This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

21256 

Vol. 76, No. 73 

Friday, April 15, 2011 

1Assessments, Large Bank Pricing, 76 FR 10672 

(February 25, 2011) (to be codified at 12 CFR 327.9). 

2A large institution is defined as an insured 

depository institution: (1) That had assets of $10 

billion or more as of December 31, 2006 (unless, by 

reporting assets of less than $10 billion for four 

consecutive quarters since then, it has become a 

small institution); or (2) that had assets of less than 

$10 billion as of December 31, 2006, but has since 

had $10 billion or more in total assets for at least 

four consecutive quarters, whether or not the 

institution is new. 

3A ‘‘highly complex institution’’ is defined as: (1) 

An insured depository institution (excluding a 

credit card bank) that has had $50 billion or more 

in total assets for at least four consecutive quarters 

and that either is controlled by a U.S. parent 

holding company that has had $500 billion or more 

in total assets for four consecutive quarters, or is 

controlled by one or more intermediate U.S. parent 

holding companies that are controlled by a U.S. 

holding company that has had $500 billion or more 

in assets for four consecutive quarters, and (2) a 

processing bank or trust company. A processing 

bank or trust company is an insured depository 

institution whose last three years’ non-lending 

interest income, fiduciary revenues, and investment 

banking fees, combined, exceed 50 percent of total 

revenues (and its last three years’ fiduciary 

revenues are non-zero), whose total fiduciary assets 

total $500 billion or more and whose total assets for 

at least four consecutive quarters have been $10 

billion or more. 

4These adjustments are the unsecured debt 

adjustment, the depository institution debt 

adjustment, and the brokered deposit adjustment. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

Proposed Assessment Rate 

Adjustment Guidelines for Large and 

Highly Complex Institutions 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Request for comment. 

SUMMARY: The FDIC seeks comment on 

proposed guidelines that would be used 

to determine how adjustments could be 

made to the total scores that are used in 

calculating the deposit insurance 

assessment rates of large and highly 

complex insured institutions. Total 

scores are determined according to the 

Assessments and Large Bank Pricing 

approved by the FDIC Board on 

February 7, 2011. 

DATES: Comments must be received on 

or before May 31, 2011. 

ADDRESSES: You may submit comments, 

identified by ‘‘Adjustment Guidelines,’’ 

by any of the following methods: 

• Agency Web site: http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html. Follow instructions for 

submitting comments on the Agency 

Web site. 

• E-mail: Comments@FDIC.gov. 

Include ‘‘Adjustment Guidelines’’ in the 

subject line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

Instructions: All submissions received 

must include the agency name and 

‘‘Adjustment Guidelines’’ in the heading. 

All comments received will be posted to 

the extent practicable and, in some 

instances, the FDIC may post summaries 

of categories of comments, with the 

comments themselves available in the 

FDIC’s reading room. Comments will be 

posted at http://www.fdic.gov/ 

regulations/laws/federal/propose.html, 

including any personal information 

provided. 

FOR FURTHER INFORMATION CONTACT: Lisa 

Ryu, Chief, Large Bank Pricing Section, 

Division of Insurance and Research, 

(202) 898–3538; Andrew Felton, Acting 

Chief, Large Bank Pricing Section, 

Division of Insurance and Research, 

(202) 898–3823; Mike Anas, Senior 

Financial Analyst, Division of Insurance 

and Research, (630) 241–0359 x 8252; 

and Christopher Bellotto, Counsel, Legal 

Division, (202) 898–3801, 550 17th 

Street, NW., Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On February 7, 2011 (76 FR 10672 

(Feb. 25, 2011)), the FDIC Board 

amended its assessment regulations (the 

Amended Assessment Regulations), by, 

among other things, adopting a new 

methodology for determining 

assessment rates for large institutions.1 2

The Amended Assessment Regulations 

eliminate risk categories for large 

institutions and combine CAMELS 

ratings and forward-looking financial 

measures into one of two scorecards, 

one for highly-complex institutions and 

another for all other large institutions.3

Each of the two scorecards produces 

two scores—a performance score and a 

loss severity score—that are combined 

into a total score, which cannot be 

greater than 90 or less than 30. The 

FDIC can adjust a bank’s total score up 

or down by no more than 15 points, but 

the resulting score cannot be greater 

than 90 or less than 30. The score is 

then converted to an initial base 

assessment rate, which, after application 

of other possible adjustments, results in 

a total assessment rate.4 The total 

assessment rate is multiplied by the 

bank’s assessment base to calculate the 

amount of its assessment obligation. 

Tables 1 and 2 show the scorecards 

for large and highly complex 

institutions, respectively. 

TABLE 1—SCORECARD FOR LARGE INSTITUTIONS

Scorecard measures and components Measure weights 

(percent) 

Component 

weights 

(percent) 

P Performance Score 

P.1 Weighted Average CAMELS Rating ................................................................................................... 100 30 

P.2 Ability to Withstand Asset-Related Stress: ......................................................................................... .............................. 50 

Tier 1 Leverage Ratio ........................................................................................................................... 10 ..............................

Concentration Measure ........................................................................................................................ 35 ..............................

Core Earnings/Average Quarter-End Total Assets * ............................................................................ 20 ..............................


