Proposed Rule2023-10447
Special Assessments Pursuant to Systemic Risk Determination
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
May 22, 2023
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The FDIC is seeking comment on a proposed rule that would impose special assessments to recover the loss to the Deposit Insurance Fund (DIF or Fund) arising from the protection of uninsured depositors in connection with the systemic risk determination announced on March 12, 2023, following the closures of Silicon Valley Bank, Santa Clara, CA, and Signature Bank, New York, NY, as required by the Federal Deposit Insurance Act (FDI Act). The assessment base for the special assessments would be equal to an insured depository institution's (IDI) estimated uninsured deposits, reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits from the IDI, or for IDIs that are part of a holding company with one or more subsidiary IDIs, at the banking organization level. The FDIC is proposing to collect special assessments at an annual rate of approximately 12.5 basis points, over eight quarterly assessment periods, which it estimates will result in total revenue of $15.8 billion. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC would retain the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period to collect the difference between actual or estimated losses and the amounts collected, and impose a final shortfall special assessment on a one-time basis after the receiverships for Silicon Valley Bank and Signature Bank terminate. The FDIC is proposing an effective date of January 1, 2024, with special assessments collected beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024, with an invoice payment date of June 28, 2024).
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 98 (Monday, May 22, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 98 (Monday, May 22, 2023)]
[Proposed Rules]
[Pages 32694-32709]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10447]
=======================================================================
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF93
Special Assessments Pursuant to Systemic Risk Determination
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The FDIC is seeking comment on a proposed rule that would
impose special assessments to recover the loss to the Deposit Insurance
Fund (DIF or Fund) arising from the protection of uninsured depositors
in connection with the systemic risk determination announced on March
12, 2023, following the closures of Silicon Valley Bank, Santa Clara,
CA, and Signature Bank, New York, NY, as required by the Federal
Deposit Insurance Act (FDI Act). The assessment base for the special
assessments would be equal to an insured depository institution's (IDI)
estimated uninsured deposits, reported as of December 31, 2022,
adjusted to exclude the first $5 billion in estimated uninsured
deposits from the IDI, or for IDIs that are part of a holding company
with one or more subsidiary IDIs, at the banking organization level.
The FDIC is proposing to collect special assessments at an annual rate
of approximately 12.5 basis points, over eight quarterly assessment
periods, which it estimates will result in total revenue of $15.8
billion. Because the estimated loss pursuant to the systemic risk
determination will be periodically adjusted, the FDIC would retain the
ability to cease collection early, extend the special assessment
collection period one or more quarters beyond the initial eight-quarter
collection period to collect the difference between actual or estimated
losses and the amounts collected, and impose a final shortfall special
assessment on a one-time basis after the receiverships for Silicon
Valley Bank and Signature Bank terminate. The FDIC is proposing an
effective date of January 1, 2024, with special assessments collected
beginning with the first quarterly assessment period of 2024 (i.e.,
January 1 through March 31, 2024, with an invoice payment date of June
28, 2024).
DATES: Comments must be received on or before July 21, 2023.
ADDRESSES: Interested parties are invited to submit written comments,
identified by RIN 3064-AF93, by any of the following methods:
<bullet> Agency Website: <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>. Follow the instructions for
submitting comments on the agency website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#15767a7878707b61665573717c763b727a63"><span class="__cf_email__" data-cfemail="05666a6868606b71764563616c662b626a73">[email protected]</span></a>. Include RIN 3064-AF93 in the
subject line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments-RIN 3064-AF93, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street NW building (located on F
Street NW) on business days between 7 a.m. and 5 p.m.
<bullet> Public Inspection: Comments received, including any
personal information provided, may be posted without change to <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this document will be retained in the public
comment file and will be considered as required under all applicable
laws. All comments may be accessible under the Freedom of Information
Act.
FOR FURTHER INFORMATION CONTACT: Division of Insurance and Research:
Michael Spencer, Associate Director, Financial Risk Management Branch,
202-898-7041, <a href="/cdn-cgi/l/email-protection#264b4f454e555643484543546640424f4508414950"><span class="__cf_email__" data-cfemail="bfd2d6dcd7cccfdad1dcdacdffd9dbd6dc91d8d0c9">[email protected]</span></a>; Kayla Shoemaker, Acting Chief,
Banking and Regulatory Policy, 202-898-6962, <a href="/cdn-cgi/l/email-protection#cda6acbea5a2a8a0aca6a8bf8daba9a4aee3aaa2bb"><span class="__cf_email__" data-cfemail="aac1cbd9c2c5cfc7cbc1cfd8eacccec3c984cdc5dc">[email protected]</span></a>;
Legal Division: Sheikha Kapoor, Senior Counsel, 202-898-3960,
<a href="/cdn-cgi/l/email-protection#44372f25342b2b360422202d276a232b32"><span class="__cf_email__" data-cfemail="daa9b1bbaab5b5a89abcbeb3b9f4bdb5ac">[email protected]</span></a>; Ryan McCarthy, Counsel, 202-898-7301,
<a href="/cdn-cgi/l/email-protection#c8bab1a5ababa9babca0b188aeaca1abe6afa7be"><span class="__cf_email__" data-cfemail="0173786c6262607375697841676568622f666e77">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
On March 10, 2023, Silicon Valley Bank was closed by the California
Department of Financial Protection and Innovation, followed by the
closure of Signature Bank by the New York State Department of Financial
Services. The
[[Page 32695]]
FDIC was appointed as the receiver for both institutions.<SUP>1 2</SUP>
---------------------------------------------------------------------------
\1\ FDIC PR-16-2023. ``FDIC Creates a Deposit Insurance National
Bank of Santa Clara to Protect Insured Depositors of Silicon Valley
Bank, Santa Clara, California.'' March 10, 2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23016.html">https://www.fdic.gov/news/press-releases/2023/pr23016.html</a>.
\2\ FDIC PR-18-2023. ``FDIC Establishes Signature Bridge Bank,
N.A., as Successor to Signature Bank, New York, NY.'' March 12,
2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23018.html">https://www.fdic.gov/news/press-releases/2023/pr23018.html</a>.
---------------------------------------------------------------------------
Section 13(c)(4)(G) of the FDI Act permits the FDIC to take action
or provide assistance to an IDI for which the FDIC has been appointed
receiver as necessary to avoid or mitigate adverse effects on economic
conditions or financial stability, following a recommendation by the
FDIC Board of Directors (Board), with the written concurrence of the
Board of Governors of the Federal Reserve System (Board of Governors),
and a determination of systemic risk by the Secretary of the U.S.
Department of Treasury (Treasury) (in consultation with the
President).\3\
---------------------------------------------------------------------------
\3\ 12 U.S.C. 1823(c)(4)(G). As used in this proposed 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).
---------------------------------------------------------------------------
On March 12, 2023, the Secretary of the Treasury, acting on the
recommendation of the FDIC Board and Board of Governors and after
consultation with the President, invoked the statutory systemic risk
exception to allow the FDIC to complete its resolution of both Silicon
Valley Bank and Signature Bank in a manner that fully protects all
depositors.\4\ The full protection of all depositors, rather than
imposing losses on uninsured depositors, was intended to strengthen
public confidence in the nation's banking system.
---------------------------------------------------------------------------
\4\ 12 U.S.C. 1823(c)(4)(G). See also: FDIC PR-17-2023. ``Joint
Statement by the Department of the Treasury, Federal Reserve, and
FDIC.'' March 12, 2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23017.html">https://www.fdic.gov/news/press-releases/2023/pr23017.html</a>. See also: ``Remarks by Chairman Martin J.
Gruenberg on Recent Bank Failures and the Federal Regulatory
Response before the Committee on Banking, Housing, and Urban
Affairs, United States Senate.'' March 27, 2023. <a href="https://www.fdic.gov/news/speeches/2023/spmar2723.html">https://www.fdic.gov/news/speeches/2023/spmar2723.html</a>.
---------------------------------------------------------------------------
On March 12 and 13, 2023, the FDIC transferred all deposits--both
insured and uninsured--and substantially all assets of these banks to
newly created, full-service FDIC-operated bridge banks, Silicon Valley
Bridge Bank, N.A. (Silicon Valley Bridge Bank) and Signature Bridge
Bank, N.A. (Signature Bridge Bank), in an action designed to protect
all depositors of these banks.\5\ The transfer of all deposits was
completed under the systemic risk exception declared on March 12, 2023.
---------------------------------------------------------------------------
\5\ A bridge bank is a chartered national bank that operates
under a board appointed by the FDIC. It assumes the deposits and
certain other liabilities and purchases certain assets of a failed
bank. The bridge bank structure is designed to ``bridge'' the gap
between the failure of a bank and the time when the FDIC can
stabilize the institution and implement an orderly resolution.
---------------------------------------------------------------------------
On March 19, 2023, the FDIC announced it entered into a purchase
and assumption agreement for substantially all deposits and certain
loan portfolios of Signature Bridge Bank.\6\ On March 27, 2023, the
FDIC entered into a purchase and assumption agreement for all deposits
and loans of Silicon Valley Bridge Bank. This announcement also
disclosed that the FDIC and First-Citizens Bank & Trust Company (First
Citizens) entered into a loss-share transaction on the commercial loans
it purchased from Silicon Valley Bridge Bank.\7\
---------------------------------------------------------------------------
\6\ FDIC PR-21-2023. ``Subsidiary of New York Community Bancorp,
Inc. to Assume Deposits of Signature Bridge Bank, N.A., From the
FDIC.'' March 19, 2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23021.html">https://www.fdic.gov/news/press-releases/2023/pr23021.html</a>. The purchase and assumption agreement did not
include approximately $4 billion of deposits related to the former
Signature Bank's digital-asset banking business. The FDIC announced
that it would provide these deposits directly to customers whose
accounts are associated with the digital-asset banking business.
\7\ FDIC PR-23-2023. ``First-Citizens Bank & Trust Company,
Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley
Bridge Bank, N.A., From the FDIC.'' March 26, 2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23023.html">https://www.fdic.gov/news/press-releases/2023/pr23023.html</a>.
---------------------------------------------------------------------------
II. Legal Authority and Policy Objectives
Under section 13(c)(4)(G) of the FDI Act, the loss to the DIF
arising from the use of a systemic risk exception must be recovered
from one or more special assessments on IDIs, depository institution
holding companies (with the concurrence of the Secretary of the
Treasury with respect to holding companies), or both, as the FDIC
determines to be appropriate.\8\ As required by the FDI Act, the
proposed special assessment, detailed below, is intended and designed
to recover the losses to the DIF incurred as the result of the actions
taken by the FDIC to protect the uninsured depositors of Silicon Valley
Bank and Signature Bank following a determination of systemic risk.\9\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 1823(c)(4)(G)(ii)(I).
