Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility
| Citation | 85 FR 38282 |
| Record Number | 2020-13751 |
| Published date | 26 June 2020 |
| Section | Rules and Regulations |
| Court | Federal Deposit Insurance Corporation |
Federal Register, Volume 85 Issue 124 (Friday, June 26, 2020)
[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Rules and Regulations]
[Pages 38282-38299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13751]
[[Page 38282]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF53
Assessments, Mitigating the Deposit Insurance Assessment Effect
of Participation in the Paycheck Protection Program (PPP), the PPP
Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation is adopting a final
rule that mitigates the deposit insurance assessment effects of
participating in the Paycheck Protection Program (PPP) established by
the Small Business Administration (SBA), and the Paycheck Protection
Program Liquidity Facility (PPPLF) and Money Market Mutual Fund
Liquidity Facility (MMLF) established by the Board of Governors of the
Federal Reserve System. The final rule removes the effect of
participation in the PPP and borrowings under the PPPLF on various risk
measures used to calculate an insured depository institution's
assessment rate, removes the effect of participation in the PPP and
MMLF program on certain adjustments to an insured depository
institution's assessment rate; provides an offset to an insured
depository institution's assessment for the increase to its assessment
base attributable to participation in the PPP and MMLF; and removes the
effect of participation in the PPP and MMLF when classifying insured
depository institutions as small, large, or highly complex for
assessment purposes.
DATES: The final rule is effective June 26, 2020, and will apply as of
April 1, 2020.
FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director,
202-898-7041, [email protected]; Ashley Mihalik, Chief, Banking and
Regulatory Policy, 202-898-3793, [email protected]; Nefretete Smith,
Counsel, 202-898-6851, [email protected]; Samuel Lutz, Counsel, 202-
898-3773, [email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Legal Authority
The FDIC, under its general rulemaking authority in Section 9 of
the FDI Act, and its specific authority under Section 7 of the FDI Act
to establish a risk-based assessment system and set assessments, is
finalizing modifications to mitigate the deposit insurance assessment
effects of participation in the PPP, PPPLF, and MMLF. For the reasons
explained below, an IDI that participates in the PPP, PPPLF, or MMLF
programs could be subject to increased deposit insurance assessments
absent a change to the assessment regulations.
B. Background
Recent events have significantly and adversely impacted the global
economy and financial markets. The spread of the Coronavirus Disease
(COVID-19) slowed economic activity in many countries, including the
United States. Sudden disruptions in financial markets placed
increasing liquidity pressure on money market mutual funds (MMFs) and
raised the cost of credit for most borrowers. MMFs faced redemption
requests from clients with immediate cash needs and may need to sell a
significant number of assets to meet these redemption requests, which
could further increase market pressures.
In order to prevent the disruption in the money markets from
destabilizing the financial system, on March 18, 2020, the Board of
Governors of the Federal Reserve System (Board of Governors), with
approval of the Secretary of the Treasury, authorized the Federal
Reserve Bank of Boston (FRBB) to establish the MMLF, pursuant to
section 13(3) of the Federal Reserve Act.\1\ Under the MMLF, the FRBB
is extending non-recourse loans to eligible borrowers to purchase
assets from MMFs. Assets purchased from MMFs are posted as collateral
to the FRBB. Eligible borrowers under the MMLF include IDIs. Eligible
collateral under the MMLF includes U.S. Treasuries and fully guaranteed
agency securities, securities issued by government-sponsored
enterprises, and certain types of commercial paper. The MMLF is
scheduled to terminate on September 30, 2020, unless extended by the
Board of Governors.
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\1\ 12 U.S.C. 343(3).
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Small businesses also are facing severe liquidity constraints and a
collapse in revenue streams, as millions of Americans were ordered to
stay home, severely reducing their ability to engage in normal
commerce. Many small businesses were forced to close temporarily or
furlough employees. Continued access to financing will be crucial for
small businesses to weather economic disruptions caused by COVID-19
and, ultimately, to help restore economic activity.
As part of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) and in recognition of the exigent circumstances faced by
small businesses, Congress created the PPP.\2\ PPP loans are fully
guaranteed as to principal and accrued interest by the Small Business
Administration (SBA), the amount of each being determined at the time
the guarantee is exercised. As a general matter, SBA guarantees are
backed by the full faith and credit of the U.S. Government. PPP loans
also afford borrowers forgiveness up to the principal amount of the PPP
loan, if the proceeds of the PPP loan are used for certain expenses.
The SBA reimburses PPP lenders for any amount of a PPP loan that is
forgiven. PPP lenders are not held liable for any representations made
by PPP borrowers in connection with a borrower's request for PPP loan
forgiveness.\3\ On June 5, 2020, the Paycheck Protection Program
Flexibility Act of 2020 (PPP Flexibility Act) was signed into law,
amending key provisions of the CARES Act, including provisions related
to loan maturity, deferral of loan payments, and loan forgiveness.\4\
Among other changes, the amendments increase from two to five years the
maturity of PPP loans that are approved by the SBA on or after June 5,
2020, and provide greater flexibility for borrowers to qualify for loan
forgiveness.
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\2\ Public Law 116-136 (Mar. 27, 2020).
\3\ Under the PPP, eligible borrowers generally include
businesses with fewer than 500 employees or that are otherwise
considered by the SBA to be small, including individuals operating
sole proprietorships or acting as independent contractors, certain
franchisees, nonprofit corporations, veterans' organizations, and
Tribal businesses. The loan amount under the PPP would be limited to
the lesser of $10 million and 250 percent of a borrower's average
monthly payroll costs. For more information on the Paycheck
Protection Program, see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp.
\4\ Public Law 116-142 (June 5, 2020). The SBA subsequently
issued an interim final rule revising the SBA's interim final rule
implementing sections 1102 and 1106 of the CARES Act temporarily
adding the Paycheck Protection Program to the SBA's 7(a) Loan
Program published on April 15, 2020. See 85 FR 20811 (Apr. 15, 2020)
and 85 FR 36308 (June 16, 2020).
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In order to provide liquidity to small business lenders and the
broader credit markets, and to help stabilize the financial system, on
April 8, 2020, the Board of Governors, with approval of the Secretary
of the Treasury, authorized each of the Federal Reserve Banks to extend
credit under the PPPLF, pursuant to section 13(3) of the Federal
Reserve Act.\5\ Under the PPPLF, Federal
[[Page 38283]]
Reserve Banks are extending non-recourse loans to institutions that are
eligible to make PPP loans, including insured depository institutions
(IDIs). Under the PPPLF, only PPP loans that are guaranteed by the SBA
with respect to both principal and interest and that are originated by
an eligible institution may be pledged as collateral to the Federal
Reserve Banks (loans pledged to the PPPLF). The maturity date of the
extension of credit under the PPPLF \6\ equals the maturity date of the
PPP loans pledged to secure the extension of credit.\7\ No new
extensions of credit will be made under the PPPLF after September 30,
2020, unless extended by the Board of Governors and the Department of
the Treasury.
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\5\ 12 U.S.C. 343(3). On April 30, 2020, the facility was
renamed the Paycheck Protection Program Liquidity Facility, from
Paycheck Protection Program Lending Facility. See Periodic Report:
Update on Outstanding Lending Facilities Authorized by the Board
under Section 13(3) of the Federal Reserve Act May 15, 2020, Board
of Governors of the Federal Reserve System, available at: https://www.federalreserve.gov/publications/files/mlf-msnlf-mself-and-ppplf-5-15-20.pdf.
\6\ The maturity date of the extension of credit under the PPPLF
will be accelerated if the underlying PPP loan goes into default and
the eligible borrower sells the PPP Loan to the SBA to realize the
SBA guarantee. The maturity date of the extension of credit under
the PPPLF also will be accelerated to the extent of any PPP loan
forgiveness reimbursement received by the eligible borrower from the
SBA.
\7\ Under the SBA's interim final rule, a lender may request
that the SBA purchase the expected forgiveness amount of a PPP loan
or pool of PPP loans at the end of the covered period. See Interim
Final Rule ``Business Loan Program Temporary Changes; Paycheck
Protection Program,'' 85 FR 20811, 20816 (Apr. 15, 2020) and 85 FR
36308 (June 16, 2020).
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To facilitate use of the MMLF and PPPLF, the FDIC, Board of
Governors, and Comptroller of the Currency (together, the agencies)
adopted interim final rules on March 23, 2020, and April 13, 2020,
respectively, to allow banking organizations to neutralize the
regulatory capital effects of purchasing assets under the MMLF program
and loans pledged to the PPPLF.\8\ Consistent with Section 1102 of the
CARES Act, the April 2020 interim final rule also required banking
organizations to apply a zero percent risk weight to PPP loans
originated by the banking organization under the PPP for purposes of
the banking organization's risk-based capital requirements.
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\8\ See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13,
2020).
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C. Deposit Insurance Assessments
Pursuant to Section 7 of the FDI Act, the FDIC has established a
risk-based assessment system through which it charges all IDIs an
assessment amount for deposit insurance.\9\
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\9\ See 12 U.S.C. 1817(b).
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Under the FDIC's regulations, an IDI's assessment is equal to its
assessment base multiplied by its risk-based assessment rate.\10\ An
IDI's assessment base and assessment rate are determined each quarter
based on supervisory ratings and information collected on the
Consolidated Reports of Condition and Income (Call Report) or the
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks (FFIEC 002), as appropriate. Generally, an IDI's
assessment base equals its average consolidated total assets minus its
average tangible equity.\11\ An IDI's assessment rate is calculated
using different methods based on whether the IDI is a small, large, or
highly complex institution.\12\ For assessment purposes, a small bank
is generally defined as an institution with less than $10 billion in
total assets, a large bank is generally defined as an institution with
$10 billion or more in total assets, and a highly complex bank is
generally defined as an institution that has $50 billion or more in
total assets and is controlled by a parent holding company that has
$500 billion or more in total assets, or is a processing bank or trust
company.\13\
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\10\ See 12 CFR 327.3(b)(1).
\11\ See 12 CFR 327.5.
\12\ See 12 CFR 327.16(a) and (b).
\13\ As used in this final rule, the term ``bank'' is synonymous
with the term ``insured depository institution'' as it is used in
section 3(c)(2) of the Federal Deposit Insurance Act (FDI Act), 12
U.S.C. 1813(c)(2). As used in this final rule, the term ``small
bank'' is synonymous with the term ``small institution'' and the
term ``large bank'' is synonymous with the term ``large
institution'' or ``highly complex institution,'' as the terms are
defined in 12 CFR 327.8.
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Assessment rates for established small banks are calculated based
on eight risk measures that are statistically significant in predicting
the probability of an institution's failure over a three-year
horizon.\14\ Large banks are assessed using a scorecard approach that
combines CAMELS ratings and certain forward-looking financial measures
to assess the risk that a large bank poses to the deposit insurance
fund (DIF).\15\ All institutions are subject to adjustments to their
assessment rates for certain liabilities that can increase or reduce
loss to the DIF in the event the bank fails.\16\ In addition, the FDIC
may adjust a large bank's total score, which is used in the calculation
of its assessment rate, based upon significant risk factors not
adequately captured in the appropriate scorecard.\17\
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\14\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
\15\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011)
and 77 FR 66000 (Oct. 31, 2012).
\16\ See 12 CFR 327.16(e).
\17\ See 12 CFR 327.16(b)(3); see also Assessment Rate
Adjustment Guidelines for Large and Highly Complex Institutions, 76
FR 57992 (Sept. 19, 2011).
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Absent a change to the assessment rules, an IDI that participates
in the PPP, PPPLF, or MMLF programs could be subject to increased
deposit insurance assessments. For example, an institution that holds
PPP loans, including loans pledged to the PPPLF, would increase its
total loan portfolio, all else equal, which may increase its assessment
rate. An IDI that receives funding under the PPPLF would increase the
total assets on its balance sheet (equal to the amount of PPP loans
pledged to the Federal Reserve Banks), and increase its total
liabilities by the same amount, which would increase the IDI's
assessment base and also may increase its assessment rate. An IDI that
obtains additional funding, such as additional deposits or secured
borrowings, to make PPP loans would increase its total liabilities and
total assets by that amount of funding, which would increase its
assessment base and also may increase its assessment rate. An IDI that
relies on existing funding, including deposits already at the
institution, to make PPP loans would not increase its total liabilities
or total assets, which would not increase its assessment base.
