Rule2022-22985
Assessments, Revised Deposit Insurance Assessment Rates
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 24, 2022
Effective
January 1, 2023
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The FDIC is adopting a final rule to increase initial base deposit insurance assessment rate schedules by 2 basis points, beginning the first quarterly assessment period of 2023. The increase in the assessment rate schedules will increase the likelihood that the reserve ratio will reach the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028, consistent with the FDIC's Amended Restoration Plan, and is intended to support growth in the Deposit Insurance Fund (DIF or fund) in progressing toward the FDIC's long-term goal of a 2 percent Designated Reserve Ratio (DRR).
Full Text
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<title>Federal Register, Volume 87 Issue 204 (Monday, October 24, 2022)</title>
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[Federal Register Volume 87, Number 204 (Monday, October 24, 2022)]
[Rules and Regulations]
[Pages 64314-64343]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22985]
[[Page 64313]]
Vol. 87
Monday,
No. 204
October 24, 2022
Part II
Federal Deposit Insurance Corporation
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12 CFR Part 327
Assessments, Revised Deposit Insurance Assessment Rates; Final Rule
Federal Register / Vol. 87, No. 204 / Monday, October 24, 2022 /
Rules and Regulations
[[Page 64314]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF83
Assessments, Revised Deposit Insurance Assessment Rates
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is adopting a final rule to increase initial base
deposit insurance assessment rate schedules by 2 basis points,
beginning the first quarterly assessment period of 2023. The increase
in the assessment rate schedules will increase the likelihood that the
reserve ratio will reach the statutory minimum of 1.35 percent by the
statutory deadline of September 30, 2028, consistent with the FDIC's
Amended Restoration Plan, and is intended to support growth in the
Deposit Insurance Fund (DIF or fund) in progressing toward the FDIC's
long-term goal of a 2 percent Designated Reserve Ratio (DRR).
DATES: The final rule is effective January 1, 2023.
FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director,
Financial Risk Management Branch, 202-898-7041, <a href="/cdn-cgi/l/email-protection#523f3b313a2122373c3137201234363b317c353d24"><span class="__cf_email__" data-cfemail="402d2923283330252e23253200262429236e272f36">[email protected]</span></a>;
Ashley Mihalik, Chief, Banking and Regulatory Policy, 202-898-3793,
<a href="/cdn-cgi/l/email-protection#a5c4c8cccdc4c9cccee5c3c1ccc68bc2cad3"><span class="__cf_email__" data-cfemail="a2c3cfcbcac3cecbc9e2c4c6cbc18cc5cdd4">[email protected]</span></a>; Kayla Shoemaker, Senior Policy Analyst, 202-898-
6962, <a href="/cdn-cgi/l/email-protection#7c171d0f141319111d17190e3c1a18151f521b130a"><span class="__cf_email__" data-cfemail="2f444e5c47404a424e444a5d6f494b464c01484059">[email protected]</span></a>; Sheikha Kapoor, Senior Counsel, 202-898-
3960, <a href="/cdn-cgi/l/email-protection#becdd5dfced1d1ccfed8dad7dd90d9d1c8"><span class="__cf_email__" data-cfemail="05766e64756a6a774563616c662b626a73">[email protected]</span></a>; Ryan McCarthy, Senior Attorney, 202-898-7301,
<a href="/cdn-cgi/l/email-protection#6012190d0303011214081920060409034e070f16"><span class="__cf_email__" data-cfemail="4133382c2222203335293801272528226f262e37">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
A. Legal Authority and Policy Objectives
The FDIC, under its general rulemaking authority in Section 9 of
the Federal Deposit Insurance Act (FDI Act), and its specific authority
under Section 7 of the FDI Act to set assessments, is adopting a final
rule to increase initial base deposit insurance assessment rate
schedules by 2 basis points, effective January 1, 2023, and beginning
the first quarterly assessment period of 2023 (i.e., January 1 through
March 31, 2023).\1\
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\1\ See 12 U.S.C. 1817 and 1819.
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The increase in the initial base assessment rate schedules will
increase assessment revenue in order to rebuild the DIF, which is used
to pay deposit insurance in the event of failure of an insured
depository institution (IDI), and is intended to achieve complementary
objectives.
Most immediately, the increase in the assessment rate schedules is
intended to increase the likelihood that the reserve ratio will reach
the statutory minimum of 1.35 percent within the deadline set by
statute, consistent with the Restoration Plan, as amended by the FDIC's
Board of Directors (Board) on June 21, 2022 (Amended Restoration
Plan).\2\ Once the DIF reaches 1.35 percent, the FDIC will no longer
operate under a restoration plan. Any subsequent decline in the reserve
ratio below the statutory minimum would, therefore, require the Board
to establish a new restoration plan with an additional eight years to
restore the reserve ratio. Alternatively, in the event that the
industry experiences a downturn before the FDIC has exited its current
Restoration Plan, the FDIC might have to consider larger assessment
increases to meet the statutory requirement in a more compressed
timeframe and under less favorable conditions.
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\2\ Under the FDI Act, a restoration plan must restore the
reserve ratio to at least 1.35 percent within 8 years of
establishing the restoration plan, absent extraordinary
circumstances. See 12 U.S.C. 1817(b)(3)(E). The reserve ratio is
calculated as the ratio of the net worth of the DIF to the value of
the aggregate estimated insured deposits at the end of a given
quarter. See 12 U.S.C. 1813(y)(3). See also 87 FR 39518 (July 1,
2022).
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Additionally, the increase in assessment rate schedules would
support growth in the DIF in progressing toward the 2 percent DRR.
Therefore, the assessment rate schedules adopted as part of this final
rule will remain in effect unless and until the reserve ratio meets or
exceeds 2 percent, absent further Board action. Progressively lower
assessment rate schedules will become effective when the reserve ratio
exceeds 2 percent and 2.5 percent.\3\ This continued growth in the DIF
is intended to reduce the likelihood that the FDIC would need to
consider a potentially pro-cyclical assessment rate increase, and to
increase the likelihood of the DIF remaining positive through potential
future periods of significant losses due to bank failures, consistent
with the FDIC's long-term fund management plan.\4\ A sufficiently large
fund is a necessary precondition to maintaining a positive fund balance
during a banking crisis and allowing for long-term, steady assessment
rates. Accomplishing these objectives will continue to ensure public
confidence is maintained in federal deposit insurance.
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\3\ See 12 CFR 327.10(c) and (d).
\4\ See 75 FR 66273 (Oct. 27, 2010) and 76 FR 10672 (Feb. 25,
2011). 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 FDI Act, 12 U.S.C. 1813(c)(2).
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B. Restoration Plan
Extraordinary growth in insured deposits during the first and
second quarters of 2020 caused the DIF reserve ratio to decline below
the statutory minimum of 1.35 percent.\5\ On June 30, 2020, the reserve
ratio was 1.30 percent. The FDI Act requires that the Board adopt a
restoration plan when the DIF reserve ratio falls below the statutory
minimum of 1.35 percent or is expected to within 6 months.\6\ On
September 15, 2020, the Board adopted the Restoration Plan to restore
the DIF to at least 1.35 percent by September 30, 2028.\7\
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\5\ See 12 U.S.C. 1817(b)(3)(B).
\6\ See 12 U.S.C. 1817(b)(3)(E).
\7\ See 85 FR 59306 (Sept. 21, 2020).
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In its June 21, 2022, semiannual update to the Board, FDIC
projections of the reserve ratio under different scenarios indicated
that the reserve ratio was at risk of not reaching 1.35 percent by
September 30, 2028, the end of the statutory 8-year period.\8\ The
scenarios were based on data and analysis updated through March 31,
2022, the most recent data available at the time of the semiannual
update, and incorporated different rates of insured deposit growth and
weighted average assessment rates, including sustained elevated insured
deposit balances and lower assessment rates than previously
anticipated. On June 21, 2022, the Board approved the Amended
Restoration Plan, which reflects an increase in initial base deposit
insurance assessment rate schedules of 2 basis points, beginning the
first quarterly assessment period of 2023.\9\
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\8\ See FDIC Restoration Plan Semiannual Update, June 21, 2022.
Available at <a href="https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf">https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf</a>.
\9\ See 87 FR 39518 (July 1, 2022).
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Under the Amended Restoration Plan, the FDIC will update its
analysis and projections for the fund balance and reserve ratio at
least semiannually and, if necessary, recommend modifications to the
Amended Restoration Plan.
C. Designated Reserve Ratio
The FDI Act requires that the Board designate a reserve ratio for
the DIF and publish the DRR before the beginning of each calendar
year.\10\ The Board must set the DRR in accordance with its analysis of
certain statutory factors: risk of losses to the DIF; economic
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conditions generally affecting IDIs; preventing sharp swings in
assessment rates; and any other factors that the Board determines to be
appropriate.\11\
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\10\ Section 7(b)(3)(A) of the FDI Act, 12 U.S.C. 1817(b)(3)(A).
The DRR is expressed as a percentage of estimated insured deposits.
\11\ Section 7(b)(3)(C) of the FDI Act, 12 U.S.C. 1817(b)(3)(C).
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In 2010, the FDIC proposed and later adopted a comprehensive, long-
term management plan for the DIF with the following goals: (1) reduce
the pro-cyclicality in the existing risk-based assessment system by
allowing moderate, steady assessment rates throughout economic and
credit cycles; and (2) maintain a positive fund balance even during a
banking crisis by setting an appropriate target fund size and a
strategy for assessment rates and dividends.\12\ Based on the FDIC's
experience through two banking crises, the analysis concluded that a
long-term moderate, steady assessment rate of 5.29 basis points would
have been sufficient to prevent the fund from becoming negative during
the crises.\13\ The FDIC also found that the fund reserve ratio would
have had to exceed 2 percent before the onset of the last two crises to
achieve these results.\14\
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\12\ See 75 FR 66272 (Oct. 27, 2010) (October 2010 NPR) and 76
FR 10672 (Feb. 25, 2011).
\13\ See 75 FR 66273 and 76 FR 10675.
\14\ The analysis set out in the October 2010 NPR sought to
determine what assessment rates would have been needed to maintain a
positive fund balance during the last two crises. This analysis used
an assessment base derived from domestic deposits to calculate
assessment income. The Dodd-Frank Wall Street Reform and Consumer
Protection Act, however, required the FDIC to change the assessment
base to average consolidated total assets minus average tangible
equity. In the December 2010 final rule establishing a 2 percent
DRR, the FDIC undertook additional analysis to determine how the
results of the original analysis would change had the new assessment
base been in place from 1950 to 2010. Both the analyses in the
October 2010 NPR and the December 2010 final rule show that the fund
reserve ratio would have needed to be approximately 2 percent or
more before the onset of the crises to maintain both a positive fund
balance and stable assessment rates. The updated analysis in the
December 2010 final rule, like the analysis in the October 2010 NPR,
assumed, in lieu of dividends, that the long-term industry average
nominal assessment rate would be reduced by 25 percent when the
reserve ratio reached 2 percent, and by 50 percent when the reserve
ratio reached 2.5 percent. Eliminating dividends and reducing rates
successfully limits rate volatility whichever assessment base is
used. See 75 FR 66273 and 75 FR 79288 (Dec. 20, 2010) (December 2010
final rule).
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The FDIC's comprehensive, long-term fund management plan combines
the moderate, steady assessment rate with a DRR of 2 percent. The Board
set the DRR at 2 percent in 2010, and following consideration of the
statutory factors, it has voted annually since then to maintain the 2
percent DRR. The FDIC is concurrently publishing in the Federal
Register the Notice of Designated Reserve Ratio for 2023.\15\
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\15\ See 75 FR 79286 (Dec. 20, 2010), codified at 12 CFR
327.4(g), see also Notice of Designated Reserve Ratio for 2023,
available at <a href="https://www.fdic.gov/news/board-matters/2022/2022-10-18-notice-sum-c-fr.pdf">https://www.fdic.gov/news/board-matters/2022/2022-10-18-notice-sum-c-fr.pdf</a>.
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The DRR was established as part of a plan to maintain a positive
DIF balance, even during a banking crisis, by allowing the fund to grow
sufficiently large during times of favorable banking conditions.
Additionally, in lieu of dividends, the long-term plan prescribes
progressively lower assessment rates that will become effective when
the reserve ratio exceeds 2 percent and 2.5 percent.\16\
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\16\ See 75 FR 66273 and 75 FR 79287.
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D. Risk-Based 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.\17\
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\17\ 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.\18\
Generally, an IDI's assessment base equals its average consolidated
total assets minus its average tangible equity.\19\ An IDI's risk-based
assessment rate is 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. An
IDI's assessment rate is calculated using different methods based on
whether the IDI is a small, large, or highly complex institution.\20\
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.\21\
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\18\ See 12 CFR 327.3(b)(1).
\19\ See 12 CFR 327.5.
\20\ See 12 CFR 327.16(a) and (b).
\21\ 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(e),
(f), and (g), respectively.
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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.\22\ Large and highly complex institutions are calculated using
a scorecard approach that combines CAMELS ratings and certain forward-
looking financial measures to assess the risk that a large or highly
complex bank poses to the DIF.\23\
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\22\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
\23\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011)
and 77 FR 66000 (Oct. 31, 2012).
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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.\24\ 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.\25\
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\24\ See 12 CFR 327.16(e).
\25\ 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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E. The Proposed Rule
On June 21, 2022, the Board adopted a notice of proposed rulemaking
(the proposed rule, or proposal) to increase initial base deposit
insurance assessment rate schedules uniformly by 2 basis points,
beginning the first quarterly assessment period of 2023.\26\ The
proposed change was intended to increase assessment revenue in order to
raise the reserve ratio to the statutory minimum threshold of 1.35
percent within 8 years of the Restoration Plan's initial establishment,
as required by statute, and consistent with the Amended Restoration
Plan, and to support growth in the DIF in progressing toward the 2
percent DRR. In lieu of dividends, the progressively lower assessment
rate schedules currently in the regulation would remain unchanged and
would come into effect without further action by the Board when the
fund reserve ratio at the end of the prior assessment period reaches 2
percent and 2.5 percent, respectively.\27\ The FDIC did not propose
changes to the rate schedules that come into effect when the reserve
ratio reaches 2 and 2.5 percent.
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\26\ See 87 FR 39388 (July 1, 2022).
\27\ See 12 CFR 327.10(c) and (d).
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II. Discussion of Comments Received on the Proposed Rule
In response to the proposed rule, the FDIC received a total of 171
comment letters. Of these, 102 were from IDIs or holding companies of
IDIs, 10 were from trade associations, one was from
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members of Congress, and 58 were from other interested parties,
primarily individuals affiliated with community banks.\28\
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\28\ See comments on the proposal. Available at <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/2022/2022-assessments-revised-deposit-insurance-assessment-rates-3064-af83.html">https://www.fdic.gov/resources/regulations/federal-register-publications/2022/2022-assessments-revised-deposit-insurance-assessment-rates-3064-af83.html</a>. Two late comment letters were received after the
comment period closed on August 20, 2022. The views presented in the
comment letters are addressed in this section.
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While many commenters expressed support for the continued strength
and resilience of the DIF, the vast majority of the comment letters
expressed concern over the burden of the proposed increase in
assessment rate schedules of 2 basis points on the banking industry,
particularly community banks. Nearly half of all commenters stated that
the proposed increase in assessment rate schedules of 2 basis points is
unnecessary for the reserve ratio to reach the statutory minimum of
1.35 percent by the statutory deadline, with most disagreeing with one
or more of the assumptions underlying the projections that informed the
proposal. Many suggested alternatives to adjust, delay or rescind the
proposed increase in assessment rate schedules of 2 basis points, or
implement a risk- or size-based approach to increasing assessment
rates. Two commenters were generally supportive in recognition of the
need to restore the reserve ratio to the statutory minimum and to reach
the long-term goal of a 2 percent DRR.
