72612 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

1Section 7(b)(1)of the Federal Deposit Insurance 

Act (12 U.S.C. 1817(b)). 

2Section 7(b)(1)(D) of the Federal Deposit 

Insurance Act (12 U.S.C. 1817(b)(1)(D)). 

3 In 2006, the FDIC adopted by regulation an 

assessment system that placed IDIs into risk 

categories (Risk Category I, II, III or IV) depending 

on supervisory ratings and capital levels. 71 FR 

69282 (Nov. 30, 2006). 

4The financial ratios method applies to large 

institutions without at least one long-term debt 

rating (and all small IDIs). The 2009 assessments 

rule added a new measure—the adjusted brokered 

deposit ratio—to the financial ratios that were 

considered under the previous assessments rule. 

The adjusted brokered deposit ratio measures the 

extent to which certain brokered deposits are used 

to fund rapid asset growth. The adjusted brokered 

deposit ratio excludes deposits that a Risk Category 

I institution receives through a deposit placement 

network on a reciprocal basis, such that: (1) for any 

deposit received, the institution (as agent for 

depositors) places the same amount with other 

insured depository institutions through the 

network; and (2) each member of the network sets 

the interest rate to be paid on the entire amount of 

funds it places with other network members 

(reciprocal deposits). 

5 12 CFR 327.9(d)(4). 74 FR 9525, 9535–9536 

(Mar. 4, 2009). 

6 75 FR 23516 (May 3, 2010). 

7Public Law 111–203, § 331(b), 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(b)). The Act 

will substitute the new assessment base for the 

current assessment base, which is closely related to 

domestic deposits. 12 CFR 327.5 (2010). 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD66 

Assessments, Large Bank Pricing 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking 

and request for comment. 

SUMMARY: The FDIC proposes to revise 

the assessment system applicable to 

large insured depository institutions 

(IDIs or institutions) to better 

differentiate IDIs and take a more 

forward-looking view of risk; to better 

take into account the losses that the 

FDIC may incur if such an IDI fails; and 

to make technical and other changes to 

the rules governing the risk-based 

assessment system, including proposed 

changes to the assessment base 

necessitated by the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act. 

DATES: Comments must be received on 

or before January 10, 2011. 

ADDRESSES: You may submit comments 

on the notice of proposed rulemaking, 

identified by RIN number and the words 

‘‘Assessments, Large Bank Pricing NPR,’’ 

by any of the following methods: 

• Agency Web Site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. Follow the 

instructions for submitting comments 

on the Agency Web Site. 

• E-mail: Comments@FDIC.gov. 

Include the RIN number in the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery: Guard station at the 

rear of the 550 17th Street Building 

(located on F Street) on business days 

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

Instructions: All submissions received 

must include the agency name and RIN 

for this rulemaking. Comments will be 

posted to the extent practicable and, in 

some instances, the FDIC may post 

summaries of categories of comments, 

with the comments themselves available 

in the FDIC’s reading room. Comments 

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

regulations/laws/federal/propose.html, 

including any personal information 

provided with the comment. 

FOR FURTHER INFORMATION CONTACT: Lisa 

Ryu, Chief, Large Bank Pricing Section, 

Division of Insurance and Research, 

(202) 898–3538; Christine Bradley, 

Senior Policy Analyst, Banking and 

Regulatory Policy Section, Division of 

Insurance and Research, (202) 898– 

8951; Brenda Bruno, Senior Financial 

Analyst, Division of Insurance and 

Research, (630) 241–0359 x 8312; Robert 

L. Burns, Chief, Exam Support and 

Analysis, Division of Supervision and 

Consumer Protection (704) 333–3132 x 

4215; Christopher Bellotto, Counsel, 

Legal Division, (202) 898–3801; Sheikha 

Kapoor, Counsel, Legal Division, (202) 

898–3960. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Legal Authority 

The Federal Deposit Insurance Act 

(the FDI Act) requires that the deposit 

insurance assessment system be riskbased and allows the FDIC to define risk 

broadly.1 It defines a risk-based system 

as one based on an institution’s 

probability of causing a loss to the 

Deposit Insurance Fund (the Fund or 

the DIF) due to the composition and 

concentration of the IDI’s assets and 

liabilities, the likely amount of any such 

loss, and the revenue needs of the DIF. 

The FDI Act allows the FDIC to 

‘‘establish separate risk-based 

assessment systems for large and small 

members of the Deposit Insurance 

Fund.’’ 2

2009 Assessments Rule 

Effective April 1, 2009, the FDIC 

amended its assessments rule to create 

the current assessment system. Under 

this system, the initial base assessment 

rate for a large Risk Category I 

institution is determined by either the 

financial ratios method (which is also 

applicable to all small IDIs) or, for IDIs 

with at least one long-term debt rating, 

by the large bank method.3 The 

financial ratios method uses a weighted 

average of CAMELS component ratings 

and certain financial ratios.4 The large 

bank method incorporates the financial 

ratios method into a financial ratios 

score and combines this score with the 

IDI’s weighted average CAMELS 

component rating and its average longterm debt issuer rating to produce an 

assessment rate (the large bank method). 

Under the 2009 assessments rule, the 

FDIC may adjust initial assessment rates 

for large Risk Category I institutions up 

to 1 basis point to ensure that the 

relative levels of risk posed by these 

institutions are consistently reflected in 

assessment rates; the adjustment is 

known as the large bank adjustment.5

The April 2010 Proposed Rule (April 

NPR) 

On April 13, 2010, the FDIC, using its 

statutory powers under section 7(b) of 

the FDI Act (12 U.S.C. 1817(b)), adopted 

a notice of proposed rulemaking with 

request for comment to revise the 

assessment system applicable to large 

IDIs to better capture risk at the time an 

IDI assumes the risk, to better 

differentiate IDIs during periods of good 

economic and banking conditions based 

on how they would fare during periods 

of stress or economic downturns, and to 

better take into account the losses that 

the FDIC may incur if an IDI fails (the 

April NPR).6 The FDIC sought 

comments on every aspect of the April 

NPR and specifically requested 

comment on several issues. The FDIC 

received 18 written comments on the 

April NPR. Most commenters requested 

that the FDIC delay the implementation 

of the rulemaking until the effects of 

then pending comprehensive financial 

regulation bills were known. 

Congress subsequently adopted 

comprehensive financial regulation 

legislation in the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (Dodd-Frank), which includes a 

provision directing the FDIC to amend 

its regulatory definition of ‘‘assessment 

base’’ for purposes of setting 

assessments for IDIs. As a result of 

Dodd-Frank, an IDI’s assessment base 

will be calculated using its average 

consolidated total assets less its average 

tangible equity during the assessment 

period.7 The FDIC believes that the 

recent statutory change to the 


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8 Dodd-Frank requires all federal agencies to 

review and modify regulations to remove reliance 

upon credit ratings and substitute an alternative 

standard of creditworthiness. Public Law 111–203, 

§ 939A, 124 Stat. 1376, 1886 (to be codified at 15 

U.S.C. 78o–7 note). 

9Most of the data are publicly available, but data 

elements to compute four scorecard measures— 

higher-risk assets, top 20 counterparty exposures, 

the largest counterparty exposure, and criticized/ 

classified items—are gathered during the 

examination process. The FDIC proposes that IDIs 

provide these data elements in the Consolidated 

Reports of Condition and Income (Call Report) or 

the Thrift Financial Report (TFR) beginning with 

the second quarter of 2011. See Section II, E of this 

proposal. 

10Lack of historical debt ratings data for a 

significant percent of large IDIs makes it difficult to 

compare the predictive accuracy of proposed 

measures to risk measures included in the current 

large bank method. However, for a smaller sample 

with available debt ratings, adding debt ratings to 

other risk measures included in the current small 

bank model does not improve the predictive 

accuracy of the model. 

assessment base constitutes a 

substantial revision to the deposit 

insurance system and, under the FDI 

Act (12 U.S.C. 1817(b)(1)(F)), such 

changes must be made after notice and 

opportunity to comment. Accordingly, 

the FDIC is issuing a separate notice of 

proposed rulemaking with request for 

comment on the Notice of Proposed 

Rulemaking on the Implementation of 

the Deposit Insurance Assessment Base 

(the Assessment Base NPR), which is 

being published concurrently with this 

NPR. Largely as a result of Dodd-Frank 

and the Assessment Base NPR, the FDIC 

is issuing this second proposal for 

public comment on large bank 

assessments, taking into account the 

comments received on the April NPR. 

The attached regulatory text includes 

proposed changes for this NPR, as well 

as the Assessment Base NPR. 

II. Risk-based Assessment System for 

Large Insured Depository Institutions 

In this rulemaking, the FDIC proposes 

revising the assessment system 

applicable to large IDIs to better capture 

risk at the time an IDI assumes the risk, 

to better differentiate IDIs during 

periods of good economic and banking 

conditions based on how they would 

fare during periods of stress or 

economic downturns, and to better take 

into account the losses that the FDIC 

may incur if such an IDI fails. 

As in the April NPR, the FDIC 

proposes eliminating risk categories and 

the use of long-term debt issuer ratings 

in calculating risk-based assessments for 

large IDIs.8 The FDIC proposes using a 

scorecard method to calculate 

assessment rates for all large IDIs. The 

scorecard method combines CAMELS 

ratings and certain forward-looking 

financial measures to assess the risk a 

large IDI poses to the DIF. The scorecard 

uses quantitative measures that are 

readily available and useful in 

predicting a large IDI’s long-term 

performance.9 Two separate scorecards 

are used: one for most large IDIs and 

another for institutions that are 

structurally and operationally complex 

or that pose unique challenges and risk 

in the case of failure (highly complex 

IDIs). 

The FDIC believes that, since the risk 

measures used in the scorecards focus 

on long-term risk, they should mitigate 

the pro-cyclicality of the current system. 

IDIs that pose higher risk over the long 

term would pay higher assessments 

when they assume these risks—rather 

than paying large assessment rates when 

conditions deteriorate. Consequently, 

the proposed scorecard system should 

provide incentives for IDIs to avoid 

excessive risk during economic 

expansions. 

As shown in Chart 1, the proposed 

measures over the 2005 to 2008 period 

were useful in predicting performance 

of large IDIs in 2009. The chart contrasts 

the predictive values of the proposed 

measures with weighted-average 

CAMELS component ratings and risk 

measures included in the existing 

financial ratios method. The proposed 

measures predict the proper rank 

ordering of risk for large IDIs as of the 

end of 2009 (based on a consensus view 

of FDIC analysts) significantly better 

than do the other two risk measures 

and, thus, better than the current system 

used for most large Risk Category I 

institutions, which combines weightedaverage CAMELS composite scores, the 

financial ratios method and long-term 

debt issuer ratings.10 For example, in 

2006, the proposed measures would 

have predicted FDIC’s year-end 2009 

risk ranking of large IDIs more than 

twice as well as the risk measures in the 

existing financial ratios method, which 

applies to large IDIs without debt 

ratings. 


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11The rank ordering for larg institutions as of the 

end of 2009 (based on a consensus view of staff 

analysts) is largely based on the information 

available through the FDIC’s Large Insured 

Depository Institution (LIDI) program. Large 

institutions that failed or received significant 

governemnt support over the perod are assigned the 

worst risk ranking and are included in the statistical 

analysis. Appendix 1 to the NPR describes the 

statistical analysis in detail. 

12The percentage approximated by factors is 

based on the statistical model for that particual 

year. Actual weights assigned to each scorecard 

measure are largely based on the average 

coefficients for 2005 to 2008, and do not equal the 

weight implied by the coefficient for that particular 

year (See Appendix 1 to the NPR). 

13 In almost all cases, an IDI that has had $10 

billion or more in total assets for four consecutive 

quarters will have a CAMELS rating; however, in 

the rare event that such an IDI has not yet received 

CAMELS ratings, it would be given a weighted 

average CAMELS rating of 2 for assessment 

purposes until actual CAMELS ratings are assigned. 

14The detailed results of the statistical analysis 

used to select risk measures and the weights are 

provided in Appendix 1 to this Preamble and an 

online calculator will be available on the FDIC’s 

Web site to allow insured institutions to determine 

how their assessment rates would be calculated 

under this NPR. 

A ‘‘large institution’’ would continue 

to be defined as an IDI that has had $10 

billion or more in total assets for at least 

four consecutive quarters. The proposal 

would apply to all large IDIs regardless 

of whether they are defined as new.13

Insured branches of foreign banks 

would not be included within the 

definition of a large institution. 

A. Scorecard for Large IDIs (Other Than 

Highly Complex IDIs) 

The FDIC proposes to use a scorecard 

method to calculate an initial 

assessment rate that reflects the risk that 

a large IDI poses to the DIF. The 

scorecard uses certain risk measures to 

produce two scores—a performance 

score and a loss severity score—that are 

ultimately combined and converted to 

an initial assessment rate. 

The performance score measures an 

IDI’s financial performance and its 

ability to withstand stress. To arrive at 

a performance score, the scorecard 

combines weighted CAMELS ratings 

and financial measures into a single 

performance score between 0 and 100. 

The loss severity score measures the 

relative magnitude of potential losses to 

the FDIC in the event of an IDI’s failure. 

The scorecard combines certain loss 

severity measures into a single loss 

severity score between 0 and 100. The 

loss severity score is converted into a 

loss severity factor that ranges between 

0.8 and 1.2. 

Multiplying the performance score by 

the loss severity factor produces a 

combined score (total score) that is 

converted to an initial assessment rate. 

Under the proposal, an IDI’s total score 

could not be less than 30 or more than 

90. The FDIC would have a limited 

ability to alter an IDI’s total score based 

on quantitative or qualitative measures 

not captured in the scorecard. 

Table 1 shows scorecard measures 

and their relative contribution to the 

performance score or loss severity score. 

The score for all scorecard measures is 

calculated based on the minimum and 

maximum cutoff values for each 

measure. Most of the minimum and 

maximum cutoff values are equal to the 

10th and 90th percentile values for each 

measure, which are derived using data 

on large IDIs over a ten-year period 

beginning with the first quarter of 2000 

through the fourth quarter of 2009—a 

period that includes both good and bad 

economic times.14 Appendix 1 to this 

Preamble shows selected percentile 

values of each scorecard measure over 

this period. 

The score for each measure, other 

than the weighted average CAMELS 

rating, ranges between 0 and 100, where 

100 equals the highest risk and 0 equals 

the lowest risk for that measure. A value 

reflecting lower risk than the cutoff 

value receives a score of 0. A value 

reflecting higher risk than the cutoff 

value receives a score of 100. A risk 

measure value between the minimum 

and maximum cutoff values converts 

linearly to a score between 0 and 100, 

which is rounded to 3 decimal points. 

The weighted average CAMELS rating is 

converted to a score between 25 and 100 

where 100 equals the highest risk and 

25 equals the lowest risk. 


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15 12 CFR part 327, Subpt. A, App. A (2010). 

Appendix B to Subpart A describes in 

detail how each scorecard measure is 

converted to a score. 

TABLE 1—SCORECARD FOR LARGE IDIS

Scorecard measures 

Weights 

within 

component 

(percent) 

Component 

weights 

(percent) 

P ................................. Performance Score 

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

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

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

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

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

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

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

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

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

L ................................. Loss Severity Score 

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

Potential Losses/Total Domestic Deposits (loss severity measure) ................................... 75 ....................

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

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

The FDIC has made simplifying 

revisions to the scorecard proposed in 

the April NPR. These revisions do not 

materially reduce the scorecard’s ability 

to differentiate among IDIs’ risk profiles. 

Simplifying revisions include refining 

some risk measurements, eliminating 

the outlier add-ons, and allowing for an 

adjustment of an IDI’s total score, up or 

down, a maximum 15 points higher or 

lower than the total score, rather than 

allowing for an adjustment of both the 

performance score and the loss severity 

score by up to 15 points each. The FDIC 

took these steps partly in response to 

comments on the April NPR expressing 

concerns about the complexity of the 

proposal. The FDIC recognizes that the 

scorecard and some risk measures in the 

scorecard continue to be somewhat 

complex; however, this complexity 

simply reflects the complexity of large 

IDIs. Further reducing the complexity 

would lead to considerably less 

accuracy in predicting risk. 

As in the April NPR and as shown in 

Appendix 1 to this Preamble, the FDIC 

has carefully selected risk measures that 

best predict how IDIs fared during the 

period of most recent stress. Some 

commenters expressed concern that the 

factors and assumptions reflect a 

backward looking analysis of the 2005 

through 2009 period—a time of 

extraordinary stress—but the FDIC 

believes that the scorecard should 

differentiate risk based on how IDIs 

would fare during periods of economic 

stress. Periods of stress reveal risks that 

often remain hidden during periods of 

prosperity. 

1. Performance Score 

The first component of the scorecard 

for large IDIs is the performance score. 

The performance score for large IDIs is 

the weighted average of three inputs: (1) 

Weighted average CAMELS rating; (2) 

ability to withstand asset-related stress 

measures; and (3) ability to withstand 

funding-related stress measures. Table 2 

shows the weight given to each of these 

three inputs. 

TABLE 2—PERFORMANCE SCORE

INPUTS AND WEIGHTS

Performance score inputs Weight 

(percent) 

CAMELS Rating ....................... 30 

Ability to Withstand Asset-Related Stress ........................... 50 

Ability to Withstand FundingRelated Stress ...................... 20 

a. Weighted Average CAMELS Score 

To derive the weighted average 

CAMELS score, a weighted average of 

the IDI’s CAMELS component ratings is 

first calculated using the weights that 

are applied in the existing rule as shown 

in Table 3 below.15


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16The ratio of higher-risk assets to Tier 1 capital 

and reserves gauges concentrations that are 

currently deemed to be high risk. The growthadjusted portfolio concentration measure does not 

solely consider high-risk portfolios, but considers 

most loan portfolio concentrations. 

17The criticized and classified items ratio 

measures commercial credit quality while the 

underperforming assets ratio is often a better 

indicator for consumer portfolios. 

18Cutoff values are rounded to the nearest 

integer. Most of the minimum and maximum cutoff 

values for each risk measure equal the 10th and 

90th percentile values of the measure among large 

IDIs based upon data from the period between the 

first quarter of 2000 and the fourth quarter of 2009. 

The 10th and 90th percentiles are not used for the 

higher-risk assets to Tier 1 capital and reserves 

measure and the criticized and classified items ratio 

due to data availability. Data on the higher-risk 

assets to Tier 1 capital and reserves measure are 

available consistently since second quarter 2008, 

while criticized and classified items are available 

consistently since first quarter 2007. The maximum 

cutoff value for the higher-risk assets to Tier 1 

capital and reserves measure is close to but does not 

equal the 75th percentile. The maximum cutoff 

value for the criticized and classified items ratio is 

close to but does not equal the 80th percentile 

value. These alternative cutoff values are partly 

based on recent experience. Appendix 1 includes 

information regarding the percentile values for each 

risk measure. 

A weighted average CAMELS rating 

converts 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. The score 

increases at an increasing rate as the 

weighted average CAMELS rating 

increases. Appendix B to subpart A 

describes in detail how the weighted 

average CAMELS rating is converted to 

a score. 

b. Ability To Withstand Asset-Related 

Stress Component 

The ability to withstand asset-related 

stress component contains measures 

that the FDIC finds most relevant to 

assessing a large IDI’s ability to 

withstand such stress: 

• Tier 1 leverage ratio; 

• Concentration measure (the higher 

of the ratio of higher-risk assets to the 

sum of Tier 1 capital and reserves or the 

growth-adjusted portfolio 

concentrations measure); 

• The ratio of core earnings to average 

quarter-end total assets; and 

• Credit quality measure (the higher 

of the ratio of criticized and classified 

items to the sum of Tier 1 capital and 

reserves measure or the ratio of 

underperforming assets to the sum of 

Tier 1 capital and reserves measure). 

In general, these measures proved to 

be the most statistically significant 

measures of a large IDI’s ability to 

withstand asset-related stress, as 

described in Appendix 1 to this 

Preamble. Appendix A to subpart A 

describes these measures in detail and 

provides the source of the data used to 

determine them. 

The FDIC proposes to include the Tier 

1 leverage ratio as a risk measure rather 

than the Tier 1 common ratio proposed 

in the April NPR so that capital would 

be defined consistently throughout the 

deposit insurance assessment rules to 

mean regulatory capital, whether it is 

for the calculating the risk-based 

assessment rate or for the defining the 

assessment base. Several commenters 

stated that the FDIC should delay the 

implementation of the rulemaking until 

the effect of the Basel Committee’s 

efforts on changing the definition of Tier 

1 capital is better known. The definition 

of regulatory capital will remain 

unchanged without further rulemaking, 

and the FDIC believes that the current 

regulatory capital ratio serves as a 

reasonable measure of capital adequacy 

until the Basel Committee’s efforts are 

complete and the regulatory definition 

of Tier 1 capital has been changed. The 

FDIC plans to reevaluate the cutoffs for 

scorecard measures affected by any 

changes to the definition of regulatory 

capital once a new capital regulation is 

adopted and implemented. 

The concentration measure score 

equals the higher of the two scores that 

make up the concentration measure, as 

does the credit quality score.16 The 

concentration measure score is based on 

the higher of the higher-risk assets to 

Tier 1 capital and reserves score or the 

growth-adjusted portfolio 

concentrations measure score. Both 

measures are described in detail in 

Appendix C to Subpart A. The credit 

quality measure score is based upon the 

higher of the criticized and classified 

items to Tier 1 capital and reserves 

score or the underperforming assets to 

Tier 1 capital and reserves score.17

Table 4 shows the ability to withstand 

asset related stress measures, gives the 

cutoff values for each measure and 

shows the weight assigned to the 

measure to derive a score for an IDI’s 

ability to withstand asset-related stress. 

Appendix B to subpart A describes how 

each of the risk measures is converted 

to a score between 0 and 100 based 

upon the minimum and maximum 

cutoff values.18


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19The FDIC has modified data elements included 

in the liquid assets to short-term liability ration 

proposed in the April NPR, and termed it as the 

balance sheet liquidity ratio to better reflect what 

the ratio is designed to capture. See Appendix A for 

detailed description. 

TABLE 4—CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND ASSET-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Tier 1 Leverage Ratio .............................................................................................................................. 6 13 10 

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

Higher—Risk Assets to Tier 1 Capital and Reserves; or ................................................................ 0 135 

Growth-Adjusted Portfolio Concentrations ....................................................................................... 3 57 

Core Earnings/Average Quarter-End Total Assets * ............................................................................... 0 2 20 

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

Criticized and Classified Items/Tier 1 Capital and Reserves; or ..................................................... 8 100 

Underperforming Assets/Tier 1 Capital and Reserves .................................................................... 2 37 

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

Each score is multiplied by its 

respective weight and the resulting 

weighted score for each measure is 

summed to arrive at an ability to 

withstand asset-related stress score, 

which could range from 0 to 100. 

The FDIC proposes to eliminate the 

outlier add-ons, which were used in the 

April NPR, to simplify the scorecard. 

Commenters to the April NPR argued 

that the ‘‘all or nothing’’ additions of the 

outlier add-ons were overly punitive 

and introduced a cliff effect. While the 

FDIC continues to believe that extreme 

values for certain risk measures make an 

IDI more vulnerable to stress, the FDIC 

recognizes that IDIs with such extreme 

values can be better addressed on a 

bank-by-bank basis using the large bank 

adjustment described in detail below. 

Table 5 illustrates how the ability to 

withstand asset-related stress score is 

calculated for a hypothetical bank, Bank 

A. 

TABLE 5—ABILITY TO WITHSTAND ASSET-RELATED STRESS COMPONENT FOR BANK A 

Scorecard measures Value Score * Weight 

(percent) 

Weighted 

score 

Tier 1 Leverage Ratio ...................................................................................................... 6.98 86.00 10 8.60 

Concentration Measure ................................................................................................... 100.00 35 35.00 

Higher Risk Assets/Tier 1 Capital and Reserves; or ............................................... 162.00 100.00 

Growth-Adjusted Portfolio Concentrations ............................................................... 43.62 75.22 

Core Earnings/Average Quarter-End Total Assets ......................................................... 0.67 66.50 20 13.30 

Credit Quality Measure ................................................................................................ 100.00 35 35.00 

Criticized and Classified Items/Tier 1 Capital and Reserves; or ................................. 114.00 100.00 

Underperforming Assets/Tier 1 Capital and Reserves ............................................. 34.25 92.14 

Total ability to withstand asset-related stress score ................................................ .................... .................... .................... 91.90 

* In the example, scores are rounded to two decimal points for Bank A. 

Bank A’s higher risk assets to Tier 1 

capital and reserves score (100.00) is 

higher than its growth-adjusted portfolio 

concentration score (75.22). Thus, the 

higher risk assets to Tier 1 capital and 

reserves score is multiplied by the 35 

percent weight to get a weighted score 

of 35.00 and the growth-adjusted 

portfolio concentrations score is 

ignored. Similarly, Bank A’s criticized 

and classified items to Tier 1 capital and 

reserves score (100) is higher than its 

underperforming assets to Tier 1 capital 

and reserves score (92.14). Therefore, 

the criticized and classified items to 

Tier 1 capital and reserves score is 

multiplied by the 35 percent weight to 

get a weighted score of 35.00 and the 

underperforming assets to Tier 1 capital 

and reserves score is ignored. These 

weighted scores, along with the 

weighted scores for the Tier 1 leverage 

ratio (8.6) and core earnings to average 

quarter-end total assets ratio (13.30), are 

added together, resulting in the ability 

to withstand asset-related stress score of 

91.90. 

c. Ability to Withstand Funding-Related 

Stress 

The ability to withstand fundingrelated stress component contains two 

measures that are most relevant to 

assessing a large IDI’s ability to 

withstand such stress—a core deposits 

to total liabilities ratio, and a balance 

sheet liquidity ratio, which measures 

the amount of highly liquid assets to 

cover potential cash outflows in the 

event of stress.19 These ratios are 

significant in predicting a large IDI’s 

long-term performance in the statistical 

test described in Appendix 1 to the 

preamble. Appendix A to subpart A 

describes these ratios in detail and 

provides the source of the data used to 

determine them. Appendix B to subpart 

A describes how each of these measures 

is converted to a score between 0 and 

100. 

The ability to withstand fundingrelated stress component score is the 

weighted average of the two measure 

scores. Table 6 shows the cutoff values 

and weights for these measures. Weights 

assigned to each of these two risk 

measures are based on statistical 

analysis as described in detail in 

Appendix 1 to the preamble. 


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72618 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

TABLE 6—CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND FUNDING-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Core Deposits/Total Liabilities ................................................................................................................. 3 79 60 

Balance Sheet Liquidity Ratio ................................................................................................................. 7 188 40 

Table 7 illustrates how the ability to 

withstand funding-related stress score is 

calculated for a hypothetical bank, Bank 

A. 

TABLE 7—ABILITY TO WITHSTAND FUNDING-RELATED STRESS COMPONENT FOR BANK A 

Scorecard measures Value Score * Weight 

(percent) 

Weighted 

score 

Core Deposits/Total Liabilities ......................................................................................... 60.25 24.67 60 14.80 

Balance Sheet Liquidity Ratio ......................................................................................... 69.58 65.42 40 26.17 

Total ability to withstand funding-related stress score ............................................. .................... .................... .................... 40.97 

* In the example, scores are rounded to 2 decimal points for Bank A. 

d. 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 then 

multiplied by their respective weights 

and the results are summed to arrive at 

the performance score. This score 

cannot be less than 0 or more than 100 

under the proposal. In the example in 

Table 8, Bank A’s performance score 

would be 69.33, assuming that Bank A 

has a weighted average CAMELS score 

of 50.6, which results from a weighed 

average CAMELS rating of 2.2. 

TABLE 8—PERFORMANCE SCORE FOR BANK A 

Performance score components Weight 

(percent) Score Weighted score 

Weighted Average CAMELS Score ......................................................................................................... 30 50.60 15.18 

Ability to Withstand Asset-Related Stress Score .................................................................................... 50 91.90 45.95 

Ability to Withstand Funding-Related Stress Score ................................................................................ 20 40.97 8.20 

Total Performance Score ................................................................................................................. .................... .................... 69.33 

2. Loss Severity Score 

The loss severity score measures the 

relative magnitude of potential losses to 

the FDIC in the event of an IDI’s failure. 

It is based on two measures that are 

most relevant to assessing an IDI’s 

potential losses—a loss severity measure 

and a ratio of noncore funding to total 

liabilities. 

The loss severity measure applies a 

standardized set of assumptions based 

on recent failures regarding liability 

runoffs and the recovery value of asset 

categories to calculate possible losses to 

the FDIC. (Appendix D to subpart A 

describes the calculation of this measure 

in detail.) Two commenters to the April 

NPR questioned the liability run-off rate 

assumptions and asset loss rate 

assumptions used in the loss severity 

model given that no statistical support 

was provided in the April NPR. Asset 

loss rate assumptions are based on 

estimates of recovery values for IDIs that 

either failed or came close to a failure 

during the 12 months preceding the 

issuance of the April NPR. Deposit runoff assumptions are based on the actual 

experience of large IDIs that either failed 

or came close to a failure during the 

2007 through 2009 period. 

