[Federal Register Volume 83, Number 235 (Friday, December 7, 2018)]
[Rules and Regulations]
[Pages 63054-63059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26449]



[[Page 63054]]

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1271

RIN 2590-AA99


Miscellaneous Federal Home Loan Bank Operations and Authorities--
Financing Corporation Assessments

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is adopting a final 
rule pertaining to the operation of the Financing Corporation (FICO), a 
vehicle established by one of FHFA's predecessors to issue bonds, the 
proceeds of which were used to help fund the resolution of failed 
savings and loan associations during the 1980s. The last of those FICO 
bonds will mature in September 2019. By statute, FICO obtains the 
monies to pay the interest on those bonds by assessing depository 
institutions (FICO assessments) that are insured by the Federal Deposit 
Insurance Corporation (FDIC). The final rule addresses the manner in 
which FICO will conduct the 2019 FICO assessments, which will be the 
last of those assessments. Specifically, the final rule provides that 
all payments made by FDIC-insured depository institutions during 2019 
are final, and that no adjustments to prior FICO assessments will be 
permitted after March 26, 2019, the projected date as of which the FDIC 
will finalize the amounts of the final collection for the 2019 FICO 
assessments.

DATES: The rule is effective on January 7, 2019.

FOR FURTHER INFORMATION CONTACT: Louis M. Scalza, Associate Director, 
Examinations, Office of Safety & Soundness Examinations, 
[email protected], (202) 649-3710; Winston Sale, Assistant General 
Counsel, [email protected], (202) 649-3081; or Neil R. Crowley, 
Deputy General Counsel, [email protected], (202) 649-3055 (these 
are not toll-free numbers), Federal Housing Finance Agency, 400 Seventh 
Street SW, Washington, DC 20219. The telephone number for the 
Telecommunications Device for the Hearing Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    FHFA is an independent agency of the federal government established 
to regulate and oversee the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, the Federal Home Loan Banks 
(Banks), and the Bank System's Office of Finance.\1\ FHFA also is 
responsible for overseeing FICO. The Competitive Equality Banking Act 
of 1987 \2\ amended the Federal Home Loan Bank Act (Bank Act) and 
authorized FHFA's predecessor to establish FICO, and authorizes the 
FHFA Director to select the two Bank presidents that serve on its 
directorate, to prescribe such regulations as are necessary to carry 
out the statutory provisions relating to FICO, and to oversee the 
dissolution of FICO.\3\
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    \1\ 12 U.S.C. 4511.
    \2\ Public Law 100-86, 101 Stat. 552.
    \3\ See 12 U.S.C. 1441(a) (establishment of FICO), (b)(1)(B) 
(selection of directors), (i) (dissolution, and authority for FHFA 
to exercise any FICO powers, needed to conclude its affairs), and 
(j) (authority to prescribe regulations).
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    FICO is a mixed-ownership, tax-exempt government corporation, 
chartered in 1987 by the former Federal Home Loan Bank Board, one of 
FHFA's predecessor agencies, pursuant to the Federal Savings and Loan 
Insurance Corporation (FSLIC) Recapitalization Act of 1987, as amended 
(Recapitalization Act).\4\ The Recapitalization Act's purpose was to 
recapitalize the FSLIC insurance fund, which had been significantly 
depleted by a wave of savings and loan (S&L) failures during the S&L 
crisis of the 1980s. FICO's mission was to provide funding for FSLIC 
(and later for the FSLIC Resolution Fund after FSLIC's insolvency and 
