Rule2023-25813
Special Assessment 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
November 29, 2023
Effective
April 1, 2024
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The FDIC is adopting a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF or Fund) arising from the protection of uninsured depositors following the closures of Silicon Valley Bank, Santa Clara, CA, and Signature Bank, New York, NY. The FDIC will collect the $16.3 billion special assessment at a quarterly rate of 3.36 basis points, multiplied by an insured depository institution's (IDI) estimated uninsured deposits, reported for the quarter that ended 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 will collect the special assessment over eight quarterly assessment periods, although the collection period may change due to updates to the estimated loss pursuant to the systemic risk determination or if assessments collected change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022, reporting period.
Full Text
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<title>Federal Register, Volume 88 Issue 228 (Wednesday, November 29, 2023)</title>
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[Federal Register Volume 88, Number 228 (Wednesday, November 29, 2023)]
[Rules and Regulations]
[Pages 83329-83349]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25813]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF93
Special Assessment Pursuant to Systemic Risk Determination
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is adopting a final rule to implement a special
assessment to recover the loss to the Deposit Insurance Fund (DIF or
Fund) arising from the protection of uninsured depositors following the
closures of Silicon Valley Bank, Santa Clara, CA, and Signature Bank,
New York, NY. The FDIC will collect the $16.3 billion special
assessment at a quarterly rate of 3.36 basis points, multiplied by an
insured depository institution's (IDI) estimated uninsured deposits,
reported for the quarter that ended 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 will
collect the special assessment over eight quarterly assessment periods,
although the collection period may change due to updates to the
estimated loss pursuant to the systemic risk determination or if
assessments collected change due to corrective amendments to the amount
of uninsured deposits reported for the December 31, 2022, reporting
period.
DATES: The final rule is effective on April 1, 2024, with the first
collection for the special assessment reflected on the invoice for the
first quarterly assessment period of 2024 (i.e., January 1 through
March 31, 2024), with a payment date of June 28, 2024.
FOR FURTHER INFORMATION CONTACT: Division of Insurance and Research:
[[Page 83330]]
Ashley Mihalik, Associate Director, Financial Risk Management, 202-898-
3793, <a href="/cdn-cgi/l/email-protection#2a4b4743424b4643416a4c4e4349044d455c"><span class="__cf_email__" data-cfemail="a4c5c9cdccc5c8cdcfe4c2c0cdc78ac3cbd2">[email protected]</span></a>; Kayla Shoemaker, Senior Policy Analyst, 202-
898-6962, <a href="/cdn-cgi/l/email-protection#600b0113080f050d010b051220060409034e070f16"><span class="__cf_email__" data-cfemail="6e050f1d06010b030f050b1c2e080a070d40090118">[email protected]</span></a>; Legal Division: Sheikha Kapoor,
Assistant General Counsel, 202-898-3960, <a href="/cdn-cgi/l/email-protection#32415953425d5d407254565b511c555d44"><span class="__cf_email__" data-cfemail="44372f25342b2b360422202d276a232b32">[email protected]</span></a>; Ryan
McCarthy, Counsel, 202-898-7301, <a href="/cdn-cgi/l/email-protection#45373c2826262437312d3c0523212c266b222a33"><span class="__cf_email__" data-cfemail="9ceee5f1fffffdeee8f4e5dcfaf8f5ffb2fbf3ea">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Silicon Valley Bank, Signature Bank, and the Systemic Risk
Exception
B. Legal Authority and Policy Objectives
C. The Proposed Rule
II. The Final Rule
A. Description of the Final Rule
B. Estimated Special Assessment Amount
C. Rate for the Special Assessment
D. Assessment Base and Scope of Application for the Special
Assessment
1. Comments Received on the Calculation of the Special
Assessment
2. Comments on the Reporting Date of Uninsured Deposits for
Special Assessment Base
3. Comments Recommending Exclusions From Uninsured Deposits for
Special Assessment Base
4. Final Assessment Base for the Special Assessment
E. Prior Period Amendments
F. Initial Collection Period for the Special Assessment
1. Comments Received on the Initial Collection Period
2. Adjustments to the Loss Estimate, Amendments to the Reported
Amount of Estimated Uninsured Deposits and the Initial Collection
Period for the Special Assessment
G. Extended Special Assessment Collection Period
H. One-Time Final Shortfall Special Assessment
I. Collection of Special Assessment and Any Shortfall Special
Assessment
J. Payment Mechanism for the Special Assessment and Any
Shortfall Special Assessment
K. Mergers, Consolidations, and Terminations of Deposit
Insurance
L. Accounting Treatment
M. Request for Revisions
III. Analysis and Expected Effects
A. Analysis of the Statutory Factors
1. The Types of Entities That Benefit
2. Effects on the Industry
3. Capital and Earnings Analysis
4. Economic Conditions
B. Alternatives Considered
C. Effective Date and Application Date of the Final Rule
IV. Administrative Law Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Riegle Community Development and Regulatory Improvement Act
D. Plain Language
E. Congressional Review Act
I. Background
A. Silicon Valley Bank, Signature Bank, and the Systemic Risk Exception
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 FDIC was appointed as the receiver for both
institutions.\1\
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\1\ See 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>. See also
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>.
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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).\2\
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\2\ 12 U.S.C. 1823(c)(4)(G). As used in this final rule, the
term ``bank'' is synonymous with the term ``insured depository
institution'' as it is used in section 3(c)(2) of the FDI Act, 12
U.S.C. 1813(c)(2).
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On March 12, 2023, the Secretary of the Treasury, acting on the
recommendation of the 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
depositors.\3\ The full protection of depositors, rather than imposing
losses on uninsured depositors, was intended to strengthen public
confidence in the nation's banking system.
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\3\ 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>.
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On March 12 and 13, 2023, the FDIC transferred 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
depositors of these banks.\4\ The transfer of deposits was completed
under the systemic risk exception declared on March 12, 2023.
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\4\ 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.
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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.\5\ On March 27, 2023, the
FDIC entered into a purchase and assumption agreement with First-
Citizens Bank & Trust Company (First Citizens), with loss-sharing
provided on the commercial loans it purchased from Silicon Valley
Bridge Bank.\6\
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\5\ 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.
\6\ 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>.
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B. 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.\7\ As required by the FDI Act, the
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.\8\
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\7\ 12 U.S.C. 1823(c)(4)(G)(ii)(I).
\8\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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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 a systemic risk
determination. As detailed in the
[[Page 83331]]
sections that follow, and as required by 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.\9\
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\9\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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C. The Proposed Rule
On May 11, 2023, the Board approved a notice of proposed rulemaking
(the proposed rule, or proposal) to implement a special assessment, as
required by the FDI Act, to recover the loss to the DIF arising from
the protection of uninsured depositors following the closures of
Silicon Valley Bank and Signature Bank.\10\ The FDIC proposed to
collect a special assessment that would be approximately equal to the
losses attributable to the protection of uninsured depositors at these
two failed banks, which were estimated to total $15.8 billion.
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\10\ See 88 FR 32694 (May 22, 2023).
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The FDIC proposed an annual special assessment rate that would be
derived by dividing the loss estimate attributable to the protection of
uninsured depositors by the assessment base calculated for all IDIs
subject to the special assessment. The proposed assessment base
(special assessment base) was 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, adjusted to exclude the first $5 billion of uninsured deposits at
the banking organization level.\11\
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\11\ As used in this final rule, 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.
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In response to the proposal, the FDIC received 312 comment letters
from depository institutions, depository institution holding companies,
trade associations, members of Congress, and other interested
parties.\12\ As further detailed below, the majority of commenters
expressed support for the proposal and for the scope of application of
the proposed rule, including the $5 billion deduction applied to the
special assessment base. Other comment letters suggested the exclusion,
or different treatment, of certain types of uninsured deposits included
in the special assessment base, different reporting dates of estimated
uninsured deposits used to calculate the assessment base, or adjustment
of the $5 billion deduction from the special assessment base.
Commenters additionally discussed a range of other matters that are
addressed in the relevant sections below.
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\12\ See comments on the proposal, available at <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/2023/2023-special-assessments-systemic-risk-determination-3064-af93.html">https://www.fdic.gov/resources/regulations/federal-register-publications/2023/2023-special-assessments-systemic-risk-determination-3064-af93.html</a>.
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II. The Final Rule
A. Description of the Final Rule
After careful consideration of the comments received on the
proposal and analysis of the applicable statutory factors, the FDIC is
adopting, as final, the proposed special assessment, with
clarifications to promote transparency and a modification to apply any
corrective amendments to estimated uninsured deposits for the December
31, 2022, reporting period to the calculation of the special
assessment, following adoption of the final rule.
The special assessment implemented through this final rule will
recover the loss to the DIF arising from the protection of uninsured
depositors following the closures of Silicon Valley Bank and Signature
Bank. The total amount collected for the special assessment will be
approximately equal to the estimated losses attributable to the
protection of uninsured depositors at these two failed banks, which are
currently estimated to total $16.3 billion.
The majority of commenters expressed support for the proposal and
for the scope of application, including the $5 billion deduction
applied to the assessment base for the special assessment. While some
commenters broadly objected to the collection of a special assessment,
the FDIC is required by the FDI Act to take this action in connection
with the systemic risk determination announced on March 12, 2023.\13\
In the FDIC's view, the final rule, consistent with the proposed rule,
reflects an appropriate balancing of the goal of applying the special
assessment to the types of entities that benefited the most from the
protection of uninsured depositors provided under the determination of
systemic risk while ensuring equitable, transparent, and consistent
treatment. The final rule, consistent with the proposed rule, also
allows for payments to be collected over an extended period of time in
order to reduce the likelihood of overcollecting and to mitigate the
liquidity effects of the special assessment by requiring smaller,
consistent quarterly payments.
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\13\ 12 U.S.C. 1823(c)(4)(G).