The FDIC believes that heavy reliance 

on secured liabilities or other types of 

noncore funding reduces an IDI’s 

potential franchise value, thereby 

increasing the FDIC’s potential loss in 

the event of failure. Under the proposal, 

the FDIC includes a ratio of noncore 

funding to total liabilities as a risk 

measure in the loss severity scorecard. 

Both measures are quantitative 

measures that are derived from readily 

available data. Appendix A to subpart A 

defines these measures and provides the 

source of the data used to calculate 

them. Appendix B to Subpart A 

describes how each of these risk 

measures is converted to a score 

between 0 and 100. 

The loss severity score is the weighted 

average of the loss severity measure and 

the noncore funding to total liability 

ratio. Table 9 shows cutoff values and 

weights for these measures. The loss 

severity score cannot be less than 0 or 

more than 100 under the proposal. 

The FDIC proposes that a 75 percent 

weight be assigned to the loss severity 

measure and a 25 percent weight to the 

noncore funding to total liability ratio. 

The April NPR considered two 

measures—the ratio of potential losses 

to total domestic deposits and the ratio 

of secured liabilities to total domestic 

deposits—assigning an equal weight to 

each measure to calculate the loss 

severity score. A commenter on the 

April NPR stated that the loss severity 

measure should have a greater weight in 

the loss severity score, arguing that the 

loss severity measure directly measures 

the potential effect of an IDI’s failure on 

the DIF. The FDIC agrees. This proposal 

also replaces the secured liabilities to 

total domestic deposits ratio with the 

noncore funding to total liabilities ratio. 

The FDIC believes that noncore funding, 

which, among others, includes brokered 

deposits, large time deposits and foreign 

deposits in addition to secured 

liabilities, is a better predictor of 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72619 

20 12 CFR 327.9(d)(4) (2010). 

21The score of 30 and 90 equals about the 13th 

and about the 99th percentile values, respectively, 

based on scorecard results as of first quarter 2006 

through fourth quarter 2007. 

22The rates that the FDIC proposes to apply to 

large and highly complex IDIs pursuant to the large 

bank assessment system are set out in the 

Assessment Base NPR, which is being published 

concurrently with this NPR. See the Notice of 

Proposed Rulemaking published elsewhere in this 

issue. 

23The initial base assessment rate would be 

rounded to two decimal points. 

potential franchise value than secured 

liabilities alone. 

TABLE 9—CUTOFF VALUES AND WEIGHTS FOR LOSS SEVERITY SCORE MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Potential Losses/Total Domestic Deposits (Loss Severity Measure) ..................................................... 0 29 75 

Noncore Funding/Total Liabilities ............................................................................................................ 21 97 25 

In the example in Table 10, Bank A’s 

loss severity score would be 68.57. 

TABLE 10—LOSS SEVERITY SCORE FOR BANK A 

Scorecard measures Ratio Score Weight 

(percent) 

Weighted 

score 

Potential Losses/Total Domestic Deposits (Loss severity measure) .............................. 23.62 81.49 75 61.09 

Noncore Funding/Total Liabilities .................................................................................... 43.76 29.95 25 7.49 

Total Loss Severity Score ........................................................................................ .................... .................... .................... 68.57 

3. Total Score 

Once the performance and loss 

severity scores are calculated, these 

scores are converted to a total score. 

Each IDI’s total score is calculated by 

multiplying its performance score by a 

loss severity factor as follows: 

First, 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. Again, a linear 

interpolation is used to convert loss 

severity scores between the cutoffs into 

a loss severity measure. 

The conversion is made using the 

following formula: 

Loss Severity Factor = 0.8 + [0.005 * 

(Loss Severity Score ¥5)] 

For example, if Bank A’s loss severity 

score is 68.57, its loss severity factor 

would be 1.12, calculated as follows: 

0.8 + (0.005 * (68.57 ¥ 5)) = 1.12 

Next, the performance score is 

multiplied by the loss severity factor to 

produce a total score (total score = 

performance score * loss severity 

measure). 

Since the loss severity factor ranges 

from 0.8 to 1.2, the total score could be 

up to 20 percent higher or lower than 

the performance score. For example, if 

Bank A’s performance score is 69.33 and 

its loss severity factor is 1.12, its total 

score would be calculated as follows: 

69.33 * 1.12 = 77.65 

The resulting total score cannot be 

less than 30 or more than 90. 

The total score could be adjusted, up 

or down, by a maximum of 15 points, 

based upon significant risk factors that 

are not adequately captured in the 

scorecard. The FDIC would use a 

process similar to the current large bank 

adjustment to determine the amount of 

the adjustment to the total score.20 This 

discretionary adjustment is discussed in 

more detail below. 

4. Initial Base Assessment Rate 

A large IDI with a total score of 30 

would pay the minimum initial base 

assessment rate and a large IDI with a 

total score of 90 would pay the 

maximum initial base assessment rate; 

for total scores between 30 and 90, 

initial base assessment rates would rise 

at an increasing rate as the total score 

increased.21 22 The initial base 

assessment rate (in basis points) is 

calculated using the following 

formula: 23

The calculation of an initial base 

assessment rate is based on an 

approximated statistical relationship 

between an IDI’s total score and its 

estimated three-year cumulative failure 

probability, as shown in Appendix 2 to 

the preamble. 

Chart 2 illustrates the initial base 

assessment rate for a range of total 

scores, assuming minimum and 

maximum initial base assessment rates 

of 5 basis points and 35 basis points, 

respectively. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3EP24NO10.343</GPH>
72620 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

24A parent company would have the same 

meaning as ‘‘depository institution holding 

company’’ in section 3(w) of the FDI Act. 12 U.S.C. 

1813(w)(1)(2001). Control would have the same 

meaning as in section 2 of the Bank Holding 

Company Act of 1956. See 12 U.S.C. 

1841(a)(2)(2001). A credit card bank would be 

defined as a bank for which credit card plus 

securitized receivables exceed 50 percent of assets 

plus securitized receivables. A processing bank or 

trust company would be defined as an institution 

whose last 3 years’ non-lending interest income 

plus fiduciary revenues plus investment fees exceed 

50 percent of total revenues (and last 3 year’s 

fiduciary revenues are non-zero). 

25Some measures used in the highly complex IDI 

scorecard (and that are not used in the scorecard 

for other large IDIs) do not use the 10th and 90th 

percentile values as cutoffs due to lack of historical 

data. These measures include the following: Top 20 

counterparty exposures to Tier 1 capital and 

reserves, largest counterparty exposures to Tier 1 

capital and reserves, and level 3 trading assets 

measures. The cutoffs for the top 20 counterparty 

exposures to Tier 1 capital and reserves, largest 

counterparty exposures to Tier 1 capital and 

reserves, and level 3 trading assets measures are 

based partly upon recent experience, but the 

minimum cutoffs range from just under the 5th and 

10th percentile values and the maximum cutoffs 

range from the 80th to 85th percentile values of 

these measures among only highly complex IDIs 

from the period between the first quarter of 2000 

and the fourth quarter of 2009. 

The initial base assessment rate could 

be adjusted as a result of the unsecured 

debt adjustment, the depository 

institution debt adjustment, and the 

brokered deposit adjustment, as 

discussed in the Assessment Base NPR. 

B. Scorecard for Highly Complex 

Institutions 

As mentioned above, those 

institutions that are structurally and 

operationally complex or that pose 

unique challenges and risks in case of 

failure (highly complex IDI) have a 

different scorecard under the proposal. 

A ‘‘highly complex institution’’ is 

defined as: (1) An IDI (excluding a 

credit card bank) that has had $50 

billion or more in total assets for at least 

four consecutive quarters that either is 

controlled by a parent company that has 

had $500 billion or more in total assets 

for four consecutive quarters, or is 

controlled by one or more intermediate 

parent companies that are controlled by 

a holding company that has had $500 

billion or more in assets for four 

consecutive quarters, or (2) a processing 

bank or trust company that has had $10 

billion or more in total assets for at least 

four consecutive quarters.24 Under the 

proposal, highly complex IDIs have a 

scorecard with measures tailored to the 

risks they pose. 

The scorecard for a highly complex 

IDI is similar to the scorecard for other 

large IDIs. Like the scorecard for other 

large IDIs, the scorecard for highly 

complex IDIs contains a performance 

score and a loss severity score. Table 11 

shows the scorecard measures and their 

relative contribution to the performance 

score or loss severity score. As with the 

scorecard for large IDIs, most of the 

minimum and maximum cutoff values 

for each scorecard measure used in the 

highly complex IDI’s scorecard equal 

the 10th and 90th percentile values of 

the particular measure among these IDIs 

based upon data from the period 

between the first quarter of 2000 and the 

fourth quarter of 2009.25


jlentini on DSKJ8SOYB1PROD with PROPOSALS3EP24NO10.344</GPH>
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72621 

TABLE 11—SCORECARD FOR HIGHLY COMPLEX INSTITUTIONS

Scorecard measures 

Weights 

within component 

(percent) 

Component 

weights 

(percent) 

P ................................. Performance Score 

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

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

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

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

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

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

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

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

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

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

L ................................. Loss Severity Score 

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

Potential Losses/Total Domestic Deposits (loss severity measure) ................................... 75 ....................

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

1. Performance Score 

Table 12 gives the weights associated 

with the three components of the 

performance scorecard for highly 

complex IDIs. The April NPR included 

a market indicator—senior bond 

spreads—as one of the performance 

score components for highly complex 

IDIs. While the FDIC continues to 

believe that market indicators provide 

valuable market perspectives on a 

highly complex IDI’s performance, the 

FDIC thinks that market indicators may 

be best considered on a bank-by-bank 

case through the large bank adjustments, 

given concerns regarding market 

liquidity and other idiosyncratic factors. 

TABLE 12—PERFORMANCE SCORE

COMPONENTS AND WEIGHTS

Performance score components Weight 

(percent) 

Weighted Average CAMELS 

Rating .................................... 30 

Ability to Withstand Asset-Related Stress ........................... 50 

Ability to Withstand FundingRelated Stress ...................... 20 

a. Weighted Average CAMELS Score 

The weighted average CAMELS score 

for highly complex IDIs is derived in the 

same manner as in the scorecard for 

large IDIs. 

b. Ability to Withstand Asset-Related 

Stress Component 

The ability to withstand asset-related 

stress component contains measures 

that the FDIC finds most relevant to 

assessing a highly complex IDI’s ability 

to withstand such stress: 

• Tier 1 leverage ratio; 

• Concentration measure (the higher 

of the ratio of higher-risk assets to the 

sum of Tier 1 capital and reserves, the 

ratio of top 20 counterparty exposure to 

Tier 1 capital and reserves, or the ratio 

of the largest counterparty exposure to 

Tier 1 capital and reserves); 

• The ratio of core earnings to average 

quarter-end total assets; 

• Credit quality measure (the higher 

of the ratio of criticized and classified 

items to the sum of Tier 1 capital and 

reserves measure or the ratio of 

underperforming assets to the sum of 

Tier 1 capital and reserves measure), 

and market risk measure (the weighted 

average of a ratio of four-quarter trading 

revenue volatility to Tier 1 capital, a 

ratio of market risk capital to Tier 1 

capital, and a ratio of level 3 trading 

assets to Tier 1 capital). 

Two of the four measures used to 

assess a highly complex IDI’s ability to 

withstand asset-related stress (the Tier 1 

leverage ratio and the core earnings to 

average quarter-end total assets ratio) 

are determined in the same manner as 

in the scorecard for other large IDIs. 

However, the method used to calculate 

the other remaining measures—the 

concentration measure, and the credit 

quality and market risk measure—differ 

and are discussed below. 

Concentration measure: 

As in the scorecard for large IDIs, the 

concentration measure for highly 

complex IDIs includes the higher-risk 

assets to Tier 1 capital and reserves ratio 

described in detail in Appendix C to 

Subpart A. However, the concentration 

measure in the highly complex 

institution scorecard considers the top 

20 counterparty exposures to Tier 1 

capital and reserves ratio and the largest 

counterparty exposure to Tier 1 capital 

and reserves ratio instead of the growthadjusted portfolio concentrations 

measure used in the scorecard for large 

IDIs (and in the April NPR) because 

recent experience shows that the 

concentration of a highly complex IDI’s 

exposures to a small number of 

counterparties—either through lending 

or derivatives activities—significantly 

increases a highly complex IDI’s 

vulnerability to unexpected market 

events. The FDIC uses the top 20 

counterparty exposure and the largest 

counterparty exposure to capture such 

risk. 

Credit quality measure and market 

risk measure: 

As in the scorecard for large IDIs, the 

ability to withstand asset-related stress 

includes a credit quality measure. 

However, the highly complex institution 

scorecard also includes a market risk 

measure that consists of three risk 

measures—trading revenue volatility, 

market risk capital, and level 3 trading 

assets. All three risk measures are 

calculated relative to a highly complex 

IDI’s Tier 1 capital and multiplied by 

their respective weights to calculate the 

market risk measure. All three measures 

can be calculated using data from an 

IDI’s quarterly Consolidated Reports of 

Condition and Income (Call Reports) 

and Thrift Financial Reports (TFRs). 

The FDIC believes that combining these 

three risk measures better captures a 

highly complex IDI’s market risk than 

any single measure. 

The trading revenue volatility 

measures the sensitivity of the IDI’s 

trading revenue to market volatility. The 

market risk capital measure is largely 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72622 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

26Regulatory 10-day 99th percentile Value-atRisk (VaR) is the estimate of the maximum amount 

that the value of covered positions could decline 

during a 10-day holding period within a 99th 

percent confidence level measured in accordance 

with section 4 of Appendix C of part 325 of the 

FDIC Rules and Regulations. http://www.fdic.gov/ 

regulations/laws/rules/2000- 

4800.html#fdic2000appendixctopart325. 

27Specific risk as defined in Appendix C of part 

325 of the FDIC Rules and Regulations means 

changes in the market value of specific positions 

due to factors other than broad market movements 

and includes event and default risk as well as 

idiosyncratic variations. http://www.fdic.gov/ 

regulations/laws/rules/2000- 

4800.html#fdic2000appendixctopart325. 

28The multiplication factor is based on the 

number of exceptions based on backtesting—the 

number of business days for which the magnitude 

of the actual daily net trading loss, if any, exceeds 

the corresponding daily VAR measures. The 

backtesting compares each of the IDI’s most recent 

250 business days’ actual net trading profit or loss 

with the corresponding daily VAR measures 

generated for internal risk measurement purposes 

and calibrated to a one-day holding period and a 

99 percent, one-tailed confidence level. http:// 

www.fdic.gov/regulations/laws/rules/2000- 

4800.html#fdic2000appendixctopart325. 

29The FDIC has modified data elements included 

in the liquid assets to short-term liability ration 

proposed in the April NPR, and termed it as the 

balance sheet liquidity ratio to better reflect what 

the ratio is designed to capture. See Appendix A for 

detailed description. 

based on regulatory 10-day 99th 

percentile Value-at-Risk (VaR), but it 

incorporates specific market risk and a 

multiplication factor to determine the 

capital charge, which accounts for the 

number of days actual losses exceeded 

daily VaR measures, making the 

measure more comparable across highly 

complex IDIs.26 27 28 Also, model-based 

risk metrics such as VaR that rely on 

historical market prices would not be a 

good measure of market risk if the IDI 

holds a large volume of hard-to-value 

trading assets. The more difficult it is to 

value an IDI’s trading assets, the more 

approximations and substitutes are 

needed to calculate the VaR, making the 

model results much less relevant. The 

level 3 trading assets measure is a 

potential indicator of illiquidity in the 

trading book. 

The FDIC recognizes that the 

relevance of credit risk and market risk 

in assessing a highly complex IDI’s 

vulnerability to stress depends on the 

IDI’s asset composition. An IDI with a 

significant amount of trading assets 

could be as risky as an IDI that focuses 

on lending even though the primary 

source of risk may differ. In order to 

treat both types of IDIs fairly, the FDIC 

proposes to assign a combined weight of 

35 percent to the credit risk measure 

and the market risk measure. The 

relative weight between the two may 

vary depending on the ratio of average 

trading assets to the sum of average 

securities, loans, and trading assets (the 

trading asset ratio) as follows: 

• Weight for Credit Quality Measure 

= (1 ¥ Trading Asset Ratio) * 0.35 

• Weight for Market Risk Measure = 

Trading Asset Ratio * 0.35 

Table 14 shows cutoff values and 

weights for the ability to withstand 

asset-related stress measures. 

TABLE 14—CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND ASSET-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Sub-component weight 

(percent) 

Weight 

Minimum Maximum 

Tier 1 Leverage Ratio ..................................................................... 6 13 .................... 10% 

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

Higher Risk Assets/Tier 1 Capital and Reserves; ................... 0 135 

Top 20 Counterparty Exposure/Tier 1 Capital and Reserves; 

or 

0 125 

Largest Counterparty Exposure/Tier 1 Capital and Reserves 0 20 ....................

Core Earnings/Average Quarter-end Total Assets 0 2 .................... 20% 

Credit Quality Measure * ................................................................. .................... .................... .................... 35% * (1–Trading Asset Ratio) 

Criticized and Classified Items to Tier 1 Capital and Reserves; or 8 100 ....................

Underperforming Assets/Tier 1 Capital and Reserves 2 37 ....................

Market Risk Measure * .................................................................... .................... .................... .................... 35% * Trading Asset Ratio 

Trading Revenue Volatility/Tier 1 Capital 0 2 60 

Market Risk Capital/Tier 1 Capital 0 10 20 

Level 3 Trading Assets/Tier 1 Capital 0 35 20 

* 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). 

c. Ability to Withstand Funding-Related 

Stress Component 

The ability to withstand fundingrelated stress component contains three 

measures that are most relevant to 

assessing a highly complex IDI’s ability 

to withstand such stress—a core 

deposits to total liabilities ratio, a 

balance sheet liquidity ratio, and an 

average short-term assets to average total 

assets ratio.29

Two of the measures (the core 

deposits to total liabilities ratio and the 

balance sheet liquidity ratio) in the 

ability to withstand funding-related 

stress component are determined in the 

same manner as in the scorecard for 

large IDIs, although their weights differ. 

However, the ability to withstand 

funding-related stress component in the 

highly complex institution scorecard 

adds an additional measure—the 

average short-term funding to average 

total assets ratio—because experience 

during the recent crisis shows that 

heavy reliance on short-term funding 

significantly increases a highly complex 

IDI’s vulnerability to unexpected 

adverse developments in the funding 

market. 

Table 15 shows cutoff values and 

weights for the ability to withstand 

funding-related stress measures. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72623 

30 12 CFR 327.9(d)(4) (2010). 31 12 CFR 327.9(d)(4) (2010). 

TABLE 15—CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND FUNDING-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Core Deposits/Total Liabilities ................................................................................................................. 3 79 50 

Balance Sheet Liquidity Ratio ................................................................................................................. 7 188 30 

Average Short-term Funding/Average Total Assets ................................................................................ 0 20 20 

d. Calculating the Performance Score 

To calculate the performance score for 

a highly complex IDI, 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 

respective weights and the results are 

summed to arrive at the performance 

score. The performance score is capped 

at 100 under the proposal. 

2. The Loss Severity Score 

The loss severity score for highly 

complex IDIs is calculated the same way 

as the loss severity score for other large 

IDIs. 