Similarly, an IDI that participates in the MMLF would increase its
total assets by the amount of assets purchased from MMFs under the MMLF
and increase its liabilities by the same amount, which in turn would
increase its assessment base and may also increase its assessment rate.
C. The Proposed Rule
On May 20, 2020, the FDIC published in the Federal Register a
notice of proposed rulemaking (the proposed rule, or proposal) \18\
that would mitigate the deposit insurance assessment effects of an
IDI's participation in the PPP, PPPLF, and MMLF programs.\19\ To remove
the effect of these programs on the risk measures used to determine the
deposit insurance assessment rate for each IDI, the FDIC proposed to
exclude PPP loans, which include loans pledged to the PPPLF, from an
institution's loan portfolio; exclude loans pledged to the PPPLF from
an institution's total assets; and, for institutions subject to the
large or highly complex bank scorecard, exclude amounts borrowed from
the Federal Reserve Banks under the PPPLF from an institution's
liabilities. In addition, because participation in the PPPLF and MMLF
programs will have the effect of expanding an IDI's balance sheet (and,
by extension, its assessment base), the FDIC proposed to exclude
[[Page 38284]]
loans pledged to the PPPLF and assets purchased under the MMLF in the
calculation of certain adjustments to an IDI's assessment rate, and to
provide an offset to an IDI's total assessment amount for the increase
to its assessment base attributable to participation in the PPPLF and
MMLF. Finally, in classifying IDIs as small, large, or highly complex
for assessment purposes, the FDIC proposed to exclude from an IDI's
total assets the amount of loans pledged to the PPPLF and assets
purchased under the MMLF.
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\18\ 85 FR 30649 (May 20, 2020).
\19\ See 12 U.S.C. 1817, 1819 (Tenth).
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In response to the proposal, the FDIC received 41 comment letters
from depository institutions, depository institution holding companies,
trade associations, and other interested parties.\20\ As further
detailed below, commenters generally supported the FDIC's efforts to
mitigate the deposit insurance effects of an IDI's participation in the
PPP, PPPLF, and MMLF programs, but expressed concerns with certain
aspects of the proposal. The FDIC considered all comments received and
is making some changes in the final rule, while clarifying other
aspects of the rule that remain unchanged from the proposed rule.
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\20\ See comments on the proposal, available at https://www.fdic.gov/regulations/laws/federal/2020/2020-assessments-ppp-3064-af53.html.
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II. The Final Rule
A. Summary
Under the final rule, the FDIC will remove the effect of
participation in the PPP and borrowings under the PPPLF on various risk
measures used to calculate an IDI's assessment rate, remove the effect
of participation in the PPP and MMLF program on certain adjustments to
an insured depository institution's assessment rate; provide an offset
to an insured depository institution's assessment for the increase to
its assessment base attributable to participation in the PPP and MMLF;
and remove the effect of participation in the PPP and MMLF when
classifying insured depository institutions as small, large, or highly
complex for assessment purposes.
In the final rule, the FDIC tried to balance its policy objective
of mitigating, to the fullest extent possible, the deposit insurance
assessment effect of participation in the PPP, PPPLF, and MMLF, while
minimizing the extent to which the final rule would result in an IDI
paying less than it would have paid if it did not participate in the
PPP, PPPLF, or MMLF. In response to comments and based on updated
assumptions, as described further below, the final rule includes
certain additional mitigation steps beyond those in the proposed rule
that will more fully mitigate the assessment effect of participation in
the aforementioned programs for more institutions, but may in certain
cases result in over-mitigation for some institutions. At the same
time, the FDIC declined to make certain adjustments requested by
commenters, in part because such additional adjustments, when combined
with the other provisions of the final rule, would likely have
resulted, in the FDIC's estimation, in more over-mitigation than would
be acceptable.
1. Exclusion of All PPP Loans
Most of the comments the FDIC received in response to the proposed
rule stated that the proposed modifications would not completely offset
the impact of PPP lending on assessments. Many of these commenters
requested that the FDIC exclude all PPP loans, whether funded under the
PPPLF or through other sources of liquidity, including deposits or
Federal Home Loan Bank (FHLB) advances, from the calculation of an
IDI's assessment rate, assessment base, or both, so that the bank's
assessment would be mitigated accordingly, rather than excluding only
loans pledged to the PPPLF.
A bank that funded its PPP loans with existing balance sheet
liquidity would not have increased its total assets or total
liabilities, and including these loans in the offset to its assessment
would not be necessary because its assessment base would not have
increased. Similarly, removing PPP loans from total assets in
calculating an IDI's assessment rate would not be necessary if such
loans did not increase the bank's total assets. For these reasons, the
proposal would have removed only PPP loans pledged to the PPPLF from an
IDI's total assets in calculating its deposit insurance assessment rate
and certain other measures, and in calculating the offset due to the
increase in its assessment base due to participation in the PPPLF. The
FDIC understands that some banks have funded PPP loans through
additional liabilities other than borrowings under the PPPLF, which
would result in an increase to a bank's total assets and total
liabilities. For banks that funded PPP loans by obtaining additional
liabilities other than borrowings under the PPPLF, the proposal would
not have fully mitigated the deposit insurance assessment effects of
participation in the PPP.
After considering comments received, and in recognition of the
important role IDIs play in providing liquidity to small businesses and
helping to stabilize the broader economy in the midst of the economic
disruption caused by COVID-19, as well as in recognition that some
banks have funded PPP loans through additional liabilities other than
borrowings under the PPPLF, under the final rule the FDIC will exclude
the quarter-end outstanding balance of all PPP loans from an IDI's
total assets in calculating an IDI's assessment rate and the offset to
an IDI's assessment amount due to the inclusion of PPP loans in its
assessment base. The FDIC expects that this exclusion will result in a
more complete mitigation of the assessment effects of participation in
PPP lending.
As described below, the FDIC will exclude the quarter-end
outstanding balance of all PPP loans from an IDI's total assets in the
applicable risk measures used to determine an IDI's assessment rate. In
addition, because participation in the MMLF program will have the
effect of expanding an IDI's balance sheet and because PPP lending
funded by additional liabilities could have the effect of expanding an
IDI's balance sheet (and, by extension, its assessment base), the FDIC
will provide an offset to an IDI's total assessment amount for the
increase to its assessment base attributable to PPP lending and
participation in the MMLF. Under the final rule, the FDIC will
calculate the offset to an IDI's total assessment amount based on its
quarter-end outstanding balance of PPP loans and the quarterly average
amount of assets purchased under the MMLF. The FDIC also will exclude
the outstanding balance of PPP loans and assets purchased under the
MMLF in the calculation of certain adjustments to an IDI's assessment
rate.
Moreover, in classifying IDIs as small, large, or highly complex
for assessment purposes, the FDIC also will exclude from an IDI's total
assets the outstanding balance of PPP loans and assets purchased under
the MMLF.
Because it is not possible for the FDIC to quantify how much of an
IDI's total assets may have increased due to PPP loans relative to
other balance sheet changes, including increased cash or other loans
made either in response to the economic disruption caused by COVID-19
or that would have otherwise been made in the normal course of
business, the final rule excludes all PPP loans from an IDI's total
assets in calculating its deposit insurance assessment, rather than
providing incomplete assessment mitigation for banks that funded PPP
loans through additional liabilities other than borrowings under the
PPPLF. To the extent that an institution did not
[[Page 38285]]
increase its total assets as a result of PPP participation, the final
rule could provide an assessment reduction that exceeds the actual
increase in assessments that an institution would have experienced due
to participation in the PPP.
Some commenters requested that the FDIC specifically exclude the
quarter-end balance of outstanding PPP loans when calculating an IDI's
assessment, as opposed to the quarterly average of such loans. Under
the NPR, the FDIC proposed to exclude the quarter-end balance of
outstanding loans pledged to the PPPLF from an IDI's total assets in
those risk measures used to determine the deposit insurance assessment
rate that are based on quarter-end outstanding amounts. For measures
reported on an average basis, the FDIC proposed to exclude the
quarterly average of loans pledged to the PPPLF. For example, an IDI's
assessment base is determined by subtracting its average tangible
equity from average consolidated total assets. In calculating the
offset to an IDI's total assessment amount for the increase due to
participation in the PPPLF and MMLF, the FDIC proposed to exclude
quarterly average loans pledged to the PPPLF and quarterly average
assets purchased under the MMLF. Commenters asserted that the
assessment relief provided under the proposal would be limited because
an IDI's average PPPLF participation over a quarter can be considerably
less than its quarter-end PPP loan balance.
After considering comments received, and to minimize additional
reporting burden, under the final rule the FDIC will exclude the
quarter-end outstanding balance of PPP loans in mitigating the effect
of PPP participation on an IDI's deposit insurance assessment, both for
risk measures that are calculated using amounts reported as of quarter-
end and for calculations that use amounts reported on an average basis.
Changes to reporting requirements applicable to the Consolidated
Reports of Condition and Income (Call Report), the Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks, and their
respective instructions, have been implemented in order to make the
adjustments to the assessment system under the final rule. These
changes were effectuated in coordination with the other member entities
of the Federal Financial Institutions Examination Council.\21\
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\21\ The agencies requested and received emergency approvals on
May 27, 2020, from the Office of Management and Budget (OMB) to
implement revisions to the Call Report and FFIEC 002 that will take
effect for the June 30, 2020, reporting period. Starting with the
June 30, 2020, report date, the agencies will collect seven
additional items on the Call Report (FFIEC 031, FFIEC 041, and FFIEC
051) that the FDIC will use to make the adjustments described in the
final rule. The additional items are: (1) The quarter-end
outstanding balance of PPP loans; (2) the outstanding balance of
loans pledged to the PPPLF as of quarter-end; (3) the quarterly
average amount of loans pledged to the PPPLF; (4) the outstanding
balance of borrowings from the Federal Reserve Banks under the PPPLF
with a remaining maturity of one year or less, as of quarter-end;
(5) the outstanding balance of borrowings from the Federal Reserve
Banks under the PPPLF with a remaining maturity of greater than one
year, as of quarter-end; (6) the outstanding amount of assets
purchased from MMFs under the MMLF as of quarter-end; and (7) the
quarterly average amount of assets purchased under the MMLF. In
addition, the agencies will collect two additional items on the
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks (FFIEC 002): the quarterly average amount of loans
pledged to the PPPLF and the quarterly average amount of assets
purchased from MMFs under the MMLF.
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2. Tier 1 Leverage Ratio
Some commenters also suggested that the leverage ratio, as applied
in the calculation of an IDI's assessment rate, should be reduced by
the quarter-end outstanding balances of all PPP loans. In accordance
with the agencies' April 13, 2020, regulatory capital interim final
rule, banking organizations are required to neutralize the regulatory
capital effects of assets pledged to the PPPLF on leverage capital
ratios.\22\ This requirement is due to the non-recourse nature of the
Federal Reserve's extension of credit to the banking organization, a
protection that does not exist if the banking organization funds PPP
loans using other sources of liquidity.
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\22\ See 85 FR 20387 (April 13, 2020).
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To remain consistent with the regulatory capital interim final
rule, and consistent with the proposed rule for mitigating assessment
effects of participation in the PPP, the FDIC will not modify its
deposit insurance assessment pricing system with respect to the Tier 1
leverage ratio, which is one of the measures used to determine the
assessment rate for small, large, and highly complex IDIs. Therefore,
the neutralization of effects of participation in the PPPLF will be
automatically reflected in an IDI's assessment because the FDIC's risk-
based assessment system incorporates an IDI's regulatory capital
reporting of its Tier 1 leverage ratio.
3. Assessment Calculators
Three commenters asked that the FDIC post revised assessment
calculators as soon as possible. The FDIC will post on its public
website assessment calculators that reflect the revisions under the
final rule once data for the reporting period ending on June 30, 2020
becomes available.\23\
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\23\ https://www.fdic.gov/deposit/insurance/calculator.html.
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B. Mitigating the Effects of PPP Loans on an IDI's Assessment Rate
Under the final rule, to mitigate the assessment effect of PPP
loans, the FDIC will exclude the outstanding amount of PPP loans held
by an IDI and borrowings under the PPPLF, from various risk measures
used in the calculation of an IDI's deposit insurance assessment rate,
as described in more detail below.
1. Established Small Institutions
a. Exclusion of PPP Loans From Total Assets in Various Risk Measures
The final rule excludes the outstanding balance of all PPP loans
from total assets in risk measures used to determine an established
small institution's assessment rate: the net income before taxes to
total assets ratio,\24\ the nonperforming loans and leases to gross
assets ratio, the other real estate owned to gross assets ratio, the
brokered deposit ratio, the one-year asset growth measure, and the loan
mix index (LMI).