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B. Estimated Special Assessment Amount
To determine the cost of the failures attributable to the cost of
covering uninsured deposits pursuant to the determination of systemic
risk, 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 time of failure, the portion of the total estimated loss of $0.9
billion that is attributable to the protection of uninsured depositors
is $0.6 billion. The cost estimate for the sale of the Signature Bridge
Bank to New York Community Bancorp decreased following the issuance of
the proposal from $2.4 billion to approximately $0.9 billion. The
decline in the cost estimate was primarily attributable to recoveries
from assets in receivership that were higher than previously estimated
offset, in part, by higher costs of liabilities assumed by the
receivership.
At Silicon Valley Bank, for which 88 percent of deposits were
uninsured at the time of failure, the portion of the total estimated
loss of $17.8 billion that is attributable to the protection of
uninsured depositors is $15.7 billion. The cost estimate for the sale
of the Silicon Valley Bridge Bank to First Citizens was revised
following the issuance of the proposal from $16.1 billion to
approximately $17.8 billion mainly due to recoveries from assets in
receivership that were less than previously anticipated and higher
costs of liabilities assumed by the receivership.
The revised cost estimates form the basis for the current special
assessment calculation in this final rule. In total, of the $18.7
billion in estimated losses at the two banks and incurred by the DIF,
the estimated loss attributable to the protection of uninsured
depositors is $16.3 billion, an increase of approximately $500 million
from the estimate of $15.8 billion described in the proposal.
As with all failed bank receiverships, these loss estimates 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.
As noted below, the amount of the special assessment will be adjusted
as the loss estimates change.
[[Page 83332]]
Comments Received on the Estimated Special Assessment Amount
One commenter suggested that the special assessment should recover
the entire amount of estimated losses. As proposed, and as required by
statute, the FDIC will recover through the special assessment the $16.3
billion estimated loss incurred as a result of the actions taken by 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.
C. Rate for the Special Assessment
The proposed special assessment rate was derived by dividing the
loss estimate attributable to the protection of uninsured depositors by
the assessment base calculated for all IDIs subject to the special
assessment as of December 31, 2022. As described in detail below, the
proposed assessment base was equal to estimated uninsured deposits
reported for the quarter that ended December 31, 2022, after applying
the $5 billion deduction.
Under the final rule, the FDIC will impose a special assessment
rate equal to approximately 13.4 basis points annually, an increase
from the 12.5 basis point annual rate in the proposal.\14\ Amendments
to reported estimated uninsured deposits filed since the adoption of
the proposed rule have resulted in a lower total assessment base. The
decline in the total assessment base combined with the increase in the
cost estimate have resulted in a higher annual rate relative to the
proposal.\15\ As of November 2, 2023, the total assessment base was
$6.0 trillion. The special assessment rate will not change following
the date of adoption of this final rule through the duration of the
initial eight-quarter collection period.
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\14\ The proposed rule noted that the special assessment rate in
the proposal was 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. Estimates of
the special assessment rate and expected effects in the proposed
rule generally reflected any amendments to data reported through
February 21, 2023, for the reporting period that ended December 31,
2022, while estimates for this final rule reflect any amendments as
of November 2, 2023. Given the closure of First Republic Bank, San
Francisco, CA, announced on May 1, 2023, estimates in the proposed
rule and this final 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>.
\15\ The special assessment rate, base, and expected effects in
this final rule reflect any amendments to data as of November 2,
2023, for the reporting period that ended December 31, 2022.
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The resulting quarterly rate is 3.36 basis points, or an annual
rate of approximately 13.4 basis points. Over the initial eight-quarter
collection period, the FDIC projects that it will 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 $16.3 billion, totaling
approximately $2.0 billion per quarter.
D. Assessment Base and Scope of Application for the Special Assessment
Under the proposal, each IDI's assessment base for the special
assessment would be equal to estimated uninsured deposits as reported
in the Call Report or FFIEC 002 for the quarter that ended December 31,
2022, after applying the $5 billion deduction.\16\ As a result of this
deduction, most small IDIs and IDIs that are part of a small banking
organization would not pay anything towards the special assessment. The
special assessment would not be applicable to any banking organizations
with total assets under $5 billion.
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\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. 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.
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1. Comments Received on the Calculation of the Special Assessment
The majority of commenters stated that community banks should be
exempt from the special assessment. The FDIC received 63 comments
related to the calculation of the special assessment base and the scope
of application for the special assessment, or the calculation of the
special assessment rate. Some of these commenters stated that certain
groups of banks should be exempt from or pay less of the special
assessment, while one commenter recommended that all banks be subject
to the special assessment.\17\ One commenter said that U.S. global
systemically important banks (GSIBs) did not benefit from the actions
taken under the determination of systemic risk and that although GSIBs
served as a source of strength to the banking sector, they are
responsible for a disproportionate share of the special assessment.
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\17\ Among the groups of banks commenters stated should be
exempt from the special assessment were: banks under a range of
other asset or uninsured deposit thresholds, banks not considered
systemically important financial institutions, Community Development
Financial Institutions (CDFIs), Minority Depository Institutions
(MDIs), rural banks, and mutual banks.
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One commenter noted that given that the FDIC is required by statute
to recover the estimated amount of loss attributable to the protection
of uninsured depositors following the determination of systemic risk,
any changes to the proposed special assessment base will necessarily
redistribute the obligation among banking organizations subject to the
special assessment.
Several commenters recommended alternative measures for the special
assessment base, including total assets, total deposits, uninsured
deposits as a percentage of total deposits, an institution's regular
risk-based deposit insurance assessment base, or to otherwise take a
more risk-based approach to calculating the special assessment base.
One commenter recommended a more detailed approach, stating that the
special assessment base should be the entire deposit base, or
alternatively the entire assessment base applied for regular quarterly
deposit insurance assessments, for the largest institutions and
uninsured deposits for all other banks, and that the rate for the
special assessment should incorporate an adjusted tangible equity
capital ratio and a scalar to factor in interest rate risk.
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, the most recently available date
reflecting the amount of uninsured deposits in each institution near or
at the time the determination of systemic risk was made. Among banking
organizations that report uninsured deposits, those with total assets
between
[[Page 83333]]
$1 billion and $5 billion are generally the least reliant on uninsured
deposits for funding, with uninsured deposits averaging 27.9 percent of
assets, compared with the largest banking organizations with total
assets greater than $250 billion, which had uninsured deposits that
averaged 35.1 percent of assets.
Table 1--Average Share of Assets Funded by Uninsured Deposits, by
Banking Organization Asset Size, Based on Data for the December 31,
2022, Reporting Period \1\
[Percent]
------------------------------------------------------------------------
Average share of
assets funded by
Asset size of banking organization uninsured deposits
[percent]
------------------------------------------------------------------------
$1 to $5 Billion.................................. 27.9
$5 to $10 Billion................................. 28.9
$10 to $50 Billion................................ 32.4
$50 to $250 Billion............................... 33.3
Greater than $250 Billion......................... 35.1
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\1\ Table reflects data for the December 31, 2022, reporting period, and
incorporates amendments, mergers, acquisitions and failures through
November 2, 2023.
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 33.0 percent,
compared with the largest banking organizations with total assets
greater than $250 billion, which averaged 50.4 percent.
Table 2--Uninsured Deposits as a Percentage of Total Domestic Deposits,
by Banking Organization Asset Size, Based on Data for the December 31,
2022, Reporting Period \1\
[Percent]
------------------------------------------------------------------------
Ratio of uninsured
deposits to total
Asset Size of banking organization domestic deposits
[percent]
------------------------------------------------------------------------
$1 to $5 Billion.................................. 33.0
$5 to $10 Billion................................. 35.0
$10 to $50 Billion................................ 40.3
$50 to $250 Billion............................... 42.8
Greater than $250 Billion......................... 50.4
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\1\ Reflects reporting amendments to estimated uninsured deposits,
mergers, acquisitions, and failures through November 2, 2023.
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.
As of March 31, 2023, banks in all asset size groups experienced
quarterly declines in uninsured deposit balances, but these declines
were particularly severe and widespread among banks between $50 billion
and $250 billion in total assets. In addition, between December 31,
2022, and March 31, 2023, the eight U.S. GSIBs reported a weighted
average decline in uninsured deposits of 2.1 percent, albeit slower
than the industry average of approximately eight percent. However,
changes in uninsured deposit balances over this time period varied
widely for the GSIBs. Two of the eight GSIBs experienced growth in
uninsured deposits of 2.6 percent and 2.0 percent over this period
while the other six GSIBs experienced declines, some significant,
ranging between less than two percent to nearly 17 percent.
Defining the assessment base for the special assessment as
estimated uninsured deposits reported as of December 31, 2022, and
deducting $5 billion from a banking organization's assessment base,
serves several purposes. First, banking organizations that reported $5
billion or less in estimated uninsured deposits as of December 31,
2022, would not be subject to the special assessment. 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 applying an asset size
threshold, were used to determine applicability, and thereby ensuring
more equitable treatment. Otherwise, a situation may arise in which a
banking organization just over a particular size threshold would pay a
special assessment, 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 but for the determination of systemic risk. Indeed, shortly after
Silicon Valley Bank was
[[Page 83334]]
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 $5 billion deduction from the assessment base,
the banks that benefited the most--banks of larger asset sizes and that
hold greater amounts of uninsured deposits--will be responsible for
paying the special assessment.
Second, the $5 billion deduction from the assessment base results
in most small IDIs and IDIs that are part of a small banking
organization not paying anything towards the special assessment. The
special assessment is not applicable to any banking organizations with
total assets under $5 billion.\18\
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\18\ Some IDIs that report less than $5 billion in estimated
uninsured deposits will be subject to the special assessment if they
are part of banking organizations with multiple IDIs that report a
combined total of estimated uninsured deposits in excess of $5
billion.
---------------------------------------------------------------------------
Finally, deducting $5 billion from the assessment base of estimated
uninsured deposits at the banking organization level rather than at the
IDI level for banking organizations with more than one subsidiary IDI
ensures that banking organizations with similar amounts of estimated
uninsured deposits pay a similar special assessment, regardless of
banking organization structure. For example, a banking organization
with multiple IDIs with large amounts of estimated uninsured deposits
will not have an advantage over other banking organizations with only
one subsidiary IDI with a similarly large amount of estimated uninsured
deposits because instead of excluding $5 billion of estimated uninsured
deposits for each IDI in one banking organization, the $5 billion
deduction will be distributed across multiple affiliated IDIs.