later abolishment by the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (FIRREA)) by selling bonds to the public. 
FICO's operations are managed by a directorate composed of the Director 
of the Office of Finance and two Bank presidents who rotate after 
serving one year terms.\5\ FICO has no permanent staff and utilizes 
Office of Finance staff to execute its day-to-day functions.
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    \4\ See 12 U.S.C. 1441(a).
    \5\ See 12 U.S.C. 1441(b).
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    FICO was initially capitalized by issuing stock to the Banks in an 
aggregate amount of $680 million, apportioned pro rata among the Banks 
in accordance with a statutory formula.\6\ FICO used the proceeds from 
the stock issuances to purchase U.S. Treasury zero-coupon securities 
(Zeros), which were to be the sole source of repayment of the principal 
of the bonds to be issued by FICO. Between 1987 and 1989 FICO issued 14 
separate series of 30-year bonds (Obligations) in an aggregate 
principal amount of approximately $8.2 billion. FICO conveyed the 
proceeds of the Obligations to FSLIC, to finance its resolution of 
failed S&Ls.\7\ FICO is required by statute to hold the Zeros in a 
segregated account until they are used to pay the principal due on the 
Obligations at their maturity.\8\ The Obligations began to mature in 
2017, and the last Obligation will mature in September 2019.
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    \6\ See 12 U.S.C. 1441(d)(4). FICO issued the stock in a series 
of transactions between 1987 and 1989, each in anticipation of an 
issuance of a particular series of the FICO bonds.
    \7\ FICO used the net proceeds from the first 13 series of its 
Obligations to purchase nonredeemable capital certificates and 
nonredeemable nonvoting capital stock issued by the FSLIC. After the 
FSLIC was abolished in 1989, FICO used the proceeds from its final 
series of Obligations to purchase nonredeemable capital certificates 
issued by the FSLIC Resolution Fund, the statutory successor to the 
FSLIC. See 12 U.S.C. 1821a (establishment of FSLIC Resolution Fund). 
Those instruments have no value and have been charged to FICO's 
capital.
    \8\ See 12 U.S.C 1441(g)(2).
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    The Recapitalization Act established a different source for 
providing the funds needed to service the semiannual interest payments 
on the FICO Obligations.\9\ The statute initially authorized FICO to 
assess FSLIC-insured depository institutions for the funds needed to 
pay the interest due on the FICO Obligations.\10\ The Deposit Insurance 
Funds Act of 1996 authorized FICO to assess against institutions with 
deposits insured by both the Bank Insurance Fund (BIF) and the Savings 
Association Insurance Fund (SAIF).\11\ Pursuant to the Federal Deposit 
Insurance Reform Act of 2005, effective March 31, 2006, the BIF and 
SAIF were merged into the newly created Deposit Insurance Fund (DIF), 
and thus FICO may assess institutions insured by the DIF.\12\ FICO is 
authorized to assess insured depository institutions only for three 
purposes: For making interest payments on the FICO Obligations; paying 
issuance costs for the FICO Obligations; and paying custodial fees 
associated with the FICO Obligations. The Bank Act, as amended by 
FIRREA, further provides that FICO is to conduct its assessments in the 
same manner that the FDIC uses when assessing its insured depository 
institutions for deposit insurance purposes.\13\ FICO and the FDIC 
entered into a memorandum of understanding in 1997 (Memorandum of 
Understanding), as amended in 1999, pursuant to which the FDIC collects 
FICO's assessments from its insured

