[Federal Register Volume 84, Number 168 (Thursday, August 29, 2019)]
[Proposed Rules]
[Pages 45443-45449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18257]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF16


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) invites 
public comment on a notice of proposed rulemaking that would amend the 
deposit insurance assessment regulations that govern the use of small 
bank assessment credits (small bank credits) and one-time assessment 
credits (OTACs) by certain insured depository institutions (IDIs). 
Under the proposal, once the FDIC begins to apply small bank credits to 
quarterly deposit insurance assessments, such credits would continue to 
be applied as long as the Deposit Insurance Fund (DIF) reserve ratio is 
at least 1.35 percent (instead of, as currently provided, 1.38 
percent). In addition, after small bank credits have been applied for 
eight quarterly assessment periods, and as long as the reserve ratio is 
at least 1.35 percent, the FDIC would remit the full nominal value of 
any remaining small bank credits in lump-sum payments to each IDI 
holding such credits in the next assessment period in which the reserve 
ratio is at least 1.35 percent, and would simultaneously remit the full 
nominal value of any remaining OTACs in lump-sum payments to each IDI 
holding such credits.

DATES: Comments must be received on or before September 30, 2019.

ADDRESSES: You may submit comments, identified by RIN 3064-AF16, by any 
of the following methods:
     Agency website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include RIN 3064-AF16 in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EDT).
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Public Inspection: All comments received will be posted 
without change to https://www.fdic.gov/regulations/laws/federal, 
including any personal information provided. Paper copies of public 
comments may be ordered from the FDIC Public Information Center, 3501 
North Fairfax Drive, Room E-1002, Arlington, VA 22226, or by telephone 
at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Ashley Mihalik, Chief, Banking and 
Regulatory Policy Section, Division of Insurance and Research, (202) 
898-3793, [email protected]; LaVaughn Henry, Policy Analyst, Banking 
and Regulatory Policy Section, Division of Insurance and Research, 
(202) 898-6798, [email protected]; Jithendar Kamuni, Manager, Assessment 
Operations Section, (703) 562-2568, [email protected]; Samuel B. Lutz, 
Counsel, Legal Division, (202) 898-3773, [email protected].

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

    The FDIC maintains and administers the DIF in order to assure the 
agency's capacity to meet its obligations as the insurer of deposits 
and receiver of failed IDIs.\1\ The FDIC considers the adequacy of the 
DIF in terms of the reserve ratio, which is equal to the DIF balance 
divided by estimated insured deposits. A higher reserve ratio reduces 
the risk that losses from IDI failures during an economic downturn will 
exhaust the DIF and also reduces the risk of large, pro-cyclical 
increases in deposit insurance assessments to maintain a

[[Page 45444]]

positive DIF balance during such a downturn.
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    \1\ As used in this Notice of Proposed Rulemaking, the term 
``insured depository institution'' has the same meaning as the 
definition used in Section 3 of the Federal Deposit Insurance Act 
(FDI Act), 12 U.S.C. 1813(c)(2).
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    The FDIC is proposing to amend its regulations governing the use of 
small bank credits and OTACs.\2\ Currently, after the reserve ratio 
reaches or exceeds 1.38 percent, and provided that it remains at or 
above 1.38 percent,\3\ the FDIC will automatically apply small bank 
credits up to the full amount of the IDI's credits or quarterly 
assessment, whichever is less.\4\ Under the proposal, the FDIC would 
continue to apply small bank credits if the reserve ratio falls below 
1.38 percent, as long as it does not fall below the statutory minimum 
reserve ratio of 1.35 percent. The FDIC proposes to remit the full 
nominal value of any remaining small bank credits after such credits 
have been applied for eight quarterly assessment periods. At the same 
time that any remaining small bank credits are remitted, the FDIC 
proposes to also remit the full nominal value of any remaining OTACs, 
issued under section 7(e)(3) of the FDI Act, to IDIs holding such 
credits.\5\
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    \2\ See 12 CFR 327.11(c) (use of small bank credits) and 12 CFR 
327.35 (use of OTACs).
    \3\ See 83 FR 14565 (April 5, 2018) (making technical amendments 
to FDIC's assessment regulations, including an amendment clarifying 
that small bank credits will be applied in assessment periods in 
which the reserve ratio is at least 1.38 percent).
    \4\ After the initial notice of an IDI's assessment credit 
balance, and the manner in which the credit was calculated, periodic 
updated notices will be provided to reflect adjustments that may be 
made as the result of credit use, request for review of credit 
amounts, any subsequent merger or consolidation. Under the proposal, 
such notices would also reflect adjustments that may be made as a 
result of an IDI's amendment to its quarterly Consolidated Reports 
of Condition and Income or quarterly Reports of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks (as 
applicable).
    \5\ See 12 U.S.C. 1817(e)(3); see also 12 CFR part 327, subpart 
B.
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    The primary objective of this proposal is to make the application 
of small bank credits to IDIs' quarterly assessments more predictable, 
and to simplify the FDIC's administration of small bank credits, 
without materially impairing the ability of the FDIC to maintain the 
required minimum reserve ratio of 1.35 percent. The proposal would 
affect the timing of when small bank credits would be applied to an 
IDI's quarterly assessment, but it would not change the aggregate 
amount of credits that banks have been awarded. Based on Consolidated 
Reports of Condition and Income and the quarterly Reports of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks (together, 
``quarterly regulatory reports''), data as of March 31, 2019, the 
aggregate amount of outstanding small bank credits, $764.4 million, 
represented less than one basis point of the reserve ratio. For each 
quarter that credits would be applied, such credits would represent 
less than one-half of one basis point of the reserve ratio.
    In the FDIC's view, the proposed changes would lessen the 
likelihood that application of small bank credits would be suspended 
due to small variations in the reserve ratio. In particular, the 
proposed changes would lessen the likelihood that such credits would be 
applied in the quarter when the reserve ratio first reaches or exceeds 
1.38 percent and then immediately suspended in the next quarter if the 
reserve ratio falls below 1.38 percent. The proposal is expected to 
result in more stable and predictable application of credits to 
quarterly assessments, permitting IDIs to better budget for their 
assessment cash flow, and could benefit certain IDIs that, under the 
proposal, might realize the full value of their credits at an earlier 
date.
    Additionally, the proposal would simplify the FDIC's administration 
of the DIF from an operational perspective. While the proposal could 
affect the timing of DIF revenues by reducing the period of time during 
which small bank credits are applied, the long-term adequacy of the DIF 
would not be impacted because the total amount of credits awarded would 
not change.
    An additional objective of the proposal is to establish a 
reasonable time period during which small bank credits would be applied 
and OTACs would continue to be applied to quarterly assessments, at the 
conclusion of which FDIC would formally conclude both programs. The 
FDIC proposes to accomplish this by remitting, after eight quarterly 
assessment periods, any remaining small bank credits and OTACs in lump-
sum payments to each IDI holding such credits in the next quarterly 
assessment period in which the reserve ratio reaches or exceeds 1.35 
percent. This proposed change would accelerate the time at which IDIs 
would receive the benefit of such credits, and would permit more 
efficient administration of the DIF on a going-forward basis.