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\24\ The FDIC expects that IDIs that participate in the PPP,
PPPLF, and MMLF will earn additional income from participation in
these programs. To minimize additional reporting burden, and as
proposed in the NPR, the FDIC is not excluding income related to
participation in these programs from the net income before taxes to
total assets ratio in the calculation of an IDI's deposit insurance
assessment rate.
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Under the proposal, for established small banks, the FDIC would
have excluded the outstanding balance of loans pledged to the PPPLF
from total assets in the calculation of these risk measures. As
discussed above, some commenters recommended that the FDIC exclude all
PPP loans from specific measures utilized throughout the assessment
rate calculation for established small banks, including from the net
income before taxes to total assets ratio, the nonperforming loans and
leases to gross assets ratio, the other real estate owned to gross
assets ratio, the brokered deposit ratio, and the one-year asset growth
measure. For the reasons described above, under the final rule, the
FDIC will exclude the quarter-end outstanding amount of PPP loans,
whether or not they have been pledged to the PPPLF, from total assets
in risk measures used to determine an established small institution's
assessment rate.
[[Page 38286]]
b. Exclusion of PPP Loans From the Loan Portfolio in the LMI
The LMI is a measure of the extent to which an IDI's total assets
include higher-risk categories of loans. Consistent with the proposed
rule, under the final rule, the FDIC will exclude PPP loans, which
include loans pledged to the PPPLF, from an institution's loan
portfolio in calculating the LMI, based on a waterfall approach.\25\
Under the final rule, the FDIC will first exclude the outstanding
balance of PPP loans from the balance of C&I Loans in the calculation
of the LMI. In the unlikely event that the outstanding balance of PPP
loans exceeds the balance of C&I Loans, the FDIC will exclude any
remaining balance of these loans from the balance of Agricultural
Loans, up to the total amount of Agricultural Loans, in the calculation
of the LMI.\26\
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\25\ Based on data from the SBA and on the terms of the PPP, the
FDIC expects that most PPP loans will be categorized as Commercial
and Industrial (C&I) Loans. Collateral is not required to secure the
loans. Therefore, the FDIC expects that PPP loans will not be
included in other loan categories, such as those that are secured by
real estate or consumer loans, in measures used to determine an
IDI's deposit insurance assessment rate. See Public Law 116-136
(Mar. 27, 2020), Public Law 116-142 (June 5, 2020), 85 FR 20811
(Apr. 15, 2020), 85 FR 36308 (June 16, 2020), and Slide 8, Industry
by NAICS Subsector, Paycheck Protection Program (PPP) Report:
Approvals through 06/06/2020, Small Business Administration,
available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf.
\26\ All Other Loans are not included in the LMI; therefore, the
FDIC will exclude the outstanding balance of PPP loans, which
include loans pledged to the PPPLF, first from the balance of C&I
Loans, followed by Agricultural Loans. The loan categories used in
the Loan Mix Index are: Construction and Development, Commercial and
Industrial, Leases, Other Consumer, Real Estate Loans Residual,
Multifamily Residential, Nonfarm Nonresidential, 1-4 Family
Residential, Loans to Depository Banks, Agricultural Real Estate,
Agricultural Loans. 12 CFR 327.16(a)(1)(ii)(B).
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While some commenters supported the assumptions applied under the
waterfall approach described in the NPR, others viewed the approach as
unnecessarily complex. Several commenters confirmed that PPP loans will
be reported as C&I Loans, Agricultural Loans, or in All Other Loans.
Two commenters suggested reporting PPP loans as a separate loan
category on Schedule RC-C rather than in the form of additional
memoranda items, while another two commenters supported the reporting
revisions recently implemented to make the adjustments to the
assessment system, noting that many institutions have already
established processes to report these loans in existing categories on
Schedule RC-C and would therefore view reporting PPP loans in a
separate loan category rather than as a memoranda item as operationally
burdensome. Two commenters supported reducing unnecessary data
collection and categorization and reporting of PPP loans as C&I Loans.
The FDIC has considered these comments and is adopting the
waterfall approach as proposed. The FDIC views the waterfall approach
as the approach that most effectively balances the goal of minimizing
reporting burden while providing reasonably accurate mitigation for
most institutions of the assessment effect of PPP loans. Accordingly,
the FDIC is adopting the proposed waterfall approach as final and will
apply it, as appropriate, in the calculation of the LMI for small banks
(and in the calculation of the growth-adjusted portfolio concentration
measure and loss severity measure for large or highly complex banks, as
discussed below).
Two commenters requested that all PPP loans be excluded from total
assets in the calculation of the LMI while others expressed support for
the proposed modifications to the LMI. Under the final rule and as
described above, the FDIC will exclude the quarter-end outstanding
balance of PPP loans from an IDI's loan portfolio (the numerator) and
its total assets (the denominator) in the calculation of the LMI.
2. Large or Highly Complex Institutions
Under the final rule, the FDIC will remove the outstanding balance
of PPP loans from a large or highly complex bank's loan portfolio and
its total assets in calculating its assessment rate. As proposed, under
the final rule the FDIC will also exclude amounts borrowed from the
Federal Reserve Banks under the PPPLF from a large or highly complex
bank's liabilities in calculating its assessment rate.
a. Exclusion of PPP Loans From Total Assets in the Core Earnings Ratio
and the Short-Term Funding Measure
As described above, the FDIC received numerous comments stating
that the proposed modifications would not completely offset the impact
of PPP lending on assessment rates, and many of these commenters
recommended that the FDIC exclude the outstanding balance of PPP loans
when calculating a large or highly complex bank's assessment, rather
than excluding only the loans pledged to the PPPLF. Specifically,
several commenters recommended that the FDIC exclude all PPP loans from
total assets in the calculation of the core earnings ratio and the
average short-term funding measure for purposes of determining a large
or highly complex bank's assessment rate. Some commenters specified
that, in making these modifications, the FDIC should exclude the
quarter-end balance of outstanding PPP loans, as opposed to the
quarterly average.
For the reasons described above, under the final rule the FDIC will
exclude the quarter-end outstanding amount of PPP loans, whether or not
they have been pledged to the PPPLF, from total assets in the core
earnings ratio \27\ and the short-term funding measure \28\ used to
determine a large or highly complex institution's assessment rate.
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\27\ For the core earnings ratio, the FDIC divides the four-
quarter sum of merger-adjusted core earnings by the average of five
quarter-end total assets (most recent and four prior quarters). See
Appendix A to subpart A of 12 CFR part 327.
\28\ For highly complex IDIs, the short-term funding ratio is
calculated by dividing average short-term funding by average total
assets. See Appendix A to subpart A of 12 CFR part 327.
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b. Exclusion of PPP Loans From the Loan Portfolio in Various Risk
Measures
As proposed, the FDIC will exclude PPP loans from an IDI's loan
portfolio in risk measures used to determine a large or highly complex
IDI's assessment rate. In calculating the growth-adjusted portfolio
concentration measure,\29\ which is applicable to large IDIs, the FDIC
will exclude the quarter-end outstanding balance of PPP loans from C&I
Loans.\30\ In calculating the trading asset ratio,\31\ which is
applicable to highly complex IDIs, the FDIC will reduce the balance of
loans by the quarter-end outstanding balance of PPP loans.\32\ The FDIC
also will exclude the
[[Page 38287]]
quarter-end balance of outstanding PPP loans from a large or highly
complex IDI's loan portfolio in calculating the loss severity measure,
as described below.
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\29\ For large banks, the concentration measure is the higher of
the ratio of higher-risk assets to Tier 1 capital and reserves, and
the growth-adjusted portfolio measure. For highly complex
institutions, the concentration measure is the highest of three
measures: the ratio of higher risk assets to Tier 1 capital and
reserves, the ratio of top 20 counterparty exposure to Tier 1
capital and reserves, and the ratio of the largest counterparty
exposure to Tier 1 capital and reserves. See Appendix A to subpart A
of part 327.
\30\ All Other Loans and Agricultural Loans are not included in
the growth-adjusted portfolio concentration measure; therefore,
consistent with the proposal, the FDIC will exclude the outstanding
balance of PPP loans from the balance of C&I Loans under the final
rule. The loan concentration categories used in the growth-adjusted
portfolio concentration measure are: construction and development,
other commercial real estate, first lien residential mortgages
(including non-agency residential mortgage-backed securities),
closed-end junior liens and home equity lines of credit, commercial
and industrial loans, credit card loans, and other consumer loans.
Appendix C to subpart A of 12 CFR part 327.
\31\ See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).
\32\ To minimize reporting burden, the FDIC will reduce average
loans in the trading asset ratio by the outstanding balance of PPP
loans, as of quarter-end, rather than requiring institutions to
additionally report the average balance of PPP loans.
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A few commenters suggested that PPP loans should not be classified
as ``higher risk assets'' in calculating the concentration measures for
large or highly complex institutions. In response to these comments the
FDIC is clarifying that government guaranteed loans are not considered
``higher-risk assets'' for assessment purposes. Because PPP loans are
guaranteed by the SBA, they are already excluded from ``higher-risk
assets'' in calculating the concentration measures for large or highly
complex institutions and no additional modification is necessary.\33\
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\33\ Appendix C to subpart A of part 327 describes the
concentration measures, including the ratio of higher-risk assets to
tier 1 capital and reserves.
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c. Exclusion of Borrowings Under the PPPLF From Total Liabilities in
Various Risk Measures
As proposed, under the final rule the FDIC will exclude borrowings
from the Federal Reserve Banks under the PPPLF from an institution's
liabilities in the calculation of the core deposit ratio, the balance
sheet liquidity ratio, and the loss severity measure used to determine
a large or highly complex IDI's assessment rate. The final rule
clarifies that the exclusion of amounts borrowed from the Federal
Reserve Banks under the PPPLF from an institution's total liabilities
will only affect risk measures used to determine the assessment rate
for a large or highly complex IDI because secured liabilities are not
factored into the risk measures for determining the rate for an
established small IDI.
Under the final rule, in calculating the core deposit ratio \34\
for large or highly complex IDI, the FDIC will exclude from total
liabilities borrowings from Federal Reserve Banks under the PPPLF.
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\34\ The core deposit ratio is defined as total domestic
deposits excluding brokered deposits and uninsured non-brokered time
deposits divided by total liabilities. See Appendix A to subpart A
of 12 CFR part 327.
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Also as proposed, under the final rule the FDIC will exclude an
IDI's reported borrowings from the Federal Reserve Banks under the
PPPLF with a remaining maturity of one year or less from liabilities
included in the denominator of the balance sheet liquidity ratio.\35\
Additionally, in calculating the balance sheet liquidity ratio, the
FDIC will treat the quarter-end outstanding balance of PPP loans that
exceed borrowings from the Federal Reserve Banks under the PPPLF as
highly liquid assets, as proposed. Because PPP loans are riskless and
banks with PPP loans in excess of PPPLF borrowings can access
additional liquidity by pledging such loans to PPPLF, the FDIC will
treat these PPP loans as highly liquid assets. To the extent that a PPP
loan represents collateral for borrowings other than under the PPPLF--
such as an FHLB advance--treating the loan as highly liquid will
provide an assessment benefit for IDIs that may not be able to readily
access additional liquidity. PPP loans can no longer be pledged as
collateral to the PPPLF after September 30, 2020, the date after which
no new extensions of credit will be made under the PPPLF, unless
extended by the Board of Governors and the Department of Treasury.
Therefore, under the final rule, the quarter-end outstanding balance of
PPP loans that exceed borrowings from the Federal Reserve Banks under
the PPPLF will be treated as highly liquid assets until September 30,
2020, unless the Board of Governors and the Department of Treasury
extend the deadline to apply for new extensions of credit under the
PPPLF.
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\35\ The balance sheet liquidity ratio is defined as the sum of
cash and balances due from depository institutions, federal funds
sold and securities purchased under agreements to resell, and the
market value of available-for-sale and held-to-maturity agency
securities (excludes agency mortgage-backed securities but includes
all other agency securities issued by the U.S. Treasury, U.S.
government agencies, and U.S. government sponsored enterprises)
divided by the sum of federal funds purchased and repurchase
agreements, other borrowings (including FHLB) with a remaining
maturity of one year or less, 5 percent of insured domestic
deposits, and 10 percent of uninsured domestic and foreign deposits.
Appendix A to subpart A of 12 CFR part 327.