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5The Amended Assessment Regulations also 

require that the FDIC publish aggregate statistics on 

adjustments each quarter once the guidelines are 

adopted. 76 FR 10699. 

6Assessment Rate Adjustment Guidelines for 

Large Institutions and Insured Foreign Branches in 

Risk Category I, 72 FR 27122 (May 14, 2007). 

TABLE 1—SCORECARD FOR LARGE INSTITUTIONS—Continued 

Scorecard measures and components Measure weights 

(percent) 

Component 

weights 

(percent) 

Credit Quality Measure ......................................................................................................................... 35 ..............................

P.3 Ability to Withstand Funding-Related Stress: ..................................................................................... .............................. 20 

Core Deposits/Total Liabilities .............................................................................................................. 60 ..............................

Balance Sheet Liquidity Ratio .............................................................................................................. 40 ..............................

L Loss Severity Score 

L.1 Loss Severity Measure ....................................................................................................................... .............................. 100 

* Average of five quarter-end total assets (most recent and four prior quarters). 

TABLE 2—SCORECARD FOR HIGHLY COMPLEX INSTITUTIONS

Measures and components Measure weights 

(percent) 

Component 

weights (percent) 

P Performance Score 

P.1 Weighted Average CAMELS Rating ................................................................................................... 100 30 

P.2 Ability to Withstand Asset-Related Stress: ......................................................................................... .............................. 50 

Tier 1 Leverage Ratio ........................................................................................................................... 10 ..............................

Concentration Measure ........................................................................................................................ 35 ..............................

Core Earnings/Average Quarter-End Total Assets .............................................................................. 20 ..............................

Credit Quality Measure and Market Risk Measure .............................................................................. 35 ..............................

P.3 Ability to Withstand Funding-Related Stress: ..................................................................................... .............................. 20 

Core Deposits/Total Liabilities .............................................................................................................. 50 ..............................

Balance Sheet Liquidity Ratio .............................................................................................................. 30 ..............................

Average Short-Term Funding/Average Total Assets ........................................................................... 20 ..............................

L Loss Severity Score 

L.1 Loss Severity ....................................................................................................................................... .............................. 100 

* Average of five quarter-end total assets (most recent and four prior quarters). 

Scorecard measures (other than the 

weighted average CAMELS rating) are 

converted to scores between 0 and 100 

based on minimum and maximum 

cutoff values for each measure. A score 

of 100 reflects the highest risk and a 

score of 0 reflects the lowest risk. A 

value reflecting lower risk than the 

cutoff value receives a score of 0 and a 

value reflecting higher risk than the 

cutoff value receives a score of 100. A 

risk measure value between the 

minimum and maximum cutoff values 

converts linearly to a score between 0 

and 100, which is rounded to 3 decimal 

points. The weighted average CAMELS 

rating is converted to a score between 25 

and 100, where 100 reflects the highest 

risk and 25 reflects the lowest risk. 

In most cases, the total score 

produced by the applicable scorecard 

will correctly reflect an institution’s 

overall risk relative to other large 

institutions; however, the scorecard 

includes assumptions that may not be 

appropriate for all institutions. 

Therefore, the FDIC believes that it is 

important that it have the ability to 

consider idiosyncratic or other relevant 

risk factors that are not adequately 

captured in the scorecards and make 

appropriate adjustments to an 

institution’s total score. The Amended 

Assessment Regulations state that, after 

consultation with an institution’s 

primary Federal regulator, the FDIC may 

make a limited adjustment to an 

institution’s total score based upon risks 

that are not adequately captured in the 

scorecard. The Amended Assessment 

Regulations provide that no new 

adjustments will be made until new 

guidelines have been published for 

comment and approved by the FDIC’s 

Board of Directors.5

The proposed guidelines describe the 

process the FDIC would follow to 

determine whether to make an 

adjustment and to determine the size of 

any adjustment. This request for 

comments also outlines the process the 

FDIC would use when notifying an 

institution regarding an adjustment. 

These proposed guidelines would 

supersede the large bank pricing 

adjustment guidelines published by the 

FDIC on May 14, 2007 (the 2007 

Guidelines).6 The 2007 Guidelines 

outline the adjustment process for the 

large bank assessment system then in 

effect. The Amended Assessment 

Regulations include scorecards that 

explicitly incorporate some of the risks 

that were previously captured primarily 

through large bank adjustments. The 

proposed guidelines take these changes 

into account; however, the processes for 

communicating with affected 

institutions and implementing 

adjustments once determined remain 

largely unchanged from the 2007 

Guidelines, except that the FDIC is now 

explicitly allowing institutions to 

request a large bank adjustment. 

The FDIC seeks comments on the 

proposed guidelines and the procedures 

for making an adjustment to an 

institution’s score. Although the FDIC 

has in this instance chosen to publish 

the proposed guidelines and solicit 

comment from the industry, notice and 

comment are not required and need not 

be employed to make future changes to 

the guidelines. 


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7 75 FR 72612 (Nov. 24, 2010). 

8 76 FR 10672 (Feb. 25, 2011). 

II. Overview of Proposed Guidelines on 

Large Bank Adjustment 

The proposed large bank adjustment 

process would be based on a set of 

guidelines designed to ensure that the 

adjustment process is fair and 

transparent and that any decision to 

adjust a score is well supported. The 

following general guidelines would 

govern the adjustment process, which is 

described in greater detail below. 

