72582 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

1The FDIC is concurrently issuing a Notice of 

Proposed Rulemaking and Request for Comment on 

the Assessment System for Large Institutions. 

2Long-term unsecured debt includes senior 

unsecured and subordinated debt. 

3 74 FR 9525. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD66 

Assessments, Assessment Base and 

Rates 

AGENCY: Federal Deposit Insurance 

Corporation. 

ACTION: Notice of proposed rulemaking 

and request for comment. 

SUMMARY: The FDIC is proposing to 

amend its regulations to implement 

revisions to the Federal Deposit 

Insurance Act made by the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act regarding the definition 

of an institution’s deposit insurance 

assessment base; alter the unsecured 

debt adjustment in light of the changes 

to the assessment base; add an 

adjustment for long-term debt held by 

an insured depository institution where 

the debt is issued by another insured 

depository institution; eliminate the 

secured liability adjustment; change the 

brokered deposit adjustment to conform 

to the change in the assessment base 

and change the way the adjustment will 

apply to large institutions; and revise 

deposit insurance assessment rate 

schedules, including base assessment 

rates, in light of the changes to the 

assessment base. 

DATES: Comments must be received on 

or before January 3, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number, by any of the 

following methods: 

• Agency Web Site: http:// 

www.fdic.gov/regulations/laws/Federal/ 

propose.html. Follow instructions for 

submitting comments on the Agency 

Web Site. 

• E-mail: Comments@FDIC.gov. 

Include 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/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

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

Instructions: All submissions received 

must include the agency name and RIN 

for this rulemaking. All comments 

received will be posted without change 

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

Federal/propose.html including any 

personal information provided. 

FOR FURTHER INFORMATION CONTACT: Rose 

Kushmeider, Acting Chief, Banking and 

Regulatory Policy Section, Division of 

Insurance and Research, (202) 898– 

3861; Christopher Bellotto, Counsel, 

Legal Division, (202) 898–3801; and 

Sheikha Kapoor, Counsel, Legal 

Division, (202) 898–3960. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Assessment Base 

The FDIC charges insured depository 

institutions (IDIs) an amount for deposit 

insurance equal to the deposit insurance 

assessment base times a risk-based 

assessment rate. Under the current 

system, the assessment base is domestic 

deposits minus a few allowable 

exclusions, such as pass-through reserve 

balances. An IDI currently reports its 

assessment base on a quarter-end basis; 

larger institutions (that is, those with $1 

billion or more in assets), all institutions 

chartered after December 31, 2006, and 

other IDIs that so choose, use daily 

averaging. 

Assessment Rate Adjustments 

The FDIC calculates an initial base 

assessment rate (IBAR) for each 

institution based on CAMELS ratings, a 

number of inputs derived from data that 

the institution reports on the 

Consolidated Reports of Condition and 

Income (Call Report) or the Thrift 

Financial Report (TFR), and, for large 

institutions that have long-term debt 

issuer ratings, from these ratings.1

Under the current system, an 

institution’s total base assessment rate 

can vary from the IBAR as the result of 

three possible adjustments. An 

institution’s total base assessment rate 

may be lowered from its IBAR by an 

amount determined by its ratio of longterm unsecured debt to domestic 

deposits and, for small institutions, 

certain amounts of Tier 1 capital to 

domestic deposits (the unsecured debt 

adjustment).2 This potential decrease in 

initial base assessment rates is limited 

to 5 basis points. 

An institution’s base assessment rate 

may be raised by an amount determined 

by its ratio of secured liabilities to 

domestic deposits (the secured liability 

adjustment). An institution’s ratio of 

secured liabilities to domestic deposits 

(if greater than 25 percent) increases its 

assessment rate, but the resulting base 

assessment rate after any such increase 

can be no more than 50 percent greater 

than it was before the adjustment. The 

secured liability adjustment is made 

after any unsecured debt adjustment. 

Finally, an institution’s base 

assessment rate may be raised by an 

amount determined by its ratio of 

brokered deposits to domestic deposits 

(the brokered deposit adjustment) for 

institutions in Risk Categories II, III or 

IV. An institution’s ratio of brokered 

deposits to domestic deposits (if greater 

than 10 percent) increases its 

assessment rate, but any increase is 

limited to no more than 10 basis points. 

Assessment Rates 

The FDIC last amended the 

assessment rate schedule in 2009.3 The 

2009 assessments rule established the 

following initial base assessment rate 

schedule: 

TABLE 1—CURRENT INITIAL BASE ASSESSMENT RATES

Risk category 

I * 

II III IV 

Minimum Maximum 

Annual Rates (in basis points) ............................................. 12 16 22 32 45 

* Initial base assessment rates that are not the minimum or maximum rate vary between these rates. 

After applying all possible 

adjustments, minimum and maximum 

total base assessment rates for each risk 

category are as set out in Table 2 below. 

The 2009 assessments rule also allowed 

the FDIC Board to adjust rates uniformly 

by up to 3 basis points above or below 

the total base assessment rates without 

notice-and-comment rulemaking, 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72583 

4See: Notice of Proposed Rulemaking and 

Request for Comment on Assessment Dividends, 

Assessment Rates and Designated Reserve Ratio, 75 

FR 66271. 

5Public Law 111–203, § 331(b), 124 Stat. 1376, 

1538 (to be codified at 12 U.S.C. 1817(nt)). 

provided that no change from one 

quarter to the next in the total base 

assessment rates may exceed 3 basis 

points. 

TABLE 2—CURRENT TOTAL BASE ASSESSMENT RATES * 

Risk Category 

I 

Risk Category 

II 

Risk Category 

III 

Risk Category 

IV 

Initial base assessment rate ............................................................................ 12–16 22 32 45 

Unsecured debt adjustment ............................................................................. (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................. 0–8 0–11 0–16 0–22.5 

Brokered deposit adjustment ........................................................................... 0–10 0–10 0–10 

Total base assessment rate ............................................................................ 7–24 17–43 27–58 40–77.5 

* All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum or maximum rate vary between 

these rates. 

II. Overview of the Proposed Rule 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank Act) requires that the FDIC amend 

its regulations to redefine the 

assessment base used for calculating 

deposit insurance assessments. This 

rulemaking proposes to amend the 

relevant regulations needed to 

implement this requirement. The 

change in the assessment base has also 

prompted the FDIC to reexamine its 

assessment rate system and assessment 

rate schedule. Specifically, the FDIC is 

proposing to modify or eliminate the 

adjustments made to the IBAR for 

unsecured debt, secured liabilities, and 

brokered deposits, to add a new 

adjustment for holding unsecured debt 

issued by another IDI, to revise and 

lower the initial base assessment rate 

schedule in order to collect 

approximately the same amount of 

revenue under the new base as under 

the old base calibrated to the second 

quarter of 2010 and to revise the 

assessment rate schedules proposed in 

the Notice of Proposed Rulemaking on 

Assessment Dividends, Assessment 

Rates and the Designated Reserve Ratio 

(the ‘‘October NPR’’ or the ‘‘NPR on 

Dividends, Assessment Rates and the 

DRR’’).4 To the extent possible, the 

proposed changes attempt to minimize 

additional new reporting by building on 

established concepts and by using data 

that are already reported. 

III. Assessment Base Changes 

As stated above, the Dodd-Frank Act 

requires that the FDIC amend its 

regulations to redefine the assessment 

base used for calculating deposit 

insurance assessments. Specifically, the 

Dodd-Frank Act directs the FDIC: 

To define the term ‘assessment base’ with 

respect to an insured depository institution 

* * * as an amount equal to— 

(1) the average consolidated total assets of 

the insured depository institution during the 

assessment period; minus 

(2) the sum of— 

(A) the average tangible equity of the 

insured depository institution during the 

assessment period, and 

(B) in the case of an insured depository 

institution that is a custodial bank (as 

defined by the Corporation, based on factors 

including the percentage of total revenues 

generated by custodial businesses and the 

level of assets under custody) or a banker’s 

bank (as that term is used in * * * (12 U.S.C. 

24)), an amount that the Corporation 

determines is necessary to establish 

assessments consistent with the definition 

under the * * * Federal Deposit Insurance 

Act * * * for a custodial bank or a banker’s 

bank.5

To implement this requirement, 

therefore, the FDIC must establish the 

appropriate methodology for calculating 

‘‘average consolidated total assets’’ and 

‘‘average tangible equity,’’ determine the 

basis for reporting consolidated total 

assets and tangible equity, and define 

‘‘tangible equity.’’ The FDIC has 

identified three standards that should be 

met in determining the assessment base. 

First, the reported elements of the new 

assessment base should be a true 

reflection of the entire quarter. Second, 

the definition of tangible equity should 

reflect an institution’s ability to provide 

a real capital buffer to the Deposit 

Insurance Fund (DIF) in the event of 

failure. Third, the reporting of the 

elements of the new assessment base 

should require minimal changes to the 

existing reporting requirements. The 

changes needed to implement the new 

assessment base will require the FDIC to 

collect some information from IDIs that 

is not currently collected on the Call 

Report or TFR. However, the burden of 

requiring new data will be partly offset 

by allowing some assessment data that 

are currently collected to be deleted 

from the Call Report or TFR. 

The Dodd-Frank Act also requires the 

FDIC to determine whether and to what 

extent adjustments to the assessment 

base are appropriate for banker’s banks 

and custodial banks in order to establish 

assessments consistent with the 

definition of the ‘‘risk-based assessment 

system’’ under the Federal Deposit 

Insurance Act. The proposed rule 

outlines these adjustments and proposes 

a definition of ‘‘custodial bank.’’ 

Average Consolidated Total Assets 

The FDIC proposes that all IDIs report 

their average consolidated total assets 

using the accounting methodology 

established for reporting total assets as 

applied to Line 9 of Schedule RC–K of 

the Call Report (that is, the methodology 

established by Schedule RC–K regarding 

when to use amortized cost, historical 

cost, or fair value), except that all 

institutions must average their balances 

as of the close of business for each day 

during the calendar quarter. Because 

differences exist in the requirements for 

averaging and in the reporting of total 

assets for Call Report and TFR filers, the 

FDIC seeks to standardize the 

calculation of total consolidated assets 

for deposit insurance assessment 

purposes while minimizing the number 

of reporting changes that result from the 

change in the assessment base. Since 

this accounting methodology for 

reporting average total assets exists, it 

was selected as the proposed 

methodology for reporting. 