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d. Treatment of PPP Loans and Borrowings Under the PPPLF in Calculating
the Loss Severity Measure
The loss severity measure estimates the relative magnitude of
potential losses to the DIF in the event of a large or highly complex
IDI's failure.\36\ Under the final rule, the FDIC will remove the
effect of participation in the PPP and PPPLF, as proposed. In
calculating the loss severity score under the final rule, the FDIC will
remove the effect of PPP loans in an IDI's loan portfolio using a
waterfall approach, as proposed. Under this approach, the FDIC will
exclude PPP loans from an IDI's balance of C&I Loans. In the unlikely
event that the outstanding balance of PPP loans exceeds the balance of
C&I Loans, the FDIC will exclude any remaining balance from All Other
Loans, up to the total amount of All Other Loans, followed by
Agricultural Loans, up to the total amount of Agricultural Loans.
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\36\ Appendix D to subpart A of 12 CFR 327 describes the
calculation of the loss severity measure.
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To the extent that an IDI's outstanding PPP loans are not pledged
to the PPPLF, such loans may be funded by a variety of liabilities,
such as deposits and secured borrowings. While IDIs will report
borrowings under the PPPLF that are secured by PPP loans, the FDIC will
not have sufficient data to determine other sources of funding for an
IDI's PPP loans. Obtaining such data would require additional reporting
burden on IDIs. Because the FDIC will not have sufficient data to
remove each type of non-PPPLF funding used to make PPP loans, under the
final rule the FDIC will remove PPP loans in excess of its PPPLF
borrowings from a large or highly complex IDI's loan portfolio based on
the waterfall approach described above and reallocate the same amount
to cash. Such treatment of PPP loans is consistent with the proposal to
treat PPP loans in excess of PPPLF borrowings as riskless for purposes
of calculating a large or highly complex IDI's loss severity score.
To match the removal of PPP loans funded through borrowings under
the PPPLF from an IDI's loan portfolio, the FDIC will remove the total
amount of outstanding borrowings from the Federal Reserve Banks under
the PPPLF from short- and long-term secured borrowings, as appropriate.
C. Mitigating the Effects of PPP Loans and Assets Purchased Under the
MMLF on Certain Adjustments to an IDI's Assessment Rate
The FDIC proposed to exclude the quarterly average amount of loans
pledged to the PPPLF and the quarterly average amount of assets
purchased under the MMLF from the calculation of the unsecured debt
adjustment, depository institution debt adjustment, and the brokered
deposit adjustment. These adjustments would continue to be applied to
an IDI's initial base assessment rate, as applicable, for purposes of
calculating the IDI's total base assessment rate.\37\
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\37\ For certain IDIs, adjustments include the unsecured debt
adjustment and the depository institution debt adjustment (DIDA).
The unsecured debt adjustment decreases an IDI's total assessment
rate based on the ratio of its long-term unsecured debt to its
assessment base. The DIDA increases an IDI's total assessment rate
if it holds long-term, unsecured debt issued by another IDI. In
addition, large IDIs that meet certain criteria and new small IDIs
are subject to the brokered deposit adjustment. The brokered deposit
adjustment increases the total assessment rate of large IDIs that
hold significant concentrations of brokered deposits and that are
less than well capitalized, not CAMELS composite 1- or 2-rated, as
well as new, small IDIs that are not assigned to Risk Category I.
See 12 CFR 327.16(e).
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[[Page 38288]]
As previously described, many commenters requested that the FDIC
provide relief throughout the assessment calculations for all PPP
lending, whether funded under the PPPLF or through other sources of
liquidity, including deposits. A few commenters expressed support for
the proposed modifications to these adjustments.
After considering comments received, and in recognition of the
important role IDIs play in providing liquidity to small businesses and
helping to stabilize the broader economy in the midst of the economic
disruption caused by COVID-19, as well as in recognition that some
banks have funded PPP loans through liabilities other than borrowings
under the PPPLF, under the final rule, the FDIC will exclude the
quarter-end outstanding amount of PPP loans and the quarterly average
amount of assets purchased under the MMLF from the calculation of the
unsecured debt adjustment, depository institution debt adjustment, and
the brokered deposit adjustment.
While the deposit insurance assessment calculations typically
adjust quarter-end amounts by quarter-end amounts and average amounts
by average amounts, in the interest of minimizing reporting burden, the
agencies are collecting only the quarter-end outstanding balance of PPP
loans and not the average amount. Accordingly, there are a few
modifications under this final rule for which an average amount is
adjusted by the quarter-end outstanding balance of PPP loans, as is the
case with these three adjustments to an IDI's assessment rate.
D. Offset to Deposit Insurance Assessment Due To Increase in the
Assessment Base Attributable to PPP Loans and Assets Purchased Under
the MMLF
Under the final rule, the FDIC will provide an offset to an IDI's
total assessment amount due for the increase to its assessment base
attributable to the quarter-end outstanding balance of PPP loans and
participation in the MMLF.\38\
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\38\ Under the final rule, the offset to the total assessment
amount due for the increase to the assessment base attributable to
the quarter-end outstanding balance of PPP loans and participation
in the MMLF will apply to all IDIs, including new small institutions
as defined in 12 CFR 327.8(w), and insured U.S. branches and
agencies of foreign banks.
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Under the proposed rule, the FDIC would have provided an offset to
an IDI's total assessment amount due for the increase to its assessment
base attributable to participation in the PPPLF and MMLF.\39\ To
determine this offset amount, the FDIC proposed to calculate the total
of the quarterly average amount of assets pledged to the PPPLF and the
quarterly average amount of assets purchased under the MMLF, multiply
that amount by an IDI's total base assessment rate (after excluding the
effect of participation in the MMLF and PPPLF, as proposed), and
subtract the resulting amount from an IDI's total assessment
amount.\40\
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\39\ Under the proposed rule, the offset to the total assessment
amount due for the increase to the assessment base attributable to
participation in the PPPLF and MMLF would have applied to all IDIs,
including new small institutions as defined in 12 CFR 327.8(w), and
insured U.S. branches and agencies of foreign banks.
\40\ Currently, an IDI's total assessment amount on its
quarterly certified statement invoice is equal to the product of the
institution's assessment base (calculated in accordance with 12 CFR
327.5) multiplied by the institution's assessment rate (calculated
in accordance with 12 CFR 327.4 and 12 CFR 327.16). See 12 CFR
327.3(b)(1).
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The FDIC received numerous comments stating that the proposed
modifications would not completely offset the impact of PPP lending on
the assessment base. Some commenters requested that the FDIC exclude
the quarter-end balance of outstanding PPP loans from the assessment
base.
After considering the comments received, and recognizing that some
banks have funded PPP loans by obtaining additional funding, such as
deposits or borrowings other than under the PPPLF, and therefore
increased their total assets and total liabilities, under the final
rule the FDIC will use the quarter-end outstanding amount of PPP loans
rather than the quarterly average amount of assets pledged to the PPPLF
in calculating the offset to an IDI's total assessment amount. To
determine this offset amount, the FDIC will sum the total of the
quarter-end outstanding balance of PPP loans and the quarterly average
amount of assets purchased under the MMLF, multiply that amount by an
IDI's total base assessment rate (after excluding the effects of
participation in the PPP, MMLF, and PPPLF, consistent with the final
rule), and subtract the resulting amount from an IDI's total assessment
amount.
While IDIs will report loans pledged to the PPPLF and borrowings
under the PPPLF starting with the June 30, 2020, Call Report, it will
not be possible for the FDIC to differentiate between an IDI that
increased its total assets solely due to PPP funded by additional
liabilities, and an IDI that used existing balance sheet liquidity to
fund PPP loans and therefore did not increase its total assets or its
assessment base. To the extent an IDI relies on existing balance sheet
liquidity, including cash and securities to fund PPP loans, the IDI
would not increase its total assets and would therefore not experience
an increase to the assessment base as a result of its participation in
the PPP. An IDI that obtains additional funding to make PPP loans,
however, would increase its total liabilities by the amount of
additional funding and increase its total assets by the amount of PPP
loans made with such funding, resulting in an increase in its
assessment base.
In recognition of the extraordinary steps taken by IDIs to provide
liquidity to small businesses and help stabilize the broader economy in
the midst of the economic disruption caused by COVID-19, and to more
fully mitigate the deposit insurance assessment effect of participation
in the PPP, the final rule will provide an offset to an IDI's
assessment amount that is calculated using the total outstanding
balance of PPP loans at quarter end and the quarterly average balance
of assets purchased under the MMLF. Including total PPP loans in the
calculation of the offset ensures that the final rule will more fully
mitigate the assessment effects of participation in PPP lending. To the
extent that an institution did not increase its total assets as a
result of PPP participation, the final rule may, for some institutions,
result in an assessment reduction that exceeds the actual increase in
assessments that an institution would have experienced due to
participation in the PPP.
As discussed above, in the interest of minimizing reporting burden,
there are a few modifications under this final rule for which an
average amount is adjusted by the quarter-end outstanding balance of
PPP loans, as is the case with the calculation of the offset to the
assessment base.
Because the FDIC proposed to calculate the offset as the sum of the
quarterly average amount of loans pledged to the PPPLF and the
quarterly average of assets purchased under the MMLF, the Board of
Governors is requiring that insured branches of foreign banks report
only these two additional items on the FFIEC 002 starting with the
report filed as of June 30, 2020. Adjustments to the calculation of the
assessment rate of an insured branch of foreign banks to mitigate the
effect of participation in the PPP, PPPLF, and MMLF are not
necessary.\41\ Under the final rule, the FDIC will provide an offset to
the assessment of an
[[Page 38289]]
insured branch of a foreign bank that is calculated by summing the
quarterly average amount of assets purchased under the MMLF with either
the quarterly average amount of loans pledged to the PPPLF or the
amount of outstanding PPP loans at the end of the quarter, based on
available data.\42\
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\41\ Insured branches are assessed for deposit insurance in
accordance with 12 CFR 327.16(c).
\42\ Through the Board of Governors, the FDIC anticipates
revising the reporting of the quarterly average amount of loans
pledged to the PPPLF and instead requiring insured branches of
foreign banks to report the outstanding balance of PPP loans at
quarter-end, beginning as of September 30, 2020. For purposes of
determining the deposit insurance assessment amount for an insured
branch of a foreign bank as of June 30, 2020, an insured branch
additionally may provide to the FDIC certified information on the
amount of outstanding PPP loans at the end of the quarter.
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E. Classification of IDIs as Small, Large, or Highly Complex for
Assessment Purposes
In defining IDIs for assessment purposes under the proposed rule,
the FDIC would have excluded from an IDI's total assets the amount of
loans pledged to the PPPLF and assets purchased under the MMLF. Several
commenters specifically requested that the FDIC provide full credit for
the outstanding balance of PPP loans throughout the assessment
calculations, including in the classification of an IDI as small,
large, or highly complex for deposit insurance assessment purposes.
After considering these comments and for the reasons described
above, the FDIC will exclude the quarter-end outstanding balance of all
PPP loans, rather than only those PPP loans pledged to the PPPLF, in
the classification of an IDI as small, large, or highly complex for
assessment purposes. As a result, the FDIC will not reclassify a small
institution as large or a large institution as a highly complex
institution solely due to participation in the PPPLF and MMLF programs,
which would otherwise have the effect of expanding an IDI's balance
sheet. In addition, an institution with total assets between $5 billion
and $10 billion, excluding the amount of PPP loans and assets purchased
under the MMLF, may request that the FDIC determine its assessment rate
as a large institution.\43\
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\43\ See 12 CFR 327.16(f).
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F. Other Conforming Amendments to the Assessment Regulations
Under the final rule, the FDIC will make conforming amendments to
the FDIC's assessment regulations to effectuate the modifications
described above and consistent with the proposed rule. These conforming
amendments will ensure that the modifications to an IDI's assessment
rate and the offset to an IDI's assessment amount under the final rule
are properly incorporated into the assessment regulation provisions
governing the calculation of an IDI's quarterly deposit insurance
assessment.
