   Leverage Ratio.\22\
 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.
------------------------------------------------------------------------

    All of the measures in the final rule are derived from a 
statistical model 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 
estimation of the statistical model uses 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 the 2016 revised 
NPR, and appendix E to the 2016 revised NPR, describe the statistical 
model and the derivation of these measures in detail.\24\
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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.
    \24\ See 80 FR at 40857-872 (Appendix 1 in 2015 NPR), 81 FR at 
6124-35 (Appendix 1 in 2016 revised NPR), and 81 FR at 6153-55 
(appendix E in 2016 revised NPR).
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    Three of the measures in the final rule--the weighted average 
CAMELS component rating, the leverage ratio, and the net income ratio 
measure--are identical or very similar to the measures currently used 
in the financial ratios method.\25\ The current nonperforming

[[Page 32184]]

assets/gross assets measure includes other real estate owned. In the 
final rule, other real estate owned/gross assets is a separate measure 
from nonperforming loans and leases/gross assets.
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    \25\ The denominator in the net income before taxes/total assets 
measure is total assets rather than risk-weighted assets as under 
current rules. Also, the definition of the net income measure no 
longer refers to extraordinary items. The numerator of the 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 FDIC, the Office of the Comptroller 
of the Currency, and the Board of Governors of the Federal Reserve 
System (collectively, 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 income for the net income ratio will be determined before 
discontinued operations. Therefore, the FDIC is defining the net 
income measure to reflect the anticipated Call Report changes. The 
FDIC recognizes that this final rule may become effective before the 
Federal banking agencies finalize the proposed Call Report changes.
    Because the numerator of the 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 financial measures--the brokered deposit ratio, 
the one-year asset growth measure and the loan mix index--are described 
in detail below.\26\ The brokered deposit ratio and the one-year asset 
growth measure replace the current adjusted brokered deposit ratio.
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    \26\ Two measures in the current financial ratios method--net 
loan charge-offs/gross assets and loans past due 30-89 days/gross 
assets--were analyzed but are not used in the final statistical 
analysis and are not among the measures in this final rule.
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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 both 
brokered deposits that exceed 10 percent of its domestic deposits and a 
high asset growth rate.\27\ Reciprocal deposits are not included with 
other brokered deposits in the adjusted brokered deposit ratio.\28\
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    \27\ The adjusted brokered deposit ratio can affect assessment 
rates only if a bank's brokered deposits (excluding reciprocal 
deposits) exceed 10 percent of its domestic deposits and its assets 
have grown more than 40 percent in the previous 4 years. 12 CFR part 
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 December 
31, 2015, the adjusted brokered deposit ratio affected the 
assessment rate of 111 banks.
    \28\ Reciprocal deposits are deposits that an insured depository 
institution receives through a deposit placement network on a 
reciprocal basis, such that: (1) For any deposit received, the 
institution (as agent for depositors) places the same amount with 
other insured depository institutions through the network; and (2) 
each member of the network sets the interest rate to be paid on the 
entire amount of funds it places with other network members. See 12 
CFR 327.8(q).
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    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.\29\ 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.
---------------------------------------------------------------------------

    \29\ 12 CFR 327.9(d)(3); 12 U.S.C. 1831f.
---------------------------------------------------------------------------

    The final rule replaces the adjusted brokered deposit ratio 
currently used in the financial ratios method with a brokered deposit 
ratio, defined as the ratio of brokered deposits to total assets, and 
with a one-year asset growth measure, which is discussed later. The 
final rule also eliminates the existing brokered deposit adjustment 
applicable to established small banks outside Risk Category I. Under 
the new brokered deposit ratio applicable to all established small 
banks, brokered deposits in excess of 10 percent of total assets may 
increase assessment rates. For a bank that is well capitalized and has 
a CAMELS composite rating of 1 or 2, reciprocal deposits will 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 will be included with other brokered deposits.
    Most commenters on the 2016 revised NPR discussed the changes 
related to the brokered deposit ratio. Some commenters supported using 
a brokered deposit ratio and some expressed support for excluding 
reciprocal deposits from the brokered deposit ratio for banks that are 
well capitalized and have a CAMELS composite rating of 1 or 2. 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 or, 
similarly, that the final rule should reflect the current treatment of 
reciprocal deposits.
    The brokered deposit ratio as defined in the final rule is also 
consistent with the 16 comment letters on the 2015 NPR cautioning 
against penalizing the use of Federal Home Loan Bank advances in 
determining assessment rates. The final rule does not change the 
current treatment of Federal Home Loan Bank advances in the small bank 
deposit insurance assessment system. The FDIC received two comments on 
the 2016 revised NPR supporting the FDIC's responsiveness to these 
concerns.
    The FDIC received two comment letters on the 2016 revised NPR 
reiterating the argument made in 40 comment letters on the 2015 NPR 
that reciprocal deposits should be treated as core deposits or are the 
functional equivalent of core deposits. Commenters argued that 
reciprocal deposits do not present the same risks as brokered deposits, 
such as excessive growth or liquidity problems, and therefore should be 
formally recognized as a low risk, desirable source of funds. One 
commenter on the 2016 revised NPR argued that reciprocal deposits 
should not be included with brokered deposits even for banks that are 
less than well capitalized or have a CAMELS composite rating of 3, 4 or 
5, because a bank's deposits are already adequately accounted for under 
the ``L'' (``Liquidity'') component of a bank's CAMELS rating.
    As stated in the 2016 revised NPR, however, 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 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 . . .'' \30\ (Emphasis added.) As the 
FDIC noted when it adopted the current 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

[[Page 32185]]

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.'' \31\ 
The brokered deposit ratio, which deducts reciprocal deposits for well-
capitalized, well-rated banks, is consistent with these statutory 
restrictions and with the FDIC Study on Core Deposits and Brokered 
Deposits.
---------------------------------------------------------------------------

    \30\ FDIC Study on Core Deposits and Brokered Deposits (2011), 
54.
    \31\ 74 FR 9525, 9541 (Mar. 9, 2009). 12 U.S.C. 1831f.
---------------------------------------------------------------------------

    Three commenters on the 2016 revised NPR reiterated the argument 
they made in their comments on the 2015 NPR that the FDIC should not 
charge higher assessment rates to banks that hold brokered deposits, 
but should instead consider how banks use brokered deposits and whether 
they remain profitable and well capitalized. The FDIC also received 
letters on both the 2016 revised NPR and the 2015 NPR suggesting that 
specific types of brokered deposits--including stable retail deposits, 
certain custodial accounts, and longer maturing brokered CDs used to 
manage interest rate risk--be excluded from the brokered deposit ratio, 
and arguing that these deposits have similar characteristics to 
reciprocal deposits and are less risky than other brokered deposits.
    Small banks do not report data on particular types of brokered 
deposits (other than reciprocal deposits). Because of this lack of 
data, the FDIC cannot analyze individual types of brokered deposits 
statistically. In any event, the FDIC's statistical analyses and other 
studies have found that brokered deposits in general are correlated 
with a higher probability of failure and, as was acknowledged by one 
commenter, higher losses upon failure.\32\ Collecting additional data 
on particular types of brokered deposits is not likely to improve the 
assessment system's ability to distinguish risk enough to warrant the 
additional reporting burden it would impose on small banks.
---------------------------------------------------------------------------

    \32\ See FDIC Study on Core Deposits and Brokered Deposits 
(2011), 38-44, 46-47 and 66-68 (Appendix A: Excerpts from Material 
Loss Reviews And Summaries of OIG Semiannual Reports to Congress).
---------------------------------------------------------------------------

One-Year Asset Growth Measure
    In response to comments on the 2015 NPR that the one-year asset 
growth measure should not penalize normal asset growth, the final rule 
uses a one-year asset growth measure that increases an established 
small bank's assessment rate only if it has had one-year asset growth 
greater than 10 percent.
    The FDIC received 6 comments on the 2016 revised NPR supporting the 
change from the asset growth measure as proposed in the 2015 NPR. Some 
commenters, however, remained concerned that the measure 
inappropriately penalizes banks for growth that may not be risky, 
arguing that a bank can exceed the 10 percent threshold for reasons 
such as the failure of a competitor, economic conditions, or an influx 
of deposits invested in high-quality assets. A few commenters suggested 
using CAMELS component ratings, such as a bank's rating for the ``A'' 
(``Asset quality'') or ``S'' (``Sensitivity to market risk'') 
components, in place of or to limit the effect of the one-year asset 
growth measure.
    The one-year asset growth 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\ The FDIC analyzed whether replacing the one-
year asset growth measure with the CAMELS component ratings suggested 
by some commenters would improve the statistical model underlying the 
small bank assessment system adopted in this final rule. The FDIC's 
analyses show that, when the asset growth measure is replaced by the 
CAMELS components suggested by commenters, the components are highly 
statistically insignificant.34 35 Thus, these CAMELS 
components cannot be used to substitute for the one-year asset growth 
measure.
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    \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.
    \34\ Furthermore, some of the results of the analyses suggest 
that assessment rates would increase for a bank with a better 
component ratings, rather than decrease.
    \35\ In the analysis of the alternative suggested by commenters, 
the weighted average of CAMELS component ratings was revised to 
exclude the components that were included as separate variables.
---------------------------------------------------------------------------

Combining the Brokered Deposit Ratio and One-Year Asset Growth Measure
    The FDIC received 4 comment letters on the 2016 revised NPR 
suggesting that the FDIC use a measure that increases assessments only 
for banks that have both rapid asset growth and high levels of brokered 
deposits, similar to the current adjusted brokered deposit ratio. 
Commenters asserted that using separate variables is not supported by 
the nature of brokered deposit risk or by the statistical model 
underlying the proposed small bank deposit insurance system. One 
commenter submitted the results of a statistical analysis it had 
undertaken that, in the commenter's view, demonstrates that a combined 
measure performed better in more recent years. (The commenter was 
unable to use CAMELS ratings in its statistical analysis, since these 
ratings are confidential.)
    The FDIC conducted its own backtest of the assessment system in the 
final rule and compared it with a backtest of an assessment system 
using a combined measure, as suggested by commenters. The FDIC's 
comparison revealed that, overall, the assessment system in the final 
rule actually performed better in recent years, particularly 
immediately before the recent banking crisis, in discriminating between 
banks that failed within three years and those that did not.\36\
---------------------------------------------------------------------------