[[Page 63055]]

depository institutions quarterly, as agent for FICO.
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    \9\ Interest on each FICO Obligation is paid on the anniversary 
of its issuance date, and six months after that date each year.
    \10\ Public Law 100-86, sec, 302, 101 Stat. 552, 591-592.
    \11\ Public Law 104-208, sec. 2703, 110 Stat. 3009-479, 3009-
485.
    \12\ Public Law 109-171, sec. 2102, 120 Stat. 9.
    \13\ 12 U.S.C. 1441(f)(2).
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    The FDIC conducts its own Deposit Insurance Fund assessments 
quarterly (FDIC assessment), with the amount of the FDIC assessment for 
each insured depository institution being determined based, in part, on 
data that the institution has submitted to the Federal Financial 
Institutions Examination Council (FFIEC) in its Consolidated Reports of 
Condition and Income (call report). If an insured depository 
institution amends a call report on which a previous FDIC assessment 
had been calculated and the amendment to the call report would cause 
the calculation of the prior FDIC assessment to change, the institution 
may receive an adjustment, which generally appears on an upcoming 
invoice.\14\
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    \14\ See 12 U.S.C. 1817(e)(1) (addressing refunds of 
overpayments of FDIC assessments).
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    Pursuant to the Memorandum of Understanding, the FDIC collects the 
FICO assessments from the insured depository institutions quarterly, as 
agent for FICO, at the same time as the collection of FDIC assessments. 
FICO assessments are made based on an assessment rate formula adopted 
by FICO, and approved by the FDIC Board of Directors. One factor in 
FICO's formula is the deposit insurance assessment base, which (as 
described above) is calculated using an insured depository 
institution's call report data. Under the terms of the Memorandum of 
Understanding, twice per year, FICO notifies the FDIC of the total 
amounts that would be needed for FICO to make its upcoming Obligation 
interest payments and annually informs the FDIC of the interest it has 
earned. Using that information and FICO's assessment rate formula, the 
FDIC calculates a ``quarterly multiplier'' and applies it to 
information derived from each institution's call report to determine 
the FICO assessment for each institution for that calendar quarter. The 
FDIC then issues an invoice to each insured depository institution 
detailing both its quarterly FDIC and FICO assessments.\15\ Insured 
depository institutions submit payment for their FDIC and FICO 
assessments to the FDIC via Automated Clearing House (ACH). The FDIC 
then transfers the aggregate FICO collections to an account that FICO 
maintains at the Federal Reserve Bank of New York, from which FICO pays 
the interest that is due on the FICO Obligations.
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    \15\ The FDIC provides to each institution a Quarterly Certified 
Statement Invoice that specifies the total amount of that quarter's 
assessment, including the FDIC assessment and the FICO assessment 
for that calendar quarter.
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    In the case of an insured depository institution that amends its 
call report for a prior period, FICO assessments are adjusted in the 
same manner as FDIC assessments. Thus, if an amended call report 
results in an institution having overpaid or underpaid a prior 
quarter's FICO assessment an adjustment amount will appear on an 
upcoming invoice, provided that the amendment has been made within 
three years after the date that the associated FICO payment was 
due.\16\ Pursuant to the Memorandum of Understanding, overpayments 
arising from amended call reports are generally credited against the 
next quarter's FICO assessment and underpayments are added to the next 
quarter's FICO assessment.
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    \16\ See 12 U.S.C. 1817(g)(2) (establishing a three-year statute 
of limitations on actions by insured depository institutions to 
recover overpayments from FDIC, and on actions by FDIC to recover 
underpayments from the insured institutions).
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    With respect to all such refunds for overpayments of prior period 
FICO assessments, however, FICO has no legal obligation to use its own 
assets to provide monies to any insured depository institutions to make 
those refunds and does not do so. Indeed, FICO has no legal authority 
to assess insured depository institutions for the sole purpose of 
obtaining monies to provide refunds to other insured depository 
institutions or to spend its own non-assessment assets for that 
purpose. As a practical matter, because these refunds are processed as 
credits against the next FICO assessment, they do not require any cash 
outlay from FICO and all refunds are effectively paid from the 
assessments on the other insured depository institutions collectively. 
The principal effect of such refunds is that they modestly reduce the 
amount of monies actually collected by the FDIC, as agent for FICO, as 
part of a particular quarter's FICO assessment. Those refund credits, 
however, may be offset by the additional amounts that the FDIC 
collects, as an agent for FICO, from other institutions that had 
previously underpaid a prior FICO assessment.\17\ To the extent 
overpayment credits exceed underpayment collections, such shortfall is 
made up the following quarter by increasing the total collection amount 
accordingly. Moreover, because the determination of the quarterly 
multiplier for setting the FICO assessment involves rounding, any 
quarterly collection of the FICO assessment may yield slightly more 
money than the initially projected assessment amount. Pursuant to the 
Memorandum of Understanding with the FDIC, FICO also maintains a cash 
reserve that is available to make up modest shortfalls that might arise 
during a quarterly collection. FICO has never needed to use the cash 
reserve, because it has always collected sufficient funds to make all 
required interest payments when due. FHFA anticipates that FICO will 
draw down the monies in its cash reserve to fund a portion of the 
remaining interest payments on its Obligations as they come due, which 
also would reduce the amount needed to be assessed and collected from 
insured depository institutions during 2019.
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    \17\ The number of call report amendments submitted during a 
particular calendar quarter that will affect a FICO assessment will 
vary, but is small in comparison to the number of insured depository 
institutions filing call reports with FDIC. Generally speaking, the 
dollar amounts of the gross FICO refunds and FICO additional 
collections for any calendar quarter are also small, and the net 
amounts of such adjustments during a particular quarter often are 
less than $100,000.
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    As is evident from the above description, the current practice for 
adjusting individual FICO assessments--to account for either refunds or 
additional collections--depends on the existence of a subsequent FICO 
collection that could serve as the source of funds and the means by 
which any such adjustments may be processed. The last of the FICO bonds 
will mature during 2019 and FICO is scheduled to make five different 
interest payments during 2019.\18\ FHFA anticipates that the FDIC, as 
agent for FICO, will collect one FICO assessment during 2019 and that 
the amounts received by FICO from the March 2019 collection will be 
sufficient (when combined with any other available funds that FICO will 
have on hand) to make all remaining interest payments due during 2019. 
Accordingly, once the final FICO assessment has been collected, there 
will be no subsequent billing cycle through which an insured depository 
institution could have a prior FICO assessment adjusted, i.e., the 
FDIC, which will cease to be collection agent for FICO, will no longer 
invoice institutions for FICO assessments that could be adjusted to 
reflect increases or decreases attributable to amendments to their 
prior period call reports. Because FICO assessments are collected in 
the same manner as FDIC assessments, the FDIC's billing practices, as 
agent for FICO, have long included the above-

