79286 Federal Register / Vol. 75, No. 243 / Monday, December 20, 2010 / Rules and Regulations 

1Public Law 111–203, sec. 334(a), 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(b)(3)(B)). 

2Public Law 111–203, sec. 334(d), 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(nt)). 

3Public Law 111–203, sec. 334(e), 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(nt)). 

4Public Law 111–203, sec. 332(d), 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(e)). 

Authority: 12 U.S.C. 1814–1817, 1819– 

1920, 1828, 1831u and 2901–2907, 3103– 

3104, and 3108(a). 

■ 2. In § 345.12: 

■ a. Republish the introductory text of 

paragraph (g); 

■ b. Remove the word ‘‘or’’ at the end of 

paragraph (g)(3); 

■ c. Remove the period at the end of 

paragraph (g)(4)(iii)(B) and add ‘‘; or’’ in 

its place; and 

■ d. Add a new paragraph (g)(5). 

The republication and addition read as 

follows: 

§ 345.12 Definitions. 

* * * * * 

(g) Community development means: 

* * * * * 

(5) Loans, investments, and services 

that— 

(i) Support, enable or facilitate 

projects or activities that meet the 

‘‘eligible uses’’ criteria described in 

Section 2301(c) of the Housing and 

Economic Recovery Act of 2008 (HERA), 

Public Law 110–289, 122 Stat. 2654, as 

amended, and are conducted in 

designated target areas identified in 

plans approved by the United States 

Department of Housing and Urban 

Development in accordance with the 

Neighborhood Stabilization Program 

(NSP); 

(ii) Are provided no later than two 

years after the last date funds 

appropriated for the NSP are required to 

be spent by grantees; and 

(iii) Benefit low-, moderate-, and 

middle-income individuals and 

geographies in the bank’s assessment 

area(s) or areas outside the bank’s 

assessment area(s) provided the bank 

has adequately addressed the 

community development needs of its 

assessment area(s). 

* * * * * 

Department of the Treasury 

Office of Thrift Supervision 

12 CFR Chapter V 

■ For the reasons set forth in the joint 

preamble, the Office of Thrift 

Supervision amends part 563e of 

chapter V of title 12 of the Code of 

Federal Regulations as follows: 

PART 563e—COMMUNITY 

REINVESTMENT 

■ 1. The authority citation for part 563e 

continues to read as follows: 

Authority: 12 U.S.C. 1462a, 1463, 1464, 

1467a, 1814, 1816, 1828(c), and 2901 through 

2907. 

■ 2. In § 563e.12: 

■ a. Republish the introductory text of 

paragraph (g); 

■ b. Remove the word ‘‘or’’ at the end of 

paragraph (g)(3); 

■ c. Remove the period at the end of 

paragraph (g)(4)(iii)(B) and add ‘‘; or’’ in 

its place; and 

■ d. Add a new paragraph (g)(5). 

The republication and addition read as 

follows: 

§ 563e.12 Definitions. 

* * * * * 

(g) Community development means: 

* * * * * 

(5) Loans, investments, and services 

that— 

(i) Support, enable or facilitate 

projects or activities that meet the 

‘‘eligible uses’’ criteria described in 

Section 2301(c) of the Housing and 

Economic Recovery Act of 2008 (HERA), 

Public Law 110–289, 122 Stat. 2654, as 

amended, and are conducted in 

designated target areas identified in 

plans approved by the United States 

Department of Housing and Urban 

Development in accordance with the 

Neighborhood Stabilization Program 

(NSP); 

(ii) Are provided no later than two 

years after the last date funds 

appropriated for the NSP are required to 

be spent by grantees; and 

(iii) Benefit low-, moderate-, and 

middle-income individuals and 

geographies in the savings association’s 

assessment area(s) or areas outside the 

savings association’s assessment area(s) 

provided the savings association has 

adequately addressed the community 

development needs of its assessment 

area(s). 

* * * * * 

Dated: December 8, 2010. 

John Walsh, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 13, 2010. 

Robert deV. Frierson, 

Deputy Secretary of the Board. 

Dated at Washington, DC, this 14th day of 

December 2010. 

Federal Deposit Insurance Corporation. 

Valerie J. Best, 

Assistant Executive Secretary. 

Dated: December 9, 2010. 

By the Office of Thrift Supervision. 

John E. Bowman, 

Acting Director. 

[FR Doc. 2010–31818 Filed 12–17–10; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD69 

Designated Reserve Ratio 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Final rule. 

SUMMARY: To implement a 

comprehensive, long-range management 

plan for the Deposit Insurance Fund 

(DIF or fund), the FDIC is amending its 

regulations to set the designated reserve 

ratio (DRR) at 2 percent. 

DATED: Effective Date: January 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Munsell St. Clair, Chief, Banking and 

Regulatory Policy Section, (202) 898– 

8967, Christopher Bellotto, Counsel, 

(202) 898–3801, 550 17th Street, NW., 

Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Governing Statutes 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank), which was enacted on July 21, 

2010, gave the FDIC much greater 

discretion to manage the DIF, including 

where to set the DRR. Among other 

things, Dodd-Frank: (1) Raises the 

minimum DRR, which the FDIC is 

required to set each year, to 1.35 percent 

(from the former minimum of 1.15 

percent) and removes the upper limit on 

the DRR (which was formerly capped at 

1.5 percent) and consequently on the 

size of the fund; 1 (2) requires that the 

fund reserve ratio reach 1.35 percent by 

September 30, 2020 (rather than 1.15 

percent by the end of 2016, as formerly 

required); 2 (3) requires that, in setting 

assessments, the FDIC ‘‘offset the effect 

of [requiring that the reserve ratio reach 

1.35 percent by September 30, 2020 

rather than 1.15 percent by the end of 

2016] on insured depository institutions 

with total consolidated assets of less 

than $10,000,000,000’’; 3 (4) eliminates 

the requirement that the FDIC provide 

dividends from the fund when the 

reserve ratio is between 1.35 percent 

and 1.5 percent; 4 and (5) continues the 

FDIC’s authority to declare dividends 

when the reserve ratio at the end of a 


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5Public Law 111–203, sec. 332, 124 Stat. 1376, 

1539 (to be codified at 12 U.S.C. 1817(e)(2)(B)). 

6 In setting the DRR for any year, the FDIC must 

consider the following factors: 

(1) The risk of losses to the DIF in the current and 

future years, including historic experience and 

potential and estimated losses from insured 

depository institutions. 

(2) Economic conditions generally affecting 

insured depository institutions so as to allow the 

DRR to increase during more favorable economic 

conditions and to decrease during less favorable 

economic conditions, notwithstanding the 

increased risks of loss that may exist during such 

less favorable conditions, as the Board determines 

to be appropriate. 

(3) That sharp swings in assessment rates for 

insured depository institutions should be 

prevented. 

(4) Other factors as the FDIC’s Board may deem 

appropriate, consistent with the requirements of the 

Reform Act. 

12 U.S.C. 1817(b)(3)(B). 

7 75 FR 66262 (Oct. 27, 2010). Pursuant to the 

comprehensive plan, the FDIC also adopted a new 

Restoration Plan to ensure that the DIF reserve ratio 

reaches 1.35 percent by September 30, 2020, as 

required by Dodd-Frank. 75 FR 66293 (Oct. 27, 

2010). 

8The proceedings of the roundtable can be 

viewed in their entirety at: http:// 

www.vodium.com/MediapodLibrary/ 

index.asp?library=pn100472_fdic_RoundTable. 

9The historical analysis contained in the October 

NPR is constructively included. 

10Under section 7 of the FDI Act, the FDIC has 

authority to set assessments in such amounts as it 

determines to be necessary or appropriate. In setting 

assessments, the FDIC must consider certain 

enumerated factors, including the operating 

expenses of the DIF, the estimated case resolution 

expenses and income of the DIF, and the projected 

effects of assessments on the capital and earnings 

of insured depository institutions. 

11 12 U.S.C. 1817(e)(2), as amended by sec. 332 

of the Dodd-Frank Act. 

calendar year is at least 1.5 percent, but 

grants the FDIC sole discretion in 

determining whether to suspend or limit 

the declaration or payment of 

dividends.5

The Federal Deposit Insurance Act 

(FDI Act) continues to require that the 

FDIC’s Board of Directors consider the 

appropriate level for the DRR annually 

and, if changing the DRR, engage in 

notice-and-comment rulemaking before 

the beginning of the calendar year.6

B. Notice of Proposed Rulemaking on 

Assessment Dividends, Assessment 

Rates and the Designated Reserve Ratio 

In October 2010, the FDIC adopted a 

Notice of Proposed Rulemaking on 

Assessment Dividends, Assessment 

Rates and the Designated Reserve Ratio 

setting out a comprehensive, long-range 

management plan for the DIF that was 

designed to: (1) Reduce the procyclicality in the existing risk-based 

assessment system by allowing 

moderate, steady assessment rates 

throughout economic and credit cycles; 

and (2) maintain a positive fund balance 

even during a banking crisis by setting 

an appropriate target fund size and a 

strategy for assessment rates and 

dividends (the October NPR).7

During an economic and banking 

downturn, insured institutions can least 

afford to pay high deposit insurance 

assessment rates. Moreover, high 

assessment rates during a downturn 

reduce the amount that banks can lend 

when the economy most needs new 

lending. For these reasons, it is 

important to reduce pro-cyclicality in 

the assessment system and allow 

moderate, steady assessment rates 

throughout economic and credit cycles. 

At a September 24, 2010 roundtable 

organized by the FDIC, bank executives 

and industry trade group representatives 

uniformly favored steady, predictable 

assessments and found high assessment 

rates during crises objectionable.8

It is also important that the fund not 

decline to a level that could risk 

undermining public confidence in 

Federal deposit insurance. Furthermore, 

although the FDIC has significant 

authority to borrow from the Treasury to 

cover losses when the fund balance 

approaches zero, the FDIC views the 

Treasury line of credit as available to 

cover unforeseen losses, not as a source 

of financing projected losses. 

Setting the DRR at 2 percent is an 

integral part of the FDIC’s 

comprehensive, long-range management 

plan for the DIF. A fund that is 

sufficiently large is a necessary 

precondition to maintaining a positive 

fund balance during a banking crisis 

and allowing for long-term, steady 

assessment rates. 

In developing the long-range 

management plan, the FDIC analyzed 

historical fund losses and used 

simulated income data from 1950 to the 

present to determine how high the 

reserve ratio would have had to be 

before the onset of the two banking 

crises that occurred during this period 

to maintain a positive fund balance and 

stable assessment rates. The analysis, 

which was detailed in the October NPR, 

concluded that moderate, long-term 

average industry assessment rates, 

combined with an appropriate dividend 

or assessment rate reduction policy, 

would have been sufficient to prevent 

the fund from becoming negative during 

the crises. The FDIC also found that the 

fund reserve ratio would have had to 

exceed 2 percent before the onset of the 

crises to achieve these results.9

Based on this analysis and the 

statutory factors that the FDIC must 

consider when setting the DRR, the 

FDIC proposed setting the DRR at 2 

percent. The FDIC noted that it views 

the proposed 2 percent DRR as both a 

long-term goal and the minimum level 

needed to withstand a future crisis of 

the magnitude of past crises. Because 

analysis shows that a reserve ratio 

higher than 2 percent increases the 

chance that the fund will remain 

positive during such a crisis, the FDIC 

does not view the 2 percent DRR as a 

cap on the size of the fund. 