II. Background

A. Small Bank Assessment Credits

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act), which raised the minimum reserve ratio for the DIF to 
1.35 percent (from the former minimum of 1.15 percent), required the 
FDIC to ``offset the effect of the increase in the minimum reserve 
ratio on insured depository institutions with total consolidated assets 
of less than $10 billion'' when setting assessments.\6\ To offset the 
effect of increasing the minimum reserve ratio on IDIs with total 
consolidated assets of less than $10 billion (small IDIs), on March 25, 
2016, the FDIC published a final rule (the 2016 final rule) that, among 
other things, provided assessment credits to small IDIs for the portion 
of their regular assessments that contributed to the growth in the 
reserve ratio between 1.15 percent and 1.35 percent.\7\ Pursuant to the 
rule, upon reaching the statutory minimum reserve ratio of 1.35 
percent, small IDIs were awarded small bank credits for the portion of 
their assessments that contributed to the growth in the reserve ratio 
from 1.15 percent to 1.35 percent.\8\ FDIC regulations provide that 
these small bank credits will be applied to quarterly deposit insurance 
assessments when the reserve ratio is at least 1.38 percent.\9\
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    \6\ Public Law 111-203, 334(e), 124 Stat. 1376, 1539 (12 U.S.C. 
1817 (note)).
    \7\ See 81 FR 16059 (Mar. 25, 2016).
    \8\ See 81 FR at 16066.
    \9\ 12 CFR 327.11(c)(11).
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    As of September 30, 2018, the DIF reserve ratio reached 1.36 
percent, exceeding the statutorily required minimum reserve ratio of 
1.35 percent. All IDIs that were small IDIs, including small IDI 
affiliates of large IDIs, at any time during the ``credit calculation 
period'' \10\ were awarded a share of credits.\11\ The aggregate amount 
of small bank credits awarded is $764.4 million.\12\
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    \10\ The ``credit calculation period'' covers the period 
beginning July 1, 2016 (the quarter after the reserve ratio first 
reached or exceeded 1.15 percent) through September 30, 2018 (the 
quarter in which the reserve ratio first reached or exceeded 1.35 
percent). See 12 CFR 327.11(c)(2).
    \11\ If a small IDI acquired another small IDI through merger or 
consolidation during the credit calculation period, the acquiring 
small IDI's regular assessment bases for purposes of determining its 
credit base included the acquired IDI's regular assessment bases for 
those quarters during the credit calculation period that were before 
the merger or consolidation.
    \12\ In January 2019, aggregate credits of $764.7 million were 
awarded by 5,381 institutions. Since then, due to mergers, IDI 
failures, and voluntary liquidations, 5,212 remaining institutions 
have credits and the aggregate amount of outstanding credits is 
$764.4 million.
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    The share of the aggregate small bank credits allocated to each IDI 
was proportional to its credit base, defined as the average of its 
regular assessment base during the credit calculation 
period.13 14 IDIs eligible to receive a