[[Page 63056]]

described adjustment provision for the FICO assessments. Thus, FHFA has 
determined that it is appropriate, as FICO's regulator, to adopt a rule 
to make clear that such adjustments must cease after FICO has collected 
its final assessment from the insured depository institutions, and that 
FICO has no obligation to make any adjustments to prior FICO 
assessments.
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    \18\ Two interest payments, in the approximate amount of $28 
million each, are due during March 2019, and FICO will collect 
monies needed to make those payments during the December 2018 
collection. The remaining three interest payments, in the 
approximate amounts of $26 million each, are due during April, June, 
and September 2019, and FICO will collect monies needed to make 
those payments during the March 2019 collection.
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    This rulemaking pertains only to the FICO assessments, which the 
FDIC collects on behalf of FICO. It does not affect the deposit 
insurance assessments that the FDIC collects from insured depository 
institutions, which will continue in their normal manner. The sections 
below describe the history and content of the final rule.

II. The Proposed Rule

    On September 26, 2018, FHFA published in the Federal Register a 
Notice of Proposed Rulemaking (proposed rule) to amend 12 CFR 1271.37 
of the FHFA regulations, which governs the assessment and collection of 
monies from FDIC-insured institutions to pay interest on the FICO 
Obligations. The 30-day comment period for the proposed rule ended on 
October 26, 2018. FHFA received no comments on the substance of the 
proposed rule or on its discussion relating to the applicability of the 
Regulatory Flexibility Act. FHFA's interpretation of the facts and 
legal authorities governing FICO's assessments in view of its impending 
dissolution remain unchanged. Thus, this final rule adopts without 
change all of the regulatory additions set forth in the proposed rule.