The amounts to be reported as daily 

averages are the sum of the gross 

amounts of consolidated total assets for 

each calendar day during the quarter 

divided by the number of calendar days 

in the quarter. For days that an office of 

the reporting institution (or any of its 

subsidiaries or branches) is closed (e.g., 

Saturdays, Sundays, or holidays), the 

amounts outstanding from the previous 

business day would be used. An office 

is considered closed if there are no 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72584 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

transactions posted to the general ledger 

as of that date. For the surviving or 

resulting institution in a merger or 

consolidation, assets for all merged or 

consolidated institutions for the days 

prior to the merger or consolidation 

should be included in the daily average 

calculation, regardless of the method 

used to account for the merger or 

consolidation. 

Requiring all insured institutions to 

report ‘‘average consolidated total 

assets’’ using daily averaging would 

result in a truer measure of the 

assessment base during the entire 

quarter. Further, this requirement would 

be consistent with the actions taken by 

the FDIC in 2006 when it determined 

that using quarter-end deposit data as a 

proxy for balances over an entire quarter 

did not accurately reflect an IDI’s 

typical deposit level. As a result, the 

FDIC required certain institutions to 

report a daily average deposit 

assessment base. 

The Dodd-Frank Act requires the 

assessment base to consist of average 

consolidated total assets. However, in 

the case of IDIs with consolidated IDI 

subsidiaries, consolidating all assets 

(and tangible equity, see below) could 

lead to a double charge for deposit 

insurance—once at the IDI level and 

again at the parent IDI level. Because of 

intercompany transactions, a simple 

subtraction of the subsidiary IDI’s assets 

and equity from the parent IDI’s assets 

and equity will not usually result in an 

accurate statement of the parent IDI’s 

assets and equity. By calculating the 

assets and equity of the parent IDI 

without consolidating the assets and 

equity of the subsidiary IDI, this 

problem can be avoided. The FDIC is 

therefore proposing that parent IDIs of 

other IDIs report daily average 

consolidated total assets without 

consolidating their IDI subsidiaries into 

the calculations. This would be 

consistent with current assessment base 

practice and would ensure that all 

parent IDIs are assessed only for their 

own assessment base and not that of 

their subsidiary IDIs, which will be 

assessed separately. 

The proposed rule also covers average 

consolidated total assets of non-IDI 

subsidiaries. For such entities, average 

consolidated assets would also be 

calculated using a daily averaging 

method. However, the IDI may choose to 

use either daily average data for such 

subsidiaries calculated for the current 

quarter or for the prior quarter, but 

having chosen one or the other method, 

reporting could not change from quarter 

to quarter. This proposed methodology 

would conform to the current 

requirements for consolidating data 

from non-IDI subsidiaries, which allows 

such data to be up to 93 days old. 

Finally, for insured branches of 

foreign banks, average consolidated total 

assets would be defined as total assets 

of the branch (including net due from 

related depository institutions) in 

accordance with the schedule of assets 

and liabilities in the Report of Assets 

and Liabilities of U.S. Branches and 

Agencies of Foreign Banks, but using 

the accounting methodology for 

reporting total assets established in 

Schedule RC–K of the Call Report, and 

calculated using a daily averaging 

method as described above. 

Defining Tangible Equity 

No definition of tangible equity 

currently exists for IDI reporting 

purposes. The FDIC considered 

developing a new definition for 

assessment base purposes. However, in 

an effort to minimize new reporting 

requirements, the FDIC is proposing to 

use an industry standard definition that 

would also provide a real capital buffer 

to the DIF in the event of failure. The 

FDIC, therefore, proposes to use Tier 1 

capital as the definition of tangible 

equity. Since the Basel Committee is 

considering revisions to the definition 

of Tier 1 capital, this definition would 

serve as a measure of tangible equity at 

least until the Basel Committee (in Basel 

III) has completed its revamping of 

capital definitions and standards. At 

that time the FDIC may reconsider the 

definition of tangible equity. 

Defining tangible equity as Tier 1 

capital not only avoids an increase in 

regulatory burden that a new definition 

of capital could cause, but also provides 

a clearly understood capital buffer for 

the DIF in the event of the institution’s 

failure. 

The FDIC also proposes to define the 

averaging period for tangible equity to 

be monthly, except that institutions that 

reported less than $1 billion in quarterend total consolidated assets on their 

March 31, 2011 Call Report or TFR may 

report average tangible equity using an 

end-of-quarter balance or may at any 

time opt permanently to report average 

tangible equity using a monthly average 

balance. An institution that reports 

average tangible equity using an end-ofquarter balance and reports average 

daily consolidated total assets of $1 

billion or more for two consecutive 

quarters shall permanently report 

average tangible equity using monthly 

averaging starting in the next quarter. 

The FDIC proposes that monthly 

averaging would mean the average of 

the three month-end balances within the 

quarter. For the surviving institution in 

a merger or consolidation, Tier 1 capital 

should be calculated as if the merger 

occurred on the first day of the quarter 

in which the merger or consolidation 

actually occurred. 

This methodology should not increase 

regulatory burden for institutions with 

assets of $1 billion or more as they 

generally compute their regulatory 

capital ratios no less frequently than 

monthly. To minimize regulatory 

burden for small institutions, the 

proposal allows an exception to the 

averaging requirement. The FDIC does 

not foresee a need for any institution to 

report daily average balances for 

tangible equity, since the components of 

tangible equity appear to be subject to 

less fluctuation within a quarter than 

are consolidated total assets. Thus, the 

proposal would require averaging of 

capital for institutions that account for 

the majority of industry assets, while 

minimizing additional reporting 

requirements. 

For IDIs with consolidated IDI 

subsidiaries, the FDIC proposes to 

instruct IDIs that consolidate other IDIs 

for financial reporting purposes to 

report average tangible equity (or endof-quarter tangible equity, as 

appropriate) without consolidating their 

IDI subsidiaries into the calculations. 

This conforms to the method for 

reporting total consolidated assets above 

and ensures that all parent IDIs will be 

assessed only on their own assessment 

base and not that of their subsidiary 

IDIs. 

For IDIs that report average tangible 

equity using a monthly averaging 

method and that have non-IDI 

subsidiaries, the IDI must use monthly 

average data for such subsidiaries. The 

monthly average data for non-IDI 

subsidiaries, however, may be 

calculated for the current quarter or for 

the prior quarter, but having chosen one 

or the other method, reporting could not 

change from quarter to quarter. 

For insured branches of foreign banks, 

tangible equity would be defined as 

eligible assets (determined in 

accordance with Section 347.210 of the 

FDIC’s regulations) less the book value 

of liabilities (exclusive of liabilities due 

to the foreign bank’s head office, other 

branches, agencies, offices, or wholly 

owned subsidiaries). This value would 

be calculated on a monthly average (or 

end-of-quarter) basis. 

Banker’s Bank Adjustment 

Banker’s banks are defined by 12 

U.S.C. 24. These banks or companies 

must be owned exclusively by 

depository institutions or depository 

institution holding companies and the 

bank or company and all subsidiaries 

thereof must be engaged exclusively in 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72585 

6 IDIs with less than $250 million in fiduciary 

assets in the preceding year or with gross fiduciary 

income of less than 10 percent of the preceding 

year’s revenue report their trust activities only on 

the December call report or TFR. 7 74 FR 9525. 

providing services to or for other 

depository institutions, their holding 

companies, and the officers, directors, 

and employees thereof. 

The unique business model of a 

banker’s bank includes performing 

agency functions for its member banks. 

In this capacity, a banker’s bank passes 

through funds from its member banks 

either to other banks in the Federal 

funds market or to the Federal Reserve 

as reserve balances. While the Federal 

funds that a banker’s bank passes 

through do not appear on its balance 

sheet, those funds that a banker’s bank 

passes through to the Federal Reserve 

do appear on its balance sheet. 

Currently, the corresponding deposit 

liabilities that result from these ‘‘passthrough’’ reserve balances are excluded 

from the assessment base. The FDIC is 

proposing to retain this exception. 

In addition to its agency functions, a 

typical banker’s bank provides liquidity 

and other services to its member banks 

acting as a principal. This activity may 

result in higher than average amounts of 

Federal funds purchased and deposits 

from other IDIs and financial 

institutions on a banker’s bank’s balance 

sheet. To offset its relatively high levels 

of these short-term liabilities, a banker’s 

bank often holds a relatively high 

amount of Federal funds sold and 

reserve balances for its own account. 

The proposed rule would also adjust the 

assessment base of a banker’s bank to 

reflect its greater need to maintain 

liquidity to service its member banks. 

The proposed rule would first require 

a banker’s bank to self-certify on its Call 

Report or TFR that it meets the 

definition of ‘‘banker’s bank’’ as set forth 

in 12 U.S.C. 24. The self-certification 

would be subject to verification by the 

FDIC. For an institution that meets the 

definition (with the exception noted 

below) the FDIC would exclude from its 

assessment base the daily average 

amount of reserve balances ‘‘passed 

through’’ to the Federal Reserve, the 

daily average amount of reserve 

balances held at the Federal Reserve for 

its own account, and the daily average 

amount of its Federal funds sold. The 

collective amount of this exclusion, 

however, could not exceed the sum of 

the bank’s daily average amount of total 

deposits of commercial banks and other 

depository institutions in the United 

States and the daily average amount of 

its Federal funds purchased. Thus, for 

example, if a banker’s bank has a total 

daily average balance of $300 million of 

Federal funds sold plus reserve balances 

(including pass-through reserve 

balances), and it has a total daily 

average balance of $200 million of 

deposits from commercial banks and 

other depository institutions and 

Federal funds purchased, it can deduct 

$200 million from its assessment base. 

Federal funds purchased and sold on an 

agency basis would not be included in 

these calculations as they are not 

reported on the balance sheet of a 

banker’s bank. 