In the October NPR, pursuant to its 

analysis and its statutory authority to set 

risk-based assessments, the FDIC also 

proposed assessment rate schedules. 

The FDIC proposed that a moderate 

assessment rate schedule based on the 

long-term average rate needed to 

maintain a positive fund balance take 

effect when the fund reserve ratio 

exceeds 1.15 percent.10 This schedule 

would be lower than the current 

schedule. In addition, to increase the 

probability that the fund reserve ratio 

will reach a level sufficient to withstand 

a future crisis, the FDIC, based on its 

authority to suspend or limit dividends, 

proposed suspending dividends when 

the fund reserve ratio exceeds 1.5 

percent.11 In lieu of dividends, and 

pursuant to its authority to set riskbased assessments, the FDIC proposed 

to adopt progressively lower assessment 

rate schedules when the reserve ratio 

exceeds 2 percent and 2.5 percent. 

These lower assessment rate schedules 

would serve much the same function as 

dividends, but would provide more 

stable and predictable assessment rates. 

C. Notice of Proposed Rulemaking on 

the Assessment Base, Assessment Rate 

Adjustments and Assessment Rates 

In a notice of proposed rulemaking 

adopted by the FDIC on November 9, 

2010 (the Assessment Base NPR), the 

FDIC proposed to amend the definition 

of an institution’s deposit insurance 

assessment base consistent with DoddFrank, modify the unsecured debt 

adjustment and the brokered deposit 

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, and eliminate the secured 

liability adjustment. The Assessment 

Base NPR also proposed revisions to the 

deposit insurance assessment rate 

schedules, including the rate schedules 

proposed in the October NPR, in light of 

the changes to the assessment base. 

D. Update of Historical Analysis of Loss, 

Income and Reserve Ratios 

The analysis set out in the October 

NPR sought to determine what 

assessment rates would have been 

needed to maintain a positive fund 


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79288 Federal Register / Vol. 75, No. 243 / Monday, December 20, 2010 / Rules and Regulations 

12Using the domestic-deposit-related assessment 

base, reserve ratios would have peaked at 2.31 

percent and 2.01 percent before the two crises. (See 

Chart G in the October NPR.) Using the Dodd-Frank 

assessment base, reserve ratios would have peaked 

at 2.27 percent and 1.95 percent before the two 

crises. 

13 Dodd-Frank provides that the assessment base 

be changed to average consolidated total assets 

minus average tangible equity. See Public Law 111– 

203, sec. 331. For this simulation, from 1990 to 

2010, the assessment base equals year-end total 

industry assets minus Tier 1 capital. For earlier 

years (before the Tier 1 capital measure existed) it 

equals year-end total industry assets minus total 

equity. Other than as noted, the methodology used 

in the additional analysis was the same as that used 

in the October NPR. 

balance during the last two crises. This 

analysis used an assessment base 

derived from domestic deposits to 

calculate the assessment income. DoddFrank, however, required the FDIC to 

change the assessment base to average 

consolidated total assets minus average 

tangible equity. The FDIC therefore has 

undertaken additional analysis to 

determine how the results of the 

original analysis would change had the 

new assessment base been in place from 

1950 to 2010. Due to the larger 

assessment base resulting from DoddFrank, the constant nominal assessment 

rate required to maintain a positive fund 

balance from 1950 to 2010 is 5.29 basis 

points (compared with 8.47 basis points 

using a domestic-deposit-related 

assessment base). (See Chart 1.) 

The assessment base resulting from 

Dodd-Frank, had it been applied to prior 

years, would have been larger than the 

domestic-deposit-related assessment 

base, and the rates of growth of the two 

assessment bases would have differed 

both over time and from each other. At 

any given time, therefore, applying a 

constant nominal rate of 8.47 basis 

points to the domestic-deposit-related 

assessment base would not necessarily 

yield exactly the same revenue as 

applying 5.29 basis points to the DoddFrank assessment base. 

Despite these differences, the new 

analysis applying a 5.29 basis point 

assessment rate to the Dodd-Frank 

assessment base results in peak reserve 

ratios prior to the two crises similar to 

those seen when applying an 8.47 basis 

point assessment rate to a domesticdeposit-related assessment base.12 (See 

Chart 2.) Both analyses show that the 

fund reserve ratio would have needed to 

be approximately 2 percent or more 

before the onset of the crises to maintain 

both a positive fund balance and stable 

assessment rates, assuming, in lieu of 

dividends, that the long-term industry 

average nominal assessment rate would 

be reduced by 25 percent when the 

reserve ratio reached 2 percent, and by 

50 percent when the reserve ratio 

reached 2.5 percent.13 Eliminating 

dividends and reducing rates 

successfully limits rate volatility 

whichever assessment base is used. 

BILLING CODE P 


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14Public Law 111–203, sec. 334(a), 124 Stat. 

1376, 1539 (to be codified at 12 U.S.C. 

1817(b)(3)(B)). 

15 12 U.S.C. 1817(b)(3)(A). 

16 12 U.S.C. 1817(b)(3). 

17The statutory factors that the FDIC must 

consider are set out in a footnote above. The FDIC 

considered these factors when it approved the 

October NPR. While the analysis of the factors has 

been updated, the FDIC’s conclusion remains the 

same. 