3. Total Score and Initial Base 

Assessment Rate 

The total score and the initial base 

assessment rate for highly complex IDIs 

are calculated in the same manner as for 

other large IDIs, as described above. As 

is the case for other large IDIs, the total 

score cannot be less than 30 or more 

than 90. The total score for highly 

complex IDIs could be adjusted, up or 

down, by a maximum of 15 points, 

based upon significant risk factors that 

are not adequately captured in the 

scorecard. The resulting score, however, 

cannot be less than 30 or more than 90. 

The FDIC would use a process similar 

to the current large bank adjustment to 

determine the amount of any 

adjustments.30 This discretionary 

adjustment is discussed in more detail 

below. 

As in the case of other large IDIs, the 

initial base assessment rate could also 

be adjusted as a result of the unsecured 

debt adjustment, the depository 

institution debt adjustment, and the 

brokered deposit adjustment as 

discussed in the Assessment Base NPR. 

C. Large Bank Adjustment to the Total 

Score 

Although the proposed scorecards 

should improve the relative risk ranking 

of large IDIs, the FDIC proposes that it 

have the ability to adjust the total score 

for all large IDIs, up or down, by a 

maximum of 15 points, based upon 

significant risk factors that are not 

captured in the scorecard. This 

discretionary adjustment would be 

similar to the assessment rate 

adjustment that large IDIs and insured 

branches of foreign banks within Risk 

Category I are subject to under current 

rules.31 In the April NPR, the FDIC 

proposed that it have the ability to make 

discretionary adjustments to the 

performance score and loss severity 

score of up to 15 points each. A number 

of commenters stated that these 

potential discretionary adjustments 

were too large, too subjective, and not 

transparent. 

The FDIC believes that it is important 

that it have ability to consider 

idiosyncratic factors or other relevant 

risk factors that are not included in the 

scorecards when assessing the 

probability of failure and potential loss 

given failure. The FDIC acknowledges, 

however, that the discretionary 

adjustment process could be 

streamlined by applying the adjustment 

to the total score, rather than having 

potential adjustments to both the 

performance score and the loss severity 

score, while still providing the FDIC 

with flexibility to give sufficient weight 

to the idiosyncratic factors or other risk 

factors not included in the scorecard. 

In determining whether to make a 

large bank adjustment, the FDIC may 

consider such information as financial 

performance and condition information 

and other market or supervisory 

information. The FDIC would also 

consult with an IDI’s primary federal 

regulator and, for state chartered 

institutions, state banking supervisor. 

The FDIC acknowledges the need to 

clarify its processes for making any 

adjustments to ensure fair treatment and 

accountability and plans to propose and 

seek comment on updated guidelines for 

evaluating whether assessment rate 

adjustments are warranted and the size 

of the adjustments. The FDIC will not 

adjust assessment rates until the 

updated guidelines are approved by the 

FDIC’s Board. In addition, the FDIC will 

publish aggregate statistics on 

adjustments each quarter. 

In general, the adjustments to the total 

score would have a proportionally 

greater effect on the assessment rate of 

those IDIs with a higher total score since 

the assessment rate rises at an 

increasing rate as the total score rises as 

shown in Chart 1. 

D. Appeals Process 

Notifications involving an upward 

adjustment to an IDI’s assessment rate 

would be made in advance of 

implementing such an adjustment so 

that the IDI has an opportunity to 

respond to or address the FDIC’s 

rationale for proposing an upward 

adjustment. Adjustments would be 

implemented after considering the IDI’s 

response to the notification and 

considering any subsequent changes 

either to the inputs or other risk factors 

that relate to the FDIC’s decision. 

Procedures and timetables for the 

appeals process are described in detail 

on the FDIC’s Web site and can be found 

using the following link: http:// 

www.fdic.gov/deposit/insurance/ 

assessments/requests_review.html. 

E. Data Source 

In most cases, the FDIC proposes to 

use data that are currently publicly 

available to compute scorecard 

measures. Data elements required to 

compute four scorecard measures— 

higher-risk assets, top 20 counterparty 

exposures, the largest counterparty 

exposure and criticized/classified 

items—are currently gathered during the 

examination process. Rather than 

relying on the examination process as 

proposed in the April NPR, the FDIC 

proposes that the data elements for 

these four scorecard measures be 

collected directly from IDIs. The FDIC 

anticipates that the necessary changes 

would be made to Call Reports and 

TFRs beginning with second quarter of 

2011. The data elements would remain 

confidential. 

F. Updating the Scorecard 

The FDIC would have the flexibility 

to update the minimum and maximum 

cutoff values used in each scorecard 

annually without further rulemaking as 

long as the method of selecting cut-off 

values remains unchanged. As stated 

earlier, the cutoff values are generally 

based on the 10th and 90th percentile 


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32Pursuant to existing supervisory practice, the 

FDIC does not assign a different component rating 

from that assigned by an institution’s primary 

federal regulator, even if the FDIC disagrees with a 

CAMELS component assigned by an institution’s 

primary federal regulator, unless: (1) The 

disagreement over the component rating also 

involves a disagreement over a CAMELS composite 

rating; and (2) the disagreement over the CAMELS 

composite rating is not a disagreement over whether 

the CAMELS composite rating should be a 1 or a 

2. The FDIC has no plans to alter this practice. 

33For the purpose of regression analysis, large 

institutions that received significant government 

support or merged with another entity with 

government support. 

values for the ten-year period ending in 

2009. In particular, the FDIC could add 

new data for subsequent years to its 

analysis and could, from time to time, 

exclude some earlier years from its 

analysis. Updating the minimum and 

maximum cutoff values and weights 

will allow the FDIC to use the most 

recent data, thereby improving the 

accuracy of the scorecard method. 

On the other hand, if, as a result of its 

review and analysis, the FDIC concludes 

that additional or alternative measures 

should be used to determine risk-based 

assessments, that the method of 

selecting cutoff values should be 

revised, that the weights assigned to the 

scorecard measures should be 

recalibrated, or that a new method 

should be used to differentiate risk 

among large IDIs or highly complex 

IDIs, these changes would be made 

through a future rulemaking. 

Financial ratios for any given quarter 

will continue to be calculated from the 

Call Reports and TFRs filed by each IDI 

as of the last day of the quarter. 

CAMELS component rating changes will 

continue to be effective as of the date 

that the rating change is transmitted to 

the IDI for purposes of determining 

assessment rates.32

Appendices 1 and 2 to the preamble 

will not appear in the Code of Federal 

Regulations. 

Appendix 1 to Preamble—Statistical 

Analysis of Measures 

The risk measures included in the 

performance score and the weights 

assigned to those measures are generally 

based on the results of an ordinary least 

square (OLS) model, and in some cases, 

a logistic regression model. The OLS 

model estimates how well a set of risk 

measures in 2005 through 2008 can 

predict the FDIC’s view, based on its 

experience and judgment, of the proper 

rank ordering of risk (the expert 

judgment ranking) for large institutions 

as of year-end 2009. 

The OLS model is specified as: 

Where: 

k is a risk measure; 

n is the number of risk measures; and 

t is the quarter that is being assessed 

The logistic regression model estimates 

how well the same set of risk measures in 

2005 through 2008 can predict whether a 

large bank fails and it is specified as: 

Where 

Fail is whether an institution i failed on or 

prior to year-end 2009 or not.33

To select the risk measures for the 

scorecard, the FDIC first considered 

those measures deemed to be most 

relevant in assessing large institutions’ 

ability to withstand stress. These 

candidate risk measures were converted 

to a score between 0 and 100, using 

specified minimum and maximum 

cutoff values, and then tested for 

statistical significance in both the expert 

judgment ranking and failure prediction 

models. 

Table 1.1 provides descriptive 

statistics for all risk measures used in 

the large institution scorecard and 

highly complex institution scorecard. 

As noted in Section II. A. 1., most but 

not all of the minimum and maximum 

cutoff values for each scorecard measure 

equal the 10th and 90th percentile 

values among large institutions based 

upon data from 2000 through 2009. 


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34The FDIC has conducted a number of 

robustness tests with alternative ratios for capital 

and earnings, a log transformation of several 

variables—the liquidity coverage ratio, the brokered 

deposit ratio and the growth-adjusted concentration 

ratio—and alternative dependent variables— 

CAMELS and the FDIC’s internal risk ratings. These 

robustness tests show that the same set of variables 

are generally statistically significant in most 

models; that converting to a score from a raw ratio 

generally resolves any potential concern related to 

a nonlinear relationship between the dependent 

variable and several explanatory variables; and, 

finally, that alternative ratios for capital and 

earnings are not better in predicting expert 

judgment ranking or failure. 

Table 1.2 provides the average, 

median, and standard deviation for each 

of the scored risk measures used in the 

expert judgment ranking and failure 

prediction models.34 The figures are 

based on data from 2005 through 2009. 

The loss severity and noncore funding 

measures (i.e. components of the total 

loss severity score) were excluded from 

the analysis, since neither of the 

dependent variables in the two 

regressions reflect the expected (or 

actual) loss given failure. Most of the 

performance measures, other than 

concentration and credit quality 

measures, are based on Call Report or 

TFR data and defined in Appendix A to 

subpart A. The concentration measure is 

described in detail in Appendix C to 

subpart A. 


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OLS Model Results and Derivation of 

Weights: 

Table 1.3 shows the results of the OLS 

model using the above measures for 

years 2005 through 2008. The 

dependent variable for the model is an 

expert judgment ranking as of year-end 

2009. All of the measures are 

statistically significant in several years 

at the 10 percent level. Four of the seven 

measures—the weighted average 

CAMELS rating, concentration measure, 

credit quality measure, and core 

deposits ratio—are significant at the 5 

percent level in all years. 

The weight for each scorecard 

measure was generally based on the 

weight implied by coefficients for 2005 

to 2008, with some adjustments to 

account for more recent experience. The 

implied weights are computed by 

dividing the average of scorecard 

measure coefficients for 2005 to 2008 by 

the sum of the average coefficients. For 

example, the average coefficient on the 

weighted average CAMELS rating was 

0.52, which is about 31 percent of the 


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coefficient sum for all measures (1.7). 

The current proposal assigns a weight of 

30 percent to this measure. Similarly, 

the average coefficient of 0.36 on the 

concentration measure implies a weight 

of 21 percent (0.36/1.7 = 0.21). The 

proposal effectively assigns a weight of 

17.5 percent (50 percent weight on the 

ability to withstand asset-related stress 

score × 35 percent weight on the 

concentration measure). Table 1.4 

shows the average coefficients and 

implied and actual weights. 

Logistic Model Results: 

Table 1.5 shows the results of the 

logistic regression model, where the 

dependent variable for the model is 

whether an institution failed before 

year-end 2009. The weighted average 

CAMELS rating, Tier 1 leverage ratio, 

core deposits ratio, and concentration 

measure are significant at the 5 percent 

level in all years. The core earnings 

ratio, credit quality measure, and 

balance sheet liquidity ratio are not 

statistically significant in several years. 


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OLS regression results: CAMELS and 

the Current Small Bank Financial 

Ratios: 

Table 1.5 shows the results of the OLS 

regression model with the weighted 

average CAMELS rating only. These 

results show that while the weighted 

average CAMELS rating is statistically 

significant in predicting an expert 

judgment ranking as of year-end 2009, it 

only explains a small percentage of the 

variation in the year-end 2009 expert 

judgment ranking—particularly in 

models for 2005 (10 percent) through 

2007 (19 percent). 

Table 1.6 shows the results of the OLS 

regression model with a weighted 

average CAMELS rating and the current 

small bank financial ratios. These 

results show that adding the current 

small bank model financial ratios 

improves the ability to predict the yearend 2009 expert judgment ranking; 

however, the improvement is not as 


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35For the purpose of regression analysis, large 

institutions that received significant government 

support or merged with another entity with 

government support are deemed to have failed. 

significant as in the model with 

proposed measures. For example, in 

2006, the model with current small bank 

financial ratios would have predicted 

slightly over 20 percent of the variation 

in the current expert judgment ranking. 

This compares to 47 percent for the 

model with proposed measures. 

Appendix 2 to Preamble—Conversion of 

Total Score Into Initial Base Assessment 

Rate 

The formula for converting an IDI’s 

total score into an initial assessment rate 

is based on a single-variable logistic 

regression model, which uses an IDI’s 

total score as of year-end 2006 to predict 

whether the IDI has failed on or before 

year-end 2009. The logistic model is 

estimated as: 

Where: 

Fail is whether an IDI i failed on or before 

year-end 2009 or not; and 35

Score is an IDI i’s total score as of year-end 

2006. 

Chart 2.1 below shows that the total 

score can reasonably differentiate IDIs 

that failed after 2006. About the worst 

12 percent of IDIs in terms of their total 

score as of year-end 2006 accounted for 

more than two-thirds of failures over the 

next three years. 


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The plotted points in Chart 2.2 show 

the estimated failure probabilities for 

the actual total scores using the logistic 

model and the results are nonlinear. 


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36The initial assessment rate formula is 

simplified while maintaining the nonlinear 

relationship. 

37The FDIC may not address all of the questions 

posed in the current rulemaking in the final rule, 

but may consider the information gathered in future 

actions. 

The proposed calculation of the initial 

assessment rates approximates this 

nonlinear relationship for scores 

between 30 and 90.36 A score of 30 or 

lower results in the minimum initial 

base assessment rate and a score of 90 

or higher results in the maximum initial 

base assessment rate. Assuming an 

assessment rate range of 40 basis points, 

the initial base assessment rate for an 

IDI with a score greater than 30 and less 

than 90 is: 

II. Request for Comments 

The FDIC seeks comment on every 

aspect of this proposed rule. In 

particular, the FDIC seeks comment on 

the questions set out below. The FDIC 

asks that commenters include reasons 

for their positions.37

1. Deposit Insurance Pricing System: 

(a) Should the risk categories be 

eliminated as proposed? 

(b) Should the two scorecards be 

combined? 

(c) Should highly complex 

institutions be defined as proposed? 

(d) Should the performance score and 

loss severity score be combined as 

proposed? 

(e) Should the initial base assessment 

rate be calculated as proposed? 

2. Performance Scorecard: 

(a) Are the proposed weights assigned 

to performance score components and 

measures appropriate? 

(b) Are the cutoff values for the risk 

measures appropriate? 

(c) The proposal eliminates debt 

ratings as an input in calculating a large 

IDI’s assessment rate. In the April NPR, 

the FDIC proposed using a senior bond 

spread as a component of the highly 

complex IDI scorecard. The FDIC 

decided against retaining that 

component in this proposal because of 

comparability issues among IDIs. The 

FDIC considered including credit 

default swap (CDS) spreads in the 

highly complex IDI scorecard, but the 

proposal does not include them due to 

the limited number of trades. Is this 

concern serious enough not to include 

the CDS spreads in the scorecard? What 

other market-based measures (credit, 

equity or others), if any, would enhance 

the proposed pricing system? Should 

any other measures be added? Should 

any measures be removed or replaced? 

(d) Should the growth-adjusted 

portfolio concentration measure be 

computed as proposed? Are the risk 

weights assigned to each portfolio as 


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38See 5 U.S.C. 603, 604 and 605. 

described in Appendix C to Subpart A 

appropriate? 

(e) For the higher-risk concentration 

measure, should concentrations in other 

portfolios be considered? 

(f) Should counterparty exposures be 

defined as proposed? 

(g) Should the balance sheet liquidity 

ratio be computed as proposed? 

(h) Should other risk measures be 

calculated as proposed? 

3. Loss Severity Scorecard: 

(a) Are asset haircuts and runoff 

assumptions for the loss severity 

measure as described in Appendix D to 

Subpart A appropriate? 

(b) Are asset adjustments due to 

liability runoff and capital reductions as 

described in Appendix D to Subpart A 

applied appropriately? 

(c) Are the proposed weights assigned 

to loss severity measures appropriate? 

(d) Are cut-off values for risk 

measures appropriate? 

(e) Should any other measures be 

added? Should any measures be 

removed or replaced? 

(f) Should other risk measures be 

calculated as proposed? 

4. Regulatory Matters: 

(a) What is the extent of regulatory 

burden of the proposed large bank 

deposit insurance pricing system? 

(b) Are the requirements in the 

proposed regulation clearly stated? If 

not, how could the regulation be more 

clearly stated? 

(c) Does the proposed regulation 

contain language or jargon that is not 

clear? If so, which language requires 

clarification? 

III. Regulatory Analysis and Procedure 

A. Solicitation of Comments on Use of 

Plain Language 

Section 722 of the Gramm-LeachBliley 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: 

• Has the FDIC organized the material 

to suit your needs? If not, how could 

this material be better organized? 

• Are the requirements in the 

proposed regulation clearly stated? If 

not, how could the regulation be more 

clearly stated? 

• Does the proposed regulation 

contain language or jargon that is not 

clear? If so, which language requires 

clarification? 

• 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? 

• 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.38 For RFA 

purposes a small institution is defined 

as one with $175 million or less in 

assets. 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. 

The proposed rule, however, would 

apply only to institutions with $10 

billion or greater in total assets. 

Consequently, small institutions will 

experience no significant economic 

impact should the FDIC implement the 

proposed large bank assessment system. 

C. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reduction 

Act of 1995, 44 U.S.C. 3501–3521 (PRA), 

are contained in the proposed rule. 

D. 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 amended to read as follows: 

Authority: 12 U.S.C. 1441, 1813, 1815, 

1817–19, 1821. 

2. Amend § 327.4 by revising 

paragraphs (c) and (f) to read as follows: 

§ 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 

(§ 327.9(d)(9)) or a determination by the 

FDIC that the institution is a new 

institution (§ 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 


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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 § 327.5 to read as follows: 

§ 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 quarterend total consolidated assets on their 

March 31, 2011 Reports of Condition or 

Thrift Financial Reports may report 

average tangible equity using an end-ofquarter 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 

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 


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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 

§ 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-ofquarter 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 § 327.6 to read as follows: 

§ 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 

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 § 303.248 of this chapter. 

5. Amend § 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: 

§ 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 § 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 

§ 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 


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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 § 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 

(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 § 327.9(d)(6) and the depository 

institution debt adjustment as set forth 

in § 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 § 327.9(d)(6) 

and the depository institution debt 

adjustment as set forth in § 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 § 327.9(d)(6) and the depository 

institution debt adjustment as set forth 

in § 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 § 327.9(d)(6) 

and the depository institution debt 

adjustment as set forth in § 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 nonlending 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 § 327.9 to read as follows: 

§ 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. 


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72636 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

(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 riskbased 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 § 347.209 of this chapter; 

and 

(B) Maintains the eligible assets 

prescribed under § 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 § 347.209 of this chapter; 

and 

(B) Maintains the eligible assets 

prescribed under § 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 

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 ncreased 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 § 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 § 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 


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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 § 327.10(f), the uniform amount 

shall be: 

(A) 4.861 whenever the assessment 

rate schedule set forth in § 327.10(a) is 

in effect; 

(B) 2.861 whenever the assessment 

rate schedule set forth in § 327.10(b) is 

in effect; 

(C) 1.861 whenever the assessment 

rate schedule set forth in § 327.10(c) is 

in effect; or 

(D) 0.861 whenever the assessment 

rate schedule set forth in § 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 § 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), 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 § 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 § 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 § 327.10(a) is 

in effect; 

(B) ¥5.127 whenever the assessment 

rate schedule set forth in § 327.10(b) is 

in effect; 

(C) ¥6.127 whenever the assessment 

rate schedule set forth in § 327.10(c) is 

in effect; or 

(D) ¥7.127 whenever the assessment 

rate schedule set forth in § 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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72638 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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

Scorecard measures 

Weights 

within 

component 

(percent) 

Component 

weights 

(percent) 

P ................................. Performance Score 

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

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

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

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

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

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

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

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

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

L ................................. Loss Severity Score 

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

Potential Losses/Total Domestic Deposits (loss severity measure) ................................... 75 ....................