    \36\ The FDIC tested how well the assessment system in the final 
rule, which uses separate measures for brokered deposits and asset 
growth, would have differentiated during the recent crisis between 
banks that failed and those that did not compared to an assessment 
system that used a combined measure (based on the interaction 
between brokered deposits and asset growth). In each case, the FDIC, 
unlike the commenter, was able to use CAMELS component ratings. The 
FDIC determined out-of-sample accuracy ratios for the assessment 
system in the final rule and compared these accuracy ratios with 
accuracy ratios for an assessment system using separate measures to 
determine how well each version of the system would have 
differentiated between banks that failed within the projection 
period and those that did not. The projection period in each case 
was the three years following the date of the projection; the dates 
of projection were the last day of the years 2006 through 2011. (An 
accuracy ratio compares how well a model would have discriminated 
between banks that failed within the projection period and banks 
that did not.) For each year's projection, the assessment system in 
the final rule had accuracy ratios that were equal to or better than 
the accuracy ratios for the system using a combined measure. In most 
years of the backtest, the accuracy ratios were similar; in the 2006 
projection (predicting failures from 2007 through 2009), however, 
the accuracy ratio for the assessment system using separate measures 
was significantly better than the accuracy ratio for the assessment 
system using a combined measure. (Accuracy ratios are discussed in 
more detail later.)
---------------------------------------------------------------------------

    Moreover, as discussed earlier, brokered deposits pose risks other 
than enabling banks to engage in rapid asset growth. Brokered deposits 
increase a bank's probability of failure (even after controlling for 
asset growth) and increase the loss to the DIF in the event of 
failure.\37\ In addition, rapid asset growth can be funded by 
liabilities other than brokered deposits. The FDIC's analysis of the 
354 banks that, during the recent crisis, grew rapidly in the years 
before they failed reveals that, while brokered deposits funded a

[[Page 32186]]

significant amount of growth, other funding sources also contributed 
significantly to growth. Increasing assessments only for banks that 
have both high levels of brokered deposits and rapid asset growth would 
allow small banks to have large amounts of brokered deposits or rapid 
asset growth without any effect on their assessment rates.
---------------------------------------------------------------------------

    \37\ See FDIC Study on Core Deposits and Brokered Deposits 
(2011), 38-44 and 46-47.
---------------------------------------------------------------------------

Loan Mix Index
    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 industry-wide charge-off rates to identify loan types with 
higher risk.\38\ 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.
---------------------------------------------------------------------------

    \38\ ``Industry-wide'' charge-off rates are charge-off rates for 
all small banks.
---------------------------------------------------------------------------

    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.\39\ For each loan 
category's weighted-average industry-wide charge-off rate, the weight 
for each year's charge-off rate is proportional to 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 DIF losses) have 
an appropriate influence on assessment rates.
---------------------------------------------------------------------------

    \39\ 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.
---------------------------------------------------------------------------

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

                               Table 6--Loan Mix Index for a Hypothetical Bank 40
----------------------------------------------------------------------------------------------------------------
                                                                                Loan category as
                                                                   Weighted       a percent of    Product of two
                                                                  charge-off      hypothetical    columns to the
                                                                 rate percent     bank's total         left
                                                                                     assests
----------------------------------------------------------------------------------------------------------------
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
                                                               -------------------------------------------------
    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.
---------------------------------------------------------------------------

    \40\ 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 final rule uses 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) uses 
three decimal places.
---------------------------------------------------------------------------

    The FDIC received 30 comments on the 2015 NPR and 11 comments on 
the revised 2016 NPR (10 from the same commenters who responded to the 
2015 NPR) on the loan mix index. These comments expressed views that 
the loan mix index is a poor indicator of risk because it does not 
account for factors such as the quality of loan underwriting, 
geographic variation, risk mitigating factors such as collateral or 
guarantees, and an individual bank's historical loss ratios. Commenters 
argued that these factors are more relevant to an individual bank's 
risk than industry-wide charge-off rates for each loan type based on 
the most recent financial crisis. Several commenters argued for 
modifying the loan mix index, while others argued for eliminating the 
loan mix index and instead using measures of a bank's own average asset 
quality over time (delinquencies, nonperforming assets, and net charge-
offs, for example, as suggested by a banking trade group) or CAMELS 
component ratings.
    For several reasons, the loan mix index does not incorporate a 
bank's quality of loan underwriting, geographic variation, risk 
mitigating factors, or individual historical loss rates on types of 
loans. First, as some commenters noted, the data that banks report in 
the Call Report are not sufficient or specific enough to distinguish 
these risk factors by loan category. Collecting the data needed to take 
these factors into account likely would not improve the assessment 
system's ability to distinguish for risk enough to warrant the 
additional reporting burden it would impose on small banks.

[[Page 32187]]

    Second, underwriting quality directly or indirectly affects, and is 
reflected in, several other measures in the financial ratios method, 
including the weighted average CAMELS component rating, the 
nonperforming loans and leases measure, the other real estate owned 
measure, and the net income measure. Therefore, the final rule should 
not deter a bank from making well underwritten loans of any type, since 
good underwriting quality will be reflected in other financial and 
supervisory measures and will reduce the bank's assessment rate.
    Third, an individual bank's loss rates on the types of loans in the 
loan mix index do not necessarily demonstrate how the bank will fare in 
the future. Low loss rates may result from lending in areas that 
suffered less in the recent downturn. If a bank's low loss rates simply 
reflect comparatively less stressful conditions in the bank's primary 
lending area during the past crisis, they will not reveal how the bank 
would fare during a period of severe stress similar to that recently 
observed in other areas of the country. Since it is not possible to 
predict which areas of the country will be affected by the next 
downturn, the loan mix index uses industry-wide average annual charge-
off rates for each category of loan, including commercial and 
development (C&D) and commercial and industrial (C&I) loans, weighted 
by the number of bank failures in each year.
    Although these reasons are sufficient to preclude replacing the 
loan mix index, the FDIC nevertheless undertook statistical analyses of 
a trade group's suggestion to replace the loan mix index with a bank's 
own recent history of delinquencies, nonperforming assets, and net 
charge-offs. The FDIC tried various combinations of these measures, but 
the measures did not perform as well as the measures in the statistical 
model in the final rule in estimating the likelihood of failure.\41\
---------------------------------------------------------------------------

    \41\ Although the measures suggested by the commenters reflect 
loan quality, including them in the statistical model does not add 
information beyond that already provided by other measures, since 
the statistical model in the final rule also relies on six other 
measures based on a banks' own balance sheet and income statement.
---------------------------------------------------------------------------

    The FDIC also analyzed whether replacing the loan mix index with 
the ``A'' CAMELS component, as suggested by some commenters, would 
improve the statistical model. Again, the statistical model in the 
final rule performed better in estimating failure probability than this 
alternative.\42\
---------------------------------------------------------------------------

    \42\ Under the suggested alternative, the ``A'' component was 
not statistically significant, and some of the results of the 
analysis suggested that assessment rates should increase for a bank 
with a better ``A'' component ratings, rather than decrease. 
Estimation problems of this nature can occur when new variables are 
added that are strongly correlated with variables already in a 
model.
---------------------------------------------------------------------------

    Several commenters argued that the loan mix index, which uses 
charge-off rates from 2001 through 2014, is weighted too heavily by the 
most recent recession. For example, some commenters cited the failure 
of agricultural and residential mortgage lenders in the 1980s and early 
1990s. Several commenters said that the weighted charge-off rates 
assigned to C&D and C&I loans are inappropriately high.
    The loan mix index uses loan charge-off data from 2001 through 2014 
to calculate weights for each loan category because charge-off data for 
some of the loan categories in the loan mix index is not available 
before 2001. Nevertheless, asset concentrations in commercial real 
estate (CRE) loans--in particular, C&D loans--have been found to 
contribute to bank failures in both the recent crisis and the earlier 
crisis of the 1980s and early 1990s. For example, Material Loss Reviews 
and Reports to Congress from the FDIC Office of Inspector General (OIG) 
have concluded that significant concentrations in riskier assets, such 
as C&D loans (also termed acquisition, development, and construction, 
or ADC loans), and other CRE loans, contribute to bank failure.\43\ The 
FDIC's analysis of the banking crisis of the 1980s and early 1990s also 
finds that concentrations of CRE loans (including C&D loans) relative 
to total assets were higher for banks that subsequently failed than for 
banks that did not fail.\44\ FDIC analysis finds that established small 
banks that had a ratio of C&D loans to assets of 50 percent or more as 
of the end of 2008 failed over the next five years at ten times the 
rate of established small banks with lower ratios.
---------------------------------------------------------------------------

    \43\ See FDIC Study on Core Deposits and Brokered Deposits 
(2011), Appendix A: Excerpts from Material Loss Reviews And 
Summaries of OIG Semiannual Reports to Congress (66-68).
    \44\ FDIC. (December 1997). History of the Eighties--Lessons for 
the Future, www.fdic.gov/bank/historical/history/contents.html.
---------------------------------------------------------------------------

    One banking trade group suggested that the annual industry-wide 
charge-off rates used to determine charge-off rates in the loan mix 
index should not be weighted more heavily in years with many bank 
failures than in years with few bank failures.
    Annual industry-wide charge-off rates for each type of loan in the 
loan mix index are weighted by the number of bank failures in each year 
to assure that types of loans that have high charge-off rates during 
downturns have an appropriate influence on assessment rates. Loss rates 
observed in periods characterized by a higher rate of bank failures are 
more relevant to the risk of loss to the DIF than loss experience in 
other periods.
    Nevertheless, the FDIC conducted a backtest of the assessment 
system in the final rule and compared it with a backtest of an 
assessment system that uses a loan mix index based on a simple average 
of industry-wide annual charge-off rates (where each annual charge-off 
rate is weighted equally) for each loan type, as suggested by the 
commenter. The FDIC's comparison revealed that the assessment system in 
the final rule would have performed better, particularly in the early 
part of the last crisis, in discriminating between banks that 
subsequently failed within three years and those that did not fail.\45\
---------------------------------------------------------------------------