\9\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
Section 13(c)(4)(G) of the FDI Act provides the FDIC with
discretion in the design and timeframe for any special assessments to
recover the losses to the DIF as a result of the systemic risk
determination. As detailed in the sections that follow, in implementing
special assessments under section 13(c)(4)(G) of the FDI Act, the FDIC
considered the types of entities that benefit from any action taken or
assistance provided under the determination of systemic risk, economic
conditions, the effects on the industry, and such other factors as the
FDIC deemed appropriate and relevant to the action taken or assistance
provided.\10\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
III. Description of the Proposed Rule
A. Summary
The FDIC is seeking comment on a proposed rule that would impose
special assessments to recover the loss to the DIF arising from the
protection of uninsured depositors in connection with the systemic risk
determination announced on March 12, 2023, following the closures of
Silicon Valley Bank and Signature Bank, as required by the FDI Act. The
total amount collected for the special assessments would be
approximately equal to the losses attributable to the protection of
uninsured depositors at these two failed banks, which are currently
estimated to total $15.8 billion.
The FDIC proposes an annual special assessment rate of
approximately 12.5 basis points. The assessment base for the special
assessments would be equal to an IDI's estimated uninsured deposits as
reported in the Consolidated Reports of Condition and Income (Call
Report) or Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks (FFIEC 002) as of December 31, 2022, with
certain adjustments. The special assessments would be collected over an
eight-quarter collection period, at a quarterly special assessment rate
of 3.13 basis points. Over such collection period, the FDIC estimates
that it would collect an amount sufficient to recover estimated losses
attributable to the protection of uninsured depositors of Silicon
Valley Bank and Signature Bank, which are currently estimated to total
$15.8 billion, totaling approximately $2.0 billion per quarter.
The assessment base for the special assessments would be adjusted
to exclude the first $5 billion from estimated uninsured deposits
reported as of December 31, 2022, applicable either to the IDI, if an
IDI is not a subsidiary of a holding company, or at the banking
organization level, to the extent that an IDI is part of a holding
company with one or more subsidiary IDIs.\11\
---------------------------------------------------------------------------
\11\ As used in this proposal, the term ``banking organization''
includes IDIs that are not subsidiaries of a holding company as well
as holding companies with one or more subsidiary IDIs.
---------------------------------------------------------------------------
[[Page 32696]]
If an IDI is part of a holding company with one or more subsidiary
IDIs, the $5 billion deduction would be apportioned based on its
estimated uninsured deposits as a percentage of total estimated
uninsured deposits held by all IDI affiliates in the banking
organization.<SUP>12 13</SUP>
---------------------------------------------------------------------------
\12\ As used in this proposal, the term ``affiliate'' has the
same meaning as defined in section 3 of the FDIC Act, 12 U.S.C.
1813(w)(6), which references the Bank Holding Company Act (``any
company that controls, is controlled by, or is under common control
with another company''). See 12 U.S.C. 1841(k).
\13\ IDIs with less than $1 billion in total assets as of June
30, 2021, were not required to report the estimated amount of
uninsured deposits on the Call Report for December 31, 2022.
Therefore, for IDIs that had less than $1 billion in total assets as
of June 30, 2021, the amount and share of estimated uninsured
deposits as of December 31, 2022, would be zero.
---------------------------------------------------------------------------
The estimated loss attributable to the protection of uninsured
depositors pursuant to the systemic risk determination is currently
estimated to total $15.8 billion. However, as with all failed bank
receiverships, this estimate will be periodically adjusted as assets
are sold, liabilities are satisfied, and receivership expenses are
incurred. The exact amount of losses incurred will be determined when
the FDIC terminates the receiverships.
If, prior to the end of the eight-quarter collection period, the
FDIC expects the loss to be lower than the amount it expects to collect
from the special assessments, the FDIC would cease collection in the
quarter after it has collected enough to recover actual or estimated
losses. Alternatively, if at the end of the eight-quarter collection
period, the estimated or actual loss exceeds the amount collected, the
FDIC would extend the collection period over one or more quarters, as
needed, to recover the difference between the amount collected and the
estimated or actual loss, at a rate that would not exceed the 3.13
basis point quarterly special assessment rate applied during the
initial eight-quarter collection period.
Receiverships are terminated once the FDIC has completed the
disposition of the receivership's assets and has resolved all
obligations, claims, and other impediments. The termination of the
receiverships to which the March 12, 2023, systemic risk determination
applied may occur years after the initial eight-quarter collection
period and any extended collection period. In the likely event that the
final loss amount at the termination of the receiverships is not
determined until after the special assessments have been collected, and
if the actual losses calculated as of the termination of the
receiverships exceed the amount collected through such special
assessments, the FDIC would impose a one-time final shortfall special
assessment to collect the amount of actual losses in excess of the
amount of special assessments collected, if any.
B. Estimated Special Assessment Amount
By statute, the FDIC is required to recover through special
assessments any losses to the DIF incurred as a result of the actions
of the FDIC pursuant to the determination of systemic risk, which, in
the case of the determination pursuant to the closures of Silicon
Valley Bank and Signature Bank, was to protect uninsured
depositors.\14\ To determine the amount of the cost of the failures
attributable to the cost of covering uninsured deposits, the FDIC
determined the percentage of deposits that were uninsured at the time
of failure and applied that percentage to the total cost of the failure
for each bank. At Signature Bank, for which 67 percent of deposits were
uninsured at the point of failure, the portion of the total estimated
loss of $2.4 billion that is attributable to the protection of
uninsured depositors is $1.6 billion.
---------------------------------------------------------------------------
\14\ 12 U.S.C. 1823(c)(4)(G)(ii).
---------------------------------------------------------------------------
At Silicon Valley Bank, for which 88 percent of deposits were
uninsured at the point of failure, the portion of the total estimated
loss of $16.1 billion that is attributable to the protection of
uninsured depositors is $14.2 billion. The cost estimate for the sale
of the Silicon Valley Bridge Bank to First Citizens has been revised
from the original estimate of $20.0 billion to approximately $16.1
billion due to a decrease in the amount of liabilities assumed by First
Citizens relative to the initial estimate, higher anticipated
recoveries from certain other assets in receivership, and an increase
in the market value of receivership securities. This revised cost
estimate forms the basis for the Silicon Valley Bank portion of the
current special assessment calculation, and, as with all failed bank
receiverships, will be periodically adjusted as assets are sold,
liabilities are satisfied, and receivership expenses are incurred. As
noted below, the amount of the special assessment will be adjusted as
the loss estimate changes.
In total, of the $18.5 billion in estimated losses at the two banks
and incurred by the DIF in the first quarter of 2023, the estimated
loss attributable to the protection of uninsured depositors was $15.8
billion.
C. Rate for the Special Assessments
Under the proposal, the FDIC would impose a special assessment
equal to approximately 12.5 basis points annually. The special
assessment rate was derived by dividing the current loss estimate
attributable to the protection of uninsured depositors of $15.8 billion
by the proposed assessment base calculated for all IDIs subject to
special assessments as of December 31, 2022, totaling $6.3 trillion. As
described in detail below, the proposed assessment base is equal to
estimated uninsured deposits reported as of December 31, 2022, after
applying the $5 billion deduction. The resulting rate is then divided
by two to reflect the two year (eight-quarter) collection period, as
described below, resulting in an annual rate of approximately 12.5
basis points, or a quarterly rate of 3.13 basis points. The special
assessment rate is subject to change prior to any final rule depending
on any adjustments to the loss estimate, mergers or failures, or
amendments to reported estimates of uninsured deposits.\15\ Over the
eight-quarter collection period, the FDIC estimates that it would
collect an amount sufficient to recover estimated losses attributable
to the protection of uninsured depositors of Silicon Valley Bank and
Signature Bank, which are currently estimated to total $15.8 billion,
totaling approximately $2.0 billion per quarter.
---------------------------------------------------------------------------
\15\ Estimates of the special assessment rate and expected
effects in this proposed rule generally reflect any amendments to
data reported through February 21, 2023, for the reporting period
ending December 31, 2022. Given the closure of First Republic Bank,
San Francisco, CA announced on May 1, 2023, estimates in this
proposed rule exclude First Republic Bank in addition to Silicon
Valley Bank and Signature Bank. See FDIC: PR-34-2023. ``JPMorgan
Chase Bank, National Association, Columbus, Ohio Assumes All the
Deposits of First Republic Bank, San Francisco, California.'' May 1,
2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23034.html">https://www.fdic.gov/news/press-releases/2023/pr23034.html</a>.
---------------------------------------------------------------------------
D. Assessment Base for the Special Assessments
Under the proposal, each IDI's assessment base for the special
assessments would be equal to estimated uninsured deposits as reported
in the Call Report or FFIEC 002 as of December 31, 2022, with certain
adjustments.\16\ The assessment base for the special assessments would
be adjusted to exclude the first $5 billion from estimated uninsured
deposits reported as of December 31, 2022, applicable either to the
IDI, if an IDI is not a subsidiary of a holding company,
[[Page 32697]]
or at the banking organization level, to the extent that an IDI is part
of a holding company with one or more subsidiary IDIs. Estimated
uninsured deposits as of December 31, 2022, are the most recently
available data reflecting the amount of uninsured deposits in each
institution near or at the time the determination of systemic risk was
made and the uninsured depositors of the failed institutions were
protected. Using estimated uninsured deposits as of December 31, 2022,
in calculating special assessments would result in institutions that
had the largest amounts of uninsured deposits at the time of the
determination of systemic risk paying a larger share of the special
assessments.
---------------------------------------------------------------------------
\16\ Estimated uninsured deposits are reported in Memoranda Item
2 on Schedule RC-O, Other Data for Deposit Insurance Assessments of
both the Call Report and FFIEC 002.
---------------------------------------------------------------------------
Defining the assessment base for the special assessment as
estimated uninsured deposits reported as of December 31, 2022, and
deducting $5 billion from an IDI or banking organization's assessment
base, would have the result that any banking organization that reported
less than $5 billion in uninsured deposits would not be subject to the
special assessment.
In general, large banks and regional banks, and particularly those
with large amounts of uninsured deposits, were the banks most exposed
to and likely would have been the most affected by uninsured deposit
runs. Indeed, shortly after Silicon Valley Bank was closed, a number of
institutions with large amounts of uninsured deposits reported that
depositors had begun to withdraw their funds. The failure of Silicon
Valley Bank and the impending failure of Signature Bank raised concerns
that, absent immediate assistance for uninsured depositors, there could
be negative knock-on consequences for similarly situated institutions,
depositors and the financial system more broadly. Generally speaking,
larger banks benefited the most from the stability provided to the
banking industry under the systemic risk determination.