Comments on Insured Deposit Growth Assumption
Many commenters disagreed with annual insured deposit growth rates
assumed in the scenario analysis that informed the proposal, though
many broadly discussed trends in deposits and did not specifically
address insured deposits. These commenters generally observed that
deposits appear to be declining or normalizing and expect a similar
trend going forward. Some commenters maintained that the factors that
boosted deposits over the past few years have all reversed. Commenters
addressed factors influencing deposit levels including higher interest
rates, a normalizing spread between money market rates and deposit
rates leading to enhanced competition from money market funds,
quantitative tightening, increased costs, reduced savings rates, and
the conclusion of pandemic relief-related fiscal stimulus in the first
quarter of 2021. One commenter stated that to the extent excess
deposits still exist, they are invested in the safest asset classes,
mitigating the need for a buffer above the statutory minimum reserve
ratio.
The FDIC's analysis and related assumptions focus only on insured
deposit growth rather than total deposit growth because the reserve
ratio is measured as the net worth of the DIF relative to the value of
aggregate estimated insured deposits at the end of a given quarter.
While most commenters did not distinguish between total deposits and
insured deposits, it is important to note that insured deposit growth
is difficult to predict and can differ, sometimes substantially, from
total deposit growth in both magnitude and direction. For example, in
the first half of 2022, total deposits decreased by 0.7 percent, while
insured deposits increased by 1.6 percent.
In the scenario analysis that informed the proposal, and as updated
in this final rule and described further in the section on Projections
for the Fund Balance and Reserve Ratio, the FDIC assumed annual insured
deposit growth rates of 3.5 and 4.0 percent. These insured deposit
growth rates represent retention of a range of excess insured deposits
resulting from the pandemic. The assumption of a 4.0 percent annual
growth rate reflects retention of all of the estimated $1.13 trillion
of excess deposits in insured accounts, with this amount not
contributing to further growth, while the remaining balance of insured
deposits continues to grow at the pre-pandemic average annual rate of
4.5 percent.\29\ Alternatively, a 3.5 percent annual growth rate
assumption reflects banks retaining almost two thirds of the estimated
excess insured deposits resulting from the pandemic, with this amount
not contributing to further growth, while the remaining balance of
insured deposits grows at the pre-pandemic average annual rate of 4.5
percent.
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\29\ In its December 14, 2021, semiannual update to the Board,
the FDIC estimated that excess insured deposits that flowed into
banks as the result of actions taken by monetary and fiscal
authorities, and by individuals, businesses, and financial market
participants in response to the pandemic totaled approximately $1.13
trillion. This estimate reflects the amount of insured deposits as
of September 30, 2021, in excess of the amount that would have
resulted if insured deposits had grown at the pre-pandemic average
rate of 4.5 percent since December 31, 2019. By September 30, 2021,
deposit balances would have fully reflected the more significant
actions taken by monetary and fiscal authorities in response to the
COVID-19 pandemic. September 2021 was also the first month that the
personal savings rate declined to a level within the range reported
during the year prior to the pandemic. Rather than receding, as
previously expected, these excess insured deposits have grown by
about $43 billion through June 30, 2022.
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While insured deposits declined by 0.7 percent in the second
quarter of 2022, it is the FDIC's view that that the decline does not
necessarily indicate that the excess insured deposits that resulted
from various fiscal policy programs implemented during the pandemic are
receding beyond the scenarios described above in the near-term. In
fact, a decline in insured deposits in the second quarter is not
unusual. As illustrated in Chart 1, insured deposits declined in the
second quarter in six out of the last nine years. Importantly, even
with the decline in insured deposits during the second quarter of 2022,
insured deposit balances remain elevated in comparison to what the
balance of insured deposits would have been had they grown at the pre-
pandemic average annual rate of 4.5 percent, indicating that none of
the excess insured deposits resulting from the pandemic have receded.
Rather than receding, as previously expected, excess deposits have
risen from an estimated $1.13 trillion at the end of the second quarter
of 2021 to $1.17 trillion through the second quarter of 2022.
Chart 1. Historical Second Quarter Insured Deposit Growth
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[GRAPHIC] [TIFF OMITTED] TR24OC22.000
It is possible that insured deposits could grow faster or slower
than the 3.5 percent to 4 percent range assumed for this analysis. If
insured deposits grow at a slower rate, as a number of commenters
argued would happen, the statutory minimum reserve ratio would be
achieved sooner, and if insured deposits grow at a faster rate, the
statutory minimum reserve ratio would be achieved later. Generally
speaking, this final rule is not based on the assumption that the most
favorable future scenarios for the reserve ratio will materialize, but
addresses the need to achieve the statutory minimum reserve ratio given
the conditions that currently exist.
In this regard, insured deposits increased by 4.3 percent between
second quarter 2021 and second quarter 2022, a growth rate that is
higher than the rate of insured deposit growth assumed in both
scenarios in the analysis supporting the proposal and this final rule.
Between the first quarter of 2020 and the first quarter of 2022, annual
insured deposit growth rates ranged between 4.8 percent and 16.6
percent, and averaged 10.6 percent, more than double the pre-pandemic
average of 4.5 percent. While recent insured deposit growth rates more
closely align with historical averages, these growth rates are applied
to a total balance of insured deposits that is still elevated from the
pandemic response efforts. For these reasons, the FDIC continues to
view the assumed annual insured deposit growth rates of 3.5 and 4.0
percent as reasonable, while recognizing that insured deposit growth is
difficult to project and depends on several factors detailed in the
section on Deposit Balance Trends below.
Comments on Investment Income Assumption
Seven commenters disagreed with the FDIC's assumption of zero
investment income on the DIF portfolio. Some commenters challenged the
assumption based on recent increases in interest rates and the Federal
Open Market Committee's outlook for the overnight rate over the longer
term. Other commenters generally stated that forecasts do not reflect
current conditions and were made at a time when volatility was high and
uncertainty was significant. A few commenters specified that an
increase in assessment rates is not warranted because of a decrease in
the reserve ratio due to unrealized losses on the DIF portfolio.
In the FDIC's view, an assumption of zero net investment
contributions--defined for purposes of this final rule to include both
interest income and unrealized gains or losses--remains a reasonably
conservative assumption over the near-term. Elevated unrealized losses
resulted in negative net investment contributions of $339 million in
the fourth quarter of 2021, and $1,495 million and $322 million in the
first and second quarters of 2022, respectively.\30\ Moving into the
third quarter of 2022, interest rates have continued to rise and
unrealized losses will likely continue to reduce net investment
contributions, below the assumed amount of zero. Future market
movements may temporarily increase unrealized losses.
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\30\ The FDIC publicly reports on DIF indicators and
performance, including investment portfolio performance, each
quarter through the FDIC Quarterly Banking Profile and annually in
the FDIC's Annual Report. FDIC Quarterly Banking Profile available
at <a href="https://www.fdic.gov/analysis/quarterly-banking-profile/index.html">https://www.fdic.gov/analysis/quarterly-banking-profile/index.html</a>. FDIC Annual Report available at <a href="https://www.fdic.gov/about/financial-reports/reports/index.html">https://www.fdic.gov/about/financial-reports/reports/index.html</a>.
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While net investment contributions have been relatively flat to
slightly negative since the Restoration Plan was first established in
September 2020, interest rate increases have gradually lifted interest
income on the DIF portfolio in recent months and over time unrealized
losses should eventually be outpaced by higher levels of interest
income. However, given the uncertainty of the timing and magnitude of
interest rate increases and the effects on the DIF portfolio, it is the
FDIC's view that zero net investment contributions remains a reasonably
conservative assumption over the near-term. In the longer-term,
[[Page 64318]]
projections for reaching the 2 percent DRR already assume positive net
investment contributions after the reserve ratio reaches 1.35 percent,
based on market-implied forward rates, and including additional net
investment contributions in the near-term had little effect on the
analysis for reaching the 2 percent DRR.\31\ When rates stabilize and
interest income begins to outpace unrealized losses on the DIF
portfolio, resulting in positive net investment contributions, the FDIC
will consider revisiting assumptions in future semiannual updates
accordingly.
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\31\ Projections for reaching the 2 percent DRR assume net
investment contributions to the DIF of zero until the reserve ratio
reaches 1.35 percent. Net investment contributions assumptions are
then based on market-implied forward rates from that point forward.
Applying this assumption for the entire projection period does not
significantly accelerate the achievement of a 2 percent DRR (the
reserve ratio would reach 2 percent in 2031 instead of 2032).
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Net investment contributions have played a secondary role in
overall DIF growth, relative to assessment revenue. From 2013 to 2021,
for example, assessment revenue was more than eight times net
investment contributions. Over that period, the DIF grew by about $90
billion. Net investment contributions were approximately $9 billion and
assessment revenue was almost $76 billion, illustrating the importance
of assessment revenue relative to net investment contributions in
determining the outcome of the DIF. This is consistent with the
objectives of the DIF investment portfolio, which prioritize
preservation of funds available to absorb losses from bank failures
over maximizing investment income. While the FDIC realizes that the
larger fund balance and higher interest rate environment relative to
those experienced from 2013 to 2021 could result in a more meaningful
contribution to the growth of the DIF, the timing and amount are highly
uncertain.
For these reasons, the FDIC continues to view the assumption of
zero net investment contributions in the near-term as reasonable.
Relying on projections based on a higher rate of return in the near-
term could prove overly optimistic given the uncertainty in the
potential effects of future movements in monetary policy and the
potential for further unrealized losses on securities in the DIF
portfolio prior to the statutory deadline.
Several commenters additionally asserted that if the FDIC is not
able to responsibly manage its investments, the solution should not be
to shift the burden to banks.
Management of the DIF portfolio is governed by statute and the
Corporate Investment Policy. The FDI Act requires that DIF funds be
invested in obligations of the United States or in obligations
guaranteed as to principal and interest by the United States.\32\ In
managing the DIF investment portfolio, the Corporation's stated
objectives include ``managing money in a professional manner,
consistent with maintaining confidence in the deposit insurance program
and with the Corporation's strategic objective that the Deposit
Insurance Fund remains viable.'' \33\ DIF funds may be invested in
Treasury securities with maturities up to 12 years; however, current
holdings are shorter to ensure liquidity, without necessitating the
sale of securities.
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\32\ See 12 U.S.C. 1823(a). The Secretary of the Treasury must
approve all such investments in excess of $100,000 and has granted
the FDIC approval to invest the DIF funds only in U.S. Treasury
obligations that are purchased or sold exclusively through the
Treasury's Bureau of the Fiscal Service's Government Account Series
program.
\33\ See Federal Deposit Insurance Corporation Corporate
Investment Policy (2018), available at <a href="https://www.fdic.gov/deposit/insurance/corporate-investment-policy.pdf">https://www.fdic.gov/deposit/insurance/corporate-investment-policy.pdf</a>.
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Comments on Effect on the Banking Industry
147 commenters expressed concern for the impact to bank
profitability, operating expenses, and capital. Most of these
commenters requested adjustment, delay, or rescission of the proposed
rate increase. A few of these commenters expressed concern that the
proposed increase in assessment rate schedules of 2 basis points
represented a sharp or dramatic increase in assessment rates, which
some of these commenters argued is inconsistent with the legislative
language and spirit of the assessment rate-related provisions of the
FDI Act. Several commenters also maintained that analysis included in
the proposal on the effect of the rate increase on capital and earnings
underestimated the potential impact on institutions or did not fully
evaluate the potential effects on certain cohorts of institutions,
including IDIs with total assets between $750 million and $10 billion.
One commenter expressed that uncertainty does not justify the proposed
burdensome assessment rate increase.
A number of comments from smaller institutions and their holding
companies and trade groups stated that the increase in assessment rates
would be difficult for community banks to absorb, particularly if the
economy enters a recessionary period, and that the proposal will
disproportionately burden community banks that do not pose significant
risk to the DIF. A few of these commenters stated that an increase in
assessments exacerbates the competitive disadvantage of community banks
relative to credit unions and felt the increase would further
accelerate consolidation in the industry. Some of these commenters
requested that that the FDIC consider excluding pandemic-related
deposit balance increases when applying the increase in assessment
rates.\34\
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\34\ In June 2020, the FDIC adopted 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. See 85 FR 38282 (June 26, 2020).
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It is the FDIC's view that the proposed increase in assessment rate
schedules of 2 basis points does not represent a sharp or dramatic
increase. As illustrated in Chart 2, increasing assessment rates by 2
basis points in the most recent quarter would have resulted in a
weighted average assessment rate that is consistent with assessment
rates from recent history.
Chart 2. Historical Weighted Average Assessment Rates Compared with the
Most Recent Weighted Average Assessment Rate with an Increase of 2
Basis Points
[[Page 64319]]
[GRAPHIC] [TIFF OMITTED] TR24OC22.001
In addition, an increase in assessment rate schedules of 2 basis
points would bring the average assessment rate close to the moderate
steady assessment rate of 5.29 basis points that would have been
required in a simulated fund analysis covering the years 1950 through
2010, to maintain a positive DIF balance over that period, including
through two banking crises.\35\ During the 2008 financial crisis, the
FDIC uniformly raised assessments by 7 basis points and, as part of a
Restoration Plan in place at the time, levied a special assessment of 5
basis points.
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\35\ See 75 FR 66273 and 76 FR 10675.
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In response to comments that community banks will be
disproportionately burdened by the assessment increase relative to
large banks, the FDIC notes that in 2010, the Dodd-Frank Act required
that the FDIC amend its regulations to redefine the assessment base to
more closely approximate a bank's total liabilities, rather than only
its domestic deposits.\36\ As Congress intended, the revised assessment
base and accompanying change in rates shifted more of the total burden
of assessments to the largest banks from the rest of the industry.\37\
Consistent with that approach, a uniform increase of 2 basis points
with no change to assessment base is expected to generate over 80
percent of additional assessment revenue from banks with more than $10
billion in assets, approximately proportional to their share of
industry assets.
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\36\ See Public Law 111-203, section 331(b), 124 Stat. 1376,
1539 (codified at 12 U.S.C. 1817(b)).
\37\ See 156 Cong. Rec. S3296-99 (daily ed. May 6, 2010)
(statements of Sens. Hutchison and Tester) and 76 FR 10672, 10701
(February 25, 2011). The statements by members of Congress made
clear that Congress expressly intended this result and viewed the
new assessment base as a better measure of risk than the previous
base of domestic deposits. All else equal, the larger assessment
base would have increased assessments paid by virtually every bank.
However, in implementing the new assessment base the FDIC also
adjusted the range of risk-based assessment rates to produce
approximately the same revenue under the new base as would have been
raised under the old base.
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As some commenters note, the increase in assessment rates may
affect some institutions more than others. Because deposit insurance
assessments are risk-based, for the least risky institutions--those
paying the lowest rate--an increase in assessment rate schedules of 2
basis points would result in a greater percent increase in assessments,
compared with institutions that are assigned a higher assessment rate.
The proposed increase in assessment rate schedules is uniform and
applies to all IDIs, so the resulting assessment rates will continue to
be the lowest for institutions determined to be the least risky, and
higher for riskier institutions. Given the results for the entire
industry summarized in Tables 9 and 10 in the section on Capital and
Earnings Analysis and Expected Effects below, the FDIC does not believe
the rule will have material distributional effects.
As described in the section on Capital and Earnings Analysis and
Expected Effects below, for the industry as a whole, the FDIC estimates
that a uniform increase in assessment rate schedules of 2 basis points
would decrease Tier 1 capital by an estimated 0.1 percent but would not
directly result in any institutions becoming undercapitalized or
critically undercapitalized. The FDIC also estimates that a uniform
increase in assessment rate schedules of 2 basis points would reduce
income slightly by an average of 1.2 percent, which includes an average
of 1.0 percent for small banks and an average of 1.3 percent for large
and highly complex institutions.\38\ As summarized in Tables
[[Page 64320]]
8 through 10 in the section on Capital and Earnings Analysis and
Expected Effects below, approximately 4 percent of profitable
institutions are projected to experience an increase in assessments of
5 percent of income or more, including less than one percent of large
and highly complex institutions and less than 5 percent of profitable
small banks. The increase in assessment rate schedules is projected to
have an insignificant effect on institutions' capital levels and is
unlikely to have a material effect relative to income for almost all
institutions.