    \45\ The FDIC tested how well the assessment system in the final 
rule would have differentiated between banks that failed and those 
that did not during the recent crisis compared to an assessment 
system that used a loan mix index based upon simple averages of 
annual charge-off rates for each loan type. The FDIC used out-of-
sample accuracy ratios to test how well each version of the system 
would have differentiated between banks that failed within the 
projection period and those that did not. The projection period in 
each case was the three years following the date of the projection; 
the dates of projection were the last day of the years 2006 through 
2011. (An accuracy ratio compares how well a model would have 
discriminated between banks that failed within the projection period 
and banks that did not.) For the projections from the end of 2006 
and 2007, accuracy ratios for the assessment system in the final 
rule were significantly better. For other years, the accuracy ratios 
were not materially different. (Accuracy ratios are discussed in 
more detail later.)
---------------------------------------------------------------------------

    According to 24 commenters, the use of annual industry-wide charge-
off rates weighted by bank failures during the recent crisis could lead 
banks to reduce certain types of lending and increase others.
    The loan mix index reflects the performance of loan types over many 
years and appropriately assigns higher assessment rates to banks with 
concentrations in types of loans that have been demonstrated over two 
crises to be more costly to the DIF than to banks that do not have such 
concentrations. FDIC analysis finds only a small effect--or none at 
all--on a small bank's assessment rate from an incremental increase in 
the balance of any loan category (including C&D loans) in the loan mix 
index.\46\ Consequently,

[[Page 32188]]

the loan mix index should not materially affect banks' lending 
decisions.
---------------------------------------------------------------------------

    \46\ The effect on assessment rates of an incremental increase 
in a loan category balance in the loan mix index varies depending on 
whether a small bank is paying the minimum or maximum rate 
applicable to the bank's CAMELS composite rating or is paying a rate 
between the minimum and maximum under the final rule. For example, a 
small bank that is paying the maximum assessment rate for a bank 
with its CAMELS composite rating will continue to pay the maximum 
rate even if it increases its loan balances, so the marginal effect 
is zero. Similarly, most small banks that are paying the minimum 
assessment rate for banks with their CAMELS composite rating will 
continue to do so even with an incremental increase in any 
particular type of lending. For a small bank whose assessment rate 
is between the minimum and maximum rate, an incremental increase in 
a particular type of lending will, at most, result in only a small 
increase in a bank's assessment rate.
    Since the effect of an incremental increase in a loan category 
balance on a bank's assessment rate will be small, the loan mix 
index is not likely to have a material effect on a bank's lending 
decisions.
---------------------------------------------------------------------------

    Several commenters on both the 2015 NPR and the 2016 revised NPR 
criticized the assumption that the future will follow the path of any 
single past period, noting that future bank failures may be 
characterized by different portfolio mixes than in the last recession.
    As discussed above, the method adopted in the final rule is based 
upon a statistical analysis of the available data. Any empirical 
analysis necessarily relies upon past data. While there is no guarantee 
that the risks that led to past failures will necessarily be identical 
to those that lead to future failures, past experience still provides a 
sound basis for evaluating risk.
    As also discussed above, each of the measures used in the final 
rule, including the loan mix index, is a statistically significant 
predictor of bank failure. Use of a loan portfolio measure is also 
consistent with numerous academic papers.\47\
---------------------------------------------------------------------------

    \47\ See 80 FR at 40858.
---------------------------------------------------------------------------

Leverage Ratio
    The FDIC received 4 comments on the 2016 revised NPR and 14 
comments on the 2015 NPR asserting that the weight (or multiplier) 
assigned to the leverage ratio was too high compared to the current 
system and ``would unfairly penalize banks that meet the 'well 
capitalized' standard but do not hold excess capital . . . '' 
Commenters argued that there is no statistical evidence that well-
managed banks with strong capital are significantly weakened by not 
holding more capital and further, excessive capital can be 
counterproductive. For banks that are well-capitalized and have a 
CAMELS composite rating of 1 or 2, two commenters suggested reducing 
the weight of the leverage ratio and capping the benefit at 8 percent.
    The FDIC disagrees. The greater a bank's capital, the better the 
bank is able to withstand stress and avoid failure. Consequently, 
reducing the assessment rate for a bank that holds capital above the 
minimum level necessary to be considered well capitalized is 
appropriate. Further, as stated above, each of the measures in the 
established small bank assessment system is a statistically significant 
predictor of bank failure, and the multipliers used in the final rule 
for the leverage ratio and for all of the measures are derived from an 
empirical, statistical analysis. As also described above, because the 
final rule eliminates risk categories, applies the financial ratios 
method to all established small banks, and uses some new measures, the 
multipliers assigned to the financial measures, including the leverage 
ratio, are necessarily different from the multipliers in the current 
Risk Category I financial ratios method.
CAMELS Ratings
    The FDIC received 17 comments on the 2015 NPR and 11 comments on 
the revised 2016 NPR (5 from commenters who had similar comments on the 
2015 NPR) related to the role of CAMELS ratings in determining a bank's 
assessment rate. The commenters suggested that the FDIC should more 
heavily weight CAMELS supervisory ratings over other measures, 
including the loan mix index, the one-year asset growth ratio, and the 
brokered deposit ratio, because CAMELS ratings reflect more current, 
bank specific data and judgments by examiners who are familiar with 
each bank's business model and risks. Some commenters suggested using 
individual CAMELS component ratings in place of or to limit the effect 
of other measures. For example, as described above, some commenters 
suggested using the ``A'' CAMELS component in place of a loan mix 
index.
    For several reasons, these comments have not led to changes in the 
final rule. First, compared to the current system, the value of the 
multiplier for the weighted average CAMELS component rating has 
increased. CAMELS ratings are among the useful predictors of a bank's 
probability of failure and, as under current rules, continue to be a 
significant determinant of assessment rates under the final rule. The 
final rule uses both a bank's financial measures and its weighted 
average CAMELS component rating to determine an assessment rate. 
Financial ratios can provide updated information on an institution's 
risk profile between bank examinations and allow greater 
differentiation in risk.\48\ To take into account idiosyncratic and 
unquantifiable risks and risk mitigators that are reflected in CAMELS 
composite ratings, the final rule also establishes minimum and maximum 
assessment rates for established small banks based on these ratings. 
Thus, the final rule prevents the assessment system from assigning a 
rate that reflects either too little risk (for a bank with a CAMELS 
composite 3, 4, or 5 rating) or too much risk (for a bank with a CAMELS 
composite 1 or 2 rating).
---------------------------------------------------------------------------

    \48\ For CAMELS 1- and 2-rated institutions, examinations 
generally occur on a 12- or 18-month cycle. 12 U.S.C.1820(d). Under 
interim final rules published on February 29, 2016, the Federal 
banking agencies increased the number of small banks eligible for an 
18-month examination cycle rather than a 12-month cycle to reduce 
regulatory burden on small, well-capitalized and well-managed 
institutions and allow the agencies to better focus their 
supervisory resources on those institutions that present capital, 
managerial, or other issues of supervisory concern. Qualifying well-
capitalized and well-managed banks with less than $1 billion in 
total assets are eligible for an 18-month examination cycle. See 81 
FR 10063 (Feb. 29, 2016).
---------------------------------------------------------------------------

    Second, the variables selected and used in the underlying 
statistical model are consistent with other existing models of bank 
risk, including FDIC offsite monitoring models and academic literature. 
For example, FDIC offsite monitoring models measure bank conditions and 
monitor bank risk using variables that include: The ratio of charge-
offs to total assets, asset growth, an index measuring changes in loan 
mix, and capital. Numerous academic papers discussing models that 
predict bank failures include explanatory variables that include loan 
portfolio ratios, rapid asset growth, the ratio of core deposits to 
total assets, and capital.\49\ Rapid asset growth, reliance on brokered 
deposits, and significant concentrations in riskier assets have all 
been found to contribute to bank failure.\50\
---------------------------------------------------------------------------

    \49\ See 80 FR at 40858.
    \50\ See FDIC Study on Core Deposits and Brokered Deposits 
(2011), Appendix A: Excerpts from Material Loss Reviews And 
Summaries of OIG Semiannual Reports to Congress, 66-68.
---------------------------------------------------------------------------

    Third, as stated above, each of the measures in the established 
small bank assessment system is a statistically significant predictor 
of bank failure, and the multipliers used in the final rule for 
weighted average CAMELS component ratings and for all of the financial 
measures are derived from an empirical, statistical analysis. 
Commenters did not cite or provide empirical evidence to support their 
suggestion that a greater weight be assigned to CAMELS supervisory 
ratings, or that a lower weight (or effectively no weight) be assigned 
to various financial measures.
    As described above, because the final rule eliminates risk 
categories and applies the financial ratios method to all established 
small banks, and uses some

[[Page 32189]]

new measures, the multipliers assigned to the financial measures, 
including the weighted average CAMELS component rating, are necessarily 
different from the multipliers in the current Risk Category I financial 
ratios method.
    In sum, the financial ratios method in the final rule, including 
the multipliers assigned to the financial measures and weighted average 
CAMELS component ratings, predicts failures significantly better than 
the current system.