III. Expected Effects
To facilitate participation in the PPP and use of the PPPLF and
MMLF, under the final rule the FDIC will mitigate the deposit insurance
assessment effects of PPP loans, amounts borrowed under the PPPLF, and
assets purchased under the MMLF. Estimating the dollar amount of
assessment mitigation resulting from the rule is difficult. Because
IDIs are not yet reporting the necessary data, the FDIC does not have
sufficient data on the distribution of loans among IDIs and other non-
bank financial institutions made under the PPP, the loan categories of
PPP loans held, the types of liabilities used to fund PPP lending, the
extent to which PPP participation resulted in an increase to an IDI's
total assets and total liabilities, nor on the dollar volume of assets
purchased under the MMLF by IDIs. Therefore, the FDIC has estimated the
potential effects of these programs on deposit insurance assessments
based on certain assumptions. Although this estimate is subject to
considerable uncertainty, the FDIC estimates that application of the
final rule could provide quarterly assessment relief to IDIs
participating in these programs totaling approximately $150 million,
based on the assumptions described below which improve upon the
assumptions applied in the proposal given information provided by
commenters and FDIC analysis of updated data published by the SBA on
the PPP and Federal Reserve Board on the PPPLF and MMLF. Because PPP
loans must be issued by June 30, 2020, and because the FDIC expects
that eligible IDIs will begin receiving PPP loan forgiveness
reimbursement from the SBA, the FDIC expects that the amount of
assessment relief provided under this final rule will decline in
subsequent quarters.
The FDIC anticipates that PPP loans will be held by both IDIs and
non-IDIs, and that IDIs will fund PPP loans through growth in
liabilities, including through additional deposits, borrowings from
Federal Reserve Banks under the PPPLF, and other secured borrowings,
although the rate of IDI participation in the PPP and PPPLF is
uncertain.
Based on Call Report data as of March 31, 2020, and assuming that
(1) $600 billion of PPP loans are held by IDIs,\44\ (2) the PPP loans
that are held by IDIs are evenly distributed across all IDIs that have
C&I loans, which results in a 33 percent increase in those loans,
except where IDI-specific data are available, (3) 5.9 percent of PPP
loans held by IDIs are pledged to the PPPLF, except where IDI-specific
data are available from the Federal Reserve Board, (4) 100 percent of
loans pledged to the PPPLF are matched by borrowings from the Federal
Reserve Banks with maturities greater than one year, (5) IDIs fund the
remaining 94.1 percent of PPP loans with additional funding, including
deposits or secured borrowings, and (6) large and highly complex IDIs
hold approximately $30 billion in assets pledged under the MMLF,\45\
the FDIC estimates that (1) quarterly deposit insurance assessments
would increase for some institutions absent the final rule and (2) the
final rule could provide quarterly assessment relief of approximately
$150 million.
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\44\ Section 101(a)(1) of the Paycheck Protection Program and
Health Care Enhancement Act, Public Law 116-139, authorizes $659
billion for the Paycheck Protection Program. The FDIC assumes all
the authorized funds will be distributed and roughly 90 percent will
be held by IDIs.
\45\ These assumptions reflect current participation in the PPP
and PPPLF and that all authorized funds under the PPP will be
distributed, based on data published by the SBA and Federal Reserve
Board. These assumptions use transaction-level data published by the
Federal Reserve Board, SBA data to estimate the participation in the
PPP program of nonbank lenders including CDFI funds, CDCs,
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck
Protection Program (PPP) Report: Approvals through 06/06/2020, Small
Business Administration, available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf;
Factors Affecting Reserve Balances, Federal Reserve statistical
release H.4.1, as of June 11, 2020, available at: https://www.federalreserve.gov/releases/h41/current/; Board of Governors of
the Federal Reserve System, Money Market Mutual Fund Liquidity
Facility, as of June 10, 2020, available at: https://fred.stlouisfed.org/series/H41RESPPALDBNWW; and Board of Governors
of the Federal Reserve System, PPPLF Transaction-specific
Disclosures as of May 15, 2020, available at: https://www.federalreserve.gov/publications/files/PPPLF-transaction-specific-disclosures-5-15-20.xlsx.
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The actual effect of these programs on deposit insurance
assessments will vary depending on participation in the programs by
IDIs and non-IDIs, the maturity of borrowings from the Federal Reserve
Banks under these programs, the extent of reliance on existing sources
of funding for PPP lending, and the types of loans held under the PPP,
as described above. While items on the Call Report will enable the FDIC
to quantify funding from the PPPLF, it is not possible for the FDIC to
quantify how much an IDI's total assets grew due to PPP loans relative
to other balance sheet changes, including increased cash or other loans
made either in response to the economic disruption caused by COVID-19
or that would have otherwise
[[Page 38290]]
been made in the normal course of business. For example, to the extent
an IDI relies on existing balance sheet liquidity including cash and
securities to fund PPP lending, the IDI would not experience an
increase in liabilities and would therefore not experience an increase
to the assessment base as a result of its participation in PPP lending.
Accordingly, the assumption that IDIs will rely entirely on additional
funding for PPP lending could reduce quarterly assessments by more than
they will increase due to participation in PPP lending, as some IDIs
may rely on existing balance sheet liquidity to fund PPP lending.
IV. Effective Date of the Final Rule
As stated above, in response to recent events which have
significantly and adversely impacted global financial markets along
with the spread of COVID-19, which has slowed economic activity in many
countries, including the United States, the agencies moved quickly due
to exigent circumstances and issued two interim final rules to allow
banking organizations to neutralize the regulatory capital effects of
purchasing assets under the MMLF and loans pledged to the PPPLF. Since
the implementation of the PPP, PPPLF, and MMLF, the FDIC has observed
uncertainty from the public and the banking industry and wants to
provide clarity on how, if at all, these programs would affect the
assessments of IDIs which participate in these programs. Because PPP
loans must be issued by June 30, 2020, the full assessment impact of
these programs will first occur in the second quarterly assessment
period. Congress has also given indications that implementation of
these programs is an urgent policy matter, instructing the SBA to issue
regulations for the PPP within 15 days of the CARES Act's
enactment.\46\
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\46\ See CARES Act, Sec. 1114. Public Law 116-142 (June 05,
2020). The SBA subsequently issued an interim final rule
implementing sections 1102 and 1106 of the CARES Act. See 85 FR
20811 (April 15, 2020). On June 5, 2020, the PPP Flexibility Act was
signed into law, amending key provisions of the CARES Act. The SBA
issued an interim final rule implementing these provisions. See 85
FR 36308 (June 16, 2020).
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The final rule will take effect immediately upon publication in the
Federal Register with an application date of April 1, 2020, and changes
made as a result of this rule will be reflected in the invoices for
deposit insurance assessments due September 30, 2020.\47\ An immediate
effective date and an application date of April 1, 2020, will enable
the FDIC to provide the relief contemplated in this rulemaking as soon
as practicable, starting with the second quarter of 2020, and provide
certainty to IDIs regarding the assessment effects of participating in
the PPP, PPPLF, or MMLF for the second quarter of 2020, which is the
first assessment quarter in which the assessments will be affected.
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\47\ The application date of April 1, 2020, is permissible
because the effects of the final rule will occur after its
publication. The assessment amount owed on an IDI's quarterly
certified statement invoice for the second quarterly assessment
period of 2020 (i.e., April 1-June 30) will be calculated on the
basis of Call Report data as of June 30, 2020, with a payment due
date of September 30, 2020. Furthermore, even if the effects of the
final rule were retroactive, a rule is impermissibly retroactive
only when it ``takes away or impairs vested rights acquired under
existing law, or creates a new obligation, imposes a new duty, or
attaches a new disability in respect to transactions or
considerations already past.'' See Nat'l Mining Ass'n v. Dep't of
Labor, 292 F.3d 849, 859 (D.C. Cir. 2002) (quoting Nat'l Mining
Ass'n v. Dep't of Interior, 177 F.3d 1, 8 (D.C. Cir. 1999))
(internal quotations omitted). This final rule does none of those
things.
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V. Administrative Law Matters
A. Administrative Procedure Act
Under the Administrative Procedure Act (APA),\48\ ``[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.'' \49\
Under this rulemaking, the amendments to the FDIC's deposit insurance
assessment regulations would be effective upon publication of the final
rule in the Federal Register. The FDIC finds good cause that the
publication of this final rule can be effective immediately in order to
fully effectuate the intent of ensuring that IDIs benefit from the
mitigation effects to their deposit insurance assessments as soon as
practicable, and to provide IDIs with certainty regarding the
assessment effects of participating in the PPP, PPPLF, or MMLF for the
second quarter of 2020, which is the first assessment quarter in which
the assessments will be affected.
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\48\ 5 U.S.C. 553.
\49\ 5 U.S.C. 553(d).
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As explained in the Supplementary Information section and in the
proposed rule, the FDIC expects that an IDI that participates in either
the PPP, the PPPLF, or the MMLF program could be subject to increased
deposit insurance assessments, beginning with the second quarter of
2020. The FDIC invoices for quarterly deposit insurance assessments in
arrears. As a result, invoices for the second quarterly assessment
period of 2020 (i.e., April 1--June 30) would be made available to IDIs
in September 2020, with a payment due date of September 30, 2020.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires an agency, in connection with a final rule, to
prepare and make available for public comment a final regulatory
flexibility analysis that describes the impact of a final rule on small
entities.\50\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $600 million.\51\ Generally, the FDIC considers a significant
effect to be a quantified effect in excess of 5 percent of total annual
salaries and benefits per institution, or 2.5 percent of total non-
interest expenses. The FDIC believes that effects in excess of these
thresholds typically represent significant effects for FDIC-insured
institutions. Certain types of rules, such as rules of particular
applicability relating to rates or corporate or financial structures,
or practices relating to such rates or structures, are expressly
excluded from the definition of ``rule'' for purposes of the RFA.\52\
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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\50\ 5 U.S.C. 601 et seq.
\51\ 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.'' See 13 CFR 121.201
(as amended, 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.
\52\ 5 U.S.C. 601.
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Based on quarterly regulatory report data as of March 31, 2020, the
FDIC insures 5,125 depository institutions,\53\ of which 3,771 are
defined as small entities by the terms of the RFA.\54\ The final rule
applies to all FDIC-insured
[[Page 38291]]
institutions, but is expected to affect only those institutions that
participate in the PPP, PPPLF, and MMLF. The FDIC does not presently
have access to information that would enable it to identify which
institutions are participating in these programs and lending
facilities.
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\53\ FDIC Call Report data, as of March 31, 2020.
\54\ The FDIC does not have data to identify small entities as
of March 2020. This count includes small entities as of December 31,
2019, as well as small entities that opened between December 2019
and March 2020.
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As previously discussed, to facilitate participation in the PPP and
use of the PPPLF and MMLF, the final rule mitigates the deposit
insurance assessment effects of PPP loans, borrowings under the PPPLF,
and assets purchased under the MMLF. Therefore, the FDIC estimated the
potential effects of these programs on deposit insurance assessments
based on certain assumptions. Based on Call Report data as of March 31,
2020, assuming that (1) $600 billion of PPP loans are held by IDIs,\55\
(2) the PPP loans that are held by IDIs are evenly distributed across
all IDIs that have C&I loans, which results in a 33 percent increase in
those loans, except where IDI-specific data are available, (3) 5.9
percent of PPP loans held by IDIs are pledged to the PPPLF, except
where IDI-specific data are available, (4) 100 percent of loans pledged
to the PPPLF are matched by borrowings from the Federal Reserve Banks
with maturities greater than one year,\56\ and (5) IDIs fund the
remaining 94.1 percent of PPP loans with additional funding, including
deposits or secured borrowings, the FDIC estimates that the final rule
will save small IDIs approximately $10 million in quarterly deposit
insurance assessments.
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\55\ Section 101(a)(1) of the Paycheck Protection Program and
Health Care Enhancement Act, Pub. L. 116-139, authorizes $659
billion for the Paycheck Protection Program. The FDIC assumes that
all the authorized funds will be distributed and roughly 90 percent
will be held by IDIs.
\56\ These assumptions reflect current participation in the PPP
and PPPLF and that all the authorized funds under the PPP will be
distributed, based on data published by the SBA and Federal Reserve
Board. These assumptions use SBA data to estimate the participation
in the PPP program of nonbank lenders including CDFI funds, CDCs,
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck
Protection Program (PPP) Report: Approvals from through 06/06/2020,
Small Business Administration, available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf; Factors Affecting Reserve Balances, Federal Reserve
statistical release H.4.1, as of June 11, 2020, available at:
https://www.federalreserve.gov/releases/h41/current/, and Board of
Governors of the Federal Reserve System, Money Market Mutual Fund
Liquidity Facility, as of June 10, 2020, available at: https://fred.stlouisfed.org/series/H41RESPPALDBNWW; Board of Governors of
the Federal Reserve System, PPPLF Transaction-specific Disclosures
as of May 15, 2020, available at: https://www.federalreserve.gov/publications/files/PPPLF-transaction-specific-disclosures-5-15-20.xlsx.