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\38\ Earnings or income are annual income before assessments and
taxes. Annual income is assumed to equal income from July 1, 2021,
through June 30, 2022. The Tax Cuts and Jobs Act of 2017 placed a
limitation on tax deductions for FDIC premiums for banks with total
consolidated assets between $10 and $50 billion and disallowed the
deduction entirely for banks with total assets of $50 billion or
more. See the Tax Cuts and Jobs Act, Public Law 115-97 (Dec. 22,
2017). For assessment purposes, a small bank is generally defined as
an IDI with less than $10 billion in total assets.
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The banking industry continues to report favorable credit quality,
earnings, and capital levels, supporting its ability to meet the
country's banking needs while navigating the challenges presented by
inflationary pressures, rising interest rates, and the end of pandemic
support programs for borrowers. The banking industry has reported
strong earnings in recent quarters, remained resilient through the
second quarter of 2022 despite the extraordinary challenges of the
pandemic, and is well positioned to absorb a modest increase in
assessment rate schedules of 2 basis points.
In fact, 32 commenters cited the strength of the banking industry
in advocating for adjustment, delay, or rescission of the proposed
assessment rate increase, stating that the relative strength of the
banking industry, and higher levels of capital and reserves, mean that
there is likely little need for additional funds to cover potential
losses in the near-term.
Several commenters stated that it would be difficult to absorb the
proposed increase in assessment rates in the event of an economic
downturn. A few of these commenters stated that the timing of the
proposed increase is increasingly likely to coincide with the beginning
of a recession and therefore risks causing exactly the type of pro-
cyclical increase that Congress sought to avoid. In particular, one
commenter expressed concern that raising assessment rates could
destabilize the banking sector at a time when its services are
critical, particularly as there are significant uncertainties looking
forward.\39\
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\39\ This commenter references a recent FDIC working paper with
findings that suggest that deposit insurance premiums can be a
significant driver of bank credit pro-cyclicality. See R. Hess and
J. Rhee, FDIC Center for Financial Research Working Paper No. 2022-
10, ``The Procyclicality of FDIC Deposit Insurance Premiums,''
August 2022, available at <a href="https://www.fdic.gov/analysis/cfr/working-papers/2022/cfr-wp2022-10.pdf">https://www.fdic.gov/analysis/cfr/working-papers/2022/cfr-wp2022-10.pdf</a>.
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The FDIC recognizes that the banking industry faces significant
downside risks. Future economic and banking conditions remain uncertain
due to high inflation, rising interest rates, slowing economic growth,
and geopolitical uncertainty. Higher interest rates may also erode real
estate and other asset values as well as hamper borrowers' loan
repayment ability. Any of these uncertainties present challenges and
could have longer-term effects on the condition and performance of the
economy and the banking industry.
In the FDIC's view, now is a reasonable time for a modest increase
in assessment rate schedules, while the banking industry is strong, as
it continues to report favorable credit quality, earnings, and capital
levels, and is experiencing a prolonged period without bank failures.
The FDIC working paper referenced by one commenter documents the pro-
cyclical effect of deposit insurance premiums on bank lending during
the financial crisis of 2008-2009. A modest increase in assessment rate
schedules while the banking industry is strong is consistent with the
findings of the working paper, reducing the likelihood that the FDIC
would need to consider a larger increase in assessment rates when the
banking industry is experiencing a downturn. Adoption of an increase in
assessment rate schedules will allow for the reserve ratio to be
restored to the statutory minimum and then will generate a buffer to
absorb unexpected losses, accelerated insured deposit growth, or lower
average assessment rates that may materialize. The FDIC believes that
the additional revenue collected under the proposed increase in
assessment rate schedules will strengthen the DIF's ability to
withstand potential future periods of significant losses due to bank
failures and will reduce the likelihood that the FDIC would need to
increase assessment rates or impose a special assessment during a
potential future banking crisis.
Comments on Alternatives
Most commenters suggested the FDIC adjust, delay, or rescind the
proposed 2 basis point increase in assessment rate schedules. Most
commenters advocating for rescission of the proposal expressed concerns
over the expected effects or suggested that if assumptions underlying
projections were changed and applied using updated data, the resulting
analysis may show that there is no risk that the reserve ratio would
not reach the 1.35 percent statutory minimum, and therefore any
increase in assessment rates would be unnecessary. Those advocating for
delay often recommended this alternative so that the data and
assumptions underlying the proposal could be revisited after trends
related to insured deposit growth or investment contributions become
clearer.
Other alternatives that were recommended included revising the
proposal to end the increase in assessment rates after the reserve
ratio reaches 1.35 percent, implementing a lower rate increase based on
different or updated assumptions, and implementing a series of
incremental increases while retaining the flexibility to adjust rates.
The FDIC is not adopting these suggested alternatives to delay,
rescind, or reduce the proposed increase in assessment rate schedules
of 2 basis points. As described in the section on Projections for the
Fund Balance and Reserve Ratio below, applying the same assumptions
used in the proposal but using data through June 30, 2022, the latest
data available at the time of publication, the FDIC continues to
project that, absent an increase in assessment rates, the reserve ratio
is at risk of not reaching the statutory minimum of 1.35 percent by the
statutory deadline of September 30, 2028.
When the FDIC first established the Restoration Plan in September
2020, the reserve ratio stood at 1.30 percent. The reserve ratio
increased in only two out of the eight quarters in which the
Restoration Plan has been in place and regressed over that period to
1.26 percent as of June 30, 2022.
The FDIC has a statutory obligation to restore the reserve ratio to
the statutory minimum of 1.35 percent within 8 years of establishing
the Restoration Plan.\40\ Further, the FDIC is neither required nor
expected to wait until near the statutory deadline to do so. Reaching
the statutory minimum reasonably promptly and in advance of the
statutory deadline strengthens the fund so that it can better withstand
unexpected losses and reduce the likelihood of pro-cyclical
assessments. In the FDIC's view, now is a reasonable time for a modest
rate increase, while the banking industry is strong and experiencing a
prolonged period without bank failures. The proposed increase in
assessment rate schedules of 2 basis points will bring the average
assessment rate close to the moderate steady assessment rate of 5.29
basis points that would have been required in a simulated fund analysis
covering the years from 1950 through 2010 to maintain a positive DIF
balance throughout that time period, including
[[Page 64321]]
through two banking crises.\41\ Restoring the fund to its minimum
reserve ratio, and continuing to build it towards the 2 percent DRR,
reduces the risk that the FDIC would need to consider a larger increase
in assessments at a later time when banking and economic conditions may
be less favorable and when the industry might least be able to afford
it.
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\40\ See 12 U.S.C. 1817(b)(3)(E).
\41\ See 75 FR 66273 and 76 FR 10675.
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The FDIC has considered the alternatives raised by commenters along
with other reasonable and possible alternatives to the rule described
below in the section on Alternatives Considered, but believes, on
balance, that an increase in assessment rate schedules of 2 basis
points, with such increase remaining in effect unless and until the
reserve ratio meets or exceeds 2 percent, is the most appropriate and
most straightforward manner in which to achieve the objectives of the
Amended Restoration Plan and the long-term fund management plan.
Comments Proposing Risk- or Size-Based Alternatives to Increasing Rates
While most commenters suggested alternatives to adjust, delay, or
rescind the proposed 2 basis point increase in assessment rate
schedules for the reasons described above, 33 commenters urged the FDIC
to alternatively consider implementing a risk- or size-based approach
to increasing assessment rates. Most of these commenters requested that
the increase in assessment rates be tailored to apply higher rates to
larger or more complex banks, or banks that pose a greater risk to the
DIF. Several commenters requested a specific carve-out from the rate
increase for community banks, particularly community banks that are
well capitalized, or that the FDIC give weight to improvements in bank
safety and soundness in proposing rate increases. One commenter
specifically proposed a risk-based approach to increasing assessment
rates to further incent appropriate balance sheet risk management
practices. Another commenter generally opposed the proposal in part
based on the belief that the statutory minimum reserve ratio of 1.35
percent is insufficient to absorb losses in the event of the failure of
a systemically important financial institution (SIFI) and recommended
the establishment of a separate fund for SIFIs.
Under the FDI Act, the FDIC is required to establish an assessment
system for all banks based on risk.\42\ As authorized by law and
pursuant to rulemakings, the FDIC has implemented separate risk-based
pricing methods for large and small banks.\43\ Under the facts and
circumstances, as well as the statutory factors that the FDIC is
required to consider treating IDIs with the same or similar risk
profiles differently from each other for assessments purposes may not
conform to those relevant factors in this particular instance, and may
not be appropriate given the FDIC's policy objectives with respect to
long-term fund management.
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\42\ See 12 U.S.C. 1817(b)(1).
\43\ See 71 FR 69282 (November 30, 2006) and 12 U.S.C.
1817(b)(1)(D).
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The FDIC has considered the risk- and size-based alternatives
raised by commenters along with other reasonable and possible
alternatives to the rule described below in the section on Alternatives
Considered, but believes, on balance, that the proposed uniform
increase in assessment rate schedules of 2 basis points is the most
appropriate and most straightforward manner in which to achieve the
objectives of the Amended Restoration Plan and the long-term fund
management plan. While the 2 basis point increase in assessment rates
would generally result in a uniform increase across assessment rate
schedules, the FDIC continues to maintain a risk-based deposit
insurance assessment system, meaning that assessment rates for
individual institutions are determined based on the risk posed to the
DIF.\44\
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\44\ See 12 U.S.C. 1817(b)(1).
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Comment on Expected Effects on Community Development Financial
Institutions and Minority Depository Institutions
One comment letter expressed concern about the proposal's potential
to erode community benefits from economic recovery and racial equity
motivated investments supported by Community Development Financial
Institutions (CDFIs) and Minority Depository Institutions (MDIs)
preparing to increase their deposit levels in response to these
investments. This commenter requested that the FDIC provide an
exemption from the increase in assessment rates for CDFI and MDI banks.
MDIs play a unique role in promoting economic viability in minority
and low- or moderate-income communities. The FDIC has long recognized
the unique role and importance of MDIs. The FDIC's MDI Program strives
to preserve minority-owned and minority-led financial institutions,
encourage the creation of new MDIs, and provide training, technical
assistance, and educational programs for MDIs. The FDIC also
facilitates collaborative strategies with public and private partners
to help build capacity and scale. The Minority Depository Institutions
Subcommittee of the FDIC's Advisory Committee on Community Banking
(CBAC) provides advice to the CBAC regarding the FDIC's MDI program;
offers a platform for MDIs to promote collaboration, partnerships, and
best practices; and identifies ways to highlight the work of MDIs in
their communities.
CDFIs play a critical role in expanding economic opportunity in
low-income communities by providing access to financial products and
services for local residents and businesses. The FDIC supports the work
CDFIs do to revitalize distressed communities, and the agency has long
been committed to promoting economic inclusion by helping to build and
strengthen positive connections between insured financial institutions
and consumers, depositors, small businesses, and communities. The
FDIC's Advisory Committee on Economic Inclusion was established to
provide the agency with advice and recommendations on important
initiatives focused on expanding access to banking services by
underserved populations.
The FDIC has placed significant emphasis on and resources to
preserve, promote, and build capacity in MDIs and CDFIs, and mission-
driven banks continue to be an important focal point for the FDIC. As
explained above in the section addressing Comments Proposing Risk- or
Size-Based Alternatives to Increasing Rates, under the FDI Act, the
FDIC is required to establish an assessment system for all banks based
on risk.\45\ As authorized by law and pursuant to rulemakings, the FDIC
has implemented separate risk-based pricing methods for large and small
banks.\46\ Under the facts and circumstances, as well as the statutory
factors that the FDIC is required to consider treating IDIs with the
same or similar risk profiles differently from each other for
assessments purposes may not conform to those relevant factors in this
particular instance, and may not be appropriate given the FDIC's policy
objectives with respect to long-term fund management.
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\45\ See 12 U.S.C. 1817(b)(1).
\46\ See 71 FR 69282 (November 30, 2006) and 12 U.S.C.
1817(b)(1)(D).
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Comments on Expected Effects Due to Deposit Growth From Pandemic Relief
Several commenters expressed the view that community banks should
not be punished for elevated deposit levels
[[Page 64322]]
that were driven by pandemic relief measures, including participation
in the Paycheck Protection Program (PPP).
In recognition that the PPP established by the Small Business
Administration, and the Paycheck Protection Program Liquidity Facility
and Money Market Mutual Fund Liquidity Facility established by the
Board of Governors of the Federal Reserve System, were put into place
to provide financing to small businesses, liquidity to small business
lenders and the broader credit markets, and to help stabilize the
financial system in a time of significant economic strain, in June
2020, the FDIC adopted a final rule, applicable to all IDIs, that
mitigates the deposit insurance assessment effects of participating in
these programs.\47\ The FDIC continues to provide assessment relief
pursuant to that final rule.
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\47\ See 85 FR 38282 (June 26, 2020).
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Comments on Effect on Consumers
Several commenters expressed concern that the proposed increase in
assessment rates may restrain credit, reduce product and service
offerings, slow deposit rate increases, or result in higher or new fees
to customers, to the detriment of consumers and businesses. In
particular, one commenter expressed concern that larger banks focused
on profits may push deposit customers away to decrease their assessment
liability, which could create additional burden on the unbanked and
underbanked.
It is the FDIC's view that now is a reasonable time to modestly
raise rates while the banking industry is strong, rather than to delay
and potentially be forced into a larger increase at a time when banking
and economic conditions may be less favorable.
Comments on the Designated Reserve Ratio
Twenty-three commenters urged the FDIC to consider why 2 percent is
the DRR or update the analysis underlying this goal. Many of these
commenters stated that the 2 percent DRR was determined prior to the
full implementation of the current prudential standards, safety and
soundness safeguards, and capital requirements and that these
enhancements mitigate the risk of bank failures on a scale that would
significantly reduce the DIF. As noted above in the Comments on
Alternatives, a few commenters challenged the proposed increase of 2
basis points on the basis that the statute only requires that the
reserve ratio reach 1.35 percent whereas the rate increase would remain
in place until the reserve ratio reaches 2 percent. Several of these
commenters recommended that the FDIC reconsider and follow the statute
to achieve 1.35 percent and, at that time, end or reassess the need for
any rate increase.
The FDIC believes a 2 percent DRR complements enhancements in the
regulatory framework, including the Dodd-Frank Act and Basel III, and
that these enhancements in combination with a 2 percent DRR would make
the financial sector more resilient and reduce the likelihood of future
crises. While the FDIC hopes that these enhancements will make
financial crises less likely and reduce losses to the DIF, it would be
imprudent for the FDIC to assume that banking crises are a thing of the
past. The 2008 banking crisis occurred despite extensive legislative
changes to the banking and regulatory system that were made in response
to the crisis of the late 1980s and early 1990s.
After considering updated analysis of the statutory factors, the
Board set the DRR at 2 percent again in October 2022 and the FDIC is
concurrently publishing in the Federal Register the Notice of
Designated Reserve Ratio for 2023. The 2 percent DRR is an integral
part of the FDIC's comprehensive, long-range management plan for the
DIF. A fund that is sufficiently large continues to be a necessary
precondition to maintaining a fund balance during a banking crisis and
allowing for long-term, steady assessment rates.\48\ The updated
analysis of the statutory factors is described in detail in the
Memorandum to the Board on the Designated Reserve Ratio for 2023,
published to the FDIC's website.\49\
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\48\ See 75 FR 79286 (Dec. 20, 2010), codified at 12 CFR
327.4(g).
\49\ See Notice of Designated Reserve Ratio for 2023, available
at <a href="https://www.fdic.gov/news/board-matters/2022/2022-10-18-notice-sum-c-fr.pdf">https://www.fdic.gov/news/board-matters/2022/2022-10-18-notice-sum-c-fr.pdf</a>.
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For these reasons, the FDIC has determined that it is appropriate
for the new assessment rate schedules to remain in effect unless and
until the reserve ratio meets or exceeds 2 percent, absent further
Board action. The proposed rate increase would accelerate the timeline
for the reserve ratio to reach 2 percent, after which point lower rate
schedules will go into effect.