Calculating the Initial Assessment Rate

    As in the current methodology for Risk Category I small banks, 
under the final rule the weighted CAMELS components and financial 
ratios will be multiplied by statistically derived pricing multipliers, 
the products summed, and the sum added to a uniform amount that is: (a) 
Derived from the statistical analysis; (b) adjusted for assessment 
rates set by the FDIC; and (c) applied to all established small 
banks.\51\ The total will equal the bank's initial assessment rate. If, 
however, the resulting rate is below the minimum initial assessment 
rate for established small banks, the bank's initial assessment rate 
will be the minimum initial assessment rate; if the rate is above the 
maximum, then the bank's initial assessment rate will be the maximum 
initial rate for established small banks. In addition, if the resulting 
rate for an established small bank is 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 will be the 
respective minimum or maximum assessment rate for an established small 
bank with its CAMELS composite rating. This approach allows 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 appendix E to the 2016 revised NPR.
---------------------------------------------------------------------------

    \51\ 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.
    Under the final rule, for small banks that are considered 
established under these rules, but do not have a CAMELS composite 
rating or do not have CAMELS component ratings:
    1. If the bank has no CAMELS composite rating, its initial 
assessment rate will 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 will 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 final rule eliminates the existing brokered 
deposit adjustment for established small banks.\52\ Under current 
rules, the brokered deposit adjustment applies to small banks only 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 will 
apply to all established small banks), the final rule eliminates the 
brokered deposit adjustment for established small banks.
---------------------------------------------------------------------------

    \52\ As under rules currently in effect, the brokered deposit 
adjustment will 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 
will not apply to insured branches.
---------------------------------------------------------------------------

    As under current rules, the DIDA continues to apply to all banks, 
and the unsecured debt adjustment continues to apply to all banks 
except new banks and insured branches.\53\
---------------------------------------------------------------------------

    \53\ As under rules currently in effect, however, no adjustments 
apply to bridge banks or conservatorships. These banks will continue 
to be charged the minimum assessment rate applicable to small banks.
---------------------------------------------------------------------------

Assessment Rates

    The final rule preserves the lower overall 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 decline automatically from the current range of 5 
basis points to 35 basis points to a range of 3 basis points to 30 
basis points, 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 appendix E to the 2016 revised NPR, the final rule 
converts the statistical model to assessment rates within this range of 
3 basis points to 30 basis points in a revenue neutral way; that is, in 
a manner that does not materially change the aggregate assessment 
revenue collected from established small banks.
    The final rule eliminates risk categories and adopts the range of 
initial assessment rates for established small banks set out in Table 7 
below, thus maintaining 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.\54\ These rates 
will remain in effect as long as the reserve ratio is less than 2 
percent. Table 7 also includes the maximum assessment rates that apply 
to CAMELS composite 1- and 2-rated banks and the minimum assessment 
rates that apply to CAMELS composite 3-rated banks and CAMELS composite 
4- and 5-rated banks.
---------------------------------------------------------------------------

    \54\ See 12 CFR 327.10(b); 76 FR at 10718.
    \55\ The reserve ratio for the immediately prior assessment 
period must also be less than 2 percent.

[[Page 32190]]



                               Table 7--Initial and Total Base Assessment Rates *
                                           [In basis points per annum]
                               [After the reserve ratio reaches 1.15 percent] \55\
----------------------------------------------------------------------------------------------------------------
                                                   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 final rule adopts the range of initial assessment rates for 
established small banks set out in the rate schedule in Table 8 below, 
starting the quarter after the reserve ratio reaches or exceeds 2 
percent, thus maintaining the range of initial assessment rates that 
the Board previously determined will go into effect then. These rates 
will remain in effect as long as the reserve ratio for the prior 
assessment period is at or above 2 percent but is less than 2.5 
percent. Table 8 also includes the maximum assessment rates that apply 
to CAMELS composite 1- and 2-rated banks and the minimum assessment 
rates that apply to CAMELS composite 3-rated banks and CAMELS composite 
4- and 5-rated banks.

                               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 final rule also adopts the range of initial assessment rates 
for established small banks set out in the rate schedule in Table 9 
below, thus again maintaining the range of initial assessment rates 
that the Board previously determined will go into effect when the fund 
reserve ratio at the end of the prior assessment period meets or 
exceeds 2.5 percent. These rates will remain in effect as long as the 
reserve ratio for the prior assessment period is at or above this 
level. Table 9 also includes the maximum assessment rates that apply to 
CAMELS composite 1- and 2-rated banks and the minimum assessment rates 
that apply to CAMELS composite 3-rated banks and CAMELS composite 4- 
and 5-rated banks.

                               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.

[[Page 32191]]

 
*** 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.

    With respect to each of the three assessment rate schedules (Tables 
7, 8 and 9), the Board retains 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, 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 will 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, the final rule converts the statistical model 
to the assessment rates set out in Table 7 in a revenue neutral 
manner.\56\ Specifically, and as described in detail in appendix E to 
the 2016 revised NPR, the final rule converts the statistical model to 
assessment rates to ensure that aggregate assessments under the final 
rule for the assessment period ending December 31, 2015, would have 
been approximately the same 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).\57\
---------------------------------------------------------------------------

    \56\ The final rule converts a linear version of the model, 
which was estimated in a non-linear manner. (See appendix E to the 
2016 revised NPR.) 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. See 71 FR 
69282 (Nov. 30, 2006).
    \57\ Initial assessment rates under the rate schedule actually 
in effect for the fourth quarter of 2015 ranged from 5 basis points 
to 35 basis points, since the DIF reserve ratio was under 1.15 
percent.
---------------------------------------------------------------------------

    Table 10 below sets out the pricing multipliers and uniform amounts 
that result when the FDIC converts 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).
---------------------------------------------------------------------------

    \58\ Table 10 assumes that the assessment rate schedule in Table 
7 is in effect. The uniform amount and pricing multipliers differ 
for the assessment rates in Tables 8 and 9.

        Table 10--Pricing Multipliers and the Uniform Amount \58\
------------------------------------------------------------------------
                                                               Pricing
                       Model measures                         multiplier
------------------------------------------------------------------------
Weighted Average CAMELS Component Rating...................        1.519
Leverage Ratio.............................................       -1.264
Net Income Before Taxes/Total Assets.......................       -0.720
Nonperforming Loans and Leases/Gross Assets................        0.942
Other Real Estate Owned/Gross Assets.......................        0.533
Brokered Deposit Ratio.....................................        0.264
One Year Asset Growth......................................        0.061
Loan Mix Index.............................................        0.081
Uniform Amount.............................................        7.352
------------------------------------------------------------------------

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.\59\ The 
FDIC does not anticipate the need for frequent updates, since variables 
and coefficients in the underlying model are not likely to change much 
absent a significant number of failures. In any event, any changes to 
the small bank deposit insurance pricing model will go through notice-
and-comment rulemaking. The FDIC received two comments on the 2016 
revised NPR supporting the use of notice-and-comment rulemaking for any 
future changes to the small bank deposit insurance pricing model.
---------------------------------------------------------------------------

    \59\ 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.
---------------------------------------------------------------------------

Insured Branches of Foreign Banks and New Small Banks

    The final rule 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 final rule 
also makes no changes to the way in which assessment rates for insured 
branches and new small banks are determined.

III. Expected Effects of the Final Rule

Effect on Assessment Rates

    To illustrate the effects of the final rule on established small 
bank assessment rates, the FDIC compared actual assessment rates under 
the current system for established small banks for the fourth quarter 
of 2015, using a range of initial assessment rates of 5 basis points to 
35 basis points, with the assessment rates in Table 7 of this final 
rule, which has an overall range of initial assessment rates of 3 basis 
points to 30 basis points; the assessment rates in Table 7 will take 
effect the quarter after the DIF reserve ratio reaches 1.15 percent. 
The proportion (and number) of established small banks paying the 
minimum initial assessment rate would have increased significantly, 
from 27 percent (1,632 small banks) to 58 percent under the final rule 
(3,552 small banks). The proportion (and number) of established small 
banks paying the maximum initial assessment rate would have decreased 
from 0.6 percent of established small banks (35 small banks) to 0.1 
percent of established small banks under the final rule (6 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 final rule, a particular 
point on the horizontal axis is not likely to represent the same bank 
for the current system and the final rule. Thus, the chart does not 
show how an individual bank's assessment would change under the final 
rule; it simply compares the distribution of assessment rates under the 
current system to the distribution under the final rule.

[[Page 32192]]

[GRAPHIC] [TIFF OMITTED] TR20MY16.164

    Due in large part to the overall decline in rates once the reserve 
ratio reaches 1.15 percent reflected in Table 7, most established small 
banks (5,655 or 93 percent) would have had lower total assessment rates 
under the final rule.\60\ Among Risk Category I established small 
banks, 93 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, 97 percent would have had rate 
decreases; the average decrease would have been 7.1 basis points. A 
total of 423 established small banks (7 percent of established small 
banks) would have had rate increases. Of the Risk Category I 
established small banks, 7 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, 3 percent would have had rate 
increases; the average increase would have been 3.0 basis points. The 
results of the comparison are similar to those that resulted from like 
comparisons in the 2015 NPR and 2016 revised NPR.
---------------------------------------------------------------------------

    \60\ 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 final rule, the brokered 
deposit adjustment is eliminated for established small banks, but 
the unsecured debt adjustment and the DIDA remain.
---------------------------------------------------------------------------

    To further illustrate the effects of the final rule on small bank 
assessment rates, the FDIC compared hypothetical assessment rates under 
the final rule with the assessment rates established small banks would 
have been charged for the fourth quarter of 2015 if the assessment rate 
schedule in Table 4, which, under current rules, 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 27 percent to 58 percent 
under the final rule, and the proportion of established small banks 
paying the maximum initial assessment rate would also have decreased 
from 0.6 percent of established small banks to 0.1 percent of 
established small banks under the final rule. Chart 2 below graphically 
compares the distribution of established small bank initial assessment 
rates under this illustration.

[[Page 32193]]

[GRAPHIC] [TIFF OMITTED] TR20MY16.165

    Most established small banks (3,400 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, 93 percent would have had rate 
decreases; the average decrease would have been 4.6 basis points. 1,235 
established small banks (20 percent of established small banks) would 
have had rate increases. Of the Risk Category I established small 
banks, 22 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, 6 percent would have had rate increases; the 
average increase would have been 3.3 basis points. Again, the results 
of the comparison are similar to like comparisons in the 2015 NPR and 
the 2016 revised NPR.