Analytical Guidelines 

• The FDIC would focus on 

identifying institutions for which a 

combination of risk measures and other 

information suggests either materially 

higher or lower risk than their total 

scores indicate. The FDIC would 

consider all available material 

information relating to the likelihood of 

failure or loss severity in the event of 

failure. 

• The FDIC would primarily consider 

two types of information in determining 

whether to make a large bank 

adjustment: A scorecard ratio or 

measure that exceeds the maximum 

cutoff value for a ratio or measure or is 

less than the minimum cutoff value for 

a ratio or measure along with the degree 

to which the ratio or measure differs 

from the cutoff value (scorecard 

measure outliers); or information not 

directly captured in the scorecard, 

including complementary quantitative 

risk measures and qualitative risk 

considerations. 

• If an institution has one or more 

scorecard measure outliers, the FDIC 

would conduct further analysis to 

determine whether underlying 

scorecard ratios are materially higher or 

lower than the established cutoffs for a 

given scorecard measure and whether 

other mitigating or supporting 

information exists. 

• The FDIC would use 

complementary quantitative risk 

measures to determine whether a given 

scorecard measure is an appropriate 

measure for a particular institution. 

• When qualitative risk 

considerations materially affect the 

FDIC’s view of an institution’s 

probability of failure or loss given 

failure, these considerations could be 

the primary factor supporting the 

adjustment. Qualitative risk 

considerations include, but are not 

limited to, underwriting practices 

related to material concentrations, risk 

management practices, strategic risk, the 

use and management of government 

support programs, and factors affecting 

loss severity. 

• Specific risk measures would vary 

in importance for different types of 

institutions. In some cases, a single risk 

factor or indicator may support an 

adjustment if the factor suggests a 

significantly higher or lower likelihood 

of failure, or loss given failure, than the 

total score reflects. 

• To the extent possible in comparing 

risk measures, the FDIC would consider 

the performance of similar institutions, 

taking into account that variations in 

risk measures exist among institutions 

with substantially different business 

models. 

• Adjustments would be made only if 

the comprehensive analysis of an 

institution’s risk, generally based on the 

two types of information listed above, 

and the institution’s relative risk 

ranking warrant a meaningful 

adjustment of the institution’s total 

score (generally, an adjustment of five 

points or more). 

Procedural Guidelines 

The processes for communicating 

with affected institutions and 

implementing adjustments once 

determined would remain largely 

unchanged by this proposal, except that 

the FDIC would now explicitly allow 

institutions to request an adjustment. 

• The FDIC would consult with an 

institution’s primary Federal regulator 

and appropriate state banking 

supervisor before making any decision 

to adjust an institution’s total score (and 

before removing a previously 

implemented adjustment). 

• The FDIC would give institutions 

advance notice of any decision to make 

an upward adjustment to a total score, 

or to remove a previously implemented 

downward adjustment. The notice 

would include the reasons for the 

proposed adjustment or removal, the 

size of the proposed adjustment or 

removal, specify when the adjustment 

or removal would take effect, and 

provide institutions with up to 60 days 

to respond. 

• The FDIC would re-evaluate the 

need for total score adjustments on a 

quarterly basis. 

• Institutions could make written 

request to the FDIC for an adjustment, 

but must support the request with 

evidence of a material risk or riskmitigating factor that is not adequately 

accounted for in the scorecard. 

• An institution could request review 

of or appeal an upward adjustment, the 

magnitude of an upward adjustment, 

removal of a previously implemented 

downward adjustment or an increase in 

a previously implemented upward 

adjustment pursuant to 12 CFR 327.4(c). 

An institution could similarly request 

review of or appeal a decision not to 

apply an adjustment following a request 

by the institution for an adjustment. 

III. The Assessment Rate Adjustment 

Process 

A. Identifying the Need for an 

Adjustment 

The FDIC believes that any 

adjustment should improve the rank 

ordering of institutions according to 

risk. Institutions with similar risk 

profiles should have similar total scores 

and corresponding initial assessment 

rates, and institutions with higher or 

lower risk profiles should have higher 

or lower total scores and initial 

assessment rates, respectively. The FDIC 

would evaluate scorecard results each 

quarter to identify institutions with a 

score that is clearly too high or too low 

when considered in light of risks or riskmitigating factors that are inadequately 

accounted for by the scorecard. Some 

examples of these types of risks and 

risk-mitigating factors include 

considerations for purchased credit 

impaired (PCI) loans, accounting rule 

changes such as FAS 166/167, credit 

underwriting and credit administration 

practices, collateral and other risk 

mitigants, including the materiality of 

guarantees and franchise value. 

Commenters on the proposed large bank 

pricing rule published on November 9, 

2010 (the Large Bank NPR) 7 suggested 

that these factors be considered in 

determining an institution’s assessment 

rate. As discussed in the preamble to the 

Final Rule on Assessments and Large 

Bank Pricing approved by the FDIC 

Board in February 2011, the FDIC stated 

that it would consider these factors in 

the large bank assessment rate 

adjustments.8

In addition to considering an 

institution’s relative risk ranking among 

all large institutions, the FDIC would 

consider how an institution compares to 

similar institutions. The comparison 

would allow the FDIC to account for 

variations in risk measures that may 

exist among institutions with differing 

business models. For purposes of the 

comparison, the FDIC would, where 

appropriate, assign an institution to a 

peer group. The proposed peer groups 

are: 

Processing Banks and Trust 

Companies: Large institutions whose 

last three years’ non-lending interest 

income, fiduciary revenues, and 

investment banking fees, combined, 

exceed 50 percent of total revenues (and 

its last three years’ fiduciary revenues 


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9See Guidelines for Appeals of Deposit Insurance 

Assessment Determinations, 75 FR 20362 (April 19, 

2010). 