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The actual effect of these programs on deposit insurance
assessments will vary depending on IDIs' participation in the PPP and
Federal Reserve Facilities, the maturity of borrowings from the Federal
Reserve Banks under these programs, the extent of reliance on existing
sources of funding for PPP lending, and the types of loans held under
the PPP.
C. Riegle Community Development and Regulatory Improvement Act
Section 302 of the Riegle Community Development and Regulatory
Improvement Act (RCDRIA) requires that the Federal banking agencies,
including the FDIC, in determining the effective date and
administrative compliance requirements of new regulations that impose
additional reporting, disclosure, or other requirements on IDIs,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, 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, with certain exceptions, including for good cause.\57\
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\57\ 5 U.S.C. 553(b)(B), 5 U.S.C. 553(d), 5 U.S.C. 601 et seq.,
5 U.S.C. 801 et seq., 5 U.S.C. 801(a)(3), 5 U.S.C. 804(2), 5 U.S.C.
808(2), 12 U.S.C. 4802(a), 12 U.S.C. 4802(b).
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The amendments to the FDIC's deposit insurance assessment
regulations under this final rule do not impose additional reporting,
disclosures, or other new requirements. Nonetheless, the FDIC
considered the requirements of RCDRIA when finalizing this rule with an
immediate effective date. The FDIC invited comments regarding the
application of RCDRIA to the final rule, but did not receive comments
on this topic.
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) states that no agency may
conduct or sponsor, nor is the respondent required to respond to, an
information collection unless it displays a currently valid OMB control
number.\58\ The final rule affects the agencies' current information
collections for the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051).
The agencies' OMB control numbers for the Call Reports are: Comptroller
of the Currency OMB No. 1557-0081; Board of Governors OMB No. 7100-
0036; and FDIC OMB No. 3064-0052. The final rule also affects the
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks (FFIEC 002), which the Federal Reserve System collects
and processes on behalf of the three agencies (Board of Governors OMB
No. 7100-0032). Submissions were made by the agencies to OMB for their
respective information collections. The changes to the Call Report, the
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks, and their respective instructions, have been addressed
in a separate Federal Register notice or notices.
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\58\ 4 U.S.C. 3501-3521.
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E. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \59\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
The FDIC invited comment regarding the use of plain language, but did
not receive any comments on this topic.
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\59\ 12 U.S.C. 4809.
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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.\60\ The OMB has determined that the final rule is 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.\61\ 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.\62\ As required by
the Congressional Review Act, the FDIC will submit the final rule and
other appropriate reports to Congress and the
[[Page 38292]]
Government Accountability Office for review.
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\60\ 5 U.S.C. 801 et seq.
\61\ 5 U.S.C. 801(a)(3).
\62\ 5 U.S.C. 804(2).
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Section 808 of the Congressional Review Act provides that any rule
as to which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest, shall take effect at
such time as the Federal agency promulgating the rule determines.\63\
Although OMB has determined that this is a major rule for purposes of
the Congressional review Act, and hence would ordinarily be subject to
a 60-day delayed effective date, the FDIC believes there is good cause
for an immediate effective date. In this case, the FDIC provided notice
and accepted comment, as required by section 7 of the FDI Act, but
further public procedure and the attendant delay would be contrary to
the public interest.\64\
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\63\ 5 U.S.C. 808(2).
\64\ See 12 U.S.C. 1817(b)(1)(F).
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The FDIC believes that, under section 808 of the Congressional
Review Act, good cause exists for the final rule to become effective
without further public procedure and immediately upon its filing for
publication, as delaying the effective date would be contrary to the
public interest. In particular, by providing for an immediate effective
date for the final rule, the intent of ensuring that IDIs benefit from
the mitigation effects to their deposit insurance assessments starting
with the second quarter of 2020, which is the first assessment quarter
in which the assessments will be affected, and will thereby provide
IDIs with certainty regarding the assessment effects of participating
in the PPP, PPPLF, or MMLF.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
Authority and Issuance
For the reasons stated above, the Federal Deposit Insurance
Corporation amends 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority citation for part 327 is revised to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend Sec. 327.3 by revising paragraph (b)(1) to read as follows:
Sec. 327.3 Payment of assessments.
* * * * *
(b) * * *
(1) Quarterly certified statement invoice. Starting with the first
assessment period of 2007, no later than 15 days prior to the payment
date specified in paragraph (b)(2) of this section, the Corporation
will provide to each insured depository institution a quarterly
certified statement invoice showing the amount of the assessment
payment due from the institution for the prior quarter (net of credits
or dividends, if any), and the computation of that amount. Subject to
paragraph (e) of this section and Sec. 327.17, the invoiced amount on
the quarterly certified statement invoice shall be the product of the
following: The assessment base of the institution for the prior quarter
computed in accordance with Sec. 327.5 multiplied by the institution's
rate for that prior quarter as assigned to the institution pursuant to
Sec. Sec. 327.4(a) and 327.16.
* * * * *
0
3. Amend Sec. 327.8 by revising paragraphs (e), (f), and (g)(1) to
read as follows:
Sec. 327.8 Definitions.
* * * * *
(e) Small institution. (1) An insured depository institution with
assets of less than $10 billion, excluding assets as described in Sec.
327.17(e), as of December 31, 2006, and an insured branch of a foreign
institution shall be classified as a small institution.
(2) Except as provided in paragraph (e)(3) of this section and
Sec. 327.17(e), if, after December 31, 2006, an institution classified
as large under paragraph (f) of this section (other than an institution
classified as large for purposes of Sec. Sec. 327.9(e) and 327.16(f))
reports assets of less than $10 billion in its quarterly reports of
condition for four consecutive quarters, excluding assets as described
in Sec. 327.17(e), the FDIC will reclassify the institution as small
beginning the following quarter.
(3) An insured depository institution that elects to use the
community bank leverage ratio framework under 12 CFR 3.12(a)(3), 12 CFR
217.12(a)(3), or 12 CFR 324.12(a)(3), shall be classified as a small
institution, even if that institution otherwise would be classified as
a large institution under paragraph (f) of this section.
(f) Large institution. An institution classified as large for
purposes of Sec. Sec. 327.9(e) and 327.16(f) or an insured depository
institution with assets of $10 billion or more, excluding assets as
described in Sec. 327.17(e), as of December 31, 2006 (other than an
insured branch of a foreign bank or a highly complex institution) shall
be classified as a large institution. If, after December 31, 2006, an
institution classified as small under paragraph (e) of this section
reports assets of $10 billion or more in its quarterly reports of
condition for four consecutive quarters, excluding assets as described
in Sec. 327.17(e), the FDIC will reclassify the institution as large
beginning the following quarter.
(g) * * *
(1) A highly complex institution is:
(i) An insured depository institution (excluding a credit card
bank) that has had $50 billion or more in total assets for at least
four consecutive quarters, excluding assets as described in Sec.
327.17(e), that is controlled by a U.S. parent holding company that has
had $500 billion or more in total assets for four consecutive quarters,
or controlled by one or more intermediate U.S. parent holding companies
that are controlled by a U.S. holding company that has had $500 billion
or more in assets for four consecutive quarters; or
(ii) A processing bank or trust company.
* * * * *
0
4. Amend Sec. 327.16 by adding introductory text and revising
paragraph (f)(1) to read as follows:
Sec. 327.16 Assessment pricing methods--beginning the first
assessment period after June 30, 2016, where the reserve ratio of the
DIF as of the end of the prior assessment period has reached or
exceeded 1.15 percent.
Subject to the modifications described in Sec. 327.17, the
following pricing methods shall apply beginning in the first assessment
period after June 30, 2016, where the reserve ratio of the DIF as of
the end of the prior assessment period has reached or exceeded 1.15
percent, and for all subsequent assessment periods.
* * * * *
(f) * * *
(1) Procedure. Any small institution with assets of between $5
billion and $10 billion, excluding assets as described in Sec.
327.17(e), may request that the FDIC determine its assessment rate as a
large institution. The FDIC will consider such a request provided that
it has sufficient information to do so. Any such request must be made
to the FDIC's Division of Insurance and Research. Any approved change
will become effective within one year from the date of the request. If
an institution whose request has been granted subsequently reports
assets of less than $5 billion in its report of condition for four
consecutive quarters, excluding assets as described in Sec. 327.17(e),
the institution shall be deemed a small institution for assessment
purposes.
[[Page 38293]]
0
5. Add Sec. 327.17 to read as follows:
Sec. 327.17 Mitigating the Deposit Insurance Assessment Effect of
Participation in the Money Market Mutual Fund Liquidity Facility, the
Paycheck Protection Program Liquidity Facility, and the Paycheck
Protection Program.
(a) Mitigating the assessment effects of loans provided under the
Paycheck Protection Program for established small institutions.
Applicable beginning April 1, 2020, the FDIC will take the following
actions when calculating the assessment rate for established small
institutions under Sec. 327.16:
(1) Exclusion of loans provided under the Paycheck Protection
Program from net income before taxes ratio, nonperforming loans and
leases ratio, other real estate owned ratio, brokered deposit ratio,
and one-year asset growth measure. As described in appendix E to this
subpart, the FDIC will exclude the outstanding balance of loans
provided under the Paycheck Protection Program, as reported on the
Consolidated Report of Condition and Income, from the total assets in
the calculation of the following risk measures: Net income before taxes
ratio, the nonperforming loans and leases ratio, the other real estate
owned ratio, the brokered deposit ratio, and the one-year asset growth
measure, which are described in Sec. 327.16(a)(1)(ii)(A).
(2) Exclusion of loans provided under the Paycheck Protection
Program from Loan Mix Index. As described in appendix E to this subpart
A, when calculating the loan mix index described in Sec.
327.16(a)(1)(ii)(B), the FDIC will exclude:
(i) The outstanding balance of loans provided under the Paycheck
Protection Program, as reported on the Consolidated Report of Condition
and Income, from the total assets; and
(ii) The outstanding balance loans provided under the Paycheck
Protection Program, as reported on the Consolidated Report of Condition
and Income, from an established small institution's balance of
commercial and industrial loans. To the extent that the outstanding
balance of loans provided under the Paycheck Protection Program exceeds
an established small institution's balance of commercial and industrial
loans, as reported on the Consolidated Report of Condition and Income,
the FDIC will exclude any remaining balance of these loans from the
balance of agricultural loans, up to the amount of agricultural loans,
in the calculation of the loan mix index.
(b) Mitigating the assessment effects of loans provided under the
Paycheck Protection Program for large or highly complex institutions.
Applicable beginning April 1, 2020, the FDIC will take the following
actions when calculating the assessment rate for large institutions and
highly complex institutions under Sec. 327.16:
(1) Exclusion of Paycheck Protection Program loans from average
short-term funding ratio, core earnings ratio, growth-adjusted
portfolio concentration measure, and trading asset ratio. As described
in appendix E of this subpart, the FDIC will exclude the outstanding
balance of loans provided under the Paycheck Protection Program, as
reported on the Consolidated Report of Condition and Income, from the
calculation of the average short-term funding ratio, the core earnings
ratio, the growth-adjusted portfolio concentration measure, and the
trading asset ratio.
(2) Exclusion of Paycheck Protection Program Liquidity Facility
borrowings from core deposit ratio. As described in appendix E of this
subpart, the FDIC will exclude the total outstanding balance of
borrowings from the Federal Reserve Banks under the Paycheck Protection
Program Liquidity Facility, as reported on the Consolidated Report of
Condition and Income, from the calculation of the core deposit ratio.