Effect on Capital and Earnings

Summary
    Using balance sheet and trailing twelve month income data as of the 
fourth quarter of 2015, the FDIC analyzed the effects of the final rule 
on capital and income in two ways: (1) The effect of the final rule 
under the rate schedule in Table 7 (with an initial assessment rate 
range of 3 basis points to 30 basis points (F330)) 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 (C535)) (the first comparison); and (2) the 
effect of the final rule 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; 
under current rules, this rate schedule will go into effect the quarter 
after the DIF reserve ratio reaches 1.15 percent (C330)) (the second 
comparison).
    Under either comparison, the final rule will cause no small bank to 
fall below a 4 percent or 2 percent leverage ratio if the bank would 
otherwise be above these thresholds. Under the first comparison, the 
final rule will cause no small bank to rise above a 2 percent leverage 
ratio if the bank would otherwise be below this threshold, but will 
cause one bank to rise above a 4 percent leverage ratio. Under the 
second comparison, the final rule will cause no small bank to rise 
above a 2 percent or 4 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 5 percent of unprofitable 
small banks will face a rate increase. All but a very few (20) of these 
banks will 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

[[Page 32194]]

small banks will decline, resulting in increases in income (or 
decreases in losses), some of which will be substantial. The effects on 
earnings of established small banks under the final rule in this 
comparison do not differ materially from the effects discussed in the 
2015 NPR and 2016 NPR.
    In the second comparison, approximately 21 percent of profitable 
established small banks and approximately 13 percent of unprofitable 
established small banks will face a rate increase. All but 76 of these 
banks will 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 56 percent of established 
small banks will decline, resulting in increases in income (or 
decreases in losses), some of which will be substantial. The effects on 
earnings of established small banks under the final rule in this 
comparison do not differ materially from the effects discussed in the 
2015 NPR and 2016 revised NPR.
    In sum, because the final rule is intended to generate the same 
total revenue from small banks as would have been generated absent the 
final rule, the final rule should, overall, have no material effect on 
the capital and earnings of the banking industry, although the final 
rule will affect the earnings and capital of individual institutions.
Detailed Analysis
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 fourth 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 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'').\61\ This income measure is used 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 December 31, 2015. For this analysis, data as of 
December 31, 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 December 31, 2015.
---------------------------------------------------------------------------

    \61\ As discussed earlier, 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.
---------------------------------------------------------------------------

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 F330-C535)
    Under this scenario, the FDIC projects that no established small 
bank facing an increase in assessments will, 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 will, 
as a result of the decrease, have its leverage ratio rise above a 2 
percent leverage ratio, but one bank will rise above a 4 percent 
leverage ratio.
    The FDIC projects that approximately 85 percent of established 
small banks that were profitable during the 12 months ending December 
31, 2015, will have a decrease in assessments in an amount between 0 
and 10 percent of income. Table 11 shows that another 8 percent of 
profitable established small banks will have a reduction in assessments 
exceeding 10 percent of their income. A total of 407 profitable 
established small banks will have an increase in assessments, with all 
but 10 of them facing assessment increases between 0 and 10 percent of 
their income.

               Table 11--Effect of the Final Rule on Income for Profitable Established Small Banks
                                             [F330 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%...............................              88               2              18               1
Decrease 20% to 40%.............................              96               2              18               1
Decrease 10% to 20%.............................             283               5              66               2
Decrease 5% to 10%..............................             572              10             154               5

[[Page 32195]]

 
Decrease 0% to 5%...............................           4,335              75           2,328              78
No Change.......................................               1               0               0               0
Increase 0% to 5%...............................             388               7             375              13
Increase 5% to 10%..............................               9               0               6               0
Increase 10% to 20%.............................               6               0               3               0
Increase 20% to 40%.............................               2               0               6               0
Increase over 40%...............................               2               0               0               0
                                                 ---------------------------------------------------------------
    All *.......................................           5,782             100           2,975             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals and some percentages may appear incorrect due to rounding.

    Table 12 provides the same analysis for established small banks 
that were unprofitable during the 12 months ending December 31, 2015. 
Table 12 shows that 46 percent of unprofitable established small banks 
will have a decrease in assessments in an amount between 0 and 10 
percent of their losses. Another 48 percent will have lower assessments 
in amounts exceeding 10 percent income. Only 16 unprofitable banks will 
have assessment increases, all of them in amounts between 0 and 10 
percent of losses.

              Table 12--Effect of the Final Rule on Income for Unprofitable Established Small Banks
                                             [F330 compared to C535]
----------------------------------------------------------------------------------------------------------------
                                                           Institutions                       Assets
                                                 ---------------------------------------------------------------
                                                                                                    Percent of
                                                                    Percent of                     total assets
    Change in assessments relative to income                           total        Assets  ($          of
                                                      Number       unprofitable      billions)     unprofitable
                                                                    established                     established
                                                                    small banks                     small banks
----------------------------------------------------------------------------------------------------------------
Decrease over 40%...............................              47              16               7              11
Decrease 20% to 40%.............................              37              13              12              20
Decrease 10% to 20%.............................              57              19               9              14
Decrease 5% to 10%..............................              49              17              11              18
Decrease 0% to 5%...............................              87              30              20              32
No Change.......................................               1               0               0               0
Increase 0% to 5%...............................              15               5               3               5
Increase 5% to 10%..............................               1               0               0               0
Increase 10% to 20%.............................               0               0               0               0
Increase 20% to 40%.............................               0               0               0               0
Increase over 40%...............................               0               0               0               0
                                                 ---------------------------------------------------------------
    All *.......................................             294             100              62             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals and some percentages may appear incorrect due to rounding.

Projected Effects on Capital and Earnings Assuming Same Initial 
Assessment Rate Range (F330-C330)
    Under this scenario, the FDIC projects that no established small 
bank facing an increase in assessments will, 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 will, 
as a result of the assessment decrease, have its leverage ratio rise 
above the 4 percent or 2 percent threshold.
    Table 13 shows that 51 percent of established small banks that were 
profitable during the 12 months ended December 31, 2015, will have a 
decrease in assessments in an amount between 0 and 10 percent of 
income. Another 4 percent of profitable established small banks will 
have a reduction in assessments exceeding 10 percent of their income. A 
total of 1,208 profitable established small banks will have an increase 
in assessments, with all but 23 facing assessment increases between 0 
and10 percent of their income.

[[Page 32196]]



               Table 13--Effect of the Final Rule on Income for Profitable Established Small Banks
                                             [F330 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%...............................              43               1               7               0
Decrease 20% to 40%.............................              50               1              11               0
Decrease 10% to 20%.............................             121               2              22               1
Decrease 5% to 10%..............................             282               5              79               3
Decrease 0% to 5%...............................           2,655              46           1,160              39
No Change.......................................           1,423              25             591              20
Increase 0% to 5%...............................           1,139              20           1,057              36
Increase 5% to 10%..............................              46               1              34               1
Increase 10% to 20%.............................              12               0               7               0
Increase 20% to 40%.............................               7               0               7               0
Increase over 40%...............................               4               0               1               0
                                                 ---------------------------------------------------------------
    All *.......................................           5,782             100           2,975             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals and some percentages may appear incorrect due to rounding.

    Table 14 provides the same analysis for established small banks 
that were unprofitable during the 12 months ending December 31, 2015. 
Table 14 shows that 54 percent of unprofitable established small banks 
will have a decrease in assessments in an amount between 0 and 10 
percent of their losses. Another 30 percent will have lower assessments 
in amounts exceeding 10 percent of their losses. Only 39 unprofitable 
banks will face assessment increases, all but 3 of them in amounts 
between 0 and 10 percent of losses.

              Table 14--Effect of the Final Rule on Income for Unprofitable Established Small Banks
                                             [F330 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%...............................              28              10               5               7
Decrease 20% to 40%.............................              23               8               2               4
Decrease 10% to 20%.............................              38              13              14              22
Decrease 5% to 10%..............................              54              18               7              11
Decrease 0% to 5%...............................             105              36              26              41
No Change.......................................               7               2               1               2
Increase 0% to 5%...............................              32              11               6               9
Increase 5% to 10%..............................               4               1               1               2
Increase 10% to 20%.............................               2               1               0               1
Increase 20% to 40%.............................               1               0               0               0
Increase over 40%...............................               0               0               0               0
                                                 ---------------------------------------------------------------
    All *.......................................             294             100              62             100
----------------------------------------------------------------------------------------------------------------
* Figures may not add to totals and some percentages may appear incorrect due to rounding.

IV. Backtesting

    To evaluate the final rule, the FDIC tested how well the assessment 
system in the final rule 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 15 compares accuracy ratios for the assessment system in the 
final rule 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.\62\ A ``perfect'' 
projection would receive an accuracy ratio of 1; a random projection 
would receive an accuracy ratio of 0.\63\
---------------------------------------------------------------------------

    \62\ 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.
    \63\ 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.

[[Page 32197]]



     Table 15--Accuracy Ratio Comparison Between the Final Rule and the Current Small Bank Deposit Insurance
                                                Assessment System
----------------------------------------------------------------------------------------------------------------
                                                                        (A)             (B)           (A -B)
                                                                 -----------------------------------------------
                                                                                  Accuracy ratio
                                                                                      for the     Accuracy ratio
                       Year of projection                         Accuracy ratio   current small   for the final
                                                                   for the final       bank       rule--accuracy
                                                                      rule *        assessment     ratio for the
                                                                                      system      current system
----------------------------------------------------------------------------------------------------------------
2006............................................................          0.7000          0.3491          0.3509
2007............................................................          0.7756          0.5616          0.2141
2008............................................................          0.9003          0.7825          0.1178
2009............................................................          0.9354          0.9015          0.0339
2010............................................................          0.9659          0.9394          0.0265
2011............................................................          0.9543          0.9323          0.0219
----------------------------------------------------------------------------------------------------------------
* The accuracy ratio for the final rule 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 
comparisons of the assessment system proposed in the 2015 NPR and 2016 
revised NPR with 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 system under the final rule would have not only 
done significantly better immediately before the recent crisis and at 
the beginning of the crisis, but also better overall.\64\ In the early 
part of the crisis, when CAMELS ratings had not fully reflected the 
worsening condition of many banks, the system under the final rule 
would have recognized risk far better than the current system, 
primarily because the rates under the final rule are not constrained by 
risk categories. As the crisis progressed and CAMELS ratings more fully 
reflected crisis conditions, the superiority of the system under the 
final rule decreased, but it still performed better than the current 
system.
---------------------------------------------------------------------------

    \64\ As implied in the footnote to Table 15, the accuracy ratios 
in the table for the system under the final rule 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 the 2015 NPR 
and 2016 revised NPR, also shows that, while the current assessment 
system for small banks did relatively well at predicting failures in 
more recent years, the revised system would have done significantly 
better immediately before the recent crisis and at the beginning of 
the crisis, but also better overall. See 80 FR at 40857 and 81 FR at 
6124.
---------------------------------------------------------------------------

    Appendix 1 to the Supplementary Information sections of the 2015 
NPR and 2016 revised NPR contains a more detailed description of the 
FDIC's backtests of the revised system.