III. The Final Rule

    Content of the Final Rule. The final rule does four things. First, 
it provides that all FICO assessments collected during 2019 will be 
final, meaning that there will be no possibility of any subsequent 
adjustments to those assessment amounts. Second, it provides that after 
the collection of the final FICO assessment (which is expected to occur 
on March 29, 2019) no insured depository institution will be entitled 
to any adjustment of any prior FICO assessment that arises as a result 
of an amendment to the call report on which the prior assessment had 
been based. This recognizes the fact that adjustments to prior FICO 
assessments can only be made as part of the process of collecting a 
subsequent FICO assessment. Third, it preserves the existing adjustment 
practice through the final FICO assessment collection, i.e., it would 
allow the FDIC, as agent for FICO, to adjust the March 2019 FICO 
assessment for any institution to reflect amendments that the 
institution has made to its call reports for any calendar quarters 
prior to and including the fourth quarter of 2018. This provision is 
phrased in terms of setting March 26, 2019--the projected date as of 
which the FDIC will finalize the amounts due for the March 2019 FICO 
assessment--as the last date for any such call report amendments to 
affect the institution's FICO assessments.\19\ Fourth, this final rule 
includes a provision that is intended to address the possibility, which 
FHFA believes to be small, that FICO may need to conduct another 
assessment in June 2019, which would occur only if the March collection 
did not yield sufficient monies to make the remaining interest payments 
on the FICO bonds. This provision has been drafted to preserve the 
current practice of allowing an insured depository institution to amend 
the call report on which its June FICO assessments will be based up 
until the date on which the FDIC finalizes the amounts due from each 
institution for that quarter. This paragraph provides that any 
amendments to the call reports for the calendar quarter ending on March 
31, 2019 that are submitted after June 25, 2019, the anticipated date 
on which the FDIC would finalize payments for the collection, will not 
affect the institution's FICO assessment. Any amended call reports for 
the first quarter of 2019 submitted prior to that date will be used to 
calculate the June assessments. This is consistent with current 
practice for FICO assessments, under which payment amounts for FICO 
assessments are finalized three days prior to the date of collection.
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    \19\ For example, an insured depository institution that amends 
a prior period call report on or before March 26, 2019 will receive 
an appropriate adjustment to the assessment amount anticipated to be 
collected on March 29, 2019. An institution that amends a prior 
period call report after that date will not receive any adjustment 
to its prior FICO assessment because there is not expected to be 
another FICO assessment after that date.
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    Analysis. In the absence of an ongoing FICO assessment process 
continuing after March 2019, there will be no funding mechanism for 
FICO to provide an insured depository institution a credit for any 
overpayment of a prior FICO assessment or to bill it for any 
underpayment of a prior assessment. FHFA has therefore determined to 
provide clarity and finality by affirmatively declaring the FICO 
assessment adjustment practices terminated, effective with the 
collection of the final FICO assessment. FHFA is mindful of the 
statutory requirement that FICO should assess the depository 
institutions for its interest costs in the same manner as the FDIC 
assesses those institutions for deposit insurance purposes. FHFA also 
understands, however, that the FDIC has an established practice of 
allowing insured depository institutions to have adjustments made to 
their prior FDIC assessments if they later amend the call report data 
on which those assessments were based, provided it occurs within the 
three-year statutory period, a practice that will not be available when 
the FICO assessments cease.
    A key difference between the FICO assessments and the FDIC 
assessments is that the FDIC assessments are continual, with no 
predetermined termination date. The FICO assessment authority, however, 
is required by statute to cease after FICO has collected sufficient 
monies to pay the interest and related costs on its Obligations. In 
light of that difference, FHFA believes that the statutory language 
requiring FICO to conduct its assessments in the same manner as the 
FDIC assessments is best read as requiring FICO to follow the FDIC 
practice for prior period adjustments only for so long as FICO actually 
is collecting assessments from the insured depository institutions. 
FHFA has drafted the final regulation in that manner, i.e., the final 
rule would preserve the existing FDIC adjustment process through and 
including what is expected to be the final collection of the FICO 
assessment in March 2019. Until that final collection has been 
completed, all insured depository institutions that are eligible to be 
credited a refund for any prior overpayment of their FICO assessment or 
to be billed for any prior underpayment of their FICO assessment will 
be able to continue to have the appropriate adjustment included in the 
calculation of the amount they are required to pay.
    For the foregoing reasons, FHFA does not believe that the ``in the 
same manner'' language of the Bank Act can reasonably be construed to 
require FICO to provide refunds to, or to collect monies from, insured 
depository institutions that amend a prior period call report after 
FICO has ceased its assessments. As noted above, there will be no 
practical way to process such adjustments because there will be no 
invoiced amount against which a credit could be applied or to which a 
surcharge could be added. Moreover, there is no source of funds from 
which FICO could pay cash refunds because FICO will have used all 
monies received from its prior assessments to pay the interest and 
other costs due on its Obligations. FICO also could not assess insured 
depository institutions to obtain additional monies to provide refunds 
to