10The institution would also be given advance 

notice when the FDIC determines to eliminate any 

downward adjustment to an institution’s total score. 

11The invoice covering the assessment period 

January 1 through March 31 in this example would 

not reflect the upward adjustment. 

12As noted in the Amended Assessments 

Regulation, an institution’s assessment rate can 

increase without notice if the institution’s 

supervisory, agency ratings, or financial ratios 

deteriorate. 

are non-zero), and whose total fiduciary 

assets total $500 billion or more. 

Residential Mortgage Lenders: Large 

institutions not described in the peer 

group above whose mortgage loans plus 

mortgage-backed securities exceed 50 

percent of total assets. 

Non-diversified Regional Institutions: 

Large institutions not described in a 

peer group above if: credit card plus 

securitized receivables exceed 50 

percent of assets plus securitized 

receivables; or the sum of residential 

mortgage loans, credit card loans, and 

other loans to individuals exceeds 50 

percent of assets. 

Large Diversified Institutions: Large 

institutions not described in a peer 

group above with over $150 billion in 

assets. 

Diversified Regional Institutions: 

Large institutions not described in a 

peer group above with less than $150 

billion in assets. 

An institution can also request that 

the FDIC make an adjustment to its 

score by submitting a written request to 

the FDIC’s Director of the Division of 

Insurance and Research in Washington, 

DC. Similar to FDIC-initiated 

adjustments, an institution’s request for 

an adjustment would be considered 

only if it is supported by evidence of a 

material risk or risk-mitigating factor 

that is not adequately accounted for in 

the scorecard. The FDIC would consider 

these requests as part of its ongoing 

effort to identify and adjust scores that 

require adjustment. An institutioninitiated request would not preclude a 

subsequent request for review (12 CFR 

327.4(c)) or appeal pursuant to the 

assessment appeals process.9

B. Determining the Adjustment Amount 

Once it determines that an adjustment 

may be warranted, the FDIC would 

determine the adjustment amount 

necessary to bring an institution’s total 

score into better alignment with those of 

other institutions that pose similar 

levels of risk. The FDIC would initiate 

adjustments only when a combination 

of risk measures and other information 

suggests either materially higher or 

lower risk than their total scores 

indicate, generally resulting in an 

adjustment of an institution’s total score 

by five points or more. The FDIC 

believes that the adjustment process 

should be used to address material 

idiosyncratic issues in a small number 

of institutions rather than as a finetuning mechanism for a large number of 

institutions. If the size of the adjustment 

required to align an institution’s total 

score with institutions of similar risk is 

not material, no adjustment would be 

made. 

B. Further Analysis and Consultation 

With Primary Federal Regulator 

As under the 2007 Guidelines, before 

making an adjustment, the FDIC would 

consult with an institution’s primary 

Federal regulator and state banking 

supervisor to obtain further information 

and comment. 

C. Advance Notice 

Decisions to lower an institution’s 

total score would not be communicated 

to institutions in advance. Rather, as 

under the 2007 Guidelines, they would 

be reflected in the invoices for a given 

assessment period along with the 

reasons for the adjustment. 

To give an institution an opportunity 

to respond, the FDIC would give 

advance notice to an institution when 

proposing to make an upward 

adjustment to the institution’s total 

score.10 Consistent with the 2007 

Guidelines, the timing of the notice 

would correspond approximately to the 

invoice date for an assessment period. 

For example, an institution would be 

notified of a proposed upward 

adjustment to its assessment rates 

covering the period April 1 through 

June 30 by approximately June 15, 

which is the invoice date for the January 

1 through March 31 assessment 

period.11

D. Institution’s Opportunity To Respond 

Before implementing an upward 

adjustment to a total score, the FDIC 

would review the institution’s response 

to the advance notice, along with any 

subsequent changes to supervisory 

ratings, scorecard measures, or other 

relevant risk factors. Similar to the 2007 

Guidelines, if the FDIC decided to 

implement the upward adjustment, it 

would notify an institution of its 

decision along with the invoice for the 

quarter in which the adjustment would 

become effective. 

Extending the example above, if the 

FDIC notified an institution of a 

proposed upward adjustment on June 

15, the institution would have 60 days 

from this date to respond to the 

notification. If, after evaluating the 

institution’s response and updated 

information for the quarterly assessment 

period ending June 30, the FDIC 

decided to proceed with the adjustment, 

it would communicate this decision to 

the institution by approximately 

September 15, which is the invoice date 

for the April 1 through June 30 

assessment period. In this case, the 

adjusted rate would be reflected in the 

September 15 invoice. 

The time frames and example above 

also apply to a decision by the FDIC to 

remove a previously implemented 

downward adjustment as well as a 

decision to increase a previously 

implemented upward adjustment. 