The proposed assessment base 

adjustment applicable to a banker’s 

bank would only be available to an 

institution that conducts 50 percent or 

more of its business with non-affiliated 

entities (as defined under the Bank 

Holding Company Act or the Home 

Owners’ Loan Act). Providing a benefit 

to a banker’s bank that primarily serves 

affiliated companies would undermine 

the intent of the proposed benefit by 

providing a way for banks to reduce 

deposit insurance assessments simply 

by establishing a subsidiary for that 

purpose. 

Defining Custodial Bank 

The Dodd-Frank Act instructed the 

FDIC to consider whether certain assets 

should be deducted from the assessment 

base of custodial banks. However, the 

Act left it to the FDIC to define custodial 

banks ‘‘based on factors including the 

percentage of total revenues generated 

by custodial businesses and the level of 

assets under custody.’’ To identify 

custodial banks for deposit insurance 

purposes, the FDIC focused on the 

custody and safekeeping accounts 

reported in the fiduciary and related 

assets section of the Call Report and 

TFR, along with the revenues associated 

with these activities. The FDIC 

determined that, although fiduciary 

accounts have an aspect of custodial 

activity associated with them, this 

activity is incidental to the fiduciary 

business and represents a small fraction 

of the income realized from these 

accounts. For this reason, the FDIC 

decided to focus on those assets held 

principally in custody and safekeeping 

accounts. 

The FDIC identified 878 IDIs that 

reported some custody and safekeeping 

accounts on their Call Reports or TFRs 

as of December 2009.6 Of this number, 

only 6 IDIs reported that the income 

they derived from these accounts 

exceeded 50 percent of their total 

revenue (interest income plus noninterest income), and only 16 IDIs 

reported that the percentage of custody 

and safekeeping income exceeded 10 

percent of their total revenue. When 

examining the volume of assets held in 

custody and safekeeping accounts by 

each IDI, the FDIC found that 21 IDIs 

held more than $50 billion in assets in 

these accounts. The top 4 among these 

institutions held more than $5 trillion 

dollars each in these accounts. Given 

the nature of custody and safekeeping 

activity—characterized by economies of 

scale—the industry is dominated by 

large institutions. 

The FDIC proposes that, to be 

classified as a custodial bank for deposit 

insurance assessment purposes, an IDI 

must have a significant amount of 

custody and safekeeping activity. 

Therefore, the FDIC proposes to identify 

custodial banks as those IDIs with 

previous calendar year-end custody and 

safekeeping assets of at least $50 billion 

or those IDIs that derived more than 50 

percent of their revenue from custody 

and safekeeping activities over the 

previous calendar year. Using this 

definition, the FDIC estimates that 23 

IDIs would have qualified as custodial 

banks for deposit insurance purposes as 

of December 31, 2009. 

Custodial Bank Adjustment 

The FDIC believes that an adjustment 

to the assessment base of a custodial 

bank should be made in recognition of 

the bank’s need to hold liquid assets to 

facilitate the payments and processing 

function associated with its custody and 

safekeeping accounts. The proposed 

deduction, however, would be limited 

to the daily average amount of deposits 

on the custodial bank’s balance sheet 

that can be directly linked to the 

servicing of a custody and safekeeping 

account. 

The proposed rule states that the 

assessment base adjustment for 

custodial banks should be the daily 

average amount of highly liquid, shortterm assets, subject to the limitation that 

the daily average value of these assets 

cannot exceed the daily average value of 

those deposits identified by the 

institution as being held in a custody 

and safekeeping account. Highly liquid, 

short-term assets would be defined as 

those assets with a Basel risk weighting 

of 20 percent or less and whose stated 

maturity date is 30 days or less. 

IV. Assessment Rate Adjustments 

In March 2009, the FDIC issued a final 

rule incorporating three adjustments 

into the risk-based pricing system.7

These adjustments, the unsecured debt 

adjustment, the secured liability 

adjustment, and the brokered deposit 

adjustment, were added to better 

account for risk among insured 

institutions based on their funding 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72586 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

8Holders of unsecured claims, including 

subordinated debt, receive distributions from the 

receivership estate only if all secured claims, 

administrative claims and deposit claims have been 

paid in full. Consequently, greater amounts of longterm unsecured debt provide a cushion that can 

reduce the cost to the DIF in the event of failure. 

9Capital, including Qualified Tier 1 capital, also 

enters the risk-based assessment system through the 

pricing model. 

10The FDIC recognizes that the amount of 

assessment revenue collected using this method 

will not exactly offset the amount of assessment 

revenue foregone by providing a benefit to those 

IDIs that issue long-term unsecured debt. 

sources. In light of the changes to the 

deposit insurance assessment base 

resulting from the Dodd-Frank Act, the 

FDIC decided to revisit the rationale and 

operation of these adjustments. 

Unsecured Debt Adjustment 

All other things equal, greater 

amounts of long-term unsecured debt 

can reduce the FDIC’s loss in the event 

of a failure, thus reducing the risk to the 

DIF.8 Under the current assessment 

system an IDI’s assessment rate can be 

reduced through the unsecured debt 

adjustment, which is based on the 

amount of long-term, unsecured 

liabilities the IDI issues. The amount of 

the adjustment equals 40 basis points 

for each dollar of long-term unsecured 

debt, effectively lowering the cost of 

issuing an additional dollar of such debt 

by 40 basis points (unless the issuing 

IDI has reached the 5 basis point cap on 

the adjustment). The amount of the 

reduction in the assessment rate due to 

the adjustment is equal to the amount of 

long-term unsecured liabilities times 40 

basis points divided by the amount of 

domestic deposits. The cap on the 

deduction is 5 basis points. 

Unless the unsecured debt adjustment 

is revised, the cost of issuing long-term 

unsecured liabilities will rise (as will 

the cost of funding for all other 

liabilities except, in most cases, 

domestic deposits) as there will no 

longer be a distinction, in terms of the 

cost of deposit insurance, among the 

types of liabilities funding the new 

assessment base. The FDIC is concerned 

that this will reduce the incentive for 

IDIs to issue long-term unsecured debt. 

The FDIC therefore proposes to revise 

the unsecured debt adjustment to ensure 

that IDIs continue to have the same 

incentive to issue more long-term 

unsecured debt than they otherwise 

would. The FDIC proposes that the 

amount of the unsecured debt 

adjustment be increased to 40 basis 

points plus the IBAR for every dollar of 

long-term unsecured debt issued so that 

the relative cost of issuing long-term 

unsecured debt will not rise with the 

implementation of the new assessment 

base. The amount of the reduction in the 

assessment rate due to the adjustment 

would thus be equal to the amount of 

long-term unsecured liabilities times the 

sum of 40 basis points and the IBAR 

divided by the amount of the new 

assessment base. In other words, the 

FDIC proposes to modify the unsecured 

debt adjustment according to the 

following formula: 

UDA = (Long-term unsecured liabilities/ 

New assessment base) * (40 basis 

points + IBAR) 

Thus, if an institution with a $10 

billion assessment base issued $100 

million in long-term unsecured 

liabilities and had an IBAR of 20 basis 

points, its unsecured debt adjustment 

would be 0.6 basis points, which would 

result in a decrease in the institution’s 

assessment of $600,000. 

The FDIC also proposes that the cap 

on the unsecured debt adjustment be 

changed from the current 5 basis points 

to the lesser of 5 basis points or 50 

percent of the institution’s IBAR. This 

cap would apply to the new assessment 

base. This change would not only allow 

the maximum dollar amount of the 

unsecured debt adjustment to increase 

because the assessment base is larger, 

but also would ensure that the 

assessment rate after the adjustment is 

applied does not fall to zero. The 

formula for the new cap would be the 

lesser of the following: 

UDA Cap = 5 basis points 

or, 

UDA Cap = 0.5 * IBAR, 

Further, the FDIC proposes altering 

the definition of what is included in 

long-term, unsecured liabilities. Under 

the current assessment system, the 

unsecured debt adjustment includes 

certain amounts of Tier 1 capital 

(Qualified Tier 1 capital) for IDIs with 

less than $10 billion in assets. Since the 

new assessment base excludes Tier 1 

capital, defining long-term, unsecured 

liabilities to include Qualified Tier 1 

capital would have the effect of 

providing a double deduction for this 

capital.9 The FDIC therefore proposes to 

eliminate Tier 1 capital from the 

definition of unsecured debt. 

Depository Institution Debt Adjustment 

Although issuance of unsecured debt 

by an IDI lessens the potential loss to 

the DIF in the event of an IDI’s failure, 

when this debt is held by other IDIs, the 

overall risk to the DIF is not reduced. 

For this reason, the FDIC is proposing 

to increase the assessment rate of an IDI 

that holds this debt. The FDIC 

considered reducing the benefit to IDIs 

when their long-term unsecured debt is 

held by other IDIs, but debt issuers do 

not track which entities hold their debt. 

The proposal would apply a 50 basis 

point adjustment to every dollar of longterm unsecured debt held by an IDI 

when that debt is issued by another 

IDI.10 This adjustment would be known 

as the depository institution debt 

adjustment (DIDA). Specifically, the 

adjustment would be determined 

according to the following formula: 

DIDA = (Long-term unsecured debt 

issued by another IDI/New 

assessment base) * 50 basis points 

Secured Liability Adjustment 

The FDIC proposes to discontinue the 

secured liability adjustment with the 

implementation of the new assessment 

base. In arguing for the secured liability 

adjustment the FDIC stated that, ‘‘[t]he 

exclusion of secured liabilities can lead 

to inequity. An institution with secured 

liabilities in place of another’s deposits 

pays a smaller deposit insurance 

assessment, even if both pose the same 

risk of failure and would cause the same 

losses to the FDIC in the event of 

failure.’’ With the change in the 

assessment base, the relative cost 

advantage of funding with secured 

liabilities (due to assessing domestic 

deposits, but not secured liabilities) will 

disappear, thus eliminating the 

differential that led to the adjustment. 

Brokered Deposit Adjustment 

The brokered deposit adjustment 

compensates the DIF for the risk an IDI 

poses when it relies heavily on brokered 

deposits for funding. The brokered 

deposit adjustment applies to 

institutions in risk categories II, III, and 

IV when their ratio of brokered deposits 

to domestic deposits exceeds 10 

percent. The present adjustment 

imposes a 25 basis point charge 

multiplied by the ratio of brokered 

deposits to domestic deposits for 

brokered deposits in excess of 10 

percent of domestic deposits and has a 

cap of 10 basis points. 