V. Alternatives Considered

    In the 2015 NPR and 2016 revised 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 
statistical model; and no changes to the small bank deposit insurance 
assessment system.
    The FDIC received 6 comments in response to the 2015 NPR and 1 
comment in response to the 2016 revised NPR related to minimum and 
maximum initial assessment rates. Specifically, commenters asserted 
that the proposed minimum and maximum assessment rates were 
inappropriate. Instead of adjusting the minimum and maximum assessment 
rates based on CAMELS composite ratings, commenters suggested that 
CAMELS supervisory ratings should be given a greater weight in the 
assessment formula.
    In the FDIC's view, the minimum and maximum assessment rates 
adopted in the final rule strike the proper balance between maintaining 
the accuracy of the assessment system in differentiating between banks 
that will fail and those that will not and reducing the risk that a 
particular bank's assessment rate might be too high or too low.
    The FDIC also considered but rejected including LGD in the 
statistical model. The FDIC received one comment in response to the 
2015 NPR supporting the incorporation of LGD into the assessments 
system once reliable data is available. As described in the 2015 NPR, 
actual losses for many failed banks during the recent crisis are still 
estimated, primarily because of the use of loss-sharing agreements that 
have not yet terminated.
    The FDIC also considered leaving the small bank deposit insurance 
assessment system in place unchanged (and two commenters on the 2015 
NPR supported this alternative). For the reasons given above, the 
assessment system in the final rule is superior to the current small 
bank deposit insurance system. Under the system in the final rule, 
fewer riskier established small banks will pay lower assessments and 
fewer safer banks will pay higher assessments than their conditions 
warrant.

VI. Effective Date

    The final rule is effective July 1, 2016. If the reserve ratio 
reaches 1.15 percent before that date, the assessment system described 
in the final rule will become operative July 1, 2016. If the reserve 
ratio has not reached 1.15 percent by that date, the assessment system 
described in the final rule will become operative the first day of the 
calendar quarter after the reserve ratio reaches 1.15 percent.

VII. Regulatory Analysis and Procedure

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that each federal 
agency, in connection with a notice of final

[[Page 32198]]

rulemaking, prepare a final regulatory flexibility analysis describing 
the impact of the rule on small entities or certify that the final rule 
will not have a significant economic impact on a substantial number of 
small entities.\65\ 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.\66\ 
The final 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 a final regulatory flexibility analysis.
---------------------------------------------------------------------------

    \65\ See 5 U.S.C. 603, 604 and 605.
    \66\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    As of December 31, 2015, of the 6,191 FDIC-insured 
institutions,\67\ there were 4,918 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
those with $550 million or less in assets).\68\
---------------------------------------------------------------------------

    \67\ As of December 31, 2015, there were 6,182 insured 
commercial banks and savings institutions and 9 insured U.S. 
branches of foreign banks.
    \68\ Throughout this RFA analysis (unlike the rest of this final 
rule), 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). One insured branch of a foreign banking 
association and two insured institutions established within the last 
five years were excluded from the RFA analysis.
---------------------------------------------------------------------------

    For purposes of this analysis, whether the FDIC were to collect 
needed assessments under existing regulations or under the final 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 pricing system in the final rule under the range 
of initial assessment rates of 3 basis points to 30 basis points (F330) 
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).\69\ Using data as of December 31, 2015, the FDIC 
calculated the total assessments that were collected under rate 
schedule C535, that would have been collected under rate schedule C330 
and that will be collected under the final rule.
---------------------------------------------------------------------------

    \69\ The analysis is based on total assessment rates, rather 
than initial assessment rates.
---------------------------------------------------------------------------

    The economic impact of the final rule 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 
final rule compared to existing regulations 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.\70\
---------------------------------------------------------------------------

    \70\ 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 (F330-C330)
    Based on the December 31, 2015 data, of the total of 4,918 small 
institutions, no institution will experience 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 16 below sets forth the 
results of the analysis in more detail.

  Table 16--Percent Change in Assessments Resulting From the Final Rule
            [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....................           2,899              59
No change...............................           1,214              25
0 to 5 percent higher...................             805              16
More than 5 percent higher..............               0               0
                                         -------------------------------
    Total...............................           4,918             100
------------------------------------------------------------------------

    The FDIC performed a similar analysis to determine the impact on 
profits for small institutions. Based on December 31, 2015 data, of 
those small institutions with reported profits, 18 institutions will 
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 17 sets forth the results of the analysis in more 
detail.

 Table 17 *--Assessment Changes Relative to Profits for Profitable Small
                    Institutions Under the Final Rule
        [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                 42               1
 than 40 percent of profits.............
Decrease in assessments equal to 20 to                49               1
 40 percent of profits..................
Decrease in assessments equal to 10 to               113               2
 20 percent of profits..................
Decrease in assessments equal to 5 to 10             253               5
 percent of profits.....................
Decrease in assessments up to 5 percent            2,210              48
 of profits.............................
No change in assessments................           1,207              26

[[Page 32199]]

 
Increase in assessments up to 5 percent              716              15
 of profits.............................
Increase in assessments equal to 5 to 10              34               1
 percent of profits.....................
Increase in assessments equal to 10 to                 9               0
 20 percent of profits..................
Increase in assessments equal to 20 to                 5               0
 40 percent of profits..................
Increase in assessments equal to more                  4               0
 than 40 percent of profits.............
                                         -------------------------------
    Total...............................           4,642          ** 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 17 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 final rule on these institutions by 
determining the annual assessment change (either an increase or a 
decrease) that will result. Table 18 below shows that 18 (seven 
percent) of the 276 small insured institutions with negative or no 
reported profits will 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 18--Change in Assessments for Unprofitable Small Institutions
                      Resulting From the Final Rule
        [Assuming no change in the initial assessment rate range]
------------------------------------------------------------------------
                                             Number of      Percent of
          Change in assessments            institutions    institutions
------------------------------------------------------------------------
$20,000 or more decrease................             115              42
$10,000-$20,000 decrease................              53              19
$5,000-$10,000 decrease.................              28              10
$1,000-$5,000 decrease..................              30              11
$0-$1,000 decrease......................               7               3
No change...............................               7               3
$0-$1,000 increase......................               5               2
$1,000-$5,000 increase..................               3               1
$5,000-$10,000 increase.................               4               1
$10,000-$20,000 increase................               6               2
$20,000 increase or more................              18               7
                                         -------------------------------
    Total...............................             276           * 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 (F330-C535)
    Based on the December 31, 2015 data, of the total of 4,918 small 
institutions, no institution will experience 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 19 below sets forth the 
results of the analysis in more detail.

  Table 19--Percent Change in Assessments Resulting From the Final Rule
[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...............               0               0
0 to 5 percent lower....................           4,660              95
No change...............................               2               0
0 to 5 percent higher...................             256               5
More than 5 percent higher..............               0               0
                                         -------------------------------
    Total...............................           4,918             100
------------------------------------------------------------------------

    The FDIC performed a similar analysis to determine the impact on 
profits for small institutions. Based on December 31, 2015 data, of 
those small institutions with reported profits, 7 institutions will 
have an increase in

[[Page 32200]]

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 20 sets forth 
the results of the analysis in more detail.

 Table 20*--Assessment Changes Relative to Profits for Profitable Small
                    Institutions Under the Final Rule
[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                 85               2
 than 40 percent of profits.............
Decrease in assessments equal to 20 to                90               2
 40 percent of profits..................
Decrease in assessments equal to 10 to               259               6
 20 percent of profits..................
Decrease in assessments equal to 5 to 10             527              11
 percent of profits.....................
Decrease in assessments up to 5 percent            3,440              74
 of profits.............................
No change in assessments................               1               0
Increase in assessments up to 5 percent              226               5
 of profits.............................
Increase in assessments equal to 5 to 10               7               0
 percent of profits.....................
Increase in assessments equal to 10 to                 5               0
 20 percent of profits..................
Increase in assessments equal to 20 to                 0               0
 40 percent of profits..................
Increase in assessments equal to more                  2               0
 than 40 percent of profits.............
                                         -------------------------------
    Total...............................           4,642          ** 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 20 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 final rule on these institutions by 
determining the annual assessment change (either an increase or a 
decrease) that will result. Table 21 below shows that just 7 (3 
percent) of the 276 small insured institutions with negative or no 
reported profits will 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 21--Change in Assessments for Unprofitable Small Institutions
                      Resulting From the Final Rule
[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................             181              66
$10,000-$20,000 decrease................              44              16
$5,000-$10,000 decrease.................              28              10
$1,000-$5,000 decrease..................               5               2
$0-$1,000 decrease......................               2               1
No change...............................               1               0
$0-$1,000 increase......................               0               0
$1,000-$5,000 increase..................               2               1
$5,000-$10,000 increase.................               5               2
$10,000-$20,000 increase................               1               0
$20,000 increase or more................               7               3
                                         -------------------------------
    Total...............................             276           * 100
------------------------------------------------------------------------
* Figures may not add to totals due to rounding.