(3) Exclusion of Paycheck Protection Program Liquidity Facility
borrowings from balance sheet liquidity ratio. As described in appendix
E to this subpart, when calculating the balance sheet liquidity measure
described under appendix A to this subpart, the FDIC will:
(i) Include the outstanding balance of loans provided under the
Paycheck Protection Program that exceed total borrowings from the
Federal Reserve Banks under the Paycheck Protection Program Liquidity
Facility, as reported on the Consolidated Report of Condition and
Income, in the amount of highly liquid assets until September 30, 2020,
or, if the Board of Governors of the Federal Reserve System and the
Secretary of the Treasury determine to extend the Paycheck Protection
Program Liquidity Facility, until such date of extension; and
(ii) Exclude the outstanding balance of borrowings from the Federal
Reserve Banks under the Paycheck Protection Program Liquidity Facility
with a remaining maturity of one year or less from other borrowings
with a remaining maturity of one year or less, both as reported on the
Consolidated Report of Condition and Income. (4) Exclusion of loans
provided under the Paycheck Protection Program and Paycheck Protection
Program Liquidity Facility borrowings from loss severity measure. As
described in appendix E to this subpart, when calculating the loss
severity measure described under appendix A to this subpart, the FDIC
will exclude:
(i) The total outstanding balance of borrowings from the Federal
Reserve Banks under the Paycheck Protection Program Liquidity Facility,
as reported on the Consolidated Report of Condition and Income, from
short- and long-term secured borrowings, as appropriate; and
(ii) The outstanding balance of loans provided under the Paycheck
Protection Program, as reported on the Consolidated Report of Condition
and Income, from an institution's balance of commercial and industrial
loans. To the extent that the outstanding balance of loans provided
under the Paycheck Protection Program exceeds an institution's balance
of commercial and industrial loans, the FDIC will exclude any remaining
balance from all other loans, up to the total amount of all other
loans, followed by agricultural loans, up to the total amount of
agricultural loans, as reported on the Consolidated Report of Condition
and Income. To the extent that an institution's outstanding balance of
loans provided under the Paycheck Protection Program exceeds its
borrowings from the Federal Reserve Banks under the Paycheck Protection
Program Liquidity Facility, the FDIC will add the amount of outstanding
loans provided under the Paycheck Protection Program in excess of
borrowings under the Paycheck Protection Program Liquidity Facility to
cash.
(c) Mitigating the effects of loans provided under the Paycheck
Protection Program and assets purchased under the Money Market Mutual
Fund Liquidity Facility on the unsecured adjustment, depository
institution debt adjustment, and the brokered deposit adjustment to an
insured depository institution's assessment rate. As described in
appendix E to this subpart, when calculating an insured depository
institution's unsecured debt adjustment, depository institution debt
adjustment, or the brokered deposit adjustment described in Sec.
327.16(e), as applicable, the FDIC will exclude the outstanding balance
of loans provided under the Paycheck Protection Program and the
quarterly average amount of assets purchased under the Money Market
Mutual Fund Liquidity Facility, both as reported on the Consolidated
Report of Condition and Income.
(d) Mitigating the effects on the assessment base attributable to
loans provided under the Paycheck Protection Program and participation
in the Money Market Mutual Fund Liquidity Facility. As described in
appendix E to this
[[Page 38294]]
subpart, when calculating an insured depository institution's quarterly
deposit insurance assessment payment due under this part, the FDIC will
provide an offset to an institution's assessment for the increase to
its assessment base attributable to participation in the Money Market
Mutual Fund Liquidity Facility and loans provided under the Paycheck
Protection Program.
(1) Calculation of offset amount. (i) To determine the offset
amount, the FDIC will take the sum of the outstanding balance of loans
provided under the Paycheck Protection Program and the quarterly
average amount of assets purchased under the Money Market Mutual Fund
Liquidity Facility, both as reported on the Consolidated Report of
Condition and Income, and multiply the sum by an institution's total
base assessment rate, as calculated under Sec. 327.16, including any
adjustments under Sec. 327.16(e).
(ii) To the extent that an institution does not report the
outstanding balance of loans provided under the Paycheck Protection
Program, such as in an insured branch's Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks, the FDIC
will take the sum of either the quarterly average amount of loans
pledged to the Paycheck Protection Program Liquidity Facility as
reported in the Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks, or the outstanding balance of loans provided
under the Paycheck Protection Program, as such certified data is
provided to the FDIC, and the quarterly average amount of assets
purchased under the Money Market Mutual Fund Liquidity Facility, as
reported in the Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks, and multiply the sum by an institution's
total base assessment rate, as calculated under Sec. 327.16.
(2) Calculation of assessment amount due. The FDIC will subtract
the offset amount described in Sec. 327.17(d)(1) from an insured
depository institution's total assessment amount, consistent with Sec.
327.3(b)(1).
(e) Mitigating the effects of loans provided under the Paycheck
Protection Program and assets purchased under the Money Market Mutual
Fund Liquidity Facility on the classification of insured depository
institutions as small, large, or highly complex for deposit insurance
purposes. When classifying an insured depository institution as small,
large, or complex for assessment purposes under Sec. 327.8, the FDIC
will exclude from an institution's total assets the outstanding balance
of loans provided under the Paycheck Protection Program and the balance
of assets purchased under the Money Market Mutual Fund Liquidity
Facility outstanding, both as reported on the Consolidated Report of
Condition and Income. Any institution with assets of between $5 billion
and $10 billion, excluding the outstanding balance of loans provided
under the Paycheck Protection Program and the balance of assets
purchased under the MMLF, both as reported on the Consolidated Report
of Condition and Income, may request that the FDIC determine its
assessment rate as a large institution under Sec. 327.16(f).
(f) Definitions. For the purposes of this section:
(1) Paycheck Protection Program. The term ``Paycheck Protection
Program'' means the program of that name that was created in section
1102 of the Coronavirus Aid, Relief, and Economic Security Act.
(2) Paycheck Protection Program Liquidity Facility. The term
``Paycheck Protection Program Liquidity Facility'' means the program of
that name that was announced by the Board of Governors of the Federal
Reserve System on April 9, 2020, and renamed as such on April 30, 2020.
(3) Money Market Mutual Fund Liquidity Facility. The term ``Money
Market Mutual Fund Liquidity Facility'' means the program of that name
announced by the Board of Governors of the Federal Reserve System on
March 18, 2020.
0
6. Add appendix E to subpart A of part 327 to read as follows:
Appendix E to Subpart A of Part 327--Mitigating the Deposit Insurance
Assessment Effect of Participation in the Money Market Mutual Fund
Liquidity Facility, the Paycheck Protection Program Liquidity Facility,
and the Paycheck Protection Program
I. Mitigating the Assessment Effects of Paycheck Protection Program
Loans for Established Small Institutions
Table E.1--Exclusions From Certain Risk Measures Used To Calculate the
Assessment Rate for Established Small Institutions
------------------------------------------------------------------------
Variables Description Exclusions
------------------------------------------------------------------------
Leverage Ratio (%)............ Tier 1 capital divided No Exclusion.
by adjusted average
assets. (Numerator
and denominator are
both based on the
definition for prompt
corrective action.)
Net Income before Taxes/Total Income (before Exclude from
Assets (%). applicable income total assets
taxes and the outstanding
discontinued balance of
operations) for the loans provided
most recent twelve under the
months divided by Paycheck
total assets \1\. Protection
Program.
Nonperforming Loans and Leases/ Sum of total loans and Exclude from
Gross Assets (%). lease financing gross assets
receivables past due the outstanding
90 or more days and balance of
still accruing loans provided
interest and total under the
nonaccrual loans and Paycheck
lease financing Protection
receivables Program.
(excluding, in both
cases, the maximum
amount recoverable
from the U.S.
Government, its
agencies or
government-sponsored
enterprises, under
guarantee or
insurance provisions)
divided by gross
assets \2\.
Other Real Estate Owned/Gross Other real estate Exclude from
Assets (%). owned divided by gross assets
gross assets \2\. the outstanding
balance of
loans provided
under the
Paycheck
Protection
Program.
Brokered Deposit Ratio........ The ratio of the Exclude from
difference between total assets
brokered deposits and (in both
10 percent of total numerator and
assets to total denominator)
assets. For the outstanding
institutions that are balance of
well capitalized and loans provided
have a CAMELS under the
composite rating of 1 Paycheck
or 2, brokered Protection
reciprocal deposits Program.
as defined in Sec.
327.8(q) are deducted
from brokered
deposits. If the
ratio is less than
zero, the value is
set to zero.
Weighted Average of C, A, M, The weighted sum of No Exclusion.
E, L, and S Component Ratings. the ``C,'' ``A,''
``M,'' ``E``, ``L``,
and ``S'' CAMELS
components, with
weights of 25 percent
each for the ``C''
and ``M'' components,
20 percent for the
``A'' component, and
10 percent each for
the ``E``, ``L'' and
``S'' components.
Loan Mix Index................ A measure of credit Exclusions are
risk described described in
paragraph (A) of this paragraph (A)
section. of this
section.
[[Page 38295]]
One-Year Asset Growth (%)..... Growth in assets Exclude from
(adjusted for mergers total assets
\3\) over the (in both
previous year in numerator and
excess of 10 denominator)
percent.\4\ If growth the outstanding
is less than 10 balance of
percent, the value is loans provided
set to zero. under the
Paycheck
Protection
Program.
------------------------------------------------------------------------
\1\ The ratio of Net Income before Taxes to Total Assets is bounded
below by (and cannot be less than) -25 percent and is bounded above by
(and cannot exceed) 3 percent.
\2\ Gross assets are total assets plus the allowance for loan and lease
financing receivable losses (ALLL) or allowance for credit losses, as
applicable.
\3\ Growth in assets is also adjusted for acquisitions of failed banks.
\4\ The maximum value of the Asset Growth measure is 230 percent; that
is, asset growth (merger adjusted) over the previous year in excess of
240 percent (230 percentage points in excess of the 10 percent
threshold) will not further increase a bank's assessment rate.
(a) Definition of Loan Mix Index. The Loan Mix Index assigns
loans in an institution's loan portfolio to the categories of loans
described in the following table. Exclude from the balance of
commercial and industrial loans the outstanding balance of loans
provided under the Paycheck Protection Program. In the event that
the outstanding balance of loans provided under the Paycheck
Protection Program exceeds the balance of commercial and industrial
loans, exclude the remaining balance from the balance of
agricultural loans, up to the total amount of agricultural loans.
The Loan Mix Index is calculated by multiplying the ratio of an
institution's amount of loans in a particular loan category to its
total assets, excluding the outstanding balance of loans provided
under the Paycheck Protection Program by the associated weighted
average charge-off rate for that loan category, and summing the
products for all loan categories. The table gives the weighted
average charge-off rate for each category of loan. The Loan Mix
Index excludes credit card loans.
(b) [Reserved]
Loan Mix Index Categories and Weighted Charge-Off Rate Percentages
------------------------------------------------------------------------
Weighted charge-off
rate percent
------------------------------------------------------------------------
Construction & Development........................ 4.4965840
Commercial & Industrial........................... 1.5984506
Leases............................................ 1.4974551
Other Consumer.................................... 1.4559717
Real Estate Loans Residual........................ 1.0169338
Multifamily Residential........................... 0.8847597
Nonfarm Nonresidential............................ 0.7289274
I--4 Family Residential........................... 0.6973778
Loans to Depository banks......................... 0.5760532
Agricultural Real Estate.......................... 0.2376712
Agriculture....................................... 0.2432737
------------------------------------------------------------------------
II. Mitigating the Assessment Effects of Paycheck Protection Program
Loans for Large or Highly Complex Institutions
Table E.2--Exclusions From Certain Risk Measures Used To Calculate the
Assessment Rate for Large or Highly Complex Institutions
------------------------------------------------------------------------
Scorecard Measures\1\ Description Exclusions
------------------------------------------------------------------------
Leverage Ratio................ Tier 1 capital for No Exclusion.
Prompt Corrective
Action (PCA) divided
by adjusted average
assets based on the
definition for prompt
corrective action.
Concentration Measure for The concentration ................
Large Insured depository score for large
institutions (excluding institutions is the
Highly Complex Institutions). higher of the
following two scores:
(1) Higher-Risk Assets/ Sum of construction No Exclusion.
Tier 1 Capital and and land development
Reserves. (C&D) loans (funded
and unfunded), higher-
risk commercial and
industrial (C&I)
loans (funded and
unfunded),
nontraditional
mortgages, higher-
risk consumer loans,
and higher-risk
securitizations
divided by Tier 1
capital and reserves.
See Appendix C for
the detailed
description of the
ratio.
(2) Growth-Adjusted The measure is ................
Portfolio calculated in the
Concentrations. following steps:
(1) Concentration
levels (as a ratio to
Tier 1 capital and
reserves) are
calculated for each
broad portfolio
category:.
................
Constructions and
land development
(C&D),.
Other ................
commercial real
estate loans,.
First lien ................
residential
mortgages
(including non-
agency residential
mortgage-backed
securities),.
Closed-end ................
junior liens and
home equity lines
of credit
(HELOCs),.
Commercial ................
and industrial
loans (C&I),.
Credit ................
card loans, and.
Other ................
consumer loans..
(2) Risk weights are ................
assigned to each loan
category based on
historical loss rates.