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 the determination of systemic risk.\19\
The assessment base of estimated uninsured deposits with the $5 billion
deduction ensures that the banks that benefited most from the
assistance provided under the systemic risk determination will be
charged a special assessment 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 a
higher special assessment. For these reasons, the FDIC is adopting the
proposed exclusion of the first $5 billion from estimated uninsured
deposits from the assessment base for the special assessment, without
change.
---------------------------------------------------------------------------
\19\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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2. Comments on the Reporting Date of Uninsured Deposits for Special
Assessment Base
Under the proposal, each IDI's assessment base for the special
assessment would be equal to estimated uninsured deposits as reported
in the Call Report or FFIEC 002 for the December 31, 2022, reporting
period, after applying the $5 billion deduction. The FDIC sought
comment on whether the special assessment base should be equal to
estimated uninsured deposits reported as of December 31, 2022, or
reported as of some other date, and the reasons for using a different
date.
Two commenters expressed support for the proposed December 31,
2022, reporting date for uninsured deposits to determine the special
assessment base. Thirteen commenters, including two trade associations
and three letters from members of Congress, requested that estimated
uninsured deposits reported as of a more recent date than December 31,
2022, be used to calculate the assessment base for the special
assessment. Most of these commenters suggested an alternative date,
such as March 31, 2023, or June 30, 2023, while others suggested that
the assessment base should reference the estimated uninsured deposits
reported as of each quarter-end during the collection period or did not
specify a date. Some commenters that supported a later reporting date
said that institutions, particularly mid-sized and regional banks, that
reported declines in uninsured deposit balances after December 31,
2022, should not be charged a special assessment on uninsured deposit
balances that they no longer hold or that are now insured.
In the FDIC's view, estimated uninsured deposits as of December 31,
2022, most closely approximate an institution's vulnerability to
significant deposit withdrawals in the absence of the determination of
systemic risk, and therefore reflect the institutions that most
benefited from such determination. An assessment base that is
calculated using the amount of uninsured deposits as of December 31,
2022, would result in transparent and consistent payments, best
approximate an institution's vulnerability to deposit withdrawals, and
would result in a more simplified framework for calculating the special
assessment. For these reasons, the FDIC is adopting as final the
proposed special assessment base of estimated uninsured deposits as of
December 31, 2022.
3. Comments Recommending Exclusions From Uninsured Deposits for Special
Assessment Base
Under the proposed rule, the assessment base for the special
assessment 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. The FDIC sought comment on whether it should consider an
exemption for specific types of deposits from the special assessment
base, and on what basis.
Multiple commenters supported the exclusion of, or different
treatment for, certain types of uninsured deposits included in the
proposed assessment base for the special assessment of estimated
uninsured deposits reported as of December 31, 2022, less the $5
billion deduction.
a. Collateralized Deposits
The FDIC received 25 comments requesting that the FDIC either
exclude, or provide a different treatment for, collateralized deposits
in the calculation of the special assessment base. In particular,
commenters requested such treatment for the uninsured portion of public
deposits, or deposits of states and political subdivisions that are
secured or collateralized as required under state law (also referred to
as preferred deposits). These commenters reasoned that collateralized
deposits are more stable than other uninsured deposits because they are
secured, and therefore pose little risk to the DIF. Seven of these
commenters requested the exclusion of additional types of
collateralized deposits, including collateralized operational deposits
or trust-related deposits that are required to be collateralized under
federal or state law (e.g., fiduciary funds awaiting investment or
distribution), from the special assessment base.
Banks report preferred deposits annually for the December 31 Call
Report date, but they do not report other
[[Page 83335]]
types of collateralized deposits such as those mentioned by the
commenters.\20\ Given that preferred deposits represent only a subset
of collateralized deposits, providing an exclusion or different
treatment for this subset of deposits would result in preferential
treatment for this subset of collateralized deposits on the sole basis
that these are the only type of collateralized deposits for which data
were collected.
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\20\ Call Report Schedule RC-E, Part I, Memorandum item 1.e.
requires reporting of preferred deposits (uninsured deposits of
states and political subdivisions in the U.S. which are secured or
collateralized as required under state law).
---------------------------------------------------------------------------
Moreover, even if banks reported data on all collateralized
deposits, in the FDIC's view, the presence of collateral does not fully
mitigate run risk. Collateral may not always be sufficient to cover the
full amount of such a deposit, depending on the economic environment,
and particularly in the event of a liquidity crisis during which loss
in value may need to be realized. Further, in certain types of
resolutions, collateralized deposits reduce the assets available to the
FDIC as receiver to satisfy claims, including the FDIC's subrogated
claim as deposit insurer, and result in a higher loss to the DIF in the
event of a bank failure compared to a bank holding the same level of
deposits that are not collateralized.
b. Custody Bank Adjustments
The FDIC received one joint comment from three custody banks
stating that the special assessment base should be adjusted to mitigate
the disproportionate and unwarranted impact on the custody bank
business model and on sound asset-liability and risk management
practices. The commenters proposed various adjustments: that the FDIC
should allow custody banks to exclude domestic deposit balances placed
with the Federal Reserve from the measure of estimated uninsured
deposits used to calculate the assessment base for the special
assessment; that the FDIC should allow custody banks to deduct 75
percent of the domestic operational deposits \21\ from the assessment
base for the special assessment; or that the FDIC should retain the
regular risk-based assessment methodology for the special assessment
while maintaining the exclusion of the first $5 billion in estimated
uninsured deposits.
---------------------------------------------------------------------------
\21\ The commenter defined operational deposits as residual cash
custody banks hold for their clients in deposit accounts to
facilitate day-to-day transactional activities related to client
investment assets.
---------------------------------------------------------------------------
The FDIC disagrees. The banks that benefited most from the
assistance provided under the systemic risk determination were large
banks and those that held greater amounts of uninsured deposits,
regardless of the assets that those deposits were used to fund. Custody
banks, especially those whose primary business is fiduciary and
custodial and safekeeping, hold large amounts of uninsured deposits and
many of those uninsured deposits are from depositors with large deposit
balances. Further, while certain deposits held by custody banks, such
as operational deposits, may be more stable than non-operational
funding, in the event of idiosyncratic stress, counterparties likely
would reduce the amount of their operational deposits.\22\ The
adjustments proposed in the joint comment letter would result in
custody banks paying significantly lower amounts of the special
assessment despite holding significant amounts of uninsured deposits.
---------------------------------------------------------------------------
\22\ See 79 FR at 61502 (Oct. 10, 2014).
---------------------------------------------------------------------------
c. Intercompany Deposits
The FDIC received 12 comments requesting the exclusion of, or
different treatment for, intercompany deposits in the calculation of
the special assessment base. Commenters argued that intercompany
deposits, such as the deposits of subsidiaries that are not IDIs,
deposits of other affiliates such as sister companies that are not
IDIs, or deposits of a parent holding company of the IDI, are stable
and present minimal run risk because entities within the banking
organization's structure are unlikely to withdraw funds in a crisis.
Further, some commenters argued that intercompany deposits would not
result in a loss to the DIF because they would not be provided deposit
insurance coverage or would not need deposit insurance coverage in the
event of the bank's failure. Some commenters noted that the methodology
for including intercompany deposits in the assessment base for the
special assessment may lead to double-counting certain deposits at the
banking organization level for banking organizations with multiple
IDIs, to the extent an IDI's deposits with its affiliates are funded
with uninsured deposits it has taken from a depositor.
There is no clear evidence that intercompany deposits are more
stable relative to other deposits. Organizational structures, board
members, governance, and decision making can differ between entities
within the same banking organization. Likewise, the behavior of
creditors, including uninsured depositors, of each entity can differ.
Further, an affiliated entity's deposits at a bank are insured to the
same extent as an unaffiliated entity's deposits in the event of the
bank's failure. Each depositor is entitled to deposit insurance as
permitted by law, and to pro rata receivership distribution on the
remaining, uninsured balances. Additionally, it is not possible to
accurately estimate the portion of uninsured deposits that are
intercompany deposits using existing items on the Call Report.
Deposits are the most common funding source for many banks.
Depositors and other creditors 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.
Any revisions to the methodology for calculating the special
assessment base, such as excluding or adjusting for certain types of
uninsured deposits, would change the allocation of the special
assessment, but the FDIC is required by statute to recover the full
amount of the losses to the DIF incurred as the result of the systemic
risk determination. As a result, any exclusion for a type of uninsured
deposits from the special assessment base would reduce the amount of
the special assessment for banking organizations that hold those
excluded, uninsured deposits, and increase the assessment burden for
all other banks holding other types of uninsured deposits. For this
reason, and for the reasons described above, and consistent with the
proposal, the FDIC is not excluding any particular type of uninsured
deposits from the assessment base for the special assessment.
4. Final Assessment Base for the Special Assessment
Following careful consideration of the comments, and for the
reasons described above, the FDIC is adopting as final the proposed
assessment base for the special assessment, while applying any
corrective amendments to estimated uninsured deposits reported for the
December 31, 2022, reporting period in calculating the assessment base.
The methodology adopted in this final rule ensures that the banks that
benefited most from the assistance provided under the systemic risk
determination will be charged a special assessment 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
[[Page 83336]]
deposits paying a higher special assessment.
Consistent with the proposal, each IDI's assessment base for the
special assessment will be equal to estimated uninsured deposits as
reported in the Call Report or FFIEC 002 as of December 31, 2022, after
applying the $5 billion deduction. The deduction of the first $5
billion from estimated uninsured deposits in the assessment base for
the special assessment is 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.\23\
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\23\ IDIs with less than $1 billion in total assets as of June
30, 2021, are 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, is zero.
---------------------------------------------------------------------------
For a banking organization that has more than one subsidiary IDI,
the assessment base for the special assessment is equal to the IDI's
total estimated uninsured deposits reported for the quarter that ended
December 31, 2022, less its share of the $5 billion deduction, which is
based on its share of total estimated uninsured deposits held by all
IDI affiliates in the banking organization.\24\ Table 3 provides an
example of the calculation of the special assessment for a banking
organization with three subsidiary IDIs.