[[Page 45445]]

credit were notified of their individual credit allocation in January 
2019 via FDICconnect. The FDIC plans to provide IDIs with periodic 
notices to reflect adjustments that may be made as the result of credit 
use or acquisition of an IDI with credits through merger or 
consolidation.\15\
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    \13\ Individual shares of credits were adjusted so that the 
assessment credits awarded to an eligible institution would not 
exceed the total amount of quarterly deposit insurance assessments 
paid by the institution during the credit calculation period in 
which it was a credit accruing institution. The adjusted amount was 
then reallocated to the other credit accruing institutions. See 12 
CFR 327.11(c)(4)(iii).
    \14\ See 12 CFR 327.11(c)(4).
    \15\ If any IDI acquires an IDI with credits through merger or 
consolidation, the acquiring IDI will acquire any remaining small 
bank credits of the acquired institution. See 12 CFR 327.11(c)(9). 
Other than through merger or consolidation, credits are not 
transferrable. See 12 CFR 327.11(c)(12). Credits held by an IDI that 
fails or ceases to be an insured depository institution will expire.
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B. One-Time Assessment Credits

    The Federal Deposit Insurance Reform Act of 2005 (FDI Reform Act) 
required the FDIC to provide OTACs to IDIs that existed on December 31, 
1996, and paid a deposit insurance assessment prior to that date, or 
that were successors to such an institution.16 17 The 
purpose of the OTAC, which was described as a ``transitional'' credit 
when it was enacted, was to recognize the contributions that certain 
institutions made to capitalize the Bank Insurance Fund and Savings 
Association Insurance Fund, which had been recently merged into the 
Deposit Insurance Fund.\18\ In October 2006, the FDIC adopted a final 
rule implementing the OTAC required by the FDI Reform Act. The 
aggregate amount of the OTAC was estimated to be approximately $4.7 
billion.\19\ The FDIC began to apply OTACs to offset an IDI's quarterly 
deposit insurance assessments beginning with the first assessment 
period of 2007. As of March 31, 2019, only two IDIs have outstanding 
OTACs totaling approximately $300,000. The assessment bases of these 
two IDIs have decreased significantly from December 31, 1996, which was 
the date used to calculate assessment bases when awarding OTACs to each 
eligible IDI. Based on the assessment bases of the two IDIs reported as 
of March 31, 2019, the FDIC estimates that application of the OTACs 
could continue for more than 13 years.
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    \16\ The FDI Reform Act was included as Title II, Subtitle B, of 
the Deficit Reduction Act of 2005, Public Law 109-171, 2107(a), 120 
Stat. 18, 1539 (12 U.S.C. 1817(e)(3)).
    \17\ By statute, the aggregate amount of credits equaled the 
amount that would have been collected if the FDIC had imposed a 10.5 
basis point assessment on the combined assessment base of the Bank 
Insurance Fund and the Savings Association Insurance Fund as of 
December 31, 2001. Individual shares were required to be based on 
the ratio of the institution's assessment base on December 31, 1996, 
to the aggregate assessment base of all eligible IDIs on that date.
    \18\ See H.R. Rep., No. 109-362, at 197 (Conf. Rep.); 71 FR 
61374, 61381 (Oct. 18, 2006).
    \19\ 71 FR 61375; 12 CFR part 327, subpart B (327.30 et seq.).
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III. Description of the Proposal