[[Page 63057]]

other institutions because its authority is limited to assessing the 
institutions only for monies needed for interest payments, issuance 
costs, and custodial fees. Finally, Congress has mandated that FHFA 
dissolve FICO as soon as practicable after it has repaid the last of 
its Obligations, which evidences an intent that FICO may not undertake 
any new activities, such as facilitating collections from and payments 
to insured institutions, after FICO has repaid its Obligations.
    FHFA believes that the most appropriate reading of the Bank Act in 
these circumstances is that it allows insured depository institutions 
to continue to receive refunds for prior overpayments (and to continue 
to be billed for prior underpayments) in the same manner as FDIC 
assessments through and including the final FICO assessment. That 
approach gives appropriate effect to the ``in the same manner'' 
language of the statute without creating any conflict with the 
provision requiring the prompt dissolution of FICO, and without 
imposing on FICO any obligations that are not expressly mandated by the 
Bank Act.
    FHFA also does not believe that this final rule will have a 
significant effect on FDIC-insured institutions. As an initial matter, 
the number of insured depository institutions amending call reports in 
any calendar quarter that affect their prior FICO assessments typically 
is small. For example, the number of such amended call reports for the 
fourth quarter of 2017 was 91, out of approximately 5,600 FDIC-insured 
depository institutions filing call reports. Moreover, the dollar 
amount of FICO assessment adjustments also is generally small. For that 
same period, the gross amount of refunds of prior FICO assessments 
related to those amended call reports was approximately $24,000, while 
the gross amount of collections of prior FICO underpayments was 
approximately $170,000, resulting in a net surplus of collections over 
refunds of approximately $146,000, i.e., the insured depository 
institutions generally owe more for underpayments than they are 
entitled to receive in refunds. From mid-2011 through the last 2017 
assessment period, the average net quarterly adjustment of prior FICO 
assessments resulting from all institutions' amendments to their prior 
call reports was approximately $95,000 of additional collections of 
prior FICO underpayments. As noted previously, and notwithstanding the 
typically modest numbers involved, this final rule has been drafted so 
as to preserve, through the date of the final FICO collection, the 
current practice of allowing all insured depository institutions to 
have their FICO assessments adjusted to reflect amendments to their 
prior call reports up until the date that FDIC finalizes the amount of 
each institution's final FICO assessment in March 2019.

IV. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501 et seq.) requires that 
regulations involving the collection of information receive clearance 
from the Office of Management and Budget (OMB). This rule contains no 
such collection of information requiring OMB approval under the 
Paperwork Reduction Act. Consequently, no information has been 
submitted to OMB for review.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of final rulemaking, an agency prepare a Final 
Regulatory Flexibility Act analysis describing the impact of the rule 
on small entities.\20\ A Final Regulatory Flexibility Act analysis is 
not required, however, if the agency certifies that the rule will not 
have a significant economic effect on a substantial number of small 
entities, and publishes its certification and a short explanatory 
statement in the Federal Register together with the final rule. The SBA 
has defined ``small entities'' to include banking organizations with 
total assets less than or equal to $550 million.\21\ As discussed 
further below, FHFA certifies that this final rule will not have a 
significant impact on a substantial number of FDIC-insured small 
entities.
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    \20\ 5 U.S.C. 601 et seq.
    \21\ 13 CFR 121.201 (as amended, effective December 2, 2014).
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Description of Need and Policy Objectives

    By statute, FHFA must dissolve FICO as soon as practicable after it 
has made the final payments of principal and interest due on its 
Obligations, the last of which matures in September 2019. To facilitate 
FICO's prompt and orderly dissolution, and for the other reasons 
described in Section III above, this final rule will make all 2019 FICO 
assessments final and will terminate FICO assessment adjustments as of 
March 26, 2019.

Description of the Final Rule

    A description of this final rule is presented in Section III: Final 
Rule. Please refer to it for further information.

Other Federal Rules

    FHFA has exclusive regulatory authority over FICO and has sole 
responsibility for interpreting and applying the provisions of the Bank 
Act that govern FICO's operations and dissolution. For the reasons 
described in Section III, FHFA has determined that the most appropriate 
way to interpret the provisions of the Bank Act that refer to the 
manner in which the FDIC conducts its own assessments is to read them 
as applying only while FICO is conducting its own assessments. FHFA has 
not identified any likely duplication, overlap, and/or potential 
conflict between the final rule and any other federal rule.