The FDIC proposes to retain the 

current adjustment for brokered 

deposits, but to scale the adjustment to 

the new assessment base by the IDI’s 

ratio of domestic deposits to the new 

assessment base. The new formula for 

brokered deposits would become: 

BDA = ((Brokered deposits¥(Domestic 

deposits * 10%))/New assessment 

base) * 25 basis points 

The FDIC proposes to maintain the 

cap at 10 basis points. The FDIC 

recognizes that, because the assessment 

base is larger, keeping the cap rate 

constant could result in an increase in 


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11The definition of brokered deposits for all 

institutions, which includes reciprocal deposits, 

would not change. 

12 75 FR 66293. 

13Specifically, the FDIC has attempted to 

determine a rate schedule that would have 

generated approximately the same revenue as that 

generated under the current rate schedule in the 

second quarter of 2010 under the current 

assessment base. 

14Using June 30, 2010 data, 8.5 basis points of the 

current, domestic deposit-based assessment base 

would equal approximately 5.4 basis points of the 

proposed assessment base. 

the amount an IDI is assessed since the 

cap will not be reached as quickly. 

However, the FDIC remains concerned 

that significant reliance on brokered 

deposits tends to increase an 

institution’s risk profile, particularly as 

its financial condition weakens. 

This proposal is being made 

simultaneously with the proposal to 

change the assessment system for large 

institutions, which proposes to 

eliminate risk categories for these 

institutions. The FDIC, therefore, is 

proposing to amend the brokered 

deposit adjustment to apply to all large 

institutions.11 For small institutions, the 

adjustment, as modified above, would 

continue to apply only to those in risk 

categories II, III, and IV. Small risk 

category I institutions would continue 

to be excluded; brokered deposits 

remain, however, a factor in the 

financial ratios method used to 

determine the IBAR for small risk 

category I institutions experiencing high 

growth rates. 

V. Assessment Rate Schedule 

The FDIC believes that the change to 

a new, expanded assessment base 

should not result in a change in the 

overall amount of assessment revenue 

projected to be collected under the 

Restoration Plan adopted by the Board 

on October 19, 2010.12 To accomplish 

this, this NPR proposes to change the 

current assessment rate schedule such 

that the new proposed assessment rate 

schedule will result in the collection of 

assessment revenue that is 

approximately revenue neutral.13

Because the new assessment base 

under the Dodd-Frank Act is larger than 

the current assessment base, the 

assessment rates proposed below are 

lower than current rates. While the 

range of proposed initial base 

assessment rates is narrower than the 

current range, the difference in revenue 

between the maximum and minimum 

IBARs would be approximately the 

same because of the difference in 

assessment bases. 

The rate schedule proposed below 

includes a column for institutions with 

at least $10 billion in total assets. This 

new column represents the assessment 

rates that would be applied to 

institutions of this size pursuant to the 

changes being proposed in the NPR on 

the large institution assessment system, 

which is being published concurrently 

with this proposal. The range of 

proposed total base assessment rates is 

the same for all sizes of institutions (2.5 

basis points to 45 basis points); 

however, institutions with at least $10 

billion in total assets would not be 

assigned to risk categories. The rate 

schedule, however, does not include the 

proposed depository institution debt 

adjustment. 

Base Rate Schedule 

Effective April 1, 2011, the FDIC 

proposes to set initial and total base 

assessment rates for IDIs as described in 

Table 3 below. 

TABLE 3—PROPOSED INITIAL AND TOTAL BASE ASSESSMENT RATES * 

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 

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

** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial base assessment rate; thus for 

example, an IDI with an IBAR of 5 basis points would have a maximum unsecured debt adjustment of 2.5 basis points and could not have a total 

base assessment rate lower than 2.5 basis points. 

Ability To Adjust Rates 

The proposed rule would retain the 

FDIC Board’s flexibility to adopt actual 

rates that are higher or lower than total 

base assessment rates without the 

necessity of further notice-and-comment 

rulemaking, provided that: (1) The 

Board could not increase or decrease 

rates from one quarter to the next by 

more than 3 basis points; and (2) 

cumulative increases and decreases 

cannot be more than 3 basis points 

higher or lower than the total base 

assessment rates. Retention of this 

flexibility would enable the Board to act 

in a timely manner to fulfill its mandate 

to raise the reserve ratio in accordance 

with the Restoration Plan, particularly 

in light of the increased uncertainty 

about expected revenue resulting from 

the change in the assessment base. 

Conforming Changes to the Proposed 

Future Assessment Rates as Set Forth in 

the Notice of Proposed Rulemaking on 

Assessment Dividends, Assessment 

Rates and Designated Reserve Ratio 

The October NPR (on dividends, 

assessment rates and the DRR), which 

was issued by the Board in October 

2010, proposes rate decreases, in lieu of 

dividends, when the reserve ratio meets 

certain targets. As stated in that NPR, 

when the reserve ratio reaches 1.15 

percent, the FDIC believes that it would 

be appropriate to lower assessment rates 

so that the average assessment rate 

would approximately equal the longterm moderate, steady assessment rate— 

approximately 8.5 basis points (as 

measured using the current assessment 

base, which is approximated by 

domestic deposits).14 As discussed in 

the October NPR, this assessment rate 

represents the weighted average 

assessment rate that would have been 

needed to maintain a positive fund 

balance throughout past crises. 

The FDIC proposed in the October 

NPR a schedule of assessment rates that 

would take effect when the fund reserve 

ratio first meets or exceeds 1.15 percent. 

Pursuant to the FDIC’s analysis, this 

schedule would produce a weighted 

average assessment rate of the steady 

assessment rate identified above of 8.5 

basis points (that is, the long-term rate 


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15As of June 30, 2010, the proposed assessment 

rates in Tables 4, 5 and 6 below applied against the 

proposed assessment base would have produced 

relative diminutions in assessment revenue almost 

identical to the revenue estimated to be produced 

by the rates in the corresponding Tables 3, 4 and 

5 of the October NPR. 

16 In setting assessment rates, the FDIC’s Board of 

Directors is required by statute to consider the 

following factors: 

(i) The estimated operating expenses of the 

Deposit Insurance Fund. 

(ii) The estimated case resolution expenses and 

income of the Deposit Insurance Fund. 

(iii) The projected effects of the payment of 

assessments on the capital and earnings of insured 

depository institutions. 

(iv) The risk factors and other factors taken into 

account pursuant to section 7(b)(1) of the Federal 

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

under the risk-based assessment system, including 

the requirement under section 7(b)(1)(A) of the 

Federal Deposit Insurance Act (12 U.S.C 

1817(b)(1)(A)) to maintain a risk-based system. 

(v) Other factors the Board of Directors has 

determined to be appropriate. 

Section 7(b)(2) of the Federal Deposit Insurance 

Act, 12 U.S.C. 1817(b)(2)(B). The risk factors 

referred to in factor (iv) include: 

(i) The probability that the Deposit Insurance 

Fund will incur a loss with respect to the 

institution, taking into consideration the risks 

attributable to— 

(I) different categories and concentrations of 

assets; 

(II) different categories and concentrations of 

liabilities, both insured and uninsured, contingent 

and noncontingent; and 

(III) any other factors the Corporation determines 

are relevant to assessing such probability; 

(ii) the likely amount of any such loss; and 

(iii) the revenue needs of the Deposit Insurance 

Fund. 

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

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

As set forth in a memorandum to the FDIC’s 

Board of Directors dated October 14, 2010 

proposing that the Board adopt a new Restoration 

Plan and authorize publication of the NPR on 

Dividends, Assessment Rates and the DRR, and in 

that NPR itself, the Board considered these factors. 

17The NPR proposes that new institutions would 

remain subject to the assessment schedule proposed 

in Table 5 once the reserve ratio reaches 1.15 

percent. 

needed to keep the DIF positive). That 

proposed schedule would take effect 

beginning in the next quarter after the 

reserve ratio reaches 1.15 percent 

without the necessity of further action 

by the FDIC’s Board. The rates would 

remain in effect unless the reserve ratio 

equaled or exceeded 2 percent. The 

FDIC’s Board would retain its current 

authority to uniformly adjust the total 

base rate assessment schedule up or 

down by up to 3 basis points without 

further rulemaking. 

In light of the current rulemaking, the 

FDIC under its authority to set 

assessments is proposing revisions to 

those proposed rates commensurate 

with the changes in the assessment base. 

The proposed rate schedules are 

intended to be revenue neutral in that 

they anticipate collecting approximately 

the same amount of assessment revenue 

over the same period as the rate 

schedules presented in the October 

NPR.15 16

Proposed Rate Schedule Once the 

Reserve Ratio Reaches 1.15 Percent 

Once the reserve ratio reaches 1.15 

percent, the October NPR proposed to 

lower assessment rates so that the 

average assessment rate would 

approximately equal the long-term 

moderate, steady assessment rate 

discussed above. The table presented 

below supersedes the table presented in 

that NPR, and sets forth the following 

rate schedule that would be applied to 

the assessment base proposed above: 

TABLE 4—(SUPERSEDING TABLE 3 OF THE OCTOBER NPR) INITIAL AND TOTAL BASE ASSESSMENT RATES * 

[Effective for the quarter beginning immediately after the quarter in which the reserve ratio meets or exceeds 1.15 percent] 

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 

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

** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial assessment rate; thus, for example, an IDI with an initial base assessment rate of 3 basis points would have a maximum unsecured debt adjustment of 1.5 basis points and 

could not have a total base assessment rate lower than 1.5 basis points. 