With the rapid collapse of Silicon Valley Bank and Signature Bank
in the space of 48 hours, concerns arose that risk could spread more
widely to other institutions and that the financial system as a whole
could be placed at risk. Shortly after Silicon Valley Bank was closed
on March 10, 2023, a number of institutions with large amounts of
uninsured deposits reported that depositors had begun to withdraw their
funds. The extent to which IDIs rely on uninsured deposits for funding
varies significantly. Uninsured deposits were used to fund nearly
three-quarters of assets at Silicon Valley Bank and Signature Bank.
On average, the largest banking organizations by asset size fund a
larger share of assets with uninsured deposits, as depicted in Table 1
below, based on data as of December 31, 2022. Among banking
organizations that report uninsured deposits, those with total assets
between $1 billion and $5 billion are generally the least reliant on
uninsured deposits for funding, with uninsured deposits averaging 28.1
percent of assets, compared with the largest banking organizations with
total assets greater than $250 billion, which had uninsured deposits
that averaged 35.8 percent of assets.
Table 1--Average Share of Assets Funded by Uninsured Deposits, by
Banking Organization Asset Size
[Percent]
------------------------------------------------------------------------
Average share of
assets funded by
Asset size of banking organization uninsured deposits
(percent)
------------------------------------------------------------------------
$1 to $5 Billion.................................. 28.1
$5 to $10 Billion................................. 28.9
$10 to $50 Billion................................ 32.1
$50 to $250 Billion............................... 34.2
Greater than $250 Billion......................... 35.8
------------------------------------------------------------------------
Deposits are the most common funding source for many institutions;
however, other liability sources such as borrowings can also provide
funding. Deposits and other liability sources are often differentiated
by their stability and customer profile characteristics. While some
uninsured deposit relationships remain stable when a bank is in good
condition, such relationships might become less stable due to their
uninsured status if a bank experiences financial problems or if the
banking industry experiences stress events.
Uninsured deposit concentrations of IDIs, meaning the percentage of
domestic deposits that are uninsured, also vary significantly. At
Silicon Valley Bank, 88 percent of deposits were uninsured at the point
of failure compared to 67 percent at Signature Bank. On average, the
largest banking organizations by asset size reported significantly
greater uninsured deposit concentrations relative to smaller banking
organizations, as illustrated in Table 2 below, based on data as of
December 31, 2022. Banking organizations with total assets between $1
billion and $5 billion generally reported the lowest percentage of
uninsured deposits to total domestic deposits, averaging 33.2 percent,
compared with the largest banking organizations with total assets
greater than $250 billion, which averaged 51.8 percent.
Table 2--Uninsured Deposits as a Percentage of Total Domestic Deposits,
by Banking Organization Asset Size
[Percent]
------------------------------------------------------------------------
Ratio of uninsured
deposits to total
Asset size of banking organization domestic deposits
(percent)
------------------------------------------------------------------------
$1 to $5 Billion.................................. 33.2
$5 to $10 Billion................................. 35.0
$10 to $50 Billion................................ 39.9
[[Page 32698]]
$50 to $250 Billion............................... 44.2
Greater than $250 Billion......................... 51.8
------------------------------------------------------------------------
Based on Federal Reserve data reported by a sample of domestically
chartered banks, domestic deposits declined by over 2 percent during
the first two months of 2023, predominately among the top 25 commercial
banks by asset size. This followed similar declines in domestic
deposits over the prior three quarters, likely driven by the shift of
certain types of deposits into higher-yielding alternatives. Following
the March 2023 bank failures and the determination of systemic risk,
deposits of the top 25 commercial banks grew slightly while deposit
outflows rapidly accelerated, with banks outside of the top 25
experiencing a four percent decline in two weeks. Since late March,
Federal Reserve data indicates that deposit flows have stabilized, with
some reversal of prior outflows.\17\ First quarter earnings releases of
select regional banks confirmed sizeable outflows of deposits, while
other large and regional banks reported more modest declines or
inflows.
---------------------------------------------------------------------------
\17\ Board of Governors of the Federal Reserve System. Assets
and Liabilities of Commercial Banks in the United States--H.8.
Available at: <a href="https://www.federalreserve.gov/releases/h8/default.htm">https://www.federalreserve.gov/releases/h8/default.htm</a>.
---------------------------------------------------------------------------
Following the announcement of the systemic risk determination, the
FDIC observed a significant slowdown in uninsured deposits leaving
certain institutions, evidence that the systemic risk determination
helped stem the outflow of these deposits while providing stability to
the banking industry.
Under the proposal, the banks that benefited most from the
assistance provided under the systemic risk determination would be
charged special assessments to recover losses to the DIF resulting from
the protection of uninsured depositors, with banks of larger asset
sizes and that hold greater amounts of uninsured deposits paying higher
special assessments.
For banking organizations that have more than one subsidiary IDI,
the assessment base for the special assessments would be equal to its
total estimated uninsured deposits reported as of December 31, 2022,
less its share of the $5 billion deduction, which would be based on its
share of total estimated uninsured deposits held by all IDI affiliates
in the banking organization. <SUP>18 19</SUP> Table 3 provides an
example of the calculation of special assessments for a banking
organization with three subsidiary IDIs.
---------------------------------------------------------------------------
\18\ As used in this NPR, the term ``affiliate'' has the same
meaning as defined in section 3 of the FDIC Act, 12 U.S.C.
1813(w)(6), which references the Bank Holding Company Act (``any
company that controls, is controlled by, or is under common control
with another company''). See 12 U.S.C. 1841(k).
\19\ IDIs with less than $1 billion in total assets as of June
30, 2021, were not required to report the estimated amount of
uninsured deposits on the Call Report for December 31, 2022.
Therefore, for IDIs that had less than $1 billion in total assets as
of June 30, 2021, and that are part of a banking organization with
more than one IDI subsidiary, the amount and share of estimated
uninsured deposits as of December 31, 2022, would be zero.
Table 3--Calculation of Special Assessments within a Banking Organization With More Than One Insured Depository Institution Subsidiary
[Dollar amounts in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
----------------------------------------------------------------------------------------------------------------
IDI share of
banking IDI Share of special
Estimated organization IDI share of $5 billion Assessment base for assessments (Column D
uninsured deposits estimated deduction (Column B * special assessment * 25 basis points)/
as reported as of uninsured $5 billion) (Column A - Column C) current loss estimate
December 31, 2022 deposits (percent)
(percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
IDI A.................................. $50,000 50 $2,500 $47,500 0.75
IDI B.................................. 40,000 40 2,000 38,000 0.60
IDI C.................................. 10,000 10 500 9,500 0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------
The adjustments to the assessment base for the special assessments
would serve several purposes. First, IDIs without affiliates and
banking organizations, that reported $5 billion or less in estimated
uninsured deposits as of December 31, 2022, would not contribute to the
special assessments. IDIs and banking organizations that reported more
than $5 billion in estimated uninsured deposits would pay based on the
marginal amounts of uninsured deposits they reported, helping to
mitigate a ``cliff effect'' that might otherwise apply if a different
method, such as an asset size threshold, were used to determine
applicability, and thereby ensuring more equitable treatment.
Otherwise, a banking organization just over a particular size threshold
would pay special assessments, while a banking organization just below
such size threshold would pay none. In general, large banks and
regional banks, and particularly those with large amounts of uninsured
deposits, were the banks most exposed to and likely would have been the
most affected by uninsured deposit runs. Indeed, shortly after
[[Page 32699]]
Silicon Valley Bank was closed, a number of institutions with large
amounts of uninsured deposits reported that depositors had begun to
withdraw their funds. The failure of Silicon Valley Bank and the
impending failure of Signature Bank raised concerns that, absent
immediate assistance for uninsured depositors, there could be negative
knock-on consequences for similarly situated institutions, depositors
and the financial system more broadly. Generally speaking, larger banks
benefited the most from the stability provided to the banking industry
under the systemic risk determination. With the adjustments to the
assessment base, the banks that benefited the most--banks of larger
asset sizes and that hold greater amounts of uninsured deposits--would
be responsible for paying special assessments.
Second, the proposed methodology also would result in most small
IDIs and IDIs that are part of a small banking organization not paying
anything towards the special assessments. As proposed, the FDIC
estimates that the special assessments would not be applicable to any
banking organizations with total assets under $5 billion.
Based on data reported as of December 31, 2022, and as illustrated
in Table 4 below, the FDIC estimates that 113 banking organizations,
which include IDIs that are not subsidiaries of a holding company and
holding companies with one or more subsidiary IDIs and which comprise
83.0 percent of industry assets, would be subject to special
assessments, including 48 banking organizations with total assets over
$50 billion and 65 banking organizations with total assets between $5
and $50 billion. No banking organizations with total assets under $5
billion would pay special assessments, based on data as of December 31,
2022. The number of banking organizations subject to special
assessments may change prior to any final rule depending on any
adjustments to the loss estimate, mergers or failures, or amendments to
reported estimates of uninsured deposits.
Table 4--Banking Organizations Required To Pay Special Assessments, Based on Data Reported as of December 31,
2022
----------------------------------------------------------------------------------------------------------------
Percentage of
Number of banking
banking organizations Share of Share of
Asset size of banking organization organizations required to pay special industry
required to pay special assessments assets
special assessments (percent) (percent)
assessments (percent)
----------------------------------------------------------------------------------------------------------------
Greater than $50 billion...................... 48 1.1 95.2 76.0
Between $5 and $50 billion.................... 65 1.5 4.8 7.0
Under $5 billion.............................. 0 0.0 0.0 0.0
-----------------------------------------------------------------
Total..................................... 113 2.6 100.0 83.0
----------------------------------------------------------------------------------------------------------------
Finally, deducting $5 billion from the assessment base of estimated
uninsured deposits at the banking organization level for those with
more than one IDI would ensure that banking organizations with similar
amounts of estimated uninsured deposits pay a similar special
assessment. For example, a banking organization with multiple IDIs with
large amounts of estimated uninsured deposits would not have an
advantage over other similarly-positioned IDIs that are not
subsidiaries of a holding company because instead of excluding $5
billion of estimated uninsured deposits for each IDI in one banking
organization, the $5 billion deduction would be distributed across
multiple affiliated IDIs.
The proposed methodology ensures that the banks that benefited most
from the assistance provided under the systemic risk determination
would be charged special assessments to recover losses to the DIF
resulting from the protection of uninsured depositors, with banks of
larger asset sizes and that hold greater amounts of uninsured deposits
paying higher special assessments.
E. Collection Period for Special Assessments
Under the proposal, the special assessments would be collected
beginning with the first quarterly assessment period of 2024 (i.e.,
January 1 through March 31, 2024, with an invoice payment date of June
28, 2024). In order to preserve liquidity at IDIs, and in the interest
of consistent and predictable assessments, the special assessments
would be collected over eight quarters.
The estimated loss attributable to the protection of uninsured
depositors pursuant to the systemic risk determination is currently
estimated to total $15.8 billion. However, loss estimates for failed
banks are periodically adjusted as assets are sold, liabilities are
satisfied, and receivership expenses are incurred.