A. Application of Small Bank Credits as Long as Reserve Ratio is at or 
Above 1.35 Percent

    This proposal would amend the deposit insurance assessment 
regulations to suspend the application of small bank credits to an 
IDI's deposit insurance assessment when the reserve ratio is below 1.35 
percent rather than below 1.38 percent. The proposal also would amend 
the assessment regulations to allow for the recalculation of credits 
applied each quarter as a result of subsequent amendments to the 
quarterly regulatory reports.\20\ Under current regulations, small bank 
credits will be applied only in assessment periods in which the DIF 
reserve ratio is at least 1.38 percent, and the amount of credits that 
were applied for a prior quarter's assessment will not be recalculated 
as a result of amendments to that prior quarter's quarterly regulatory 
report.
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    \20\ This aspect of the proposal addresses the use of credits 
once the DIF reserve ratio reaches 1.38 percent and the FDIC begins 
to apply credits to an institution's regular quarterly deposit 
insurance assessments. This aspect of the proposal would not affect 
the aggregate amount of credits that have been awarded to all 
eligible IDIs, nor would it affect the amount of credits awarded to 
an individual IDI.
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    In the FDIC's view, the proposal would result in more predictable 
application of credits to quarterly assessments and would simplify the 
FDIC's administration of the DIF. Otherwise, a small change in the 
reserve ratio--caused by, for example, insured deposit growth, changing 
interest rates, or low losses from bank failures--could cause the 
reserve ratio to fluctuate one basis point above or below 1.38 percent 
following the quarters in which the reserve ratio met or exceeded 1.38 
percent. This uncertainty would make it difficult for IDIs with small 
bank credits to predict each quarter whether their deposit insurance 
assessments would be offset by credits, and would complicate the FDIC's 
ability to administer the DIF.
    The proposed changes would not materially impair the ability of the 
FDIC to maintain the required minimum reserve ratio of 1.35 percent. In 
the 2016 final rule, the FDIC noted that ``allowing credit use only 
when the reserve ratio is at or above 1.38 percent should provide 
sufficient cushion for the DIF to remain above 1.35 percent in the 
event of rapid growth in insured deposits and ensure that credit use 
alone will not result in the reserve ratio falling below 1.35 percent. 
Allowing credit use before the reserve ratio reaches this level, 
however, would create a greater risk of the reserve ratio falling below 
1.35 percent, triggering the need for a restoration plan.'' \21\ 
However, as described below, the FDIC now projects that the reserve 
ratio will not decline below 1.35 percent due to credit use alone.
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    \21\ See 81 FR 16066.
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    First, based on quarterly regulatory report data as of March 31, 
2019, the aggregate amount of outstanding small bank credits, $764.4 
million, represented less than one basis point of the reserve ratio. 
Furthermore, the FDIC expects that approximately 41 percent of all 
small bank credits would be used in the first quarter that credits are 
applied and would not be affected by the proposal. Application of small 
bank credits in future quarters almost certainly would represent a 
substantially smaller portion of the reserve ratio. The largest 
expected subsequent quarterly effect would be equal to approximately 
one-third of a basis point of the reserve ratio. Therefore, the 
application of small bank credits in any one quarter would not be 
sufficient on its own to cause the reserve ratio to fall below 1.35 
percent in future quarters. Second, recent history suggests a generally 
positive near-term outlook for the banking sector (implying lower costs 
to the DIF). For example, since December 2017, only one IDI has failed, 
with an estimated cost to the DIF of $27 million. As of March 31, 2019, 
the number of ``problem banks'' was 59, the lowest since the first 
quarter of 2007.
    Lowering the reserve ratio threshold at which the application of 
small bank credits is suspended would permit the FDIC to balance its 
goal of adequately maintaining the reserve ratio while increasing the 
likelihood that the application of small bank credits to quarterly 
assessments would remain stable and predictable over time. Furthermore, 
suspending the application of small bank credits when the reserve ratio 
falls below 1.35 percent is consistent with the statutory requirement 
that the FDIC adopt a restoration plan under the FDI Act when the 
reserve ratio falls below that level.\22\
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    \22\ See 12 U.S.C. 1817(b)(3)(E).
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    Finally, as mentioned above, under current regulations, the 
recalculation of the amount of small bank credits applied for a prior 
quarter's assessment resulting from subsequent amendments to a bank's 
quarterly regulatory reports is impermissible.\23\ The removal of this 
prohibition will result in a more appropriate assignment of credits to 
the

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assessment period in which the credits originally would have been 
applied under a correct filing of the quarterly regulatory report. This 
change to the assessment regulations will not affect the overall amount 
of credits awarded to any institution nor will it affect the management 
of the DIF, but will improve its operational efficiency.
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    \23\ See 12 CFR 327.11(c)(11)(iii).
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B. Remitting Small Bank Credits and One-Time Assessment Credits

    The proposal further provides that after small bank credits have 
been applied for eight quarterly assessment periods, and as long as the 
reserve ratio is at least 1.35 percent, the FDIC would remit in the 
next assessment period the full balance of any remaining small bank 
credits to each IDI holding such credits in lump-sum payments. In 
addition, at the same time that the FDIC remits payment for any 
remaining small bank credits, FDIC proposes to remit the full balance 
of any remaining OTACs to each IDI holding such credits in lump-sum 
payments.
    The FDIC anticipates that after applying small bank credits for 
eight quarterly assessment periods, nine institutions would hold an 
estimated $1.75 million in small bank credits. Under the proposal, 
these nine institutions would receive a payment for the nominal amount 
of the remaining balance. Similarly, the proposal would permit the FDIC 
to pay the outstanding balances of remaining OTACS at the same time 
that the FDIC remits payment for any remaining small bank credits. As 
of March 31, 2019, two institutions held OTACs of about $300,000. After 
eight more quarters of applying OTACs, the FDIC estimates that the two 
IDIs would have approximately $248,000 in remaining OTACs. Therefore, 
remittance of all remaining small bank credits and OTACs in individual 
lump-sum payments would affect only a small number of institutions, and 
the total amount of such payments should not be sufficient on their own 
to cause the DIF reserve ratio to fall below 1.35 percent.
    Moreover, in the FDIC's view, remitting the full balance of 
remaining small bank credits, as well as OTACs, after eight quarters of 
applying small bank credits would provide a benefit to an IDI that was 
awarded small bank credits or OTACs. From an operational perspective, 
implementation of this aspect of the proposal also would allow FDIC to 
conclude both the small bank credit and OTAC programs at the same time, 
thereby simplifying the FDIC's administration of the DIF.

C. Proposed Effective Date and Application Date

    The FDIC is proposing that this rule be immediately effective upon 
publication of the final rule in the Federal Register. Under current 
regulations, in the event that the reserve ratio reaches or exceeds 
1.38 percent as of June 30, 2019, FDIC will begin applying small bank 
credits to invoices for the second quarterly assessment period, which 
began on April 1, 2019, and for which payment is due on September 30, 
2019. However, if the reserve ratio falls below 1.38 percent as of 
September 30, 2019 (the third quarterly assessment period, which began 
on July 1, 2019, and for which payment is due on December 30, 2019), 
the FDIC will suspend application of credits. To address any 
possibility that the reserve ratio may reach or exceed 1.38 percent as 
of June 30, 2019 (the second quarterly assessment period), then 
decrease below 1.38 percent as of September 30, 2019 (the third 
quarterly assessment period), the FDIC is proposing an immediate 
effective date for this rule with application of the rule beginning in 
the third quarterly assessment period of 2019.
    The proposed effective date and the proposed application date would 
provide certainty to IDIs with small bank credits that the proposed 
rule would apply to the third assessment period of 2019, and that the 
FDIC could apply small bank credits even if the DIF reserve ratio is 
less than 1.38 percent (but at least 1.35 percent) for that assessment 
period. As discussed below in Section VII.A (Administrative Procedure 
Act), the FDIC finds good cause for an immediate effective date, 
because IDIs would benefit by having increased stability and 
predictability in the FDIC's application of small bank credits to 
quarterly assessments over time.
    Question 1: Does the proposal increase the predictability of the 
application of assessments for IDIs with small bank credits? Should the 
FDIC consider an alternative reserve ratio at or above 1.35 percent as 
the threshold for suspending the application of credits?
    Question 2: Does the FDIC need to clarify the proposed effective 
date or the proposed application date of the rule? Do institutions have 
comments on the proposed effective or application date?
    Question 3: What potential costs or benefits, or budgeting or 
accounting implications, should the FDIC consider regarding the 
proposal to remit all remaining small bank credits and OTACs in lump-
sum payments to IDIs holding such credits after small bank credits have 
been applied for eight assessment periods? Should the FDIC apply 
credits for fewer or more assessment periods before remitting payment 
to IDIs for their remaining credit balances?
    Question 4: Should the FDIC remit outstanding OTAC balances at the 
same time that small bank credits are remitted? What are the potential 
costs or benefits, including any accounting implications, to remitting 
outstanding OTACs to IDIs?

IV. Economic Effects

    The FDIC believes that the expected economic effects of the 
proposed rule are likely to be small and positive for affected IDIs. As 
stated previously, the proposed rule lowers the possibility that the 
FDIC would begin applying small bank credits in the quarter when the 
reserve ratio first reaches or exceeds 1.38 percent, but then suspend 
the application of credits if the reserve ratio falls below 1.38 
percent (but remains at or above 1.35 percent). The proposal would 
affect the timing of when small bank credits would be applied to an 
IDI's quarterly assessment, but it would not change the aggregate 
amount of credits that IDIs have been awarded. Therefore, the economic 
effect of this aspect of the proposed rule is a reduction in any 
potential future costs associated with a disruption in the application 
of small bank credits to the assessments of IDIs if the reserve ratio 
drops below 1.38 percent but remains at or above 1.35 percent. It is 
difficult to accurately estimate the magnitude of these benefits to 
IDIs because it depends, among other things, on future economic and 
financial conditions, the operational and financial management 
practices at affected IDIs, and future levels of the reserve ratio.
    Based on quarterly regulatory report data as of March 31, 2019, 
5,212 IDIs have small bank credits totaling $764.4 million. The FDIC 
expects to apply approximately 41 percent of the aggregate amount of 
small bank credits in the first quarter that the reserve ratio reaches 
or exceeds 1.38 percent, leaving IDIs uncertain about when the 
remaining 59 percent of small bank credits would be applied to their 
assessments. Using the same data, the FDIC estimates that 5,025 IDIs 
(or 96.4 percent) would exhaust their individual shares of small bank 
credits within four assessment periods of application. Of the 187 
institutions which have small bank credits that would last more than 
four quarters, 160 IDIs are expected to exhaust their individual shares 
after being applied for two additional