III. The Final Rule
A. Description of the Final Rule
After careful consideration of the comments received on the
proposal and analysis of the applicable statutory factors, updated with
the most recent data available, the FDIC is adopting as final, and
without change, the proposed rule to increase initial base deposit
insurance assessment rate schedules uniformly by 2 basis points,
beginning the first quarterly assessment period of 2023. Under the
final rule, the new assessment rate schedules will remain in effect
unless and until the reserve ratio meets or exceeds 2 percent, absent
further Board action.
Under the final rule, the FDIC is retaining the Board's flexibility
to adopt higher or lower total base assessment rates without the
necessity of further notice-and-comment rulemaking, provided that the
Board cannot increase or decrease rates from one quarter to the next by
more than 2 basis points, and cumulative increases and decreases cannot
be more than 2 basis points higher or lower than the total base
assessment rates set forth in the assessment rate schedules.\50\
Retention of this flexibility continues to allow the Board to act in a
timely manner to fulfill its mandate to raise the reserve ratio,
particularly in light of the uncertainty related to insured deposit
growth and the economic outlook. Maintaining the ability to adjust
rates within limits without notice-and-comment rulemaking is consistent
with the FDIC's well-established practice and will allow the FDIC to
act expeditiously to adjust rates in the face of constantly changing
conditions.
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\50\ See 12 CFR 327.10(f).
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B. Assessment Rate Schedules Beginning the First Quarterly Assessment
Period of 2023
Assessment Rates for Established Small Institutions and Large and
Highly Complex Institutions Beginning the First Assessment Period of
2023
Pursuant to the FDIC's authority to set assessments, the initial
and total base assessment rates applicable to established small
institutions and large and highly complex institutions set forth in
Tables 1 and 2 below will take effect beginning the first quarterly
assessment period of 2023.
[[Page 64323]]
Table 1--Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023, Where the Reserve
Ratio as of the End of the Prior Assessment Period is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS Composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
An institution's total base assessment rate may vary from the
institution's initial base assessment rate as a result of possible
adjustments for certain liabilities that can increase or reduce loss to
the DIF in the event the institution fails.\51\ These adjustments do
not reflect a change and are consistent with the current assessment
regulations. After applying all possible adjustments, the minimum and
maximum total base assessment rates applicable to established small
institutions and large and highly complex institutions beginning the
first quarterly assessment period of 2023 are set out in Table 2 below.
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\51\ See 12 CFR 327.16(e).
Table 2--Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment Period of
2023, Where the Reserve Ratio as of the End of the Prior Assessment Period is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
Unsecured Debt Adjustment \3\....... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
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Total Base Assessment Rate...... 2.5 to 18 4 to 32 13 to 32 2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
\3\ The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
depository institution's initial base assessment rate; thus, for example, an insured depository institution
with an initial base assessment rate of 5 basis points will have a maximum unsecured debt adjustment of 2.5
basis points and cannot have a total base assessment rate of lower than 2.5 basis points.
The rates applicable to established small institutions and large
and highly complex institutions in Tables 1 and 2 above will remain in
effect unless and until the reserve ratio meets or exceeds 2 percent.
In lieu of dividends, and pursuant to the FDIC's authority to set
assessments, progressively lower initial and total base assessment rate
schedules applicable to established small institutions and large and
highly complex institutions as currently set forth in 12 CFR 327.10(c)
and (d) will come into effect without further action by the Board when
the fund reserve ratio at the end of the prior assessment period
reaches 2 percent and 2.5 percent, respectively. The FDIC did not
propose and is not adopting changes to these progressively lower
assessment rate schedules.
Assessment Rates for New Small Institutions Beginning the First
Assessment Period of 2023
Pursuant to the FDIC's authority to set assessments, the initial
and total base assessment rates applicable to new small institutions
set forth in Tables 3 and 4 below will take effect beginning the first
quarterly assessment period of 2023. New small institutions will remain
subject to the assessment schedules in Tables 3 and 4, even when the
reserve ratio reaches 2 percent or 2.5 percent, until they no longer
are new depository institutions, consistent with current assessment
regulations. As stated in the 2010 NPR describing the long-term
comprehensive fund management plan, and adopted in the 2011 Final Rule,
the lower assessment rate schedules applicable when the reserve ratio
reaches 2 percent and 2.5 percent do not apply to any new depository
institutions; these institutions will remain subject to the assessment
rates shown below, until they no longer are new depository
institutions.\52\
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\52\ See 75 FR 66283 and 76 FR 10686.
Table 3--Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023 and for All
Subsequent Assessment Periods, Applicable to New Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
[[Page 64324]]
Table 4--Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment Period of
2023 and for all Subsequent Assessment Periods, Applicable to New Small Institutions \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 9 14 to 24 21 to 31 32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
Assessment Rates for Insured Branches of Foreign Banks Beginning the
First Assessment Period of 2023
Pursuant to the FDIC's authority to set assessments, the initial
and total base assessment rates applicable to insured branches of
foreign banks set forth in Table 5 below will take effect beginning the
first quarterly assessment period of 2023.
Table 5--Initial and Total Base Assessment Rate Schedule \1\ Beginning the First Assessment Period of 2023,
Where the Reserve Ratio as of the End of the Prior Assessment Period is Less Than 2 Percent, Applicable to
Insured Branches of Foreign Banks \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 5 to 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
The rates applicable to insured branches of foreign banks in Table
5 above will remain in effect unless and until the reserve ratio meets
or exceeds 2 percent. In lieu of dividends, and pursuant to the FDIC's
authority to set assessments, progressively lower initial and total
base assessment rate schedules applicable to insured branches of
foreign banks as currently set forth in 12 CFR 327.10(e)(2)(ii) and
(iii) will come into effect without further action by the Board when
the fund reserve ratio at the end of the prior assessment period
reaches 2 percent and 2.5 percent, respectively. The FDIC did not
propose and is not adopting changes to these progressively lower
assessment rate schedules.
C. Conforming, Technical, and Other Amendments to the Assessment
Regulations Conforming Amendments
The FDIC is adopting conforming amendments in Sec. Sec. 327.10 and
327.16 of the FDIC's assessment regulations to effectuate the
modifications described above. These conforming amendments will ensure
that the uniform increase in initial base deposit insurance assessment
rate schedules of 2 basis points is properly incorporated into the
assessment regulation provisions governing the calculation of an IDI's
quarterly deposit insurance assessment. The FDIC is adopting revisions
to Sec. 327.10 to reflect the assessment rate schedules that are
applicable before and after the effective date of this final rule
(i.e., January 1, 2023). The FDIC also is revising the uniform amounts
for small banks and insured branches in Sec. Sec. 327.16(a) and (d),
respectively, to reflect the 2 basis point increase. Aside from the
revisions to reflect the assessment rate schedules, no additional
revisions are required for the regulatory text applicable to large or
highly complex banks because the formula in Sec. 327.16(b) used to
calculate their quarterly assessment rates incorporates the minimum and
maximum initial base assessment rates then in effect.
Technical Amendments
As a technical change, the FDIC is rescinding certain rate
schedules in Sec. 327.10 that are no longer in effect. FDIC
regulations provided for changes to deposit insurance assessment rates
the quarter after the reserve ratio first reached or surpassed 1.15
percent, which occurred in the third quarter of 2016.\53\ The FDIC is
rescinding the outdated and obsolete provisions of, and revising
references to, the superseded assessment rate schedules in its
regulations. These changes impose no new requirements on FDIC-
supervised institutions.
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\53\ See 76 FR 10672 (Feb. 25, 2011) and 81 FR 32180 (May 20,
2016). In 2016, the FDIC amended its rules to refine the deposit
insurance assessment system for established small IDIs (i.e., those
small IDIs that have been federally insured for at least five
years). The final rule preserved the lower overall range of initial
base assessment rates adopted in 2011 pursuant to the long-term fund
management plan.
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The FDIC also is rescinding in its entirety Sec. 327.9--Assessment
Pricing Methods, as such section is no longer applicable. The relevant
section that includes the method for calculating risk-based assessments
for all IDIs, particularly established small banks, is now in Sec.
327.16, which was adopted by the Board in a final rule on April 26,
2016. That final rule became applicable the calendar quarter in which
the reserve ratio of the DIF reached 1.15 percent, i.e., the third
quarter of 2016.\54\ The FDIC also will make technical amendments to
remove all references to Sec. 327.9.
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\54\ See 81 FR 32180 (May 20, 2016).
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Other Amendments
Under the final rule, the FDIC is adopting additional amendments to
update and conform Appendix A to subpart A of part 327--Method to
Derive Pricing Multipliers and Uniform Amount in accordance with the
current assessment regulations. Specifically, the FDIC is removing
sections I through V,
[[Page 64325]]
which were superseded by the 2016 final rule revising the method to
calculate risk-based assessment rates for established small IDIs.\55\
The FDIC is replacing the current language of sections I through V of
Appendix A to subpart A of part 327 with the content of a previously
proposed, but inadvertently not adopted, Appendix E--Method to Derive
Pricing Multipliers and Uniform Amount. Appendix E was published in the
2016 revised notice of proposed rulemaking refining the deposit
insurance assessment system for established small IDIs.\56\ Appendix E
was inadvertently not included in the final rule.
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\55\ See 81 FR 32180 (May 20, 2016).
\56\ See 81 FR 6153-6155 (Feb. 4, 2016).
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Under the 2016 final rule, initial base assessment rates for
established small banks are calculated by applying statistically
derived pricing multipliers to weighted CAMELS components and financial
ratios; then adding the products to a uniform amount.\57\ The content
of Appendix E describes the statistical model on which the revised and
current pricing method is based and, accordingly, revises the method to
derive the pricing multipliers and uniform amount used to determine the
assessment rate schedules currently in effect.\58\
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\57\ See 81 FR 32181.
\58\ See 81 FR 32191; see also 81 FR 6116-17 (Feb. 4, 2016).
Note, subsequent to the adoption of the 2016 final rule, the FDIC
made other conforming and technical amendments to the assessment
regulations at 12 CFR part 327 resulting from other rulemakings. The
content of Appendix E does not need to be updated to reflect such
conforming and other technical amendments and will be incorporated
into the current Appendix A without change. See 83 FR 14565 (Apr. 5,
2018), 84 FR 1346 (Feb. 4, 2019), and 85 FR 71227 (Nov. 9, 2020).
---------------------------------------------------------------------------
The revisions to Appendix A to subpart A of part 327 will result
in: the removal of the superseded language currently in sections I
through V; the addition of the language of Appendix E from the 2016
revised notice of proposed rulemaking reflecting the revised and
current pricing method; and the retention of the current language
(without change) of section VI (Description of Scorecard Measures) that
applies to large and highly complex institutions.
D. Analysis
In setting assessment rates, the Board is authorized to set
assessments for IDIs in such amounts as the Board may determine to be
necessary or appropriate.\59\ In setting assessment rates, the Board
has considered the following factors as required by statute: \60\
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\59\ 12 U.S.C. 1817(b)(2)(A).
\60\ See Section 7(b)(2)(B) of the FDI Act, 12 U.S.C.
1817(b)(2)(B).
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(i) The estimated operating expenses of the DIF.
(ii) The estimated case resolution expenses and income of the DIF.
(iii) The projected effects of the payment of assessments on the
capital and earnings of IDIs.
(iv) The risk factors and other factors taken into account pursuant
to section 7(b)(1) of the FDI Act (12 U.S.C. 1817(b)(1)) under the
risk-based assessment system, including the requirement under such
section to maintain a risk-based system.\61\
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\61\ The risk factors referred to in factor (iv) include the
probability that the Deposit Insurance Fund will incur a loss with
respect to the institution, the likely amount of any such loss, and
the revenue needs of the Deposit Insurance Fund. See Section
7(b)(1)(C) of the FDI Act, 12 U.S.C. 1817(b)(1)(C).
---------------------------------------------------------------------------
(v) Other factors the Board has determined to be appropriate.
The following summarizes the factors considered in adopting a
uniform increase in initial base assessment rate schedules of 2 basis
points.
Assessment Revenue Needs
Under the Amended Restoration Plan, the FDIC is monitoring deposit
balance trends, potential losses, and other factors that affect the
reserve ratio. The most recent semiannual update to the Board was
provided on June 21, 2022, with data as of March 31, 2022, and the next
semiannual update is anticipated for later this year and is expected to
cover data as of September 30, 2022.\62\ For purposes of this final
rule, the FDIC updated analysis and projections using data as of June
30, 2022. Table 6 shows the components of the reserve ratio for the
fourth quarter of 2021 through the second quarter of 2022. In the
second quarter of 2022, slight attrition in insured deposits coupled
with positive growth in the DIF balance resulted in a 3 basis point
increase in the reserve ratio to 1.26 percent as of June 30, 2022.
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\62\ See FDIC Restoration Plan Semiannual Update, June 21, 2022.
Available at <a href="https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf">https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf</a>.
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While assessment revenue was the primary contributor to growth in
the DIF, since the beginning of 2021, the weighted average assessment
rate for all IDIs has been consistently below the average of 4.0 basis
points when the Restoration Plan was first adopted in 2020. The
weighted average assessment rate was approximately 3.8 basis points for
the assessment period ending June 30, 2022. The DIF has experienced low
losses from bank failures, with no banks failing since October 2020.
Unrealized losses on available-for-sale securities in the DIF portfolio
contributed to a relatively flat DIF balance in the first quarter of
2022 and continued to slow growth in the second quarter. As of June 30,
2022, the DIF balance totaled $124.5 billion, up $1.4 billion from one
quarter earlier.
Table 6--Fund Balance, Estimated Insured Deposits, and Reserve Ratio
[Dollar amounts in billions]
----------------------------------------------------------------------------------------------------------------
4Q 2021 1Q 2022 2Q 2022
----------------------------------------------------------------------------------------------------------------
Beginning Fund Balance.......................................... $121.9 $123.1 $123.0
Plus: Net Assessment Revenue................................ $2.0 $1.9 $2.1
Plus: Other Income \a\...................................... ($0.3) ($1.5) ($0.3)
Less: Loss Provisions....................................... (*) $0.1 ($0.1)
Less: Operating Expenses.................................... $0.5 $0.5 $0.5
Ending Fund Balance \b\......................................... $123.1 $123.0 $124.5
Estimated Insured Deposits...................................... $9,745.8 $9,974.7 $9,903.8
Q-O-Q Growth in Estimated Insured Deposits...................... 1.62% 2.35% -0.71%
Ending Reserve Ratio............................................ 1.26% 1.23% 1.26%
----------------------------------------------------------------------------------------------------------------
* Absolute value less than $50 million.
\a\ Includes interest earned on investments, unrealized gains/losses on available-for-sale securities, realized
gains on sale of investments, and all other income, net of expenses.
\b\ Components of fund balance changes may not sum to totals due to rounding.
[[Page 64326]]
While insured deposit growth showed signs of normalizing in the
second quarter, aggregate balances remain significantly elevated,
relative to pre-pandemic levels. Insured deposits increased by 4.3
percent over the last year, a growth rate that is higher than the rate
of insured deposit growth assumed in both scenarios in the analysis
supporting the proposal and this final rule. In recognition that
sustained elevated insured deposit balances, lower than anticipated
weighted average assessment rates, and other factors have affected the
ability of the reserve ratio to return to 1.35 percent before September
30, 2028, and to accelerate the timeline for achieving the long-term
goal of a 2 percent DRR, the FDIC is adopting a final rule to increase
initial base deposit insurance assessment rate schedules uniformly by 2
basis points. The new assessment rate schedules will remain in effect
unless and until the reserve ratio meets or exceeds 2 percent.