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 

C 25% 

A 20% 

M 25% 

E 10% 

L 10% 

CAMELS component Weight 

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) * (C2 ¥ 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 assetrelated 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 (higherrisk 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

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Tier 1 Leverage Ratio .............................................................................................................................. 6 13 10 

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

Higher-Risk Assets to Tier 1 capital and Reserves; or .................................................................... 0 135 ....................

Growth-Adjusted Portfolio Concentrations ....................................................................................... 3 57 

Core Earnings/Average Quarter-End Total Assets ................................................................................. 0 2 20 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72639 

CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND ASSET-RELATED STRESS MEASURES—Continued 

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

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

Criticized and Classified Items/Tier 1 capital and Reserves; or ...................................................... 8 100 ....................

Underperforming Assets/Tier 1 capital and Reserves ..................................................................... 2 37 ....................

(3) For each of the risk measures 

within the ability to withstand assetrelated 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 FundingRelated 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: 

CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND FUNDING-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

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. 

(ii) 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

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

Potential Losses/Total Domestic Deposits (loss severity measure) ....................................................... 0 29 75 

Noncore Funding/Total Liabilities ............................................................................................................ 21 97 25 

(iii) 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 section (d)(5). The 

resulting total score cannot be less than 

30 or more than 90. 

(iv) 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: 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72640 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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

Scorecard measures 

Weights 

within 

component 

(percent) 

Component 

weights 

(percent) 

P ................................. Performance Score 

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

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

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

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

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

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

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

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

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

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

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

L ................................. Loss Severity Score 

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

Potential Losses/Total Domestic Deposits (loss severity measure) ................................... 75 ....................

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 shortterm 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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3EP24NO10.358</GPH>
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72641 

CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND ASSET-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Sub-component weight 

(percent) 

Weight 

Minimum Maximum 

Tier 1 Leverage Ratio ..................................................................... 6 13 10% 

Concentration Measure: .................................................................. 35% 

Higher Risk Assets/Tier 1 Capital and Reserves; Top 20 

Counterparty.

0 135 

Exposure/Tier 1 Capital and Reserves; or .............................. 0 125 

Largest Counterparty Exposure/Tier 1 Capital and Reserves 0 20 

Core Earnings/Average Quarter-End Total Assets ......................... 0 2 20% 

Credit Quality Measure*: ................................................................. 35% * (1-Trading Asset Ratio). 

Criticized and Classified Items to Tier 1 Capital and Reserves; or.8 100 

Underperforming Assets/Tier 1 Capital and Reserves ............ 2 37 

Market Risk Measure*: .................................................................... 35% * Trading Asset Ratio. 

Trading Revenue Volatility/Tier 1 Capital ................................ 0 2 60 

Market Risk Capital/Tier 1 Capital ........................................... 0 10 20 

Level 3 Trading Assets/Tier 1 Capital ..................................... 0 35 20 

* 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. 

CUTOFF VALUES AND WEIGHTS FOR ABILITY TO WITHSTAND FUNDING-RELATED STRESS MEASURES

Scorecard measures 

Cutoff values Weight 

(percent) Minimum Maximum 

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. 

(iv) 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. 

(v) 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. 

(vi) 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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72642 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

(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. 

(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 § 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 § 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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72643 

(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 § 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 

§ 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 § 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 § 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 § 327.10 to read as follows: 

§ 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: 

INITIAL BASE ASSESSMENT RATE SCHEDULE IF, AFTER SEPTEMBER 30, 2010, THE RESERVE RATIO OF THE DIF HAS NOT

REACHED 1.15 PERCENT

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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** 

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72644 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

(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

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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. 

(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** 

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72645 

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

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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. 

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** 

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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: 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72646 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

INITIAL BASE ASSESSMENT RATE SCHEDULE IF RESERVE RATIO FOR PRIOR ASSESSMENT PERIOD IS GREATER THAN OR

EQUAL TO 2.5 PERCENT

Risk 

category I 

Risk 

category II 

Risk 

category III 

Risk 

category IV 

Large and 

highly 

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** 

Risk category I Risk category II Risk category III Risk category IV 

Large and 

highly 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. 

** 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; 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72647 

(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 § 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 

Scorecard measures Description 

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 Complex 

Institutions).

Concentration score for large institutions takes the 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 subpart for the detailed description of the ratio. 

(2) Growth-Adjusted Portfolio Concentrations.The measure is calculated in following steps: 

(1) 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). 

(2) 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. 

(3) Risk weights are assigned to each category based on historical loss rates. 

(4) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration ratio for each portfolio. 

(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting 

values are summed. 

See Appendix C to this subpart 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 

subpart for the detailed description of the ratio. 

(2) Top 20 Counterparty Exposure/ 

Tier 1 Capital and Reserves.

Sum of the total exposure amount to the largest 20 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.39 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 and Reserves.

Sum of the exposure amount to the largest counterparty 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 QuarterEnd 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 and Reserves.

Sum of criticized and classified items divided by the 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 Reserves.

Sum of loans that are 30–89 day past due, loans that 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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3
72648 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

39EAD and SFTs are defined and described in the 

compilation issued by the Basel Committee on 

Banking Supervision in its June 2006 document, 

‘‘International Convergence 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. 

1The high-risk concentration measure is rounded 

to two decimal points. 

Scorecard measures Description 

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 U.S. Treasury, U.S. government agencies, and U.S. 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 Measure).

Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D to this 

subpart describes the calculation of the loss severity measure in detail. 

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. 

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)*(C2 ¥)], 

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: 

• Concentration measure; 

• Credit quality measure; 

• Market risk measure; 

• Average short-term funding to average 

total assets ratio; 

• Potential losses to total domestic 

deposits ratio (loss severity measure); and, 

• 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: 

• Tier 1 leverage ratio; 

• Core earnings to average quarter-end 

total assets ratio; 

• Core deposits to total liabilities ratio; 

and, 

• 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 higherrisk 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. 

1. 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: 

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: 

• Construction and land development 

loans (funded and unfunded); 

• Leveraged loans (funded and unfunded); 


jlentini on DSKJ8SOYB1PROD with PROPOSALS3EP24NO10.359</GPH>
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72649 

2All loan concentrations should include 

purchased credit impaired loans. 

3Each 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. 

4http://www.fdic.gov/news/news/press/2001/

pr2801.html. 

5http://www.fdic.gov/regulations/laws/federal/

2006/06noticeFINAL.html. 

6http://www.fdic.gov/news/news/press/2001/

pr0901a.html. 7The growth-adjusted portfolio concentration 

measure is rounded to two decimal points. 8All loan concentrations should include the fair 

value of purchased credit impaired loans. 9Each 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. 

10The 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. 

11The growth factor is rounded to two decimal 

points. 

• Nontraditional mortgage loans; and 

• Subprime consumer loans. 2,3

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: 

• Loans or securities where proceeds are 

used for buyout, acquisition, and 

recapitalization; 

• 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 

purposes of this calculation, the only 

permitted EBITDA adjustments are those 

adjustments specifically permitted for that 

borrower in its credit agreement; or 

• Loans or securities that are designated as 

highly leveraged transactions (HLT) by 

syndication agent.4

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

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): 

• Two or more 30-day delinquencies in the 

last 12 months, or one or more 60-day 

delinquencies in the last 24 months; 

• Judgment, foreclosure, repossession, or 

charge-off in the prior 24 months; 

• Bankruptcy in the last 5 years; 

• 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 

• 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

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. 

2. 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: 

Where 

N is institution i’s growth-adjusted portfolio 

concentration measure;7

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: 

• First-lien residential mortgages and nonagency residential mortgage-backed 

securities; 

• Closed-end junior liens and home equity 

lines of credit (HELOCs); 

• Construction and land development 

loans; 

• Other commercial real estate loans; 

• Commercial and industrial loans; 

• Credit card loans; and 

• Other consumer loans. 8, 9

The growth factor, g, is based on a threeyear 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 

1.2.10, 11 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: 


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72650 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

12The 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. 

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. 

2Of 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. 

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. 

TABLE C.1—90TH PERCENTILE ANNUAL LOSS RATES FOR 1990–2009 

PERIOD AND CORRESPONDING RISK

WEIGHTS

Portfolio 

Loss Rates 

(90th 

percentile) 

Risk 

weights 

(percent) 

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 

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. 

Runoff and Capital Adjustment Assumptions 

Table D.1 contains run-off assumptions. 

TABLE D.1—RUNOFF RATE

ASSUMPTIONS

Liability type Runoff rate* 

(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 Borrowings > 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: 

• Cash and Interest Bearing Balances; 

• Trading Account Assets; 

• Federal Funds Sold and Repurchase 

Agreements; 

• Treasury and Agency Securities; 

• Municipal Securities; 

• Other Securities; 

• Construction and Development Loans; 

• Nonresidential Real Estate Loans; 

• Multifamily Real Estate Loans; 

• 1–4 Family Closed-End First Liens; 

• 1–4 Family Closed-End Junior Liens; 

• Revolving Home Equity Loans; and 

• 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

Asset category Loss rate 

(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: 

An end-of-quarter loss severity ratio is LGD 

divided by total domestic deposits at quarterend and the loss severity measure for the scorecard is an average of end-of-period loss severity ratio for three most recent quarters. 


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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72651 

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. 2010–29138 Filed 11–19–10; 4:15 pm] 

BILLING CODE 6741–01–P 


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