    The final rule does not directly impose any ``reporting'' or 
``recordkeeping'' requirements within the meaning of the Paperwork 
Reduction Act. The compliance requirements for the final rule will not 
exceed (and, in fact, will 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 final RFA analysis set 
forth above demonstrates that the final rule will not have a 
significant economic impact on a substantial number of small 
institutions within the meaning of those terms as used in the RFA.\71\
---------------------------------------------------------------------------

    \71\ 5 U.S.C. 605.
---------------------------------------------------------------------------

B. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (Title II, Pub. L. 104-
121).

C. 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 institutions, consider, consistent with

[[Page 32201]]

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.\72\ Subject to certain exceptions, new regulations and 
amendments to regulations prescribed by a Federal banking agency which 
impose additional reporting, disclosures, or other new requirements on 
insured depository institutions shall take effect on the first day of a 
calendar quarter which begins on or after the date on which the 
regulations are published in final form.\73\
---------------------------------------------------------------------------

    \72\ 12 U.S.C. 4802(a).
    \73\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    In accordance with these provisions and as discussed above, the 
FDIC considered any administrative burdens, as well as benefits, that 
the final rule would place on depository institutions and their 
customers in determining the effective date and administrative 
compliance requirements of the final rule. Thus, the final rule will be 
effective no earlier than the first day of a calendar quarter that 
begins after publication of the rule.

C. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(``PRA'') of 1995,\74\ the FDIC may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(``OMB'') control number.
---------------------------------------------------------------------------

    \74\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The final rule does not create any new, or revise any existing, 
collections of information pursuant to PRA.

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

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

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 invited comments on how to make this proposal 
easier to understand. No comments addressing this issue were received.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Savings associations.

    For the reasons set forth above, the FDIC amends 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)(1), 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)''.
0
c. In paragraph (c), by removing ``Sec.  327.9(f)(5)'' and adding in 
its place ``Sec. Sec.  327.9(f)(5) and 327.16(g)(5)''.

0
4. Amend Sec.  327.8:
0
a. In paragraphs (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, and all large institutions and all 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 as 
defined in 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).

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 later of June 
30, 2016, or the subsequent calendar quarter in which the reserve ratio 
of the DIF reaches 1.15 percent.
* * * * *

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 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and in all subsequent assessment periods where 
the reserve ratio of the DIF as of the end of the prior assessment 
period is less than 2 percent.
    (1) Initial base assessment rate schedule for established small 
institutions and large and highly complex institutions. In the first 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and for all subsequent assessment periods where 
the reserve ratio as of the end of the prior assessment period is less 
than 2 percent, the initial base assessment rate for established small 
institutions and large and highly

[[Page 32202]]

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 Assessment Period After June 30, 2016, Where the
   Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and for All Subsequent
 Assessment Periods Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent
                                                       \1\
----------------------------------------------------------------------------------------------------------------
                                               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.
----------------------------------------------------------------------------------------------------------------
\1\ 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. In the 
first assessment period after June 30, 2016, that the reserve ratio of 
the DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and for all subsequent assessment periods where 
the reserve ratio for the 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, except as provided in paragraph (f) of this section, 
shall be as prescribed in the following schedule:

Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment Period After June 30,
2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and for All
 Subsequent Assessment Periods Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than
                                                  2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                               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      1.5 to 16..........  3 to 30............  11 to 30...........  1.5 to 40.
     Rate.
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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 as of 
the end of 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 as of the end of 
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

[[Page 32203]]

as provided in paragraph (f) of this section, shall be the rate 
prescribed in the following schedule:

Initial Base Assessment Rate Schedule if the Reserve Ratio as of the End of the Prior Assessment Period Is Equal
                           to or Greater Than 2 Percent But Less Than 2.5 Percent \1\
----------------------------------------------------------------------------------------------------------------
                                               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.
----------------------------------------------------------------------------------------------------------------
\1\ 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 as of the end of 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) \1\ If the Reserve Ratio as of the End of the Prior
              Assessment Period Is Equal To or Greater Than 2 Percent but Less Than 2.5 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                               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      1 to 14............  2.5 to 28..........  9 to 28............  1 to 38.
     Rate.
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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 as of 
the end of the prior assessment period is greater than 2.5 percent--(1) 
Initial base assessment rate schedule. If the reserve ratio of the DIF 
as of the end of the prior assessment period is greater 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 32204]]



   Initial Base Assessment Rate Schedule if the Reserve Ratio as of the End of the Prior Assessment Period Is
                                    Greater Than or Equal to 2.5 Percent \1\
----------------------------------------------------------------------------------------------------------------
                                               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.
----------------------------------------------------------------------------------------------------------------
\1\ 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 as of the end of 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) \1\ If the Reserve Ratio as of the End of the Prior
                          Assessment Period is Greater Than or Equal to 2.5 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                               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  0.5 to 13..........  2 to 25............  8 to 25...........  0.5 to 35.
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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 Sec.  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 on or after June 30, 2016. Prior to the reserve ratio of the 
DIF reaching 1.15 percent for the first time on or after June 30, 2016, 
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 on 
or after June 30, 2016. In the first assessment period after June 30, 
2016, where the reserve ratio of the DIF as of the end of the prior 
assessment period has reached or exceeded 1.15 percent, and for all 
subsequent assessment periods, even if the reserve ratio equals or 
exceeds 2 percent or 2.5 percent, new large and new highly complex 
institutions shall be subject to the initial and total base assessment 
rate schedules provided for in paragraph (b) of this section.
    (iii) Assessment rate schedules for new small institutions 
beginning the first assessment period after June 30, 2016, where the 
reserve ratio of the DIF as of the end of the prior assessment period 
has reached or exceeded 1.15 percent, and for all subsequent assessment 
periods--(A) Initial base assessment rate schedule for new small 
institutions. In the first assessment period after June 30, 2016, where 
the

[[Page 32205]]

reserve ratio of the DIF as of the end of the prior assessment period 
has reached or exceeded 1.15 percent, and for all subsequent assessment 
periods, the initial base assessment rate 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:

   Initial Base Assessment Rate Schedule Beginning the First Assessment Period After June 30, 2016, Where the
   Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and For All Subsequent
                                             Assessment Periods \1\
----------------------------------------------------------------------------------------------------------------
                                                                Risk Category    Risk Category    Risk Category
                                              Risk Category I         II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.....................               7               12               19               30
----------------------------------------------------------------------------------------------------------------
\1\ 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.
    (B) Total base assessment rate schedule for new small institutions. 
In the first assessment period after June 30, 2016, that the reserve 
ratio of the DIF as of the end of the prior assessment period has 
reached or exceeded 1.15 percent, and for all subsequent assessment 
periods, 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) \1\ Beginning the First Assessment Period After June 30,
2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and for All
 Subsequent Assessment Periods Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than
                                                  2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                 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.
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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) Beginning the first 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and for all subsequent assessment periods where 
the reserve ratio as of the end of the prior assessment period is less 
than 2 percent. In the first assessment period after June 30, 2016, 
where the reserve ratio of the DIF as of the end of the prior 
assessment period has reached or exceeded 1.15 percent, and for all 
subsequent assessment periods where the reserve ratio as of the end of 
the 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 \1\ Beginning the First Assessment Period After June 30, 2016,
   Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and for All
 Subsequent Assessment Periods Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than
                                                  2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                                Risk Category    Risk Category    Risk Category
                                          Risk Category I             II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate..  3 to 7..................              12               19               30
----------------------------------------------------------------------------------------------------------------
\1\ 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.

[[Page 32206]]

 
\2\ 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 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 as of the end of 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 as of the end of 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) of this section, 
shall be the rate prescribed in the following schedule:

 Initial and Total Base Assessment Rate Schedule \1\ if the Reserve Ratio as of the End of the Prior Assessment
                   Period is Equal to or Greater Than 2 Percent but Less Than 2.5 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                                Risk Category    Risk Category    Risk Category
                                          Risk Category I             II              III               IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate..  2 to 6..................              10               17               28
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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 as of the end of the prior 
assessment period is greater than 2.5 percent. If the reserve ratio of 
the DIF as of the end of 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 \1\ If the Reserve Ratio as of the End of the Prior Assessment
                               Period Is Greater Than or Equal to 2.5 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                                   Risk Category   Risk Category   Risk Category
                                            Risk Category I             II              III             IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate..............  1 to 5...................               9              15              25
----------------------------------------------------------------------------------------------------------------
\1\ 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.
\2\ 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;

[[Page 32207]]

    (iv) The risk factors and other factors taken into account pursuant 
to 12 U.S.C. 1817(b)(1); and
    (v) Any other factors the Board may deem appropriate.
    (3) Adjustment procedure. Any adjustment adopted by the Board 
pursuant to this paragraph (f) 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) 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 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent.

    (a) Established small institutions. Beginning the first assessment 
period after June 30, 2016, where the reserve ratio of the DIF as of 
the end of the prior assessment period has reached or exceeded 1.15 
percent, and for all subsequent assessment periods, 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 assessment period nor greater than the maximum initial 
base assessment rate in effect for established small institutions with 
a particular CAMELS composite rating for that assessment period. 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: 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 
and the weighted average of CAMELS component ratings are defined in 
paragraph (a)(1)(ii) of this section. 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 Assessment Period
 After June 30, 2016, Where the Reserve Ratio as of the End of the Prior
   Assessment Period Has Reached 1.15 Percent, and for All Subsequent
  Assessment Periods Where the Reserve Ratio as of the End of the Prior
                Assessment Period Is Less Than 2 Percent
------------------------------------------------------------------------
                                                              Pricing
                    Risk measures \1\                       multipliers
                                                                \2\
------------------------------------------------------------------------
Leverage ratio..........................................          -1.264
Net Income before Taxes/Total Assets....................          -0.720
Nonperforming Loans and Leases/Gross Assets.............           0.942
Other Real Estate Owned/Gross Assets....................           0.533
Brokered Deposit Ratio..................................           0.264
One Year Asset Growth...................................           0.061
Loan Mix Index..........................................           0.081
Weighted Average CAMELS Component Rating................           1.519
------------------------------------------------------------------------
\1\ Ratios are expressed as percentages.
\2\ Multipliers are rounded to three decimal places.


 Pricing Multipliers Applicable When the Reserve Ratio as of the End of
  the Prior Assessment Period Is Equal to or Greater Than 2 Percent but
                          Less Than 2.5 Percent
------------------------------------------------------------------------
                                                              Pricing
                    Risk measures \1\                       multipliers
                                                                \2\
------------------------------------------------------------------------
Leverage Ratio..........................................          -1.217
Net Income before Taxes/Total Assets....................          -0.694
Nonperforming Loans and Leases/Gross Assets.............           0.907
Other Real Estate Owned/Gross Assets....................           0.513
Brokered Deposit Ratio..................................           0.254
One Year Asset Growth...................................           0.059
Loan Mix Index..........................................           0.078
Weighted Average CAMELS Component Rating................           1.463
------------------------------------------------------------------------
\1\ Ratios are expressed as percentages.
\2\ Multipliers are rounded to three decimal places.


 Pricing Multipliers Applicable When the Reserve Ratio as of the End of
   the Prior Assessment Period Is Greater Than or Equal to 2.5 Percent
------------------------------------------------------------------------
                                                              Pricing
                    Risk measures \1\                       multipliers
                                                                \2\
------------------------------------------------------------------------
Leverage Ratio..........................................          -1.123
Net Income before Taxes/Total Assets....................          -0.640
Nonperforming Loans and Leases/Gross Assets.............           0.837
Other Real Estate Owned/Gross Assets....................           0.474
Brokered Deposit Ratio..................................           0.235
One Year Asset Growth...................................           0.054
Loan Mix Index..........................................           0.072
Weighted Average CAMELS Component Rating................           1.350
------------------------------------------------------------------------
\1\ Ratios are expressed as percentages.
\2\ 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) 7.352 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (B) 6.188 whenever the assessment rate schedule set forth in Sec.  
327.10(c) is in effect; or
    (C) 4.870 whenever the assessment rate schedule set forth in Sec.  
327.10(d) is in effect.
    (ii) Definitions of measures used in the financial ratios method--
(A) Definitions. The following table lists and defines the measures 
used in the financial ratios method:

[[Page 32208]]



       Definitions of Measures Used in the Financial Ratios Method
------------------------------------------------------------------------
             Variables                           Description
------------------------------------------------------------------------
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 applicable income
 Assets (%).                         taxes and discontinued operations)
                                     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\
Other Real Estate Owned/Gross       Other real estate owned divided by
 Assets (%).                         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,  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.
Loan Mix Index....................  A measure of credit risk described
                                     paragraph (a)(1)(ii)(B) of this
                                     section.
One-Year Asset Growth (%).........  Growth in assets (adjusted for
                                     mergers \3\) over the previous year
                                     in excess of 10 percent.\4\ If
                                     growth is less than 10 percent, the
                                     value is set to zero.
------------------------------------------------------------------------
\1\ 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.
\2\ Gross assets are total assets plus the allowance for loan and lease
  financing receivable losses (ALLL).
\3\ Growth in assets is also adjusted for acquisitions of failed banks.
\4\ 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.

    (B) Definition of loan mix index. The Loan Mix Index assigns loans 
in an institution's loan portfolio to the categories of loans described 
in the following table. The Loan Mix Index is calculated by multiplying 
the ratio of an 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 summing the products for all loan 
categories. The table gives the weighted average charge-off rate for 
each category of loan. The Loan Mix Index excludes credit card loans.

   Loan Mix Index Categories and Weighted Charge-Off Rate Percentages
------------------------------------------------------------------------
                                                             Weighted
                                                            charge-off
                                                           rate percent
------------------------------------------------------------------------
Construction & Development..............................       4.4965840
Commercial & Industrial.................................       1.5984506
Leases..................................................       1.4974551
Other Consumer..........................................       1.4559717
Loans to Foreign Government.............................      1.33384093
Real Estate Loans Residual..............................       1.0169338
Multifamily Residential.................................       0.8847597
Nonfarm Nonresidential..................................        .7289274
I-4 Family Residential..................................       0.6973778
Loans to Depository banks...............................       0.5760532
Agricultural Real Estate................................       0.2376712
Agriculture.............................................       0.2432737
------------------------------------------------------------------------

    (iii) Implementation of CAMELS rating changes--(A) Composite rating 
change. If, during an assessment period, 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 assessment period 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) and (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 assessment period 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 (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 an assessment period, 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 
(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 assessment period 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 (2) of this section, as appropriate.
    (iv) No CAMELS composite rating or no CAMELS component ratings--(A) 
No CAMELS composite rating. If, during an assessment period, an 
institution has no CAMELS composite rating, its initial assessment rate 
will 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 an assessment period, 
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 reports of condition, by 
annualizing, where appropriate, financial ratios obtained from all 
quarterly reports of condition that have been filed.
    (2) Applicable quarterly 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

[[Page 32209]]

institution's Consolidated Reports of Condition and Income (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
----------------------------------------------------------------------------------------------------------------
                                                                                      Measure        Component
                                      Scorecard measures and components               weights         weights
                                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
P..........................  Performance Score..................................  ..............  ..............
P.1........................  Weighted Average CAMELS Rating.....................             100              30
P.2........................  Ability to Withstand Asset-Related Stress..........  ..............              50
                             Leverage ratio.....................................              10  ..............
                             Concentration Measure..............................              35  ..............
                             Core Earnings/Average Quarter-End Total Assets \1\.              20  ..............
                             Credit Quality Measure.............................              35  ..............
P.3........................  Ability to Withstand Funding-Related Stress........  ..............              20
                             Core Deposits/Total Liabilities....................              60  ..............
                             Balance Sheet Liquidity Ratio......................              40  ..............
L..........................  Loss Severity Score................................  ..............  ..............
L.1........................  Loss Severity Measure..............................  ..............             100
----------------------------------------------------------------------------------------------------------------
\1\ 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:

------------------------------------------------------------------------
                     CAMELS component                        Weight (%)
------------------------------------------------------------------------
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.
    (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 of this subpart.
    (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 \1\..............               0               2              20
Credit Quality Measure..........................................  ..............  ..............              35

[[Page 32210]]

 
    Criticized and Classified Items/Tier 1 Capital and Reserves;               7             100  ..............
     or.........................................................
    Underperforming Assets/Tier 1 Capital and Reserves..........               2              35  ..............
----------------------------------------------------------------------------------------------------------------
\1\ 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 of this subpart 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). 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:

[[Page 32211]]

[GRAPHIC] [TIFF OMITTED] TR20MY16.166

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

------------------------------------------------------------------------
                      CAMELS component                        Weight (%)
------------------------------------------------------------------------
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 of this subpart 
and the method of calculating the scores is described in appendix B of 
this subpart.
    (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 of this 
subpart. 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:

[[Page 32212]]



                         Cutoff Values and Weights for Measures To Calculate the Ability To Withstand Asset-Related Stress Score
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Cutoff values
  Measures of the ability to withstand asset-  --------------------------------   Market risk
                related stress                      Minimum         Maximum         measure                         Weights (percent)
                                                   (percent)       (percent)       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Leverage ratio................................               6              13  ..............  10.
Concentration Measure.........................  ..............  ..............  ..............  35.
    Higher Risk Assets/Tier 1 Capital and                    0             135
     Reserves;.
    Top 20 Counterparty Exposure/Tier 1                      0             125
     Capital and Reserves; or.
    Largest Counterparty Exposure/Tier 1                     0              20
     Capital and Reserves.
Core Earnings/Average Quarter-end Total Assets               0               2  ..............  20.
Credit Quality Measure \1\....................  ..............  ..............  ..............  35* (1-Trading Asset Ratio).
    Criticized and Classified Items to Tier 1                7             100
     Capital and Reserves; or.
    Underperforming Assets/Tier 1 Capital and                2              35
     Reserves.
Market Risk Measure \1\.......................  ..............  ..............  ..............  35* Trading Asset Ratio.
    Trading Revenue Volatility/Tier 1 Capital.               0               2              60  ........................................................
    Market Risk Capital/Tier 1 Capital........               0              10              20  ........................................................
    Level 3 Trading Assets/Tier 1 Capital.....               0              35              20  ........................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 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.
    (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

[[Page 32213]]

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] TR20MY16.167

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) and (e)(1) 
and (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 in paragraph (b)(3) of this section, the FDIC may 
change an institution's total score without advance notice, if the 
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-

[[Page 32214]]

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--(A) Changes between 
risk categories. If, during an assessment period, 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 
assessment period 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(f). For the portion of the assessment period 
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 an assessment period, 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 assessment period 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(f). For the portion of the 
assessment period 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.
    (B) [Reserved]
    (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; 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

[[Page 32215]]

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 assessment period nor greater 
than the maximum total base assessment rate in effect for Risk Category 
I institutions for that assessment period.
    (ii) Uniform amount. Except as adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(f), the uniform amount for 
all insured branches of foreign banks shall be:
    (A) -5.127 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (B) -6.127 whenever the assessment rate schedule set forth in Sec.  
327.10(c) is in effect; or
    (C) -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 paragraph (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 an assessment period, 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 
assessment period that it was in Risk Category I shall be determined 
using the weighted average ROCA component rating. For the portion of 
the assessment period 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 an assessment period, 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 assessment period 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 assessment period 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 an assessment period, 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 assessment period before and after the change(s) shall be 
determined under this paragraph (d)(4).
    (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 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

[[Page 32216]]

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 paragraph (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, in all cases, be 
assessed at the minimum initial base assessment rate applicable to 
established small institutions, which shall not be subject to 
adjustment under paragraph (b)(3) or (e)(1), (2), or (3) of this 
section.

    By order of the Board of Directors.

    Dated at Washington, DC, this 26th day of April, 2016.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-11181 Filed 5-19-16; 8:45 am]
 BILLING CODE 6714-01-P