Deposit Balance Trends
The recent moderation in insured deposit growth rates relative to
the first half of 2020 and the first quarter of 2021, and as described
above in the Response to Comments Received on the Proposed Rule
section, was attributable in part to a decline in personal savings as
support from direct federal government stimulus programs ended and
higher inflation increased nominal consumer spending. In addition,
higher interest rates may have caused certain types of deposits to
shift into higher-yielding alternatives. Over the last year, insured
deposits increased by 4.3 percent, slightly below the pre-pandemic
average of 4.5 percent, but in excess of the insured deposit growth
rates assumed in both scenarios in the analysis supporting the proposal
and this final rule. While recent insured deposit growth rates more
closely align with historical averages, these growth rates are applied
to a total balance of insured deposits that is still elevated from the
pandemic response efforts, further increasing insured deposit balances.
The outlook for insured deposit growth remains uncertain and
depends on several factors, including the outlook for consumer spending
and incomes. Any unexpected economic weakness or concerns about slower
than expected economic growth may cause businesses and consumers to
maintain caution in spending and keep deposit levels elevated in order
to have the ability to cover expenses on hand or increase precautionary
savings. Similarly, unexpected financial market stress could prompt
another round of investor risk aversion that could lead to caution on
spending and increase savings and insured deposits. On the other hand,
prolonged higher inflation may cause consumer spending to remain
elevated as consumers pay more for goods and services.
In contrast, tighter monetary policy may inhibit growth of insured
deposits in the banking system. Despite the recent increases in the
short-term benchmark rate set by the Federal Reserve, most IDIs have
little incentive to raise interest rates on deposit accounts and spur
deposit growth in the near-term, given the still elevated levels of
deposit balances. If competition for deposits remains subdued and rates
paid on deposit accounts remain low, depositors may shift balances away
from deposit accounts and into higher-yielding alternatives, including
money market funds.
More than a year has passed since the period of extraordinary
growth in insured deposits prompted by the last round of fiscal
stimulus, and while the banking industry reported slight attrition in
insured deposits in the second quarter of 2022, aggregate balances
remain significantly elevated, as noted above. Insured deposits
declined by 0.7 percent in the second quarter of 2022. While this may
be indicative of the beginning of slower growth in insured deposits
going forward, a decline in the second quarter is consistent with
seasonal, quarterly growth in insured deposits, which have declined in
the second quarter in six out of the last nine years. As a result, the
reserve ratio continues to be below the statutory minimum of 1.35
percent and is at risk of not returning to that level by the statutory
deadline of September 30, 2028. The FDIC will continue to closely
monitor depositor behavior and the effects on insured deposits through
future Restoration Plan semiannual updates.
Case Resolution Expenses (Insurance Fund Losses)
Losses from past and future bank failures affect the reserve ratio
by lowering the fund balance. In recent years, the DIF has experienced
low losses from IDI failures. On average, four IDIs per year failed
between 2016 and 2021, at an average annual cost to the fund of about
$208 million.\63\ No banks have failed thus far in 2022, marking 23
consecutive months without a bank failure and the eighth year in a row
with few or no failures. Based on currently available information about
banks expected to fail in the near-term; analyses of longer-term
prospects for troubled banks; and trends in CAMELS ratings, failure
rates, and loss rates; the FDIC projects that failures over the next
five years would cost the fund approximately $1.8 billion.
---------------------------------------------------------------------------
\63\ FDIC, Annual Report 2021, Assets and Deposits of Failed or
Assisted Insured Institutions and Losses to the Deposit Insurance
Fund, 1934-2021, page 190, available at <a href="https://www.fdic.gov/about/financial-reports/reports/2021annualreport/2021-arfinal.pdf">https://www.fdic.gov/about/financial-reports/reports/2021annualreport/2021-arfinal.pdf</a>.
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The total number of institutions on the FDIC's Problem Bank List
was 40 at the end of the second quarter of 2022, the lowest level since
publication of the FDIC's Quarterly Banking Profile began in 1984.\64\
Currently, the FDIC expects the number of problem banks to remain at
low levels in the near-term.
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\64\ ``Problem'' institutions are institutions with a CAMELS
composite rating of ``4'' or ``5'' due to financial, operational, or
managerial weaknesses that threaten their continued financial
viability.
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The banking industry faces significant downside risks. Future
economic and banking conditions remain uncertain due to high inflation,
rising interest rates, slowing economic growth, and geopolitical
uncertainty. Higher interest rates may also erode real estate and other
asset values as well as hamper borrowers' loan repayment ability. Any
of these uncertainties could present challenges and could have longer-
term effects on the condition and performance of the economy and the
banking industry.
Gross domestic product (GDP) growth has weakened in the first half
of 2022, contracting in both first and second quarters after expanding
5.7 percent in 2021. Despite the slowdown in growth in the first half
of 2022, consumer spending continued to grow, and the labor market
remained strong.
However, the economic outlook is weak overall. The September Blue
Chip Economic Forecast calls for GDP growth of 1.2 percent in third
quarter, 1.6 percent for full year 2022 and 0.6 percent for 2023.\65\
Many forecasters increased their odds of a mild recession occurring in
2022 or 2023.\66\
---------------------------------------------------------------------------
\65\ September Blue Chip Economic Forecast.
\66\ September Blue Chip Economic Forecast.
---------------------------------------------------------------------------
The banking industry remained resilient through the second quarter
of 2022 despite the extraordinary challenges of the pandemic, and is
well positioned to absorb a modest increase in assessment rate
schedules of 2 basis points. Given these economic uncertainties, in the
FDIC's view, now is a reasonable time to modestly raise rates while the
banking industry is strong, rather than to delay and potentially have
to consider a larger increase in assessments at a later time
[[Page 64327]]
when banking and economic conditions may be less favorable.
Operating Expenses and Investment Income
FDIC operating expenses remain steady, while a prolonged period of
low investment returns has limited growth in the DIF.
Operating expenses partially offset increases in the DIF balance.
Operating expenses have remained steady, ranging between $450 and $475
million per quarter since the Restoration Plan was first adopted in
September 2020, and totaling $460 million as of June 30, 2022.
Growth in the fund balance has been limited by a prolonged period
of low net investment contributions. Recently, as a result of the
rising interest rate environment and market expectations leading up to
the rate increases, the DIF has also experienced elevated unrealized
losses on securities. Elevated unrealized losses coupled with
relatively low interest earned on investments resulted in negative net
investment contributions in the fourth quarter of 2021, and the first
and second quarters of 2022. Prior to the pandemic between 2015 and
2019, quarterly net investment contributions averaged $322 million,
well above the average net investment contributions of $4.5 million
from 2020 through mid-2022. Unrealized losses were due to rising yields
as market participants reacted to expectations of increased inflation
and tighter monetary policy. Moving into the third quarter of 2022,
interest rates have continued to rise and continued unrealized losses
could temper fund balance growth. Future market movements may
temporarily increase unrealized losses to the extent that market
participants have not already priced in these actions or the Federal
Reserve take more aggressive action than is currently expected in
fighting inflation. While the FDIC expects that these unrealized losses
should eventually be outpaced by higher levels of interest income over
the longer-term as future cash proceeds are reinvested at higher rates,
the timing of this is uncertain.
Projections for the Fund Balance and Reserve Ratio
In its consideration of increasing the assessment rate schedules,
the FDIC sought to increase the likelihood that the reserve ratio would
reach the statutory minimum of 1.35 percent by the statutory deadline
of September 30, 2028, and to support growth in the DIF in progressing
toward the long-term goal of a 2 percent DRR. With these objectives in
mind, the FDIC updated its analysis and projections for the fund
balance and reserve ratio using data through June 30, 2022, the latest
available as of the date of publication, to estimate how changes in
insured deposit growth and assessment rates affect when the reserve
ratio would reach the statutory minimum of 1.35 percent and the DRR of
2 percent.
Based on this analysis, the FDIC continues to project that, absent
an increase in assessment rates, the reserve ratio is at risk of not
reaching the statutory minimum of 1.35 percent by the statutory
deadline of September 30, 2028. In estimating how soon the reserve
ratio would reach 1.35 percent, the FDIC developed two scenarios that
assume different levels of insured deposit growth and average
assessment rates, both of which the FDIC views as reasonable based on
current and historical data. For insured deposit growth, the FDIC
assumed annual growth rates of 4.0 percent and 3.5 percent,
respectively. Even with the second quarter decline in insured deposits,
annual insured deposit growth was 4.3 percent, exceeding both growth
rates assumed in the analysis.
These insured deposit growth rates represent a retention of a range
of excess insured deposits resulting from the pandemic. The assumption
of a 4.0 percent annual growth rate reflects retention of all of the
estimated $1.13 trillion of excess deposits in insured accounts, with
this amount not contributing to further growth, while the remaining
balance of insured deposits continues to grow at the pre-pandemic
average annual rate of 4.5 percent.\67\ Alternatively, a 3.5 percent
annual growth rate assumption reflects banks retaining nearly two-
thirds of the estimated excess insured deposits resulting from the
pandemic, with this amount not contributing to further growth, while
the remaining balance of insured deposits grows at the pre-pandemic
average annual rate of 4.5 percent.
---------------------------------------------------------------------------
\67\ The estimate of $1.13 trillion of excess insured deposits
reflects the amount of insured deposits as of September 30, 2021, in
excess of the amount that would have resulted if insured deposits
had grown at the pre-pandemic average rate of 4.5 percent since
December 31, 2019.
---------------------------------------------------------------------------
The two scenarios also apply different assumptions for average
annual assessment rates. The weighted average assessment rate for all
banks during 2019, prior to the pandemic, was about 3.5 basis points
and rose to 4.0 basis points, on average, during 2020. The weighted
average assessment rate for all IDIs was approximately 3.8 basis points
for the assessment period ending June 30, 2022. For the scenario in
which all excess insured deposits are retained, the FDIC assumed a
lower assessment rate of 3.5 basis points, and for the scenario in
which some excess insured deposits recede, the FDIC assumed an
assessment rate of 4.0 basis points.
In finalizing the increase in the assessment rate schedules, the
FDIC updated projections of the date that the reserve ratio would
likely reach the statutory minimum of 1.35 percent in each scenario,
shown in Table 7 below to include one additional quarter of data
finalized following the publication of the proposed rule.\68\ Under
Scenario A, which assumes annual insured deposit growth of 4.0 percent
and an average annual assessment rate of 3.5 basis points, the FDIC
projects that the reserve ratio would reach 1.35 percent in the second
quarter of 2034, after the statutory deadline of September 30, 2028.
---------------------------------------------------------------------------
\68\ For simplicity, the analysis shown in Table 7 assumes that:
(1) the assessment base grows 4.5 percent, annually; (2) net
investment contributions to the deposit insurance fund balance are
zero; (3) operating expenses grow at 1 percent per year; and (4)
failures for the five-year period from 2022 to 2026 would cost
approximately $1.8 billion.
[[Page 64328]]
Table 7--Scenario Analysis: Expected Time to Reach a 1.35 Percent Reserve Ratio
--------------------------------------------------------------------------------------------------------------------------------------------------------
Date the reserve ratio reaches 1.35 percent
-------------------------------------------------
Annual insured deposit Average annual Application of 2 BPS
growth rate [percent] assessment rate [basis No change in annual increase in annual
points] average assessment rate average assessment rate
(beginning 1Q 2023)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Scenario A.......................................... 4.0 3.5 2Q 2034 4Q 2024
Scenario B.......................................... 3.5 4.0 4Q 2026 2Q 2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
In Scenario B, which assumed annual insured deposit growth of 3.5
percent and an average annual assessment rate of 4.0 basis points, the
FDIC projects that the reserve ratio would reach 1.35 percent in the
fourth quarter of 2026, only seven quarters before the statutory
deadline. Even under these relatively favorable conditions, which
assume lower insured deposit growth and a higher average assessment
rate than experienced over the last year, the reserve ratio reaches the
statutory minimum of 1.35 percent relatively close to the statutory
deadline. While the FDIC projects that the reserve ratio would reach
the statutory minimum before the deadline in this scenario, any number
of uncertain factors--including unexpected losses, accelerated insured
deposit growth, or lower weighted average assessment rates due to
improving risk profiles of institutions--could materialize between now
and the fourth quarter of 2026, and prevent the reserve ratio from
reaching the statutory minimum by the statutory deadline. Updating the
analysis incorporated in the proposal to include the latest data
available, as of June 30, 2022, had minimal effect on the date the
reserve ratio reaches 1.35 percent. Updated analysis reflecting a
decline in insured deposits of 0.7 percent resulted in the reserve
ratio projections reaching 1.35 percent one quarter earlier under
Scenario A, and 2 quarters earlier under Scenario B.
Both scenarios apply assumptions for insured deposit growth and
average assessment rates that the FDIC views as reasonable based on
current and historical data, and that do not widely differ from each
other in magnitude. Actual insured deposit growth and assessment rates
could more closely align with one scenario or the other, exceed or fall
short of assumptions, or fall in between the two. As described above in
the Response to Comments Received on the Proposed Rule and Case
Resolution Expenses (Insurance Fund Losses) sections, the assumptions,
including assumptions related to net investment contributions and
losses to the DIF, are subject to uncertainty. If insured deposits grow
at a slower rate than assumed, the statutory minimum reserve ratio
would be achieved sooner than projected. On the other hand, if insured
deposits grow at a faster rate, average assessment rates decline, or
losses materialize, the statutory minimum reserve ratio would be
achieved later than projected.
Net investment contributions--defined for purposes of this final
rule to include both interest income and unrealized gains or losses--
have played a secondary role relative to assessment revenue in overall
DIF growth. Elevated unrealized losses resulted in negative net
investment contributions of $339 million in the fourth quarter of 2021,
and $1,495 million and $322 million in the first and second quarters of
2022, respectively. Moving into the third quarter of 2022, interest
rates have continued to rise and unrealized losses will likely continue
to reduce net investment contributions, below the assumed amount of
zero. When rates stabilize and interest income begins to outpace
unrealized losses on the DIF portfolio, the positive net investment
contributions would help grow the DIF and may accelerate achievement of
the statutory minimum reserve ratio to some extent. On the other hand,
as long as elevated unrealized losses persist and continue to result in
negative net investment contributions, the statutory minimum reserve
ratio may be achieved later than projected.
While net investment contributions have been relatively flat to
slightly negative since the Restoration Plan was first established in
September 2020, interest rate increases have gradually lifted interest
income on the DIF portfolio in recent months and over time unrealized
losses should eventually be outpaced by higher levels of interest
income. However, given the uncertainty of the timing and magnitude of
interest rate increases and the effects on the DIF portfolio, it is the
FDIC's view that zero net investment contributions remains a reasonably
conservative assumption over the near-term. In the longer-term,
projections for reaching the 2 percent DRR already assume positive net
investment contributions after the reserve ratio reaches 1.35 percent,
based on market-implied forward rates, and including additional net
investment contributions in the near-term had little effect on the
analysis for reaching the 2 percent DRR.\69\ When rates stabilize and
interest income begins to outpace unrealized losses on the DIF
portfolio, resulting in positive net investment contributions, the FDIC
will consider revisiting assumptions in future semiannual updates
accordingly.
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\69\ Projections for reaching the 2 percent DRR assume net
investment contributions to the DIF portfolio of zero until the
reserve ratio reaches 1.35 percent. Net investment contributions
assumptions are then based on market-implied forward rates from that
point forward. Applying this assumption for the entire projection
period does not significantly accelerate the achievement of a 2
percent DRR (the reserve ratio would reach 2 percent in 2031 instead
of 2032).
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The FDIC recognizes that relatively minor changes in the underlying
assumptions result in considerably different outcomes, as the reserve
ratio is projected to reach the statutory minimum of 1.35 percent in
2034 in Scenario A, compared to 8 years earlier in Scenario B. The
disparity between outcomes under these scenarios demonstrates the
sensitivity of the projections to slight variations in any key variable
and the need to adopt an increase in assessment rate schedules now in
order to generate a buffer to absorb unexpected losses, accelerated
insured deposit growth, or lower average assessment rates.