Economic Impacts on Small Entities

    This final rule applies to FICO and the manner in which it conducts 
its assessments, and may indirectly affect any FDIC-insured depository 
institutions that have been assessed to pay interest on the FICO's 
obligations. As of March 2018, the FDIC insured 5,606 depository 
institutions, of which 4,492 are defined as small banking entities for 
purposes of the RFA.\22\ Each insured depository institution's share of 
the FICO assessment is based on the insured depository institution's 
self-reported call report data, which the depository institution may 
amend after their initial filing with the FFIEC. Because decisions to 
amend previously filed call reports are solely within the control of 
the insured depository institution, it is not possible to predict how 
many depository institutions may amend a prior period call report 
during any calendar quarter, how many of those institutions amending a 
prior call report would be small entities for RFA purposes, whether the 
call report amendments would affect the calculation of an individual 
institution's prior FICO assessment, the dollar amount by which a prior 
FICO assessment had changed as a result of an amended call report, or 
the net amount of all such changes for all insured depository 
institutions, i.e., whether the dollar amount of all refunds for prior 
overpayments was greater or less than the dollar amount of all billings 
for prior underpayments. Based on historical FFIEC data relating to 
call report amendments that affected individual institution FICO 
assessments, however, it appears that this final rule will not affect a 
substantial number of small entities, and that the economic effect on 
those small entities that may be affected by this final rule will not 
be significant.

[[Page 63058]]

Indeed, the potential net economic effect on those small entities will 
most likely be positive, meaning that more of them would receive a 
financial benefit--being relieved of the obligation to pay for any 
prior underpayment of a FICO assessment--than would experience the 
negative effect of losing refunds for prior overpayment of FICO 
assessments.
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    \22\ Call Report data as of March 31, 2018.
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    Between March 2012 and December 2017, there has been an average of 
approximately 205 FICO assessments amended per calendar quarter, split 
evenly between refunds and additional collections. Based on the 
proportion of small entities to the total number of FDIC-insured 
depository institutions, FHFA has deemed approximately 80 percent of 
those amendments to have been attributable to small entities. The 
actual number of small entities amending call reports that affect their 
FICO assessments is apt to be lower, however, because each institution 
may amend multiple quarters' call reports at one time. For example, an 
institution amending a call report from a particular calendar quarter 
two years ago may also amend some or all of the subsequent call 
reports. Of the 164 FICO assessment amendments attributable to small 
banking entities per quarter, if each entity submits an average of two 
amendments per quarter, approximately 82, or slightly less than two 
percent, of FDIC-insured small banking entities would be affected per 
quarter by this final rule.
    During the same period, the average gross FICO refunds to 
institutions due to their overpayments of prior FICO assessments was 
approximately $139,000 per quarter, or an average of about $1,350 per 
amendment. The average gross additional FICO collection for 
underpayment of prior FICO assessments was $243,000 per quarter, or 
$2,370 per amendment. Based on those numbers, and assuming the largest 
possible estimated refunds, i.e., where an institution amended call 
reports for each of the twelve calendar quarters in the three year 
period and was entitled to an overpayment credit for each quarter of 
$1,350 each, the potential cost to that institution would be $16,200. 
In a similar fashion, assuming the largest possible estimated billings, 
i.e., where the institution amended its twelve most recent call reports 
and had underpaid each of the FICO assessments for those periods, the 
potential savings to that institution would be $28,440. These figures 
indicate that this final rule will likely not have a significant 
economic effect on even the smallest banking entities. When viewed in 
the aggregate, it appears that the most likely net effect on all FDIC 
insured institutions, including small entities, will be positive 
because the available data indicates that most adjustments to prior 
FICO assessments result in the depository institution paying additional 
amounts to make up for prior underpayments of its prior period FICO 
assessments, and that the amounts of such billings are greater than the 
amounts of any refunds.
    This final rule poses no regulatory costs for FDIC insured small 
entities, as their FDIC assessment process will remain in place as 
currently implemented. Overall assessment costs will be permanently 
reduced to the extent each entity's FICO assessment is no longer 
collected. Further, FDIC assessment adjustments will be unaffected by 
this final rule, which typically represent 90 percent of an insured 
institution's total potential adjustment value. For these reasons and 
based on the figures cited above, FHFA finds that this final rule will 
not have a significant economic impact on a substantial number of small 
entities.