E. Duration of the Adjustment 

Consistent with the 2007 Guidelines, 

the adjustment would remain in effect 

for subsequent assessment periods until 

the FDIC determined either that the 

adjustment was no longer warranted or 

that the magnitude of the adjustment 

needed to be reduced or increased 

(subject to the 15-point limitation and 

the requirement for further advance 

notification).12

F. Requests for Review and Appeals 

An institution could request review of 

or appeal an upward adjustment, the 

magnitude of an upward adjustment, 

removal of a previously implemented 

downward adjustment or an increase in 

a previously implemented upward 

adjustment pursuant to 12 CFR 327.4(c). 

An institution could similarly request 

review of or appeal a decision not to 

apply an adjustment following a request 

by the institution for an adjustment. 

IV. Additional Information on the 

Adjustment Process, Including 

Examples 

As discussed above, the FDIC would 

primarily consider two types of 

information in determining whether to 

make a large bank adjustment: 

Scorecard measure outliers or 

information not directly captured in the 

scorecard, including complementary 

quantitative risk measures and 

qualitative risk considerations. 

A. Scorecard Measure Outliers 

In order to convert each scorecard 

ratio into a score that ranges between 0 

and 100, the Amended Assessment 

Regulations use minimum and 

maximum cutoff values that generally 

correspond to the 10th and 90th 

percentile values for each ratio based on 

data for the 2000 to 2009 period. All 

values less than the 10th percentile or 

all values greater than the 90th 


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percentile are assigned the same score. 

This process enables the FDIC to 

compare different ratios in a 

standardized way and assign 

statistically-based weights; however, it 

may mask significant differences in risk 

among institutions with the minimum 

or maximum score. The FDIC believes 

that an institution with one or more 

scorecard ratios well in excess of the 

maximum cutoffs or well below the 

minimum cutoffs may pose significantly 

greater or lower risk to the deposit 

insurance fund than its score suggests. 

The example below illustrates the 

analytical process the FDIC would 

follow in determining to propose a 

downward adjustment based on 

scorecard measure outliers. The 

example is merely illustrative. As 

shown in Chart 1, Bank A has a total 

score of 45 and two scorecard measures 

with a score of 0 (indicating lower risk). 

Since at least one of the scorecard 

measures has a score of 0, the FDIC 

would further review whether the ratios 

underlying these measures materially 

differ from the cutoff value associated 

with a score of 0. Materiality would 

generally be determined by the amount 

that the underlying ratio differed from 

the relevant cutoff as a percentage of the 

overall scoring range (the maximum 

cutoff minus the minimum cutoff). 

Table 3 shows that Bank A’s Tier 1 

Leverage ratio (17 percent) far exceeds 

the cutoff value associated with a score 

of 0 (13 percent), with the difference 

representing 57 percent of the 

associated scoring range. Based on this 

additional information and assuming no 

other mitigating factors, the FDIC could 

determine that the Bank A’s loss 

absorbing capacity is not fully 

recognized, particularly when compared 

with other institutions receiving the 

same overall score. By contrast, Bank 

A’s Core ROA ratio is much closer to its 

cutoff values, suggesting that an 

adjustment based on consideration of 

those factors may not be justified. 

TABLE 3—OUTLIER ANALYSIS FOR BANK A 

Scorecard measure Score 

Cutoffs 

Value 

(percent) 

Outlier 

amount 

(value 

minus 

cutoff) 

as percentage of 

the 

scoring 

range 

(percent) 

Minimum 

(percent) 

Maximum 

(percent) 

Core ROA ................................................................................................ 0 0 2 2.08 4 

Tier 1 Capital Ratio .................................................................................. 0 6 13 17 57 


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Before initiating an adjustment, 

however, the FDIC would consider 

whether Bank A had significant risks 

that were not captured in the scorecard. 

If no information on such risks existed, 

the FDIC would initiate a downward 

adjustment to Bank A’s total score. 

The amount of the adjustment would 

be the amount needed to make the total 

score consistent with those of banks of 

comparable overall risk, with particular 

emphasis on institutions of the same 

institution type (e.g., diversified 

regional institutions), as described 

above. Typically, however, adjustments 

supported by only one extreme outlier 

value would be less than the FDIC’s 

potential adjustment authority of 15 

points. In the case of multiple outlier 

values, inconsistent outlier values, or 

outlier values that are exceptionally 

beyond the scoring range, an overall 

analysis of each measure’s relative 

importance may call for higher or lower 

adjustment amounts. For Bank A, a 

5-point adjustment may be most 

appropriate. 

The next example illustrates the 

analytical process the FDIC would 

follow in determining to propose an 

upward adjustment based on scorecard 

measure outliers. As in the example 

above, the example is merely 

illustrative; an institution with less 

extreme values could also receive an 

upward adjustment. As shown in Chart 

2, Bank B has a total score of 72 and 

three scorecard measures with a score of 

100 (indicating higher risk). 