---------------------------------------------------------------------------
\24\ As used in this final rule, the term ``affiliate'' has the
same meaning as defined in section 3 of the FDI 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).
---------------------------------------------------------------------------
Table 3--Calculation of the Special Assessment 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
----------------------------------------------------------------------------------------------------
Assessment
Estimated uninsured IDI share of banking IDI Share of base for IDI share of special
deposits as organization $5 billion special assessment (Column D *
reported as of estimated uninsured deduction assessment 26.9 basis points)/
December 31, 2022 deposits [percent] (Column B * $5 (Column A - current loss estimate
billion) Column C) [percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
IDI A.............................................. $50,000 50 $2,500 $47,500 0.79
IDI B.............................................. 40,000 40 2,000 38,000 0.63
IDI C.............................................. 10,000 10 500 9,500 0.16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Based on data reported for the quarter that ended December 31,
2022, and as illustrated in Table 4 below, the FDIC estimates that 114
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 81.3 percent of industry assets, will be
subject to the special assessment, including 48 banking organizations
with total assets over $50 billion and 66 banking organizations with
total assets between $5 and $50 billion. No banking organizations with
total assets under $5 billion would pay the special assessment, based
on data for the December 31, 2022, reporting period.\25\
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\25\ The special assessment rate, base, and expected effects in
this final rule reflect any amendments to data as of November 2,
2023, for the reporting period that ended December 31, 2022. These
estimates may change depending on any subsequent amendments to
reported estimates of uninsured deposits.
Table 4--Banking Organizations Required To Pay Special Assessment, Based on Data Reported for the December 31,
2022, Reporting Period \1\
----------------------------------------------------------------------------------------------------------------
Percentage of
all banking
Number of organizations
banking in asset size Share of Share of
Asset size of banking organization organizations category special industry
required to pay required to pay assessment assets
special special [percent] [percent]
assessment assessment
[percent]
----------------------------------------------------------------------------------------------------------------
Greater than $50 billion............................ 48 1.1 95.3 74.5
Between $5 and $50 billion.......................... 66 1.5 4.7 6.8
Under $5 billion.................................... 0 0.0 0.0 0.0
-----------------------------------------------------------
Total........................................... 114 2.6 100.0 81.3
----------------------------------------------------------------------------------------------------------------
\1\ Reflects reporting amendments to estimated uninsured deposits, mergers, acquisitions, and failures through
November 2, 2023.
E. Prior Period Amendments
Under the proposal, 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 have affected an institution's rate or base
for the special assessment.
The FDIC is finalizing this aspect of the rule, as proposed, but in
calculating the special assessment, will apply any amendments made by
IDIs to correct the reporting of estimated uninsured deposits that are
confirmed through, or associated with the result of, the FDIC's
[[Page 83337]]
review of an institution's reporting methodology (as described below).
Following the issuance of the proposed rule, the FDIC observed that
some IDIs were reporting or filing amendments to the reporting of
estimated uninsured deposits for the December 31, 2022, reporting
period in a manner that is inconsistent with the instructions to the
Call Report. For example, some institutions incorrectly reduced the
reported amount of uninsured deposits to the extent that they are
collateralized by pledged assets; this is incorrect because in and of
itself, the existence of collateral has no bearing on the portion of a
deposit that is covered by federal deposit insurance. Additionally,
some institutions incorrectly reduced the amount of uninsured deposits
reported on Schedule RC-O by excluding certain intercompany deposit
balances.
The FDIC did not receive any comments on the proposed treatment of
prior period amendments. Some commenters, however, raised concerns
about the accuracy of the amount of estimated uninsured deposits
reported on the Call Report. The FDIC received two comment letters
indicating that banks may be reporting uninsured deposits differently,
or in an inconsistent manner, and one comment letter indicating that
some banks were confused about whether to include collateralized
deposits in the amount of estimated uninsured deposits reported on the
Call Report.
On July 24, 2023, the FDIC issued a Financial Institution Letter
(FIL) on Estimated Uninsured Deposits Reporting Expectations,
reiterating longstanding instructions and stating that each IDI is
responsible for the accuracy of the data reported in its Call Report
and for filing amendments as necessary to ensure Call Report
accuracy.\26\ The FIL stated that, consistent with the requirement to
file accurate Call Reports, IDIs that incorrectly reported uninsured
deposits should amend their Call Reports by making the appropriate
changes to the data and submitting the revised data file.
---------------------------------------------------------------------------
\26\ FDIC Financial Institution Letter (FIL 37-2023), Estimated
Uninsured Deposits Reporting Expectations. <a href="https://www.fdic.gov/news/financial-institution-letters/2023/fil23037.html">https://www.fdic.gov/news/financial-institution-letters/2023/fil23037.html</a>.
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As a general matter, the amount of estimated uninsured deposits
reported on the Call Report is monitored as one of many indicators of
safety and soundness, and its accuracy, as with all items collected on
the Call Report, is of the utmost importance. The reported amount of
estimated uninsured deposits is also used to determine the amount of
estimated insured deposits in calculating the DIF reserve ratio, which
is the ratio of the DIF balance to all insured deposits.\27\
---------------------------------------------------------------------------
\27\ See section 3(y)(3) of the FDI Act, 12 U.S.C. 1813(y)(3).
---------------------------------------------------------------------------
The FDIC is conducting a review (Assessment Reporting Review) of
the reporting methodology for estimated uninsured deposits and related
items on the Call Report because of the importance of these items as
indicators of safety and soundness.\28\ The Assessment Reporting Review
may result in amendments to uninsured deposits and related items
reported on the Call Report if the FDIC determines that an institution
is not reporting these items in accordance with the instructions. Given
the planned Assessment Reporting Review, in calculating this special
assessment this final rule applies any amendments made by IDIs to
correct the reporting of estimated uninsured deposits that are
confirmed through, or associated with the result of, the FDIC's review
of an institution's reporting methodology.
---------------------------------------------------------------------------
\28\ Consistent with the FDIC's practice of conducting reviews
under Section 7(b)(4) of the FDI Act to confirm the correctness of
any assessment, the FDIC will review an institution's reporting
methodology for estimated uninsured deposits and related items. See
12 U.S.C. 1817(b)(4).
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Under the final rule, the special assessment rate and each banking
organization's special assessment base has been calculated using
estimated uninsured deposits for the December 31, 2022, reporting
period as reported on November 2, 2023.\29\ Amendments made to an
institution's December 31, 2022, Call Report through November 2, 2023,
have been accounted for in the calculations, as proposed. In addition,
under the final rule, certain amendments filed after November 2, 2023,
will affect the calculation of an institution's special assessment
base, as described below.
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\29\ As proposed, the assessment base and rate would be
calculated as of the date the final rule is adopted; however, under
the final rule, this is calculated on November 2, 2023, shortly
before the date of adoption, for operational and administrative
reasons.
---------------------------------------------------------------------------
In particular, if, as part of the FDIC's Assessment Reporting
Review of an institution's reporting methodology (described above), the
FDIC finds that, as of November 2, 2023, an institution was not
reporting uninsured deposits for the December 31, 2022, reporting
period in accordance with the Call Report instructions, and the
institution files a corrective amendment as a result of the FDIC's
review after November 2, 2023, the FDIC will adjust the special
assessment base based on such corrective amendment for such
institution, and any affiliates, as applicable, for all collection
periods. Additionally, if an institution files an amendment to the
reporting of estimated uninsured deposits for the December 31, 2022,
reporting period after November 2, 2023, and the FDIC finds that such
amendment brings the reporting of uninsured deposits into compliance
with the Call Report instructions, the FDIC will adjust the special
assessment base based on such corrective amendment for such
institution, and any affiliates, as applicable, for all collection
periods. If such institution is part of a banking organization with
multiple subsidiary IDIs, such corrective amendments will also affect
the distribution of the $5 billion deduction from the banking
organization's assessment base for all collection periods.
Prior period amendments filed after November 2, 2023, that are not
the result of corrections to errors or misreporting will not affect an
institution's special assessment base. Modifications to an
institution's special assessment base will take effect beginning the
collection quarter following the date of amendment, and the FDIC will
apply such modifications retroactively to the first quarterly
collection period, as applicable.
Any retroactive special assessment amount due will be included, in
full, on the invoice for the quarter following the date of the
amendment. If the amendment resulted in a downward revision of the
assessment base for the special assessment, the banking organization
will be credited the amount the institution overpaid, with interest,
and such amount, including interest, will be applied to any remaining
amount of the special assessment due from the banking organization
beginning in the quarter following the date of the amendment. In the
unlikely event a credit remains after the special assessment collection
period has ended, the excess credit amount will be refunded to the
banking organization, with interest. The FDIC will pay interest on
credited amounts resulting from amendments to correct the reporting of
estimated uninsured deposits that are confirmed through, or associated
with the result of, the FDIC's Assessment Reporting Review of an
institution's reporting methodology and will collect interest on any
retroactive special assessment amounts due to the FDIC as a result of
such amendments.\30\
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\30\ Interest payments collected will be applied to any
remaining amount of the special assessment while the amount of
interest paid by the FDIC will be added to the amount required to
recover estimated losses.
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[[Page 83338]]
F. Initial Collection Period for the Special Assessment
Under the proposal, 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. In order to mitigate the risk of overcollecting as the loss
estimates for the failed banks are periodically adjusted, to preserve
liquidity at IDIs, and in the interest of consistent and predictable
assessments, the special assessment would be collected over eight
quarters.
1. Comments Received on the Initial Collection Period
The FDIC received three comments on the length of the initial
collection period, with one commenter requesting a longer collection
period to help with cash flow, one commenter requesting a shorter
collection period given the ability of the banking industry to repay
the DIF for the special assessment as quickly as possible, and one
commenter suggesting that banks should have the option to fully fund
obligations prior to the end of the proposed collection period.