Given these uncertainties, the FDIC also updated projections of the
DIF balance and associated reserve ratio under each scenario, applying
the 2 basis point increase in average assessment rates beginning in the
first assessment period of 2023. Updated projections indicate that the
increase of 2 basis points would improve the likelihood that the
reserve ratio will reach the statutory minimum ahead of
[[Page 64329]]
the statutory deadline, building in a buffer in the event of
uncertainties as described above that could stall or counter growth in
the reserve ratio. Under both scenarios described above, an increase in
assessment rates of 2 basis points is projected to result in the
reserve ratio reaching the statutory minimum of 1.35 percent
approximately two years from now. Updating the analysis incorporated in
the proposal to include the latest data available, as of June 30, 2022,
despite the 0.7 percent decline in insured deposits, had minimal effect
on the date the reserve ratio reaches 1.35 percent after applying the 2
basis point increase.
Once the DIF reaches 1.35 percent, the FDIC will no longer operate
under a restoration plan. Any subsequent decline in the reserve ratio
below the statutory minimum would, therefore, require the Board to
establish a new restoration plan with an additional eight years to
restore the reserve ratio. Alternatively, in the event that the
industry experiences a downturn before the FDIC has exited its current
Restoration Plan, the FDIC might have to consider larger assessment
increases to meet the statutory requirement in a more compressed
timeframe and under less favorable conditions.
The FDIC also updated analysis of the effects of the increase in
the assessment rate schedules in supporting growth in the DIF in
progressing toward the 2 percent DRR to include data from June 30,
2022. For this analysis, the FDIC assumed a near-term annual insured
deposit growth rate of 3.5 percent and a weighted average assessment
rate of 4.0 basis points.\70\ These assumptions reflect the ranges of
insured deposit growth and assessment rates used in Scenario B,
described above, and result in the shortest projected timeline to reach
a 2 percent reserve ratio. As illustrated in Chart 3, even under these
relatively favorable conditions, absent an increase in assessment
rates, the projected reserve ratio would not reach 2 percent until
2042, about twenty years from now.\71\ When the FDIC proposed the long-
term, comprehensive fund management plan in 2010, it estimated that the
reserve ratio would reach 2 percent in 2027.\72\
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\70\ After September 30, 2028, the deadline to restore the
reserve ratio to the 1.35 percent minimum, insured deposits are
assumed to grow at the pre-pandemic annual average of 4.5 percent.
\71\ The analysis shown in Chart 3 is based on the assumptions
used in Scenario B through the projected quarter that the reserve
ratio meets or exceeds 1.35 percent. Afterward, the analysis
assumes: (1) net investment contributions to the fund based on
market-implied forward rates; (2) the assessment base grows 4.5
percent, annually; (3) operating expenses grow at 1 percent per
year; and (4) failures for the five-year period from 2022 to 2026
cost approximately $1.8 billion, with a low level of losses each
year thereafter. The uniform increase in assessment rates of 1 or 2
basis points from the current rate schedule is assumed to take
effect on January 1, 2023.
\72\ See 75 FR 66281.
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Using the same assumptions, an increase in assessment rates would
significantly accelerate the timeline for achieving a 2 percent DRR. An
increase in assessment rates of 2 basis points would accelerate the
timeline by 11 years, to 2031.
Chart 3. Expected Time to Reach a 2 Percent Reserve Ratio
[GRAPHIC] [TIFF OMITTED] TR24OC22.002
The 2 basis point increase in assessment rates brings the average
assessment rate of 3.8 basis points, as of June 30, 2022, close to the
moderate steady assessment rate that would have been required to
maintain a positive DIF balance from 1950 to 2010, and identified as
part of the long-term, comprehensive fund management plan in 2011.\73\
Upon achieving the 2 percent DRR, progressively lower assessment rate
schedules will take effect. The 2 basis point increase accelerates the
timeline for achieving the 2 percent DRR, reduces the likelihood that
the FDIC would need to consider a potentially pro-cyclical assessment
rate increase, and increases the likelihood of the DIF remaining
positive through potential future periods of significant losses due to
bank failures, consistent with the FDIC's long-term fund management
plan.
---------------------------------------------------------------------------
\73\ See 75 FR 66273 and 76 FR 10675.
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Capital and Earnings Analysis and Expected Effects
This analysis estimates the effect on the capital and earnings of
IDIs of the uniform increase in initial base assessment rate schedules
of 2 basis points. For this analysis, data as of June 30, 2022, are
used to calculate each bank's assessment base and risk-based assessment
rate, absent the increase in assessment rates. The base and rate are
[[Page 64330]]
assumed to remain constant throughout the one-year projection
period.\74\
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\74\ All income statement items used in this analysis were
adjusted for the effect of mergers. Institutions for which four
quarters of non-zero earnings data were unavailable, including
insured branches of foreign banks, were excluded from this analysis.
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The analysis assumes that pre-tax income for the four quarters
beginning on the effective date of the rate increase, January 1, 2023,
is equal to income reported from July 1, 2021, through June 30, 2022,
adjusted for mergers. The analysis also assumes that the effects of
changes in assessments are not transferred to customers in the form of
changes in borrowing rates, deposit rates, or service fees. Since
deposit insurance assessments are a tax-deductible operating expense
for some institutions, increases in the assessment expense can lower
taxable income.\75\ Therefore, the analysis considers the effective
after-tax cost of assessments in calculating the effect on capital.\76\
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\75\ The Tax Cuts and Jobs Act of 2017 placed a limitation on
tax deductions for FDIC premiums for banks with total consolidated
assets between $10 and $50 billion and disallowed the deduction
entirely for banks with total assets of $50 billion or more. See the
Tax Cuts and Jobs Act, Public Law 115-97 (Dec. 22, 2017).
\76\ The analysis does not incorporate any tax effects from an
operating loss carry forward or carry back.
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An institution's earnings retention and dividend policies influence
the extent to which assessments affect equity levels. If an institution
maintains the same dollar amount of dividends when it pays a higher
deposit insurance assessment under the final rule, equity (retained
earnings) will be less by the full amount of the after-tax cost of the
increase in the assessment. This analysis instead assumes that an
institution will maintain its dividend rate (that is, dividends as a
fraction of net income) unchanged from the weighted average rate
reported over the four quarters ending June 30, 2022. In the event that
the ratio of equity to assets falls below 4 percent, however, this
assumption is modified such that an institution retains the amount
necessary to reach a 4 percent minimum and distributes any remaining
funds according to the dividend payout rate.\77\
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\77\ The analysis uses 4 percent as the threshold because IDIs
generally need to maintain a leverage ratio of 4.0 percent or
greater to be considered ``adequately capitalized'' under Prompt
Corrective Action Standards, in addition to the following
requirements: (i) total risk-based capital ratio of 8.0 percent or
greater; (ii) Tier 1 risk-based capital ratio of 6.0 percent or
greater; (iii) common equity tier 1 capital ratio of 4.5 percent or
greater; and (iv) does not meet the definition of ``well
capitalized.'' Beginning January 1, 2018, an advanced approaches or
Category III FDIC-supervised institution will be deemed to be
``adequately capitalized'' if it satisfies the above criteria and
has a supplementary leverage ratio of 3.0 percent or greater, as
calculated in accordance with 12 CFR 324.10. See 12 CFR
324.403(b)(2). For purposes of this analysis, equity to assets is
used as the measure of capital adequacy.
---------------------------------------------------------------------------
The FDIC estimates that a uniform increase in initial base
assessment rate schedules of 2 basis points would contribute
approximately $4.4 billion in annual assessment revenue in 2023.\78\
Given the assumptions in the analysis, for the industry as a whole, the
FDIC estimates that, on average, a uniform increase in assessment rates
of 2 basis points would decrease Tier 1 capital by an estimated 0.1
percent. The increase in assessment rates is estimated to cause no
banks whose ratio of equity to assets would have equaled or exceeded 4
percent under the current assessment rate schedule to fall below that
percentage (becoming undercapitalized), and no banks whose ratio of
equity to assets would have exceeded 2 percent under the current rate
schedule to fall below that percentage, becoming critically
undercapitalized.
---------------------------------------------------------------------------
\78\ Estimates and projections are based on the assumptions used
in Scenario B.
---------------------------------------------------------------------------
The banking industry has reported strong earnings in recent
quarters. In the second quarter of 2022, banks saw a rise in net income
over the prior quarter due to growth in net interest income, which
resulted from a combination of loan growth and rising interest rates.
The net interest margin for the industry increased from the prior
quarter by 26 basis points and from the year-ago quarter by 29 basis
points to 2.80 percent. The average return-on-assets ratio (ROA) of
1.08 increased 7 basis points from the prior quarter, but is down from
a decade-high of 1.38 percent in first quarter 2021. The banking
industry remained resilient through the second quarter of 2022 despite
the extraordinary challenges of the pandemic, and is well positioned to
absorb a modest increase in assessment rate schedules of 2 basis
points.
The effect of the change in assessments on an institution's income
is measured by the change in deposit insurance assessments as a percent
of income before assessments and taxes (hereafter referred to as
``income''). This income measure is used in order to eliminate the
potentially transitory effects of taxes on profitability. The FDIC
analyzed the impact of assessment changes on institutions that were
profitable in the period covering the 12 months before June 30, 2022.
Given the assumptions in the analysis, for the industry as a whole,
the FDIC estimates that the annual increase in assessments will reduce
income slightly by an average of 1.2 percent, which includes an average
of 1.0 percent for small banks and an average of 1.3 percent for large
and highly complex institutions.\79\
---------------------------------------------------------------------------
\79\ Earnings or income are annual income before assessments and
taxes. Annual income is assumed to equal income from July 1, 2021,
through June 30, 2022.
---------------------------------------------------------------------------
Table 8 shows that approximately 96 percent of profitable
institutions are projected to have an increase in assessments of less
than 5 percent of income. Another 4 percent of profitable institutions
are projected to have an increase in assessments equal to or exceeding
5 percent of income.
Table 8--Estimated Annual Effect of the Assessment Rate Increase on Income for All Profitable Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions [$ billions] assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 9 <1 6 <1
20% to 30%...................................... 8 <1 11 <1
10% to 20%...................................... 46 1 48 <1
5% to 10%....................................... 138 3 27 <1
Less than 5%.................................... 4,373 96 23,471 100
No Change....................................... 1 <1 <1 <1
---------------------------------------------------------------
[[Page 64331]]
Total....................................... 4,575 100 23,563 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from July 1, 2021, through June 30, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending June 30, 2022. Excludes 9 insured branches of
foreign banks and 7 institutions reporting fewer than 4 quarters of reported earnings. Some columns do not add
to total due to rounding.
Among profitable small institutions, 95 percent are projected to
have an increase in assessments of less than 5 percent of income, as
shown in Table 9. The remaining 5 percent of profitable small
institutions are projected to have an increase in assessments equal to
or exceeding 5 percent of income. As shown in Table 10, 99 percent of
profitable large and highly complex institutions are projected to have
an increase in assessments below 5 percent of income.
Table 9--Estimated Annual Effect of the Assessment Rate Increase on Income for Profitable Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions [$ billions] assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 9 <1 6 <1
20% to 30%...................................... 8 <1 11 <1
10% to 20%...................................... 45 1 7 <1
5% to 10%....................................... 138 3 27 1
Less than 5%.................................... 4,231 95 3,445 99
No Change....................................... 1 <1 <1 <1
---------------------------------------------------------------
Total....................................... 4,432 100 3,495 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from July 1, 2021, through June 30, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending June 30, 2022. Some columns do not add to
total due to rounding. For assessment purposes, a small institution is generally defined as an institution
with less than $10 billion in total assets.
Table 10--Estimated Annual Effect of the Assessment Rate Increase on Income for Profitable Large and Highly
Complex Institutions \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Change in assessments as percent of income Number of Percent of institutions Percent of
institutions institutions ($ billions) assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................ 0 0 0 0
20% to 30%...................................... 0 0 0 0
10% to 20%...................................... 1 1 41 <1
5% to 10%....................................... 0 0 0 0
Less than 5%.................................... 142 99 20,027 100
No Change....................................... 0 0 0 0
---------------------------------------------------------------
Total....................................... 143 100 20,068 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
from July 1, 2021, through June 30, 2022, adjusted for mergers. Profitable institutions are defined as those
having positive merger-adjusted income for the 12 months ending June 30, 2022. Some columns do not add to
total due to rounding. For assessment purposes, 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.
Strengthening the DIF
As discussed above, the increase in assessment rate schedules is
projected to have an insignificant effect on institutions' capital
levels and is unlikely to have a material effect relative to income for
almost all institutions. However, the resulting increase in assessment
revenue, combined across all institutions, is projected to grow the DIF
by over $4 billion a year. This growth will strengthen the DIF's
ability to withstand potential future periods of significant losses due
to bank failures and reduce the likelihood that the FDIC would need to
increase assessment rates during a future banking crisis. Accelerating
the time in which the reserve ratio will reach the statutory minimum of
1.35 percent and the DRR of 2 percent will allow the banking industry
to remain a source of strength for the economy during a potential
future downturn and will continue to ensure public confidence in
federal deposit insurance.
E. Alternatives Considered
The FDIC has considered the reasonable and possible alternatives to
meet the requirement that the reserve ratio reach the statutory minimum
by
[[Page 64332]]
the statutory deadline, but believes, on balance, that an increase in
assessment rate schedules of 2 basis points is the most appropriate and
most straightforward manner in which to achieve the objectives of the
Amended Restoration Plan and the long-term fund management plan.
Alternative 1: Maintain Current Assessment Rate Schedule
The first alternative the FDIC considered is to maintain the
current schedule of assessment rates. As described above, the FDIC
projected that the reserve ratio would reach the statutory minimum of
1.35 percent in the second quarter of 2034, after the statutory
deadline under Scenario A, which assumes annual insured deposit growth
of 4.0 percent and an average annual assessment rate of 3.5 basis
points. Under Scenario B, which assumes insured deposit growth of 3.5
percent and an average assessment rate of 4.0 basis points, the FDIC
projected that the reserve ratio would reach the statutory minimum of
1.35 percent in the fourth quarter of 2026.
As described above, the FDIC rejected maintaining the current
schedule of assessment rates. Absent an increase in assessment rates,
under Scenario A, growth in the DIF would not be sufficient for the
reserve ratio to reach the statutory minimum of 1.35 percent ahead of
the required deadline. While the reserve ratio would reach the
statutory minimum ahead of the required deadline under Scenario B,
growth in the fund resulting from current assessment rates could be
offset if unexpected losses materialize, insured deposit growth
accelerates, or risk profiles of institutions improve, resulting in
lower assessment rates.
Additionally, relative to the other alternatives and the increase
in assessment rate schedules of 2 basis points, maintaining the current
schedule of assessment rates would not result in any acceleration of
growth in the DIF in progressing toward the FDIC's long-term goal of a
2 percent DRR. Absent an increase in assessment rates and assuming
annual insured deposit growth of 3.5 percent and a weighted average
assessment rate of 4.0 basis points, the FDIC projected that the
reserve ratio would achieve the 2 percent DRR in 2042, eleven years
later than if the FDIC were to apply an increase in assessment rate
schedules of 2 basis points beginning in 2023.
Alternative 2: Increase in Assessment Rates of 1 Basis Point
A second alternative the FDIC considered is to increase initial
base assessment rate schedules uniformly by 1 basis point. The FDIC
projected that a 1 basis point increase in the average assessment rate
would result in the reserve ratio reaching the statutory minimum in the
second quarter of 2026 under Scenario A and in the fourth quarter of
2024 under Scenario B.
The FDIC rejected this alternative in favor of a 2 basis point
increase in assessment rate schedules. Reaching the statutory minimum
reserve ratio in 2026, as projected under Scenario A, would be very
close to the statutory deadline and could result in the FDIC having to
consider higher assessment rates in the face of a future downturn or
industry stress. While a 1 basis point increase under Scenario B is
projected to result in the reserve ratio reaching 1.35 percent in the
fourth quarter of 2024, the increase in associated assessment revenue
would generate a smaller buffer to absorb unexpected losses,
accelerated insured deposit growth, or lower average assessment rates
that could materialize over this period.
Additionally, the FDIC projected that a 1 basis point increase in
assessment rate schedules would result in the reserve ratio achieving
the 2 percent DRR in approximately 2034, about 3 years later than if
the FDIC were to apply an increase in assessment rate schedules of 2
basis points beginning in 2023.