[[Page 38296]]
(3) Concentration ................
levels are multiplied
by risk weights and
squared to produce a
risk-adjusted
concentration ratio
for each portfolio.
(4) Three-year merger- Exclude from C&I
adjusted portfolio loan growth
growth rates are then rate the
scaled to a growth outstanding
factor of 1 to 1.2 amount of loans
where a 3-year provided under
cumulative growth the Paycheck
rate of 20 percent or Protection
less equals a factor Program.
of 1 and a growth
rate of 80 percent or
greater equals a
factor of 1.2. If
three years of data
are not available, a
growth factor of 1
will be assigned.
(5) The risk-adjusted ................
concentration ratio
for each portfolio is
multiplied by the
growth factor and
resulting values are
summed.
See Appendix C for the ................
detailed description
of the measure.
Concentration Measure for Concentration score ................
Highly Complex Institutions. for highly complex
institutions is the
highest of the
following three
scores:
(1) Higher-Risk Assets/ Sum of C&D loans No Exclusion.
Tier 1 Capital and (funded and
Reserves. unfunded), higher-
risk C&I loans
(funded and
unfunded),
nontraditional
mortgages, higher-
risk consumer loans,
and higher-risk
securitizations
divided by Tier 1
capital and reserves.
See Appendix C for
the detailed
description of the
measure.
(2) Top 20 Counterparty Sum of the 20 largest No Exclusion.
Exposure/Tier 1 Capital total exposure
and Reserves. amounts to
counterparties
divided by Tier 1
capital and reserves.
The total exposure
amount is equal to
the sum of the
institution's
exposure amounts to
one counterparty (or
borrower) for
derivatives,
securities financing
transactions (SFTs),
and cleared
transactions, and its
gross lending
exposure (including
all unfunded
commitments) to that
counterparty (or
borrower). A
counterparty includes
an entity's own
affiliates. Exposures
to entities that are
affiliates of each
other are treated as
exposures to one
counterparty (or
borrower).
Counterparty exposure
excludes all
counterparty exposure
to the U.S.
Government and
departments or
agencies of the U.S.
Government that is
unconditionally
guaranteed by the
full faith and credit
of the United States.
The exposure amount
for derivatives,
including OTC
derivatives, cleared
transactions that are
derivative contracts,
and netting sets of
derivative contracts,
must be calculated
using the methodology
set forth in 12 CFR
324.34(b), but
without any reduction
for collateral other
than cash collateral
that is all or part
of variation margin
and that satisfies
the requirements of
12 CFR
324.10(c)(4)(ii)(C)(1
)(ii) and (iii) and
324.10(c)(4)(ii)(C)(3
) through (7). The
exposure amount
associated with SFTs,
including cleared
transactions that are
SFTs, must be
calculated using the
standardized approach
set forth in 12 CFR
324.37(b) or (c). For
both derivatives and
SFT exposures, the
exposure amount to
central
counterparties must
also include the
default fund
contribution.
(3) Largest Counterparty The largest total No Exclusion.
Exposure/Tier 1 Capital exposure amount to
and Reserves. one counterparty
divided by Tier 1
capital and reserves.
The total exposure
amount is equal to
the sum of the
institution's
exposure amounts to
one counterparty (or
borrower) for
derivatives, SFTs,
and cleared
transactions, and its
gross lending
exposure (including
all unfunded
commitments) to that
counterparty (or
borrower). A
counterparty includes
an entity's own
affiliates. Exposures
to entities that are
affiliates of each
other are treated as
exposures to one
counterparty (or
borrower).
Counterparty exposure
excludes all
counterparty exposure
to the U.S.
Government and
departments or
agencies of the U.S.
Government that is
unconditionally
guaranteed by the
full faith and credit
of the United States.
The exposure amount
for derivatives,
including OTC
derivatives, cleared
transactions that are
derivative contracts,
and netting sets of
derivative contracts,
must be calculated
using the methodology
set forth in 12 CFR
324.34(b), but
without any reduction
for collateral other
than cash collateral
that is all or part
of variation margin
and that satisfies
the requirements of
12 CFR
324.10(c)(4)(ii)(C)(1
)(ii) and (iii) and
324.10(c)(4)(ii)(C)(3
) through (7). The
exposure amount
associated with SFTs,
including cleared
transactions that are
SFTs, must be
calculated using the
standardized approach
set forth in 12 CFR
324.37(b) or (c). For
both derivatives and
SFT exposures, the
exposure amount to
central
counterparties must
also include the
default fund
contribution.
[[Page 38297]]
Core Earnings/Average Quarter- Core earnings are Prior to
End Total Assets. defined as net income averaging,
less extraordinary exclude from
items and tax- total assets
adjusted realized for the
gains and losses on applicable
available-for-sale quarter-end
(AFS) and held-to- periods the
maturity (HTM) outstanding
securities, adjusted balance of
for mergers. The loans provided
ratio takes a four- under the
quarter sum of merger- Paycheck
adjusted core Protection
earnings and divides Program.
it by an average of
five quarter-end
total assets (most
recent and four prior
quarters). If four
quarters of data on
core earnings are not
available, data for
quarters that are
available will be
added and annualized.
If five quarters of
data on total assets
are not available,
data for quarters
that are available
will be averaged.
Credit Quality Measure \1\.... The credit quality ................
score is the higher
of the following two
scores:
(1) Criticized and Sum of criticized and No Exclusion.
Classified Items/Tier 1 classified items
Capital and Reserves. divided by the sum of
Tier 1 capital and
reserves. Criticized
and classified items
include items an
institution or its
primary federal
regulator have graded
``Special Mention''
or worse and include
retail items under
Uniform Retail
Classification
Guidelines,
securities, funded
and unfunded loans,
other real estate
owned (ORE), other
assets, and marked-to-
market counterparty
positions, less
credit valuation
adjustments.
Criticized and
classified items
exclude loans and
securities in trading
books, and the amount
recoverable from the
U.S. government, its
agencies, or
government-sponsored
enterprises, under
guarantee or
insurance provisions.
(2) Underperforming Assets/ Sum of loans that are No Exclusion.
Tier 1 Capital and 30 days or more past
Reserves. due and still
accruing interest,
nonaccrual loans,
restructured loans
(including
restructured 1-4
family loans), and
ORE, excluding the
maximum amount
recoverable from the
U.S. government, its
agencies, or
government-sponsored
enterprises, under
guarantee or
insurance provisions,
divided by a sum of
Tier 1 capital and
reserves.
Core Deposits/Total Total domestic Exclude from
Liabilities. deposits excluding total
brokered deposits and liabilities
uninsured non- outstanding
brokered time borrowings from
deposits divided by Federal Reserve
total liabilities. Banks under the
Paycheck
Protection
Program
Liquidity
Facility with a
maturity of one
year or less
and outstanding
borrowings from
the Federal
Reserve Banks
under the
Paycheck
Protection
Program
Liquidity
Facility with a
maturity of
greater than
one year.
Balance Sheet Liquidity Sum of cash and Include in
Ratio. balances due from highly liquid
depository assets the
institutions, federal outstanding
funds sold and balance of PPP
securities purchased loans that
under agreements to exceed
resell, and the borrowings from
market value of the Federal
available for sale Reserve Banks
and held to maturity under the
agency securities PPPLF, until
(excludes agency September 30,
mortgage-backed 2020, or if
securities but extended by the
includes all other Board of
agency securities Governors of
issued by the U.S. the Federal
Treasury, U.S. Reserve System
government agencies, and the
and U.S. government Secretary of
sponsored the Treasury,
enterprises) divided until such date
by the sum of federal of extension.
funds purchased and Exclude from
repurchase other
agreements, other borrowings with
borrowings (including a remaining
FHLB) with a maturity of one
remaining maturity of year or less
one year or less, 5 the balance of
percent of insured outstanding
domestic deposits, borrowings from
and 10 percent of the Federal
uninsured domestic Reserve Banks
and foreign deposits. under the
Paycheck
Protection
Program
Liquidity
Facility with a
remaining
maturity of one
year or less.
Potential Losses/Total Potential losses to Exclusions are
Domestic Deposits (Loss the DIF in the event described in
Severity Measure). of failure divided by paragraph (A)
total domestic of this
deposits. Paragraph section.
[A] of this section
describes the
calculation of the
loss severity measure
in detail.
Market Risk Measure for Highly The market risk score ................
Complex Institutions. is a weighted average
of the following
three scores:
(1) Trading Revenue Trailing 4-quarter No Exclusion.
Volatility/Tier 1 Capital. standard deviation of
quarterly trading
revenue (merger-
adjusted) divided by
Tier 1 capital.
(2) Market Risk Capital/ Market risk capital No Exclusion.
Tier 1 Capital. divided by Tier 1
capital.
(3) Level 3 Trading Assets/ Level 3 trading assets No Exclusion.
Tier 1 Capital. divided by Tier 1
capital.
Average Short-term Funding/ Quarterly average of Exclude from the
Average Total Assets. federal funds quarterly
purchased and average of
repurchase agreements total assets
divided by the the outstanding
quarterly average of balance of
total assets as loans provided
reported on Schedule under the
RC-K of the Call Paycheck
Reports. Protection
Program.
------------------------------------------------------------------------
\1\ The credit quality score is the greater of the criticized and
classified items to Tier 1 capital and reserves score or the
underperforming assets to Tier 1 capital and reserves score. The
market risk score is the weighted average of three scores--the trading
revenue volatility to Tier 1 capital score, the market risk capital to
Tier 1 capital score, and the level 3 trading assets to Tier 1 capital
score. All of these ratios are described in appendix A of this subpart
and the method of calculating the scores is described in appendix B of
this subpart. Each score is multiplied by its respective weight, and
the resulting weighted score is summed to compute the score for the
market risk measure. An overall weight of 35 percent is allocated
between the scores for the credit quality measure and market risk
measure. The allocation depends on the ratio of average trading assets
to the sum of average securities, loans and trading assets (trading
asset ratio) as follows: (1) Weight for credit quality score = 35
percent * (1--trading asset ratio); and, (2) Weight for market risk
score = 35 percent * trading asset ratio. In calculating the trading
asset ratio, exclude from the balance of loans the outstanding balance
of loans provided under the Paycheck Protection Program.
(a) Description of the loss severity measure. The loss severity
measure applies a standardized set of assumptions to an
institution's balance sheet to measure possible losses to the FDIC
in the event of an institution's failure. To determine an
institution's loss severity rate, the FDIC first applies assumptions
about uninsured deposit and other liability runoff, and growth in
insured deposits, to adjust the size and composition of the
institution's liabilities. Exclude total outstanding borrowings from
Federal Reserve Banks under the Paycheck Protection Program
Liquidity Facility from short-and long-term secured borrowings, as
[[Page 38298]]
appropriate. Assets are then reduced to match any reduction in
liabilities. Exclude from an institution's balance of commercial and
industrial loans the outstanding balance of loans provided under the
Paycheck Protection Program. In the event that the outstanding
balance of loans provided under the Paycheck Protection Program
exceeds the balance of commercial and industrial loans, exclude any
remaining balance of loans provided under the Paycheck Protection
Program first from the balance of all other loans, up to the total
amount of all other loans, followed by the balance of agricultural
loans, up to the total amount of agricultural loans. Increase cash
balances by outstanding loans provided under the Paycheck Protection
Program that exceed total outstanding borrowings from Federal
Reserve Banks under the Paycheck Protection Program Liquidity
Facility, if any. The institution's asset values are then further
reduced so that the Leverage Ratio reaches 2 percent. In both cases,
assets are adjusted pro rata to preserve the institution's asset
composition. Assumptions regarding loss rates at failure for a given
asset category and the extent of secured liabilities are then
applied to estimated assets and liabilities at failure to determine
whether the institution has enough unencumbered assets to cover
domestic deposits. Any projected shortfall is divided by current
domestic deposits to obtain an end-of-period loss severity ratio.
The loss severity measure is an average loss severity ratio for the
three most recent quarters of data available.
Runoff and Capital Adjustment Assumptions
Table E.3 contains run-off assumptions.
Table E.3--Runoff Rate Assumptions
------------------------------------------------------------------------
Runoff rate *
Liability type (percent)
------------------------------------------------------------------------
Insured Deposits...................................... (10)
Uninsured Deposits.................................... 58
Foreign Deposits...................................... 80
Federal Funds Purchased............................... 100
Repurchase Agreements................................. 75
Trading Liabilities................................... 50
Unsecured Borrowings