The FDIC is required by statute to place the excess funds collected
through the special assessment in the DIF.\31\ By spreading out the
collection period over eight quarters, a length of time that would
enable the FDIC to develop a more accurate 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
overcollecting. Reducing the length of the collection period could also
adversely impact liquidity. Therefore, the FDIC is adopting the initial
collection period of eight quarters as proposed, with a modification to
allow corrective amendments to estimated uninsured deposits for the
December 31, 2022, reporting period, following adoption of the final
rule.
---------------------------------------------------------------------------
\31\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
---------------------------------------------------------------------------
2. Adjustments to the Loss Estimate, Amendments to the Reported Amount
of Estimated Uninsured Deposits and the Initial Collection Period for
the Special Assessment
The estimated loss attributable to the protection of uninsured
depositors pursuant to the systemic risk determination is currently
estimated to total $16.3 billion. However, loss estimates for failed
banks are periodically adjusted as assets are sold, liabilities are
satisfied, and receivership expenses are incurred. As proposed, under
the final rule, the FDIC will review and consider any revisions to the
loss estimate each quarter of the collection period. Given the planned
review of the reporting methodology for estimated uninsured deposits,
in calculating the special assessment, the final rule will additionally
apply any amendments to correct the reporting of estimated uninsured
deposits that are confirmed through, or associated with the result of,
the FDIC's review of an institution's reporting methodology.
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 assessment, due to revisions to the loss estimate or
due to amendments applied to estimated uninsured deposits, the FDIC
will cease collection of the special assessment before the end of the
initial eight-quarter collection period, in the quarter after it has
collected enough to recover actual or estimated losses.\32\ The FDIC
will provide notice of any cessation of collections at least 30 days
before the next payment is due.
---------------------------------------------------------------------------
\32\ Amendments to the reporting of estimated uninsured deposits
may result in a higher amount collected, but the increase may not be
of a magnitude large enough to cease collection early.
---------------------------------------------------------------------------
G. Extended Special Assessment Collection Period
Under the proposal, 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 before the first payment of any extended special
assessment is due.
The FDIC did not receive any comments on the extended special
assessment collection period, and is finalizing as proposed, while, in
calculating the special assessment, applying any amendments to correct
the reporting of estimated uninsured deposits that are confirmed
through, or associated with the result of, the FDIC's review of an
institution's reporting methodology.
In the event that an extended collection period is needed, the FDIC
will collect the shortfall amount on a quarterly basis. The assessment
rate for any extended special assessment will equal the shortfall
amount divided by the total amount of uninsured deposits less the $5
billion deduction for each banking organization subject to the special
assessment, adjusted for failures or amendments to correct the
reporting of estimated uninsured deposits resulting from the FDIC's
Assessment Reporting Review of an institution's reporting methodology
that occurred before or during the initial eight-quarter collection
period. In the interest of consistency and predictability, the
quarterly rate will not exceed the 3.36 basis point quarterly special
assessment rate applied during the initial eight-quarter collection
period, and such extended special assessment will be collected for the
minimum number of quarters needed to recover the shortfall amount at
such quarterly rate.
The assessment base for such extended special assessment will be as
described above, based on estimated uninsured deposits reported as of
November 2, 2023, for the December 31, 2022, reporting period, adjusted
for amendments to correct reporting resulting from the FDIC's review of
an institution's reporting methodology, with a $5 billion deduction for
each banking organization.
H. One-Time Final Shortfall Special Assessment
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 this special assessment
applies may occur years after the initial eight-quarter collection
period and any extended collection period.
In the likely event that a final loss amount at the termination of
the receiverships is not determined until after the initial collection
period and any extended collection period, and if losses at the
termination of the receiverships exceed the amount collected through
such special assessment, the FDIC proposed to impose a one-time final
shortfall special assessment to collect the final shortfall amount.
Comments Received on the One-Time Final Shortfall Special Assessment
The FDIC received four comments on the one-time final shortfall
special assessment. One supported the proposed calculation. One
commenter recommended that if the amount collected exceeds the final
loss estimate,
[[Page 83339]]
that the excess collected should be credited against future
assessments. One commenter requested that the assessment base
methodology be adjusted to incorporate a risk-based component. One
commenter said that the one-time final shortfall special assessment
should be calculated at the end of a recommended one-year payment
period.
The FDIC would only collect a one-time final shortfall special
assessment if the final loss amount at the termination of the
receiverships is not determined until after the initial collection
period and any extended collection period, and if losses at the
termination of the receiverships exceed the amount collected through
such special assessment.
For the reasons described above, the FDIC is adopting the one-time
final shortfall special assessment as proposed, while, in calculating
the special assessment, applying any amendments to correct the
reporting of estimated uninsured deposits that are confirmed through,
or associated with the result of, FDIC's review of an institution's
reporting methodology.
The assessment base for such one-time final shortfall special
assessment will be as described above, based on estimated uninsured
deposits reported as of November 2, 2023, for the December 31, 2022,
reporting period, adjusted for amendments to correct reporting
resulting from the FDIC's review of an institution's reporting
methodology, with a $5 billion deduction for each banking organization.
The FDIC will 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 for the quarter that ended December 31, 2022,
adjusted for amendments to correct reporting resulting from the FDIC's
review of an institution's reporting methodology up to the
determination of the shortfall amount, after applying the $5 billion
deduction.
The entire one-time final shortfall special assessment will be
collected in one quarter so that there are no missed amounts due to
amendments or failures and to streamline the operational impact on
banking organizations. The FDIC will provide banking organizations
notice of at least 45 days before payment of any one-time final
shortfall special assessment is due and will consider the statutory
factors, including economic conditions and the effects on the industry,
in deciding on the timing of such payment.
The FDIC will notify each IDI subject to a one-time final 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 will be included in the IDI's invoice
for its regular quarterly deposit insurance assessment.
I. Collection of Special Assessment and Any Shortfall Special
Assessment
The special assessment and any shortfall special assessment will 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 will disclose the amount of any
special assessment or shortfall special assessment due.
Comments Received on Communication of Loss Estimates
Two commenters requested that the FDIC communicate any revisions to
the loss estimate and updates on the collection of the special
assessment. To increase transparency and in response to comments on the
proposal, the FDIC is clarifying that it plans to communicate any
changes to the loss estimate, as applicable, and to provide updates on
the collection of the special assessment to banking organizations
subject to the special assessment. Such updates will be communicated
primarily through quarterly assessment invoices issued to institutions
subject to the special assessment. The FDIC also publishes estimated
losses and other data on bank failures and assistance on its publicly
available website.\33\
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\33\ See FDIC BankFind Suite: Bank Failures & Assistance Data,
available at: <a href="https://banks.data.fdic.gov/explore/failures">https://banks.data.fdic.gov/explore/failures</a>. See also
FDIC Failed Bank List, available at: <a href="https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/">https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/</a>.
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J. Payment Mechanism for the Special Assessment and Any Shortfall
Special Assessment
Each IDI is required to take any actions necessary to allow the
FDIC to debit its special assessment and any 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 must ensure that sufficient U.S. dollar 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 will be as provided for nonpayment of an IDI's regular
assessment.\34\
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\34\ See 12 CFR 327.3(c).
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K. Mergers, Consolidations, and Terminations of Deposit Insurance
Under the proposed rule, if an IDI were to acquire--through merger
or consolidation--another IDI following the adoption of this final rule
or during any special assessment collection period, the acquiring IDI
would be required to pay the acquired IDI's special assessment, if any,
including any unpaid special assessment, in addition to its own special
assessment, from the quarter of the acquisition through the remainder
of all special assessment collection periods. Under the proposal, in
the event that the FDIC extends the collection period or imposes a one-
time final shortfall assessment, each banking organization's assessment
base would be adjusted for mergers or failures that occurred during the
eight-quarter collection period.
Under the proposed rule, 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, including the special
assessment, for the assessment periods that its deposits are insured,
but not thereafter.\35\
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\35\ See 12 CFR 327.6(c).
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When an IDI voluntarily terminates its deposit insurance under the
FDI Act, under the proposal the IDI whose insured status is terminating
must, among other things, continue to pay assessments for the
assessment periods that its deposits are insured.\36\
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\36\ See 12 CFR 327.6(c).
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Comments Received on Mergers, Consolidations, and Terminations of
Deposit Insurance
One commenter expressed concern that use of the December 31, 2022,
reporting date ignores recent acquisition activity while another
commenter requested clarification that the estimates in the proposed
rule exclude the uninsured deposits that New York Community Bank
assumed following its acquisition of Signature Bank in March 2023.\37\
One commenter requested clarification of the point at which obligation
to pay the special assessment would end if a bank were to voluntarily
terminate its insured status during the collection period, noting that
this is
[[Page 83340]]
relevant to when the special assessment is reflected under
International Financial Reporting Standards (IFRS) accounting
principles.
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\37\ 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>.
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The FDIC is clarifying that the uninsured deposits of First
Republic Bank, Silicon Valley Bank, and Signature Bank, which failed
prior to the adoption of the proposed rule, were excluded from the
proposed calculation of the assessment rate and base for the special
assessment, and the estimated expected effects in the proposed rule and
in this final rule, and is providing clarification that such exclusion
will be adopted in the final rule. This exclusion was intended to
prevent disincentivizing any potential future acquisition activity
following the adoption of the proposed rule, particularly given the
uncertainty in the banking sector at the time the proposal was adopted.
The FDIC is adopting as final the proposed provisions related to
mergers, acquisitions, and terminations of deposit insurance, with two
adjustments. First, in the event that the FDIC extends the collection
period or imposes a one-time final shortfall assessment, each banking
organization's assessment base will not be adjusted for mergers or
failures that occurred after the adoption of this final rule or during
the eight-quarter collection period. In the FDIC's view, each banking
organization's assessment base reflects its relative benefit from the
assistance provided under the systemic risk determination. This
treatment would ensure that an acquiring bank's special assessment, and
any special assessment assumed for an acquired bank, continues to
reflect each banking organization's relative benefit from the
assistance provided under the systemic risk determination, and would
have the result that a banking organization subject to the special
assessment that acquires another banking organization also subject to
the special assessment would derive benefit from the $5 billion
deduction for both special assessment payments. The FDIC is also
clarifying that the special assessment base of the acquiring bank in a
merger or consolidation that occurred prior to the March 12, 2023,
determination of systemic risk would be adjusted to include the
uninsured deposits of the acquired bank and would derive benefit of a
single $5 billion deduction. Calculating the assessment base in this
manner best reflects the structure of the banking organization at the
time the determination of systemic risk was made, and reflects the
organization's relative benefit from the assistance provided.
