[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Proposed Rules]
[Pages 72582-72609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29137]



[[Page 72581]]

-----------------------------------------------------------------------

Part III





Federal Deposit Insurance Corporation





-----------------------------------------------------------------------



12 CFR Part 327



Assessments, Assessment Base and Rates; Proposed Rule

Federal Register / Vol. 75 , No. 226 / Wednesday, November 24, 2010 / 
Proposed Rules

[[Page 72582]]


-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD66


Assessments, Assessment Base and Rates

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking and request for comment.

-----------------------------------------------------------------------

SUMMARY: The FDIC is proposing to amend its regulations to implement 
revisions to the Federal Deposit Insurance Act made by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act regarding the definition 
of an institution's deposit insurance assessment base; alter the 
unsecured debt adjustment in light of the changes to the assessment 
base; add an adjustment for long-term debt held by an insured 
depository institution where the debt is issued by another insured 
depository institution; eliminate the secured liability adjustment; 
change the brokered deposit adjustment to conform to the change in the 
assessment base and change the way the adjustment will apply to large 
institutions; and revise deposit insurance assessment rate schedules, 
including base assessment rates, in light of the changes to the 
assessment base.

DATES: Comments must be received on or before January 3, 2011.

ADDRESSES: You may submit comments, identified by RIN number, by any of 
the following methods:
    <bullet> Agency Web Site: http://www.fdic.gov/regulations/laws/Federal/propose.html. Follow instructions for submitting comments on 
the Agency Web Site.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#5c1f3331313932282f1c1a18151f723b332a"><span class="__cf_email__" data-cfemail="5c1f3331313932282f1c1a18151f723b332a">[email protected]</span></a>. Include the RIN number in the 
subject line of the message.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    <bullet> 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 RIN for this rulemaking. All comments received will 
be posted without change to http://www.fdic.gov/regulations/laws/Federal/propose.html including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Rose Kushmeider, Acting Chief, Banking 
and Regulatory Policy Section, Division of Insurance and Research, 
(202) 898-3861; Christopher Bellotto, Counsel, Legal Division, (202) 
898-3801; and Sheikha Kapoor, Counsel, Legal Division, (202) 898-3960.

SUPPLEMENTARY INFORMATION:

I. Background

Assessment Base

    The FDIC charges insured depository institutions (IDIs) an amount 
for deposit insurance equal to the deposit insurance assessment base 
times a risk-based assessment rate. Under the current system, the 
assessment base is domestic deposits minus a few allowable exclusions, 
such as pass-through reserve balances. An IDI currently reports its 
assessment base on a quarter-end basis; larger institutions (that is, 
those with $1 billion or more in assets), all institutions chartered 
after December 31, 2006, and other IDIs that so choose, use daily 
averaging.

Assessment Rate Adjustments

    The FDIC calculates an initial base assessment rate (IBAR) for each 
institution based on CAMELS ratings, a number of inputs derived from 
data that the institution reports on the Consolidated Reports of 
Condition and Income (Call Report) or the Thrift Financial Report 
(TFR), and, for large institutions that have long-term debt issuer 
ratings, from these ratings.\1\ Under the current system, an 
institution's total base assessment rate can vary from the IBAR as the 
result of three possible adjustments. An institution's total base 
assessment rate may be lowered from its IBAR by an amount determined by 
its ratio of long-term unsecured debt to domestic deposits and, for 
small institutions, certain amounts of Tier 1 capital to domestic 
deposits (the unsecured debt adjustment).\2\ This potential decrease in 
initial base assessment rates is limited to 5 basis points.
---------------------------------------------------------------------------

    \1\ The FDIC is concurrently issuing a Notice of Proposed 
Rulemaking and Request for Comment on the Assessment System for 
Large Institutions.
    \2\ Long-term unsecured debt includes senior unsecured and 
subordinated debt.
---------------------------------------------------------------------------

    An institution's base assessment rate may be raised by an amount 
determined by its ratio of secured liabilities to domestic deposits 
(the secured liability adjustment). An institution's ratio of secured 
liabilities to domestic deposits (if greater than 25 percent) increases 
its assessment rate, but the resulting base assessment rate after any 
such increase can be no more than 50 percent greater than it was before 
the adjustment. The secured liability adjustment is made after any 
unsecured debt adjustment.
    Finally, an institution's base assessment rate may be raised by an 
amount determined by its ratio of brokered deposits to domestic 
deposits (the brokered deposit adjustment) for institutions in Risk 
Categories II, III or IV. An institution's ratio of brokered deposits 
to domestic deposits (if greater than 10 percent) increases its 
assessment rate, but any increase is limited to no more than 10 basis 
points.

 Assessment Rates

    The FDIC last amended the assessment rate schedule in 2009.\3\ The 
2009 assessments rule established the following initial base assessment 
rate schedule:
---------------------------------------------------------------------------

    \3\ 74 FR 9525.

                                                     Table 1--Current Initial Base Assessment Rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Risk category
                                                                    ------------------------------------------------------------------------------------
                                                                                    I *
                                                                    ----------------------------------        II              III               IV
                                                                         Minimum          Maximum
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Rates (in basis points).....................................              12               16               22               32               45
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Initial base assessment rates that are not the minimum or maximum rate vary between these rates.

    After applying all possible adjustments, minimum and maximum total 
base assessment rates for each risk category are as set out in Table 2 
below. The 2009 assessments rule also allowed the FDIC Board to adjust 
rates uniformly by up to 3 basis points above or below the total base 
assessment rates without notice-and-comment rulemaking,

[[Page 72583]]

provided that no change from one quarter to the next in the total base 
assessment rates may exceed 3 basis points.

                                 Table 2--Current Total Base Assessment Rates *
----------------------------------------------------------------------------------------------------------------
                                                   Risk Category   Risk Category   Risk Category   Risk Category
                                                         I              II              III             IV
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....................           12-16              22              32              45
Unsecured debt adjustment.......................           (5)-0           (5)-0           (5)-0           (5)-0
Secured liability adjustment....................             0-8            0-11            0-16          0-22.5
Brokered deposit adjustment.....................  ..............            0-10            0-10            0-10
                                                 ---------------------------------------------------------------
Total base assessment rate......................            7-24           17-43           27-58         40-77.5
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate vary between these rates.

II. Overview of the Proposed Rule

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) requires that the FDIC amend its regulations to 
redefine the assessment base used for calculating deposit insurance 
assessments. This rulemaking proposes to amend the relevant regulations 
needed to implement this requirement. The change in the assessment base 
has also prompted the FDIC to reexamine its assessment rate system and 
assessment rate schedule. Specifically, the FDIC is proposing to modify 
or eliminate the adjustments made to the IBAR for unsecured debt, 
secured liabilities, and brokered deposits, to add a new adjustment for 
holding unsecured debt issued by another IDI, to revise and lower the 
initial base assessment rate schedule in order to collect approximately 
the same amount of revenue under the new base as under the old base 
calibrated to the second quarter of 2010 and to revise the assessment 
rate schedules proposed in the Notice of Proposed Rulemaking on 
Assessment Dividends, Assessment Rates and the Designated Reserve Ratio 
(the ``October NPR'' or the ``NPR on Dividends, Assessment Rates and 
the DRR'').\4\ To the extent possible, the proposed changes attempt to 
minimize additional new reporting by building on established concepts 
and by using data that are already reported.
---------------------------------------------------------------------------

    \4\ See: Notice of Proposed Rulemaking and Request for Comment 
on Assessment Dividends, Assessment Rates and Designated Reserve 
Ratio, 75 FR 66271.
---------------------------------------------------------------------------

III. Assessment Base Changes

    As stated above, the Dodd-Frank Act requires that the FDIC amend 
its regulations to redefine the assessment base used for calculating 
deposit insurance assessments. Specifically, the Dodd-Frank Act directs 
the FDIC:

    To define the term `assessment base' with respect to an insured 
depository institution * * * as an amount equal to--
    (1) the average consolidated total assets of the insured 
depository institution during the assessment period; minus
    (2) the sum of--
    (A) the average tangible equity of the insured depository 
institution during the assessment period, and
    (B) in the case of an insured depository institution that is a 
custodial bank (as defined by the Corporation, based on factors 
including the percentage of total revenues generated by custodial 
businesses and the level of assets under custody) or a banker's bank 
(as that term is used in * * * (12 U.S.C. 24)), an amount that the 
Corporation determines is necessary to establish assessments 
consistent with the definition under the * * * Federal Deposit 
Insurance Act * * * for a custodial bank or a banker's bank.\5\
---------------------------------------------------------------------------

    \5\ Public Law 111-203, Sec.  331(b), 124 Stat. 1376, 1538 (to 
be codified at 12 U.S.C. 1817(nt)).

    To implement this requirement, therefore, the FDIC must establish 
the appropriate methodology for calculating ``average consolidated 
total assets'' and ``average tangible equity,'' determine the basis for 
reporting consolidated total assets and tangible equity, and define 
``tangible equity.'' The FDIC has identified three standards that 
should be met in determining the assessment base. First, the reported 
elements of the new assessment base should be a true reflection of the 
entire quarter. Second, the definition of tangible equity should 
reflect an institution's ability to provide a real capital buffer to 
the Deposit Insurance Fund (DIF) in the event of failure. Third, the 
reporting of the elements of the new assessment base should require 
minimal changes to the existing reporting requirements. The changes 
needed to implement the new assessment base will require the FDIC to 
collect some information from IDIs that is not currently collected on 
the Call Report or TFR. However, the burden of requiring new data will 
be partly offset by allowing some assessment data that are currently 
collected to be deleted from the Call Report or TFR.
    The Dodd-Frank Act also requires the FDIC to determine whether and 
to what extent adjustments to the assessment base are appropriate for 
banker's banks and custodial banks in order to establish assessments 
consistent with the definition of the ``risk-based assessment system'' 
under the Federal Deposit Insurance Act. The proposed rule outlines 
these adjustments and proposes a definition of ``custodial bank.''

Average Consolidated Total Assets

    The FDIC proposes that all IDIs report their average consolidated 
total assets using the accounting methodology established for reporting 
total assets as applied to Line 9 of Schedule RC-K of the Call Report 
(that is, the methodology established by Schedule RC-K regarding when 
to use amortized cost, historical cost, or fair value), except that all 
institutions must average their balances as of the close of business 
for each day during the calendar quarter. Because differences exist in 
the requirements for averaging and in the reporting of total assets for 
Call Report and TFR filers, the FDIC seeks to standardize the 
calculation of total consolidated assets for deposit insurance 
assessment purposes while minimizing the number of reporting changes 
that result from the change in the assessment base. Since this 
accounting methodology for reporting average total assets exists, it 
was selected as the proposed methodology for reporting.
    The amounts to be reported as daily averages are the sum of the 
gross amounts of consolidated total assets for each calendar day during 
the quarter divided by the number of calendar days in the quarter. For 
days that an office of the reporting institution (or any of its 
subsidiaries or branches) is closed (e.g., Saturdays, Sundays, or 
holidays), the amounts outstanding from the previous business day would 
be used. An office is considered closed if there are no

[[Page 72584]]

transactions posted to the general ledger as of that date. For the 
surviving or resulting institution in a merger or consolidation, assets 
for all merged or consolidated institutions for the days prior to the 
merger or consolidation should be included in the daily average 
calculation, regardless of the method used to account for the merger or 
consolidation.
    Requiring all insured institutions to report ``average consolidated 
total assets'' using daily averaging would result in a truer measure of 
the assessment base during the entire quarter. Further, this 
requirement would be consistent with the actions taken by the FDIC in 
2006 when it determined that using quarter-end deposit data as a proxy 
for balances over an entire quarter did not accurately reflect an IDI's 
typical deposit level. As a result, the FDIC required certain 
institutions to report a daily average deposit assessment base.
    The Dodd-Frank Act requires the assessment base to consist of 
average consolidated total assets. However, in the case of IDIs with 
consolidated IDI subsidiaries, consolidating all assets (and tangible 
equity, see below) could lead to a double charge for deposit 
insurance--once at the IDI level and again at the parent IDI level. 
Because of intercompany transactions, a simple subtraction of the 
subsidiary IDI's assets and equity from the parent IDI's assets and 
equity will not usually result in an accurate statement of the parent 
IDI's assets and equity. By calculating the assets and equity of the 
parent IDI without consolidating the assets and equity of the 
subsidiary IDI, this problem can be avoided. The FDIC is therefore 
proposing that parent IDIs of other IDIs report daily average 
consolidated total assets without consolidating their IDI subsidiaries 
into the calculations. This would be consistent with current assessment 
base practice and would ensure that all parent IDIs are assessed only 
for their own assessment base and not that of their subsidiary IDIs, 
which will be assessed separately.
    The proposed rule also covers average consolidated total assets of 
non-IDI subsidiaries. For such entities, average consolidated assets 
would also be calculated using a daily averaging method. However, the 
IDI may choose to use either daily average data for such subsidiaries 
calculated for the current quarter or for the prior quarter, but having 
chosen one or the other method, reporting could not change from quarter 
to quarter. This proposed methodology would conform to the current 
requirements for consolidating data from non-IDI subsidiaries, which 
allows such data to be up to 93 days old.
    Finally, for insured branches of foreign banks, average 
consolidated total assets would be defined as total assets of the 
branch (including net due from related depository institutions) in 
accordance with the schedule of assets and liabilities in the Report of 
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, 
but using the accounting methodology for reporting total assets 
established in Schedule RC-K of the Call Report, and calculated using a 
daily averaging method as described above.

Defining Tangible Equity

    No definition of tangible equity currently exists for IDI reporting 
purposes. The FDIC considered developing a new definition for 
assessment base purposes. However, in an effort to minimize new 
reporting requirements, the FDIC is proposing to use an industry 
standard definition that would also provide a real capital buffer to 
the DIF in the event of failure. The FDIC, therefore, proposes to use 
Tier 1 capital as the definition of tangible equity. Since the Basel 
Committee is considering revisions to the definition of Tier 1 capital, 
this definition would serve as a measure of tangible equity at least 
until the Basel Committee (in Basel III) has completed its revamping of 
capital definitions and standards. At that time the FDIC may reconsider 
the definition of tangible equity.
    Defining tangible equity as Tier 1 capital not only avoids an 
increase in regulatory burden that a new definition of capital could 
cause, but also provides a clearly understood capital buffer for the 
DIF in the event of the institution's failure.
    The FDIC also proposes to define the averaging period for tangible 
equity to be monthly, except that institutions that reported less than 
$1 billion in quarter-end total consolidated assets on their March 31, 
2011 Call Report or TFR may report average tangible equity using an 
end-of-quarter balance or may at any time opt permanently to report 
average tangible equity using a monthly average balance. An institution 
that reports average tangible equity using an end-of-quarter balance 
and reports average daily consolidated total assets of $1 billion or 
more for two consecutive quarters shall permanently report average 
tangible equity using monthly averaging starting in the next quarter. 
The FDIC proposes that monthly averaging would mean the average of the 
three month-end balances within the quarter. For the surviving 
institution in a merger or consolidation, Tier 1 capital should be 
calculated as if the merger occurred on the first day of the quarter in 
which the merger or consolidation actually occurred.
    This methodology should not increase regulatory burden for 
institutions with assets of $1 billion or more as they generally 
compute their regulatory capital ratios no less frequently than 
monthly. To minimize regulatory burden for small institutions, the 
proposal allows an exception to the averaging requirement. The FDIC 
does not foresee a need for any institution to report daily average 
balances for tangible equity, since the components of tangible equity 
appear to be subject to less fluctuation within a quarter than are 
consolidated total assets. Thus, the proposal would require averaging 
of capital for institutions that account for the majority of industry 
assets, while minimizing additional reporting requirements.
    For IDIs with consolidated IDI subsidiaries, the FDIC proposes to 
instruct IDIs that consolidate other IDIs for financial reporting 
purposes to report average tangible equity (or end-of-quarter tangible 
equity, as appropriate) without consolidating their IDI subsidiaries 
into the calculations. This conforms to the method for reporting total 
consolidated assets above and ensures that all parent IDIs will be 
assessed only on their own assessment base and not that of their 
subsidiary IDIs.
    For IDIs that report average tangible equity using a monthly 
averaging method and that have non-IDI subsidiaries, the IDI must use 
monthly average data for such subsidiaries. The monthly average data 
for non-IDI subsidiaries, however, may be calculated for the current 
quarter or for the prior quarter, but having chosen one or the other 
method, reporting could not change from quarter to quarter.
    For insured branches of foreign banks, tangible equity would be 
defined as eligible assets (determined in accordance with Section 
347.210 of the FDIC's regulations) less the book value of liabilities 
(exclusive of liabilities due to the foreign bank's head office, other 
branches, agencies, offices, or wholly owned subsidiaries). This value 
would be calculated on a monthly average (or end-of-quarter) basis.

 Banker's Bank Adjustment

    Banker's banks are defined by 12 U.S.C. 24. These banks or 
companies must be owned exclusively by depository institutions or 
depository institution holding companies and the bank or company and 
all subsidiaries thereof must be engaged exclusively in

[[Page 72585]]

providing services to or for other depository institutions, their 
holding companies, and the officers, directors, and employees thereof.
    The unique business model of a banker's bank includes performing 
agency functions for its member banks. In this capacity, a banker's 
bank passes through funds from its member banks either to other banks 
in the Federal funds market or to the Federal Reserve as reserve 
balances. While the Federal funds that a banker's bank passes through 
do not appear on its balance sheet, those funds that a banker's bank 
passes through to the Federal Reserve do appear on its balance sheet. 
Currently, the corresponding deposit liabilities that result from these 
``pass-through'' reserve balances are excluded from the assessment 
base. The FDIC is proposing to retain this exception.
    In addition to its agency functions, a typical banker's bank 
provides liquidity and other services to its member banks acting as a 
principal. This activity may result in higher than average amounts of 
Federal funds purchased and deposits from other IDIs and financial 
institutions on a banker's bank's balance sheet. To offset its 
relatively high levels of these short-term liabilities, a banker's bank 
often holds a relatively high amount of Federal funds sold and reserve 
balances for its own account. The proposed rule would also adjust the 
assessment base of a banker's bank to reflect its greater need to 
maintain liquidity to service its member banks.
    The proposed rule would first require a banker's bank to self-
certify on its Call Report or TFR that it meets the definition of 
``banker's bank'' as set forth in 12 U.S.C. 24. The self-certification 
would be subject to verification by the FDIC. For an institution that 
meets the definition (with the exception noted below) the FDIC would 
exclude from its assessment base the daily average amount of reserve 
balances ``passed through'' to the Federal Reserve, the daily average 
amount of reserve balances held at the Federal Reserve for its own 
account, and the daily average amount of its Federal funds sold. The 
collective amount of this exclusion, however, could not exceed the sum 
of the bank's daily average amount of total deposits of commercial 
banks and other depository institutions in the United States and the 
daily average amount of its Federal funds purchased. Thus, for example, 
if a banker's bank has a total daily average balance of $300 million of 
Federal funds sold plus reserve balances (including pass-through 
reserve balances), and it has a total daily average balance of $200 
million of deposits from commercial banks and other depository 
institutions and Federal funds purchased, it can deduct $200 million 
from its assessment base. Federal funds purchased and sold on an agency 
basis would not be included in these calculations as they are not 
reported on the balance sheet of a banker's bank.
    The proposed assessment base adjustment applicable to a banker's 
bank would only be available to an institution that conducts 50 percent 
or more of its business with non-affiliated entities (as defined under 
the Bank Holding Company Act or the Home Owners' Loan Act). Providing a 
benefit to a banker's bank that primarily serves affiliated companies 
would undermine the intent of the proposed benefit by providing a way 
for banks to reduce deposit insurance assessments simply by 
establishing a subsidiary for that purpose.

Defining Custodial Bank

    The Dodd-Frank Act instructed the FDIC to consider whether certain 
assets should be deducted from the assessment base of custodial banks. 
However, the Act left it to the FDIC to define custodial banks ``based 
on factors including the percentage of total revenues generated by 
custodial businesses and the level of assets under custody.'' To 
identify custodial banks for deposit insurance purposes, the FDIC 
focused on the custody and safekeeping accounts reported in the 
fiduciary and related assets section of the Call Report and TFR, along 
with the revenues associated with these activities. The FDIC determined 
that, although fiduciary accounts have an aspect of custodial activity 
associated with them, this activity is incidental to the fiduciary 
business and represents a small fraction of the income realized from 
these accounts. For this reason, the FDIC decided to focus on those 
assets held principally in custody and safekeeping accounts.
    The FDIC identified 878 IDIs that reported some custody and 
safekeeping accounts on their Call Reports or TFRs as of December 
2009.\6\ Of this number, only 6 IDIs reported that the income they 
derived from these accounts exceeded 50 percent of their total revenue 
(interest income plus non-interest income), and only 16 IDIs reported 
that the percentage of custody and safekeeping income exceeded 10 
percent of their total revenue. When examining the volume of assets 
held in custody and safekeeping accounts by each IDI, the FDIC found 
that 21 IDIs held more than $50 billion in assets in these accounts. 
The top 4 among these institutions held more than $5 trillion dollars 
each in these accounts. Given the nature of custody and safekeeping 
activity--characterized by economies of scale--the industry is 
dominated by large institutions.
---------------------------------------------------------------------------

    \6\ IDIs with less than $250 million in fiduciary assets in the 
preceding year or with gross fiduciary income of less than 10 
percent of the preceding year's revenue report their trust 
activities only on the December call report or TFR.
---------------------------------------------------------------------------

    The FDIC proposes that, to be classified as a custodial bank for 
deposit insurance assessment purposes, an IDI must have a significant 
amount of custody and safekeeping activity. Therefore, the FDIC 
proposes to identify custodial banks as those IDIs with previous 
calendar year-end custody and safekeeping assets of at least $50 
billion or those IDIs that derived more than 50 percent of their 
revenue from custody and safekeeping activities over the previous 
calendar year. Using this definition, the FDIC estimates that 23 IDIs 
would have qualified as custodial banks for deposit insurance purposes 
as of December 31, 2009.

Custodial Bank Adjustment

    The FDIC believes that an adjustment to the assessment base of a 
custodial bank should be made in recognition of the bank's need to hold 
liquid assets to facilitate the payments and processing function 
associated with its custody and safekeeping accounts. The proposed 
deduction, however, would be limited to the daily average amount of 
deposits on the custodial bank's balance sheet that can be directly 
linked to the servicing of a custody and safekeeping account.
    The proposed rule states that the assessment base adjustment for 
custodial banks should be the daily average amount of highly liquid, 
short-term assets, subject to the limitation that the daily average 
value of these assets cannot exceed the daily average value of those 
deposits identified by the institution as being held in a custody and 
safekeeping account. Highly liquid, short-term assets would be defined 
as those assets with a Basel risk weighting of 20 percent or less and 
whose stated maturity date is 30 days or less.

IV. Assessment Rate Adjustments

    In March 2009, the FDIC issued a final rule incorporating three 
adjustments into the risk-based pricing system.\7\ These adjustments, 
the unsecured debt adjustment, the secured liability adjustment, and 
the brokered deposit adjustment, were added to better account for risk 
among insured institutions based on their funding

[[Page 72586]]

sources. In light of the changes to the deposit insurance assessment 
base resulting from the Dodd-Frank Act, the FDIC decided to revisit the 
rationale and operation of these adjustments.
---------------------------------------------------------------------------

    \7\ 74 FR 9525.
---------------------------------------------------------------------------

Unsecured Debt Adjustment

    All other things equal, greater amounts of long-term unsecured debt 
can reduce the FDIC's loss in the event of a failure, thus reducing the 
risk to the DIF.\8\ Under the current assessment system an IDI's 
assessment rate can be reduced through the unsecured debt adjustment, 
which is based on the amount of long-term, unsecured liabilities the 
IDI issues. The amount of the adjustment equals 40 basis points for 
each dollar of long-term unsecured debt, effectively lowering the cost 
of issuing an additional dollar of such debt by 40 basis points (unless 
the issuing IDI has reached the 5 basis point cap on the adjustment). 
The amount of the reduction in the assessment rate due to the 
adjustment is equal to the amount of long-term unsecured liabilities 
times 40 basis points divided by the amount of domestic deposits. The 
cap on the deduction is 5 basis points.
---------------------------------------------------------------------------

    \8\ Holders of unsecured claims, including subordinated debt, 
receive distributions from the receivership estate only if all 
secured claims, administrative claims and deposit claims have been 
paid in full. Consequently, greater amounts of long-term unsecured 
debt provide a cushion that can reduce the cost to the DIF in the 
event of failure.
---------------------------------------------------------------------------

    Unless the unsecured debt adjustment is revised, the cost of 
issuing long-term unsecured liabilities will rise (as will the cost of 
funding for all other liabilities except, in most cases, domestic 
deposits) as there will no longer be a distinction, in terms of the 
cost of deposit insurance, among the types of liabilities funding the 
new assessment base. The FDIC is concerned that this will reduce the 
incentive for IDIs to issue long-term unsecured debt.
    The FDIC therefore proposes to revise the unsecured debt adjustment 
to ensure that IDIs continue to have the same incentive to issue more 
long-term unsecured debt than they otherwise would. The FDIC proposes 
that the amount of the unsecured debt adjustment be increased to 40 
basis points plus the IBAR for every dollar of long-term unsecured debt 
issued so that the relative cost of issuing long-term unsecured debt 
will not rise with the implementation of the new assessment base. The 
amount of the reduction in the assessment rate due to the adjustment 
would thus be equal to the amount of long-term unsecured liabilities 
times the sum of 40 basis points and the IBAR divided by the amount of 
the new assessment base. In other words, the FDIC proposes to modify 
the unsecured debt adjustment according to the following formula:

UDA = (Long-term unsecured liabilities/New assessment base) * (40 basis 
points + IBAR)

    Thus, if an institution with a $10 billion assessment base issued 
$100 million in long-term unsecured liabilities and had an IBAR of 20 
basis points, its unsecured debt adjustment would be 0.6 basis points, 
which would result in a decrease in the institution's assessment of 
$600,000.
    The FDIC also proposes that the cap on the unsecured debt 
adjustment be changed from the current 5 basis points to the lesser of 
5 basis points or 50 percent of the institution's IBAR. This cap would 
apply to the new assessment base. This change would not only allow the 
maximum dollar amount of the unsecured debt adjustment to increase 
because the assessment base is larger, but also would ensure that the 
assessment rate after the adjustment is applied does not fall to zero. 
The formula for the new cap would be the lesser of the following:

UDA Cap = 5 basis points
or,
UDA Cap = 0.5 * IBAR,

    Further, the FDIC proposes altering the definition of what is 
included in long-term, unsecured liabilities. Under the current 
assessment system, the unsecured debt adjustment includes certain 
amounts of Tier 1 capital (Qualified Tier 1 capital) for IDIs with less 
than $10 billion in assets. Since the new assessment base excludes Tier 
1 capital, defining long-term, unsecured liabilities to include 
Qualified Tier 1 capital would have the effect of providing a double 
deduction for this capital.\9\ The FDIC therefore proposes to eliminate 
Tier 1 capital from the definition of unsecured debt.
---------------------------------------------------------------------------

    \9\ Capital, including Qualified Tier 1 capital, also enters the 
risk-based assessment system through the pricing model.
---------------------------------------------------------------------------

Depository Institution Debt Adjustment

    Although issuance of unsecured debt by an IDI lessens the potential 
loss to the DIF in the event of an IDI's failure, when this debt is 
held by other IDIs, the overall risk to the DIF is not reduced. For 
this reason, the FDIC is proposing to increase the assessment rate of 
an IDI that holds this debt. The FDIC considered reducing the benefit 
to IDIs when their long-term unsecured debt is held by other IDIs, but 
debt issuers do not track which entities hold their debt. The proposal 
would apply a 50 basis point adjustment to every dollar of long-term 
unsecured debt held by an IDI when that debt is issued by another 
IDI.\10\ This adjustment would be known as the depository institution 
debt adjustment (DIDA). Specifically, the adjustment would be 
determined according to the following formula:
---------------------------------------------------------------------------

    \10\ The FDIC recognizes that the amount of assessment revenue 
collected using this method will not exactly offset the amount of 
assessment revenue foregone by providing a benefit to those IDIs 
that issue long-term unsecured debt.

DIDA = (Long-term unsecured debt issued by another IDI/New assessment 
base) * 50 basis points

Secured Liability Adjustment

    The FDIC proposes to discontinue the secured liability adjustment 
with the implementation of the new assessment base. In arguing for the 
secured liability adjustment the FDIC stated that, ``[t]he exclusion of 
secured liabilities can lead to inequity. An institution with secured 
liabilities in place of another's deposits pays a smaller deposit 
insurance assessment, even if both pose the same risk of failure and 
would cause the same losses to the FDIC in the event of failure.'' With 
the change in the assessment base, the relative cost advantage of 
funding with secured liabilities (due to assessing domestic deposits, 
but not secured liabilities) will disappear, thus eliminating the 
differential that led to the adjustment.

Brokered Deposit Adjustment

    The brokered deposit adjustment compensates the DIF for the risk an 
IDI poses when it relies heavily on brokered deposits for funding. The 
brokered deposit adjustment applies to institutions in risk categories 
II, III, and IV when their ratio of brokered deposits to domestic 
deposits exceeds 10 percent. The present adjustment imposes a 25 basis 
point charge multiplied by the ratio of brokered deposits to domestic 
deposits for brokered deposits in excess of 10 percent of domestic 
deposits and has a cap of 10 basis points.
    The FDIC proposes to retain the current adjustment for brokered 
deposits, but to scale the adjustment to the new assessment base by the 
IDI's ratio of domestic deposits to the new assessment base. The new 
formula for brokered deposits would become:

BDA = ((Brokered deposits-(Domestic deposits * 10%))/New assessment 
base) * 25 basis points

    The FDIC proposes to maintain the cap at 10 basis points. The FDIC 
recognizes that, because the assessment base is larger, keeping the cap 
rate constant could result in an increase in

[[Page 72587]]

the amount an IDI is assessed since the cap will not be reached as 
quickly. However, the FDIC remains concerned that significant reliance 
on brokered deposits tends to increase an institution's risk profile, 
particularly as its financial condition weakens.
    This proposal is being made simultaneously with the proposal to 
change the assessment system for large institutions, which proposes to 
eliminate risk categories for these institutions. The FDIC, therefore, 
is proposing to amend the brokered deposit adjustment to apply to all 
large institutions.\11\ For small institutions, the adjustment, as 
modified above, would continue to apply only to those in risk 
categories II, III, and IV. Small risk category I institutions would 
continue to be excluded; brokered deposits remain, however, a factor in 
the financial ratios method used to determine the IBAR for small risk 
category I institutions experiencing high growth rates.
---------------------------------------------------------------------------

    \11\ The definition of brokered deposits for all institutions, 
which includes reciprocal deposits, would not change.
---------------------------------------------------------------------------

V. Assessment Rate Schedule

    The FDIC believes that the change to a new, expanded assessment 
base should not result in a change in the overall amount of assessment 
revenue projected to be collected under the Restoration Plan adopted by 
the Board on October 19, 2010.\12\ To accomplish this, this NPR 
proposes to change the current assessment rate schedule such that the 
new proposed assessment rate schedule will result in the collection of 
assessment revenue that is approximately revenue neutral.\13\
---------------------------------------------------------------------------

    \12\ 75 FR 66293.
    \13\ Specifically, the FDIC has attempted to determine a rate 
schedule that would have generated approximately the same revenue as 
that generated under the current rate schedule in the second quarter 
of 2010 under the current assessment base.
---------------------------------------------------------------------------

    Because the new assessment base under the Dodd-Frank Act is larger 
than the current assessment base, the assessment rates proposed below 
are lower than current rates. While the range of proposed initial base 
assessment rates is narrower than the current range, the difference in 
revenue between the maximum and minimum IBARs would be approximately 
the same because of the difference in assessment bases.
    The rate schedule proposed below includes a column for institutions 
with at least $10 billion in total assets. This new column represents 
the assessment rates that would be applied to institutions of this size 
pursuant to the changes being proposed in the NPR on the large 
institution assessment system, which is being published concurrently 
with this proposal. The range of proposed total base assessment rates 
is the same for all sizes of institutions (2.5 basis points to 45 basis 
points); however, institutions with at least $10 billion in total 
assets would not be assigned to risk categories. The rate schedule, 
however, does not include the proposed depository institution debt 
adjustment.

Base Rate Schedule

    Effective April 1, 2011, the FDIC proposes to set initial and total 
base assessment rates for IDIs as described in Table 3 below.

                           Table 3--Proposed Initial and Total Base Assessment Rates *
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             5-9              14              23              35            5-35
Unsecured debt adjustment **....         (4.5)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total Base Assessment Rate..           2.5-9            9-24           18-33           30-45          2.5-45
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates do not include the proposed depository institution debt adjustment.
** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI's initial
  base assessment rate; thus for example, an IDI with an IBAR of 5 basis points would have a maximum unsecured
  debt adjustment of 2.5 basis points and could not have a total base assessment rate lower than 2.5 basis
  points.

Ability To Adjust Rates

    The proposed rule would retain the FDIC Board's flexibility to 
adopt actual rates that are higher or lower than total base assessment 
rates without the necessity of further notice-and-comment rulemaking, 
provided that: (1) The Board could not increase or decrease rates from 
one quarter to the next by more than 3 basis points; and (2) cumulative 
increases and decreases cannot be more than 3 basis points higher or 
lower than the total base assessment rates. Retention of this 
flexibility would enable the Board to act in a timely manner to fulfill 
its mandate to raise the reserve ratio in accordance with the 
Restoration Plan, particularly in light of the increased uncertainty 
about expected revenue resulting from the change in the assessment 
base.

Conforming Changes to the Proposed Future Assessment Rates as Set Forth 
in the Notice of Proposed Rulemaking on Assessment Dividends, 
Assessment Rates and Designated Reserve Ratio

    The October NPR (on dividends, assessment rates and the DRR), which 
was issued by the Board in October 2010, proposes rate decreases, in 
lieu of dividends, when the reserve ratio meets certain targets. As 
stated in that NPR, when the reserve ratio reaches 1.15 percent, the 
FDIC believes that it would be appropriate to lower assessment rates so 
that the average assessment rate would approximately equal the long-
term moderate, steady assessment rate--approximately 8.5 basis points 
(as measured using the current assessment base, which is approximated 
by domestic deposits).\14\ As discussed in the October NPR, this 
assessment rate represents the weighted average assessment rate that 
would have been needed to maintain a positive fund balance throughout 
past crises.
---------------------------------------------------------------------------

    \14\ Using June 30, 2010 data, 8.5 basis points of the current, 
domestic deposit-based assessment base would equal approximately 5.4 
basis points of the proposed assessment base.
---------------------------------------------------------------------------

    The FDIC proposed in the October NPR a schedule of assessment rates 
that would take effect when the fund reserve ratio first meets or 
exceeds 1.15 percent. Pursuant to the FDIC's analysis, this schedule 
would produce a weighted average assessment rate of the steady 
assessment rate identified above of 8.5 basis points (that is, the 
long-term rate

[[Page 72588]]

needed to keep the DIF positive). That proposed schedule would take 
effect beginning in the next quarter after the reserve ratio reaches 
1.15 percent without the necessity of further action by the FDIC's 
Board. The rates would remain in effect unless the reserve ratio 
equaled or exceeded 2 percent. The FDIC's Board would retain its 
current authority to uniformly adjust the total base rate assessment 
schedule up or down by up to 3 basis points without further rulemaking.
    In light of the current rulemaking, the FDIC under its authority to 
set assessments is proposing revisions to those proposed rates 
commensurate with the changes in the assessment base. The proposed rate 
schedules are intended to be revenue neutral in that they anticipate 
collecting approximately the same amount of assessment revenue over the 
same period as the rate schedules presented in the October 
NPR.<SUP>15 16</SUP>
---------------------------------------------------------------------------

    \15\ As of June 30, 2010, the proposed assessment rates in 
Tables 4, 5 and 6 below applied against the proposed assessment base 
would have produced relative diminutions in assessment revenue 
almost identical to the revenue estimated to be produced by the 
rates in the corresponding Tables 3, 4 and 5 of the October NPR.
    \16\ In setting assessment rates, the FDIC's Board of Directors 
is required by statute to consider the following factors:
    (i) The estimated operating expenses of the Deposit Insurance 
Fund.
    (ii) The estimated case resolution expenses and income of the 
Deposit Insurance Fund.
    (iii) The projected effects of the payment of assessments on the 
capital and earnings of insured depository institutions.
    (iv) The risk factors and other factors taken into account 
pursuant to section 7(b)(1) of the Federal Deposit Insurance Act (12 
U.S.C Section 1817(b)(1)) under the risk-based assessment system, 
including the requirement under section 7(b)(1)(A) of the Federal 
Deposit Insurance Act (12 U.S.C 1817(b)(1)(A)) to maintain a risk-
based system.
    (v) Other factors the Board of Directors has determined to be 
appropriate.
    Section 7(b)(2) of the Federal Deposit Insurance Act, 12 U.S.C. 
1817(b)(2)(B). The risk factors referred to in factor (iv) include:
    (i) The probability that the Deposit Insurance Fund will incur a 
loss with respect to the institution, taking into consideration the 
risks attributable to--
    (I) different categories and concentrations of assets;
    (II) different categories and concentrations of liabilities, 
both insured and uninsured, contingent and noncontingent; and
    (III) any other factors the Corporation determines are relevant 
to assessing such probability;
    (ii) the likely amount of any such loss; and
    (iii) the revenue needs of the Deposit Insurance Fund.
    Section 7(b)(1)(C) of the Federal Deposit Insurance Act (12 
U.S.C. 1817(b)(1)(C)).
    As set forth in a memorandum to the FDIC's Board of Directors 
dated October 14, 2010 proposing that the Board adopt a new 
Restoration Plan and authorize publication of the NPR on Dividends, 
Assessment Rates and the DRR, and in that NPR itself, the Board 
considered these factors.
---------------------------------------------------------------------------

Proposed Rate Schedule Once the Reserve Ratio Reaches 1.15 Percent
    Once the reserve ratio reaches 1.15 percent, the October NPR 
proposed to lower assessment rates so that the average assessment rate 
would approximately equal the long-term moderate, steady assessment 
rate discussed above. The table presented below supersedes the table 
presented in that NPR, and sets forth the following rate schedule that 
would be applied to the assessment base proposed above:

           Table 4--(Superseding Table 3 of the October NPR) Initial and Total Base Assessment Rates *
 [Effective for the quarter beginning immediately after the quarter in which the reserve ratio meets or exceeds
                                                  1.15 percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             3-7              12              19              30            3-30
Unsecured debt adjustment **....         (3.5)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total Base Assessment Rate..           1.5-7            7-22           14-29           29-40          1.5-40
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates do not include the proposed depository institution debt adjustment.
** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI's initial
  assessment rate; thus, for example, an IDI with an initial base assessment rate of 3 basis points would have a
  maximum unsecured debt adjustment of 1.5 basis points and could not have a total base assessment rate lower
  than 1.5 basis points.