18The 2 percent DRR is expressed as a percentage 

of estimated insured deposits. Dodd-Frank requires 

the FDIC to also make available the DRR using the 

new assessment base definition. The FDIC does not 

have all the information necessary to calculate the 

new assessment base; however, the FDIC estimates 

that as of September 30, 2010, a DRR of 2 percent 

of estimated insured deposits would have been 

approximately equivalent to a DRR of 0.9 percent 

of the new assessment base. 

BILLING CODE C 

II. Comments Received 

The FDIC sought comments on every 

aspect of the proposed rule. The FDIC 

received 4 comments related to setting 

the DRR, which are discussed in section 

IV below. 

III. The Final Rule 

A. Scope 

The FDIC is finalizing only the 

portion of the October NPR related to 

setting the DRR. The FDIC will consider 

including the remaining subject matter 

of the October NPR in a future final rule. 

B. DRR 

As discussed above, Dodd-Frank 

eliminates the previous requirement to 

set the DRR within a range of 1.15 

percent to 1.50 percent, directs the FDIC 

to set the DRR at a minimum of 1.35 

percent (or the comparable percentage 

of the assessment base as amended by 

Dodd-Frank) and eliminates the 

maximum limitation on the DRR.14

Dodd-Frank retains the requirement that 

the FDIC designate and publish a DRR 

before the beginning of each calendar 

year.15

Also, as discussed above, Dodd-Frank 

retains the requirement that the FDIC set 

and publish a DRR annually.16 The 

FDIC must set the DRR in accordance 

with its analysis of the following 

statutory factors: Risk of losses to the 

DIF; economic conditions generally 

affecting insured depository 

institutions; preventing sharp swings in 

assessment rates; and any other factors 

that the FDIC may determine to be 

appropriate and consistent with these 

factors.17 The analysis that follows 

considers each statutory factor, 

including one ‘‘other factor’’: 

Maintaining the DIF at a level that can 

withstand substantial losses, consistent 

with the FDIC’s comprehensive, longterm fund management plan. 

Based upon the following analysis of 

the statutory factors that the FDIC must 

consider when setting the DRR, the 

historical analysis contained in the 

October NPR, and the updated analysis 

described above, the FDIC has 

concluded that the DRR should be set at 

2 percent.18 As the updated historical 

analysis above demonstrates, the 

recommended DRR is the minimum 

reserve ratio needed to withstand a 

future banking crisis. A 2 percent 

reserve ratio prior to past crises would 


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79290 Federal Register / Vol. 75, No. 243 / Monday, December 20, 2010 / Rules and Regulations 

19The FDIC first reported a negative fund balance 

in the early 1990s during the last banking crisis. 

barely have prevented the fund from 

becoming negative while maintaining 

steady assessment rates. A larger fund 

would have allowed the FDIC to have 

maintained a positive balance and the 

fund would have remained positive 

even had losses been higher. 

Consequently, the FDIC views the 2 

percent DRR as a long-range, minimum 

target. 

Analysis of Statutory Factors 

Risk of Losses to the DIF 

During 2009 and 2010, losses to the 

DIF have been high. As of September 30, 

2010, both the fund balance and the 

reserve ratio continue to be negative 

after reserving for probable losses from 

anticipated bank failures. During the 

current downturn, the fund balance has 

fallen below zero for the second time in 

the history of the FDIC.19 The FDIC 

projects that, over the period 2010 

through 2014, the fund could incur 

approximately $50 billion in failureresolution costs. The FDIC projects that 

most of these costs will occur in 2010 

and 2011. 

In the FDIC’s view, the high losses 

experienced by the DIF during the crisis 

of the 1980s and early 1990s and during 

the current economic crisis (and the 

potential for high risk of loss to the DIF 

over the course of future economic 

cycles) suggest that the FDIC should, as 

a long-range, minimum goal and in 

conjunction with the proposed dividend 

and assessment rate policy, set a DRR at 

a level that would have maintained a 

zero or greater fund balance during both 

crises so that the DIF will be better able 

to handle losses during periods of 

severe industry stress. 

Economic Conditions Affecting FDICInsured Institutions 

Concerns of a double-dip recession 

have receded and the U.S. economic 

recovery remains on track. Consensus 

forecasts call for the economy to expand 

by about 2.0 percent in the second half 

of 2010 and 2.5 percent in 2011. 

Consumer spending is growing 

gradually, but remains constrained by 

high unemployment and modest income 

growth. Business spending on 

equipment and software is rising, and 

corporate profits are near pre-recession 

levels. 

The economic recovery is still 

exposed to downside risks—such as 

high unemployment and weak real 

estate markets—that create a challenging 

operating environment for insured 

depository institutions. The housing 

sector showed signs of stabilization after 

the expiration of Federal tax credits, but 

recent concerns over banks’ foreclosure 

processes have introduced a new 

obstacle to the housing market recovery. 

Commercial real estate loan portfolios 

remain under pressure as 

unemployment dampens business and 

consumer demand. Even as credit 

markets have begun to recover amid low 

interest rates, bank lending activity 

remains constrained by weak loan 

demand and banks’ reduced tolerance 

for risk. Industry-wide, loans 

outstanding fell slightly in the third 

quarter. 

As of September 30, there were 860 

insured depository institutions on the 

problem list, representing 11 percent of 

all insured depository institutions. 

Through November 26, 149 insured 

depository institutions have failed this 

year, exceeding the 140 failures that 

occurred in 2009; however, the total 

assets of failed institutions remain well 

below last year’s total. 

Consistent with the economic 

recovery, the financial performance of 

insured depository institutions has 

shown recent signs of improvement. 

The industry reported three straight 

profitable quarters in 2010. The 

industry’s aggregate net income was 

$14.5 billion in third quarter 2010, up 

dramatically from just $2.0 billion a 

year ago. More than 80 percent of 

insured depository institutions were 

profitable in the quarter, and almost 

two-thirds reported year-over-year 

earnings growth. While insured 

depository institutions continue to 

experience significant credit distress, 

loan losses and delinquencies may have 

peaked. 

Although these short-term economic 

conditions can inform the FDIC’s 

decision on the DRR, they become less 

relevant in setting the DRR when, as 

now, the DIF is negative. In this context, 

the FDIC believes that the DRR should 

be viewed in a longer-term perspective. 

Twice within the past 30 years, serious 

economic dislocations have resulted in 

a significant deterioration in the 

condition of many insured depository 

institutions and in a consequent large 

number of insured depository 

institution failures at high costs to the 

DIF. In the FDIC’s view, the DRR 

should, therefore, be viewed as a 

minimum goal needed to achieve a 

reserve ratio that can withstand these 

periodic economic downturns and their 

attendant insured depository institution 

failures. Taking these longer-term 

economic realities into account, a 

prudent and consistent policy would set 

the DRR at a minimum of 2 percent, 

since that is the lowest level that would 

have prevented a negative fund balance 

at any time since 1950. 

Preventing Sharp Swings in Assessment 

Rates 

Current law directs the FDIC to 

consider preventing sharp swings in 

assessment rates for insured depository 

institutions. Setting the DRR at 2 

percent as a minimum goal rather than 

a final target would signal that the FDIC 

plans for the DIF to grow in good times 

so that funds are available to handle 

multiple bank failures in bad times. 

This plan would help prevent sharp 

fluctuations in deposit insurance 

premiums over the course of the 

business cycle. In particular, it would 

help reduce the risk of large rate 

increases during crises, when insured 

depository institutions can least afford 

an increase. 

Maintaining the DIF at a Level That Can 

Withstand Substantial Losses 

The FDIC has considered one 

additional factor when setting the DRR: 

Viewing the DRR as a minimum goal 

that will allow the fund to grow 

sufficiently large in good times that the 

likelihood of the DIF remaining positive 

during bad times increases, consistent 

with the FDIC’s comprehensive, longterm fund management plan. Having 

adequate funds available when entering 

a financial crisis should reduce the 

likelihood that the FDIC would need to 

increase assessment rates, levy special 

assessments on the industry or borrow 

from the U.S. Treasury. 

Balancing the Statutory Factors 

In the FDIC’s view, the best way to 

balance all of the statutory factors 

(including the ‘‘other factor’’ identified 

above of maintaining the DIF at a level 

that can withstand the substantial losses 

associated with a financial crisis) is to 

set the DRR at 2 percent. 

IV. Summary of Comments 

The FDIC requested comments on all 

aspects of the proposed rule. This 

section discusses comments related to 

setting the DRR, including the historical 

analysis of losses. Comments on other 

subjects of the October NPR will be 

considered in the context of formulating 

a final rule on those subjects. 

One trade group specifically endorsed 

setting the DRR at 2 percent. It stated 

that it agreed with the FDIC’s goal of 

seeking to maintain a positive fund 

balance during an economic downturn. 

The trade group further stated that the 

FDIC’s proposal ‘‘would reduce the procyclicality in the existing system and 

achieve moderate, steady assessment 

rates through economic and credit 


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20One commenter suggested setting the DRR at 

1.5 percent at most, and that the FDIC determine 

whether any additional increases beyond that point 

are necessary based on a contemporaneous 

evaluation of the facts and circumstances. 

21The average rate in the text includes premiums 

paid to the National Credit Union Share Insurance 

Fund and assessments paid to the Temporary 

Corporate Credit Union Stabilization Fund. 

cycles while also maintaining a positive 

DIF balance during an economic 

downturn or even a banking crisis.’’ 

Three other trade groups, however, 

suggested that a DRR of 2 percent would 

be excessive. Two trade groups focused 

on recent changes in law, including the 

reforms contained in Dodd-Frank, 

which, they argued, lower the 

probability of an institution’s failure 

and the FDIC’s loss given failure.20 The 

commenters argued that Dodd-Frank 

and Basel III make the likelihood of 

another crisis small and should allow 

the FDIC to weather another economic 

downturn with less funding. Therefore, 

the commenters argued, the potential 

exists for the FDIC to collect a large 

reserve that would grow without limit 

and remain in the DIF for an extended 

period of time. The commenters argued 

that these funds would best be used in 

the banking system where they could be 

lent to help fuel the economy. 

The FDIC believes the proposed DRR 

complements Dodd-Frank and Basel III; 

all three make the financial sector more 

resilient, reduce the likelihood of future 

crises or their systemic damage should 

they occur, and make financial 

regulation more counter-cyclical. While 

the FDIC hopes that these reforms will 

make financial crises less likely and the 

FDIC’s losses smaller, it would be 

imprudent for the FDIC to assume that 

banking crises are a thing of the past. 

The current crisis occurred despite 

extensive legislative changes to the 

banking and regulatory system that were 

made in response to the crisis of the late 

1980s and early 1990s. The FDIC’s 

analysis shows that the reserve ratio 

would need to be at least 2 percent to 

survive a crisis similar to the last two 

crises. Given the FDIC’s goal of avoiding 

pro-cyclical assessments, the FDIC does 

not believe that this level of reserves is 

excessive. 

Historically, the reserve ratio has 

never even reached 2 percent. Given the 

proposed rate reductions once the 

reserve ratio reaches 2 percent and 2.5 

percent, combined with the near 

certainty that higher than average losses 

will occur at some time in the future, 

the FDIC has limited how much the 

fund can grow. This graduated approach 

to curbing fund growth is consistent 

with Congress’s removal of the hard cap 

on the fund’s size. 

A fund reserve ratio in excess of 2 

percent would not inappropriately curb 

credit availability. As described in the 

proposed rule, the FDIC estimates that 

the reserve ratio will not reach 2 percent 

for about 17 years; that estimate 

assumes a long period of economic 

expansion after the current recession 

ends. After a lengthy expansion, the 

greater risk to the banking industry and 

the economy is overextension of credit, 

not insufficient credit. 

A trade group argued that the FDIC’s 

historical analysis ignores the 

overreserving for contingent fund losses 

that occurred in 1990, which, had it not 

occurred, would have meant that the 

reserve ratio would not have needed to 

be 2.31 percent to maintain a positive 

fund. The trade group also noted that 

there may have been overreserving for 

contingent fund losses when the reserve 

ratio reached its low point earlier this 

year. 

The historical analysis in the October 

NPR used reported contingent loss 

reserves, which were created in 

accordance with GAAP. That these 

reserves were not (and may not be) 

perfect predictors of loss merely reflects 

the uncertainty inherent in predicting 

the future. In other ways, the historical 

analysis in the October NPR used 

extremely conservative loss 

assumptions. The analysis excluded the 

great majority of losses from thrift 

failures during the crisis of the late 

1980s and early 1990s. The analysis also 

excluded losses that would have 

occurred but for extraordinary 

government assistance during the recent 

crisis. Moreover, the analysis sought to 

determine the reserve ratio needed 

before a crisis to keep the fund from 

becoming negative. Public confidence in 

the strength of the fund increases when 

the fund has a significant positive 

balance (rather than simply not being 

negative). 

A trade group also argued that the 

FDIC’s analysis ignored the large 

amount of interest income that would be 

generated by a fund with a reserve ratio 

of 2 percent, and that this would be 

particularly significant during periods 

of stability and low losses to the fund. 

In fact, however, the FDIC’s analysis did 

not ignore interest income. The analysis 

simulated fund growth by combining 

assessment income and investment 

income earned based on historical 

interest rates. The analysis covered 

periods of stability and low losses as 

well as crisis periods accompanied by 

high losses. It covered periods of high 

interest rates as well as low rates. The 

simulated fund also covered an 

extended period during which the fund 

reached or exceeded a reserve ratio of 2 

percent. (See Chart 2 above.) This 

period was not accompanied by 

exponential fund growth, and fund 

growth was limited by the use of 

assessment rate reductions. Had such a 

high reserve ratio been uninterrupted 

for the entire 60-year period, the fund 

might gradually have reached a size not 

warranted by historical experience, but, 

historically, periods of stability are not 

the norm—rather they are interrupted 

by periods of high losses when the 

fund’s growth decreases significantly. 

Two trade groups were concerned that 

a large fund would become a target for 

funding activities unrelated to 

protecting insured deposits. This 

argument has been raised periodically 

over many years as a justification to 

keep assessments low and the fund size 

small. However, there is little evidence 

that this is a serious risk. The FDIC has 

consistently argued against legislative or 

other proposals that would expand the 

use of the fund beyond insured 

depositor protection. 

Two trade groups also noted that the 

National Credit Union Share Insurance 

Fund (NCUSIF) reserve ratio is limited 

by statute to 1.5 percent and argued that 

a higher DIF reserve ratio could 

exacerbate competitive imbalances. The 

presence or absence of a cap on fund 

size is but one of several statutory 

differences between FDIC-insured 

institutions and Federally insured credit 

unions. The FDIC has proposed lower 

assessment rates that would go into 

effect when the reserve ratio reaches 

1.15 percent. The FDIC believes that 

these assessment rates are sufficiently 

moderate that any competitive effect is 

likely to be small. Moreover, this 

difference is likely to be more than 

offset by the lower assessment rates that 

the FDIC should be able to maintain 

during a downturn. In 2010, for 

example, credit unions paid on average 

slightly less than 26 basis points of 

insured shares. Since almost all credit 

union deposits are insured, insured 

shares are analogous to domestic 

deposits as an assessment base.21 In 

comparison, the FDIC estimates that, in 

2010, banks and thrifts will have paid 

an average assessment rate of slightly 

less than 18 basis points on a domesticdeposit-related assessment base. Under 

the assessment rates that the FDIC 

proposed in the October NPR, banks and 

thrifts would pay much lower average 

assessment rates during a future crisis 

similar in magnitude to the current one. 

The proposed system is less pro-cyclical 

than both the existing system and the 

NCUSIF system, which is a positive 


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79292 Federal Register / Vol. 75, No. 243 / Monday, December 20, 2010 / Rules and Regulations 

22 5 U.S.C. 553(b)(3). 

23 12 U.S.C. 1817(b)(3)(A). 

24 5 U.S.C. 604. 

25See 5 U.S.C. 605(b). 

26See 5 U.S.C. 601. 

feature when considered across a 

complete business cycle. 

V. Regulatory Analysis and Procedure 

A. Administrative Procedure Act 

The final rule setting the DRR at 2 

percent will become effective on 

January 1, 2011. The Administrative 

Procedure Act (APA) provides that: 

‘‘The required publication or service of 

a substantive rule shall be made not less 

than 30 days before its effective date, 

except * * * (3) as otherwise provided 

for by the agency for good cause found 

and published with the rule.’’ 22 The 

FDIC has determined that good cause 

exists for waiving the customary 30-day 

delayed effective date. The FDI Act 

requires that, ‘‘[b]efore the beginning of 

each calendar year, the Board of 

Directors shall designate the reserve 

ratio applicable with respect to the 

Deposit Insurance Fund and publish the 

reserve ratio so designated’’ and that 

‘‘[a]ny change to the designated reserve 

ratio shall be made by the Board of 

Directors by regulation after notice and 

opportunity for comment.’’ 23 The FDIC 

will have fulfilled its statutory 

obligations in setting a DRR upon 

publication of this final rule in the 

Federal Register or on the FDIC’s Web 

site before January 1, 2011; accordingly, 

the inclusion of a particular effective 

date is incidental to this rulemaking. 

Nevertheless, in the interests of 

consistency and to avoid any 

uncertainty or confusion regarding the 

applicability of the new DRR, the FDIC 

is invoking the good cause exception so 

that the final rule setting the DRR at 2 

percent will become effective on 

January 1, 2011. 

Dodd-Frank, which became law on 

July 21, 2010, raised the minimum DRR 

from 1.15 percent to 1.35 percent, which 

required the FDIC to change the DRR. In 

determining the appropriate DRR, the 

FDIC has conducted the historical 

analyses described in this rulemaking 

and in the October NPR. The FDIC has 

also considered the increase in the DRR 

in the context of other comprehensive 

changes made by Dodd-Frank. Although 

the FDIC moved expeditiously to 

determine an appropriate DRR, began 

the rulemaking process as soon as 

possible, and provided for a comment 

period of 30 days (as opposed to a 

comment period of 45 or 60 days) when 

issuing the October NPR, insufficient 

time remained to adopt a final rule more 

than 30 days before January 1, 2011. 

As stated above, the FDIC is required 

to designate and publish the DRR before 

the beginning of each calendar year; a 

regulatory effective date is incidental to 

such designation and publication. The 

DRR does not, by itself, either by statute 

or regulation, serve as a trigger in 

assessment rate determinations, 

recapitalization of the fund, or 

declaration of dividends. Further, the 

DRR imposes no obligations and 

provides no benefits, and consequently 

no entity is prejudiced, inconvenienced 

or benefitted by the January 1, 2011 

effective date; rather, the FDIC is 

establishing the effective date as January 

1, 2011 to avoid any possible 

uncertainty or confusion. 

For the foregoing reasons, the FDIC 

finds that good cause exists to justify a 

January 1, 2011 effective date for the 

DRR final rule. 

B. Regulatory Flexibility Act 

Under the Regulatory Flexibility Act 

(RFA), each Federal agency must 

prepare a final regulatory flexibility 

analysis in connection with the 

promulgation of a final rule,24 or certify 

that the final rule will not have a 

significant economic impact on a 

substantial number of small entities.25

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.26 As of September 30, 2010, of 

the 7,770 insured commercial banks and 

savings associations, there were 4,229 

small insured depository institutions as 

that term is defined for purposes of the 

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

or less in assets). 

Setting the DRR at 2 percent will not 

have a significant economic impact on 

a substantial number of small insured 

depository institutions. Nevertheless, 

the FDIC is voluntarily undertaking a 

regulatory flexibility analysis on the 

small business impact of the final rule. 

The DRR has no legal effect on small 

business entities for purposes of the 

RFA. The DRR is a minimum target 

only, and although Dodd-Frank sets a 

minimum DRR of 1.35 percent of 

estimated insured deposits, the FDIC 

has the discretion to set the DRR above 

that level as it chooses. The DRR does 

not drive the needs of the Deposit 

Insurance Fund: the FDIC’s total 

assessment needs are driven by 

statutory requirements and by the 

FDIC’s aggregate insurance losses, 

expenses, investment income, and 

insured deposit growth, among other 

factors. Neither the FDI Act nor the 

amendments under Dodd-Frank 

establish a statutory role for the DRR as 

a trigger, whether for assessment rate 

determination, recapitalization of the 

fund, or dividends. Nor does setting the 

DRR at 2 percent alter the distribution 

of assessments among insured 

depository institutions. Accordingly, the 

final rule setting the DRR at 2 percent 

of estimated insured deposits has no 

significant economic impact on small 

entities for purposes of the RFA. 

C. Small Business Regulatory 

Enforcement Fairness Act 

The Office of Management and Budget 

has determined that the final rule is not 

a ‘‘major rule’’ within the meaning of the 

relevant sections of the Small Business 

Regulatory Enforcement Act of 1996 

(SBREFA) Public Law 110–28 (1996). As 

required by law, the FDIC will file the 

appropriate reports with Congress and 

the Government Accountability Office 

so that the final rule may be reviewed. 

D. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reduction 

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

contained in the final rule. 

E. 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 invited comments on 

how to make this proposal easier to 

understand. No comments addressing 

this issue were received. 

F. The Treasury and General 

Government Appropriation Act, 1999— 

Assessment of Federal Regulations and 

Policies on Families 

The FDIC has determined that the 

final rule will not affect family wellbeing 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: 


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Federal Register / Vol. 75, No. 243 / Monday, December 20, 2010 / Rules and Regulations 79293 

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. Revise § 327.4(g) to read as follows: 

§ 327.4 Assessment rates. 

* * * * * 

(g) Designated Reserve Ratio. The 

designated reserve ratio for the Deposit 

Insurance Fund is 2 percent. 

By order of the Board of Directors. 

Dated at Washington, DC, this 14th day of 

December 2010. 

Valerie J. Best, 

Assistant Executive Secretary, Federal 

Deposit Insurance Corporation. 

[FR Doc. 2010–31829 Filed 12–17–10; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2010–0921; Airspace 

Docket No. 10–ASO–33] 

Amendment and Revocation of Class E 

Airspace; Vero Beach, FL 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This action amends Class E 

surface airspace, and airspace extending 

upward from 700 feet above the surface, 

and removes Class E airspace designated 

as an extension to Class D surface area 

at Vero Beach Municipal Airport, Vero 

Beach, FL. The Vero Beach NonDirectional Beacon (NDB) has been 

decommissioned and new Standard 

Instrument Approach Procedures 

(SIAPs) have been developed for the 

airport. This action also updates the 

geographic coordinates of the St. Lucie 

County International Airport to aid in 

the navigation of our National Airspace 

System. 

DATES: Effective 0901 UTC, March 10, 

2011. The Director of the Federal 

Register approves this incorporation by 

reference action under title 1, Code of 

Federal Regulations, part 51, subject to 

the annual revision of FAA Order 

7400.9 and publication of conforming 

amendments. 

FOR FURTHER INFORMATION CONTACT: 

Melinda Giddens, Operations Support 

Group, Eastern Service Center, Federal 

Aviation Administration, P. O. Box 

20636, Atlanta, Georgia 30320; 

telephone (404) 305–5610. 

SUPPLEMENTARY INFORMATION: 

History 

On October 26, 2010, the FAA 

published in the Federal Register a 

notice of proposed rulemaking to amend 

and remove Class E airspace at Vero 

Beach, FL (75 FR 65581) Docket No. 

FAA–2010–0921. Interested parties 

were invited to participate in this 

rulemaking effort by submitting written 

comments on the proposal to the FAA. 

No comments were received. During the 

comment period the FAA received a 

request from the National Aeronautical 

Navigation Services to update the 

geographic coordinates of the St. Lucie 

County International Airport, Fort 

Pierce, FL. This action makes the 

adjustment. 

Class E airspace designated as surface 

areas, Class E airspace areas designated 

as an extension to a Class D surface area, 

and Class E airspace areas extending 

upward from 700 feet above the surface 

of the earth are published in paragraph 

6002, 6004, and 6005, respectively, of 

FAA Order 7400.9U dated August 18, 

2010, and effective September 15, 2010, 

which is incorporated by reference in 14 

CFR Part 71.1. The Class E airspace 

designations listed in this document 

will be published subsequently in the 

Order. 

The Rule 

This amendment to Title 14, Code of 

Federal Regulations (14 CFR) part 

amends Class E airspace designated as 

surface area to remove any reference to 

the decommissioned Vero Beach NDB at 

Vero Beach Municipal Airport, Vero 

Beach, FL. This action also adds 

additional controlled airspace extending 

upward from 700 feet above the surface 

to accommodate new Standard 

Instrument Approach Procedures 

(SIAPs) at the airport, and removes 

Class E airspace designated as an 

extension to Class D surface area for 

Vero Beach Municipal Airport. Also, 

this action will update the geographic 

coordinates of the St. Lucie County 

International Airport, Fort Pierce, FL. 

The FAA has determined that this 

regulation only involves an established 

body of technical regulations for which 

frequent and routine amendments are 

necessary to keep them operationally 

current, is non-controversial and 

unlikely to result in adverse or negative 

comments. It, therefore, (1) is not a 

‘‘significant regulatory action’’ under 

Executive Order 12866; (2) is not a 

‘‘significant rule’’ under DOT Regulatory 

Policies and Procedures (44 FR 11034; 

February 26, 1979); and (3) does not 

warrant preparation of a Regulatory 

Evaluation as the anticipated impact is 

so minimal. Since this is a routine 

matter that will only affect air traffic 

procedures and air navigation, it is 

certified that this rule, when 

promulgated, will not have a significant 

economic impact on a substantial 

number of small entities under the 

criteria of the Regulatory Flexibility Act. 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the United States Code. 

Subtitle I, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. 

This rulemaking is promulgated 

under the authority described in 

Subtitle VII, Part A, Subpart I, Section 

40103. Under that section, the FAA is 

charged with prescribing regulations to 

assign the use of airspace necessary to 

ensure the safety of aircraft and the 

efficient use of airspace. This regulation 

is within the scope of that authority as 

it amends controlled airspace at Vero 

Beach Municipal Airport, Vero Beach, 

FL, and corrects geographic coordinates 

for St. Lucie County International 

Airport, Fort Pierce, FL. 

Lists of Subjects in 14 CFR Part 71 

Airspace, Incorporation by reference, 

Navigation (Air). 

Adoption of the Amendment 

■ In consideration of the foregoing, the 

Federal Aviation Administration 

amends 14 CFR Part 71 as follows: 

PART 71—DESIGNATION OF CLASS A, 

B, C, D AND E AIRSPACE AREAS; AIR 

TRAFFIC SERVICE ROUTES; AND 

REPORTING POINTS 

■ 1. The authority citation for Part 71 

continues to read as follows: 

Authority: 49 U.S.C. 106(g); 40103, 40113, 

40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 

1963 Comp., p. 389. 

§ 71.1 [Amended] 

■ 2. The incorporation by reference in 

14 CFR 71.1 of Federal Aviation 

Administration Order 7400.9U, 

Airspace Designations and Reporting 

Points, dated August 18, 2010, effective 

September 15, 2010, is amended as 

follows: 

Paragraph 6002 Class E airspace designated 

as surface areas. 

* * * * * 

ASO FL E2 Vero Beach, FL [AMENDED] 

Vero Beach Municipal Airport, FL 

(Lat. 27°39′20′′ N., long. 80°25′05′′ W.) 

That airspace extending upward from the 

surface to and including 2,500 feet MSL 

within a 4.2 mile radius of the Vero Beach 


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