Since at least one of the scorecard 

measures has a score of 100, the FDIC 

would further review whether the ratios 

underlying these measures materially 

exceed the cutoff value associated with 

a score of 100. Table 4 shows that Bank 

B’s Criticized and Classified Items to 

Tier 1 Capital and Reserves ratio (198 

percent) far exceeds the cutoff value 

associated with a score of 100 (100 

percent), with the difference 

representing 105 percent of the 

associated scoring range. Based on this 

additional information and assuming no 

other mitigating factors, the FDIC could 

determine that the risk associated with 

Bank B’s ability to withstand assetrelated stress and, therefore, its overall 

risk, may be materially greater than its 

score suggests, particularly when 

compared with other institutions 

receiving the same overall score. By 

contrast, the Core ROA and 

Underperforming Assets to Tier 1 

Capital and Reserves values are much 

closer to their respective cutoff values, 

suggesting that an adjustment based on 

these factors may not be justified. 

TABLE 4—OUTLIER ANALYSIS FOR BANK B 

Scorecard measure Score 

Cutoffs 

Value 

(percent) 

Outlier amount 

(value minus 

cutoff) as 

percentage of 

the 

scoring range 

(percent) 

Minimum 

(percent) 

Maximum 

(percent) 

Core ROA ........................................................................................ 100 0 2 ¥0.05 ¥3 

Criticized and Classified to Tier 1 Capital & Reserves ................... 100 7 100 198 105 

Underperforming Assets to Tier 1 Capital & Reserves ................... 100 2 35 36 3 


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13 In the context of large institution insurance 

pricing, loss severity refers to the relative loss, 

scaled to its current domestic deposits, that an institution poses to the Deposit Insurance Fund in 

the event of a failure. 

After considering any risk-mitigating 

factors, the FDIC would determine the 

amount of adjustment needed to make 

the total score consistent with those of 

banks of comparable overall risk. For 

Bank B, a 5-point adjustment may be 

most appropriate. 

B. Information Not Directly Captured by 

the Scorecard 

1. Complementary Risk Measures 

Complementary risk measures are 

measures that are not included in the 

scorecard, but that can inform the 

appropriateness of a given scorecard 

measure for a particular institution. 

These measures are readily available for 

all institutions and include quantitative 

metrics and market indicators that 

provide further insights into an 

institution’s ability to withstand 

financial adversity, and the severity of 

losses in the event of failure.13

Analyzing complementary risk 

measures would help the FDIC 

determine whether the assumptions 

applied to a scorecard measure are 

appropriate for a particular institution. 

For example, as detailed in the 

Amended Assessments Regulation, the 

scorecard includes a loss severity 

measure based on the FDIC’s loss 

severity model that applies a standard 

set of assumptions to all large banks to 

estimate potential losses to the 

insurance fund. These assumptions, 

including liability runoffs and asset 

recovery rates, are derived from actual 

bank failures; however, the FDIC 

recognizes that a large bank may have 

unique attributes that could have a 

bearing on the appropriateness of those 

assumptions. When data or quantitative 

metrics exist that support materially 

different runoff assumptions or asset 

recovery rates for a particular 

institution, the FDIC may consider an 

adjustment to the total score, 

particularly if such information is 

further supported by qualitative loss 

severity considerations as discussed 

below. 

The example below illustrates the 

analytical process the FDIC would 

follow in determining to propose an 

upward adjustment based on 

complementary risk measures. Again, 

the example is merely illustrative. Chart 

3 shows that Bank C has a total score of 

66. Some of Bank C’s risk measure 

scores are significantly higher than the 

total score, while others, including the 

Tier 1 leverage ratio score (42), are 

significantly lower. 

After reviewing complementary 

measures for all financial ratios 

contained in the scorecard, in the 

hypothetical example, the 

complementary measures for Tier 1 

leverage ratio showed that the level and 

quality of capital protection may not be 

correctly reflected in the Tier 1 leverage 

ratio score. Chart 4 shows that two other 

complementary capital measures for 

Bank C—the total equity ratio and the 

ratio of other comprehensive income 

(OCI) to Tier 1 capital—suggest higher 

risk than the Tier 1 leverage ratio score 

suggests. Additional review reveals that 

sizeable unrealized losses in the 

securities portfolio account for these 

differences and that Bank C’s loss 

absorbing capacity is potentially 

overstated by the Tier 1 leverage ratio. 


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Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Proposed Rules 21263 

14The concentration measure and the credit 

quality measure are expressed as a percent of Tier 

1 capital plus the allowance for loan loss reserves. 

An upward adjustment to Bank C’s 

total score may be appropriate, again 

assuming that no significant risk 

mitigants are evident. An adjustment of 

5 points would be likely since the 

underlying level of unrealized losses is 

extremely high (greater than 25% of Tier 

1 capital). While the adjustment in this 

case would likely be limited to 5 points 

because the bank’s concentration 

measure and credit quality measure 

already receive the maximum possible 

score, in other cases modest unrealized 

losses could lead to a higher overall 

adjustment amount, if the concentration 

and credit quality measures are 

understated as well.14

2. Qualitative Risk Considerations 

The FDIC believes that it is important 

to consider all relevant qualitative risk 

considerations in determining whether 

to apply a large bank adjustment. 

Qualitative information often provides 

significant insights into institutionspecific or idiosyncratic risk factors that 

cannot be captured in the scorecard. 

Similar to scorecard outliers and 

complementary risk measures, the FDIC 

would use the qualitative information to 

consider whether potential 

discrepancies exist between the risk 

ranking of institutions based on their 

total score and the relative risk ranking 

suggested by a combination of risk 

measures and qualitative risk 

considerations. Such information 

includes, but is not limited to, analysis 

based on information obtained through 

the supervisory process, such as 

underwriting practices, interest rate risk 

exposure and other information 

obtained through public filings. 