The FDIC would review and consider any revisions to loss estimates
each quarter of the collection period. If, prior to the end of the
eight-quarter collection period, the FDIC expects the loss to be lower
than the amount it expects to collect from the special assessments, the
FDIC would cease collection of special assessments before the end of
the initial eight-quarter collection period, in the quarter after it
has collected enough to recover actual or estimated losses. The FDIC
would provide notice of the cessation of collections at least 30 days
before the next payment is due.
The FDIC is required by statute to place the excess funds collected
through special assessments in the DIF.\20\ By spreading out the
collection period over eight quarters, a length of time that would
enable the FDIC to develop a more precise estimate of loss, and
allowing for early cessation after the FDIC has collected enough to
recover actual or estimated losses, the FDIC mitigates the risk of over
collecting.
---------------------------------------------------------------------------
\20\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
F. Extended Special Assessment Period
If, at the end of the eight-quarter collection period, the
estimated or actual loss exceeds the amount collected, the FDIC would
extend the collection period over one or more quarters as needed in
order to collect the difference between the amount collected and the
estimated or actual loss at the end of the eight-quarter collection
period, (the shortfall amount), after providing notice of at least 30
days
[[Page 32700]]
before the first payment of any extended special assessment is due.
In the event that extended special assessments are needed, the FDIC
would collect the shortfall amount on a quarterly basis. In the
interest of consistency and predictability, the quarterly rate would
not exceed the 3.13 basis point quarterly special assessment rate
applied during the initial eight-quarter collection period, and such
extended special assessments would be collected for the minimum number
of quarters needed to recover the shortfall amount at such quarterly
rates.
The assessment base for such extended special assessment would be
as described above, based on estimated uninsured deposits reported as
of December 31, 2022, with a $5 billion deduction for each banking
organization. However, each banking organization's assessment base for
such extended special assessments may differ from its assessment base
for special assessments over the initial eight-quarter collection
period, due to mergers or failures that occurred during the eight-
quarter collection period.
G. One-Time Final Shortfall Special Assessment
The FDIC is required by statute to recover the loss to the DIF
attributable to protecting uninsured depositors of Silicon Valley Bank
and Signature Bank.\21\ The exact amount of losses will be determined
when the FDIC terminates the receiverships. Receiverships are
terminated once the FDIC has completed the disposition of the
receivership's assets and has resolved all obligations, claims, and
other impediments. The termination of the receiverships to which the
March 12, 2023, systemic risk determination applied may occur years
after the initial eight-quarter collection period and any extended
collection period.
---------------------------------------------------------------------------
\21\ 12 U.S.C. 1823(c)(4)(G)(ii).
---------------------------------------------------------------------------
In the likely event that a final loss amount at the termination of
the receiverships is not determined until after the initial special
assessments and any extended special assessments have been collected,
and if losses at the termination of the receiverships exceed the amount
collected through such special assessments (the final shortfall
amount), the FDIC would impose a one-time final shortfall special
assessment.
The assessment base for such one-time final shortfall special
assessment would be as described above, based on estimated uninsured
deposits reported as of December 31, 2022, with a $5 billion deduction
for each banking organization. However, each banking organization's
assessment base for the one-time final shortfall special assessment may
differ from its assessment base for previous special assessments
collections, due to mergers or failures that occurred up to the
determination of the shortfall amount. The FDIC would determine the
assessment rate for the one-time final shortfall special assessment
based on the amount needed to recover the final shortfall amount and
the total amount of estimated uninsured deposits reported as of
December 31, 2022, after applying the $5 billion deduction to banking
organizations as of the date that the final shortfall is calculated.
The entire final shortfall amount would be collected in one quarter
so that there are no missed amounts due to mergers or other
arrangements, and to streamline the operational impact on banking
organizations. The FDIC would provide banking organizations notice of
at least 45 days before payment of the one-time shortfall special
assessment is due and would consider the statutory factors, including
economic conditions and the effects on the industry, in deciding on the
timing of such payments.
The FDIC would notify each IDI subject to a one-time shortfall
special assessment of the final shortfall special assessment rate and
its share of the final shortfall assessment no later than 15 days
before payment is due. The notice would be included in the IDI's
invoice for its regular quarterly deposit insurance assessment.
H. No Prior Period Amendments
Each IDI's assessment base for the special assessments would be
based on its estimated uninsured deposits reported on its Call Report
for December 31, 2022. Amendments to an IDI's Call Report for the
December 31, 2022, reporting period made after the date of adoption of
any final rule would not affect an institution's rate or base for the
special assessments. While the rule would not change existing reporting
policies and procedures around prior period amendments, the FDIC would
use data on estimated uninsured deposits for the quarter ending
December 31, 2022, reported as of the date of adoption of any final
rule to calculate special assessments for the duration of the
collection period.
I. Collection of Special Assessments and Any Shortfall Special
Assessment
The special assessments and any shortfall special assessment would
be collected at the same time and in the same manner as an IDI's
regular quarterly deposit insurance assessment. Invoices for an IDI's
regular quarterly deposit insurance assessment would disclose the
amount of any special assessments or shortfall special assessments due.
J. Payment Mechanism for the Special Assessments and Shortfall Special
Assessment
Each IDI would be required to take any actions necessary to allow
the FDIC to debit its special assessment and shortfall special
assessment from the bank's designated deposit account used for payment
of its regular assessment. Before the dates that payments are due, each
IDI would have to ensure that sufficient funds to pay its obligations
are available in the designated account for direct debit by the FDIC.
Failure to take any such action or to fund the account would constitute
nonpayment of the special assessment. Penalties for nonpayment would be
as provided for nonpayment of an IDI's regular assessment.\22\
---------------------------------------------------------------------------
\22\ See 12 CFR 327.3(c).
---------------------------------------------------------------------------
K. Mergers, Consolidations and Terminations of Deposit Insurance
First, under existing regulations, an IDI that is not the resulting
or surviving IDI in a merger or consolidation must file a quarterly
Call Report for every assessment period prior to the assessment period
in which the merger or consolidation occurs. The surviving or resulting
IDI is responsible for ensuring that these Call Reports are filed. The
surviving or resulting IDI is also responsible and liable for any
unpaid assessments on the part of the IDI that is not the resulting or
surviving IDI.\23\ The FDIC proposes that unpaid assessments would also
include any unpaid special assessments and any shortfall special
assessments.
---------------------------------------------------------------------------
\23\ 12 CFR 327.6(a).
---------------------------------------------------------------------------
Second, if an IDI acquires--through merger or consolidation--
another IDI during the collection period of the special assessments,
the acquiring IDI would be required to pay the acquired IDI's special
assessments, if any, in addition to its own special assessments from
the quarter of the acquisition through the remainder of the collection
period. The FDIC would not adjust the acquiring institution's special
assessments. The FDIC also would not adjust the calculation of the
acquired institution's special assessments. Any shortfall special
assessments following the eight-quarter collection period would be
calculated as described above, based on estimated uninsured deposits
reported as of December 31, 2022. However, to ensure full recovery of
the
[[Page 32701]]
difference between amounts collected and losses related to the systemic
risk determination, each organization's extended special assessments or
final shortfall special assessments would reflect mergers,
consolidations, failures, or other terminations of deposit insurance
that occurred between December 31, 2022, and the date in which such
extended special assessments or final shortfall special assessments are
determined.
Third, existing regulations provide that, when the insured status
of an IDI is terminated and the deposit liabilities of the IDI are not
assumed by another IDI, the IDI whose insured status is terminating
must, among other things, continue to pay assessments for the
assessment periods that its deposits are insured, but not
thereafter.\24\ The FDIC proposes that these provisions would also
apply to the special assessments and any shortfall special assessments.
---------------------------------------------------------------------------
\24\ 12 CFR 327.6(c).
---------------------------------------------------------------------------
Finally, in the case of one or more transactions in which one IDI
voluntarily terminates its deposit insurance under the FDI Act and
sells certain assets and liabilities to one or more other IDIs, each
IDI must report the increase or decrease in assets and liabilities on
the Call Report due after the transaction date and be assessed
accordingly under existing FDIC assessment regulations. The IDI whose
insured status is terminating must, among other things, continue to pay
assessments for the assessment periods that its deposits are
insured.\25\ The FDIC proposes that the same process would also apply
to the special assessments and any shortfall special assessments.
---------------------------------------------------------------------------
\25\ 12 CFR 327.6(c).
---------------------------------------------------------------------------
L. Accounting Treatment
Each institution should account for the special assessment in
accordance with U.S. generally accepted accounting principles (GAAP).
In accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 450, Contingencies (FASB ASC Topic 450),
an estimated loss from a loss contingency shall be accrued by a charge
to income if information indicates that it is probable that a liability
has been incurred and the amount of loss is reasonably estimable.\26\
Therefore, an institution would recognize in the Call Report and other
financial statements the accrual of a liability and estimated loss
(i.e., expense) from a loss contingency for the special assessment when
the institution determines that the conditions for accrual under GAAP
have been met.
---------------------------------------------------------------------------
\26\ FASB ASC paragraph 450-20-25-2.
---------------------------------------------------------------------------
Similarly, each institution should account for any shortfall
special assessment in accordance with FASB ASC Topic 450 when the
conditions for accrual under GAAP have been met.
M. Request for Revisions
An IDI may submit a written request for revision of the computation
of any special assessment or shortfall special assessment pursuant to
existing regulation 12 U.S.C. 327.3(f).\27\
---------------------------------------------------------------------------
\27\ Consistent with Section M above, amendments filed by an IDI
to its Call Report or FFIEC 002 after the date of adoption of the
final rule by the Board, would not be eligible as a basis for a
request for revision under 12 U.S.C 327.3(f). Existing regulation 12
U.S.C. 327.4(c) allows an IDI to submit a request for review of the
IDI's risk assignment. Because the amount of an IDI's special
assessment or shortfall special assessment is not determined based
on the IDI's risk assignment as proposed, the request for review
provision under 12 U.S.C. 327.4(c) would not be applicable to an
IDI's special assessment or shortfall special assessment.
---------------------------------------------------------------------------
IV. Analysis and Expected Effects
A. Analysis of the Statutory Factors
Section 13(c)(4)(G) of the FDI Act provides the FDIC with
discretion in the design and timeframe for any special assessments to
recover the losses from the systemic risk determination. As detailed in
the sections that follow, and as required by the FDI Act, the FDIC has
considered the types of entities that benefit from any action taken or
assistance provided under the determination of systemic risk, effects
on the industry, economic conditions, and any such other factors as the
Corporation deems appropriate and relevant to the action taken or the
assistance provided.\28\
---------------------------------------------------------------------------
\28\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
The Types of Entities That Benefit
In implementing special assessments under section 13(c)(4)(G) of
the FDI Act, the FDIC is required to consider the types of entities
that benefit from any action taken or assistance provided pursuant to
determination of systemic risk.\29\
---------------------------------------------------------------------------
\29\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
With the rapid collapse of Silicon Valley Bank and Signature Bank
in the space of 48 hours, concerns arose that risk could spread more
widely to other institutions and that the financial system as a whole
could be placed at risk. Shortly after Silicon Valley Bank was closed
on March 10, 2023, a number of institutions with large amounts of
uninsured deposits reported that depositors had begun to withdraw their
funds. The extent to which IDIs rely on uninsured deposits for funding
varies significantly. Uninsured deposits were used to fund nearly
three-quarters of the assets at Silicon Valley Bank and Signature Bank.