[[Page 45447]]

assessment periods of application (i.e., after a total of six 
assessment periods), and 18 IDIs within four additional assessment 
periods (i.e., after a total of eight assessment periods). After 
applying small bank credits for eight assessment periods, the FDIC 
estimates that nine IDIs would hold an aggregate of $1.75 million in 
credits. Under the proposal, the FDIC would remit the remaining 
individual small bank credit balances to each of these nine 
institutions in a lump-sum payment. Therefore, the dollar amount of 
remaining small bank credits declines substantially after the initial 
application in the first quarter that the reserve ratio reaches or 
exceeds 1.38 percent, reducing the effects of credit application being 
suspended due to a decrease in the reserve ratio. Additionally, as 
mentioned above, recent history suggests a generally positive near-term 
outlook for the banking sector (implying lower costs to the DIF), 
therefore the probability of the suspension of applying small bank 
credits is low, particularly in the near-term quarters.
    The proposal similarly would require the FDIC to remit the 
outstanding balances of remaining OTACs in a lump-sum payment, at the 
same time that the outstanding small bank credit balances are remitted. 
The FDIC believes that this aspect of the proposed rule is likely to 
provide a small benefit to affected institutions. As of March 31, 2019, 
two institutions held OTACs of approximately $300,000. After eight more 
quarters of OTAC use, the two banks would have approximately $248,000 
remaining. Under the proposal, the FDIC would remit the remaining 
individual OTAC balances to each of these two IDIs in a lump-sum 
payment, in the next assessment period in which the reserve ratio is at 
least 1.35 percent. The benefit of this aspect of the proposed rule to 
the IDIs with OTACs is that they would receive and could utilize these 
funds after eight more quarters of use, rather than the expected 
program duration of more than 13 years. Since the IDIs holding OTACs 
are not currently earning any returns on these funds, and assuming the 
funds are invested for 11 years and earn 0.25 percent real rate of 
return,\24\ this aspect of the proposed rule could provide a benefit of 
$6,635 to the affected institutions.
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    \24\ Board of Governors of the Federal Reserve System, 10-Year 
Treasury Inflation-Indexed Security, Constant Maturity [DFII10] 
(July 22, 2019), https://fred.stlouisfed.org/series/DFII10.
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    The FDIC would remit any remaining balances of small bank credits 
and OTACs into the deposit accounts designated by the IDIs for deposit 
insurance assessment payment purposes.
    Question 5: The FDIC invites comments on all aspects of the 
information provided in this Economic Effects section. In particular, 
would this proposal have any significant effects on institutions that 
the FDIC has not identified?

V. Alternatives Considered

    The FDIC considered several alternatives while developing this 
proposal. First, the FDIC considered leaving its regulation governing 
the use of small bank credits and OTACs unchanged. The FDIC rejected 
this alternative because small variations in the reserve ratio could 
result in the application of credits in one quarter and suspension of 
credit application in the next, reducing the stability and 
predictability of assessment obligations. The proposed change to the 
threshold for suspending application of small bank credits would 
benefit institutions receiving credits at no material cost to the DIF, 
since the aggregate amount of credits would not change under the 
proposal and the proposal would not materially impair the ability of 
the FDIC to maintain the required minimum reserve ratio of 1.35 
percent. The proposed changes also would allow FDIC to remit any 
remaining small bank credits and OTACs in a lump-sum payment after 
eight quarterly assessment periods, in the next assessment period in 
which the reserve ratio is at least 1.35 percent, which would benefit 
IDIs that could utilize these funds sooner and would permit the FDIC to 
administer the DIF more efficiently.
    Second, the FDIC also considered decreasing the amount of time 
during which it would apply small bank credits before remitting any 
remaining balances of such credits and OTACs to IDIs. For example, the 
FDIC considered immediately issuing a single lump sum payment in the 
amount of each IDI's aggregate credit to all eligible IDIs and holders 
of OTACs after the reserve ratio reached or exceeded 1.38 percent. The 
FDIC also considered applying credits for four quarterly assessment 
periods, then remitting the remaining balance of small bank credits and 
OTACs to IDIs. The FDIC rejected shorter time periods because applying 
credits over a longer period of time would result in less volatility 
for the DIF.
    The FDIC also considered increasing the amount of time during which 
it would apply small bank credits before remitting any remaining 
balances of such credits and OTACs to IDIs. The FDIC rejected a period 
longer than eight quarters because only nine institutions are 
anticipated to hold an aggregate of $1.75 million in credits after 
eight quarters of application. Continued application of small bank 
credits and OTACs beyond eight quarters would unnecessarily complicate 
FDIC's administration of the DIF from an operational perspective, 
without providing a material benefit to the DIF.
    Question 6: The FDIC invites comment on all alternatives discussed, 
including whether the FDIC should adopt an alternative instead of the 
proposal, and if so, why.

VI. Request for Comment

    In addition to its request for comment on specific parts of the 
proposal, the FDIC seeks comment on all aspects of this proposed 
rulemaking.

VII. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    Under the Administrative Procedure Act, ``[t]he required 
publication or service of a substantive rule shall be made not less 
than 30 days before its effective date, except as otherwise provided by 
the agency for good cause found and published with the rule.'' \25\ 
Under the proposal, the amendments to the FDIC's deposit insurance 
assessment regulations would be effective upon publication of a final 
rule in the Federal Register, and the FDIC finds good cause that the 
publication of a final rule implementing this proposal can be less than 
30 days before its effective date because IDIs would benefit from 
increased stability and predictability in the application of small bank 
credits to quarterly assessments before the final rule would otherwise 
become effective.
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    \25\ 5 U.S.C. 553(d).
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    As explained above in the Supplementary Information section, 
because the FDIC invoices for quarterly deposit insurance assessments 
in arrears, invoices for the third quarterly assessment period of 2019 
would be made available to IDIs in December 2019, with a payment date 
of December 30, 2019. To address any possibility that the reserve ratio 
may reach or exceed 1.38 percent as of June 30, 2019 (the end of the 
second quarterly assessment period), then decrease below 1.38 percent 
as of September 30, 2019 (the end of the third quarterly assessment 
period), the FDIC is proposing an immediate effective date for this 
rule with application of the rule beginning in the third quarterly 
assessment period of 2019. This effective date would provide certainty 
to IDIs with small bank credits

[[Page 45448]]

that the proposed rule would apply to the third quarterly assessment 
period of 2019, and that the FDIC could apply small bank credits even 
if the DIF reserve ratio is less than 1.38 percent (but at least 1.35 
percent) for that assessment period. Once the FDIC begins to apply 
small bank credits to each IDI's assessment when the reserve ratio 
reaches or exceeds 1.38 percent, it will continue to do so until all 
small bank credits have been applied or remitted, as long as the 
reserve ratio is at least 1.35 percent.

B. 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 final rules published after 
January 1, 2000. The FDIC invites comments on how to make this proposal 
easier to understand. For example:
     Has the FDIC organized the material to suit your needs? If 
not, how could the material be improved?
     Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
     Does the proposed regulation contain language or jargon 
that is unclear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand?

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a proposed rule, to 
prepare and make available for public comment an initial regulatory 
flexibility analysis that describes the impact of a proposed rule on 
small entities.\26\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The Small Business Administration (SBA) has defined ``small entities'' 
to include banking organizations with total assets of less than or 
equal to $550 million.\27\ Generally, the FDIC considers a significant 
effect to be a quantified effect in excess of 5 percent of total annual 
salaries and benefits per institution, or 2.5 percent of total non-
interest expenses. The FDIC believes that effects in excess of these 
thresholds typically represent significant effects for FDIC-insured 
institutions. 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.\28\ 
The proposed rule relates directly to the rates imposed on IDIs for 
deposit insurance and to the deposit insurance assessment system that 
measures risk and determines each established small bank's assessment 
rate and is, therefore, not subject to the RFA. Nonetheless, the FDIC 
is voluntarily presenting information in this RFA section.
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    \26\ 5 U.S.C. 601 et seq.
    \27\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, effective December 2, 2014). ``SBA counts the 
receipts, employees, or other measure of size of the concern whose 
size is at issue and all of its domestic and foreign affiliates.'' 
See 13 CFR 121.103. Following these regulations, the FDIC uses a 
covered entity's affiliated and acquired assets, averaged over the 
preceding four quarters, to determine whether the covered entity is 
``small'' for the purposes of RFA.
    \28\ 5 U.S.C. 601.
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    Based on quarterly regulatory report data as of March 31, 2019, the 
FDIC insures 5,371 depository institutions, of which 3,920 are defined 
as small entities by the terms of the RFA. Further, 3,917 RFA-defined 
small, FDIC-insured institutions have small bank credits totaling 
$172.4 million.
    As stated previously, the proposed rule eliminates the possibility 
that affected small, FDIC-insured institutions would begin receiving 
small bank credits in the quarter when the reserve ratio first reaches 
or exceeds 1.38 percent but that these credits then would be suspended 
if the reserve ratio subsequently falls below 1.38 percent (but remains 
at least 1.35 percent). Therefore, the economic effect of this aspect 
of the proposed rule is a reduction in the potential future costs 
associated with a disruption of the type just described in the 
application of small bank credits by affected small, FDIC-insured 
institutions. It is difficult to accurately estimate the magnitude of 
this benefit to affected small, FDIC-insured institutions because it 
depends, among other things, on future economic and financial 
conditions, the operational and financial management practices at 
affected small, FDIC-insured institutions, and the future levels of the 
reserve ratio. However, the FDIC believes the economic effects of the 
proposed rule are likely to be small because an estimated 41 percent of 
the aggregate amount of small bank credits would be applied in the 
first quarter that the reserve ratio is at least 1.38 percent. Further, 
the FDIC estimates that 3,768 small, FDIC-insured institutions (or 96.2 
percent) would exhaust their individual shares of small bank credits 
within four assessment periods. Of the 149 small, FDIC-insured 
institutions that the FDIC estimates would have small bank credits that 
would last more than four quarters, 138 are expected to exhaust their 
individual shares after being applied for two additional assessment 
periods (i.e., after a total of six assessment periods of application), 
and four within four additional assessment periods of application 
(i.e., after a total of eight assessment periods), and seven will last 
more than eight quarters. Therefore, the dollar amount of remaining 
small bank credits declines substantially after the initial application 
of credits in the first quarter of use, reducing the effects of credit 
application being suspended due to a decrease in the reserve ratio. 
Additionally, recent history suggests a generally positive near-term 
outlook for the banking sector (implying lower costs to the DIF), 
therefore the probability of suspension of applying small bank credits 
is low, particularly in the near-term quarters.
    As stated previously, the proposed rule would require the FDIC to 
remit the outstanding balances of remaining OTACs in a lump-sum 
payment, in the next assessment period in which the reserve ratio is at 
least 1.35 percent, at the same time that the outstanding small bank 
credit balances are remitted. As of March 31, 2019, only two IDIs have 
outstanding OTACs totaling approximately $300,000. However, both 
institutions are subsidiaries of large banking organizations and 
therefore do not qualify as small entities under the RFA. Therefore, 
this aspect of the proposed rule would not affect any small, FDIC-
insured institutions.
    Question 7: The FDIC invites comments on all aspects of the 
supporting information provided in this RFA section. In particular, 
would this proposed rule have any significant effects on small entities 
that the FDIC has not identified?

D. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(PRA) of 1995,\29\ 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. The FDIC's

[[Page 45449]]

OMB control numbers for its assessment regulations are 3064-0057, 3064-
0151, and 3064-0179. The proposed rule does not revise any of these 
existing assessment information collections pursuant to the PRA and 
consequently, no submissions in connection with these OMB control 
numbers will be made to the OMB for review.
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    \29\ 44 U.S.C. 3501 et seq.
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E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\30\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
IDIs, each Federal banking agency must consider, consistent with 
principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on IDIs, 
including small IDIs, and customers of IDIs, as well as the benefits of 
such regulations. In addition, subject to certain exceptions, section 
302(b) of RCDRIA requires new regulations and amendments to regulations 
that impose additional reporting, disclosures, or other new 
requirements on IDIs generally to take effect on the first day of a 
calendar quarter that begins on or after the date on which the 
regulations are published in final form.\31\
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    \30\ 12 U.S.C. 4802(a).
    \31\ 12 U.S.C. 4802(b).
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    The proposed rule would not impose additional reporting or 
disclosure requirements on IDIs, including small IDIs, or on the 
customers of IDIs. It would provide for: Continued application of small 
bank credits as long as the reserve ratio is at least 1.35 percent, 
remittance of any remaining small bank credits in a lump-sum payment 
after such credits have been applied for eight quarterly assessment 
periods, in the next assessment period in which the reserve ratio is at 
least 1.35 percent, and remittance of any remaining OTACs in a lump-sum 
payment at the same time that any remaining small bank credits are 
remitted. Accordingly, section 302 of RCDRIA does not apply. 
Nevertheless, the requirements of RCDRIA will be considered as part of 
the overall rulemaking process, and the FDIC invites any other comments 
that further will inform the FDIC's consideration of RCDRIA.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings Associations.

    For the reasons set forth above, the FDIC proposes to amend Part 
327 of title 12 of the Code of Federal Regulations as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR Part 327 continues to read:

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

0
2. Amend Sec.  327.11 by:
0
a. Revising paragraph (c)(11)(i);
0
b. Removing paragraph (c)(11)(iii); and
0
c. Adding paragraph (c)(13).
    The revision and addition read as follows:


Sec.  327.11  Surcharges and assessments required to raise the reserve 
ratio of the DIF to 1.35 percent

* * * * *
    (c) * * *
    (11) Use of credits. (i) Effective as of July 1, 2019, the FDIC 
will apply assessment credits awarded under this paragraph (c) to an 
institution's deposit insurance assessments, as calculated under this 
part 327, beginning in the first assessment period in which the reserve 
ratio of the DIF is at least 1.38 percent, and in each assessment 
period thereafter in which the reserve ratio of the DIF is at least 
1.35 percent, for no more than seven additional assessment periods.
* * * * *
    (13) Remittance of credits. After assessment credits awarded under 
paragraph (c) of this section have been applied for eight assessment 
periods, the FDIC will remit the full nominal value of an institution's 
remaining assessment credits in a single lump-sum payment to such 
institution in the next assessment period in which the reserve ratio is 
at least 1.35 percent.
* * * * *
0
3. Amend Sec.  327.35 by adding paragraph (c) to read as follows:


Sec.  327.35   Application of credits.

* * * * *
    (c) Remittance of credits. Subject to the limitations in paragraph 
(b) of this section, in the same assessment period that the FDIC remits 
the full nominal value of small bank assessment credits pursuant to 
Sec.  327.11(c)(13), the FDIC shall remit the full nominal value of an 
institution's remaining one-time assessment credits provided under this 
subpart B in a single lump-sum payment to such institution.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on August 20, 2019.
Valerie Best,
Assistant Executive Secretary.
[FR Doc. 2019-18257 Filed 8-28-19; 8:45 am]
 BILLING CODE 6714-01-P