Proposed Rate Schedule Once the 

Reserve Ratio Reaches 2.0 Percent 

The October NPR also proposed rates 

that would come into effect without 

further action by the FDIC Board when 

the fund reserve ratio at the end of the 

prior quarter meets or exceeds 2 

percent, but is less than 2.5 percent.17

Again, the FDIC proposes to supersede 

that rate schedule in line with the 

changes to the assessment base, 

assessment rates, and adjustments 

proposed in this NPR according to the 

following table: 

TABLE 5—(SUPERSEDING TABLE 4 OF THE OCTOBER NPR) INITIAL AND TOTAL BASE ASSESSMENT RATES * 

[Effective for any quarter when the reserve ratio for the prior quarter meets or exceeds 2 percent (but is less than 2.5 percent)] 

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 

Unsecured debt adjustment ** ............................................. (3)–0 (5)–0 (5)–0 (5)–0 (5)–0 

Brokered deposit adjustment ............................................... ........................ 0–10 0–10 0–10 0–10 

Total Base Assessment Rate ....................................... 1–6 5–20 12–27 23–38 1–38 

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


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18See footnote 18 for the assessment rate 

schedule applicable to new institutions. 

19As noted in an earlier footnote, in setting 

assessment rates, the FDIC’s Board of Directors is 

authorized to set assessments for IDIs in such 

amounts as the Board of Directors may determine 

to be necessary. 12 U.S.C. 1817(b)(2)(A). In so 

doing, the Board must consider certain statutorily 

defined factors. 12 U.S.C. 1817(b)(2)(B). As reflected 

in the text, the FDIC has taken into account all of 

these statutory factors. 

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

have a total base assessment rate lower than 1 basis point. 

Proposed Rate Schedule once the 

Reserve Ratio Reaches 2.5 Percent 

Finally, the October NPR proposed 

rates that would come into effect 

without further action by the FDIC 

Board when the fund reserve ratio at the 

end of the prior quarter meets or 

exceeds 2.5 percent.18 As with the other 

proposed rate schedules, the FDIC 

proposes to supersede that rate schedule 

in line with the changes to the 

assessment base, assessment rates, and 

adjustments proposed in this NPR 

according to the following table: 

TABLE 6—(AMENDING TABLE 4 OF THE OCTOBER NPR) INITIAL AND TOTAL BASE ASSESSMENT RATES * 

[Effective for any quarter when the reserve ratio for the prior quarter meets or exceeds 2.5 percent] 

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 

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

** The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial assessment rate; thus, for example, an IDI with an initial assessment rate of 1 basis point would have a maximum unsecured debt adjustment of 0.5 basis points and could 

not have a total base assessment rate lower than 0.5 basis points. 

Capital and Earnings Analysis 

The proposed assessment rates in 

Table 3 change the current assessment 

rate schedule such that the new 

proposed assessment rate schedule 

applied against the proposed assessment 

base would result in the collection of 

assessment revenue that is 

approximately revenue neutral. Thus, 

overall, the proposed rates and 

proposed assessment base should have 

no effect on the capital and earnings of 

the banking industry, although the 

proposed rates would affect the earnings 

and capital of individual institutions. 

The great majority of institutions of all 

sizes would pay assessments at least 5 

percent lower than currently and would 

thus have higher earnings and capital. 

However, about 36 percent of large 

institutions (those with greater than $10 

billion in assets) would pay assessments 

at least 5 percent higher than currently. 

The remaining proposed rate 

schedules would take effect when the 

reserve ratio reaches 1.15 percent, 2 

percent and 2.5 percent. In the October 

NPR, the FDIC analyzed the effect of the 

rate schedules contained in that NPR on 

the capital and earnings of IDIs.19 The 

rate schedules contained in the current 

NPR are intended to produce 

approximately the same revenue as the 

rate schedules in the NPR on dividends, 

assessment rates and the DRR. 

Consequently, the analysis of the effect 

of the rate schedules on capital and 

earnings contained in that NPR is 

essentially applicable to the current 

NPR. 

In the October NPR, the FDIC stated 

that it anticipated that when the reserve 

ratio exceeds 1.15 percent, and 

particularly when it exceeds 2 or 2.5 

percent, the industry is likely to be 

prosperous. Consequently, the FDIC 

examined the effect of the proposed 

lower rates on the industry at the end 

of 2006, when the industry was 

prosperous. Under that scenario, 

reducing assessment rates as proposed 

when the reserve ratio reaches 1.15 

percent would have increased average 

after-tax income by 1.25 percent and 

average capital by 0.14 percent. 

Reducing assessment rates as proposed 

when the reserve ratio reaches 1.15 

percent to the proposed rate schedule 

when the reserve ratio reaches 2 percent 

would have increased average after-tax 

income by 0.62 percent and average 

capital by 0.07 percent. Similarly, 

reducing assessment rates as proposed 

when the reserve ratio reaches 2 percent 

to the proposed rate schedule when the 

reserve ratio reaches 2.5 percent would 

have increased average after-tax income 

by 0.61 percent and average capital by 

0.07 percent. 

Effective Date 

Except as specifically noted above, 

the rate schedule and the other revisions 

to the assessment rules would take 

effect for the quarter beginning April 1, 

2011, and would be reflected in the 

invoices for assessments due September 

30, 2011. The FDIC has considered the 

possibility of making the application of 

the new assessment base, the revised 

assessment rates, and the changes to the 

assessment rate adjustments retroactive 

to passage of the Dodd-Frank Act. 

However, as this NPR details, 

implementation of the Act requires that 

a number of changes be made to the Call 

Report and TFR that render such 

consideration operationally infeasible. 

Additionally, retroactively applying 

such changes would introduce 

significant legal complexity and 

introduce unacceptable levels of 

litigation risk. The FDIC is committed to 

implementing the Dodd-Frank Act in 

the most expeditious manner possible 

and is contemporaneously pursuing 

changes to the Call Report and TFR that 

would be necessary if this NPR is 

adopted. The proposed effective date is 

contingent upon these changes being 

made and if there is a delay in changing 

the Call Report and TFR that would 

delay the effective date of this proposed 

rulemaking. 

VI. Request for Comments 

The FDIC seeks comment on every 

aspect of this proposed rulemaking. In 

particular, the FDIC seeks comment on 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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20See 5 U.S.C. 603, 604, 605. 

21See 5 U.S.C. 601. 

the issues set out below. The FDIC asks 

that commenters include the reasons for 

their positions. 

1. Please identify any operational 

issues with the new assessment base 

definition that would argue for delaying 

the proposed rule until changes can be 

made to bank reporting systems. 

2. The proposed rule uses the 

accounting definition for total assets 

found on Line 9 of Schedule RC–K of 

the Call Report except that all 

institutions must report the average of 

the balances as of the close of business 

for each day during the calendar 

quarter. Is this definition the best 

definition of total assets to use for the 

assessment base? If not, how should the 

valuation of assets be handled? Is 

reporting the average of the balances as 

of the close of business for each day 

during the calendar quarter unduly 

burdensome for all or some institutions? 

Should all or some institutions be 

allowed to report the average of the 

balances as of the close of business for 

one day each week during the calendar 

quarter, as currently allowed under 

Schedule RC–K? 

3. Is the proposed definition of 

average tangible equity appropriate? 

Should some other definition be used? 

Is reporting the average of tangible 

equity as of the end of each month in 

the calendar quarterly unduly 

burdensome? Is the exception to this 

requirement for small institutions 

appropriate? 

4. Is the proposed adjustment to the 

assessment base for banker’s banks 

appropriate? 

5. Is the proposed definition of 

custodial bank appropriate? Is the 

proposed adjustment to the assessment 

base appropriate? 

6. The proposal alters the unsecured 

debt adjustment, making it larger for 

IDIs that present greater risk to the DIF. 

Is this an appropriate way to encourage 

riskier IDIs to alter their funding 

structure so that they present less risk 

to the DIF? 

7. Are the modifications to the current 

unsecured debt adjustment reasonable 

in light of the objective of continuing to 

encourage institutions to issue this type 

of debt? 

8. Would it be possible to increase the 

assessment rate to account for the longterm unsecured debt issued by IDIs that 

is held by other IDIs in another way? Is 

the size of the depository institution 

debt adjustment reasonable and 

appropriate to meet the policy goal? 

9. Should the FDIC consider 

incorporating an adjustment that would 

take into consideration the risk posed to 

the DIF for institutions that have 

director and officer liability policies 

containing regulatory exclusions? 

10. Are the new rates appropriate 

given the changes to the assessment 

base? 

11. Is the proposed effective date for 

the changes to the assessment system 

too soon for IDIs to adjust their 

reporting systems to the proposed 

reporting requirements? 

VII. Regulatory Analysis and Procedure 

A. Solicitation of Comments on Use of 

Plain Language 

Section 722 of the Gramm-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.20 Certain types of 

rules, such as rules of particular 

applicability relating to rates or 

corporate or financial structures, or 

practices relating to such rates or 

structures, are expressly excluded from 

the definition of ‘‘rule’’ for purposes of 

the RFA.21 However, the FDIC is 

voluntarily undertaking a regulatory 

flexibility analysis to aid the public in 

commenting on the effect of the 

proposed rule on small institutions. 

As of June 30, 2010, of the 7,839 

insured commercial banks and savings 

associations, there were 4,299 small 

insured depository institutions as that 

term is defined for purposes of the RFA 

(i.e., institutions with $175 million or 

less in total assets). The proposed rule 

would adopt the Dodd-Frank definition 

of assessment base and alter assessment 

rates and the adjustments to those rates 

at the same time that the new 

assessment base takes effect. Under this 

part of the proposal, 94 percent of small 

institutions would be subject to lower 

assessments. In effect, the proposed rule 

would decrease small institution 

assessments by an average of $7,675 per 

quarter and would alter the present 

distribution of assessments by reducing 

the percentage of the assessments borne 

by small institutions. As of June 30, 

2010, small institutions, as that term is 

defined for purposes of the RFA, 

actually accounted for 3.7 percent of 

total assessments. Also as of that date, 

but applying the proposed assessment 

rates against the proposed assessment 

base, small institutions would have 

accounted for 2.6 percent of the total 

cost of insurance assessments. 

Other parts of the proposed rule 

would progressively lower assessment 

rates when the reserve ratio reaches 1.15 

percent, 2 percent and 2.5 percent. 

Pursuant to section 605(b) of the RFA, 

the FDIC certifies that the proposed rule 

would not have a significant economic 

effect on small entities unless and until 

the DIF reserve ratio exceeds specific 

thresholds of 1.15, 1.5, 2, and 2.5 

percent. The reserve ratio is unlikely to 

reach these levels for many years. When 

it does, the overall effect of the 

proposed rule will be positive for 

entities of all sizes. All entities, 

including small entities, will receive a 

net benefit as a result of lower 

assessments paid. The rate reductions in 

the proposed rule should not alter the 

distribution of the assessment burden 

between small entities and all others. It 

is difficult to realistically quantify the 

benefit at the present time. However, the 

initial magnitude of the benefit (when 

the reserve ratio reaches 1.15 percent) is 

likely to be less than a 2 percent 

increase in after-tax income and less 

than a 20 basis point increase in capital. 

VIII. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reduction 

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

contained in the proposed rule. 


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A. The Treasury and General 

Government Appropriations Act, 1999— 

Assessment of Federal Regulations and 

Policies on Families 

The FDIC has determined that the 

proposed rule will not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681). 

List of Subjects in 12 CFR Part 327 

Bank deposit insurance, Banks, 

Banking, Savings associations. 

For the reasons set forth in the 

preamble the FDIC proposes to amend 

chapter III of title 12 of the Code of 

Federal Regulations as follows: 

PART 327—ASSESSMENTS 

1. The authority citation for part 327 

is revised to read as follows: 

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

1817–19, 1821. 

2. Amend § 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 

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 


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the current quarter or data that are up 

to 93 days old for consolidated 

subsidiaries when reporting tangible 

equity values. Once chosen, however, 

insured depository institutions cannot 

change the reporting method from 

quarter to quarter. 

(ii) Reporting for insured depository 

institutions with consolidated insured 

depository subsidiaries. Insured 

depository institutions that consolidate 

other insured depository institutions for 

financial reporting purposes shall report 

daily average consolidated total assets 

and tangible equity without 

consolidating their insured depository 

institution subsidiaries into the 

calculations. Investments in insured 

depository institution subsidiaries 

should be included in total assets using 

the equity method of accounting. 

(b) Assessment base for banker’s 

banks. (1) Bankers bank defined. A 

banker’s bank for purposes of 

calculating deposit insurance 

assessments shall meet the definition of 

banker’s bank set forth in 12 U.S.C. 24. 

(2) Self-certification. Institutions that 

meet the requirements of paragraph 

(b)(1) of this section shall so certify each 

quarter on the Consolidated Reports of 

Condition and Income or Thrift 

Financial Report to that effect. 

(3) Assessment base calculation for 

banker’s banks. A banker’s bank shall 

pay deposit insurance assessments on 

its assessment base as calculated in 

paragraph (a) of this section provided 

that it conducts 50 percent or more of 

its business with entities other than its 

parent holding company or entities 

other than those controlled either 

directly or indirectly (under the Bank 

Holding Company Act or Home Owners’ 

Loan Act) by its parent holding 

company, the FDIC will exclude from 

that assessment base the daily average 

reserve balances passed through to the 

Federal Reserve, the daily average 

reserve balances held at the Federal 

Reserve for its own account, and the 

daily average amount of its Federal 

funds sold, but in no case shall the 

amount excluded exceed the sum of the 

bank’s daily average amount of total 

deposits of commercial banks and other 

depository institutions in the United 

States and the daily average amount of 

its Federal funds purchased. 

(c) Assessment base for custodial 

banks. (1) Custodial bank defined. A 

custodial bank for purposes of 

calculating deposit insurance 

assessments shall be an insured 

depository institution with previous 

calendar-year custody and safekeeping 

assets of at least $50 billion or an 

insured depository institution that 

derived more than 50 percent of its total 

revenue from custody and safekeeping 

activities over the previous calendar 

year. 

(2) Assessment base calculation for 

custodial banks. A custodial bank shall 

pay deposit insurance assessments on 

its assessment base as calculated in 

paragraph (a) of this section, but the 

FDIC will exclude from that assessment 

base the daily average amount of highly 

liquid, short-term assets (i.e., assets with 

a Basel risk weighting of 20 percent or 

less and a stated maturity date of 30 

days or less), subject to the limitation 

that the daily average value of these 

assets cannot exceed the daily average 

value of the deposits identified by the 

institution as being held in a custody 

and safekeeping account. 

(d) Assessment base for insured 

branches of foreign banks. Average 

consolidated total assets for an insured 

branch of a foreign bank is defined as 

total assets of the branch (including net 

due from related depository institutions) 

in accordance with the schedule of 

assets and liabilities in the Report of 

Assets and Liabilities of U.S. Branches 

and Agencies of Foreign Banks as of the 

assessment period for which the 

assessment is being calculated, but 

measured using the definition for 

reporting total assets in the schedule of 

quarterly averages in the Consolidated 

Reports of Condition and Income, and 

calculated using a daily averaging 

method. Tangible equity for an insured 

branch of a foreign bank is eligible 

assets (determined in accordance with 

§ 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 


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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 

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 


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(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 non-lending 

interest income, fiduciary revenues, and 

investment banking fees, combined, 

exceed 50 percent of total revenues (and 

its fiduciary revenues are non-zero), and 

has had $10 billion or more in total 

assets for at least four consecutive 

quarters. 

(t) Credit card bank. A credit card 

bank is a bank for which credit card 

plus securitized receivables exceed 50 

percent of assets plus securitized 

receivables. 

(u) Control. Control has the same 

meaning as in section 2 of the Bank 

Holding Company Act of 1956, 12 

U.S.C. 1841(a)(2). 

6. Revise § 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. 

(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 


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evaluations include the results of 

examination findings by the primary 

Federal regulator, as well as other 

information that the primary Federal 

regulator determines to be relevant. In 

addition, the Corporation will take into 

consideration such other information 

(such as state examination findings, as 

appropriate) as it determines to be 

relevant to the institution’s financial 

condition and the risk posed to the 

Deposit Insurance Fund. The three 

Supervisory Groups are: 

(1) Supervisory Group ‘‘A.’’ This 

Supervisory Group consists of 

financially sound institutions with only 

a few minor weaknesses; 

(2) Supervisory Group ‘‘B.’’ This 

Supervisory Group consists of 

institutions that demonstrate 

weaknesses which, if not corrected, 

could result in significant deterioration 

of the institution and increased risk of 

loss to the Deposit Insurance Fund; and 

(3) Supervisory Group ‘‘C.’’ This 

Supervisory Group consists of 

institutions that pose a substantial 

probability of loss to the Deposit 

Insurance Fund unless effective 

corrective action is taken. 

(d) Determining Assessment Rates for 

Insured Depository Institutions. A small 

insured depository institution in Risk 

Category I shall have its initial base 

assessment rate determined using the 

financial ratios method set forth in 

paragraph (d)(1) of this section. An 

insured branch of a foreign bank in Risk 

Category I shall have its assessment rate 

determined using the weighted average 

ROCA component rating method set 

forth in paragraph (d)(2) of this section. 

A large insured depository institution 

shall have its initial base assessment 

rate determined using the large 

institution method set forth in 

paragraph (d)(3) of this section. A highly 

complex insured depository institution 

shall have its initial base assessment 

rate determined using the highly 

complex institution method set forth at 

paragraph (d)(4) of this section. 

(1) Financial ratios method. (i) Under 

the financial ratios method for small 

Risk Category I institutions, each of six 

financial ratios and a weighted average 

of CAMELS component ratings will be 

multiplied by a corresponding pricing 

multiplier. The sum of these products 

will be added to a uniform amount. The 

resulting sum shall equal the 

institution’s initial base assessment rate; 

provided, however, that no institution’s 

initial base assessment rate shall be less 

than the minimum initial base 

assessment rate in effect for Risk 

Category I institutions for that quarter 

nor greater than the maximum initial 

base assessment rate in effect for Risk 

Category I institutions for that quarter. 

An institution’s initial base assessment 

rate, subject to adjustment pursuant to 

paragraphs (d)(6), (7), and (8) of this 

section, as appropriate (resulting in the 

institution’s total base assessment rate, 

which in no case can be lower than 50 

percent of the institution’s initial base 

assessment rate), and adjusted for the 

actual assessment rates set by the Board 

under § 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 

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 .........................................................................................................................................

Weighted Average CAMELS Component Rating .............................................................................................................. 0.065 

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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72596 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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 

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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72597 

SCORECARD FOR LARGE INSTITUTIONS—Continued 

Scorecard measures 

Weights within 

component 

(percent) 

Component 

weights 

(percent) 

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

(ii) The large institution scorecard 

produces two scores: performance and 

loss severity. 

(A) Performance score. The 

performance score for large institutions 

is the weighted average of three inputs: 

weighted average CAMELS rating 

(30%); ability to withstand asset-related 

stress measures (50%); and ability to 

withstand funding-related stress 

measures (20%). 

(B) Weighted average CAMELS score. 

(1) To derive the weighted average 

CAMELS score, a weighted average of 

an institution’s CAMELS component 

ratings is calculated using the following 

weights: 

CAMELS Component Weight (percent) 

C 25 

A 20 

M 25 

E 10 

L 10 

CAMELS Component Weight (percent) 

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 

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: 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72598 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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. 

(iii) Loss severity score. The loss 

severity score is based on two measures: 

The loss severity measure and noncore 

funding to total liabilities ratio. 

Appendices A and D to this subpart 

describe these measures in detail and 

Appendix B to this subpart describes 

how each of these measures is converted 

to a score between 0 and 100. The loss 

severity score is the weighted average of 

these two scores. Each measure is 

assigned the following cutoff values and 

weights to derive a score for an 

institution’s loss severity score: 

CUTOFF VALUES AND WEIGHTS FOR LOSS SEVERITY SCORE MEASURES

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 

(iv) Total score. The performance and 

loss severity scores are combined to 

produce a total score. The loss severity 

score is converted into a loss severity 

factor that ranges from 0.8 (score of 5 or 

lower) to 1.2 (score of 85 or higher). 

Scores that fall at or below the 

minimum cutoff of 5 receive a loss 

severity measure of 0.8 and scores that 

fall at or above the maximum cutoff of 

85 receive a loss severity score of 1.2. 

The following linear interpolation 

converts loss severity scores between 

the cutoffs into a loss severity factor: 

(Loss Severity Factor = 0.8 + [0.005 * 

(Loss Severity Score ¥ 5)]. The 

performance score is multiplied by the 

loss severity factor to produce a total 

score (total score = performance score * 

loss severity factor). The total score 

cannot be less than 30 or more than 90. 