Another example of qualitative 

information that the FDIC would 

consider is available information 

pertaining to an institution’s ability to 

withstand adverse events. Sources of 

this information are varied but may 

include analyses produced by the 

institution or supervisory authorities, 

such as stress test results, capital 

adequacy assessments, or information 

detailing the risk characteristics of the 

institution’s lending portfolios and 

other businesses. Information pertaining 

to internal stress test results and 

internal capital adequacy assessment 

would be used qualitatively to help 

inform the relative importance of other 

risk measures, especially concentrations 

of credit exposures and other material 

non-lending business activities. As an 

example, in cases where an institution 

has a significant concentration of credit 

risk, results of internal stress tests and 

internal capital adequacy assessments 

could obviate FDIC concerns about this 

risk and therefore provide support for a 

downward adjustment, or alternatively, 

provide additional mitigating 

information to forestall a pending 

upward adjustment. In some cases, 

stress testing results may suggest greater 

risk than would normally be evident 

through the scorecard methodology 

alone. 

Qualitative risk considerations would 

also include information that could 

have a bearing on potential loss severity, 

and could include, for example, the ease 

with which the FDIC could make quick 

deposit insurance determinations and 

depositor payments, or the availability 

of sufficient information on qualified 

financial contracts to allow the FDIC to 

make timely and correct determinations 

on these contracts in the event of 

failure. 

In general, qualitative factors would 

become more important in determining 

whether to apply an adjustment when 

an institution has high performance risk 


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21264 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Proposed Rules 

or if the institution has high asset, 

earnings, or funding concentrations. For 

example, if a bank is near failure, 

qualitative loss severity information 

becomes more important in the 

adjustment process. Further, if a bank 

has material concentrations in some 

asset classes, the quality of underwriting 

becomes more important in the 

adjustment process. 

Additionally, engaging in certain 

business lines may warrant further 

consideration of qualitative factors. For 

instance, supervisory assessments of 

operational risk and controls at 

processing banks are likely to be 

important regardless of the institution’s 

performance. 

The specific example below illustrates 

the analytical process the FDIC would 

follow to determine whether to make an 

adjustment based on qualitative 

information. Chart 5 shows that Bank D 

has a high score of 82 that is largely 

driven by a high score for the ability to 

withstand asset-related stress 

component, which is, in turn, largely 

driven by the higher-risk asset 

concentration score and the 

underperforming asset score. The ability 

to withstand asset-related stress 

component is heavily weighted in the 

scorecard (50 percent weight), and, as a 

result, significant qualitative 

information that is not considered in the 

scorecard could lead to an adjustment to 

the institution’s total score. 

The FDIC would review qualitative 

information pertaining to the higher-risk 

asset concentration measure and the 

underperforming asset measure for Bank 

D to determine whether there are one or 

more important risk mitigants that are 

not factored into the scorecard. We 

assume that the further review revealed 

that, while Bank D has concentrations in 

non-traditional mortgages, its mortgage 

portfolio has the following 

characteristics that suggest lower risk: 

a. Most of the loan portfolio is 

composed of bank-originated residential 

real estate loans on owner-occupied 

properties; 

b. The portfolio has strong collateral 

protection (e.g., few or no loans with a 

high loan-to-value ratio) compared to 

the rest of the industry; 

c. Debt service coverage ratios are 

favorable (e.g., few or no loans with a 

high debt-to-income ratio) compared to 

the institution’s peers; 

d. The primary Federal regulator 

notes in its examination report that the 

institution has strong collection 

practices and reports no identified risk 

management deficiencies. 

Additionally, these qualitative factors 

surrounding the bank’s real estate 

portfolio suggest loss rate assumptions 

applied to Bank D’s residential mortgage 

portfolio may be too severe, resulting in 

a loss severity score that is too high 

relative to its risk. 

Based on the information above, the 

bank would be a strong candidate for a 

10- to 15-point reduction in total score, 

primarily since the ability to withstand 

asset-related stress score and loss 

severity score do not reflect a number of 

significant qualitative risk mitigants that 

suggest lower risk. 

V. Request for Comment 

The FDIC seeks comment on all 

aspects of the proposed guidelines for 

determining how to make potential 

adjustments to the initial total score of 

large institutions. In particular, the FDIC 

seeks comment on: 

1. Whether the proposed guidelines 

governing the adjustment process are 

appropriate and sufficient to ensure 

fairness and consistency in deposit 

insurance pricing determinations. More 

specifically the FDIC seeks comment on 

the appropriateness of the following: 

a. Reviewing outlier values on 

scorecard risk measures; 

b. Augmenting the analysis of 

scorecard risk measures with a review of 

additional complementary and 

qualitative risk measures; 

c. Basing adjustment decisions on 

considerations of multiple risk 

indicators; 

d. Assessing financial performance 

risk measures relative to other 

institutions engaged in similar business 

activities; and 


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Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Proposed Rules 21265 

1Public Law 111–203, 124 Stat. 1376. 

e. Using additional risk information, 

including qualitative information, to 

determine the magnitude of adjustment 

to an institution’s total score that would 

be necessary to bring its total score into 

better alignment with institutions with 

similar risk profiles. 