On March 12, 2023, the FDIC Board and the Board of Governors voted
unanimously to recommend, and the Treasury Secretary, in consultation
with the President, determined that the FDIC could use emergency
systemic risk authorities under the FDI Act to complete its resolution
of both Silicon Valley Bank and Signature Bank in a manner that fully
protects all depositors.\30\ The full protection of all depositors,
rather than imposing losses on uninsured depositors, was intended to
strengthen public confidence in the nation's banking system.
---------------------------------------------------------------------------
\30\ 12 U.S.C. 1823(c)(4)(G). See also: FDIC PR-17-2023. ``Joint
Statement by the Department of the Treasury, Federal Reserve, and
FDIC.'' March 12, 2023. <a href="https://www.fdic.gov/news/press-releases/2023/pr23017.html">https://www.fdic.gov/news/press-releases/2023/pr23017.html</a>.
---------------------------------------------------------------------------
In the weeks that followed the determination of systemic risk,
efforts to stabilize the banking system and stem potential contagion
from the failures of Silicon Valley Bank and Signature Bank ensured
that depositors would continue to have access to their savings, that
small businesses and other employers could continue to make payrolls,
and that other banks could continue to extend credit to borrowers and
serve as a source of support.
In general, large banks and regional banks, and particularly those
with large amounts of uninsured deposits, were the banks most exposed
to and likely would have been the most affected by uninsured deposit
runs. Indeed, shortly after Silicon Valley Bank was closed, a number of
institutions with large amounts of uninsured deposits reported that
depositors had begun to withdraw their funds. The failure of Silicon
Valley Bank and the impending failure of Signature Bank raised concerns
that, absent immediate assistance for uninsured depositors, there could
be negative knock-on consequences for similarly situated institutions,
depositors and the financial system more broadly. Generally speaking,
larger banks benefited the most from the stability provided to the
banking industry under the systemic risk determination. Under the
proposal, the banks that benefited most from the assistance provided
under the systemic risk determination would be charged special
assessments to recover losses to the DIF resulting from the protection
of uninsured depositors, with banks of larger asset sizes and that hold
greater amounts of uninsured deposits paying higher special
assessments.
[[Page 32702]]
Effects on the Industry
In calculating the assessment base for the special assessments, the
FDIC would deduct $5 billion from each IDI or banking organization's
aggregate estimated uninsured deposits reported as of December 31,
2022. As a result, any institution that did not report any uninsured
deposits as of December 31, 2022, would not be subject to the special
assessment. Additionally, most small IDIs and IDIs that are part of a
small banking organization would not pay anything towards the special
assessment. Some small and mid-size IDIs would be subject to the
special assessment if they were subsidiaries of a banking organization
with more than $5 billion in uninsured deposits and such IDIs reported
positive amounts of uninsured deposits after application of the
deduction, or if they directly held more than $5 billion in estimated
uninsured deposits as of December 31, 2022, which for smaller
institutions would constitute heavy reliance on uninsured deposits.
Based on data reported as of December 31, 2022, and as captured in
Table 4 above, the FDIC estimates that 113 banking organizations would
be subject to special assessments, including 48 banking organizations
with total assets over $50 billion and 65 banking organizations with
total assets between $5 and $50 billion. No banking organizations with
total assets under $5 billion would pay special assessments, based on
data reported as of December 31, 2022.\31\ It is anticipated that the
same banking organizations subject to special assessments would also be
subject to any extended special assessments or final shortfall special
assessment, absent the effects of any mergers, consolidations,
failures, or other terminations of deposit insurance that occur through
the determination of such extended special assessments or final
shortfall special assessment.
---------------------------------------------------------------------------
\31\ The number of banking organizations subject to special
assessments may change prior to any final rule depending on any
adjustments to the loss estimate, mergers or failures, or similar
activities, or amendments to reported estimates of uninsured
deposits.
---------------------------------------------------------------------------
Capital and Earnings Analysis
The FDIC has analyzed the effect of the special assessments on the
capital and earnings of banking organizations, including IDIs that are
not subsidiaries of a holding company. This analysis incorporates data
on estimated uninsured deposits reported by banking organizations as of
December 31, 2022, and assumes that pre-tax income for the quarter in
which a banking organization would recognize the accrual of a liability
and an estimated loss (i.e., expense) from a loss contingency for the
special assessments, will equal the average of their pre-tax income
from January 1, 2022, through December 31, 2022.\32\
---------------------------------------------------------------------------
\32\ 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.
---------------------------------------------------------------------------
To avoid the possibility of underestimating effects on bank
earnings or capital, the analysis also assumes that the effects of the
special assessments are not transferred to customers in the form of
changes in borrowing rates, deposit rates, or service fees. Because
special assessments are a tax-deductible operating expense for all
institutions, increases in the assessment expense can lower taxable
income.\33\ The analysis considers the effective pre-tax cost of
special assessments in calculating the effect on capital.\34\
---------------------------------------------------------------------------
\33\ 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.
However, the definition of FDIC premiums under the Act is limited to
any assessment imposed under section 7(b) of the FDI Act (12 U.S.C.
1817(b)), and therefore does not include special assessments
required under section 13(c)(4)(G) of the FDI Act. See the Tax Cuts
and Jobs Act, Public Law 115-97 (Dec. 22, 2017).
\34\ The analysis does not incorporate any tax effects from an
operating loss carry forward or carry back.
---------------------------------------------------------------------------
A banking organization's earnings retention and dividend policies
influence the extent to which special assessments affect equity levels.
If a banking organization maintains the same dollar amount of dividends
when it recognizes the accrual of a liability and an estimated loss
(i.e., expense) from a loss contingency for the special assessments or
shortfall special assessment as proposed, equity (retained earnings)
will be reduced by the full amount of the pre-tax cost of the special
assessments or shortfall special assessment. This analysis instead
assumes that a banking organization will maintain its dividend rate
(that is, dividends as a percentage of net income) unchanged from the
weighted average rate reported over the four quarters ending December
31, 2022. In the event that the ratio of Tier 1 capital to assets falls
below four percent, however, this assumption is modified such that a
banking organization retains the amount necessary to reach a four
percent minimum and distributes any remaining funds according to the
dividend payout rate.\35\
---------------------------------------------------------------------------
\35\ The analysis uses four percent as the threshold because
IDIs generally need to maintain a Tier 1 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). Additionally, Federal Reserve Board-regulated
institutions must generally must maintain a Tier 1 leverage ratio of
4.0 percent or greater to meet the minimum capital requirements, in
addition to the following requirements: (i) total capital ratio of
8.0 percent; (ii) Tier 1 capital ratio of 6.0; (iii) common equity
tier 1 capital ratio of 4.5; and (iv) for advanced approaches
Federal Reserve Board-regulated institutions, or for Category III
Federal Reserve Board-regulated institutions, a supplementary
leverage ratio of 3 percent. See 12 CFR 217.10(a)(1). For purposes
of this analysis, Tier 1 capital to assets is used as the measure of
capital adequacy.
---------------------------------------------------------------------------
As proposed, the FDIC estimates that it would collect the estimated
loss from protecting uninsured depositors at Silicon Valley Bank and
Signature Bank of approximately $15.8 billion, over the eight-quarter
collection period. Banking organizations would recognize the accrual of
a liability and an estimated loss (i.e., expense) from a loss
contingency for the special assessment when the institution determines
that the conditions for accrual under GAAP have been met. This analysis
assumes that the effects on capital and income of the entire amount of
the special assessments to be collected over eight quarters would occur
in one quarter only.
Given this estimate and the assumptions in the analysis, the FDIC
estimates that, on average, the proposed special assessments would
decrease the dollar amount of Tier 1 capital of banking organizations
that would be required to pay special assessments by an estimated 61
basis points.\36\ No banking organizations are estimated to fall below
the minimum capital requirement (a four percent Tier 1 capital-to-
assets ratio) as a result of the proposed special assessments.
---------------------------------------------------------------------------
\36\ Estimated effects on capital are calculated based on data
reported as of December 31, 2022, on the Call Report and the
Consolidated Financial Statements for Holding Companies (FR Y-9C),
respectively, for IDIs that are not subsidiaries of a holding
company or that are part of a banking organization with only one
subsidiary IDI required to pay special assessments, and for banking
organizations, to the extent that an IDI is part of a holding
company with more than one subsidiary IDI required to pay special
assessments.
---------------------------------------------------------------------------
The banking industry reported full-year 2022 net income lower than
full-
[[Page 32703]]
year 2021 net income, but still above the pre-pandemic average. The
effect of the proposed special assessments on a banking organization's
income is measured by calculating the amount of the special assessments
as a percent of pre-tax income (hereafter referred to as ``income'').
This income measure is used in order to eliminate the potentially
transitory effects of taxes on profitability.
While special assessments are allocated based on estimated
uninsured deposits reported at the banking organization level, IDIs
will be responsible for payment of the special assessments. The FDIC
analyzed the effect of the special assessments on income reported at
the IDI-level for IDIs subject to special assessments that are not
subsidiaries of a holding company or that are subsidiaries of a holding
company with only one IDI subsidiary. For IDIs that are subsidiaries of
a holding company with more than one IDI subsidiary, the FDIC analyzed
the effect of the special assessments by aggregating the income
reported by all IDIs subject to special assessments within each banking
organization since the IDIs will be responsible for payment. The FDIC
analyzed the impact of the special assessments on banking organizations
that were profitable based on their average quarterly income from
January 1, 2022, to December 31, 2022.\37\
---------------------------------------------------------------------------
\37\ There were no banking organizations that would be required
to pay special assessments that were unprofitable based on average
quarterly income from January 1, 2022, to December 31, 2022.
---------------------------------------------------------------------------
The effects on income of the entire amount of special assessments
to be collected over eight quarters are assumed to occur in one quarter
only. Given the assumptions and the estimated loss amount, the FDIC
estimates that the proposed special assessments would result in an
average one-quarter reduction in income of 17.5 percent for banking
organizations subject to special assessments.\38\
---------------------------------------------------------------------------
\38\ Earnings or income are quarterly income before assessments
and taxes. Quarterly income is assumed to equal average income from
January 1, 2022, through December 31, 2022.