The total score is subject to adjustment, 

up or down, by a maximum of 15 

points, as set forth in paragraph (d)(5) of 

this section. The resulting total score 

cannot be less than 30 or more than 90. 

(v) Initial base assessment rate. A 

large institution with a total score of 30 

pays the minimum initial base 

assessment rate and an institution with 

a total score of 90 pays the maximum 

initial base assessment rate. For total 

scores between 30 and 90, initial base 

assessment rates rise at an increasing 

rate as the total score increases, 

calculated according to the following 

formula: 

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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2EP24NO10.335</MATH>
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72599 

SCORECARD FOR HIGHLY COMPLEX INSTITUTIONS—Continued 

Scorecard measures 

Weights within 

component 

(percent) 

Component 

weights 

(percent) 

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 

(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. 

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

Scorecard measures 

Cutoff values Sub-component 

weight 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). 

(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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72600 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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. 

(iii) Loss severity score for highly 

complex institutions. The loss severity 

score for highly complex institutions is 

calculated as provided for the loss 

severity score for large institutions in 

paragraph (d)(3)(ii) (of this section). 

(iv) The performance score and the 

loss severity score are combined in the 

same manner to calculate the total score 

as for large institutions as set forth in 

paragraph (d)(3) of this section. 

(v) The initial base assessment rate for 

highly complex institutions is 

calculated from the total score in the 

same manner as for large institutions as 

set forth in paragraph (d)(3) of this 

section. Initial base assessment rates are 

subject to adjustment pursuant to 

paragraphs (d)(5), (d)(6), (d)(7), and 

(d)(8) of this section, resulting in the 

institution’s total base assessment rate, 

which in no case can be lower than 50 

percent of the institution’s initial base 

assessment rate. 

(5) Adjustment to total score for large 

institutions and highly complex 

institutions. The total score for large 

institutions and highly complex 

institutions is subject to adjustment, up 

or down, by a maximum of 15 points, 

based upon significant risk factors that 

are not adequately captured in the 

appropriate scorecard. In making such 

adjustments, the FDIC may consider 

such information as financial 

performance and condition information 

and other market or supervisory 

information. 

(i) Prior notice of adjustments—(A) 

Prior notice of upward adjustment. Prior 

to making any upward adjustment to an 

institution’s total score because of 

considerations of additional risk 

information, the FDIC will formally 

notify the institution and its primary 

Federal regulator and provide an 

opportunity to respond. This 

notification will include the reasons for 

the adjustment(s) and when the 

adjustment(s) will take effect. 

(B) Prior notice of downward 

adjustment. Prior to making any 

downward adjustment to an 

institution’s total score because of 

considerations of additional risk 

information, the FDIC will formally 

notify the institution’s primary Federal 

regulator and provide an opportunity to 

respond. 

(ii) Determination whether to adjust 

upward; effective period of adjustment. 

After considering an institution’s and 

the primary Federal regulator’s 

responses to the notice, the FDIC will 

determine whether the adjustment to an 

institution’s total score is warranted, 

taking into account any revisions to 

scorecard measures, as well as any 

actions taken by the institution to 

address the FDIC’s concerns described 

in the notice. The FDIC will evaluate the 

need for the adjustment each 

subsequent assessment period. Except 

as provided in paragraph (d)(5)(iv) of 

this section, the amount of adjustment 

cannot exceed the proposed adjustment 

amount contained in the initial notice 

unless additional notice is provided so 

that the primary Federal regulator and 

the institution may respond. 

(iii) Determination whether to adjust 

downward; effective period of 

adjustment. After considering the 

primary Federal regulator’s responses to 

the notice, the FDIC will determine 

whether the adjustment to total score is 

warranted, taking into account any 

revisions to scorecard measures, as well 

as any actions taken by the institution 

to address the FDIC’s concerns 

described in the notice. Any downward 

adjustment in an institution’s total score 

will remain in effect for subsequent 

assessment periods until the FDIC 

determines that an adjustment is no 

longer warranted. Downward 

adjustments will be made without 

notification to the institution. However, 

the FDIC will provide advance notice to 

an institution and its primary Federal 

regulator and give them an opportunity 

to respond before removing a downward 

adjustment. 

(iv) Adjustment without notice. 

Notwithstanding the notice provisions 

set forth above, the FDIC may change an 

institution’s total score without advance 

notice under this paragraph, if the 

institution’s supervisory ratings or the 

scorecard measures deteriorate. 

(6) Unsecured debt adjustment to 

initial base assessment rate for all 

institutions. All institutions, except new 

institutions as provided under 

paragraph (d)(10)(i)(C) of this section 

and insured branches of foreign banks 

as provided under paragraph (d)(2)(iii) 

of this section, are subject to an 

adjustment of assessment rates for 

unsecured debt. Any unsecured debt 

adjustment shall be made after any 

adjustment under paragraph (d)(5) of 

this section. 

(i) Application of unsecured debt 

adjustment. The unsecured debt 

adjustment shall be determined as the 

sum of the initial base assessment rate 

plus 40 basis points; that sum shall be 

multiplied by the ratio of an insured 

depository institution’s long-term 

unsecured debt to its assessment base. 

The amount of the reduction in the 

assessment rate due to the adjustment is 

equal to the dollar amount of the 

adjustment divided by the amount of 

the assessment base. 

(ii) Limitation. No unsecured debt 

adjustment that provides a benefit for 

any institution shall exceed the lesser of 

5 basis points or 50 percent of the 

institution’s initial base assessment rate. 

(iii) Applicable quarterly reports of 

condition. Unsecured debt adjustment 

ratios for any given quarter shall be 

calculated from quarterly reports of 

condition (Call Reports and Thrift 

Financial Reports, or any successor 

reports, as appropriate) filed by each 

institution as of the last day of the 

quarter. 

(7) Depository institution debt 

adjustment to initial base assessment 

rate for all institutions. All institutions 

shall be subject to an adjustment of 

assessment rates for unsecured debt 

held that is issued by another 

depository institution. Any such 

depository institution debt adjustment 

shall be made after any adjustment 

under paragraphs (d)(5) and (d)(6) of 

this section. 

(i) Application of depository 

institution debt adjustment. The 

depository institution debt adjustment 

shall equal 50 basis points multiplied by 

the ratio of the long-term unsecured 

debt an institution holds that was issued 

by another insured depository 

institution to its assessment base. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72601 

(ii) Applicable quarterly reports of 

condition. Depository institution debt 

adjustment ratios for any given quarter 

shall be calculated from quarterly 

reports of condition (Call Reports and 

Thrift Financial Reports, or any 

successor reports, as appropriate) filed 

by each institution as of the last day of 

the quarter. 

(8) Brokered deposit adjustment. All 

small institutions in Risk Categories II, 

III, and IV, all large institutions, and all 

highly complex institutions shall be 

subject to an assessment rate adjustment 

for brokered deposits. Any such 

brokered deposit adjustment shall be 

made after any adjustment under 

paragraphs (d)(5), (d)(6), and (d)(7) of 

this section. The brokered deposit 

adjustment includes all brokered 

deposits as defined in Section 29 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1831f), and 12 CFR 337.6, 

including reciprocal deposits as defined 

in § 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. 

(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: 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72602 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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. 

(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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72603 

(i) Risk Category I Initial Base 

Assessment Rate Schedule. The annual 

initial base assessment rates for all 

institutions in Risk Category I shall 

range from 3 to 7 basis points. 

(ii) Risk Category II, III, and IV Initial 

Base Assessment Rate Schedule. The 

annual initial base assessment rates for 

Risk Categories II, III, and IV shall be 12, 

19, and 30 basis points, respectively. 

(iii) All institutions in any one risk 

category, other than Risk Category I, will 

be charged the same initial base 

assessment rate, subject to adjustment as 

appropriate. 

(iv) Large and Highly Complex 

Institutions Initial Base Assessment 

Rate Schedule. The annual initial base 

assessment rates for all large and highly 

complex institutions shall range from 3 

to 30 basis points. 

(2) Total Base Assessment Rate 

Schedule After Adjustments. After 

September 30, 2010, once the reserve 

ratio of the DIF first reaches 1.15 

percent, and the reserve ratio for the 

immediately prior assessment period is 

less than 2 percent, the total base 

assessment rates after adjustments for an 

insured depository institution shall be 

the rate prescribed in the following 

schedule. 

*TOTAL BASE ASSESSMENT RATE SCHEDULE (AFTER ADJUSTMENTS)* ONCE THE RESERVE RATIO OF THE DIF REACHES

1.15 PERCENT AFTER SEPTEMBER 30, 2010, AND THE RESERVE RATIO FOR THE IMMEDIATELY PRIOR ASSESSMENT

PERIOD IS LESS THAN 2 PERCENT ** 

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 

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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72604 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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: 

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. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72605 

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

(i) Risk Category I Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for 

institutions in Risk Category I shall 

range from 0.5 to 5 basis points. 

(ii) Risk Category II Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category II shall range from 4.5 to 19 

basis points. 

(iii) Risk Category III Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category III shall range from 10 to 25 

basis points. 

(iv) Risk Category IV Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category IV shall range from 20 to 35 

basis points. 

(v) Large and Highly Complex 

Institutions Total Base Assessment Rate 

Schedule. The annual total base 

assessment rates for all large and highly 

complex institutions shall range from 

0.5 to 35 basis points. 

(e) Assessment Rate Schedules for 

New Institutions. New depository 

institutions, as defined in 327.8(j), shall 

be subject to the assessment rate 

schedules as follows: 

(1) Prior to the reserve ratio of the DIF 

first reaching 1.15 percent after 

September 30, 2010. After September 

30, 2010, if the reserve ratio of the DIF 

has not reached 1.15 percent, new 

institutions shall be subject to the initial 

and total base assessment rate schedules 

provided for in paragraph (a) of this 

section. 

(2) Assessment rate schedules once 

the DIF reserve ratio first reaches 1.15 

percent after September 30, 2010. After 

September 30, 2010, once the reserve 

ratio of the DIF first reaches 1.15 

percent, new institutions shall be 

subject to the initial and total base 

assessment rate schedules provided for 

in paragraph (b) of this section, even if 

the reserve ratio equals or exceeds 2 

percent or 2.5 percent. 

(f) Total Base Assessment Rate 

Schedule adjustments and procedures— 

(1) Board Rate Adjustments. The Board 

may increase or decrease the total base 

assessment rate schedule in paragraphs 

(a) through (d) of this section up to a 

maximum increase of 3 basis points or 

a fraction thereof or a maximum 

decrease of 3 basis points or a fraction 

thereof (after aggregating increases and 

decreases), as the Board deems 

necessary. Any such adjustment shall 

apply uniformly to each rate in the total 

base assessment rate schedule. In no 

case may such Board rate adjustments 

result in a total base assessment rate that 

is mathematically less than zero or in a 

total base assessment rate schedule that, 

at any time, is more than 3 basis points 

above or below the total base assessment 

schedule for the Deposit Insurance Fund 

in effect pursuant to paragraph (b) of 

this section, nor may any one such 

Board adjustment constitute an increase 

or decrease of more than 3 basis points. 

(2) Amount of revenue. In setting 

assessment rates, the Board shall take 

into consideration the following: 

(i) Estimated operating expenses of 

the Deposit Insurance Fund; 

(ii) Case resolution expenditures and 

income of the Deposit Insurance Fund; 

(iii) The projected effects of 

assessments on the capital and earnings 

of the institutions paying assessments to 

the Deposit Insurance Fund; 

(iv) The risk factors and other factors 

taken into account pursuant to 12 USC 

1817(b)(1); and 

(v) Any other factors the Board may 

deem appropriate. 

(3) Adjustment procedure. Any 

adjustment adopted by the Board 

pursuant to this paragraph will be 

adopted by rulemaking, except that the 

Corporation may set assessment rates as 

necessary to manage the reserve ratio, 

within set parameters not exceeding 

cumulatively 3 basis points, pursuant to 

paragraph (c)(1) of this section, without 

further rulemaking. 

(4) Announcement. The Board shall 

announce the assessment schedules and 

the amount and basis for any adjustment 

thereto not later than 30 days before the 

quarterly certified statement invoice 

date specified in § 327.3(b) of this part 

for the first assessment period for which 

the adjustment shall be effective. Once 

set, rates will remain in effect until 

changed by the Board. 

8. Appendix A to Subpart A is revised 

to read as follows: 

APPENDIX A TO SUBPART A OF PART 327—DESCRIPTION OF SCORECARD MEASURES

Tier 1 Leverage Ratio ............................................................................... Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted 

average assets based on the definition for prompt corrective action. 

Concentration Measure for Large IDIs (excluding Highly 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 part for the detailed description of the ratio. 

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

(i) Concentration levels (as a ratio to Tier 1 capital and reserves) are 

calculated for each broad portfolio category (C&D, other commercial 

real estate loans, first lien residential mortgages (including non-agency mortgage-backed securities), and junior lien residential mortgages, commercial and industrial loans, credit card, and other consumer loans). 

(ii) Three-year merger-adjusted portfolio growth rates are then scaled 

to a growth factor of 1 to 1.2 where a 3-year cumulated growth rate 

of 20 percent or less equals a factor of 1 and a growth rate of 80 

percent or greater equals a factor of 1.2. If three years of data are 

not available, a growth factor of 1 will be assigned. 

(iii) Risk weights are assigned to each category based on historical 

loss rates. 

(iv) Concentration levels are multiplied by risk weights and squared to 

produce a risk-adjusted concentration ratio for each portfolio. 

(v) The risk-adjusted concentration ratio for each portfolio is multiplied 

by the growth factor and resulting values are summed. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
72606 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

APPENDIX A TO SUBPART A OF PART 327—DESCRIPTION OF SCORECARD MEASURES—Continued 

See Appendix C to this part for the detail description of the measure. 

Concentration Measure for Highly Complex Institutions .......................... Concentration score for highly complex institutions takes the highest 

score of the following three: 

(1) Higher-Risk Assets/Tier 1 Capital and Reserves ........................ Sum of C&D loans (funded and unfunded), leveraged loans (funded 

and unfunded), nontraditional mortgages, and subprime consumer 

loans divided by Tier 1 capital and reserves. See Appendix C to this 

part for the detailed description of the ratio. 

(2) Top 20 Counterparty Exposure/Tier 1 Capital and 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.1 EAD for derivatives trading and SFTs is to 

be calculated as defined in Basel II or as updated in future Basel Accords. EAD and lending exposure is to be reported at the consolidated level across all legal entities for that counterparty. 

(3) Largest Counterparty Exposure/Tier 1 Capital 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 Quarter-End Total Assets .................................. Core earnings are defined as quarterly net income less extraordinary 

items and realized gains and losses on available-for-sale (AFS) and 

held-to-maturity (HTM) securities, adjusted for mergers. The ratio 

takes a four-quarter sum of merger-adjusted core earnings and divides it by an average of five quarter-end total assets (most recent 

and four prior quarters). If four quarters of data on core earnings are 

not available, data for quarters that are available will be added and 

annualized. If five quarters of data on total assets are not available, 

data for quarters that are available will be averaged. 

Credit Quality Measure: ............................................................................ Asset quality score takes a higher score of the following two: 

(1) Criticized and Classified Items/Tier 1 Capital 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 days 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. 

Core Deposits/Total Liabilities .................................................................. Sum of demand deposits, NOW accounts, MMDA, other savings deposits, CDs under $250,000 less insured brokered deposits under 

$250,000 divided by total liabilities. 

Balance Sheet Liquidity Ratio .................................................................. Sum of cash and balances due from depository institutions, Federal 

funds sold and securities purchased under agreements to resell, and 

agency securities (excludes agency mortgage-backed securities but 

includes securities issued by the US Treasury, US government agencies, and US government-sponsored enterprises) divided by the sum 

of Federal funds purchased and repurchase agreements, other borrowings (including FHLB) with a remaining maturity of one year or 

less, 7.5 percent of insured domestic deposits, and 15 percent of uninsured domestic and foreign deposits. 

Potential Losses/Total Domestic Deposits (Loss Severity Measure) ...... Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D describes the calculation of the loss severity measure in detail. 


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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72607 

1The high-risk concentration measure is rounded 

to two decimal points. 

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. 

APPENDIX A TO SUBPART A OF PART 327—DESCRIPTION OF SCORECARD MEASURES—Continued 

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. 

1EAD and SFTs are defined and described in the compilation issued by the Basel Committee on Banking Supervision in its June 2006 document, ‘‘International covergence of Capital Measurement and Capital Standards.’’ The definitions are described in detail in Annex 4 of the document. Any updates to the Basel II capital treatment of counterparty credit risk would be implemented as they are adopted. 

9. Appendix B to Subpart A is revised 

to read as follows: 

Appendix B to Subpart A of Part 327— 

Conversion of Scorecard Measures into 

Score 

1. Weighted Average CAMELS Rating 

Weighted average CAMELS ratings 

between 1 and 3.5 are assigned a score 

between 25 and 100 according to the 

following equation: 

S = 25 + [(20/3) * (C2 ¥ 1)], 

Where: 

S = the weighted average CAMELS score; and 

C = the weighted average CAMELS rating. 

2. Other Scorecard Measures 

For certain scorecard measures, a lower 

ratio implies lower risk and a higher ratio 

implies higher risk. These measures include: 

• 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. 

A. Higher-Risk Assets/Tier 1 Capital and 

Reserves 

The higher-risk assets to Tier 1 capital and 

reserves ratio is the sum of the 

concentrations in each of four risk areas 

described below and is calculated as: 

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); 

• 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 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2EP24NO10.336</GPH>
72608 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 

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. 

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. 

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. 

B. Growth-adjusted portfolio concentration 

measure 

The growth-adjusted concentration 

measure is the sum of the values of 

concentrations in each of the seven 

portfolios, each of the values being first 

adjusted for risk weights and growth. To 

obtain the value for each of the seven 

portfolios, the product of the risk weight and 

the concentration ratio is first squared and 

then multiplied by the growth factor. The 

measure is calculated as: 

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: 

where 

V is the portfolio amount as reported on 

the Call Report/TFR and t is the quarter for 

which the assessment is being determined. 

The risk weight for each portfolio reflects 

relative peak loss rates for banks at the 90th 

percentile during the 1990–2009 period.12

These loss rates were converted into 

equivalent risk weights as shown in Table 

C.1. 

TABLE C.1—90TH PERCENTILE ANNUAL

LOSS RATES FOR 1990–2009 PERIOD AND CORRESPONDING RISK

WEIGHTS

Portfolio 

Loss rates 

(90th percentile) 

Risk 

weights 

First-Lien Mortgages 2.3 0.5 

Second/Junior Lien 

Mortgages ........... 4.6 0.9 

Commercial and Industrial (C&I) 

Loans .................. 5.0 1.0 

Construction and 

Development 

(C&D) Loans ....... 15.0 3.0 

Commercial Real 

Estate Loans, excluding C&D ........ 4.3 0.9 

Credit Card Loans .. 11.8 2.4 

Other Consumer 

Loans .................. 5.9 1.2 


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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Proposed Rules 72609 

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. 

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 

TABLE D.1—RUNOFF RATE

ASSUMPTIONS—Continued 

Liability type Runoff rate* 

(percent) 

Unsecured Borrowings <= 1 

Year ................................... 75.0 

Unsecured Borrowing > 1 

Year ................................... 0.0 

Secured Borrowings <= 1 

Year ................................... 25.0 

Secured Borrowings > 1 

Year ................................... 0.0 

Subordinated Debt and Limited Liability Preferred 

Stock ................................. 15.0 

Other Liabilities ..................... 0.0 

* A negative rate implies growth. 

Given the resulting total liabilities after 

runoff, assets are then reduced pro rata to 

preserve the relative amount of assets in each 

of the following asset categories and to 

achieve a Tier 1 leverage ratio of 2 percent: 

• 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. 

By order of the Board of Directors. 

Dated at Washington, DC, this 9th day of 

November 2010. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2010–29137 Filed 11–19–10; 4:15 pm] 

BILLING CODE 6714–01–P 


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