2. Are there additional guidelines that 

should govern the analytical process to 

ensure fairness and consistency in 

deposit insurance pricing 

determinations? 

3. What qualitative information 

should the FDIC use to best evaluate 

loss severity? 

4. Are the proposed guidelines for 

controlling the assessment rate 

adjustment process sufficient to ensure 

that adjustment decisions are justified, 

fully supported, and take into account 

the views of the primary Federal 

regulator and the institution? 

VI. Paperwork Reduction Act 

A. Request for Comment on Proposed 

Information Collection 

In accordance with the Paperwork 

Reduction Act (44 U.S.C. 3501 et seq.) 

the FDIC may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. The collection of information 

contained in this proposed rule is being 

submitted to OMB for review. 

Interested parties may submit written 

comments to the FDIC concerning the 

Paperwork Reduction Act (PRA) 

implications of this proposal. 

Commenters should refer to ‘‘PRA 

Comments—Adjustment Guidelines’’ in 

the subject line. Comments may be 

submitted by any of the following 

methods: 

• Agency Web site: http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html. Follow instructions for 

submitting comments on the Agency 

Web site. 

• E-mail: Comments@FDIC.gov. 

Include ‘‘PRA Comments—Adjustment 

Guidelines, 3064–ADXX’’ in the subject 

line of the message. 

• Mail: Gary A. Kuiper, Counsel, F– 

1086, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

A copy of the comments may also be 

submitted to the OMB desk officer for 

the FDIC, Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, New 

Executive Office Building, Washington, 

DC 20503. 

Comment is solicited on: 

(1) Whether the proposed collection 

of information is necessary for the 

proper performance of the functions of 

the agency, including whether the 

information will have practical utility; 

(2) The accuracy of the agency’s 

estimate of the burden of the proposed 

collection of information, including the 

validity of the methodology and 

assumptions used; 

(3) The quality, utility, and clarity of 

the information to be collected; 

(4) Ways to minimize the burden of 

the collection of information on those 

who are to respond, including through 

the use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology; 

e.g., permitting electronic submission of 

responses; and 

(5) Estimates of capital or start-up 

costs and costs of operation, 

maintenance, and purchases of services 

to provide information. 

B. Proposed Information Collection 

An information collection would 

occur when a large or highly complex 

insured depository institution makes a 

written request that the FDIC make an 

adjustment to its total score. An 

institution’s request for adjustment 

would be considered only if it is 

supported by evidence of a material risk 

or risk-mitigating factor that is not 

adequately accounted for in the 

scorecard. 

Respondents: Large and Highly 

Complex insured depository 

institutions. 

Number of responses: 0–11 per year. 

Frequency of response: Occasional. 

Average number of hours to prepare 

a response: 8 hours. 

Total annual burden: 0–88 hours. 

Dated at Washington, DC, this 12th day of 

April 2011. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2011–9209 Filed 4–14–11; 8:45 am] 

BILLING CODE 6714–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Parts 329 and 330 

RIN 3064–AD78 

Interest on Deposits; Deposit 

Insurance Coverage 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking 

(NPR) and request for comment. 

SUMMARY: Effective July 21, 2011, the 

statutory prohibition against the 

payment of interest on demand deposits 

will be repealed pursuant to the DoddFrank Wall Street Reform and Consumer 

Protection Act (the DFA).1 In light of 

this, the FDIC proposes to rescind 

regulations that have implemented this 

prohibition with respect to statechartered nonmember (SNM) banks. 

Because the regulations include a 

definition of ‘‘interest’’ that may assist 

the FDIC in interpreting a recent 

statutory amendment that provides 

temporary, unlimited deposit insurance 

coverage for noninterest-bearing 

transaction accounts, the FDIC also 

proposes to retain and move the 

definition of ‘‘interest’’ into the deposit 

insurance regulations. 

DATES: Comments must be received on 

or before May 16, 2011. 

ADDRESSES: You may submit comments 

on the notice of proposed rulemaking, 

identified by RIN number and the words 

‘‘Interest on Deposits; Deposit Insurance 

Coverage NPRM,’’ by any of the 

following methods: 

• Agency Web site: http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html. Follow the instructions 

for submitting comments on the Agency 

Web site. 

• E-mail: Comments@fdic.gov. 

Include the RIN number in the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery: Guard station at the 

rear of the 550 17th Street Building 

(located on F Street) on business days 

between 7 a.m. and 5 p.m. 

• Instructions: All submissions 

received must include the agency name 

and RIN for this rulemaking. 

• Public Inspection: All comments 

received will be posted without change 

to http://www.fdic.gov/regulations/laws/ 

federal/propose.html including any 

personal information provided. Paper 

copies of public comments may be 

ordered from the Public Information 

Center by telephone at 1–877–275–3342 

or 703–562–2200. 

FOR FURTHER INFORMATION CONTACT: 

Martin Becker, Senior Consumer Affairs 

Specialist, Division of Consumer and 

Depositor Protection (703) 254–2233, 

Mark Mellon, Counsel, Legal Division, 

(202) 898–3884, Federal Deposit 

Insurance Corporation, 550 17th Street, 

NW., Washington, DC 20429. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS