Assessments
| Published date | 27 November 2019 |
| Citation | 84 FR 65269 |
| Record Number | 2019-25566 |
| Section | Rules and Regulations |
| Court | Federal Deposit Insurance Corporation |
Federal Register, Volume 84 Issue 229 (Wednesday, November 27, 2019)
[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]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF16
Assessments
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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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.
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\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).
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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\
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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 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.
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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\
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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 16065-16066.
\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 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\
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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. 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.
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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 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\
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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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[[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.
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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. 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.).
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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.
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\20\ 84 FR 45443 (Aug. 29, 2019).
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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\
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\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.
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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.
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\22\ 81 FR 16066.
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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\
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\23\ See 12 U.S.C. 1817(b)(3)(E).
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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.
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\24\ See 12 CFR 327.11(c)(11)(iii).
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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\
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\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.
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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.
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\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.
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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.
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\27\ 5 U.S.C. 553(d)(3).
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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.
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\28\ Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999).
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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.
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\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).
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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.
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\32\ 5 U.S.C. 601(2).
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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.
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\33\ Consolidated Reports of Condition and Income for the
quarter ending June 30, 2019.
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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.
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\34\ 44 U.S.C. 3501 et seq.
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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\
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\35\ 12 U.S.C. 4802(a).
\36\ 12 U.S.C. 4802(b).
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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.
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\37\ 5 U.S.C. 801 et seq.
\38\ 5 U.S.C. 801(a)(3).
\39\ 5 U.S.C. 804(2).
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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