---------------------------------------------------------------------------
Table 5 shows that approximately 66 percent of profitable banking
organizations subject to the proposal are projected to have special
assessments of less than 20 percent of income, including 23 percent
with special assessments of less than 5 percent of income. Another 34
percent of profitable banking organizations subject to the proposal are
projected to have special assessments equal to or exceeding 20 percent
of income.
Table 5--Estimated One-Quarter Effect of Entire Amount of Special Assessments on Income for Profitable Banking
Organizations Subject to Special Assessments \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Number of Percent of banking Percent of
Special assessments as percent of income banking banking organizations assets
organizations organizations ($ billions)
----------------------------------------------------------------------------------------------------------------
Over 30%...................................... 13 12 4,455 23
20% to 30%.................................... 25 22 10,713 56
10% to 20%.................................... 34 30 2,577 13
5% to 10%..................................... 14 13 307 2
Less than 5%.................................. 26 23 1,117 6
-----------------------------------------------------------------
Total..................................... 112 100 19,170 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as quarterly pre-tax income. Quarterly income is assumed to equal the average of income
from January 1, 2022, through December 31, 2022. For purposes of this analysis, the effects on income of the
entire amount of special assessments to be collected over eight quarters are assumed to occur in one quarter
only. Special assessments as a percent of income is an estimate of the one-time accrual of a full eight
quarters of special assessments as a percent of a single quarter's income. Profitable banking organizations
are defined as those having positive average income for the 12 months ending December 31, 2022. Excludes two
insured U.S. branches of one foreign banking organization subject to special assessments. Some columns do not
add to total due to rounding.
In order to preserve liquidity at IDIs, and in the interest of
consistent and predictable assessments, the special assessments would
be collected over eight quarters. The proposed special assessments
would be applicable no earlier than the first quarterly assessment
period of 2024, providing time for institutions to prepare and plan for
the special assessments.
Economic Conditions
On February 28, 2023, the FDIC released the results of the
Quarterly Banking Profile, which provided a comprehensive summary of
financial results for all FDIC-insured institutions for the fourth
quarter of 2022. Overall, key banking industry metrics remained
favorable in the quarter.\39\
---------------------------------------------------------------------------
\39\ FDIC Quarterly Banking Profile, Fourth Quarter 2022.
<a href="https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/">https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/</a>.
---------------------------------------------------------------------------
Loan growth continued, net interest income grew, and asset quality
measures remained favorable. Further, the industry remained well
capitalized and highly liquid, but the report also highlighted a key
weakness in elevated levels of unrealized losses on investment
securities due to rapid increases in market interest rates. Unrealized
losses on available-for-sale and held-to-maturity securities totaled
$620 billion as of December 31, 2022, and unrealized losses on
available-for-sale securities have meaningfully reduced the reported
equity capital of the banking industry. The combination of a high level
of longer-term asset maturities and a moderate decline in total
deposits underscored the risk that unrealized losses could become
actual losses should banks need to sell securities to meet liquidity
needs.
The financial system continues to face significant downside risks
from the effects of inflation, rising market interest rates, and a weak
economic outlook. Credit quality and profitability may weaken due to
these risks, potentially resulting in tighter loan underwriting, slower
loan growth, higher provision expenses, and liquidity constraints.
Additional short-term interest rate increases, combined with longer
asset maturities may continue to increase unrealized losses on
securities and affect bank balance sheets in coming quarters.
Despite these downside risks, in the weeks that followed the
failure of Silicon Valley Bank and Signature Bank, the state of the
U.S. financial system remained sound and institutions are
[[Page 32704]]
well positioned to absorb a special assessment.\40\
---------------------------------------------------------------------------
\40\ Statement of Martin J. Gruenberg, Chairman of the FDIC on
``Recent Bank Failures and the Federal Regulatory Response,'' before
the United States Senate Committee on Banking, Housing, and Urban
Affairs. March 28, 2023. <a href="https://www.banking.senate.gov/imo/media/doc/Gruenberg%20Testimony%203-28-23.pdf">https://www.banking.senate.gov/imo/media/doc/Gruenberg%20Testimony%203-28-23.pdf</a>.
---------------------------------------------------------------------------
B. Alternatives Considered
While the FDIC is required by statute to recover the loss to the
DIF arising from the use of a systemic risk determination through one
or more special assessments, the FDI Act in Section 13(c)(4)(G)
provides the FDIC with discretion in the design and timeframe for any
special assessments to recover the losses from the systemic risk
determination.\41\ The FDIC has considered alternatives to this
proposal to collect special assessments to recover the loss to the DIF
arising from the protection of all uninsured depositors in connection
with the systemic risk determination announced on March 12, 2023, as
required by the FDI Act. The FDIC identified six potentially effective
and reasonably feasible alternatives to the proposed rule. These
alternatives are discussed in detail below.
---------------------------------------------------------------------------
\41\ 12 U.S.C. 1823(c)(4)(G)(ii)(I). In implementing special
assessments, the FDIC is required to consider the types of entities
that benefit from any action taken or assistance provided under the
determination of systemic risk, effects on the industry, economic
conditions, and any such other factors as the FDIC deems appropriate
and relevant to the action taken or the assistance provided. See 12
U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
Alternative 1: One-Time Special Assessment
As an alternative to the proposal, the FDIC considered imposing a
one-time special assessment at the end of the quarter following the
effective date. The FDIC would impose the one-time special assessment
in the quarter ending March 31, 2024, and collect payment for such
special assessment on June 28, 2024, at the same time and in the same
manner as an IDI's regular quarterly deposit insurance assessment. The
aggregate amount of a one-time special assessment would equal the
entire initial loss estimate. Calculation of the special assessments,
including the special assessment rate, would be the same as proposed,
but instead of collecting the amount over eight quarters, the FDIC
would collect the entire amount in one quarter.
Once actual losses are determined as of the termination of the
receiverships, and if the actual losses exceeded the amount collected
under the one-time special assessment, the FDIC would impose a
shortfall special assessment to collect the amount of losses in excess
of the amount collected. Collection of the entire shortfall special
assessment would also occur in one quarter.
Conversely, if the amount collected under the one-time special
assessment exceeded actual losses, the FDIC is required by statute to
place the excess funds collected in the DIF.\42\
---------------------------------------------------------------------------
\42\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
While under both the proposal and this alternative, the estimated
amount of the special assessment would be recognized with the accrual
of a liability and an estimated loss (i.e., expense) from a loss
contingency when the institution determines that the conditions for
accrual under GAAP have been met, which impacts capital and earnings,
this alternative would additionally require payment of the entire
amount in the second quarter of 2024, and would impact liquidity
significantly in one quarter. The FDIC rejected this alternative in the
interest of liquidity preservation in a period of uncertainty and to
mitigate the risk of over collecting.
Alternative 2: Asset Size Applicability Threshold
As an alternative to deducting the first $5 billion in estimated
uninsured deposits in calculating an IDI or banking organization's
assessment base for the special assessment, the FDIC considered basing
applicability on an asset size threshold.
As described previously, in implementing special assessments, the
FDI Act requires the FDIC to consider the types of entities that
benefit from any action taken or assistance provided pursuant to
determination of systemic risk.\43\ Large banks and regional banks, and
particularly those with large amounts of uninsured deposits, were the
banks most exposed to and likely would have been the most affected by
uninsured deposit runs had those occurred as a result of the bank
failures. Larger banks also benefited the most from the stability
provided to the banking industry under the systemic risk determination.
---------------------------------------------------------------------------
\43\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
While both the proposal, including the $5 billion deduction from
estimated uninsured deposits, and an asset-size-based applicability
threshold would effectively remove the smallest institutions from
eligibility, the proposed deduction of $5 billion from each banking
organization's estimated uninsured deposits in calculating the special
assessment would help to mitigate a ``cliff effect'' relative to
applying a different threshold for applicability, such as applying an
asset size threshold, thereby ensuring more equitable treatment. With
an asset size threshold, an IDI just above such threshold would pay a
significant amount in special assessments, while an IDI just below such
threshold would pay none. The FDIC rejected this alternative for these
reasons.
Alternative 3: Assessment Base Equal to All Uninsured Deposits, Without
$5 Billion Deduction
A third alternative would be to eliminate the proposed $5 billion
deduction from the assessment base for the special assessment, and
therefore allocate the special assessments among IDIs based on each IDI
or banking organization's estimated uninsured deposits as of December
31, 2022. This alternative would result in special assessments imposed
on every IDI that reported a non-zero amount of estimated uninsured
deposits as of December 31, 2022, or nearly 100 percent of all IDIs
with total assets of $1 billion or more.\44\ Relative to the proposal,
more IDIs would pay special assessments under this alternative, and
IDIs with greater amounts of uninsured deposits would generally pay
lower special assessments relative to the proposal since the special
assessments would be allocated across a significantly larger number of
institutions.
---------------------------------------------------------------------------
\44\ IDIs with less than $1 billion in total assets as of June
30, 2021, were not required to report the estimated amount of
uninsured deposits on the Call Report for December 31, 2022.
Therefore, for IDIs that had less than $1 billion in total assets as
of June 30, 2021, the amount and share of estimated uninsured
deposits as of December 31, 2022, would be zero.
---------------------------------------------------------------------------
However, given the FDIC's statutory requirement to consider the
types of entities that benefit from any action taken or assistance
provided under the determination of systemic risk in implementing
special assessments, the FDIC rejected this alternative in favor of
allocating the special assessments to larger institutions with the
largest amounts of uninsured deposits, with the result that smaller
institutions would not have to contribute to the special assessments.
In general, large banks and regional banks, and particularly those with
large amounts of uninsured deposits, were the banks most exposed to and
likely would have been the most affected by uninsured deposit runs.
Generally speaking, larger banks benefited the most from the stability
provided to the banking industry under the systemic risk determination.
[[Page 32705]]
Alternative 4: Special Assessments Based on Each Institution's
Percentage of Uninsured Deposits to Total Deposits
A fourth alternative would be to allocate the special assessments
among IDIs based on each IDI's estimated uninsured deposits as a
percentage of their total domestic deposits reported as of December 31,
2022, as a proxy for reliance on uninsured deposits at the time the
determination of systemic risk was made and uninsured depositors of the
failed institutions were protected. Similar to the third alternative,
this would result in a special assessment imposed on every IDI that
reported a non-zero amount of estimated uninsured deposits as of
December 31, 2022, or nearly 100 percent of IDIs with total assets of
$1 billion or more.\45\
---------------------------------------------------------------------------
\45\ IDIs with less than $1 billion in total assets as of June
30, 2021, were not required to report the estimated amount of
uninsured deposits on the Call Report for December 31, 2022.
Therefore, for IDIs that had less than $1 billion in total assets as
of June 30, 2021, the amount and share of estimated uninsured
deposits as of December 31, 2022, would be zero.