Second, in order to avoid incentivizing banks to voluntarily
terminate their insured status to avoid paying the special assessment
under the final rule, the FDIC will require any bank that voluntarily
terminates its insured status after the adoption of this final rule or
during any special assessment collection period to pay the entire
remaining amount of its special assessment at the same time its
obligation to pay regular deposit insurance assessments would end.\38\
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\38\ See 12 CFR 327.6(c).
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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.\39\
Therefore, an institution will 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. In addition, the General Instructions to the Call Report
provide guidance on ASC Topic 855, Subsequent Events, which may be
applicable.\40\
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\39\ FASB ASC paragraph 450-20-25-2.
\40\ See General Instructions to the Call Report, available at:
<a href="https://www.fdic.gov/resources/bankers/call-reports/crinst-031-041/2022/2022-12-generalinstructions.pdf">https://www.fdic.gov/resources/bankers/call-reports/crinst-031-041/2022/2022-12-generalinstructions.pdf</a>.
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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.
Comments Received on Accounting Treatment
The FDIC received two comments that supported restructuring the
special assessment as a prepaid expense that could be amortized over a
multi-year period.
Structuring the special assessment as a prepaid expense would
reduce the one-time effect on income but would also reduce liquidity by
the full amount of the special assessment at payment. In the FDIC's
view, the proposed structure of the special assessment 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.
For these reasons, the FDIC is declining to restructure the special
assessment as a prepaid expense.
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 CFR 327.3(f).\41\
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\41\ Existing regulation 12 CFR 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, the
request for review provision under 12 CFR 327.4(c) would not be
applicable to an IDI's special assessment or shortfall special
assessment.
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III. 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
FDIC deems appropriate and relevant to the action taken or the
assistance provided.\42\
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\42\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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1. 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.\43\
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\43\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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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 Board and the Board of Governors voted
unanimously to recommend, and the
[[Page 83341]]
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 depositors.\44\ The full
protection of depositors, rather than imposing losses on uninsured
depositors, was intended to strengthen public confidence in the
nation's banking system.
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\44\ 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>.
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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.
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.
Between December 31, 2022, and March 31, 2023, banks in all asset
size groups experienced quarterly declines in uninsured deposit
balances, but these declines were particularly severe and widespread
among banks between $50 billion and $250 billion in total assets.
Between December 31, 2022, and March 31, 2023, the eight U.S. GSIBs
reported a weighted average decline in uninsured deposits of 2.1
percent, but changes in uninsured deposit balances over this time
period varied widely. Two of the eight GSIBs experienced growth in
uninsured deposits of 2.6 percent and 2.0 percent over this period
while the other six GSIBs experienced declines, some significant,
ranging between less than two percent to nearly 17 percent.
Generally speaking, larger banks benefited the most from the
stability provided to the banking industry under the systemic risk
determination. Under the final rule, the banks that benefited most from
the assistance provided under the systemic risk determination will be
charged a special assessment 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 a
higher special assessment.
2. Effects on the Industry
In calculating the assessment base for the special assessment, the
FDIC will deduct $5 billion from each IDI or banking organization's
aggregate estimated uninsured deposits reported for the quarter that
ended December 31, 2022. As a result, any institution that did not
report any uninsured deposits as of December 31, 2022, will not be
subject to the special assessment. Additionally, most small IDIs and
IDIs that are part of a small banking organization will not pay
anything towards the special assessment. Some small and mid-size IDIs
will be subject to the special assessment if they are subsidiaries of a
banking organization with more than $5 billion in uninsured deposits
and such IDIs report positive amounts of uninsured deposits after
application of the deduction, or if they directly hold 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 for the quarter ended December 31, 2022, and
as captured in Table 4 above, the FDIC estimates that 114 banking
organizations will be subject to the special assessment, including 48
banking organizations with total assets over $50 billion and 66 banking
organizations with total assets between $5 and $50 billion. No banking
organizations with total assets under $5 billion will pay a special
assessment, based on data reported as of December 31,
2022.<SUP>45 46</SUP> It is anticipated that the same banking
organizations subject to the special assessment would also be subject
to any extended special assessment or one-time final shortfall special
assessment, absent the effects of any amendments to estimated uninsured
deposits, mergers, consolidations, failures, or other terminations of
deposit insurance that occur through the determination of such extended
special assessment or one-time final shortfall special assessment.
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\45\ The number of banking organizations subject to the special
assessment may change after the publication of the final rule
depending on any mergers, consolidations, failures, or other
terminations of deposit insurance, or amendments to reported
estimates of uninsured deposits.
\46\ Some IDIs that report less than $5 billion in estimated
uninsured deposits will be subject to the special assessment if they
are part of banking organizations with multiple IDIs that report a
combined total of estimated uninsured deposits in excess of $5
billion.
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3. Capital and Earnings Analysis
The FDIC has analyzed the effect of the special assessment 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 for
the December 31, 2022, reporting period, including amendments filed
through November 2, 2023, and assumes that pre-tax income for the
quarter in which a banking organization will recognize the accrual of a
liability and an estimated loss (i.e., expense) from a loss contingency
for the special assessment, will equal the average of their pre-tax
income from July 1, 2022, through June 30, 2023.\47\
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\47\ All income statement items used in this analysis were
adjusted for the effect of mergers. Institutions for which four
quarters of non-zero earnings data were unavailable, including
insured branches of foreign banks, were excluded from this analysis.
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To avoid the possibility of underestimating effects on bank
earnings and capital, the analysis also assumes that the effects of the
special assessment are not transferred to customers in the form of
changes in borrowing rates, deposit rates, or service fees. The
analysis considers the effective pre-tax cost of the special assessment
in calculating the effect on capital.<SUP>48 49</SUP>
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\48\ 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).
\49\ The analysis does not incorporate any tax effects from an
operating loss carry forward or carry back.
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A banking organization's earnings retention and dividend policies
influence the extent to which the special assessment affects equity
capital
[[Page 83342]]
levels. A banking organization may reduce the effect of recognizing the
accrual of a liability and an estimated loss (i.e., expense) from a
loss contingency for the special assessment or shortfall special
assessment, by adjusting downward the amount of dividends. 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 from July 1, 2022,
through June 30, 2023. In the event that the ratio of Tier 1 capital to
assets falls below four percent, however, this assumption is modified
such that the banking organization retains the amount necessary to
reach a four percent minimum and distributes any remaining funds
according to the dividend payout rate.\50\
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\50\ 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 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.
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The FDIC estimates that it will collect the estimated loss from
protecting uninsured depositors at Silicon Valley Bank and Signature
Bank of approximately $16.3 billion, over the initial eight-quarter
collection period. Banking organizations will 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 earnings of the entire amount
of the special assessment to be collected over eight quarters would
occur in one quarter only.
Given the current loss estimate and the assumptions in the
analysis, the FDIC estimates that, on average, the special assessment
will decrease the dollar amount of Tier 1 capital of banking
organizations required to pay the special assessment by an estimated 62
basis points.\51\ 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 special assessment.
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\51\ Estimated effects on capital are calculated based on data
reported as of June 30, 2023, 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 the
special assessment.
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For the four quarters that ended June 30, 2023, the banking
industry reported net income of $290.5 billion, nearly 13 percent
higher than for the four quarters that ended June 30, 2022, and above
the pre-pandemic average. The effect of the special assessment on a
banking organization's income is measured by calculating the amount of
the special assessment as a percent of pre-tax income (hereafter
referred to as ``income'').
While the special assessment is allocated based on estimated
uninsured deposits reported at the banking organization level, IDIs
will be responsible for payment of the special assessment. The FDIC
analyzed the effect of the special assessment on income reported at the
IDI-level for IDIs subject to the special assessment 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 assessment by aggregating the income reported
by all IDIs subject to the special assessment within each banking
organization since the IDIs will be responsible for payment. The FDIC
analyzed the impact of the special assessment on banking organizations
that were profitable based on their average quarterly income from July
1, 2022, to June 30, 2023.\52\
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\52\ There were two banking organizations that would be required
to pay the special assessment that were unprofitable based on
average quarterly income from July 1, 2022, to June 30, 2023.
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The effects on income of the entire amount of the special
assessment 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 special assessment would result in an
average one-quarter reduction in income of 20.4 percent for banking
organizations subject to the special assessment.\53\
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\53\ Earnings or income are quarterly income before assessments
and taxes. Quarterly income is assumed to equal average income from
July 1, 2022, to June 30, 2023.
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Comments Received on the Effect of the Special Assessment on Capital
and Earnings
The FDIC received 13 comments, including three comments from trade
associations, suggesting modifications to change the timing of, or
otherwise mitigate the effect of the special assessment on capital,
earnings, and regular deposit insurance assessments. Seven commenters
supported an optional transition period or a similar approach to allow
banking organizations to phase in the effects of the special assessment
on their regulatory capital ratios over the eight-quarter collection
period.
One commenter said that for purposes of calculating requirements
and guidance related to levels of dividends and stock repurchases, and
for examination findings related to earnings, the reduction in earnings
resulting from the payment of the special assessment should be
disregarded, or at least be amortized over the collection period. The
same commenter also requested an adjustment to eliminate the impact of
the special assessment on regular quarterly deposit insurance
assessments for large banks and highly complex banks.\54\
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\54\ For regular deposit insurance assessment purposes, a large
bank is generally defined as an institution with $10 billion or more
in total assets, and a highly complex bank is generally defined as
an institution that has $50 billion or more in total assets and is
controlled by a parent holding company that has $500 billion or more
in total assets, or is a processing bank or trust company. See 12
CFR 327.8(f) and (g).
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As described above, given the loss estimate and the assumptions
applied in the analysis, the FDIC estimates that, on average, the
special assessment will decrease the dollar amount of Tier 1 capital of
banking organizations subject to the special assessment by an estimated
62 basis points. No banking organizations are estimated to fall below
the minimum capital requirement (a four percent Tier 1 capital-to-
assets ratio) as a result of the special assessment. As described
above, the effect of the special assessment on Tier 1 capital is
minimal and is not estimated to cause any institutions to fall below
the minimum capital requirement; therefore, the FDIC is not adopting a
transition period to phase in the special assessment's effect on
regulatory capital.
[[Page 83343]]
Table 5 shows that approximately 66 percent of profitable banking
organizations subject to the proposal are projected to have a special
assessment of less than 20 percent of one quarter's income, including
23 percent with a special assessment of less than 5 percent of income.
Another 34 percent of profitable banking organizations subject to the
proposal are projected to have a special assessment equal to or
exceeding 20 percent of one quarter's income.
Table 5--Estimated One-Quarter Effect of Entire Amount of the Special Assessment on Income for Profitable
Banking Organizations Subject to the Special Assessment \1\
----------------------------------------------------------------------------------------------------------------
Assets of
Number of Percent of banking Percent of
Special assessment as percent of income banking banking organizations assets
organizations organizations [$ billions]
----------------------------------------------------------------------------------------------------------------
Over 30......................................... 15 14 5,838 30
20 to 30........................................ 23 21 6,308 32
10 to 20........................................ 28 25 5,504 28
5 to 10......................................... 20 18 805 4
Less than 5..................................... 25 23 1,034 5
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Total....................................... 111 100 19,489 100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as quarterly pre-tax income. Quarterly income is assumed to equal the average of income
from July 1, 2022, through June 30, 2023. For purposes of this analysis, the effects on income of the entire
amount of the special assessment to be collected over eight quarters are assumed to occur in one quarter only.
The special assessment as a percent of income is an estimate of the one-time accrual of the full eight
quarters of the special assessment 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 June 30, 2023. Excludes two
banking organizations that would be required to pay the special assessment that were unprofitable. Also
excludes one foreign banking organization subject to the special assessment. Some columns do not add to total
due to rounding. Special assessment estimates are based on uninsured deposits for the December 31, 2022,
report date and incorporate amendments, mergers, acquisitions and failures through November 2, 2023.
In order to preserve liquidity at IDIs, and in the interest of
consistent and predictable assessments, the special assessment will be
collected over eight quarters. The special assessments is applicable
for the first quarterly assessment period of 2024. Given that the
proposal was approved by the Board and published in the Federal
Register in May 2023, institutions were provided time to prepare and
plan for the special assessment.
4. Economic Conditions
On September 7, 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 second
quarter of 2023. Overall, key banking industry metrics remained
favorable in the quarter.\55\
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\55\ FDIC Quarterly Banking Profile, Second Quarter 2023.
<a href="https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2023jun/">https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2023jun/</a>.
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Net income declined from the previous quarter due to accounting
gains on failed bank acquisitions that occurred in the first and the
second quarter. However, excluding these nonrecurring gains, net income
was relatively flat from the prior quarter. Net income remained
relatively high by historical measures in the second quarter, although
the banking industry reported a tighter net interest margin and funding
pressures driven by increasing rates paid on deposits as well as high
rates paid on non-deposit liabilities. Loan expansion continued, asset
quality metrics were favorable, and the banking industry remained well-
capitalized.
The banking industry continues to face significant downside risks
from the effects of inflation, rising market interest rates, and
geopolitical uncertainty. These risks could cause credit quality
deterioration and weakness in profitability, which may lead to more
stringent underwriting standards, a slowdown in loan growth, higher
provision expenses, and liquidity constraints. Also, commercial real
estate portfolios are under pressure from higher interest rates as
loans mature and require refinancing, and office properties are
experiencing weak demand for space and softening property values.
Despite these challenges, the state of the U.S. banking system
remains sound and institutions are well positioned to absorb a special
assessment.\56\
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\56\ 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>.
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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, 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.\57\ The FDIC considered several alternatives while
developing this final rule, but believes, on balance, that the proposed
special assessment is the most appropriate and straightforward manner
in which to collect the special assessment. Accordingly, and after
consideration of the statutory factors as described above, the FDIC is
adopting as final the proposed special assessment, with changes to
promote transparency and to apply any corrective amendments to the
reporting of estimated uninsured deposits to the calculation of the
special assessment. Brief descriptions of the alternatives, along with
explanations of why the final rule is preferable to the alternatives,
are as follows:
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\57\ 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).
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Alternative 1: One-Time Special Assessment
The first alternative the FDIC considered would have imposed a one-
time special assessment. Under this alternative, 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
[[Page 83344]]
amount of a one-time special assessment would equal the entire initial
loss estimate. Calculation of the special assessment, 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.\58\
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\58\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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Similar to this alternative, one commenter suggested that banks
should have the option to fully fund obligations prior to the end of
the proposed time period. While under both the final rule 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 order to spread the liquidity impact over multiple
quarters and to mitigate the risk of overcollecting.
Alternative 2: Asset Size Applicability Threshold
A second alternative the FDIC considered would be to base
applicability on an asset size 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. One commenter supported this approach.
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 the
determination of systemic risk.\59\ 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.
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\59\ 12 U.S.C. 1823(c)(4)(G)(ii)(III).
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While both the methodology adopted under the final rule, including
the $5 billion deduction from estimated uninsured deposits, and an
alternative asset-size-based applicability threshold would effectively
remove the smallest institutions from eligibility, the deduction of $5
billion from each banking organization's estimated uninsured deposits
in calculating the special assessment helps 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 the FDIC considered would be to eliminate the
$5 billion deduction from the assessment base for the special
assessment, and allocate the special assessment among IDIs based on
each IDI or banking organization's total estimated uninsured deposits
as of December 31, 2022. This alternative 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 all IDIs with total assets of $1 billion or more.\60\
Relative to the methodology applied in final rule, more IDIs would pay
the special assessment under this alternative, and IDIs with greater
amounts of uninsured deposits would generally pay a lower special
assessment relative to the methodology applied in the final rule since
the special assessment would be allocated across a significantly larger
number of institutions. As stated previously, the majority of
commenters expressed support for the proposal and for the scope of
application, including the $5 billion deduction applied to the
assessment base for the special assessment.
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\60\ 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.
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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, and given the general support for the deduction of $5
billion from the assessment base for the special assessment, the FDIC
rejected this alternative in favor of allocating the special assessment
to larger institutions with the largest amounts of uninsured deposits
as of December 31, 2022, and that experienced significant and
widespread declines in uninsured deposits between December 31, 2022,
and March 31, 2023, with the result that smaller institutions would not
have to contribute 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. Generally
speaking, larger banks benefited the most from the stability provided
to the banking industry under the systemic risk determination.
Alternative 4: Special Assessment Based on Each Institution's
Percentage of Uninsured Deposits to Total Deposits
A fourth alternative the FDIC considered would be to allocate the
special assessment 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.\61\ Two commenters supported an
assessment base for the special assessment equal to uninsured deposits
as a percentage of total deposits or to otherwise apply a
[[Page 83345]]
calculation that would result in a larger special assessment for
institutions with a greater reliance on uninsured deposits for funding.
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\61\ 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.
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Under this alternative, IDIs with a greater reliance on uninsured
deposits would generally pay the greatest amount of the special
assessment; however, the special assessment would be allocated across a
large number of institutions, unless a threshold is imposed. Even with
a threshold based on assets or another measure, this alternative would
result in institutions of vastly different asset sizes and with
different dollar amounts of uninsured deposits paying a similar dollar
amount of the special assessment. For example, an institution just
above the asset threshold would pay the same special assessment as a
much larger institution with the same reliance on uninsured deposits.
It also would result in some smaller banking organizations paying
potentially significant amounts of the special assessment, 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 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. 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 methodology in the final rule results in a larger special
assessment 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 final rule and all alternatives described above, the
special assessment 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 fifth alternative the FDIC
considered would be to collect 50 percent of the special assessment
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 assessment 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 assessment to
the institutions that had the largest amounts of uninsured deposits at
the time of the determination of systemic risk.
The remaining special assessment 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 because in the FDIC's view, estimated uninsured
deposits as of December 31, 2022, most closely approximate an
institution's vulnerability to significant deposit withdrawals in the
absence of the determination of systemic risk, and therefore reflect
the institutions that most benefited from such determination.
Additionally, three commenters supported the use of an alternative
measure in the special assessment base specifically for the reason that
they believe use of uninsured deposits in the assessment base
discourages banks from holding uninsured deposits. This alternative may
also change the timing of accrual of the contingent liability by banks.
The final rule'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
the special assessment.
Alternative 6: Apply Special Assessment Rate to Regular Assessment
Base, With or Without Application of a $5 Billion Deduction
A sixth alternative the FDIC considered is 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.\62\ Under this alternative, the FDIC estimates that it
would need to charge an annual assessment rate of 3.97 basis points
over two years to recover estimated losses without the $5 billion
deduction, or 4.84 basis points with the $5 billion deduction; however,
a significantly larger number of banking organizations would be subject
to the special assessment relative to the proposal. Two commenters
supported use of the regular assessment base to calculate the special
assessment.
---------------------------------------------------------------------------
\62\ See 12 CFR 327.5.
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Under this alternative, the IDIs with the largest assessment base
would pay the greatest amount of the special assessment. IDIs for which
certain assets are excluded in the calculation of the regular
assessment base would pay a lower special assessment due to their
smaller assessment base.
This alternative would result in smaller banking organizations,
regardless of reliance on uninsured deposits for funding, paying
potentially significant amounts of the special assessment. 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 the special
assessment due to these exclusions, despite holding significant amounts
of uninsured deposits. The FDIC rejected this alternative for these
reasons.