Alternative 3: One-Time Special Assessment of 4.5 Basis Points
A third alternative would be to impose a one-time special
assessment of 4.5 basis points, applicable to the assessment base of
all IDIs. Utilizing data as of June 30, 2022, and assuming an effective
date of January 1, 2023, the FDIC estimated that a one-time special
assessment of 4.5 basis points would contribute approximately $9.7
billion in annual assessment revenue and the reserve ratio would reach
1.35 percent the quarter following the effective date (i.e., the second
assessment period of 2023).\80\ Accordingly, the FDIC estimated that,
on average, a one-time special assessment of 4.5 basis points would
decrease Tier 1 capital by an estimated 0.5 percent and reduce the
annual earnings of IDIs by approximately 2.8 percent, in aggregate.\81\
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\80\ Estimates and projections related to the one-time special
assessment assume that: (1) insured deposit growth is 4 percent
annually; (2) the average assessment rate before any rate increase
is 3.5 basis points; (3) losses to the DIF from bank failures total
$1.8 billion from 2022 to 2026; (4) the assessment base grows 4.5
percent, annually; (5) net investment contributions to the deposit
insurance fund balance are zero; and (6) operating expenses grow at
1 percent per year.
\81\ Earnings or income are annual income before assessments,
taxes, and extraordinary items. Annual income is assumed to equal
income from July 1, 2021, through June 30, 2022.
---------------------------------------------------------------------------
While a one-time special assessment of 4.5 basis points is
projected to increase the DIF reserve ratio to 1.35 percent the most
quickly and precisely, and would significantly mitigate the potential
that the FDIC would need to consider a pro-cyclical increase in
assessment rates, it is estimated to result in a quarterly assessment
expense that is more than eight times greater than the proposal.
Additionally, while the reserve ratio is projected to be restored to
1.35 percent immediately under this alternative, the risk would remain
that it could fall back below the statutory minimum shortly thereafter
if a sufficient cushion is not built in. This would result in the
establishment of a new restoration plan. Further, a one-time special
assessment would not meaningfully accelerate the timeline for achieving
the 2 percent DRR.
In the FDIC's view, an increase in assessment rate schedules of 2
basis points appropriately balances several considerations, including
the goal of reaching the statutory minimum reserve ratio reasonably
promptly, strengthening the fund to reduce the risk that the FDIC would
need to consider a potentially pro-cyclical assessment increase in the
event of a future downturn or industry stress before the statutory
deadline, at a time when the banking industry is better positioned to
absorb a modest increase in assessment rate schedules, and improving
the timeline for achieving a 2 percent DRR to strengthen the fund to
withstand potential future banking crises.
A discussion on other alternatives proposed through comments
received on the notice of proposed rulemaking is provided above in the
section on Comments on Alternatives.
IV. Effective Date of the Final Rule
The FDIC is issuing this final rule with an effective date of
January 1, 2023, and applicable beginning the first quarterly
assessment period of 2023 (i.e., January 1 through March 31, 2023, with
an invoice payment date of June 30, 2023).
V. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a final rule, to prepare and make available for
public comment
[[Page 64333]]
a final regulatory flexibility analysis that describes the impact of a
final rule on small entities.\82\ However, a regulatory flexibility
analysis is not required if the agency certifies that the final rule
will not have a significant economic impact on a substantial number of
small entities. The Small Business Administration (SBA) has defined
``small entities'' to include banking organizations with total assets
of less than or equal to $750 million.\83\ Certain types of rules, such
as rules of particular applicability relating to rates, 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.\84\ Because the final rule relates directly to the
rates imposed on IDIs for deposit insurance, the final rule is not
subject to the RFA. Nonetheless, the FDIC is voluntarily presenting
information in this RFA section.
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\82\ 5 U.S.C. 601 et seq.
\83\ The SBA defines a small banking organization as having $750
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 by 87 FR 18627, effective May 2, 2022). 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. See 13 CFR 121.103. Following these
regulations, the FDIC uses a banking organization's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the banking organization is ``small'' for the
purposes of RFA.
\84\ 5 U.S.C. 601.
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The final rule is expected to affect all FDIC-insured depository
institutions. According to recent Call Report data, there are currently
4,780 IDIs holding approximately $24 trillion in assets.\85\ Of these,
approximately 3,394 IDIs would be considered small entities for the
purposes of RFA.\86\ These small entities hold approximately $882
billion in assets.
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\85\ Based on Call Report data as of June 30, 2022, the most
recent period for which small entities can be identified.
\86\ Id.
---------------------------------------------------------------------------
The final rule will increase initial base assessment rate schedules
for these small entities by 2 basis points. In aggregate, the total
annual amount paid in assessments by small entities will increase by
approximately $160 million, from $317 million to $475 million.\87\
---------------------------------------------------------------------------
\87\ Id.
---------------------------------------------------------------------------
At the individual bank level, few institutions will be
significantly affected by the final rule. Fewer than 350 small entities
will experience annual assessment increases greater than $100,000, and
none will experience annual assessment increases greater than $150,000.
When compared to the banks' expenses, the annual assessment increases
are significant for only a handful of small entities: only five small
entities will experience annual assessment increases greater than 2.5
percent of their noninterest expenses, and only two will experience
annual assessment increases greater than 5 percent of what they paid in
employee salaries and benefits.\88\
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\88\ Id. For purposes of the RFA, the FDIC generally 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 noninterest expenses.
---------------------------------------------------------------------------
The FDIC invited comments regarding the supporting information
provided in the RFA section in the proposed rule, but did not receive
comments on this topic.
B. 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 Office of
Management and Budget (OMB) control number.\89\ The FDIC's OMB control
numbers for its assessment regulations are 3064-0057, 3064-0151, and
3064-0179. The final rule does not create any new, or revise any of
these existing, assessment information collections pursuant to the PRA;
consequently, no information collection request will be made to the OMB
for review.
---------------------------------------------------------------------------
\89\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
C. Riegle Community Development and Regulatory Improvement Act
Section 302(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (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.\90\ In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations prescribed by a
Federal banking agency 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.\91\
---------------------------------------------------------------------------
\90\ 12 U.S.C. 4802(a).
\91\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The amendments to the FDIC's deposit insurance assessment
regulations under this final rule do not impose additional reporting,
disclosure, or other new requirements on insured depository
institutions, including small depository institutions, or on the
customers of depository institutions. Accordingly, section 302 of
RCDRIA does not apply. The FDIC invited comments regarding the
application of RCDRIA in the proposed rule, but did not receive
comments on this topic. Nevertheless, the requirements of RCDRIA have
been considered in setting the final effective date.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \92\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
FDIC staff believes the final rule is presented in a simple and
straightforward manner. The FDIC invited comment regarding the use of
plain language in the proposed rule but did not receive any comments on
this topic.
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\92\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------
E. The Congressional Review Act
For purposes of the Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\93\
---------------------------------------------------------------------------
\93\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
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.\94\
---------------------------------------------------------------------------
\94\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
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.\95\
---------------------------------------------------------------------------
\95\ 5 U.S.C. 804(2).
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[[Page 64334]]
The OMB has determined that the final rule is a major rule for
purposes of the Congressional Review Act. As required by the
Congressional Review Act, the FDIC will submit the final rule and other
appropriate reports to Congress and the Government Accountability
Office for review.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority for 12 CFR part 327 continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend Sec. 327.4 by revising paragraphs (a) and (c) to read as
follows:
Sec. 327.4 Assessment rates.
(a) Assessment risk assignment. For the purpose of determining the
annual assessment rate for insured depository institutions under Sec.
327.16, each insured depository institution will be provided an
assessment risk assignment. Notice of an institution's current
assessment risk assignment will be provided to the institution with
each quarterly certified statement invoice. Adjusted assessment risk
assignments for prior periods may also be provided by the Corporation.
Notice of the procedures applicable to reviews will be included with
the notice of assessment risk assignment provided pursuant to this
paragraph (a).
* * * * *
(c) Requests for review. An institution that believes any
assessment risk assignment provided by the Corporation pursuant to
paragraph (a) of this section is incorrect and seeks to change it must
submit a written request for review of that risk assignment. An
institution cannot request review through this process of the CAMELS
ratings assigned by its primary federal regulator or challenge the
appropriateness of any such rating; each federal regulator has
established procedures for that purpose. An institution may also
request review of a determination by the FDIC to assess the institution
as a large, highly complex, or a small institution (Sec. 327.16(f)(3))
or a determination by the FDIC that the institution is a new
institution (Sec. 327.16(g)(5)). Any request for review must be
submitted within 90 days from the date the assessment risk assignment
being challenged pursuant to paragraph (a) of this section appears on
the institution's quarterly certified statement invoice. The request
shall be submitted to the Corporation's Director of the Division of
Insurance and Research in Washington, DC, and shall include
documentation sufficient to support the change sought by the
institution. If additional information is requested by the Corporation,
such information shall be provided by the institution within 21 days of
the date of the request for additional information. Any institution
submitting a timely request for review will receive written notice from
the Corporation regarding the outcome of its request. Upon completion
of a review, the Director of the Division of Insurance and Research (or
designee) or the Director of the Division of Supervision and Consumer
Protection (or designee) or any successor divisions, as appropriate,
shall promptly notify the institution in writing of his or her
determination of whether a change is warranted. If the institution
requesting review disagrees with that determination, it may appeal to
the FDIC's Assessment Appeals Committee. Notice of the procedures
applicable to appeals will be included with the written determination.
* * * * *
0
3. Amend Sec. 327.8 by revising paragraphs (e)(2), (f), (k)(1)
introductory text, and (l) through (p) to read as follows:
Sec. 327.8 Definitions.
* * * * *
(e) * * *
(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. 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.
* * * * *
(f) Large institution. An institution classified as large for
purposes of Sec. 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.
* * * * *
(k) * * *
(1) Merger or consolidation involving new and established
institution(s). Subject to paragraphs (k)(2) through (5) of this
section and Sec. 327.16(g)(3) and (4), when an established institution
merges into or consolidates with a new institution, the resulting
institution is a new institution unless:
* * * * *
(l) Risk assignment. Under Sec. 327.16, for all new small
institutions and insured branches of foreign banks, risk assignment
includes assignment to Risk Category I, II, III, or IV, and for insured
branches of foreign banks within Risk Category I, assignment to an
assessment rate or rates. For all established small institutions, and
all large institutions and all highly complex institutions, risk
assignment includes assignment to an assessment rate.
(m) Unsecured debt. For purposes of the unsecured debt adjustment
as set forth in Sec. 327.16(e)(1) and the depository institution debt
adjustment as set forth in Sec. 327.16(e)(2), unsecured debt shall
include senior unsecured liabilities and subordinated debt.
(n) Senior unsecured liability. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2), senior
unsecured liabilities shall be the unsecured portion of other borrowed
money as defined in the quarterly report of condition for the reporting
period as defined in paragraph (b) of this section.
(o) Subordinated debt. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2),
subordinated debt shall be as defined in the quarterly report of
condition for the reporting period; however, subordinated debt shall
also include limited-life preferred stock as defined in the quarterly
report of condition for the reporting period.
(p) Long-term unsecured debt. For purposes of the unsecured debt
adjustment as set forth in Sec. 327.16(e)(1) and the depository
institution debt adjustment as set forth in Sec. 327.16(e)(2), long-
term unsecured debt shall be unsecured debt with at least one year
remaining until maturity; however, any such debt where the holder of
the debt has a redemption option that is exercisable within one year of
the
[[Page 64335]]
reporting date shall not be deemed long-term unsecured debt.
* * * * *
Sec. 327.9 [Removed and Reserved]
0
4. Remove and reserve Sec. 327.9.
0
5. Amend Sec. 327.10 as follows:
0
a. Remove paragraph (a);
0
b. Redesignate paragraph (b) as paragraph (a) and revise it;
0
c. Add new paragraph (b);
0
d. Remove paragraph (e)(1)(i);
0
e. Redesignate paragraph (e)(1)(ii) as paragraph (e)(1)(i) and revise
it;
0
f. Add new paragraph (e)(1)(ii);
0
g. Revise paragraph (e)(1)(iii);
0
h. Add paragraph (e)(1)(iv);
0
i. Revise paragraph (e)(2)(i);
0
j. Redesignate paragraphs (e)(2)(ii) and (iii) as (e)(2)(iii) and (iv),
respectively; and
0
k. Add new paragraph (e)(2)(ii).
The revisions and additions read as follows:
Sec. 327.10 Assessment rate schedules.
(a) Assessment rate schedules for established small institutions
and large and highly complex institutions applicable 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 in all subsequent assessment periods through
the assessment period ending December 31, 2022, where the reserve ratio
of the DIF as of the end of the prior assessment period is less than 2
percent.
(1) Initial base assessment rate schedule for established small
institutions and large and highly complex institutions. 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
through the assessment period ending December 31, 2022, where the
reserve ratio as of the end of the prior assessment period is less than
2 percent, the initial base assessment rate for established small
institutions and large and highly complex institutions, except as
provided in paragraph (f) of this section, shall be the rate prescribed
in the schedule in the following table:
Table 1 to Paragraph (a)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December
31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 1 or 2 shall range from 3 to 16 basis points.
(ii) CAMELS composite 3-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 3 shall range from 6 to 30 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions initial base assessment rate schedule. The annual initial
base assessment rates for all established small institutions with a
CAMELS composite rating of 4 or 5 shall range from 16 to 30 basis
points.
(iv) Large and highly complex institutions initial base assessment
rate schedule. The annual initial base assessment rates for all large
and highly complex institutions shall range from 3 to 30 basis points.
(2) Total base assessment rate schedule after adjustments. In the
first assessment period after June 30, 2016, that 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
through the assessment period ending December 31, 2022, where the
reserve ratio for the prior assessment period is less than 2 percent,
the total base assessment rates after adjustments for established small
institutions and large and highly complex institutions, except as
provided in paragraph (f) of this section, shall be as prescribed in
the schedule in the following table:
Table 2 to Paragraph (a)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments) \1\
Beginning the First Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December
31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 3 to 16 6 to 30 16 to 30 3 to 30
Unsecured Debt Adjustment........... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
[[Page 64336]]
Total Base Assessment Rate...... 1.5 to 16 3 to 30 11 to 30 1.5 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
total base assessment rate schedule. The annual total base assessment
rates for all established small institutions with a CAMELS composite
rating of 1 or 2 shall range from 1.5 to 16 basis points.
(ii) CAMELS composite 3-rated established small institutions total
base assessment rate schedule. The annual total base assessment rates
for all established small institutions with a CAMELS composite rating
of 3 shall range from 3 to 30 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions total base assessment rate schedule. The annual total base
assessment rates for all established small institutions with a CAMELS
composite rating of 4 or 5 shall range from 11 to 30 basis points.
(iv) Large and highly complex institutions total base assessment
rate schedule. The annual total base assessment rates for all large and
highly complex institutions shall range from 1.5 to 40 basis points.
(b) Assessment rate schedules for established small institutions
and large and highly complex institutions beginning the first
assessment period of 2023, where the reserve ratio of the DIF as of the
end of the prior assessment period is less than 2 percent.
(1) Initial base assessment rate schedule for established small
institutions and large and highly complex institutions. Beginning the
first assessment period of 2023, where the reserve ratio of the DIF as
of the end of the prior assessment period is less than 2 percent, the
initial base assessment rate for established small institutions and
large and highly complex institutions, except as provided in paragraph
(f) of this section, shall be the rate prescribed in the schedule in
the following table:
Table 3 to Paragraph (b)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2
Percent \1\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & highly
CAMELS composite complex
--------------------------------------------------------- institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 1 or 2 shall range from 5 to 18 basis points.
(ii) CAMELS composite 3-rated established small institutions
initial base assessment rate schedule. The annual initial base
assessment rates for all established small institutions with a CAMELS
composite rating of 3 shall range from 8 to 32 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions initial base assessment rate schedule. The annual initial
base assessment rates for all established small institutions with a
CAMELS composite rating of 4 or 5 shall range from 18 to 32 basis
points.