Proposed Rate Schedule Once the Reserve Ratio Reaches 2.0 Percent
    The October NPR also proposed rates that would come into effect 
without further action by the FDIC Board when the fund reserve ratio at 
the end of the prior quarter meets or exceeds 2 percent, but is less 
than 2.5 percent.\17\ Again, the FDIC proposes to supersede that rate 
schedule in line with the changes to the assessment base, assessment 
rates, and adjustments proposed in this NPR according to the following 
table:
---------------------------------------------------------------------------

    \17\ The NPR proposes that new institutions would remain subject 
to the assessment schedule proposed in Table 5 once the reserve 
ratio reaches 1.15 percent.

           Table 5--(Superseding Table 4 of the October NPR) Initial and Total Base Assessment Rates *
 [Effective for any quarter when the reserve ratio for the prior quarter meets or exceeds 2 percent (but is less
                                               than 2.5 percent)]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             2-6              10              17              28            2-28
Unsecured debt adjustment **....           (3)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total Base Assessment Rate..             1-6            5-20           12-27           23-38            1-38
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates do not include the proposed depository institution debt adjustment.

[[Page 72589]]

 
** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI's initial
  assessment rate; thus, for example, an IDI with an initial assessment rate of 2 basis points would have a
  maximum unsecured debt adjustment of 1 basis point and could not have a total base assessment rate lower than
  1 basis point.

Proposed Rate Schedule once the Reserve Ratio Reaches 2.5 Percent
    Finally, the October NPR proposed rates that would come into effect 
without further action by the FDIC Board when the fund reserve ratio at 
the end of the prior quarter meets or exceeds 2.5 percent.\18\ As with 
the other proposed rate schedules, the FDIC proposes to supersede that 
rate schedule in line with the changes to the assessment base, 
assessment rates, and adjustments proposed in this NPR according to the 
following table:
---------------------------------------------------------------------------

    \18\ See footnote 18 for the assessment rate schedule applicable 
to new institutions.

            Table 6--(Amending Table 4 of the October NPR) Initial and Total Base Assessment Rates *
      [Effective for any quarter when the reserve ratio for the prior quarter meets or exceeds 2.5 percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk category   Risk category   Risk category   Risk category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             1-5               9              15              25            1-25
Unsecured debt adjustment **....         (2.5)-0         (4.5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total Base Assessment Rate..           0.5-5          4.5-19           10-25           20-35          0.5-35
----------------------------------------------------------------------------------------------------------------
* Total base assessment rates do not include the proposed depository institution debt adjustment.
** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI's initial
  assessment rate; thus, for example, an IDI with an initial assessment rate of 1 basis point would have a
  maximum unsecured debt adjustment of 0.5 basis points and could not have a total base assessment rate lower
  than 0.5 basis points.

Capital and Earnings Analysis
    The proposed assessment rates in Table 3 change the current 
assessment rate schedule such that the new proposed assessment rate 
schedule applied against the proposed assessment base would result in 
the collection of assessment revenue that is approximately revenue 
neutral. Thus, overall, the proposed rates and proposed assessment base 
should have no effect on the capital and earnings of the banking 
industry, although the proposed rates would affect the earnings and 
capital of individual institutions. The great majority of institutions 
of all sizes would pay assessments at least 5 percent lower than 
currently and would thus have higher earnings and capital. However, 
about 36 percent of large institutions (those with greater than $10 
billion in assets) would pay assessments at least 5 percent higher than 
currently.
    The remaining proposed rate schedules would take effect when the 
reserve ratio reaches 1.15 percent, 2 percent and 2.5 percent. In the 
October NPR, the FDIC analyzed the effect of the rate schedules 
contained in that NPR on the capital and earnings of IDIs.\19\ The rate 
schedules contained in the current NPR are intended to produce 
approximately the same revenue as the rate schedules in the NPR on 
dividends, assessment rates and the DRR. Consequently, the analysis of 
the effect of the rate schedules on capital and earnings contained in 
that NPR is essentially applicable to the current NPR.
---------------------------------------------------------------------------

    \19\ As noted in an earlier footnote, in setting assessment 
rates, the FDIC's Board of Directors is authorized to set 
assessments for IDIs in such amounts as the Board of Directors may 
determine to be necessary. 12 U.S.C. 1817(b)(2)(A). In so doing, the 
Board must consider certain statutorily defined factors. 12 U.S.C. 
1817(b)(2)(B). As reflected in the text, the FDIC has taken into 
account all of these statutory factors.
---------------------------------------------------------------------------

    In the October NPR, the FDIC stated that it anticipated that when 
the reserve ratio exceeds 1.15 percent, and particularly when it 
exceeds 2 or 2.5 percent, the industry is likely to be prosperous. 
Consequently, the FDIC examined the effect of the proposed lower rates 
on the industry at the end of 2006, when the industry was prosperous. 
Under that scenario, reducing assessment rates as proposed when the 
reserve ratio reaches 1.15 percent would have increased average after-
tax income by 1.25 percent and average capital by 0.14 percent. 
Reducing assessment rates as proposed when the reserve ratio reaches 
1.15 percent to the proposed rate schedule when the reserve ratio 
reaches 2 percent would have increased average after-tax income by 0.62 
percent and average capital by 0.07 percent. Similarly, reducing 
assessment rates as proposed when the reserve ratio reaches 2 percent 
to the proposed rate schedule when the reserve ratio reaches 2.5 
percent would have increased average after-tax income by 0.61 percent 
and average capital by 0.07 percent.

Effective Date

    Except as specifically noted above, the rate schedule and the other 
revisions to the assessment rules would take effect for the quarter 
beginning April 1, 2011, and would be reflected in the invoices for 
assessments due September 30, 2011. The FDIC has considered the 
possibility of making the application of the new assessment base, the 
revised assessment rates, and the changes to the assessment rate 
adjustments retroactive to passage of the Dodd-Frank Act. However, as 
this NPR details, implementation of the Act requires that a number of 
changes be made to the Call Report and TFR that render such 
consideration operationally infeasible. Additionally, retroactively 
applying such changes would introduce significant legal complexity and 
introduce unacceptable levels of litigation risk. The FDIC is committed 
to implementing the Dodd-Frank Act in the most expeditious manner 
possible and is contemporaneously pursuing changes to the Call Report 
and TFR that would be necessary if this NPR is adopted. The proposed 
effective date is contingent upon these changes being made and if there 
is a delay in changing the Call Report and TFR that would delay the 
effective date of this proposed rulemaking.

VI. Request for Comments

    The FDIC seeks comment on every aspect of this proposed rulemaking. 
In particular, the FDIC seeks comment on

[[Page 72590]]

the issues set out below. The FDIC asks that commenters include the 
reasons for their positions.
    1. Please identify any operational issues with the new assessment 
base definition that would argue for delaying the proposed rule until 
changes can be made to bank reporting systems.
    2. The proposed rule uses the accounting definition for total 
assets found on Line 9 of Schedule RC-K of the Call Report except that 
all institutions must report the average of the balances as of the 
close of business for each day during the calendar quarter. Is this 
definition the best definition of total assets to use for the 
assessment base? If not, how should the valuation of assets be handled? 
Is reporting the average of the balances as of the close of business 
for each day during the calendar quarter unduly burdensome for all or 
some institutions? Should all or some institutions be allowed to report 
the average of the balances as of the close of business for one day 
each week during the calendar quarter, as currently allowed under 
Schedule RC-K?
    3. Is the proposed definition of average tangible equity 
appropriate? Should some other definition be used? Is reporting the 
average of tangible equity as of the end of each month in the calendar 
quarterly unduly burdensome? Is the exception to this requirement for 
small institutions appropriate?
    4. Is the proposed adjustment to the assessment base for banker's 
banks appropriate?
    5. Is the proposed definition of custodial bank appropriate? Is the 
proposed adjustment to the assessment base appropriate?
    6. The proposal alters the unsecured debt adjustment, making it 
larger for IDIs that present greater risk to the DIF. Is this an 
appropriate way to encourage riskier IDIs to alter their funding 
structure so that they present less risk to the DIF?
    7. Are the modifications to the current unsecured debt adjustment 
reasonable in light of the objective of continuing to encourage 
institutions to issue this type of debt?
    8. Would it be possible to increase the assessment rate to account 
for the long-term unsecured debt issued by IDIs that is held by other 
IDIs in another way? Is the size of the depository institution debt 
adjustment reasonable and appropriate to meet the policy goal?
    9. Should the FDIC consider incorporating an adjustment that would 
take into consideration the risk posed to the DIF for institutions that 
have director and officer liability policies containing regulatory 
exclusions?
    10. Are the new rates appropriate given the changes to the 
assessment base?
    11. Is the proposed effective date for the changes to the 
assessment system too soon for IDIs to adjust their reporting systems 
to the proposed reporting requirements?

VII. Regulatory Analysis and Procedure

A. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The FDIC invites your comments on how to make this 
proposal easier to understand. For example:
    <bullet> Has the FDIC organized the material to suit your needs? If 
not, how could this material be better organized?
    <bullet> Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
    <bullet> Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
    <bullet> What else could the FDIC do to make the regulation easier 
to understand?

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency either certify that a proposed rule would not, if adopted in 
final form, have a significant economic impact on a substantial number 
of small entities or prepare an initial regulatory flexibility analysis 
of the rule and publish the analysis for comment.\20\ Certain types of 
rules, such as rules of particular applicability relating to rates or 
corporate or financial structures, or practices relating to such rates 
or structures, are expressly excluded from the definition of ``rule'' 
for purposes of the RFA.\21\ However, the FDIC is voluntarily 
undertaking a regulatory flexibility analysis to aid the public in 
commenting on the effect of the proposed rule on small institutions.
---------------------------------------------------------------------------

    \20\ See 5 U.S.C. 603, 604, 605.
    \21\ See 5 U.S.C. 601.
---------------------------------------------------------------------------

    As of June 30, 2010, of the 7,839 insured commercial banks and 
savings associations, there were 4,299 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
institutions with $175 million or less in total assets). The proposed 
rule would adopt the Dodd-Frank definition of assessment base and alter 
assessment rates and the adjustments to those rates at the same time 
that the new assessment base takes effect. Under this part of the 
proposal, 94 percent of small institutions would be subject to lower 
assessments. In effect, the proposed rule would decrease small 
institution assessments by an average of $7,675 per quarter and would 
alter the present distribution of assessments by reducing the 
percentage of the assessments borne by small institutions. As of June 
30, 2010, small institutions, as that term is defined for purposes of 
the RFA, actually accounted for 3.7 percent of total assessments. Also 
as of that date, but applying the proposed assessment rates against the 
proposed assessment base, small institutions would have accounted for 
2.6 percent of the total cost of insurance assessments.
    Other parts of the proposed rule would progressively lower 
assessment rates when the reserve ratio reaches 1.15 percent, 2 percent 
and 2.5 percent. Pursuant to section 605(b) of the RFA, the FDIC 
certifies that the proposed rule would not have a significant economic 
effect on small entities unless and until the DIF reserve ratio exceeds 
specific thresholds of 1.15, 1.5, 2, and 2.5 percent. The reserve ratio 
is unlikely to reach these levels for many years. When it does, the 
overall effect of the proposed rule will be positive for entities of 
all sizes. All entities, including small entities, will receive a net 
benefit as a result of lower assessments paid. The rate reductions in 
the proposed rule should not alter the distribution of the assessment 
burden between small entities and all others. It is difficult to 
realistically quantify the benefit at the present time. However, the 
initial magnitude of the benefit (when the reserve ratio reaches 1.15 
percent) is likely to be less than a 2 percent increase in after-tax 
income and less than a 20 basis point increase in capital.

VIII. Paperwork Reduction Act

    No collections of information pursuant to the Paperwork Reduction 
Act (44 U.S.C. 3501 et seq.) are contained in the proposed rule.

[[Page 72591]]

A. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

    For the reasons set forth in the preamble the FDIC proposes to 
amend chapter III of title 12 of the Code of Federal Regulations as 
follows:

PART 327--ASSESSMENTS

    1. The authority citation for part 327 is revised to read as 
follows:

    Authority: 12 U.S.C. 1441, 1813, 1815, 1817-19, 1821.

    2. Amend Sec.  327.4 by revising paragraphs (c) and (f) to read as 
follows:


Sec.  327.4  Assessment rates.

* * * * *
    (c) Requests for review. An institution that believes any 
assessment risk assignment provided by the Corporation pursuant to 
paragraph (a) of this section is incorrect and seeks to change it must 
submit a written request for review of that risk assignment. An 
institution cannot request review through this process of the CAMELS 
ratings assigned by its primary Federal regulator or challenge the 
appropriateness of any such rating; each Federal regulator has 
established procedures for that purpose. An institution may also 
request review of a determination by the FDIC to assess the institution 
as a large, highly complex, or a small institution (Sec.  327.9(d)(9)) 
or a determination by the FDIC that the institution is a new 
institution (Sec.  327.9(d)(10)). Any request for review must be 
submitted within 90 days from the date the assessment risk assignment 
being challenged pursuant to paragraph (a) of this section appears on 
the institution's quarterly certified statement invoice. The request 
shall be submitted to the Corporation's Director of the Division of 
Insurance and Research in Washington, DC, and shall include 
documentation sufficient to support the change sought by the 
institution. If additional information is requested by the Corporation, 
such information shall be provided by the institution within 21 days of 
the date of the request for additional information. Any institution 
submitting a timely request for review will receive written notice from 
the Corporation regarding the outcome of its request. Upon completion 
of a review, the Director of the Division of Insurance and Research (or 
designee) or the Director of the Division of Supervision and Consumer 
Protection (or designee) or any successor divisions, as appropriate, 
shall promptly notify the institution in writing of his or her 
determination of whether a change is warranted. If the institution 
requesting review disagrees with that determination, it may appeal to 
the FDIC's Assessment Appeals Committee. Notice of the procedures 
applicable to appeals will be included with the written determination.
* * * * *
    (f) Effective date for changes to risk assignment. Changes to an 
insured institution's risk assignment resulting from a supervisory 
ratings change become effective as of the date of written notification 
to the institution by its primary Federal regulator or state authority 
of its supervisory rating (even when the CAMELS component ratings have 
not been disclosed to the institution), if the FDIC, after taking into 
account other information that could affect the rating, agrees with the 
rating. If the FDIC does not agree, the FDIC will notify the 
institution of the FDIC's supervisory rating; resulting changes to an 
insured institution's risk assignment become effective as of the date 
of written notification to the institution by the FDIC.
* * * * *
    3. Revise Sec.  327.5 to read as follows:


Sec.  327.5  Assessment base.

    (a) Assessment base for all insured depository institutions. Except 
as provided in paragraphs (b), (c), and (d) of this section, the 
assessment base for an insured depository institution shall equal the 
average consolidated total assets of the insured depository institution 
during the assessment period minus the average tangible equity of the 
insured depository institution during the assessment period.
    (1) Average consolidated total assets defined and calculated. 
Average consolidated total assets is defined in the schedule of 
quarterly averages in the Consolidated Reports of Condition and Income, 
using a daily averaging method. The amounts to be reported as daily 
averages are the sum of the gross amounts of consolidated total assets 
for each calendar day during the quarter divided by the number of 
calendar days in the quarter. For days that an office of the reporting 
institution (or any of its subsidiaries or branches) is closed (e.g., 
Saturdays, Sundays, or holidays), the amounts outstanding from the 
previous business day would be used. An office is considered closed if 
there are no transactions posted to the general ledger as of that date. 
For institutions that begin operating during the calendar quarter, the 
amounts to be reported as daily averages are the sum of the gross 
amounts of consolidated total assets for each calendar day the 
institution was operating during the quarter divided by the number of 
calendar days the institution was operating during the quarter.
    (2) Average tangible equity defined and calculated. Tangible equity 
is defined in the schedule of regulatory capital as Tier 1 capital. The 
definition of Tier 1 capital is to be determined pursuant to the 
definition the Report of Condition or Thrift Financial Report (or any 
successor reports) instructions as of the assessment period for which 
the assessment is being calculated.
    (i) Calculation of average tangible equity. Except as provided in 
paragraph (a)(2)(ii) of this section, average tangible equity shall be 
calculated using monthly averaging. Monthly averaging means the average 
of the three month-end balances within the quarter.
    (ii) Alternate calculation of average tangible equity. Institutions 
that reported less than $1 billion in quarter-end total consolidated 
assets on their March 31, 2011 Reports of Condition or Thrift Financial 
Reports may report average tangible equity using an end-of-quarter 
balance or may at any time opt permanently to report average tangible 
equity using a monthly average balance. An institution that reports 
average tangible equity using an end-of-quarter balance and reports 
average daily consolidated assets of $1 billion or more for two 
consecutive quarters shall permanently report average tangible equity 
using monthly averaging starting in the next quarter.
    (3) Consolidated subsidiaries.
    (i) Data for reporting from consolidated subsidiaries. Insured 
depository institutions may use data that are up to 93 days old for 
consolidated subsidiaries when reporting daily average consolidated 
total assets. Insured depository institutions may use either daily 
average asset values for the consolidated subsidiary for the current 
quarter or for the prior quarter (that is, data that are up to 93 days 
old), but, once chosen, insured depository institutions cannot change 
the reporting method from quarter to quarter. Similarly, insured 
depository institutions may use data for

[[Page 72592]]

the current quarter or data that are up to 93 days old for consolidated 
subsidiaries when reporting tangible equity values. Once chosen, 
however, insured depository institutions cannot change the reporting 
method from quarter to quarter.
    (ii) Reporting for insured depository institutions with 
consolidated insured depository subsidiaries. Insured depository 
institutions that consolidate other insured depository institutions for 
financial reporting purposes shall report daily average consolidated 
total assets and tangible equity without consolidating their insured 
depository institution subsidiaries into the calculations. Investments 
in insured depository institution subsidiaries should be included in 
total assets using the equity method of accounting.
    (b) Assessment base for banker's banks. (1) Bankers bank defined. A 
banker's bank for purposes of calculating deposit insurance assessments 
shall meet the definition of banker's bank set forth in 12 U.S.C. 24.
    (2) Self-certification. Institutions that meet the requirements of 
paragraph (b)(1) of this section shall so certify each quarter on the 
Consolidated Reports of Condition and Income or Thrift Financial Report 
to that effect.
    (3) Assessment base calculation for banker's banks. A banker's bank 
shall pay deposit insurance assessments on its assessment base as 
calculated in paragraph (a) of this section provided that it conducts 
50 percent or more of its business with entities other than its parent 
holding company or entities other than those controlled either directly 
or indirectly (under the Bank Holding Company Act or Home Owners' Loan 
Act) by its parent holding company, the FDIC will exclude from that 
assessment base the daily average reserve balances passed through to 
the Federal Reserve, the daily average reserve balances held at the 
Federal Reserve for its own account, and the daily average amount of 
its Federal funds sold, but in no case shall the amount excluded exceed 
the sum of the bank's daily average amount of total deposits of 
commercial banks and other depository institutions in the United States 
and the daily average amount of its Federal funds purchased.
    (c) Assessment base for custodial banks. (1) Custodial bank 
defined. A custodial bank for purposes of calculating deposit insurance 
assessments shall be an insured depository institution with previous 
calendar-year custody and safekeeping assets of at least $50 billion or 
an insured depository institution that derived more than 50 percent of 
its total revenue from custody and safekeeping activities over the 
previous calendar year.
    (2) Assessment base calculation for custodial banks. A custodial 
bank shall pay deposit insurance assessments on its assessment base as 
calculated in paragraph (a) of this section, but the FDIC will exclude 
from that assessment base the daily average amount of highly liquid, 
short-term assets (i.e., assets with a Basel risk weighting of 20 
percent or less and a stated maturity date of 30 days or less), subject 
to the limitation that the daily average value of these assets cannot 
exceed the daily average value of the deposits identified by the 
institution as being held in a custody and safekeeping account.
    (d) Assessment base for insured branches of foreign banks. Average 
consolidated total assets for an insured branch of a foreign bank is 
defined as total assets of the branch (including net due from related 
depository institutions) in accordance with the schedule of assets and 
liabilities in the Report of Assets and Liabilities of U.S. Branches 
and Agencies of Foreign Banks as of the assessment period for which the 
assessment is being calculated, but measured using the definition for 
reporting total assets in the schedule of quarterly averages in the 
Consolidated Reports of Condition and Income, and calculated using a 
daily averaging method. Tangible equity for an insured branch of a 
foreign bank is eligible assets (determined in accordance with Sec.  
347.210 of the FDIC's regulations) less the book value of liabilities 
(exclusive of liabilities due to the foreign bank's head office, other 
branches, agencies, offices, or wholly owned subsidiaries) calculated 
on a monthly or end-of-quarter basis.
    (e) Newly insured institutions. A newly insured institution shall 
pay an assessment for the assessment period during which it became 
insured. The FDIC will prorate the newly insured institution's 
assessment amount to reflect the number of days it was insured during 
the period.
    4. Revise Sec.  327.6 to read as follows:


Sec.  327.6  Mergers and consolidations; other terminations of 
insurance.

    (a) Final quarterly certified invoice for acquired institution. An 
institution that is not the resulting or surviving institution in a 
merger or consolidation must file a report of condition for every 
assessment period prior to the assessment period in which the merger or 
consolidation occurs. The surviving or resulting institution shall be 
responsible for ensuring that these reports of condition are filed and 
shall be liable for any unpaid assessments on the part of the 
institution that is not the resulting or surviving institution.
    (b) Assessment for quarter in which the merger or consolidation 
occurs. For an assessment period in which a merger or consolidation 
occurs, total consolidated assets for the surviving or resulting 
institution shall include the total consolidated assets of all insured 
depository institutions that are parties to the merger or consolidation 
as if the merger or consolidation occurred on the first day of the 
quarter. Tier 1 capital shall be reported in the same manner.
    (c) 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--
    (1) Payment of assessments; quarterly certified statement invoices. 
The depository institution whose insured status is terminating shall 
continue to file and certify its quarterly certified statement invoice 
and pay assessments for the assessment period its deposits are insured. 
Such institution shall not be required to certify its quarterly 
certified statement invoice and pay further assessments after it has 
paid in full its deposit liabilities and the assessment to the 
Corporation required to be paid for the assessment period in which its 
deposit liabilities are paid in full, and after it, under applicable 
law, goes out of business or transfers all or substantially all of its 
assets and liabilities to other institutions or otherwise ceases to be 
obliged to pay subsequent assessments.
    (2) Payment of deposits; certification to Corporation. When the 
deposit liabilities of the depository institution have been paid in 
full, the depository institution shall certify to the Corporation that 
the deposit liabilities have been paid in full and give the date of the 
final payment. When the depository institution has unclaimed deposits, 
the certification shall further state the amount of the unclaimed 
deposits and the disposition made of the funds to be held to meet the 
claims. For assessment purposes, the following will be considered as 
payment of the unclaimed deposits:
    (i) The transfer of cash funds in an amount sufficient to pay the 
unclaimed and unpaid deposits to the public official authorized by law 
to receive the same; or
    (ii) If no law provides for the transfer of funds to a public 
official, the transfer of cash funds or compensatory assets to an 
insured depository institution in an amount sufficient to pay the 
unclaimed and unpaid deposits in consideration for the assumption of 
the deposit

[[Page 72593]]

obligations by the insured depository institution.
    (3) Notice to depositors. (i) The depository institution whose 
insured status is terminating shall give sufficient advance notice of 
the intended transfer to the owners of the unclaimed deposits to enable 
the depositors to obtain their deposits prior to the transfer. The 
notice shall be mailed to each depositor and shall be published in a 
local newspaper of general circulation. The notice shall advise the 
depositors of the liquidation of the depository institution, request 
them to call for and accept payment of their deposits, and state the 
disposition to be made of their deposits if they fail to promptly claim 
the deposits.
    (ii) If the unclaimed and unpaid deposits are disposed of as 
provided in paragraph (c)(2)(i) of this section, a certified copy of 
the public official's receipt issued for the funds shall be furnished 
to the Corporation.
    (iii) If the unclaimed and unpaid deposits are disposed of as 
provided in paragraph (c)(2)(ii) of this section, an affidavit of the 
publication and of the mailing of the notice to the depositors, 
together with a copy of the notice and a certified copy of the contract 
of assumption, shall be furnished to the Corporation.
    (4) Notice to Corporation. The depository institution whose insured 
status is terminating shall advise the Corporation of the date on which 
it goes out of business or transfers all or substantially all of its 
assets and liabilities to other institutions or otherwise ceases to be 
obligated to pay subsequent assessments and the method whereby the 
termination has been effected.
    (d) Resumption of insured status before insurance of deposits 
ceases. If a depository institution whose insured status has been 
terminated is permitted by the Corporation to continue or resume its 
status as an insured depository institution before the insurance of its 
deposits has ceased, the institution will be deemed, for assessment 
purposes, to continue as an insured depository institution and must 
thereafter file and certify its quarterly certified statement invoices 
and pay assessments as though its insured status had not been 
terminated. The procedure for applying for the continuance or 
resumption of insured status is set forth in Sec.  303.248 of this 
chapter.
    5. Amend Sec.  327.8 by:
    A. Removing paragraphs (e) and (f);
    B. Redesignating paragraphs (g) through (s) as paragraphs (e) 
through (q) respectively;
    C. Revising newly redesignated paragraphs (e), (f), (g), (k), (l), 
(m), (n), (o), and (p);
    D. Adding new paragraphs (r), (s), (t), and (u) to read as follows:


Sec.  327.8  Definitions.

* * * * *
    (e) Small institution. An insured depository institution with 
assets of less than $10 billion as of December 31, 2006, and an insured 
branch of a foreign institution shall be classified as a small 
institution. If, after December 31, 2006, an institution classified as 
large under paragraph (f) of this section (other than an institution 
classified as large for purposes of Sec.  327.9(d)(9)) reports assets 
of less than $10 billion in its quarterly reports of condition for four 
consecutive quarters, the FDIC will reclassify the institution as small 
beginning the following quarter.
    (f) Large institution. An institution classified as large for 
purposes of Sec.  327.9(d)(9) or an insured depository institution with 
assets of $10 billion or more as of December 31, 2006 (other than an 
insured branch of a foreign bank or a highly complex institution) shall 
be classified as a large institution. If, after December 31, 2006, an 
institution classified as small under paragraph (e) of this section 
reports assets of $10 billion or more in its quarterly reports of 
condition for four consecutive quarters, the FDIC will reclassify the 
institution as large beginning the following quarter.
    (g) Highly complex institution. A highly complex institution is an 
insured depository institution (excluding a credit card bank) with 
greater than $50 billion in total assets for at least four consecutive 
quarters that is controlled by a parent company with more than $500 
billion in total assets for four consecutive quarters, or controlled by 
one or more intermediate parent companies that are controlled by a 
holding company with more than $500 billion in assets for four 
consecutive quarters, or a processing bank or trust company that has 
had $10 billion or more in total assets for at least four consecutive 
quarters. If, after December 31, 2010, an institution classified as 
highly complex falls below $50 billion in total assets in its quarterly 
reports of condition for four consecutive quarters, or its parent 
company or companies fall below $500 billion in total assets for four 
consecutive quarters, or a processing bank or trust company falls below 
$10 billion in total assets in its quarterly reports of condition for 
four consecutive quarters, the FDIC will reclassify the institution 
beginning the following quarter.
* * * * *
    (k) Established depository institution. An established insured 
depository institution is a bank or savings association that has been 
federally insured for at least five years as of the last day of any 
quarter for which it is being assessed.
    (1) Merger or consolidation involving new and established 
institution(s). Subject to paragraphs (k)(2), (3), (4), and (5) of this 
section and Sec.  327.9(d)(10)(iii), (iv), when an established 
institution merges into or consolidates with a new institution, the 
resulting institution is a new institution unless:
    (i) The assets of the established institution, as reported in its 
report of condition for the quarter ending immediately before the 
merger, exceeded the assets of the new institution, as reported in its 
report of condition for the quarter ending immediately before the 
merger; and
    (ii) Substantially all of the management of the established 
institution continued as management of the resulting or surviving 
institution.
    (2) Consolidation involving established institutions. When 
established institutions consolidate, the resulting institution is an 
established institution.
    (3) Grandfather exception. If a new institution merges into an 
established institution, and the merger agreement was entered into on 
or before July 11, 2006, the resulting institution shall be deemed to 
be an established institution for purposes of this part.
    (4) Subsidiary exception. Subject to paragraph (k)(5) of this 
section, a new institution will be considered established if it is a 
wholly owned subsidiary of:
    (i) A company that is a bank holding company under the Bank Holding 
Company Act of 1956 or a savings and loan holding company under the 
Home Owners' Loan Act, and:
    (A) At least one eligible depository institution (as defined in 12 
CFR 303.2(r)) that is owned by the holding company has been chartered 
as a bank or savings association for at least five years as of the date 
that the otherwise new institution was established; and
    (B) The holding company has a composite rating of at least ``2'' 
for bank holding companies or an above average or ``A'' rating for 
savings and loan holding companies and at least 75 percent of its 
insured depository institution assets are assets of eligible depository 
institutions, as defined in 12 CFR 303.2(r); or

[[Page 72594]]

    (ii) An eligible depository institution, as defined in 12 CFR 
303.2(r), that has been chartered as a bank or savings association for 
at least five years as of the date that the otherwise new institution 
was established.
    (5) Effect of credit union conversion. In determining whether an 
insured depository institution is new or established, the FDIC will 
include any period of time that the institution was a federally insured 
credit union.
    (l) Risk assignment. For all small institutions and insured 
branches of foreign banks, risk assignment includes assignment to Risk 
Category I, II, III, or IV, and, within Risk Category I, assignment to 
an assessment rate or rates. For all large institutions and highly 
complex institutions, risk assignment includes assignment to an 
assessment rate or rates.
    (m) Unsecured debt. For purposes of the unsecured debt adjustment 
as set forth in Sec.  327.9(d)(6) and the depository institution debt 
adjustment as set forth in Sec.  327.9(d)(7), unsecured debt shall 
include senior unsecured liabilities and subordinated debt.
    (n) Senior unsecured liability. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6) and the depository 
institution debt adjustment as set forth in Sec.  327.9(d)(7), senior 
unsecured liabilities shall be the unsecured portion of other borrowed 
money as defined in the quarterly report of condition for the reporting 
period as defined in paragraph (b) of this section, but shall not 
include any senior unsecured debt that the FDIC has guaranteed under 
the Temporary Liquidity Guarantee Program, 12 CFR part 370.
    (o) Subordinated debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6) and the depository 
institution debt adjustment as set forth in Sec.  327.9(d)(7), 
subordinated debt shall be as defined in the quarterly report of 
condition for the reporting period; however, subordinated debt shall 
also include limited-life preferred stock as defined in the quarterly 
report of condition for the reporting period.
    (p) Long-term unsecured debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.9(d)(6) and the depository 
institution debt adjustment as set forth in Sec.  327.9(d)(7), long-
term unsecured debt shall be unsecured debt with at least one year 
remaining until maturity.
* * * * *
    (r) Parent holding company--A parent holding company is a bank 
holding company under the Bank Holding Company Act of 1956 or a savings 
and loan holding company under the Home Owners' Loan Act.
    (s) Processing bank or trust company. A processing bank or trust 
company is an institution whose non-lending interest income, fiduciary 
revenues, and investment banking fees, combined, exceed 50 percent of 
total revenues (and its fiduciary revenues are non-zero), and has had 
$10 billion or more in total assets for at least four consecutive 
quarters.
    (t) Credit card bank. A credit card bank is a bank for which credit 
card plus securitized receivables exceed 50 percent of assets plus 
securitized receivables.
    (u) Control. Control has the same meaning as in section 2 of the 
Bank Holding Company Act of 1956, 12 U.S.C. 1841(a)(2).
    6. Revise Sec.  327.9 to read as follows:


Sec.  327.9  Assessment risk categories and pricing methods.

    (a) Risk Categories. Each small insured depository institution and 
each insured branch of a foreign bank shall be assigned to one of the 
following four Risk Categories based upon the institution's capital 
evaluation and supervisory evaluation as defined in this section.
    (1) Risk Category I. Small institutions in Supervisory Group A that 
are Well Capitalized;
    (2) Risk Category II. Small institutions in Supervisory Group A 
that are Adequately Capitalized, and institutions in Supervisory Group 
B that are either Well Capitalized or Adequately Capitalized;
    (3) Risk Category III. Small institutions in Supervisory Groups A 
and B that are Undercapitalized, and institutions in Supervisory Group 
C that are Well Capitalized or Adequately Capitalized; and
    (4) Risk Category IV. Small institutions in Supervisory Group C 
that are Undercapitalized.
    (b) Capital evaluations. Each small institution and each insured 
branch of a foreign bank will receive one of the following three 
capital evaluations on the basis of data reported in the institution's 
Consolidated Reports of Condition and Income, Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks, or Thrift 
Financial Report dated as of March 31 for the assessment period 
beginning the preceding January 1; dated as of June 30 for the 
assessment period beginning the preceding April 1; dated as of 
September 30 for the assessment period beginning the preceding July 1; 
and dated as of December 31 for the assessment period beginning the 
preceding October 1.
    (1) Well Capitalized. (i) Except as provided in paragraph 
(b)(1)(ii) of this section, a Well Capitalized institution is one that 
satisfies each of the following capital ratio standards: Total risk-
based ratio, 10.0 percent or greater; Tier 1 risk-based ratio, 6.0 
percent or greater; and Tier 1 leverage ratio, 5.0 percent or greater.
    (ii) For purposes of this section, an insured branch of a foreign 
bank will be deemed to be Well Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 108 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (b) of this section.
    (2) Adequately Capitalized. (i) Except as provided in paragraph 
(b)(2)(ii) of this section, an Adequately Capitalized institution is 
one that does not satisfy the standards of Well Capitalized under this 
paragraph but satisfies each of the following capital ratio standards: 
Total risk-based ratio, 8.0 percent or greater; Tier 1 risk-based 
ratio, 4.0 percent or greater; and Tier 1 leverage ratio, 4.0 percent 
or greater.
    (ii) For purposes of this section, an insured branch of a foreign 
bank will be deemed to be Adequately Capitalized if the insured branch:
    (A) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (B) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 106 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (b) of this section; and
    (C) Does not meet the definition of a Well Capitalized insured 
branch of a foreign bank.
    (3) Undercapitalized. An undercapitalized institution is one that 
does not qualify as either Well Capitalized or Adequately Capitalized 
under paragraphs (b)(1) and (b)(2) of this section.
    (c) Supervisory evaluations. Each small institution and each 
insured branch of a foreign bank will be assigned to one of three 
Supervisory Groups based on the Corporation's consideration of 
supervisory evaluations provided by the institution's primary Federal 
regulator. The supervisory

[[Page 72595]]

evaluations include the results of examination findings by the primary 
Federal regulator, as well as other information that the primary 
Federal regulator determines to be relevant. In addition, the 
Corporation will take into consideration such other information (such 
as state examination findings, as appropriate) as it determines to be 
relevant to the institution's financial condition and the risk posed to 
the Deposit Insurance Fund. The three Supervisory Groups are:
    (1) Supervisory Group ``A.'' This Supervisory Group consists of 
financially sound institutions with only a few minor weaknesses;
    (2) Supervisory Group ``B.'' This Supervisory Group consists of 
institutions that demonstrate weaknesses which, if not corrected, could 
result in significant deterioration of the institution and increased 
risk of loss to the Deposit Insurance Fund; and
    (3) Supervisory Group ``C.'' This Supervisory Group consists of 
institutions that pose a substantial probability of loss to the Deposit 
Insurance Fund unless effective corrective action is taken.
    (d) Determining Assessment Rates for Insured Depository 
Institutions. A small insured depository institution in Risk Category I 
shall have its initial base assessment rate determined using the 
financial ratios method set forth in paragraph (d)(1) of this section. 
An insured branch of a foreign bank in Risk Category I shall have its 
assessment rate determined using the weighted average ROCA component 
rating method set forth in paragraph (d)(2) of this section. A large 
insured depository institution shall have its initial base assessment 
rate determined using the large institution method set forth in 
paragraph (d)(3) of this section. A highly complex insured depository 
institution shall have its initial base assessment rate determined 
using the highly complex institution method set forth at paragraph 
(d)(4) of this section.
    (1) Financial ratios method. (i) Under the financial ratios method 
for small Risk Category I institutions, each of six financial ratios 
and a weighted average of CAMELS component ratings will be multiplied 
by a corresponding pricing multiplier. The sum of these products will 
be added to a uniform amount. The resulting sum shall equal the 
institution's initial base assessment rate; provided, however, that no 
institution's initial base assessment rate shall be less than the 
minimum initial base assessment rate in effect for Risk Category I 
institutions for that quarter nor greater than the maximum initial base 
assessment rate in effect for Risk Category I institutions for that 
quarter. An institution's initial base assessment rate, subject to 
adjustment pursuant to paragraphs (d)(6), (7), and (8) of this section, 
as appropriate (resulting in the institution's total base assessment 
rate, which in no case can be lower than 50 percent of the 
institution's initial base assessment rate), and adjusted for the 
actual assessment rates set by the Board under Sec.  327.10(f), will 
equal an institution's assessment rate. The six financial ratios are: 
Tier 1 Leverage Ratio; Loans past due 30-89 days/gross assets; 
Nonperforming assets/gross assets; Net loan charge-offs/gross assets; 
Net income before taxes/risk-weighted assets; and the Adjusted brokered 
deposit ratio. The ratios are defined in Table A.1 of Appendix A to 
this subpart. The ratios will be determined for an assessment period 
based upon information contained in an institution's report of 
condition filed as of the last day of the assessment period as set out 
in Sec.  327.9(b). The weighted average of CAMELS component ratings is 
created by multiplying each component by the following percentages and 
adding the products: Capital adequacy--25%, Asset quality--20%, 
Management--25%, Earnings--10%, Liquidity--10%, and Sensitivity to 
market risk--10%. The following table sets forth the initial values of 
the pricing multipliers:

------------------------------------------------------------------------
                Risk measures *                  Pricing multipliers **
------------------------------------------------------------------------
Tier 1 Leverage Ratio.........................                   (0.056)
Loans Past Due 30-89 Days/Gross Assets........                    0.575
Nonperforming Assets/Gross Assets.............                    1.074
Net Loan Charge-Offs/Gross Assets.............                    1.210
Net Income before Taxes/Risk-Weighted Assets..                   (0.764)
Adjusted brokered deposit ratio...............                    0.065
Weighted Average CAMELS Component Rating......                    1.095
------------------------------------------------------------------------
* Ratios are expressed as percentages.
** Multipliers are rounded to three decimal places.

    (ii) The six financial ratios and the weighted average CAMELS 
component rating will be multiplied by the respective pricing 
multiplier, and the products will be summed. To this result will be 
added the uniform amount. The resulting sum shall equal the 
institution's initial base assessment rate; provided, however, that no 
institution's initial base assessment rate shall be less than the 
minimum initial base assessment rate in effect for Risk Category I 
institutions for that quarter nor greater than the maximum initial base 
assessment rate in effect for Risk Category I institutions for that 
quarter.
    (iii) Uniform amount and pricing multipliers. Except as adjusted 
for the actual assessment rates set by the Board under Sec.  327.10(f), 
the uniform amount shall be:
    (A) 4.861 whenever the assessment rate schedule set forth in Sec.  
327.10(a) is in effect;
    (B) 2.861 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (C) 1.861 whenever the assessment rate schedule set forth in Sec.  
327.10(c) is in effect; or
    (D) 0.861 whenever the assessment rate schedule set forth in Sec.  
327.10(d) is in effect.
    (iv) Implementation of CAMELS rating changes--(A) Changes between 
risk categories. If, during a quarter, a CAMELS composite rating change 
occurs that results in an institution whose Risk Category I assessment 
rate is determined using the financial ratios method moving from Risk 
Category I to Risk Category II, III or IV, the institution's initial 
base assessment rate for the portion of the quarter that it was in Risk 
Category I shall be determined using the supervisory ratings in effect 
before the change and the financial ratios as of the end of the 
quarter, subject to adjustment pursuant to paragraphs (d)(6), (7), and 
(8) of this section, as appropriate, and adjusted for the actual 
assessment rates set by the Board under Sec.  327.10(f). For the 
portion of the quarter that the institution was not in Risk Category I, 
the institution's initial base assessment rate, which shall be subject 
to adjustment pursuant to

[[Page 72596]]

paragraphs (d)(6), (7), and (8), shall be determined under the 
assessment schedule for the appropriate Risk Category. If, during a 
quarter, a CAMELS composite rating change occurs that results in an 
institution moving from Risk Category II, III or IV to Risk Category I, 
and its initial base assessment rate will be determined using the 
financial ratios method, then that method shall apply for the portion 
of the quarter that it was in Risk Category I, subject to adjustment 
pursuant to paragraphs (d)(6), (7) and (8) of this section, as 
appropriate, and adjusted for the actual assessment rates set by the 
Board under Sec.  327.10(f). For the portion of the quarter that the 
institution was not in Risk Category I, the institution's initial base 
assessment rate, which shall be subject to adjustment pursuant to 
paragraphs (d)(6), (7), and (8) of this section shall be determined 
under the assessment schedule for the appropriate Risk Category.
    (B) Changes within Risk Category I. If, during a quarter, an 
institution's CAMELS component ratings change in a way that will change 
the institution's initial base assessment rate within Risk Category I, 
the initial base assessment rate for the period before the change shall 
be determined under the financial ratios method using the CAMELS 
component ratings in effect before the change, subject to adjustment 
pursuant to paragraphs (d)(6), (7), and (8) of this section, as 
appropriate. Beginning on the date of the CAMELS component ratings 
change, the initial base assessment rate for the remainder of the 
quarter shall be determined using the CAMELS component ratings in 
effect after the change, again subject to adjustment pursuant to 
paragraphs (d)(6), (7), and (8) of this section, as appropriate.
    (2) Assessment rate for insured branches of foreign banks--(i) 
Insured branches of foreign banks in Risk Category I. Insured branches 
of foreign banks in Risk Category I shall be assessed using the 
weighted average ROCA component rating.
    (ii) Weighted average ROCA component rating. The weighted average 
ROCA component rating shall equal the sum of the products that result 
from multiplying ROCA component ratings by the following percentages: 
Risk Management--35%, Operational Controls--25%, Compliance--25%, and 
Asset Quality--15%. The weighted average ROCA rating will be multiplied 
by 5.076 (which shall be the pricing multiplier). To this result will 
be added a uniform amount. The resulting sum--the initial base 
assessment rate--will equal an institution's total base assessment 
rate; provided, however, that no institution's total base assessment 
rate will be less than the minimum total base assessment rate in effect 
for Risk Category I institutions for that quarter nor greater than the 
maximum total base assessment rate in effect for Risk Category I 
institutions for that quarter.
    (iii) Uniform amount. Except as adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(f), the uniform amount for 
all insured branches of foreign banks shall be:
    (A) -3.127 whenever the assessment rate schedule set forth in Sec.  
327.10(a) is in effect;
    (B) -5.127 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
    (C) -6.127 whenever the assessment rate schedule set forth in Sec.  
327.10(c) is in effect; or
    (D) -7.127 whenever the assessment rate schedule set forth in Sec.  
327.10(d) is in effect.
    (iv) No insured branch of a foreign bank in any risk category shall 
be subject to the adjustments in paragraphs (d)(5), (d)(6), or (d)(8) 
of this section.
    (v) Implementation of changes between Risk Categories for insured 
branches of foreign banks. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category I to Risk Category II, III or IV, the institution's 
initial base assessment rate for the portion of the quarter that it was 
in Risk Category I shall be determined using the weighted average ROCA 
component rating. For the portion of the quarter that the institution 
was not in Risk Category I, the institution's initial base assessment 
rate shall be determined under the assessment schedule for the 
appropriate Risk Category. If, during a quarter, a ROCA rating change 
occurs that results in an insured branch of a foreign bank moving from 
Risk Category II, III or IV to Risk Category I, the institution's 
assessment rate for the portion of the quarter that it was in Risk 
Category I shall equal the rate determined as provided using the 
weighted average ROCA component rating. For the portion of the quarter 
that the institution was not in Risk Category I, the institution's 
initial base assessment rate shall be determined under the assessment 
schedule for the appropriate Risk Category.
    (vi) Implementation of changes within Risk Category I for insured 
branches of foreign banks. If, during a quarter, an insured branch of a 
foreign bank remains in Risk Category I, but a ROCA component rating 
changes that will affect the institution's initial base assessment 
rate, separate assessment rates for the portion(s) of the quarter 
before and after the change(s) shall be determined under this paragraph 
(d)(2) of this section.
    (3) Assessment scorecard for large institutions (other than highly 
complex institutions). (i) All large institutions other than highly 
complex institutions shall have their quarterly assessments determined 
using the scorecard for large institutions.

                    Scorecard for Large Institutions
------------------------------------------------------------------------
                                          Weights within     Component
           Scorecard measures                component        weights
                                             (percent)       (percent)
------------------------------------------------------------------------
P--Performance Score
P.1--Weighted Average CAMELS Rating.....             100              30
P.2--Ability to Withstand Asset-Related   ..............              50
 Stress:................................
    Tier 1 Leverage Ratio...............              10
    Concentration Measure...............              35
    Core Earnings/Average Quarter-End                 20
     Total Assets.......................
    Credit Quality Measure..............              35
P.3--Ability to Withstand Funding-        ..............              20
 Related Stress.........................
    Core Deposits/Total Liabilities.....              60
    Balance Sheet Liquidity Ratio.......              40
L--Loss Severity Score:
L.1--Loss Severity......................  ..............             100
    Potential Losses/Total Domestic                   75
     Deposits (loss severity measure)...

[[Page 72597]]

 
    Noncore Funding/Total Liabilities...              25
------------------------------------------------------------------------

     (ii) The large institution scorecard produces two scores: 
performance and loss severity.
    (A) Performance score. The performance score for large institutions 
is the weighted average of three inputs: weighted average CAMELS rating 
(30%); ability to withstand asset-related stress measures (50%); and 
ability to withstand funding-related stress measures (20%).
    (B) Weighted average CAMELS score. (1) To derive the weighted 
average CAMELS score, a weighted average of an institution's CAMELS 
component ratings is calculated using the following weights:

------------------------------------------------------------------------
          CAMELS Component                     Weight (percent)
------------------------------------------------------------------------
                        C                                  25
                       A                                   20
                       M                                   25
                       E                                   10
                       L                                   10
                       S                                   10
------------------------------------------------------------------------

    (2) A weighted average CAMELS rating is converted to a score that 
ranges from 25 to 100. A weighted average rating of 1 equals a score of 
25 and a weighted average of 3.5 or greater equals a score of 100. 
Weighted average CAMELS ratings between 1 and 3.5 are assigned a score 
between 25 and 100 according to the following equation:

S = 25 + [(20/3) * (C<SUP>2</SUP> -1)],

Where:

S = the weighted average CAMELS score and
    C = the weighted average CAMELS rating.

    (C) Ability to withstand asset-related stress. (1) The ability to 
withstand asset-related stress component contains four measures: Tier 1 
leverage ratio; Concentration measure (the higher of the higher-risk 
assets to Tier 1 capital and reserves or growth-adjusted portfolio 
concentrations measures); Core earnings to average quarter-end total 
assets; and Credit quality measure (the higher of the criticized and 
classified assets to Tier 1 capital and reserves or underperforming 
assets to Tier 1 capital and reserves). Appendices A and C define these 
measures in detail and give the source of the data used to determine 
them.
    (2) The concentration measure score is the higher of the scores of 
the two measures that make up the concentration measure score (higher-
risk assets to Tier 1 capital and reserves measure or growth-adjusted 
portfolio concentrations measure). The credit quality measure score is 
the higher of the criticized and classified items ratio score or the 
underperforming assets ratio score. Each asset related stress measure 
is assigned the following cutoff values and weights to derive a score 
for an institution's ability to withstand asset-related stress:

                Cutoff Values and Weights for Ability to Withstand Asset-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                         Cutoff values
          Scorecard measures          --------------------------------------------------    Weight  (percent)
                                               Minimum                  Maximum
----------------------------------------------------------------------------------------------------------------
Tier 1 Leverage Ratio................                        6                       13                       10
----------------------------------------------------------------------------------------------------------------
Concentration Measure:...............  .......................  .......................                       35
    Higher-Risk Assets to Tier 1                             0                      135
     capital and Reserves; or........
    Growth-Adjusted Portfolio                                3                       57
     Concentrations..................
----------------------------------------------------------------------------------------------------------------
Core Earnings/Average Quarter-End                            0                        2                       20
 Total Assets........................
  Credit Quality Measure:............  .......................  .......................                       35
    Criticized and Classified Items/                         8                      100
     Tier 1 capital and Reserves; or.
    Underperforming Assets/Tier 1                            2                       37  .......................
     capital and Reserves............
----------------------------------------------------------------------------------------------------------------

     (3) For each of the risk measures within the ability to withstand 
asset-related stress portion of the scorecard, a value reflecting lower 
risk than the cutoff value that results in a score of 0 will also 
receive a score of 0, where 0 equals the lowest risk for that measure. 
A value reflecting higher risk than the cutoff value that results in a 
score of 100 will also receive a score of 100, where 100 equals the 
highest risk for that measure. A risk measure value between the minimum 
and maximum cutoff values is converted linearly to a score between 0 
and 100 as shown in Appendix B to this subpart. Each score is 
multiplied by a respective weight and the resulting weighted score for 
each measure is summed to arrive at an ability to withstand asset-
related stress score, which ranges from 0 to 100.
    (D) Ability to withstand funding-related stress. The ability to 
withstand funding-related stress component contains two risk measures: 
a core deposits to liabilities ratio, and a balance sheet liquidity 
ratio. Appendix A to this subpart describes these ratios in detail and 
gives the source of the data used to determine them. Appendix B to this 
subpart describes in detail how each of these measures is converted to 
a score. The ability to withstand funding-related stress component 
score is the weighted average of the two measure scores. Each measure 
is assigned the following cutoff values and weights to derive a score 
for an institution's ability to withstand funding-related stress:

[[Page 72598]]



               Cutoff Values and Weights for Ability to Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................               3              79              60
Balance Sheet Liquidity Ratio...................................               7             188              40
----------------------------------------------------------------------------------------------------------------

     (E) Calculation of performance score. The weighted average CAMELS 
score, the ability to withstand asset-related stress score, and the 
ability to withstand funding-related stress score are multiplied by 
their weights and the results are summed to arrive at the performance 
score. The performance score cannot exceed 100.
    (iii) Loss severity score. The loss severity score is based on two 
measures: The loss severity measure and noncore funding to total 
liabilities ratio. Appendices A and D to this subpart describe these 
measures in detail and Appendix B to this subpart describes how each of 
these measures is converted to a score between 0 and 100. The loss 
severity score is the weighted average of these two scores. Each 
measure is assigned the following cutoff values and weights to derive a 
score for an institution's loss severity score:

                           Cutoff Values and Weights for Loss Severity Score Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Potential Losses/Total Domestic Deposits (loss severity measure)               0              29              75
Noncore Funding/Total Liabilities...............................              21              97              25
----------------------------------------------------------------------------------------------------------------

     (iv) Total score. The performance and loss severity scores are 
combined to produce a total score. The loss severity score is converted 
into a loss severity factor that ranges from 0.8 (score of 5 or lower) 
to 1.2 (score of 85 or higher). Scores that fall at or below the 
minimum cutoff of 5 receive a loss severity measure of 0.8 and scores 
that fall at or above the maximum cutoff of 85 receive a loss severity 
score of 1.2. The following linear interpolation converts loss severity 
scores between the cutoffs into a loss severity factor: (Loss Severity 
Factor = 0.8 + [0.005 * (Loss Severity Score - 5)]. The performance 
score is multiplied by the loss severity factor to produce a total 
score (total score = performance score * loss severity factor). The 
total score cannot be less than 30 or more than 90. The total score is 
subject to adjustment, up or down, by a maximum of 15 points, as set 
forth in paragraph (d)(5) of this section. The resulting total score 
cannot be less than 30 or more than 90.
    (v) Initial base assessment rate. A large institution with a total 
score of 30 pays the minimum initial base assessment rate and an 
institution with a total score of 90 pays the maximum initial base 
assessment rate. For total scores between 30 and 90, initial base 
assessment rates rise at an increasing rate as the total score 
increases, calculated according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP24NO10.335


where Rate is the initial base assessment rate (expressed in basis 
points), Maximum Rate is the maximum initial base assessment rate 
then in effect (expressed in basis points), and Minimum Rate is the 
minimum initial base assessment rate then in effect (expressed in 
basis points). Initial base assessment rates are subject to 
adjustment pursuant to paragraphs (d)(5), (d)(6), (d)(7), and (d)(8) 
of this section, resulting in the institution's total base 
assessment rate, which in no case can be lower than 50 percent of 
the institution's initial base assessment rate.

    (4) Assessment scorecard for highly complex institutions--(i) All 
highly complex institutions shall have their quarterly assessments 
determined using the scorecard for highly complex institutions.

                Scorecard for Highly Complex Institutions
------------------------------------------------------------------------
                                          Weights within     Component
           Scorecard measures                component        weights
                                             (percent)       (percent)
------------------------------------------------------------------------
P--Performance Score:
P.1--Weighted Average CAMELS Rating.....             100              30
P.2--Ability to Withstand Asset-Related   ..............              50
 Stress:
    Tier 1 Leverage Ratio...............              10
    Concentration Measure...............              35
    Core Earnings/Average Quarter-End                 20
     Total Assets.......................
    Credit Quality Measure and Market                 35
     Risk Measure.......................
P.3--Ability to Withstand Funding-        ..............              20
 Related Stress.........................

[[Page 72599]]

 
    Core Deposits/Total Liabilities.....              50
    Balance Sheet Liquidity Ratio.......              30
    Average Short-Term Funding/Average                20  ..............
     Total Assets.......................
L--Loss Severity Score:
L.1--Loss Severity......................  ..............             100
    Potential Losses/Total Domestic                   75
     Deposits (loss severity measure)...
    Noncore Funding/Total Liabilities...              25
------------------------------------------------------------------------

     (ii) The scorecard for highly complex institutions contains the 
performance components and the loss severity components of the large 
bank scorecard and employs the same methodology. The assessment process 
set forth in paragraph (d)(3) of this section for the large bank 
scorecard applies to highly complex institutions, modified as follows.
    (A) The scorecard for highly-complex institutions contains two 
additional measures:
    (1) A concentration measure based on three risk measures--higher-
risk assets, top 20 counterparty exposure, and the largest counterparty 
exposure, all divided by Tier 1 capital and reserves, and
    (2) A credit quality measure and market risk measure in the ability 
to withstand asset-related stress; and an additional component--average 
short-term funding to average total assets ratio--in the ability to 
withstand funding-related stress.
    (B) Performance score for highly complex institutions. A 
performance score for highly complex institutions is the weighted 
average of three inputs: Weighted average CAMELS rating (30%); ability 
to withstand asset-related stress score (50%); and ability to withstand 
funding-related stress score (20%). To calculate the performance score 
for highly complex institutions, the weighted average CAMELS score, the 
ability to withstand asset-related stress score, and the ability to 
withstand funding-related stress score are multiplied by their weights 
and the results are summed to arrive at the performance score. The 
resulting score cannot exceed 100.
    (C) Ability to withstand asset-related stress. (1) The scorecard 
for highly complex institutions substitutes the growth-adjusted 
concentration measure with the top 20 counterparty exposure and the 
largest counterparty exposure, adds one additional factor to the 
ability to withstand asset-related stress component--the market risk 
measure--and one additional factor to the ability to withstand funding-
related stress component--the average short-term funding to average 
total assets ratio. The cutoff values and weights for ability to 
withstand asset-related stress measures are set forth below.

                Cutoff Values and Weights for Ability To Withstand Asset-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                           Cutoff values
       Scorecard measures       ----------------------------------  Sub-component              Weight
                                     Minimum          Maximum           weight
----------------------------------------------------------------------------------------------------------------
Tier 1 Leverage Ratio..........                6               13  ...............  10%.
Concentration Measure:           ...............  ...............  ...............  35%.
    Higher Risk Assets/Tier 1                  0              135
     Capital and Reserves;.
    Top 20 Counterparty                        0              125
     Exposure/Tier 1 Capital
     and Reserves; or
    Largest Counterparty                       0               20
     Exposure/Tier 1 Capital
     and Reserves.
Core Earnings/Average Quarter-                 0                2                   20%.
 End Total Assets.
Credit Quality Measure *:......  ...............  ...............  ...............  35%* (1-Trading Asset
                                                                                     Ratio).
    Criticized and Classified                  8              100  ...............  ............................
     Items to Tier 1 Capital
     and Reserves; or
    Underperforming Assets/Tier                2               37
     1 Capital and Reserves.
Market Risk Measure*:..........  ...............  ...............  ...............  35%* Trading Asset Ratio.
    Trading Revenue Volatility/                0                2              60%
     Tier 1 Capital.
    Market Risk Capital/Tier 1                 0               10              20%
     Capital.
    Level 3 Trading Assets/Tier                0               35              20%
     1 Capital.
----------------------------------------------------------------------------------------------------------------
* Combined, the credit quality measure and the market risk measure will be assigned a 35 percent weight. The
  relative weight between the two measures will depend on the ratio of average trading assets to sum of average
  securities, loans and trading assets (trading asset ratio).

    (2) Appendix A to subpart A of this part describes these measures 
in detail and gives the source of the data used to calculate the 
measures.
    (D) Ability to withstand funding related stress. (1) The scorecard 
for highly complex institutions adds one additional factor to the 
ability to withstand funding-related stress component--the average 
short-term funding to average total assets ratio. The cutoff values and 
weights for ability to withstand funding-related stress measures for 
highly complex institutions are set forth below.

[[Page 72600]]



               Cutoff Values and Weights for Ability To Withstand Funding-Related Stress Measures
----------------------------------------------------------------------------------------------------------------
                                                                           Cutoff values
                       Scorecard measures                        --------------------------------     Weight
                                                                      Minimum         Maximum        (percent)
----------------------------------------------------------------------------------------------------------------
Core Deposits/Total Liabilities.................................               3              79              50
Balance Sheet Liquidity Ratio...................................               7             188              30
Average Short-term Funding/Average Total Assets.................               0              20              20
----------------------------------------------------------------------------------------------------------------

     (2) Appendix A to subpart A of this part describes these measures 
in detail and gives the source of the data used to calculate the 
measures.
    (iii) Loss severity score for highly complex institutions. The loss 
severity score for highly complex institutions is calculated as 
provided for the loss severity score for large institutions in 
paragraph (d)(3)(ii) (of this section).
    (iv) The performance score and the loss severity score are combined 
in the same manner to calculate the total score as for large 
institutions as set forth in paragraph (d)(3) of this section.
    (v) The initial base assessment rate for highly complex 
institutions is calculated from the total score in the same manner as 
for large institutions as set forth in paragraph (d)(3) of this 
section. Initial base assessment rates are subject to adjustment 
pursuant to paragraphs (d)(5), (d)(6), (d)(7), and (d)(8) of this 
section, resulting in the institution's total base assessment rate, 
which in no case can be lower than 50 percent of the institution's 
initial base assessment rate.
    (5) Adjustment to total score for large institutions and highly 
complex institutions. The total score for large institutions and highly 
complex institutions is subject to adjustment, up or down, by a maximum 
of 15 points, based upon significant risk factors that are not 
adequately captured in the appropriate scorecard. In making such 
adjustments, the FDIC may consider such information as financial 
performance and condition information and other market or supervisory 
information.
    (i) Prior notice of adjustments--(A) Prior notice of upward 
adjustment. Prior to making any upward adjustment to an institution's 
total score because of considerations of additional risk information, 
the FDIC will formally notify the institution and its primary Federal 
regulator and provide an opportunity to respond. This notification will 
include the reasons for the adjustment(s) and when the adjustment(s) 
will take effect.
    (B) Prior notice of downward adjustment. Prior to making any 
downward adjustment to an institution's total score because of 
considerations of additional risk information, the FDIC will formally 
notify the institution's primary Federal regulator and provide an 
opportunity to respond.
    (ii) Determination whether to adjust upward; effective period of 
adjustment. After considering an institution's and the primary Federal 
regulator's responses to the notice, the FDIC will determine whether 
the adjustment to an institution's total score is warranted, taking 
into account any revisions to scorecard measures, as well as any 
actions taken by the institution to address the FDIC's concerns 
described in the notice. The FDIC will evaluate the need for the 
adjustment each subsequent assessment period. Except as provided in 
paragraph (d)(5)(iv) of this section, the amount of adjustment cannot 
exceed the proposed adjustment amount contained in the initial notice 
unless additional notice is provided so that the primary Federal 
regulator and the institution may respond.
    (iii) Determination whether to adjust downward; effective period of 
adjustment. After considering the primary Federal regulator's responses 
to the notice, the FDIC will determine whether the adjustment to total 
score is warranted, taking into account any revisions to scorecard 
measures, as well as any actions taken by the institution to address 
the FDIC's concerns described in the notice. Any downward adjustment in 
an institution's total score will remain in effect for subsequent 
assessment periods until the FDIC determines that an adjustment is no 
longer warranted. Downward adjustments will be made without 
notification to the institution. However, the FDIC will provide advance 
notice to an institution and its primary Federal regulator and give 
them an opportunity to respond before removing a downward adjustment.
    (iv) Adjustment without notice. Notwithstanding the notice 
provisions set forth above, the FDIC may change an institution's total 
score without advance notice under this paragraph, if the institution's 
supervisory ratings or the scorecard measures deteriorate.
    (6) Unsecured debt adjustment to initial base assessment rate for 
all institutions. All institutions, except new institutions as provided 
under paragraph (d)(10)(i)(C) of this section and insured branches of 
foreign banks as provided under paragraph (d)(2)(iii) of this section, 
are subject to an adjustment of assessment rates for unsecured debt. 
Any unsecured debt adjustment shall be made after any adjustment under 
paragraph (d)(5) of this section.
    (i) Application of unsecured debt adjustment. The unsecured debt 
adjustment shall be determined as the sum of the initial base 
assessment rate plus 40 basis points; that sum shall be multiplied by 
the ratio of an insured depository institution's long-term unsecured 
debt to its assessment base. The amount of the reduction in the 
assessment rate due to the adjustment is equal to the dollar amount of 
the adjustment divided by the amount of the assessment base.
    (ii) Limitation. No unsecured debt adjustment that provides a 
benefit for any institution shall exceed the lesser of 5 basis points 
or 50 percent of the institution's initial base assessment rate.
    (iii) Applicable quarterly reports of condition. Unsecured debt 
adjustment ratios for any given quarter shall be calculated from 
quarterly reports of condition (Call Reports and Thrift Financial 
Reports, or any successor reports, as appropriate) filed by each 
institution as of the last day of the quarter.
    (7) Depository institution debt adjustment to initial base 
assessment rate for all institutions. All institutions shall be subject 
to an adjustment of assessment rates for unsecured debt held that is 
issued by another depository institution. Any such depository 
institution debt adjustment shall be made after any adjustment under 
paragraphs (d)(5) and (d)(6) of this section.
    (i) Application of depository institution debt adjustment. The 
depository institution debt adjustment shall equal 50 basis points 
multiplied by the ratio of the long-term unsecured debt an institution 
holds that was issued by another insured depository institution to its 
assessment base.

[[Page 72601]]

    (ii) Applicable quarterly reports of condition. Depository 
institution debt adjustment ratios for any given quarter shall be 
calculated from quarterly reports of condition (Call Reports and Thrift 
Financial Reports, or any successor reports, as appropriate) filed by 
each institution as of the last day of the quarter.
    (8) Brokered deposit adjustment. All small institutions in Risk 
Categories II, III, and IV, all large institutions, and all highly 
complex institutions shall be subject to an assessment rate adjustment 
for brokered deposits. Any such brokered deposit adjustment shall be 
made after any adjustment under paragraphs (d)(5), (d)(6), and (d)(7) 
of this section. The brokered deposit adjustment includes all brokered 
deposits as defined in Section 29 of the Federal Deposit Insurance Act 
(12 U.S.C. 1831f), and 12 CFR 337.6, including reciprocal deposits as 
defined in Sec.  327.8(p), and brokered deposits that consist of 
balances swept into an insured institution by another institution. The 
adjustment under this paragraph is limited to those institutions whose 
ratio of brokered deposits to domestic deposits is greater than 10 
percent; asset growth rates do not affect the adjustment. Insured 
branches of foreign banks are not subject to the brokered deposit 
adjustment as provided in paragraph (d)(2)(iii) of this section.
    (i) Application of brokered deposit adjustment. The brokered 
deposit adjustment shall be determined by multiplying 25 basis points 
by the ratio of the difference between an insured depository 
institution's brokered deposits and 10 percent of its domestic deposits 
to its assessment base.
    (ii) Limitation. The maximum brokered deposit adjustment will be 10 
basis points; the minimum brokered deposit adjustment will be 0.
    (iii) Applicable quarterly reports of condition. Brokered deposit 
ratios for any given quarter shall be calculated from the quarterly 
reports of condition (Call Reports and Thrift Financial Reports, or any 
successor reports, as appropriate) filed by each institution as of the 
last day of the quarter.
    (9) Request to be treated as a large institution--(i) Procedure. 
Any institution with assets of between $5 billion and $10 billion may 
request that the FDIC determine its assessment rate as a large 
institution. The FDIC will consider such a request provided that it has 
sufficient information to do so. Any such request must be made to the 
FDIC's Division of Insurance and Research. Any approved change will 
become effective within one year from the date of the request. If an 
institution whose request has been granted subsequently reports assets 
of less than $5 billion in its report of condition for four consecutive 
quarters, the FDIC will consider such institution to be a small 
institution subject to the financial ratios method.
    (ii) Time limit on subsequent request for alternate method. An 
institution whose request to be assessed as a large institution is 
granted by the FDIC shall not be eligible to request that it be 
assessed as a small institution for a period of three years from the 
first quarter in which its approved request to be assessed as a large 
institution became effective. Any request to be assessed as a small 
institution must be made to the FDIC's Division of Insurance and 
Research.
    (iii) An institution that disagrees with the FDIC's determination 
that it is a large, highly complex, or small institution may request 
review of that determination pursuant to Sec.  327.4(c).
    (10) New and established institutions and exceptions--(i) New small 
institutions. A new small Risk Category I institution shall be assessed 
the Risk Category I maximum initial base assessment rate for the 
relevant assessment period. No new small institution in any risk 
category shall be subject to the unsecured debt adjustment as 
determined under paragraph (d)(6) of this section. All new small 
institutions in any Risk Category shall be subject to the depository 
institution debt adjustment as determined under paragraph (d)(7) of 
this section. All new small institutions in Risk Categories II, III, 
and IV shall be subject to the brokered deposit adjustment as 
determined under paragraph (d)(8) of this section.
    (ii) New large institutions and new highly complex institutions. 
All new large institutions and all new highly complex institutions 
shall be assessed under the appropriate method provided at paragraph 
(d)(3) or (d)(4) and subject to the adjustments provided at paragraphs 
(d)(5), (d)(7), and (d)(8). No new highly complex or large institutions 
are entitled to adjustment under paragraph (d)(6). If a large or highly 
complex institution has not yet received CAMELS ratings, it will be 
given a weighted CAMELS rating of 2 for assessment purposes until 
actual CAMELS ratings are assigned.
    (iii) CAMELS ratings for the surviving institution in a merger or 
consolidation. When an established institution merges with or 
consolidates into a new institution, if the FDIC determines the 
resulting institution to be an established institution under Sec.  
327.8(k)(1), its CAMELS ratings for assessment purposes will be based 
upon the established institution's ratings prior to the merger or 
consolidation until new ratings become available.
    (iv) Rate applicable to institutions subject to subsidiary or 
credit union exception. A small Risk Category I institution that is 
established under Sec.  327.8(k)(4) and (5), but does not have CAMELS 
component ratings, shall be assessed at 2 basis points above the 
minimum initial base assessment rate applicable to Risk Category I 
institutions until it receives CAMELS component ratings. Thereafter, 
the assessment rate will be determined by annualizing, where 
appropriate, financial ratios obtained from all quarterly reports of 
condition that have been filed, until the institution files four 
quarterly reports of condition If a large or highly complex institution 
is considered established under Sec.  327.8(k)(4) and (5), but does not 
have CAMELS component ratings, it will be given a weighted CAMELS 
rating of 2 for assessment purposes until actual CAMELS ratings are 
assigned.
    (v) Request for review. An institution that disagrees with the 
FDIC's determination that it is a new institution may request review of 
that determination pursuant to Sec.  327.4(c).
    (11) Assessment rates for bridge depository institutions and 
conservatorships. Institutions that are bridge depository institutions 
under 12 U.S.C. 1821(n) and institutions for which the Corporation has 
been appointed or serves as conservator shall, in all cases, be 
assessed at the Risk Category I minimum initial base assessment rate, 
which shall not be subject to adjustment under paragraphs (d)(5), (6), 
(7) or (8) of this section.
    7. Revise Sec.  327.10 to read as follows:


Sec.  327.10  Assessment rate schedules.

    (a) Assessment rate schedules if, after September 30, 2010, the 
reserve ratio of the DIF has not reached 1.15 percent. (1) 
Applicability. The assessment rate schedules in paragraph (a) of this 
section will cease to be applicable when the reserve ratio of the DIF 
first reaches 1.15 percent after September 30, 2010.
    (2) Initial Base Assessment Rate Schedule. After September 30, 
2010, if the reserve ratio of the DIF has not reached 1.15 percent, the 
initial base assessment rate for an insured depository institution 
shall be the rate prescribed in the following schedule:

[[Page 72602]]



Initial Base Assessment Rate Schedule if, After September 30, 2010, the Reserve Ratio of the DIF Has Not Reached
                                                  1.15 Percent
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             5-9              14              23              35            5-35
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all institutions in Risk 
Category I shall range from 5 to 9 basis points.
    (ii) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for Risk Categories 
II, III, and IV shall be 14, 23, and 35 basis points, respectively.
    (iii) All institutions in any one risk category, other than Risk 
Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 5 to 35 basis points.
    (3) Total Base Assessment Rate Schedule After Adjustments. After 
September 30, 2010, if the reserve ratio of the DIF has not reached 
1.15 percent, the total base assessment rates after adjustments for an 
insured depository institution shall be the rate prescribed in the 
following schedule.

 Total Base Assessment Rate Schedule (After Adjustments)* if, After September 30, 2010, the Reserve Ratio of the
                                       DIF Has Not Reached 1.15 Percent **
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             5-9              14              23              35            5-35
Unsecured debt adjustment.......         (4.5)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
----------------------------------------------------------------------------------------------------------------
    Total base assessment rate..           2.5-9            9-24           18-33           30-45          2.5-45
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates.
** Total base assessment rates do not include the depository institution debt adjustment.

    (i) Risk Category I Total Base Assessment Rate Schedule. The annual 
total base assessment rates for all institutions in Risk Category I 
shall range from 2.5 to 9 basis points.
    (ii) Risk Category II Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category II shall range 
from 9 to 24 basis points.
    (iii) Risk Category III Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category III shall range 
from 18 to 33 basis points.
    (iv) Risk Category IV Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category IV shall range 
from 30 to 45 basis points.
    (v) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 2.5 to 45 basis points.
    (b) Assessment rate schedules once the reserve ratio of the DIF 
first reaches 1.15 percent after September 30, 2010, and the reserve 
ratio for the immediately prior assessment period is less than 2 
percent.
    (1) Initial Base Assessment Rate Schedule. After September 30, 
2010, once the reserve ratio of the DIF first reaches 1.15 percent, and 
the reserve ratio for the immediately prior assessment period is less 
than 2 percent, the initial base assessment rate for an insured 
depository institution shall be the rate prescribed in the following 
schedule:

Initial Base Assessment Rate Schedule Once the Reserve Ratio of the DIF Reaches 1.15 Percent After September 30,
         2010, and the Reserve Ratio for the Immediately Prior Assessment Period is Less Than 2 Percent
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             3-7              12              19              30            3-30
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.


[[Page 72603]]

    (i) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all institutions in Risk 
Category I shall range from 3 to 7 basis points.
    (ii) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for Risk Categories 
II, III, and IV shall be 12, 19, and 30 basis points, respectively.
    (iii) All institutions in any one risk category, other than Risk 
Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 3 to 30 basis points.
    (2) Total Base Assessment Rate Schedule After Adjustments. After 
September 30, 2010, once the reserve ratio of the DIF first reaches 
1.15 percent, and the reserve ratio for the immediately prior 
assessment period is less than 2 percent, the total base assessment 
rates after adjustments for an insured depository institution shall be 
the rate prescribed in the following schedule.

*Total Base Assessment Rate Schedule (after Adjustments)* Once the Reserve Ratio of the DIF reaches 1.15 Percent
   After September 30, 2010, and the Reserve Ratio for the Immediately Prior Assessment Period is Less Than 2
                                                   Percent **
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             3-7              12              19              30            3-30
Unsecured debt adjustment.......         (3.5)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
    Total base assessment rate..           1.5-7            7-22           14-29           29-40          1.5-40
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates.
** Total base assessment rates do not include the depository institution debt adjustment.

    (i) Risk Category I Total Base Assessment Rate Schedule. The annual 
total base assessment rates for institutions in Risk Category I shall 
range from 1.5 to 7 basis points.
    (ii) Risk Category II Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category II shall range 
from 7 to 22 basis points.
    (iii) Risk Category III Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category III shall range 
from 14 to 29 basis points.
    (iv) Risk Category IV Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category IV shall range 
from 29 to 40 basis points.
    (v) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 1.5 to 40 basis points.
    (c) Assessment rate schedules if the reserve ratio of the DIF for 
the prior assessment period is equal to or greater than 2 percent and 
less than 2.5 percent. (1) Initial Base Assessment Rate Schedule. If 
the reserve ratio of the DIF for the prior assessment period is equal 
to or greater than 2 percent and less than 2.5 percent, the initial 
base assessment rate for an insured depository institution, except as 
provided in paragraph (e) of this section, shall be the rate prescribed 
in the following schedule:

Initial Base Assessment Rate Schedule if Reserve Ratio for Prior Assessment Period is Equal to or Greater Than 2
                                        Percent But Less Than 2.5 Percent
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             2-6              10              17              28            2-28
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all institutions in Risk 
Category I shall range from 2 to 6 basis points.
    (ii) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for Risk Categories 
II, III, and IV shall be 10, 17, and 28 basis points, respectively.
    (iii) All institutions in any one risk category, other than Risk 
Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 2 to 28 basis points.
    (2) Total Base Assessment Rate Schedule after Adjustments. If the 
reserve ratio of the DIF for the prior assessment period is equal to or 
greater than 2 percent and less than 2.5 percent, the total base 
assessment rates after adjustments for an insured depository 
institution, except as provided in paragraph (e) of this section, shall 
be the rate prescribed in the following schedule.

[[Page 72604]]



 Total Base Assessment Rate Schedule (after Adjustments)* if Reserve Ratio for Prior Assessment Period Is Equal
                            to or Greater Than 2 Percent But Less Than 2.5 Percent**
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             2-6              10              17              28            2-38
Unsecured debt adjustment.......           (3)-0           (5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total base assessment rate..             1-6            5-20           12-27           23-38            1-38
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates.
** Total base assessment rates do not include the depository institution debt adjustment.

    (i) Risk Category I Total Base Assessment Rate Schedule. The annual 
total base assessment rates for institutions in Risk Category I shall 
range from 1 to 6 basis points.
    (ii) Risk Category II Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category II shall range 
from 5 to 20 basis points.
    (iii) Risk Category III Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category III shall range 
from 12 to 27 basis points.
    (iv) Risk Category IV Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category IV shall range 
from 23 to 38 basis points.
    (v) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 1 to 38 basis points.
    (d) Assessment rate schedules if the reserve ratio of the DIF for 
the prior assessment period is greater than 2.5 percent.
    (1) Initial Base Assessment Rate Schedule. If the reserve ratio of 
the DIF for the prior assessment period is greater than 2.5 percent, 
the initial base assessment rate for an insured depository institution, 
except as provided in paragraph (e) of this section, shall be the rate 
prescribed in the following schedule:

 Initial Base Assessment Rate Schedule if Reserve Ratio for Prior Assessment Period Is Greater Than or Equal to
                                                   2.5 Percent
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             1-5               9              15              25            1-25
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Initial base rates that are not the minimum
  or maximum rate will vary between these rates.

    (i) Risk Category I Initial Base Assessment Rate Schedule. The 
annual initial base assessment rates for all institutions in Risk 
Category I shall range from 1 to 5 basis points.
    (ii) Risk Category II, III, and IV Initial Base Assessment Rate 
Schedule. The annual initial base assessment rates for Risk Categories 
II, III, and IV shall be 9, 15, and 25 basis points, respectively.
    (iii) All institutions in any one risk category, other than Risk 
Category I, will be charged the same initial base assessment rate, 
subject to adjustment as appropriate.
    (iv) Large and Highly Complex Institutions Initial Base Assessment 
Rate Schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 1 to 25 basis points.
    (2) Total Base Assessment Rate Schedule after Adjustments. If the 
reserve ratio of the DIF for the prior assessment period is greater 
than 2.5 percent, the total base assessment rates after adjustments for 
an insured depository institution, except as provided in paragraph (e) 
of this section, shall be the rate prescribed in the following 
schedule.

Total Base Assessment Rate Schedule (after Adjustments)* if Reserve Ratio for Prior Assessment Period Is Greater
                                         Than or Equal to 2.5 Percent **
----------------------------------------------------------------------------------------------------------------
                                                                                                     Large and
                                   Risk Category   Risk Category   Risk Category   Risk Category      highly
                                         I              II              III             IV            complex
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Initial base assessment rate....             1-5               9              15              25            1-25
Unsecured debt adjustment.......         (2.5)-0         (4.5)-0           (5)-0           (5)-0           (5)-0
Brokered deposit adjustment.....  ..............            0-10            0-10            0-10            0-10
                                 -------------------------------------------------------------------------------
    Total base assessment rate..           0.5-5          4.5-19           10-25           20-35          0.5-35
----------------------------------------------------------------------------------------------------------------
* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or
  maximum rate will vary between these rates.

[[Page 72605]]

 
** Total base assessment rates do not include the depository institution debt adjustment.

    (i) Risk Category I Total Base Assessment Rate Schedule. The annual 
total base assessment rates for institutions in Risk Category I shall 
range from 0.5 to 5 basis points.
    (ii) Risk Category II Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category II shall range 
from 4.5 to 19 basis points.
    (iii) Risk Category III Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category III shall range 
from 10 to 25 basis points.
    (iv) Risk Category IV Total Base Assessment Rate Schedule. The 
annual total base assessment rates for Risk Category IV shall range 
from 20 to 35 basis points.
    (v) Large and Highly Complex Institutions Total Base Assessment 
Rate Schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 0.5 to 35 basis points.
    (e) Assessment Rate Schedules for New Institutions. New depository 
institutions, as defined in 327.8(j), shall be subject to the 
assessment rate schedules as follows:
    (1) Prior to the reserve ratio of the DIF first reaching 1.15 
percent after September 30, 2010. After September 30, 2010, if the 
reserve ratio of the DIF has not reached 1.15 percent, new institutions 
shall be subject to the initial and total base assessment rate 
schedules provided for in paragraph (a) of this section.
    (2) Assessment rate schedules once the DIF reserve ratio first 
reaches 1.15 percent after September 30, 2010. After September 30, 
2010, once the reserve ratio of the DIF first reaches 1.15 percent, new 
institutions shall be subject to the initial and total base assessment 
rate schedules provided for in paragraph (b) of this section, even if 
the reserve ratio equals or exceeds 2 percent or 2.5 percent.
    (f) Total Base Assessment Rate Schedule adjustments and 
procedures--(1) Board Rate Adjustments. The Board may increase or 
decrease the total base assessment rate schedule in paragraphs (a) 
through (d) of this section up to a maximum increase of 3 basis points 
or a fraction thereof or a maximum decrease of 3 basis points or a 
fraction thereof (after aggregating increases and decreases), as the 
Board deems necessary. Any such adjustment shall apply uniformly to 
each rate in the total base assessment rate schedule. In no case may 
such Board rate adjustments result in a total base assessment rate that 
is mathematically less than zero or in a total base assessment rate 
schedule that, at any time, is more than 3 basis points above or below 
the total base assessment schedule for the Deposit Insurance Fund in 
effect pursuant to paragraph (b) of this section, nor may any one such 
Board adjustment constitute an increase or decrease of more than 3 
basis points.
    (2) Amount of revenue. In setting assessment rates, the Board shall 
take into consideration the following:
    (i) Estimated operating expenses of the Deposit Insurance Fund;
    (ii) Case resolution expenditures and income of the Deposit 
Insurance Fund;
    (iii) The projected effects of assessments on the capital and 
earnings of the institutions paying assessments to the Deposit 
Insurance Fund;
    (iv) The risk factors and other factors taken into account pursuant 
to 12 USC 1817(b)(1); and
    (v) Any other factors the Board may deem appropriate.
    (3) Adjustment procedure. Any adjustment adopted by the Board 
pursuant to this paragraph will be adopted by rulemaking, except that 
the Corporation may set assessment rates as necessary to manage the 
reserve ratio, within set parameters not exceeding cumulatively 3 basis 
points, pursuant to paragraph (c)(1) of this section, without further 
rulemaking.
    (4) Announcement. The Board shall announce the assessment schedules 
and the amount and basis for any adjustment thereto not later than 30 
days before the quarterly certified statement invoice date specified in 
Sec.  327.3(b) of this part for the first assessment period for which 
the adjustment shall be effective. Once set, rates will remain in 
effect until changed by the Board.
    8. Appendix A to Subpart A is revised to read as follows:

                     Appendix A to Subpart A of Part 327--Description of Scorecard Measures
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Tier 1 Leverage Ratio..................................  Tier 1 capital for Prompt Corrective Action (PCA)
                                                          divided by adjusted average assets based on the
                                                          definition for prompt corrective action.
Concentration Measure for Large IDIs (excluding Highly   Concentration score for large institutions takes the
 Complex Institutions).                                   higher score of the following two:
    (1) Higher-Risk Assets/Tier 1 Capital and Reserves.  Sum of construction and land development (C&D) loans
                                                          (funded and unfunded), leveraged loans (funded and
                                                          unfunded), nontraditional mortgages, and subprime
                                                          consumer loans divided by Tier 1 capital and reserves.
                                                          See Appendix C to this part for the detailed
                                                          description of the ratio.
    (2) Growth-Adjusted Portfolio Concentrations.......  The measure is calculated in following steps:
                                                         (i) Concentration levels (as a ratio to Tier 1 capital
                                                          and reserves) are calculated for each broad portfolio
                                                          category (C&D, other commercial real estate loans,
                                                          first lien residential mortgages (including non-agency
                                                          mortgage-backed securities), and junior lien
                                                          residential mortgages, commercial and industrial
                                                          loans, credit card, and other consumer loans).
                                                         (ii) Three-year merger-adjusted portfolio growth rates
                                                          are then scaled to a growth factor of 1 to 1.2 where a
                                                          3-year cumulated growth rate of 20 percent or less
                                                          equals a factor of 1 and a growth rate of 80 percent
                                                          or greater equals a factor of 1.2. If three years of
                                                          data are not available, a growth factor of 1 will be
                                                          assigned.
                                                         (iii) Risk weights are assigned to each category based
                                                          on historical loss rates.
                                                         (iv) Concentration levels are multiplied by risk
                                                          weights and squared to produce a risk-adjusted
                                                          concentration ratio for each portfolio.
                                                         (v) The risk-adjusted concentration ratio for each
                                                          portfolio is multiplied by the growth factor and
                                                          resulting values are summed.

[[Page 72606]]

 
                                                         See Appendix C to this part for the detail description
                                                          of the measure.
Concentration Measure for Highly Complex Institutions..  Concentration score for highly complex institutions
                                                          takes the highest score of the following three:
    (1) Higher-Risk Assets/Tier 1 Capital and Reserves.  Sum of C&D loans (funded and unfunded), leveraged loans
                                                          (funded and unfunded), nontraditional mortgages, and
                                                          subprime consumer loans divided by Tier 1 capital and
                                                          reserves. See Appendix C to this part for the detailed
                                                          description of the ratio.
    (2) Top 20 Counterparty Exposure/Tier 1 Capital and  Sum of the total exposure amount to the largest 20
     Reserves.                                            counterparties by exposure amount divided by Tier 1
                                                          capital and reserves. Counterparty exposure is equal
                                                          to the sum of Exposure at Default (EAD) associated
                                                          with derivatives trading and Securities Financing
                                                          Transactions (SFTs) and the gross lending exposure
                                                          (including all unfunded commitments) for each
                                                          counterparty or borrower at the consolidated entity
                                                          level.\1\ EAD for derivatives trading and SFTs is to
                                                          be calculated as defined in Basel II or as updated in
                                                          future Basel Accords. EAD and lending exposure is to
                                                          be reported at the consolidated level across all legal
                                                          entities for that counterparty.
    (3) Largest Counterparty Exposure/Tier 1 Capital     Sum of the exposure amount to the largest counterparty
     and Reserves.                                        by exposure amount divided by Tier 1 capital and
                                                          reserves. Counterparty exposure is equal to the sum of
                                                          Exposure at Default (EAD) associated with derivatives
                                                          trading and Securities Financing Transactions (SFTs)
                                                          and the gross lending exposure (including all unfunded
                                                          commitments) for each counterparty or borrower at the
                                                          consolidated entity level. EAD for derivatives trading
                                                          and SFTs is to be calculated as defined in Basel II or
                                                          as updated in future Basel Accords. EAD and lending
                                                          exposure is to be reported at the consolidated level
                                                          across all legal entities for that counterparty.
Core Earnings/Average Quarter-End Total Assets.........  Core earnings are defined as quarterly net income less
                                                          extraordinary items and realized gains and losses on
                                                          available-for-sale (AFS) and held-to-maturity (HTM)
                                                          securities, adjusted for mergers. The ratio takes a
                                                          four-quarter sum of merger-adjusted core earnings and
                                                          divides it by an average of five quarter-end total
                                                          assets (most recent and four prior quarters). If four
                                                          quarters of data on core earnings are not available,
                                                          data for quarters that are available will be added and
                                                          annualized. If five quarters of data on total assets
                                                          are not available, data for quarters that are
                                                          available will be averaged.
Credit Quality Measure:................................  Asset quality score takes a higher score of the
                                                          following two:
    (1) Criticized and Classified Items/Tier 1 Capital   Sum of criticized and classified items divided by the
     and Reserves.                                        sum of Tier 1 capital and reserves. Criticized and
                                                          classified items include items with an internal grade
                                                          of ``Special Mention'' or worse and include retail
                                                          items under Uniform Retail Classification Guidelines,
                                                          securities that are internally rated the regulatory
                                                          equivalent of ``Special Mention'' or worse, and marked-
                                                          to-market counterparty positions that are internally
                                                          rated the regulatory equivalent of ``Special Mention''
                                                          or worse, less credit valuation adjustments.
                                                          Criticized and classified items exclude loans and
                                                          securities in trading books, and the maximum amount
                                                          recoverable from the U.S. government, its agencies, or
                                                          government-sponsored agencies, under guarantee or
                                                          insurance provisions.
    (2) Underperforming Assets/Tier 1 Capital and        Sum of loans that are 30-89 days past due, loans that
     Reserves.                                            are 90 days or more past due, nonaccrual loans,
                                                          restructured loans (including restructured 1-4 family
                                                          loans), and ORE, excluding the maximum amount
                                                          recoverable from the U.S. government, its agencies, or
                                                          government-sponsored agencies, under guarantee or
                                                          insurance provisions, divided by a sum of Tier 1
                                                          capital and reserves.
Core Deposits/Total Liabilities........................  Sum of demand deposits, NOW accounts, MMDA, other
                                                          savings deposits, CDs under $250,000 less insured
                                                          brokered deposits under $250,000 divided by total
                                                          liabilities.
Balance Sheet Liquidity Ratio..........................  Sum of cash and balances due from depository
                                                          institutions, Federal funds sold and securities
                                                          purchased under agreements to resell, and agency
                                                          securities (excludes agency mortgage-backed securities
                                                          but includes securities issued by the US Treasury, US
                                                          government agencies, and US government-sponsored
                                                          enterprises) divided by the sum of Federal funds
                                                          purchased and repurchase agreements, other borrowings
                                                          (including FHLB) with a remaining maturity of one year
                                                          or less, 7.5 percent of insured domestic deposits, and
                                                          15 percent of uninsured domestic and foreign deposits.
Potential Losses/Total Domestic Deposits (Loss Severity  Potential losses to the DIF in the event of failure
 Measure).                                                divided by total domestic deposits. Appendix D
                                                          describes the calculation of the loss severity measure
                                                          in detail.

[[Page 72607]]

 
Noncore Funding/Total Liabilities......................  Noncore liabilities divided by total liabilities.
                                                          Noncore liabilities generally consist of total time
                                                          deposits of $250,000 or more, other borrowed money
                                                          (all maturities), foreign office deposits, securities
                                                          sold under agreements to repurchase, Federal funds
                                                          purchased, and insured brokered deposits issued in
                                                          denominations of less than $250,000.
Market Risk Measure for Highly Complex Institutions....  This measure is a weighted average of three risk
                                                          measures:
    (1) Trading Revenue Volatility/Tier 1 Capital......  Trailing 4-quarter standard deviation of quarterly
                                                          trading revenue (merger-adjusted) divided by Tier 1
                                                          capital.
    (2) Market Risk Capital/Tier 1 Capital.............  Market risk capital divided by Tier 1 capital. Market
                                                          risk capital equals market-risk equivalent assets
                                                          divided by 12.5.
    (3) Level 3 Trading Assets/Tier 1 Capital..........  Level 3 trading assets divided by Tier 1 capital.
Average Short-term Funding/Average Total Assets........  Quarterly average of Federal funds purchased and
                                                          repurchase agreements divided by the quarterly average
                                                          of total assets as reported on Schedule RC-K of call
                                                          reports.
----------------------------------------------------------------------------------------------------------------
\1\ EAD and SFTs are defined and described in the compilation issued by the Basel Committee on Banking
  Supervision in its June 2006 document, ``International covergence of Capital Measurement and Capital
  Standards.'' The definitions are described in detail in Annex 4 of the document. Any updates to the Basel II
  capital treatment of counterparty credit risk would be implemented as they are adopted.

    9. Appendix B to Subpart A is revised to read as follows:

Appendix B to Subpart A of Part 327--Conversion of Scorecard Measures 
into Score

1. Weighted Average CAMELS Rating

    Weighted average CAMELS ratings between 1 and 3.5 are assigned a 
score between 25 and 100 according to the following equation:

S = 25 + [(20/3) * (C<SUP>2</SUP> - 1)],

Where:

S = the weighted average CAMELS score; and
C = the weighted average CAMELS rating.

2. Other Scorecard Measures

    For certain scorecard measures, a lower ratio implies lower risk 
and a higher ratio implies higher risk. These measures include:
    <bullet> Concentration measure;
    <bullet> Credit quality measure;
    <bullet> Market risk measure;
    <bullet> Average short-term funding to average total assets 
ratio;
    <bullet> Potential losses to total domestic deposits ratio (loss 
severity measure); and,
    <bullet> Noncore funding to total liabilities ratio.
    For those measures, a value between the minimum and maximum 
cutoff values is converted linearly to a score between 0 and 100, 
according to the following formula:

S = (V - Min) * 100/(Max - Min),

where S is score (rounded to three decimal points), V is the value 
of the measure, Min is the minimum cutoff value and Max is the 
maximum cutoff value.

    For other scorecard measures, a lower value represents higher 
risk and a higher value represents lower risk. These measures 
include:
    <bullet> Tier 1 leverage ratio;
    <bullet> Core earnings to average quarter-end total assets 
ratio;
    <bullet> Core deposits to total liabilities ratio; and,
    <bullet> Balance sheet liquidity ratio.
    For those measures, a value between the minimum and maximum 
cutoff values is converted linearly to a score between 0 and 100, 
according to the following formula:

S = (Max - V) * 100/(Max - Min),

where S is score (rounded to three decimal points), V is the value 
of the measure, Max is the maximum cutoff value and Min is the 
minimum cutoff value.

    10. Appendix C to Subpart A is revised to read as follows:

Appendix C to Subpart A to Part 327--Concentration Measures

    The concentration measure score for large institutions is the 
higher of the two concentration scores: A higher-risk assets to Tier 
1 capital and reserves ratio and a growth-adjusted portfolio 
concentration measure. The concentration measure score for highly 
complex institutions takes a higher of the three concentration 
scores: A higher-risk assets to Tier 1 capital and reserve ratio, a 
Top 20 counterparty exposure to Tier 1 capital and reserves ratio, a 
largest counterparty to Tier 1 capital and reserves ratio. The 
higher-risk assets to Tier 1 capital and reserve ratio and the 
growth-adjusted portfolio concentration measure are described below.

A. Higher-Risk Assets/Tier 1 Capital and Reserves

    The higher-risk assets to Tier 1 capital and reserves ratio is 
the sum of the concentrations in each of four risk areas described 
below and is calculated as:
[GRAPHIC] [TIFF OMITTED] TP24NO10.336

Where:

H is institution i's higher-risk concentration measure and
    k is a risk area.\1\
    The four risk areas (k) are defined as:

    <bullet> Construction and land development loans (funded and 
unfunded);
    <bullet> Leveraged loans (funded and unfunded);
    <bullet> Nontraditional mortgage loans; and
    <bullet> Subprime consumer loans.<SUP>2 3</SUP>
---------------------------------------------------------------------------

    \1\ The high-risk concentration measure is rounded to two 
decimal points.
    \2\ All loan concentrations should include purchased credit 
impaired loans.
    \3\ Each loan concentration category should exclude the maximum 
amount of loans recoverable from the U.S. government, its agencies, 
or government-sponsored agencies, under guarantee or insurance 
provisions.
---------------------------------------------------------------------------

    The risk areas are defined according to the interagency guidance 
for a given product with specific modifications made to minimize 
reporting discrepancies. The definitions for each risk area are as 
follows:
    1. Construction and Land Development Loans: Construction and 
development loans include construction and land development loans 
outstanding and unfunded commitments.
    2. Leveraged Loans: Leveraged loans include all commercial 
loans--funded and unfunded and securities (e.g., high yield bonds 
meeting any of the criteria below), excluding those securities 
classified as trading book, that meet any one of the following 
conditions:
    <bullet> Loans or securities where proceeds are used for buyout, 
acquisition, and recapitalization;
    <bullet> Loans or securities with a balance sheet leverage ratio 
(total liabilities/total assets) higher than 50 percent or where a 
transaction resulted in an increase in the leverage ratio of more 
than 75 percent. Loans or securities where borrower's operating 
leverage ratio ((total debt/trailing twelve month EBITDA (earnings 
before interest, taxes, depreciation, and amortization) or senior 
debt/trailing twelve month EBITDA)) are above 4.0X EBITDA or 3.0X 
EBITDA, respectively. For

[[Page 72608]]

purposes of this calculation, the only permitted EBITDA adjustments 
are those adjustments specifically permitted for that borrower in 
its credit agreement; or
    <bullet> Loans or securities that are designated as highly 
leveraged transactions (HLT) by syndication agent.\4\

    \4\ http://www.fdic.gov/news/news/press/2001/pr2801.html.
---------------------------------------------------------------------------

    For purposes of the concentration measure, leveraged loans 
include all loans and/or securitizations that may not have been 
considered leveraged at the time of origination, but subsequent to 
origination, meet the characteristics of a leveraged loan. Leveraged 
loans include all securitizations where greater than 50 percent of 
the assets backing the securitization meet one or more of the 
preceding criteria of leveraged loans (e.g., CLOs), with the 
exception of those securities classified as trading book.
    3. Nontraditional Mortgage Loans: Nontraditional mortgage loans 
includes all residential loan products that allow the borrower to 
defer repayment of principal or interest and includes all interest-
only products, teaser rate mortgages, and negative amortizing 
mortgages, with the exception of home equity lines of credit 
(HELOCs) or reverse mortgages.\5\
---------------------------------------------------------------------------

    \5\ http://www.fdic.gov/regulations/laws/federal/2006/06noticeFINAL.html.
---------------------------------------------------------------------------

    For purposes of the concentration measure, nontraditional 
mortgage loans include securitizations where greater than 50 percent 
of the assets backing the securitization meet one or more of the 
preceding criteria for nontraditional mortgage loans, with the 
exception of those securities classified as trading book.
    4. Subprime Consumer Loans: Subprime loans include loans made to 
borrowers that display one or more of the following credit risk 
characteristics (excluding subprime loans that are previously 
included as nontraditional mortgage loans):
    <bullet> Two or more 30-day delinquencies in the last 12 months, 
or one or more 60-day delinquencies in the last 24 months;
    <bullet> Judgment, foreclosure, repossession, or charge-off in 
the prior 24 months;
    <bullet> Bankruptcy in the last 5 years;
    <bullet> Credit bureau risk score (FICO) of 660 or below 
(depending on the product/collateral), or other bureau or 
proprietary scores with an equivalent default probability 
likelihood; and/or
    <bullet> Debt service-to-income ratio of 50 percent or greater, 
or otherwise limited ability to cover family living expenses after 
deducting total monthly debt-service requirements from monthly 
income.\6\

    \6\ http://www.fdic.gov/news/news/press/2001/pr0901a.html.
---------------------------------------------------------------------------

For purposes of the concentration measure, subprime loans include 
loans that were not considered subprime at origination, but meet the 
characteristics of subprime subsequent to origination. Subprime 
loans also include securitizations where more than 50 percent of 
assets backing the securitization meet one or more of the preceding 
criteria for subprime loans, excluding those securities classified 
as trading book.

B. Growth-adjusted portfolio concentration measure

    The growth-adjusted concentration measure is the sum of the 
values of concentrations in each of the seven portfolios, each of 
the values being first adjusted for risk weights and growth. To 
obtain the value for each of the seven portfolios, the product of 
the risk weight and the concentration ratio is first squared and 
then multiplied by the growth factor. The measure is calculated as:

[GRAPHIC] [TIFF OMITTED] TP24NO10.337

Where:
N is institution i's growth-adjusted portfolio concentration 
measure; \7\
---------------------------------------------------------------------------

    \7\ The growth-adjusted portfolio concentration measure is 
rounded to two decimal points.
---------------------------------------------------------------------------

k is a portfolio;
g is a growth factor for institution i's portfolio k; and,
w is a risk weight for portfolio k.

    The seven portfolios (k) are defined based on the Call Report/
TFR data and they are:
    <bullet> First-lien residential mortgages and non-agency 
residential mortgage-backed securities;
    <bullet> Closed-end junior liens and home equity lines of credit 
(HELOCs);
    <bullet> Construction and land development loans;
    <bullet> Other commercial real estate loans;
    <bullet> Commercial and industrial loans;
    <bullet> Credit card loans; and
    <bullet> Other consumer loans.<SUP>8 9</SUP>
---------------------------------------------------------------------------

    \8\ All loan concentrations should include the fair value of 
purchased credit impaired loans.
    \9\ Each loan concentration category should exclude the maximum 
amount of loans recoverable from the U.S. government, its agencies, 
or government-sponsored agencies, under guarantee or insurance 
provisions.
---------------------------------------------------------------------------

    The growth factor, g, is based on a three-year merger-adjusted 
growth rate for a given portfolio; g ranges from 1 to 1.2 where a 20 
percent growth rate equals a factor of 1 and an 80 percent growth 
rate equals a factor of 1.2.<SUP>10 11</SUP> For growth rates less 
than 20 percent, g is 1; for growth rates greater than 80 percent, g 
is 1.2. For growth rates between 20 percent and 80 percent, the 
growth factor is calculated as:
---------------------------------------------------------------------------

    \10\ The cut-off values of 0.2 and 0.8 correspond to about 45th 
percentile and 80th percentile among the large institutions, 
respectively, based on the data from 2000 to 2009.
    \11\ The growth factor is rounded to two decimal points.
    [GRAPHIC] [TIFF OMITTED] TP24NO10.338
    
where
[GRAPHIC] [TIFF OMITTED] TP24NO10.339

    V is the portfolio amount as reported on the Call Report/TFR and 
t is the quarter for which the assessment is being determined.
    The risk weight for each portfolio reflects relative peak loss 
rates for banks at the 90th percentile during the 1990-2009 
period.\12\ These loss rates were converted into equivalent risk 
weights as shown in Table C.1.
---------------------------------------------------------------------------

    \12\ The risk weights are based on loss rates for each portfolio 
relative to the loss rate for C&I loans, which is given a risk 
weight of 1. The peak loss rates were derived as follows. The loss 
rate for each loan category for each bank with over $5 billion in 
total assets was calculated for each of the last twenty calendar 
years (1990-2009). The highest value of the 90th percentile of each 
loan category over the twenty year period was selected as the peak 
loss rate.

  Table C.1--90th percentile Annual Loss Rates for 1990-2009 Period and
                       Corresponding Risk Weights
------------------------------------------------------------------------
                                                    Loss rates
                    Portfolio                         (90th       Risk
                                                   percentile)   weights
------------------------------------------------------------------------
First-Lien Mortgages.............................          2.3       0.5
Second/Junior Lien Mortgages.....................          4.6       0.9
Commercial and Industrial (C&I) Loans............          5.0       1.0
Construction and Development (C&D) Loans.........         15.0       3.0
Commercial Real Estate Loans, excluding C&D......          4.3       0.9
Credit Card Loans................................         11.8       2.4
Other Consumer Loans.............................          5.9       1.2
------------------------------------------------------------------------

                                                                [FEDREG][
                                                                                                                   V
                                                                                                                   O
                                                                                                                   L
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   V
                                                                                                                   O
                                                                                                                   L
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   N
                                                                                                                   O
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   N
                                                                                                                   O
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   D
                                                                                                                   A
                                                                                                                   T
                                                                                                                   E
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   D
                                                                                                                   A
                                                                                                                   T
                                                                                                                   E
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   P
                                                                                                                   R
                                                                                                                   O
                                                                                                                   R
                                                                                                                   U
                                                                                                                   L
                                                                                                                   E
                                                                                                                   S
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   P
                                                                                                                   R
                                                                                                                   O
                                                                                                                   R
                                                                                                                   U
                                                                                                                   L
                                                                                                                   E
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   P
                                                                                                                   R
                                                                                                                   E
                                                                                                                   A
                                                                                                                   M
                                                                                                                   B
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   A
                                                                                                                   G
                                                                                                                   E
                                                                                                                   N
                                                                                                                   C
                                                                                                                   Y
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   A
                                                                                                                   G
                                                                                                                   E
                                                                                                                   N
                                                                                                                   C
                                                                                                                   Y
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   S
                                                                                                                   U
                                                                                                                   B
                                                                                                                   J
                                                                                                                   E
                                                                                                                   C
                                                                                                                   T
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   S
                                                                                                                   U
                                                                                                                   B
                                                                                                                   J
                                                                                                                   E
                                                                                                                   C
                                                                                                                   T
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   /
                                                                                                                   P
                                                                                                                   R
                                                                                                                   E
                                                                                                                   A
                                                                                                                   M
                                                                                                                   B
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   S
                                                                                                                   U
                                                                                                                   P
                                                                                                                   L
                                                                                                                   I
                                                                                                                   N
                                                                                                                   F
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   H
                                                                                                                   E
                                                                                                                   D
                                                                                                                   ]
                                                                                                                   *
                                                                                                                   [
                                                                                                                   /
                                                                                                                   H
                                                                                                                   E
                                                                                                                   D
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   E
                                                                                                                   X
                                                                                                                   T
                                                                                                                   R
                                                                                                                   A
                                                                                                                   C
                                                                                                                   T
                                                                                                                   ]
                                                                                                                   [
                                                                                                                   P
                                                                                                                   ]
                                                                                                                   *
                                [
                                /
                                P
                                ]

[[Page 72609]]

11. Appendix D to Subpart A is added to read as follows:

    Appendix D to Subpart A of Part 327--Description of the Loss 
Severity Measure
    The loss severity measure applies a standardized set of 
assumptions to an institution's balance sheet for a given quarter to 
measure possible losses to the FDIC in the event of an institution's 
failure. To determine an institution's loss severity rate, the FDIC 
first uses assumptions about uninsured deposit and other unsecured 
liability runoff and growth in insured deposits to adjust the size 
and composition of the institution's liabilities. Assets are then 
reduced to match any reduction in liabilities.\1\ The institution's 
asset values are then further reduced so that the Tier 1 leverage 
ratio reaches 2 percent.\2\ Asset adjustments are made pro rata to 
asset categories to preserve the institution's asset composition. 
Assumptions regarding loss rates at failure for a given asset 
category and the extent of secured liabilities are then applied to 
estimated assets and liabilities at failure to determine whether the 
institution has enough unencumbered assets to cover domestic 
deposits. Any projected shortfall is divided by current domestic 
deposits to obtain an end-of-period loss severity ratio. The loss 
severity measure is an average loss severity ratio for the three 
most recent quarters.
---------------------------------------------------------------------------

    \1\ In most cases, the model would yield reductions in 
liabilities and assets prior to failure. Exceptions may occur for 
institutions primarily funded through insured deposits, which the 
model assumes to grow prior to failure.
    \2\ Of course, in reality, runoff and capital declines occur 
more or less simultaneously as an institution approaches failure. 
The loss severity measure assumptions simplify this process for ease 
of modeling.
---------------------------------------------------------------------------

Runoff and Capital Adjustment Assumptions

    Table D.1 contains run-off assumptions.

                   Table D.1--Runoff Rate Assumptions
------------------------------------------------------------------------
                                                           Runoff rate*
                     Liability type                          (percent)
------------------------------------------------------------------------
Insured Deposits........................................           -32.0
Uninsured Deposits......................................            28.6
Foreign Deposits........................................            80.0
Federal Funds Purchased.................................            40.0
Repurchase Agreements...................................            25.0
Trading Liabilities.....................................            50.0
Unsecured Borrowings <= 1 Year..........................            75.0
Unsecured Borrowing > 1 Year............................             0.0
Secured Borrowings <= 1 Year............................            25.0
Secured Borrowings > 1 Year.............................             0.0
Subordinated Debt and Limited Liability Preferred Stock.            15.0
Other Liabilities.......................................             0.0
------------------------------------------------------------------------
 * A negative rate implies growth.

    Given the resulting total liabilities after runoff, assets are 
then reduced pro rata to preserve the relative amount of assets in 
each of the following asset categories and to achieve a Tier 1 
leverage ratio of 2 percent:
    <bullet> Cash and Interest Bearing Balances;
    <bullet> Trading Account Assets;
    <bullet> Federal Funds Sold and Repurchase Agreements;
    <bullet> Treasury and Agency Securities;
    <bullet> Municipal Securities;
    <bullet> Other Securities;
    <bullet> Construction and Development Loans;
    <bullet> Nonresidential Real Estate Loans;
    <bullet> Multifamily Real Estate Loans;
    <bullet> 1-4 Family Closed-End First Liens;
    <bullet> 1-4 Family Closed-End Junior Liens;
    <bullet> Revolving Home Equity Loans; and
    <bullet> Agricultural Real Estate Loans.

Recovery Value of Assets at Failure

    Table D.2 shows loss rates applied to each of the asset 
categories as adjusted above.

                 Table D.2--Asset Loss Rate Assumptions
------------------------------------------------------------------------
                                                             Loss rate
                     Asset category                          (percent)
------------------------------------------------------------------------
Cash and Interest Bearing Balances......................             0.0
Trading Account Assets..................................             0.0
Federal Funds Sold and Repurchase Agreements............             0.0
Treasury and Agency Securities..........................             0.0
Municipal Securities....................................            10.0
Other Securities........................................            15.0
Construction and Development Loans......................            38.2
Nonresidential Real Estate Loans........................            17.6
Multifamily Real Estate Loans...........................            10.8
1-4 Family Closed-End First Liens.......................            19.4
1-4 Family Closed-End Junior Liens......................            41.0
Revolving Home Equity Loans.............................            41.0
Agricultural Real Estate Loans..........................            19.7
Agricultural Loans......................................            11.8
Commercial and Industrial Loans.........................            21.5
Credit Card Loans.......................................            18.3
Other Consumer Loans....................................            18.3
All Other Loans.........................................            51.0
Other Assets............................................            75.0
------------------------------------------------------------------------

Secured Liabilities at Failure

    Federal home loan bank advances, secured Federal funds 
purchased, foreign deposits and repurchase agreements are assumed to 
be fully secured.

Loss Severity Ratio Calculation

    The FDIC's loss given failure (LGD) is calculated as:
    [GRAPHIC] [TIFF OMITTED] TP24NO10.340
    
An end-of-quarter loss severity ratio is LGD divided by total 
domestic deposits at quarter-end and the loss severity measure for 
the scorecard is an average of end-of-period loss severity ratio for 
three most recent quarters.

    By order of the Board of Directors.

    Dated at Washington, DC, this 9th day of November 2010.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2010-29137 Filed 11-19-10; 4:15 pm]
BILLING CODE 6714-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>