[Federal Register Volume 84, Number 229 (Wednesday, November 27, 2019)]
[Rules and Regulations]
[Pages 65269-65276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25566]


=======================================================================
-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF16


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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

SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is amending 
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 this final rule, now that the FDIC is applying small bank 
credits to quarterly deposit insurance assessments, such credits will 
continue to be applied as long as the Deposit Insurance Fund (DIF) 
reserve ratio is at least 1.35 percent (instead of, as originally 
provided, 1.38 percent). In addition, after small bank credits have 
been applied for four quarterly assessment periods, and as long as the 
reserve ratio is at least 1.35 percent, the FDIC will 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 will simultaneously 
remit the full nominal value of any remaining OTACs in lump-sum 
payments to each IDI holding such credits.

DATES: This final rule is effective November 27, 2019, and is 
applicable beginning July 1, 2019 (the third quarterly assessment 
period of 2019).

FOR FURTHER INFORMATION CONTACT: Ashley Mihalik, Chief, Banking and 
Regulatory Policy Section, Division of Insurance and Research, (202) 
898-3793, [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 positive DIF 
balance during such a downturn.
---------------------------------------------------------------------------

    \1\ As used in this final rule, 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).
---------------------------------------------------------------------------

    The FDIC is amending its regulations governing the use of small 
bank credits and OTACs.\2\ As originally adopted, the regulations 
provided that after the reserve ratio reached or exceeded 1.38 percent, 
and provided that it remained at or above 1.38 percent,\3\ the FDIC 
would automatically apply small bank credits up to the full amount of 
the IDI's credits or quarterly assessment, whichever is less.\4\ Under 
the final rule,

[[Page 65270]]

the FDIC will 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 will remit 
the full nominal value of any remaining small bank credits after such 
credits have been applied for four quarterly assessment periods. At the 
same time that any remaining small bank credits are remitted, the FDIC 
will 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\
---------------------------------------------------------------------------

    \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 rule, 
such notices will 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.
---------------------------------------------------------------------------

    The primary objective of this rule 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 rule affects the timing of 
when small bank credits would be applied to an IDI's quarterly 
assessment, but it does not change the aggregate amount of credits that 
banks have been awarded. Based on data from Consolidated Reports of 
Condition and Income and quarterly Reports of Assets and Liabilities of 
U.S. Branches and Agencies of Foreign Banks (together, ``quarterly 
regulatory reports''), as of June 30, 2019, the aggregate amount of 
small bank credits, $764.5 million, represented less than one basis 
point of the reserve ratio. For the initial quarter in which small bank 
credits were applied, and for each future quarter of application, such 
credits represent less than one-half of one basis point of the reserve 
ratio.
    In the FDIC's view, these changes lessen the likelihood that 
application of small bank credits would be suspended due to small 
variations in the reserve ratio. In particular, the rule lessens the 
likelihood that such credits would be applied in a quarter when the 
reserve ratio is at or above 1.38 percent and then immediately 
suspended in the next quarter if the reserve ratio falls below 1.38 
percent. The rule 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 might realize the full value of their credits at an earlier 
date.
    Additionally, the final rule simplifies the FDIC's administration 
of the DIF from an operational perspective. While the rule affects 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 is 
not impacted because the total amount of credits awarded does not 
change.
    An additional objective of the rule is to establish a reasonable 
time period during which the FDIC will administer the application of 
credits for the small bank credit program and the OTAC program. The 
FDIC will accomplish this by remitting, after four 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 is at least 1.35 percent. 
The FDIC will then conclude both credit programs. This change will 
accelerate the time at which IDIs will receive the benefit of such 
credits and will 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 
2016 final 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\ The regulations 
provided that these small bank credits would be applied to quarterly 
deposit insurance assessments when the reserve ratio is at least 1.38 
percent.\9\
---------------------------------------------------------------------------

    \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 16065-16066.
    \9\ 12 CFR 327.11(c)(11).
---------------------------------------------------------------------------

    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 in January 2019.\11\ As 
of June 30, 2019, the DIF reserve ratio reached 1.40 percent, exceeding 
the 1.38 percent threshold for the first time. As a result, for the 
second quarter assessment period, the FDIC applied $319.7 million of 
small bank credits to offset IDIs' assessments. After applying credits 
for the second quarter of 2019, $444.8 million in small bank credits 
remain.\12\
---------------------------------------------------------------------------

    \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. See 12 CFR 327.11(c)(5).
    \12\ In January 2019, aggregate credits of $764.7 million were 
awarded to 5,381 institutions. As of June 30, 2019, due to mergers, 
IDI failures, and voluntary liquidations, 5,215 remaining 
institutions had credits totaling $764.5 million. Since then, the 
FDIC has applied $319.7 million of small bank credits, reducing the 
aggregate amount of remaining small bank credits to $444.8 million.
---------------------------------------------------------------------------

    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 credit were notified 
of their individual credit allocation in January 2019 via FDICconnect. 
The FDIC will 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\
---------------------------------------------------------------------------

    \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.

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

[[Page 65271]]

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.\19\ The 
aggregate amount of the OTAC was estimated to be approximately $4.7 
billion. 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 June 30, 2019, only two IDIs have outstanding 
OTACs totaling approximately $300,000. The assessment bases of these 
two IDIs have decreased significantly since 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 June 30, 2019, the FDIC estimates that application of 
the OTACs could continue for more than 13 years.
---------------------------------------------------------------------------

    \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. 4, 18 (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. See 12 U.S.C. 1817(e)(3)(B). 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. See 12 U.S.C. 1817(e)(3)(A).
    \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 (12 CFR 327.30 et 
seq.).
---------------------------------------------------------------------------

C. The Proposed Rule

    On August 20, 2019, the FDIC Board approved a Notice of Proposed 
Rulemaking (NPR) to amend the deposit insurance assessment regulations 
that govern the use of small bank assessment credits and OTACs by 
certain IDIs.\20\ Under the proposed rule, 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 proposed to remit the full nominal value of 
any remaining small bank credits after such credits had been applied 
for eight quarterly assessment periods. At the same time that any 
remaining small bank credits are remitted, the FDIC also proposed to 
remit the full nominal value of any remaining OTACs, issued under 
section 7(e)(3) of the FDI Act, to IDIs holding such credits. The FDIC 
received two comments on the NPR. The comments are discussed in the 
relevant sections below.
---------------------------------------------------------------------------

    \20\ 84 FR 45443 (Aug. 29, 2019).
---------------------------------------------------------------------------

III. The Final Rule

A. Summary

    The FDIC received two comments from trade associations in response 
to the NPR. Both commenters generally supported the proposed rule. 
After careful consideration of all of the comments received, the FDIC 
is finalizing the rule as proposed with one modification to the amount 
of time during which the FDIC will apply small bank credits before 
remitting any remaining balances of such credits and OTACs to IDIs. 
With respect to that aspect of the rule, the FDIC is adopting an 
alternative proposed in the NPR. Under the alternative and this final 
rule, the FDIC will remit any remaining balance of small bank credits 
and OTACs to IDIs after small bank credits have been applied for four 
quarterly assessment periods, instead of eight assessment periods as 
proposed in the NPR. The FDIC applied small bank credits for the 
assessment period ending June 30, 2019, the first quarter that the 
reserve ratio was at least 1.38 percent. Pursuant to this final rule, 
and as proposed in the NPR, the FDIC will continue to apply small bank 
credits as long as the DIF reserve ratio is at least 1.35 percent. 
After small bank credits have been applied for four quarterly 
assessment periods (rather than after eight quarterly assessment 
periods, as proposed in the NPR), the FDIC will remit the full amount 
of any remaining small bank credits in lump-sum payments to each IDI 
holding such credits in the next quarterly assessment period in which 
the reserve ratio is at least 1.35 percent. Also, as proposed in the 
NPR, at the same time that any remaining small bank credits are 
remitted, the FDIC also will remit the nominal value of any remaining 
OTACs in lump-sum payments to each IDI holding such credits. Finally, 
the final rule allows for the recalculation of credits applied each 
quarter as a result of subsequent amendments to the quarterly 
regulatory reports.
    The primary objective of this rule is to make the application of 
small bank credits to quarterly assessments more predictable for IDIs 
with these credits, and to simplify the FDIC's administration of these 
credits, without materially impairing the ability of the FDIC to 
maintain the required minimum reserve ratio of 1.35 percent. The final 
rule is effective upon publication in the Federal Register with an 
application date of July 1, 2019 (the beginning of the third quarter 
assessment period).

B. Application of Small Bank Credits as Long as Reserve Ratio Is at or 
Above 1.35 Percent

    As proposed in the NPR, the final rule amends 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 (instead of 1.38 percent, as originally provided). 
The rule also allows for the recalculation of credits applied each 
quarter as a result of subsequent amendments to quarterly regulatory 
reports.\21\
---------------------------------------------------------------------------

    \21\ This aspect of the rule 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 rule will not affect the 
aggregate amount of credits that have been awarded to all eligible 
IDIs, nor will it affect the amount of credits awarded to an 
individual IDI.
---------------------------------------------------------------------------

    In the FDIC's view, the final rule results in more predictable 
application of credits to quarterly assessments and simplifies 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 losses from bank failures--could cause the reserve 
ratio to fluctuate one basis point above or below 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.
    As explained in the NPR, the changes pursuant to this final rule 
will 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,

[[Page 65272]]

would create a greater risk of the reserve ratio falling below 1.35 
percent, triggering the need for a restoration plan.'' \22\ However, as 
described below, the FDIC now projects that the reserve ratio will not 
decline below 1.35 percent due to credit use alone.
---------------------------------------------------------------------------

    \22\ 81 FR 16066.
---------------------------------------------------------------------------

    First, based on quarterly regulatory report data as of June 30, 
2019, the aggregate amount of small bank credits awarded to banks, 
$764.5 million, represented less than one basis point of the reserve 
ratio. Furthermore, the FDIC applied approximately 42 percent of all 
small bank credits during the second quarter assessment period of 2019 
(the first time that small bank credits were eligible to be applied). 
Moreover, the application of small bank credits in future quarters is 
projected to represent increasingly smaller portions of the reserve 
ratio. The largest expected subsequent quarterly effect will 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 
will 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 the beginning of 2018 only 
four IDIs have failed, with an estimated cost to the DIF of $36.2 
million. As of June 30, 2019, the number of ``problem banks'' was 56, 
the lowest since the first quarter of 2007.
    Lowering the reserve ratio threshold at which the application of 
small bank credits is suspended permits 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 will 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.\23\
---------------------------------------------------------------------------

    \23\ See 12 U.S.C. 1817(b)(3)(E).
---------------------------------------------------------------------------

    The FDIC received two comments on this aspect of the rule. Both 
commenters supported the FDIC's proposal to amend the deposit insurance 
assessment regulations so that the application of small bank credits to 
a bank's deposit insurance assessment would be suspended only if the 
reserve ratio falls below 1.35 percent rather than 1.38 percent. The 
commenters agreed that the proposal would result in more predictable 
application of credits to quarterly assessments and would simplify the 
FDIC's administration of the DIF.
    Finally, as mentioned above, the final rule allows for the 
recalculation of credits applied each quarter as a result of subsequent 
amendments to the quarterly regulatory reports. The FDIC received one 
comment in support of this change, and the commenter noted that, for 
banks with credit balances, this amendment would mitigate the impact on 
assessments due from Call Report revisions, thus limiting the impact on 
bank earnings. The 2016 final rule prohibited 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.\24\ Removing this prohibition results in a more appropriate 
assignment of credits to the assessment period in which the credits 
originally would have been applied under a correct filing of the 
quarterly regulatory report, without materially affecting the reserve 
ratio. Consistent with this final rule, if small bank credits or OTACs 
are restored due to a recalculation of a prior quarter's assessment, 
such credits will be applied to future assessments, as applicable, or, 
in the event that small bank credits have been applied for four 
quarterly assessment periods, remitted in a lump-sum payment into the 
deposit accounts designated by the IDIs for deposit insurance 
assessment payment purposes.
---------------------------------------------------------------------------

    \24\ See 12 CFR 327.11(c)(11)(iii).
---------------------------------------------------------------------------

C. Remitting Small Bank Credits and One-Time Assessment Credits

    Under the NPR, the FDIC proposed 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 will 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. The FDIC 
received one comment in support of this aspect of the proposed rule. 
Another commenter supported remitting the full balance of any remaining 
small bank credits after small bank credits have been applied for four 
quarterly assessment periods, noting that the FDIC should ``return the 
credit funds as expeditiously as is feasible'' and that ``the credits 
will serve a better purpose when disbursed to these banks where these 
funds can support the institutions' lending and liquidity.'' \25\
---------------------------------------------------------------------------

    \25\ See American Bankers Association, comment letter, 
(September 30, 2019), https://www.fdic.gov/regulations/laws/federal/2019/2019-assessments-3064-af16-c-002.pdf.
---------------------------------------------------------------------------

    Based on current data and projections, remitting the full balance 
of any remaining small bank credits after four quarterly assessment 
periods will not materially impair the ability of the FDIC to maintain 
adequacy of the DIF reserve ratio. Therefore, under the final rule, 
after small bank credits have been applied for four quarterly 
assessment periods, and as long as the reserve ratio is at least 1.35 
percent, the FDIC will 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, and as proposed in the NPR, at the same time that the 
FDIC remits payment for any remaining small bank credits, FDIC will 
remit the full balance of any remaining OTACs to each IDI holding such 
credits in lump-sum payments. One commenter requested that these funds 
be paid out ``without delay.'' The FDIC is adopting this aspect of the 
rule as proposed. For purposes of operational efficiency, the FDIC will 
remit the remaining balances of OTACs on the same schedule as small 
bank credits.
    The FDIC anticipates that after applying small bank credits for 
three more quarterly assessment periods, 233 institutions will hold an 
estimated $6.2 million in small bank credits. Under the final rule, 
these 233 institutions will receive a payment for the nominal amount of 
the remaining balance. Similarly, as of June 30, 2019, two institutions 
held OTACs of about $300,000. After three more quarters of applying 
OTACs, the FDIC estimates that the two IDIs will have approximately 
$275,000 in remaining OTACs. Therefore, remittance of all remaining 
small bank credits and OTACs in individual lump-sum payments will 
affect only a small number of institutions, and the total amount of 
such payments should not be sufficient on its 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 four quarters of 
applying small bank credits will provide a benefit to an IDI that was 
awarded small bank credits or OTACs. From an operational perspective, 
implementation of this aspect of the rule allows the FDIC to conclude 
both the small bank credit and OTAC programs at the same time, thereby 
simplifying the FDIC's administration of the DIF.

[[Page 65273]]

IV. Economic Effects

    The FDIC expects that the economic effects of the rule are likely 
to be small and positive for affected IDIs. As stated previously, the 
rule reduces the possibility that the FDIC will suspend the application 
of small bank credits due to a decline in the reserve ratio. The rule 
affects the timing of when small bank credits will be applied to an 
IDI's quarterly assessment, but it does not change the aggregate amount 
of credits that IDIs have been awarded. Therefore, the economic effect 
of this aspect of the 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.
    As of June 30, 2019, the DIF reserve ratio reached 1.40 percent, 
and the FDIC began applying small bank credits to institutions' 
quarterly assessment for the second assessment period of 2019. As of 
that date, 5,215 IDIs had small bank credits totaling $764.5 million. 
For the second assessment period, the FDIC applied $319.7 million of 
these small bank credits to IDIs' assessments. The FDIC expects that in 
the next assessment period of credit application (i.e., the next 
assessment period where the reserve ratio is at or above 1.35 percent), 
$237.7 million of credits will be applied. Cumulatively, about 73 
percent of the aggregate amount of small bank credits will be applied 
in the first two assessment periods. Therefore, the dollar amount of 
remaining small bank credits is expected to decline substantially after 
the first two periods of application, reducing the economic effects if 
credit application is 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 suspending the application of 
small bank credits is low, particularly in the near-term quarters.
    Using the same data, the FDIC estimates that 4,982 IDIs (or 95.5 
percent) will exhaust their individual shares of small bank credits 
within four assessment periods of application, leaving 233 with 
residual small bank credits available for immediate remittance. The 
FDIC estimates that these IDIs will hold an aggregate of $6.2 million 
in credits. Under the final rule, the FDIC will remit the remaining 
individual small bank credit balances to each of these 233 institutions 
in a lump-sum payment.
    Under the final rule and as proposed in the NPR, the FDIC similarly 
will 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 rule 
is likely to provide a small benefit to affected institutions. As of 
June 30, 2019, two institutions held OTACs of approximately $300,000. 
After three more quarters of OTAC use, the two banks will have 
approximately $275,000 remaining. The benefit of this aspect of the 
rule to the IDIs with OTACs is that they will receive and can utilize 
these funds after three 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 in risk-free assets for 12 years and earn 0.25 
percent real rate of return,\26\ this aspect of the rule provides an 
estimated benefit of $8,374 to the affected institutions.
---------------------------------------------------------------------------

    \26\ 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.
---------------------------------------------------------------------------

    The FDIC requested comments on all aspects of the information 
provided in the Economic Effects section of the NPR, but did not 
receive any comments.

V. Alternatives Considered

    The FDIC considered several alternatives while developing this 
rule. In response to comments received, the FDIC is adopting the rule 
as proposed with one modification to the amount of time during which 
FDIC will apply small bank credits before remitting any remaining 
balances of such credits and OTACs to IDIs. With respect to that aspect 
of the rule, the FDIC is adopting an alternative proposed in the NPR. 
Under the alternative and this final rule, the FDIC will remit any 
remaining balance of small bank credits and OTACs to IDIs after small 
bank credits have been applied for four quarterly assessment periods, 
instead of eight assessment periods as proposed in the NPR.
    The first alternative the FDIC considered would be to leave its 
regulation governing the use of small bank credits and OTACs unchanged. 
The FDIC rejected this alternative because, as discussed above, 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. Changing the threshold for suspending application of small 
bank credits benefits institutions receiving credits at no material 
cost to the DIF, since the aggregate amount of credits does not change 
under the final rule and the rule will not materially impair the 
ability of the FDIC to maintain the required minimum reserve ratio of 
1.35 percent.
    Second, the FDIC considered remitting any remaining balances of 
small bank credits and OTACs to IDIs after fewer than eight assessment 
periods. 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 first 
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 
received one comment in support of remitting the remaining balance of 
small bank credits to IDIs after four quarters and chose to adopt this 
alternative upon further consideration. The FDIC has determined that 
the impact of remitting any remaining balances of small bank credits 
and OTACs after four quarterly assessment periods will have minimal 
effects on the volatility of the DIF and will not materially impair the 
ability of the FDIC to maintain adequacy of the DIF reserve ratio. The 
FDIC rejected time periods shorter than four quarters 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 this 
alternative because delaying the remittance of any remaining balances 
of small bank credits and OTACs would affect relatively few 
institutions, would unnecessarily complicate FDIC's administration of 
the DIF from an operational perspective, and would not provide a 
material benefit to the DIF.

VI. Effective Date and Application Date

    The rule will be immediately effective upon publication of the 
final rule in the Federal Register. The application date for the rule 
is July 1, 2019. Because the reserve ratio exceeded 1.38 percent as of

[[Page 65274]]

June 30, 2019, the FDIC first applied small bank credits to invoices 
for the second quarterly assessment period, which began on April 1, 
2019, and for which payment was due on September 30, 2019. Making this 
rule immediately effective and applying the rule beginning with the 
third quarterly assessment period of 2019--i.e., the period beginning 
July 1, 2019, and ending September 30, 2019, for which payment is due 
on December 30, 2019--will allow for application of credits if the 
reserve ratio falls below 1.38 percent as of September 30, 2019. The 
application date provides certainty to IDIs with small bank credits 
that the rule will apply to the third assessment period of 2019, and 
that the FDIC will continue to 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. The FDIC received two comments on the proposed 
effective date; both commenters supported making the rule effective 
upon publication in the Federal Register.
    As discussed below in Section VII.A (Administrative Procedure Act), 
the FDIC finds good cause for an immediate effective date, because IDIs 
will benefit by having increased stability and predictability in the 
FDIC's application of small bank credits to quarterly assessments over 
time.

VII. Regulatory Analysis and Procedure

A. The 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.'' \27\ 
Under the final rule, the amendments to the FDIC's deposit insurance 
assessment regulations will be effective upon publication in the 
Federal Register, and the FDIC finds good cause that the publication of 
a final rule 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.
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

    As explained above in the Supplementary Information section and in 
the NPR, because the FDIC invoices for quarterly deposit insurance 
assessments in arrears, invoices for the third quarterly assessment 
period of 2019 will be made available to IDIs in December 2019, with a 
payment date of December 30, 2019. To address any possibility that the 
reserve ratio, which exceeded 1.38 percent as of June 30, 2019 (the end 
of the second quarterly assessment period), may decrease below 1.38 
percent as of September 30, 2019 (the end of the third quarterly 
assessment period), the FDIC is establishing an immediate effective 
date concurrent with the publication in the Federal Register and will 
apply the rule beginning with the third quarterly assessment period of 
2019. This effective date will provide certainty to IDIs with small 
bank credits that the final rule will apply to the third quarterly 
assessment period of 2019, and that the FDIC will continue to 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.

B. Solicitation of Comments on the Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \28\ requires the federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The FDIC invited comment regarding the 
use of plain language but did not receive any comments.
---------------------------------------------------------------------------

    \28\ Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999).
---------------------------------------------------------------------------

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \29\ generally requires that, 
in connection with a final rulemaking, an agency prepare and make 
available for public comment a final regulatory flexibility analysis 
describing the impact of the proposed rule on small entities. However, 
a regulatory flexibility analysis is not required if the agency 
certifies that the final 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 $600 million 
that are independently owned and operated or owned by a holding company 
with less than or equal to $600 million in total 
assets.30 31 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 considers effects in excess of these 
thresholds to typically represent significant effects for FDIC-insured 
institutions.
---------------------------------------------------------------------------

    \29\ 5 U.S.C. 601 et seq.
    \30\ The SBA defines a small banking organization as having $600 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' 13 CFR 121.201 (as 
amended by 84 FR 34261, effective August 19, 2019). In its 
determination, the ``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. . . .'' 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.
    \31\ The FDIC supplemented the RFA analysis in the NPR with an 
updated regulatory flexibility analysis to reflect changes to the 
Small Business Administration's monetary-based size standards, which 
were adjusted for inflation as of August 19, 2019. See 84 FR 52826 
(Oct. 3, 2019).
---------------------------------------------------------------------------

    In addition, 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.\32\ 
The final 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.
---------------------------------------------------------------------------

    \32\ 5 U.S.C. 601(2).
---------------------------------------------------------------------------

    Based on quarterly regulatory report data as of June 30, 2019, the 
FDIC insures 5,312 depository institutions, of which 3,947 are defined 
as small entities by the terms of the RFA.\33\ Further, 3,939 RFA-
defined small, FDIC-insured institutions have small bank credits 
totaling $179.7 million.
---------------------------------------------------------------------------

    \33\ Consolidated Reports of Condition and Income for the 
quarter ending June 30, 2019.
---------------------------------------------------------------------------

    As stated previously, the final rule reduces the possibility that 
small bank credits would be suspended due to a decline in the reserve 
ratio. Therefore, the economic effect of this aspect of the final 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 expects that 
the economic effects of the final rule are likely to be small because 
41 percent of the aggregate amount of small bank credits have already 
been applied to the second quarter assessment period

[[Page 65275]]

of 2019, when the reserve ratio was first at or above 1.38 percent. 
Cumulatively, about 73 percent of the aggregate amount of small bank 
credits will be applied in the first two assessment periods. Further, 
the FDIC estimates that for 3,794 small, FDIC-insured institutions, 
$54.4 million of small bank credits will be applied in the next 
assessment period of credit application in which the reserve ratio is 
at or above 1.35 percent. Therefore, the dollar amount of remaining 
small bank credits declines substantially following the initial 
application of credits, 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 that application of small bank credits will be suspended is 
low, particularly in the near-term quarters.
    As stated previously, under the final rule, the FDIC will 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 June 30, 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 final rule does not affect any small, FDIC-insured 
institutions.
    The FDIC solicited comments on all aspect of the supporting 
information provided in the RFA section of the notice of proposed 
rulemaking, but none were received.

D. The Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(PRA) of 1995,\34\ 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 OMB control numbers for its assessment 
regulations are 3064-0057, 3064-0151, and 3064-0179. The final 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.
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

E. The Riegle Community Development and Regulatory Improvement Act of 
1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\35\ 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.\36\
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 4802(a).
    \36\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The final rule does not impose additional reporting or disclosure 
requirements on IDIs, including small IDIs, or on the customers of 
IDIs. It provides 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 four 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. The FDIC invited comment 
regarding the application of RCDRIA to the final rule, but did not 
receive comments on this topic.

F. The Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\37\ The OMB has determined that the final rule is not a major 
rule for purposes of the Congressional Review Act. If a rule is deemed 
a ``major rule'' by the OMB, the Congressional Review Act generally 
provides that the rule may not take effect until at least 60 days 
following its publication.\38\ The Congressional Review Act defines a 
``major rule'' as any rule that the Administrator of the Office of 
Information and Regulatory Affairs of the OMB finds has resulted in or 
is likely to result in--(A) an annual effect on the economy of 
$100,000,000 or more; (B) a major increase in costs or prices for 
consumers, individual industries, Federal, State, or Local government 
agencies or geographic regions, or (C) significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.\39\ As required by 
the Congressional Review Act, the FDIC will submit the final rule and 
other appropriate reports to Congress and the Government Accountability 
Office for review.
---------------------------------------------------------------------------

    \37\ 5 U.S.C. 801 et seq.
    \38\ 5 U.S.C. 801(a)(3).
    \39\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

    For the reasons set forth above, the FDIC amends part 327 of title 
12 of the Code of Federal Regulations as follows:

PART 327--ASSESSMENTS

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

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

0
2. Amend Sec.  327.11 by revising paragraph (c)(11)(i), removing 
paragraph (c)(11)(iii), and 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 three additional assessment periods.
* * * * *
    (13) Remittance of credits. After assessment credits awarded under 
this paragraph (c) have been applied for four assessment periods, the 
FDIC will remit the full nominal value of an institution's

[[Page 65276]]

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 November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-25566 Filed 11-26-19; 8:45 am]
BILLING CODE 6714-01-P