Alternatives Considered

    As discussed previously, FHFA is promulgating this final rule to 
provide clarity and finality to an issue--the status of future 
adjustments to prior FICO assessments--that is not otherwise addressed 
by the statute. FHFA has considered three other approaches to 
addressing this issue. First, FHFA considered taking no action. That 
approach likely would have resulted in insured depository institutions 
being in the same situation as will be the case under the final rule--
without any mechanism to process adjustments to their prior FICO 
assessments--but neither they nor FICO would have had any guidance as 
to the status of their prior FICO assessments. By providing that all 
FICO assessments become final and nonrefundable when FICO completes its 
2019 assessments, the final rule provides certainty to those 
institutions that they would not have otherwise, and without placing 
them in any different situation than would be the case if FHFA took no 
action.
    Second, FHFA considered whether, after all FICO obligations are 
paid, FICO could assess all FDIC-insured institutions or use its own 
assets to obtain the monies needed to pay refunds to any insured 
depository institutions whose FICO assessments had changed due to 
amendments to their prior period call reports. FHFA concluded that 
further assessments are not legally permissible because Congress has 
authorized FICO to assess FDIC-insured institutions only for three 
specific purposes--to pay interest on the FICO Obligations, issuance 
costs, and custodian fees--which means that FICO's assessment authority 
does not extend to obtaining monies for paying refunds of prior FICO 
assessments. FICO also could not use its own assets to provide such 
monies because, as described previously, FICO has no legal obligation 
under any statute to reimburse insured institutions for their prior 
overpayments of FICO assessments, and has no authority to spend its 
assets for any purposes beyond those authorized by statute.
    Third, FHFA considered whether FICO could direct the FDIC, as 
collection agent, to continue to process adjustments to prior FICO 
assessments on its own, but deemed that approach not to be legally 
permissible. The FDIC acts solely as FICO's agent when collecting the 
FICO assessments, and as such FDIC's authority derives from, and can be 
no greater than, FICO's own assessment authority.

List of Subjects in 12 CFR Part 1271

    Accounting, Community development, Credit, Federal home loan banks, 
Government securities, Housing, Miscellaneous federal home loan bank 
operations and authorities, Reporting and recordkeeping requirements.

Authority and Issuance

    Accordingly, for reasons stated in the SUPPLEMENTARY INFORMATION 
and under the authority of 12 U.S.C. 1431(a), 1432(a), 4511(b), 4513, 
4526(a), FHFA amends subchapter D of chapter XII of title 12 of the 
Code of Federal Regulations as follows:

PART 1271--MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
AUTHORITIES

0
1. The authority citation for part 1271 continues to read as follows:

    Authority:  12 U.S.C. 1430, 1431, 1432, 1441(b)(8), (c), (j), 
1442, 4511(b), 4513(a), 4526.


0
2. Amend Sec.  1271.37 by adding paragraph (d) to read as follows:


Sec.  1271.37   Non-administrative expenses; assessments.

* * * * *
    (d)(1) Final assessments. All Financing Corporation assessments 
collected during 2019 shall be final. Subsequent to March 29, 2019, no 
insured depository institution shall have any right to receive refunds 
for any overpayment of any prior Financing Corporation assessments nor 
shall it be billed for any underpayment of any prior Financing 
Corporation assessments that arise as a result of an amendment to any 
Consolidated Reports

[[Page 63059]]

of Condition and Income on which the prior Financing Corporation 
assessment had been based.
    (2) Amendments to call reports. Amendments to an institution's 
Consolidated Reports of Condition and Income for quarters prior to and 
including the fourth quarter of 2018 shall not affect an institution's 
Financing Corporation assessments after March 26, 2019.
    (3) June 2019 assessment. In the event Financing Corporation 
assessments are collected in June 2019, amendments to an institution's 
first quarter 2019 Consolidated Reports of Condition and Income that 
are submitted after June 25, 2019 shall not affect the institution's 
Financing Corporation assessment.

    Dated: November 26, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-26449 Filed 12-6-18; 8:45 am]
 BILLING CODE 8070-01-P