In the FDIC's view, the final rule reflects an appropriate
balancing of the statutory requirement to apply the special assessment
to the types of entities that benefited the 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 final rule also allows for payments to be collected
over an extended period of time in order to mitigate the liquidity
effects of the special assessment by requiring smaller,
[[Page 83346]]
consistent quarterly payments. On balance, in the FDIC's view, the
final rule 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. Effective Date and Application Date of the Final Rule
The FDIC is issuing this final rule with an effective date of April
1, 2024. The first collection for the special assessment will be
reflected on the invoice for the first quarterly assessment period of
2024 (i.e., January 1 through March 31, 2024), with a payment date of
June 28, 2024, and the FDIC will continue to collect the special
assessment for an anticipated total of eight quarterly assessment
periods. Because the estimated loss pursuant to the systemic risk
determination will be periodically adjusted, and to allow for any
corrective amendments to the amount of uninsured deposits reported for
the December 31, 2022, reporting period applied to the calculation of
the special assessment, the FDIC retains the ability to cease
collection early, impose an extended special assessment collection
period after the initial eight-quarter collection period to collect the
difference between losses and the amounts collected, and impose a one-
time final shortfall special assessment after both receiverships
terminate.
IV. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a final rule, to prepare and make available for
public comment a final regulatory flexibility analysis that describes
the impact of the final rule on small entities.\63\ However, a final
regulatory flexibility analysis is not required if the agency certifies
that the final rule will not have a significant economic impact on a
substantial number of small entities. The Small Business Administration
(SBA) has defined ``small entities'' to include banking organizations
with total assets of less than or equal to $850 million.\64\ 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.\65\ Because the final rule relates
directly to the rates imposed on FDIC-insured institutions, the final
rule is not subject to the RFA. Nonetheless, the FDIC is voluntarily
presenting information in this RFA section.
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\63\ 5 U.S.C. 601 et seq.
\64\ 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.
\65\ 5 U.S.C. 601(2).
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The FDIC insures 4,654 institutions as of June 30, 2023, of which
3,373 are small entities.\66\ As discussed previously, the final rule
implements a special assessment on IDIs that are part of banking
organizations that reported $5 billion or more in uninsured deposits
for the reporting period that ended December 31, 2022. Given that no
small entity has reported $5 billion or more in uninsured deposits, the
FDIC does not believe the final rule will have a direct effect on any
small entity.
---------------------------------------------------------------------------
\66\ June 30, 2023, Call Report data, the most current Call
Reports for which the FDIC can determine which insured depository
institutions are ``small'' for purposes of RFA.
---------------------------------------------------------------------------
The FDIC invited comments regarding the supporting information
provided in the RFA section in the proposed rule, but did not receive
comments on this topic.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \67\ (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 final rule does not create any new, or 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.
---------------------------------------------------------------------------
\67\ 44 U.S.C. 3501-3521.
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C. Riegle Community Development and Regulatory Improvement Act
Section 302(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) \68\ 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 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.\69\
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\68\ 12 U.S.C. 4802(a).
\69\ 12 U.S.C. 4802(b).
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The final rule does not impose additional reporting, disclosure, or
other new requirements on insured depository institutions, including
small depository institutions, or on the customers of depository
institutions. Accordingly, section 302 of RCDRIA does not apply. The
FDIC invited comments regarding the application of RCDRIA in the
proposed rule, but did not receive comments on this topic.
Nevertheless, the requirements of RCDRIA have been considered in
setting the final effective date.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \70\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
FDIC staff believes the final rule is presented in a simple and
straightforward manner. The FDIC invited comments regarding the use of
plain language in the proposed rule but did not receive any comments on
this topic.
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\70\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999), 12 U.S.C. 4809.
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E. Congressional Review Act
For purposes of the Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\71\ If a rule is deemed a ``major rule'' by the OMB, the
Congressional Review Act generally provides that the rule may not take
effect until at least 60 days following its publication.\72\
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\71\ 5 U.S.C. 801 et seq.
\72\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of
[[Page 83347]]
Information and Regulatory Affairs of the OMB finds has resulted in or
is likely to result in: (1) an annual effect on the economy of
$100,000,000 or more; (2) a major increase in costs or prices for
consumers, individual industries, Federal, State, or local government
agencies or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.\73\
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\73\ 5 U.S.C. 804(2).
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The OMB has determined that the final rule is a major rule for
purposes of the Congressional Review Act and the FDIC will submit the
final rule and other appropriate reports to Congress and the Government
Accountability Office for review.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, Banking, Savings associations.
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority 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 (i) of this section and, if necessary, the
extended special assessment period as defined in paragraph (j) of this
section, and if further necessary, on a one-time basis as described in
paragraph (m) 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 quarterly special assessment amount. 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 (i)(2) or (j)(3) of this section, as appropriate,
by the institution's special assessment base as defined in paragraph
(i)(3) or (j)(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. The FDIC shall also
advise each insured depository institution subject to the special
assessment of any revisions, if any, to losses to the Deposit Insurance
Fund as defined in paragraph (b) of this section. 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 quarterly special assessment amount. 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) 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 later of:
(1) November 2, 2023, adjusted for mergers prior to March 12, 2023;
or
(2) The date of the institution's most recent amendment to its Call
Report or FFIEC 002 for the quarter ended December 31, 2022, if such
amendment arises from, or is confirmed through, the FDIC's Assessment
Reporting Review. 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 the special assessment or a
shortfall special assessment under this section, the amount of
uninsured deposits for such institutions as of December 31, 2022, is
zero.
(g) $5 billion deduction from the special assessment base--
institution's portion. For purposes of this section, an institution's
portion of the $5 billion deduction 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.
(h) 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).
(i) 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 earlier of the last quarterly assessment period of 2025 or
the first quarterly assessment period that 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 3.36 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; minus
(B) $5 billion; 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:
[[Page 83348]]
(A) The institution's uninsured deposits; minus
(B) The institution's portion of the $5 billion deduction;
provided, however, that an institution's special assessment base cannot
be negative.
(j) 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 minimum
number of quarters required to recover the shortfall amount at a rate
under paragraph (j)(3) of this section that is at or below 3.36 basis
points per quarter.
(3) Assessment rate during extended special assessment period. The
quarterly assessment rate during the extended special assessment period
will be the shortfall amount, divided by the total amount of uninsured
deposits, 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, divided by the
minimum number of quarters that results in the quarterly rate being no
greater than 3.36 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; minus
(B) $5 billion; 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; minus
(B) The institution's portion of the $5 billion deduction, adjusted
for termination of insurance as of the last assessment period of 2025;
provided, however, that an institution's special assessment base cannot
be negative.
(k) Effect of mergers, consolidations, and other terminations of
insurance on the special assessment--(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 assessment or one-time final shortfall special
assessment 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 and subsequent quarters. 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 from the
quarter of the acquisition through the remainder of the initial and
extended special assessment period, including any one-time final
shortfall special assessment.
(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, the special
assessment and any shortfall special assessment shall be paid
consistent with Sec. 327.6(c). When an insured depository institution
voluntarily terminates its deposit insurance, the institution shall be
liable for any unpaid special assessment or one-time final shortfall
special assessment outstanding at the time of the termination and all
future special assessments, if any, the institution would have been
invoiced through the remainder of the initial or extended special
assessment period, as applicable, including any one-time final
shortfall special assessment for which the institution has been given
notice before termination. Any special assessment or one-time final
shortfall special assessment liabilities will be included, in full, on
the final quarterly assessment invoice following voluntary termination.
(l) Corrective reporting amendments--(1) Recalculation of quarterly
special assessment amount. Corrective amendments to an institution's
uninsured deposits that arise from, or are confirmed through, the
FDIC's Assessment Reporting Review will apply retroactively beginning
the first quarterly collection period of the initial special assessment
period. An institution's special assessment base and portion of the $5
billion deduction, along with the portion of the $5 billion deduction
allocated to the institution's affiliated insured depository
institutions, will be recalculated for prior collection quarters. Any
overpayment or underpayment in prior collection quarters as a result of
the recalculation will be invoiced as described in paragraph (l)(2) of
this section.
(2) Invoicing overpayment and underpayment. Any underpayment of the
special assessment by an institution as the result of corrective
amendments to uninsured deposits will be included, in full and with
interest, on the invoice for the quarter following the date a
corrective amendment is filed. If a corrective amendment results in an
overpayment of the special assessment, the institution will be credited
the overpayment amount, with interest, and such amount will be applied
to the institution's subsequent special assessment invoices beginning
in the quarter following the date of the amendment. If any excess
credit amount remains after the end of the initial and any extended
special assessment period(s), the excess credit amount shall be
refunded to the institution. Payment and collection of interest on
amounts resulting from overpayment and underpayment of the special
assessment shall be consistent with Sec. 327.7.
(m) One-time final shortfall special assessment. If the aggregate
amount of the special assessment collected during the initial and any
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 one-time final shortfall special assessment.
The FDIC shall notify each insured depository institution of the amount
of such institution's one-time final shortfall special assessment no
later than 45 days before such shortfall assessment is due.
(2) Aggregate one-time final shortfall special assessment amount.
The aggregate amount of the one-time final shortfall special assessment
imposed across all insured depository institutions shall equal the
losses to the
[[Page 83349]]
Deposit Insurance Fund, as of termination of the receiverships to which
the March 12, 2023, systemic risk determination applied, minus the
aggregate amount of the special assessment collected under this section
through initial and extended special assessment periods, including the
net amount of interest paid or received as a result of overpayments and
underpayments.
(3) One-time 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, as described in paragraph (f) of this section,
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.
(4) One-time final shortfall special assessment base--(i) The one-
time 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; minus
(B) $5 billion; provided, however, that an institution's one-time
final shortfall special assessment base cannot be negative.
(ii) The one-time 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; minus
(B) The institution's portion of the $5 billion deduction, adjusted
for termination of insurance as of the assessment period preceding the
final shortfall assessment period; provided, however, that an
institution's one-time final shortfall special assessment base cannot
be negative.
(5) Calculation of one-time 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 one-time final shortfall special
assessment base.
(6) One-time final special assessment. The one-time final shortfall
special assessment shall be collected on a one-time quarterly basis
after 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.
(n) 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).
(o) Special assessment collection in excess of losses. Any special
assessment collected under this section that exceeds 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.
(p) 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 November 16, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-25813 Filed 11-28-23; 8:45 am]
BILLING CODE 6714-01-P
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</html>Indexed from Federal Register on November 29, 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.