(iv) Large and highly complex institutions initial base assessment
rate schedule. The annual initial base assessment rates for all large
and highly complex institutions shall range from 5 to 32 basis points.
(2) Total base assessment rate schedule after adjustments.
Beginning the first assessment period of 2023, where the reserve ratio
of the DIF as of the end of the prior assessment period is less than 2
percent, the total base assessment rates after adjustments for
established small institutions and large and highly complex
institutions, except as provided in paragraph (f) of this section,
shall be as prescribed in the schedule in the following table:
[[Page 64337]]
Table 4 to Paragraph (b)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments) \1\
Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Established small institutions
--------------------------------------------------------- Large & Highly
CAMELS composite Complex
--------------------------------------------------------- Institutions
1 or 2 3 4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........ 5 to 18 8 to 32 18 to 32 5 to 32
Unsecured Debt Adjustment........... -5 to 0 -5 to 0 -5 to 0 -5 to 0
Brokered Deposit Adjustment......... N/A N/A N/A 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 2.5 to 18 4 to 32 13 to 32 2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
vary between these rates.
(i) CAMELS composite 1- and 2-rated established small institutions
total base assessment rate schedule. The annual total base assessment
rates for all established small institutions with a CAMELS composite
rating of 1 or 2 shall range from 2.5 to 18 basis points.
(ii) CAMELS composite 3-rated established small institutions total
base assessment rate schedule. The annual total base assessment rates
for all established small institutions with a CAMELS composite rating
of 3 shall range from 4 to 32 basis points.
(iii) CAMELS composite 4- and 5-rated established small
institutions total base assessment rate schedule. The annual total base
assessment rates for all established small institutions with a CAMELS
composite rating of 4 or 5 shall range from 13 to 32 basis points.
(iv) Large and highly complex institutions total base assessment
rate schedule. The annual total base assessment rates for all large and
highly complex institutions shall range from 2.5 to 42 basis points.
* * * * *
(e) * * *
(1) * * *
(i) Assessment rate schedules for new large and highly complex
institutions once the DIF reserve ratio first reaches 1.15 percent on
or after June 30, 2016, and through the assessment period ending
December 31, 2022. 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 through the assessment period ending
December 31, 2022, new large and new highly complex institutions shall
be subject to the initial and total base assessment rate schedules
provided for in paragraph (a) of this section.
(ii) Assessment rate schedules for new large and highly complex
institutions beginning the first assessment period of 2023 and for all
subsequent periods. Beginning in the first assessment period of 2023
and for all subsequent assessment periods, new large and new highly
complex institutions shall be subject to the initial and total base
assessment rate schedules provided for in paragraph (b) of this
section.
(iii) Assessment rate schedules for new small institutions
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, and for all subsequent assessment
periods through the assessment period ending December 31, 2022--(A)
Initial base assessment rate schedule for new small institutions. 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 through the assessment period ending December 31, 2022, the
initial base assessment rate for a new small institution shall be the
rate prescribed in the schedule in the following table:
Table 9 to Paragraph (e)(1)(iii)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15
Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December 31, 2022 \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
(1) Risk category I initial base assessment rate schedule. The
annual initial base assessment rates for all new small institutions in
Risk Category I shall be 7 basis points.
(2) Risk category II, III, and IV initial base assessment rate
schedule. The annual initial base assessment rates for all new small
institutions in Risk Categories II, III, and IV shall be 12, 19, and 30
basis points, respectively.
(B) Total base assessment rate schedule for new small institutions.
In the first assessment period after June 30, 2016, that 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 through the assessment period ending December 31, 2022, the
total base assessment rates after adjustments for a new small
institution shall be the rate prescribed in the schedule in the
following table:
[[Page 64338]]
Table 10 to Paragraph (e)(1)(iii)(B) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments)
\1\ Beginning the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the
Prior Assessment Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the
Assessment Period Ending December 31, 2022 \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 7 12 19 30
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 7 12 to 22 19 to 29 30 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
(1) Risk category I total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category I shall be 7 basis points.
(2) Risk category II total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category II shall range from 12 to 22 basis points.
(3) Risk category III total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category III shall range from 19 to 29 basis points.
(4) Risk category IV total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category IV shall range from 30 to 40 basis points.
(iv) Assessment rate schedules for new small institutions beginning
the first assessment period of 2023 and for all subsequent assessment
periods--(A) Initial base assessment rate schedule for new small
institutions. Beginning in the first assessment period of 2023 and for
all subsequent assessment periods, the initial base assessment rate for
a new small institution shall be the rate prescribed in the schedule in
the following table, even if the reserve ratio equals or exceeds 2
percent or 2.5 percent:
Table 11 to Paragraph (e)(1)(iv)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
Assessment Period of 2023 and for All Subsequent Assessment Periods \1\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.
(1) Risk category I initial base assessment rate schedule. The
annual initial base assessment rates for all new small institutions in
Risk Category I shall be 9 basis points.
(2) Risk category II, III, and IV initial base assessment rate
schedule. The annual initial base assessment rates for all new small
institutions in Risk Categories II, III, and IV shall be 14, 21, and 32
basis points, respectively.
(B) Total base assessment rate schedule for new small institutions.
Beginning in the first assessment period of 2023 and for all subsequent
assessment periods, the total base assessment rates after adjustments
for a new small institution shall be the rate prescribed in the
schedule in the following table, even if the reserve ratio equals or
exceeds 2 percent or 2.5 percent:
Table 12 to Paragraph (e)(1)(iv)(B) Introductory Text--Total Base Assessment Rate Schedule (After
Adjustments)\1\ Beginning the First Assessment Period of 2023 and for All Subsequent Assessment Periods \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate............. 9 14 21 32
Brokered Deposit Adjustment (added). N/A 0 to 10 0 to 10 0 to 10
---------------------------------------------------------------------------
Total Base Assessment Rate...... 9 14 to 24 21 to 31 32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
or maximum rate will vary between these rates.
(1) Risk category I total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category I shall be 9 basis points.
(2) Risk category II total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category II shall range from 14 to 24 basis points.
(3) Risk category III total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category III shall range from 21 to 31 basis points.
[[Page 64339]]
(4) Risk category IV total assessment rate schedule. The annual
total base assessment rates for all new small institutions in Risk
Category IV shall range from 32 to 42 basis points.
(2) * * *
(i) 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, and for all
subsequent assessment periods through the assessment period ending
December 31, 2022, where the reserve ratio as of the end of the prior
assessment period is less than 2 percent. 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 through the
assessment period ending December 31, 2022, where the reserve ratio as
of the end of the prior assessment period is less than 2 percent, the
initial and total base assessment rates for an insured branch of a
foreign bank, except as provided in paragraph (f) of this section,
shall be the rate prescribed in the schedule in the following table:
Table 13 to Paragraph (e)(2)(i) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\ Beginning
the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment
Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending
December 31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent
\2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 3 to 7 12 19 30
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
(A) Risk category I initial and total base assessment rate
schedule. The annual initial and total base assessment rates for an
insured branch of a foreign bank in Risk Category I shall range from 3
to 7 basis points.
(B) Risk category II, III, and IV initial and total base assessment
rate schedule. The annual initial and total base assessment rates for
Risk Categories II, III, and IV shall be 12, 19, and 30 basis points,
respectively.
(C) All insured branches of foreign banks in any one risk category,
other than Risk Category I, will be charged the same initial base
assessment rate, subject to adjustment as appropriate.
(ii) Assessment rate schedule for insured branches of foreign banks
beginning the first assessment period of 2023, where the reserve ratio
of the DIF as of the end of the prior assessment period is less than 2
percent. Beginning the first assessment period of 2023, where the
reserve ratio of the DIF as of the end of the prior assessment period
is less than 2 percent, the initial and total base assessment rates for
an insured branch of a foreign bank, except as provided in paragraph
(f) of this section, shall be the rate prescribed in the schedule in
the following table:
Table 14 to Paragraph (e)(2)(ii) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\
Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
Period is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
Risk category I Risk category II Risk category III Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate... 5 to 9 14 21 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
the minimum or maximum rate will vary between these rates.
(A) Risk category I initial and total base assessment rate
schedule. The annual initial and total base assessment rates for an
insured branch of a foreign bank in Risk Category I shall range from 5
to 9 basis points.
(B) Risk category II, III, and IV initial and total base assessment
rate schedule. The annual initial and total base assessment rates for
Risk Categories II, III, and IV shall be 14, 21, and 32 basis points,
respectively.
(C) Same initial base assessment rate. All insured branches of
foreign banks in any one risk category, other than Risk Category I,
will be charged the same initial base assessment rate, subject to
adjustment as appropriate.
* * * * *
0
6. Amend Sec. 327.11 by revising paragraph (c)(3)(i) to read as
follows:
Sec. 327.11 Surcharges and assessments required to raise the reserve
ratio of the DIF to 1.35 percent.
* * * * *
(c) * * *
(3) * * *
(i) Fraction of quarterly regular deposit insurance assessments
paid by credit accruing institutions. The fraction of assessments paid
by credit accruing institutions shall equal quarterly deposit insurance
assessments, as determined under Sec. 327.16, paid by such
institutions for each assessment period during the credit calculation
period, divided by the total amount of quarterly deposit insurance
assessments paid by all insured depository institutions during the
credit calculation period, excluding the aggregate amount of surcharges
imposed under paragraph (b) of this section.
* * * * *
0
7. Amend Sec. 327.16 as follows:
0
a. Redesignate paragraphs (a)(1)(i)(A) through (C) as (a)(1)(i)(B)
through (D), respectively;
0
b. Add new paragraph (a)(1)(i)(A);
[[Page 64340]]
0
c. Revise newly redesignated paragraph (a)(1)(i)(B);
0
d. Redesignate paragraphs (d)(4)(ii)(A) through (C) as (d)(4)(ii)(B)
through (D), respectively;
0
e. Add new paragraph (d)(4)(ii)(A); and
0
f. Revise newly redesignated paragraph (d)(4)(ii)(B).
The revisions and additions 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.
* * * * *
(a) * * *
(1) * * *
(i) * * *
(A) 7.352 whenever the assessment rate schedule set forth in Sec.
327.10(a) is in effect;
(B) 9.352 whenever the assessment rate schedule set forth in Sec.
327.10(b) is in effect;
* * * * *
(d) * * *
(4) * * *
(ii) * * *
(A) -5.127 whenever the assessment rate schedule set forth in Sec.
327.10(a) is in effect;
(B) -3.127 whenever the assessment rate schedule set forth in Sec.
327.10(b) is in effect;
* * * * *
0
8. Amend appendix A to subpart A of part 327 as follows:
0
a. Revise sections I through III;
0
b. Remove sections IV and V; and
0
c. Redesignate section VI as section IV;
The revisions read as follows:
Appendix A to Subpart A of Part 327--Method To Derive Pricing
Multipliers and Uniform Amount
I. Introduction
The uniform amount and pricing multipliers are derived from:
<bullet> A model (the Statistical Model) that estimates the
probability of failure of an institution over a three-year horizon;
<bullet> The minimum initial base assessment rate;
<bullet> The maximum initial base assessment rate;
<bullet> Thresholds marking the points at which the maximum and
minimum assessment rates become effective.
II. The Statistical Model
The Statistical Model estimates the probability of an insured
depository institution failing within three years using a logistic
regression and pooled time-series cross-sectional data;\1\ that is,
the dependent variable in the estimation is whether an insured
depository institution failed during the following three-year
period. Actual model parameters for the Statistical Model are an
average of each of three regression estimates for each parameter.
Each of the three regressions uses end-of-year data from insured
depository institutions' quarterly reports of condition and income
(Call Reports and Thrift Financial Reports or TFRs\2\) for every
third year to estimate probability of failure within the ensuing
three years. One regression (Regression 1) uses insured depository
institutions' Call Report and TFR data for the end of 1985 and
failures from 1986 through 1988; Call Report and TFR data for the
end of 1988 and failures from 1989 through 1991; and so on, ending
with Call Report data for the end of 2009 and failures from 2010
through 2012. The second regression (Regression 2) uses insured
depository institutions' Call Report and TFR data for the end of
1986 and failures from 1987 through 1989, and so on, ending with
Call Report data for the end of 2010 and failures from 2011 through
2013. The third regression (Regression 3) uses insured depository
institutions' Call Report and TFR data for the end of 1987 and
failures from 1988 through 1990, and so on, ending with Call Report
data for the end of 2011 and failures from 2012 through 2014. The
regressions include only Call Report data and failures for
established small institutions.
\1\ Tests for the statistical significance of parameters use
adjustments discussed by Tyler Shumway (2001) ``Forecasting
Bankruptcy More Accurately: A Simple Hazard Model,'' Journal of
Business 74:1, 101-124.
\2\ Beginning in 2012, all insured depository institutions began
filing quarterly Call Reports and the TFR was no longer filed.
Table A.1 lists and defines the explanatory variables
(regressors) in the Statistical Model.
Table A.1--Definitions of Measures Used in the Financial Ratios Method
------------------------------------------------------------------------
Variables Description
------------------------------------------------------------------------
Leverage Ratio (%)................ Tier 1 capital divided by adjusted
average assets. (Numerator and
denominator are both based on the
definition for prompt corrective
action.)
Net Income before Taxes/Total Income (before applicable income
Assets (%). taxes and discontinued operations)
for the most recent twelve months
divided by total assets.\1\
Nonperforming Loans and Leases/ Sum of total loans and lease
Gross Assets (%). financing receivables past due 90
or more days and still accruing
interest and total nonaccrual loans
and lease financing receivables
(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\ \3\
Other Real Estate Owned/Gross Other real estate owned divided by
Assets (%). gross assets.\2\
Brokered Deposit Ratio............ The ratio of the difference between
brokered deposits and 10 percent of
total assets to total assets. For
institutions that are well
capitalized and have a CAMELS
composite rating of 1 or 2,
reciprocal deposits are deducted
from brokered deposits. If the
ratio is less than zero, the value
is set to zero.
Weighted Average of C, A, M, E, L, The weighted sum of the ``C,''
and S Component Ratings. ``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. In
instances where the ``S'' component
is missing, the remaining
components are scaled by a factor
of 10/9.\4\
Loan Mix Index.................... A measure of credit risk described
below.
One-Year Asset Growth (%)......... Growth in assets (adjusted for
mergers \5\) over the previous year
in excess of 10 percent.\6\ If
growth is less than 10 percent, the
value is set to zero.
------------------------------------------------------------------------
\1\ For purposes of calculating actual assessment rates (as opposed to
model estimation), 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. For purposes of
model estimation only, the ratio of Net Income before Taxes to Total
Assets is defined as income (before income taxes and extraordinary
items and other adjustments) for the most recent twelve months divided
by total assets.
\2\ For purposes of calculating actual assessment rates (as opposed to
model estimation), ``Gross assets'' are total assets plus the
allowance for loan and lease financing receivable losses (ALLL); for
purposes of estimating the Statistical Model, for years before 2001,
when allocated transfer risk was not included in ALLL in Call Reports,
allocated transfer risk is included in gross assets separately.
\3\ Delinquency and non-accrual data on government guaranteed loans are
not available for the entire estimation period. As a result, the
Statistical Model is estimated without deducting delinquent or past-
due government guaranteed loans from the nonperforming loans and
leases to gross assets ratio.
[[Page 64341]]
\4\ The component rating for sensitivity to market risk (the ``S''
rating) is not available for years before 1997. As a result, and as
described in the table, the Statistical Model is estimated using a
weighted average of five component ratings excluding the ``S''
component where the component is not available.
\5\ Growth in assets is also adjusted for acquisitions of failed banks.
\6\ For purposes of calculating actual assessment rates (as opposed to
model estimation), the maximum value of the One-Year 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.
The financial variable measures used to estimate the failure
probabilities are obtained from Call Reports and TFRs. The weighted
average of the ``C,'' ``A,'' ``M,'' ``E,'' ``L,'', and ``S''
component ratings measure is based on component ratings obtained
from the most rece
[…truncated; see source link]Indexed from Federal Register on October 24, 2022.
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