---------------------------------------------------------------------------
Under this alternative, IDIs with a greater reliance on uninsured
deposits would generally pay the greatest amount of special
assessments; however, the special assessments would be allocated across
a large number of institutions. This alternative would result in
institutions of vastly different asset sizes paying a similar dollar
amount of special assessments. It also would result in some smaller
IDIs and banking organizations, paying potentially significant amounts
of special assessments, and the larger banks that have high amounts of
uninsured deposits and benefited the most from the stability provided
to the banking industry under the systemic risk determination, but that
do not have high uninsured deposit concentrations, paying a smaller
share of special assessments.
In general, large banks and regional banks, and particularly those
with large amounts of uninsured deposits, were the banks most exposed
to and likely would have been the most affected by uninsured deposit
runs. Generally speaking, larger banks benefited the most from the
stability provided to the banking industry under the systemic risk
determination. The FDIC rejected this alternative for these reasons and
because the proposed methodology results in larger special assessments
for similarly sized banking organizations reporting greater
concentrations of uninsured deposits.
Alternative 5: Charge IDIs for 50 Percent of Special Assessment in Year
One Based on Uninsured Deposits as of December 31, 2022; Charge for the
Remainder in Year Two Based on Uninsured Deposits Reported as of
December 31, 2023
Under the proposal and all alternatives described, the special
assessments would initially be calculated based on an estimated amount
of losses, as the exact amount of losses will not be known until the
FDIC terminates the two receiverships. A final alternative would be to
collect 50 percent of the special assessments during the initial four-
quarter collection period based on estimated uninsured deposits
reported by all IDIs as of December 31, 2022, and collect the remaining
special assessments for an additional four quarter collection period
based on an updated estimate of losses pursuant to the systemic risk
determination and estimated uninsured deposits reported by all IDIs as
of December 31, 2023.
Under this alternative, for the initial four-quarter collection
period the special assessment would be allocated to all IDIs based on
each IDI or banking organization's estimated uninsured deposits as a
share of estimated uninsured deposits reported by all IDIs as of
December 31, 2022, as a proxy for the amount of uninsured deposits in
each institution at the time the determination of systemic risk was
made and uninsured depositors of the failed institutions were
protected. Such methodology would allocate the special assessments to
the institutions that had the largest amounts of uninsured deposits at
the time of the determination of systemic risk.
The remaining special assessments would be based on an updated
estimate of losses as of December 31, 2023, and would be allocated to
IDIs with total assets of $1 billion or more, based on each IDI or
banking organization's estimated uninsured deposits as a share of
estimated uninsured deposits reported by all IDIs as of December 31,
2023, in order to reflect amounts of uninsured deposits that did not
run off following the determination of systemic risk.
The FDIC rejected this alternative given the potential incentives
for IDIs to reduce their amount of uninsured deposits ahead of the
December 31, 2023, reporting date, which may result in unintended
market dislocations and reduced liquidity in the banking sector. This
alternative may also change the timing of accrual of the contingent
liability by banks. The proposal's allocation methodology based on
amounts of uninsured deposits as of December 31, 2022, would result in
transparent and consistent payments, and a more simplified framework
for calculating special assessments.
Alternative 6: Apply Special Assessment Rate to Regular Assessment
Base, With or Without Application of a $5 Billion Deduction
A sixth alternative would be to apply a special assessment rate to
an institution's regular quarterly deposit insurance assessment base
(regular assessment base) for that quarter, with or without applying a
$5 billion deduction. Generally, an IDI's assessment base equals its
average consolidated total assets minus its average tangible
equity.\46\ Under this alternative, the FDIC estimates that it would
need to charge an annual assessment rate of 3.76 basis points over two
years to recover estimated losses without the $5 billion deduction, or
4.57 basis points with the $5 billion deduction; however, a
significantly larger number of banking organizations would be subject
to the special assessments relative to the proposal.
---------------------------------------------------------------------------
\46\ See 12 CFR 327.5.
---------------------------------------------------------------------------
Under this alternative, the IDIs with the largest assessment base
would pay the greatest amount of special assessments. IDIs for which
certain assets are excluded in the calculation of the regular
assessment base would pay lower special assessments due to their
smaller assessment base.
This alternative would result in smaller IDIs and banking
organizations, regardless of reliance on uninsured deposits for
funding, paying potentially significant amounts of special assessments.
Further, IDIs engaged in trust activities, or with fiduciary and
custody and safekeeping assets, and for which certain assets are
excluded from their regular assessment base, would pay lower amounts of
special assessments due to these exclusions, despite holding
significant amounts of uninsured deposits. The FDIC rejected this
alternative for these reasons.
The FDIC requests comments on the proposal and the alternative
approaches considered. The FDIC has carefully weighed the available
options in fulfilling the statutory requirement to recover the loss to
the DIF arising from the use of a systemic risk determination through
one or more special assessments.
In the FDIC's view, the proposal reflects an appropriate balancing
of the goal of applying special assessments to the types of entities
that benefited the
[[Page 32706]]
most from the protection of uninsured depositors provided under the
determination of systemic risk while ensuring equitable, transparent,
and consistent treatment based on amounts of uninsured deposits at the
time of the determination of systemic risk. The proposal also allows
for payments to be collected over an extended period of time in order
to mitigate the liquidity effects of the special assessments by
requiring smaller, consistent quarterly payments. On balance, in the
FDIC's view, the proposal best promotes maintenance of liquidity, which
will allow institutions to absorb any potential unexpected setbacks
while continuing to meet the credit needs of the U.S. economy.
C. Comment Period, Effective Date, and Application Date
The FDIC is issuing this proposal with an opportunity for public
comment through July 21, 2023. Following the comment period, the FDIC
expects to issue a final rule with an effective date of January 1,
2024. The special assessment would be collected beginning with the
first quarterly assessment period of 2024 (i.e., January 1 through
March 31, 2024, with an invoice payment date of June 28, 2024), and
would continue to be collected for an anticipated total of eight
quarterly assessment periods. Because the estimated loss pursuant to
the systemic risk determination will be periodically adjusted, the FDIC
would retain the ability to cease collection early, impose an extended
special assessment collection period after the eight-quarter collection
period to collect the difference between losses and the amounts
collected, and impose a final shortfall special assessment after both
receiverships terminate.
V. Request for Comment
The FDIC is requesting comment on all aspects of the notice of
proposed rulemaking, in addition to the specific requests below.
Question 1: Should the special assessments be calculated as
proposed?
Question 2: Are there alternative methodologies for calculating the
special assessments the FDIC should consider that would result in
financial reporting in accordance with U.S. GAAP and could result in
different timing for the impact to earnings and capital? Please
describe.
Question 3: Should the assessment base for the special assessments
be equal to estimated uninsured deposits reported as of December 31,
2022, or reported as of some other date, and why?
Question 4: Should the assessment base for the special assessments
be equal to estimated uninsured deposits or some other measure?
Question 5: Is the deduction of $5 billion of aggregate estimated
uninsured deposits from the assessment base for the special assessments
for each IDI or banking organization appropriate? Why?
Question 6: Should the FDIC collect special assessments over an
eight-quarter collection period, as proposed? Should the collection
period be longer to spread out the effects of the payment of special
assessments, or shorter?
Question 7: Should the FDIC consider an exemption for specific
types of deposits from the base for special assessments? On what basis?
Question 8: Should any shortfall special assessments be calculated
as proposed?
VI. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a proposed rule, to prepare and make available for
public comment an initial regulatory flexibility analysis that
describes the impact of the proposed rule on small entities.\47\
However, an initial regulatory flexibility analysis is not required if
the agency certifies that the proposed rule will not, if promulgated,
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 $850 million.\48\ 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.\49\ Because the proposed rule relates directly to
the rates imposed on FDIC-insured institutions, the proposed rule is
not subject to the RFA. Nonetheless, the FDIC is voluntarily presenting
information in this RFA section.
---------------------------------------------------------------------------
\47\ 5 U.S.C. 601 et seq.
\48\ The SBA defines a small banking organization as having $850
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 69118, effective December 19, 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 an insured depository institution's
affiliated and acquired assets, averaged over the preceding four
quarters, to determine whether the insured depository institution is
''small'' for the purposes of RFA.
\49\ 5 U.S.C. 601(2).
---------------------------------------------------------------------------
The FDIC insures 4,715 institutions as of December 31, 2022, of
which 3,433 are small entities.\50\ As discussed previously, the
proposed rule would impose a special assessment on IDIs that are part
of banking organizations that reported $5 billion or more in uninsured
deposits, as of December 31, 2022. Given that no small entity has
reported $5 billion or more in uninsured deposits, the FDIC does not
believe the proposed rule will have a direct effect on any small
entity.
---------------------------------------------------------------------------
\50\ December 31, 2022 Call Report data.
---------------------------------------------------------------------------
The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. In particular, would this
proposed rule have any significant effects on small entities that the
FDIC has not identified?
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \51\ (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. The FDIC's
OMB control numbers for its assessment regulations are 3064-0057, 3064-
0151, and 3064-0179. The proposed rule does not revise any of these
existing assessment information collections pursuant to the PRA;
consequently, no submissions in connection with these OMB control
numbers will be made to the OMB for review.
---------------------------------------------------------------------------
\51\ 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) \52\ 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. Subject to certain exceptions, new
regulations and amendments to regulations prescribed by a Federal
banking agency which
[[Page 32707]]
impose additional reporting, disclosures, or other new requirements on
insured depository institutions shall take effect on the first day of a
calendar quarter which begins on or after the date on which the
regulations are published in final form.\53\
---------------------------------------------------------------------------
\52\ 12 U.S.C. 4802(a).
\53\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The proposed rule would 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. Nevertheless, the requirements of RCDRIA will be
considered as part of the overall rulemaking process, and the FDIC
invites comments that will further inform its consideration of RCDRIA.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \54\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
The FDIC invites your comments on how to make this proposed rule easier
to understand. For example:
---------------------------------------------------------------------------
\54\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------
<bullet> Has the FDIC organized the material to suit your needs? If
not, how could the material be better organized?
<bullet> Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be stated more clearly?
<bullet> Does the proposed regulation contain language or jargon
that is unclear? If so, which language requires clarification?
<bullet> Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand?
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation proposes to amend 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority citation for part 327 is revised to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821, 1823.
0
2. Add Sec. 327.13 to read as follows:
Sec. 327.13 Special Assessment Pursuant to March 12, 2023, Systemic
Risk Determination.
(a) Special assessment. A special assessment shall be imposed on
each insured depository institution to recover losses to the Deposit
Insurance Fund, as described in paragraph (b) of this section,
resulting from the March 12, 2023, systemic risk determination pursuant
to 12 U.S.C. 1823(c)(4)(G). The special assessment shall be collected
from each insured depository institution on a quarterly basis as
described in this section during the initial special assessment period
as defined in paragraph (f) of this section and, if necessary, the
extended special assessment period as defined in paragraph (g) of this
section, and if further necessary, on a one-time basis as described in
paragraph (l) of this section.
(b) Losses to the Deposit Insurance Fund. As used in this section,
``losses to the Deposit Insurance Fund'' refers to losses incurred by
the Deposit Insurance Fund resulting from actions taken by the FDIC
under the March 12, 2023, systemic risk determination, as may be
revised from time to time.
(c) Calculation of special assessment. An insured depository
institution's special assessment for each quarter during the initial
special assessment period and extended special assessment period shall
be calculated by multiplying the special assessment rate defined in
paragraph (f)(2) or (g)(3) of this section, as appropriate, by the
institution's special assessment base as defined in paragraph (f)(3) or
(g)(4) of this section, as appropriate.
(d) Invoicing of special assessment. For each assessment period in
which the special assessment is imposed, the FDIC shall advise each
insured depository institution of the amount and calculation of any
special assessment payment due in a form that notifies the institution
of the special assessment base and special assessment rate exclusive of
any other assessments imposed under this part. This information shall
be provided at the same time as the institution's quarterly certified
statement invoice under Sec. 327.2 for the assessment period in which
the special assessment was imposed.
(e) Payment of special assessment. Each insured depository
institution shall pay to the Corporation any special assessment imposed
under this section in compliance with and subject to the provisions of
Sec. Sec. 327.3, 327.6, and 327.7. The date for any special assessment
payment shall be the date provided in Sec. 327.3(b)(2) for the
institution's quarterly certified statement invoice for the calendar
quarter in which the special assessment was imposed.
(f) Special assessment during initial special assessment period--
(1) Initial special assessment period. The initial special assessment
period shall begin with the first quarterly assessment period of 2024
and end the last quarterly assessment period of 2025, except the
initial special assessment period will cease the first quarterly
assessment period after the aggregate amount of special assessments
collected under this section meets or exceeds the losses to the Deposit
Insurance Fund, where amounts collected and losses are compared on a
quarterly basis.
(2) Special assessment rate during initial special assessment
period. The special assessment rate during the initial special
assessment period is 3.13 basis points on a quarterly basis.
(3) Special assessment base during initial special assessment
period. (i) The special assessment base for an insured depository
institution during the initial special assessment period that has no
affiliated insured depository institution shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section; minus
(B) The $5 billion deduction; provided, however, that an
institution's assessment base cannot be negative.
(ii) The special assessment base for an insured depository
institution during the initial special assessment period that has one
or more affiliated insured depository institutions shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section; minus
(B) The institution's portion of the $5 billion deduction,
determined according to paragraph (i) of this section; provided,
however, that an institution's special assessment base cannot be
negative.
(g) Special assessment during extended special assessment period--
(1) Shortfall amount. The shortfall amount is the amount of losses to
the Deposit Insurance Fund, as reviewed and revised as of the last
quarterly assessment period of 2025, that exceed the aggregate amount
of special assessments collected during the initial special assessment
period.
(2) Extended special assessment period. If there is a shortfall
amount after the last quarterly assessment period of 2025, the special
assessment period will be extended, with at least 30 day notice to
insured depository institutions, to collect the shortfall amount. The
length of the extended special assessment period shall be the
[[Page 32708]]
minimum number of quarters required to recover the shortfall amount at
a rate under paragraph (g)(3) of this section that is at or below 3.13
basis points per quarter.
(3) Assessment rate during extended special assessment period. The
assessment rate during the extended special assessment period will be
the shortfall amount, divided by the total amount of uninsured deposits
for the quarter ended December 31, 2022, adjusted for mergers,
consolidation, and termination of insurance as of the last quarterly
assessment period of 2025, minus the $5 billion deduction for each
insured depository institution or each institution's portion of the $5
billion deduction, determined according to paragraph (i) of this
section, divided by the minimum number of quarters that results in the
quarterly rate being no greater than 3.13 basis points.
(4) Assessment base during the extended special assessment period.
(i) The special assessment base for an insured depository institution
during the extended special assessment period that has no affiliated
insured depository institution shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section, adjusted for mergers, consolidation, and
termination of insurance as of the last assessment period of 2025;
minus
(B) The $5 billion deduction; provided, however, that an
institution's special assessment base cannot be negative.
(ii) The special assessment base for an insured depository
institution during the extended special assessment period that has one
or more affiliated insured depository institutions shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section, adjusted for mergers, consolidation, and
termination of insurance as of the last assessment period of 2025;
minus
(B) The institution's portion of the $5 billion deduction,
determined according to paragraph (i) of this section; provided,
however, that an institution's special assessment base cannot be
negative.
(h) Uninsured deposits. For purposes of this section, the term
``uninsured deposits'' means an institution's estimated uninsured
deposits as reported in Memoranda Item 2 on Schedule RC-O, Other Data
For Deposit Insurance Assessments in the Consolidated Reports of
Condition and Income (Call Report) or Report of Assets and Liabilities
of U.S. Branches and Agencies of Foreign Banks (FFIEC 002) for the
quarter ended December 31, 2022, reported as of the date this rule is
adopted. Institutions with less than $1 billion in total assets as of
June 30, 2021, were not required to report such items; therefore, for
purposes of calculating special assessments or a shortfall special
assessment under this section, the amount of uninsured deposits for
such institutions as of December 31, 2022, is zero. Amendments to an
institution's Call Report or FFIEC 002 subsequent to the date this rule
is adopted by the Board do not affect the amount of the institution's
uninsured deposits for purposes of calculating special assessments or
shortfall special assessments under this section.
(i) Special assessment base--institution's portion of the $5
billion deduction. For purposes of paragraphs (f)(3)(ii)(B) and
(g)(4)(ii)(B) of this section, an institution's portion shall equal the
ratio of the institution's uninsured deposits to the sum of the
institution's uninsured deposits and the uninsured deposits of all of
the institution's affiliated insured depository institutions,
multiplied by $5 billion.
(j) Affiliates. For the purposes of this section, an affiliated
insured depository institution is an insured depository institution
that meets the definition of ``affiliate'' in section 3 of the FDI Act,
12 U.S.C. 1813(w)(6).
(k) Effect of mergers, consolidations, and other terminations of
insurance on special assessments--(1) Final quarterly certified invoice
for acquired institution. The surviving or resulting insured depository
institution in a merger or consolidation shall be liable for any unpaid
special assessments or final shortfall special assessments outstanding
at the time of the merger or consolidation on the part of the
institution that is not the resulting or surviving institution
consistent with Sec. 327.6.
(2) Special assessment for quarter in which the merger or
consolidation occurs. If an insured depository institution is the
surviving or resulting institution in a merger or consolidation or
acquires all or substantially all of the assets, or assumes all or
substantially all of the deposit liabilities, of an insured depository
institution, then the surviving or resulting insured depository
institution or the insured depository institution that acquires such
assets or assumes such deposit liabilities, shall be liable for the
acquired institutions' special assessment, if any, from the quarter of
the acquisition through the remainder of the initial or extended
special assessment period, including any final shortfall special
assessments.
(3) Other termination. When the insured status of an institution is
terminated, and the deposit liabilities of such institution are not
assumed by another insured depository institution, special assessments
and any shortfall special assessments shall be paid consistent with
Sec. 327.6(c).
(l) One-time final shortfall special assessment. If the aggregate
amount of special assessments collected during the initial or extended
special assessment period(s) do not meet or exceed the losses to the
Deposit Insurance Fund, as calculated after the receiverships resulting
from the March 12, 2023 systemic risk determination are terminated,
insured depository institutions shall pay a one-time final shortfall
special assessment in accordance with this paragraph.
(1) Notification of final shortfall special assessment. The FDIC
shall notify each insured depository institution of the amount of such
institution's final shortfall special assessment no later than 45 days
before such shortfall assessment is due.
(2) Aggregate final shortfall special assessment amount. The
aggregate amount of the final shortfall special assessment imposed
across all insured depository institutions shall equal the losses to
the Deposit Insurance Fund, as of termination of the receiverships to
which the March 12, 2023, systemic risk determination applied, minus
the aggregate amount of special assessments collected under this
section through initial and extended special assessment periods.
(3) Final shortfall special assessment rate. The final shortfall
special assessment rate shall be the aggregate final shortfall special
assessment amount divided by the total amount of uninsured deposits for
the quarter ended December 31, 2022, adjusted for mergers,
consolidation, and termination of insurance as of the assessment period
preceding the final shortfall special assessment period, minus the $5
billion deduction for each insured depository institution or each
institution's portion of the $5 billion deduction, determined according
to paragraph (i) of this section.
(4) Final shortfall special assessment base. (i) The final
shortfall special assessment base for an insured depository institution
that has no affiliated insured depository institution shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section, adjusted for mergers, consolidation, and
termination of
[[Page 32709]]
insurance as of the assessment period preceding the final short fall
assessment period; minus
(B) The $5 billion deduction; provided, however, that an
institution's final shortfall special assessment base cannot be
negative.
(ii) The final shortfall special assessment base for an insured
depository institution that has one or more affiliated insured
depository institutions shall equal:
(A) The institution's uninsured deposits, as described in paragraph
(h) of this section, adjusted for mergers, consolidation, and
termination of insurance as of the assessment period preceding the
final shortfall assessment period; minus
(B) The institution's portion of the $5 billion deduction,
determined according to paragraph (i) of this section; provided,
however, that an institution's final shortfall special assessment base
cannot be negative.
(5) Calculation of final shortfall special assessment. An insured
depository institution's final shortfall special assessment shall be
calculated by multiplying the final shortfall special assessment rate
by the institution's final shortfall special assessment base as defined
in paragraph (l)(4) of this section.
(6) One-time final special assessment. The one-time final shortfall
special assessment shall be collected on a one-time quarterly basis
after final losses to the Deposit Insurance Fund are determined after
termination of the receiverships to which the March 12, 2023, systemic
risk determination applied.
(7) Payment, invoicing, and mergers. Paragraphs (d), (e), and (k)
of this section are applicable to the one-time shortfall special
assessment.
(m) Request for revisions. An insured depository institution may
submit a written request for revision of the computation of any special
assessment or shortfall special assessment pursuant to this part
consistent with Sec. 327.3(f).
(n) Special assessment collection in excess of losses. Any special
assessments collected under this section that exceed the losses to the
Deposit Insurance Fund, as of termination of the receiverships to which
the March 12, 2023, systemic risk determination applied, shall be
placed in the Deposit Insurance Fund.
(o) Rule of construction. Nothing in this section shall prevent the
FDIC from imposing additional special assessments as required to
recover current or future losses to the Deposit Insurance Fund
resulting from any systemic risk determination under 12 U.S.C.
1823(c)(4)(G).
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on May 11, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-10447 Filed 5-19-23; 8:45 am]
BILLING CODE 6714-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on May 22, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.