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[Federal Register Volume 74, Number 190 (Friday, October 2, 2009)]
[Proposed Rules]
[Pages 51063-51068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-23803]

Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / 
Proposed Rules

[[Page 51063]]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD49

Prepaid Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: Pursuant to Section 7(b) of the Federal Deposit Insurance Act, 
the FDIC is proposing to amend its assessment regulations to require 
insured institutions to prepay, on December 30, 2009, their estimated 
quarterly risk-based assessments for the fourth quarter of 2009, and 
for all of 2010, 2011, and 2012. The FDIC would begin to offset prepaid 
assessments on March 30, 2010, representing payment for the fourth 
quarter of 2009.

DATES: Comments must be received on or before October 28, 2009.

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: [email protected]. 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: Robert C. Oshinsky, Senior Financial 
Economist, Division of Insurance and Research, (202) 898-3813; Donna 
Saulnier, Manager, Assessment Policy Section, (703) 562-6167; 
Christopher Bellotto, Counsel, Legal Division, (202) 898-3801; Sheikha 
Kapoor, Senior Attorney, Legal Division, (202) 898-3960.

SUPPLEMENTARY INFORMATION: 

I. Background

    On September 29, 2009, the FDIC adopted an Amended Restoration Plan 
to allow the Deposit Insurance Fund (``Fund'' or ``DIF'') to return to 
its statutorily mandated minimum reserve ratio of 1.15 percent within 
eight years. At the same time, the FDIC adopted higher risk-based 
assessment rates effective beginning January 1, 2011.\1\
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    \1\ Section 7(b)(3)(E) of the Federal Deposit Insurance Act (12 
U.S.C. 1817(b)(3)(E)); Section 7(b)(2) of the Federal Deposit 
Insurance Act (12 U.S.C. 1817(b)(2)).
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Liquidity Need Projections

    While the Amended Restoration Plan and assessment rates address the 
need to return the DIF reserve ratio to 1.15 percent, the FDIC must 
also consider its need for cash to pay for projected failures. At the 
beginning of this crisis, in June 2008, total assets held by the DIF 
were approximately $55 billion and consisted almost entirely of cash 
and marketable securities (i.e., liquid assets). As the crisis has 
unfolded, liquid assets of the DIF have been used to protect depositors 
of failed institutions and have been exchanged for less liquid claims 
against the assets of failed institutions. As of June 30, 2009, while 
total assets had increased to almost $65 billion, cash and marketable 
securities had fallen to about $22 billion. The pace of resolutions 
continues to put downward pressure on cash balances. While the less 
liquid assets in the DIF have value that will eventually be converted 
to cash when sold, the FDIC's immediate need is for more liquid assets 
to fund near-term failures.
    The FDIC's projections of the Fund's liquidity needs take into 
account recent trends in resolution methodologies, such as the 
increasing use of loss sharing--especially for larger institutions--
which reduce the FDIC's immediate cash outlays, and the anticipated 
pace at which assets obtained from failed institutions can be sold. If 
the FDIC took no action under its existing authority to increase its 
liquidity, the FDIC's projected liquidity needs would exceed its liquid 
assets on hand beginning in the first quarter of 2010. Through 2010 and 
2011, liquidity needs could significantly exceed liquid assets on hand.
    These projections are subject to considerable uncertainty. 
Liquidity needs could exceed projected amounts if, for example, 
conditions affecting the national or regional economies, prove more 
severe than currently anticipated. Higher failure rates than projected 
would increase liquidity needs; lower failure rates would decrease 
liquidity needs. The liquidity needs projections are particularly 
influenced by assumptions regarding the types of resolution methods 
that will be employed and the rate at which retained assets can be sold 
and converted into liquid assets.

Strategy To Ensure Sufficient Liquidity

    The FDIC has identified the following funding alternatives to meet 
its immediate liquidity needs: imposing additional special assessments; 
requiring prepaid assessments; or borrowing from the Treasury or 
Federal Financing Bank (FFB). To meet the FDIC's liquidity needs, 
without imposing additional burdens on the industry during a period of 
stress, and to ensure that the deposit insurance system remains 
directly industry-funded, the FDIC proposes to require all institutions 
to prepay, on December 30, 2009, their estimated risk-based assessments 
for the fourth quarter of 2009, and for all of 2010, 2011, and 2012, at 
the same time that institutions pay their regular quarterly deposit 
insurance assessments for the third quarter of 2009. An institution 
would initially account for the prepaid assessment as a prepaid expense 
(an asset); the Fund would initially account for the amount collected 
as both an asset (cash) and an offsetting liability (deferred revenue). 
An institution's quarterly risk-based deposit insurance assessments 
thereafter would be offset by the amount prepaid until that amount is 
exhausted or until December 30, 2014, when any amount remaining would 
be returned to the institution. The FDIC estimates that total prepaid 
assessments would amount to approximately $45 billion.

II. Legal Authority

    The FDIC's assessment authorities are set forth in section 7 of the 
Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1817(b) and (c).\2\ 
Generally, the FDIC Board of Directors must establish, by regulation, a 
risk-based assessment system for insured depository institutions. 12 
U.S.C. 1817(b)(1)(A).\3\ Each insured depository institution is 
required to pay its risk-based assessment to the Corporation in such 
manner and at such time or times as the

[[Page 51064]]

Board of Directors prescribes by regulation. 12 U.S.C. 1817(c)(2)(B).
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    \2\ The requirement for imposing systemic risk assessments is 
set forth at Section 13(c)(4)(G) of the Federal Deposit Insurance 
Act (12 U.S.C. 1823(c)(4)(G)).
    \3\ The regulations governing the FDIC's risk-based assessment 
system are set out at 12 CFR part 327. Those regulations give the 
FDIC the authority to raise assessment rates by 3 basis points 
without additional rulemaking. 12 CFR 327.10(c). On September 29, 
2009, the FDIC Board voted to use this authority and adopted higher 
assessment rates effective January 1, 2011.
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    In addition, section 7(b)(5) of the FDI Act, governing special 
assessments, empowers the Corporation to impose one or more special 
assessments on insured depository institutions in an amount determined 
by the Corporation for any purpose that the Corporation may deem 
necessary. 12 U.S.C. 1817(b)(5). The FDIC exercised this authority 
earlier this year when it promulgated a regulation imposing a special 
assessment on June 30, 2009, of 5 basis points of an institution's 
total assets minus its Tier 1 capital as of that date, not to exceed 10 
basis points of the institution's risk-based assessment base as of that 
date.\4\ Pursuant to that rulemaking, the FDIC's Board of Directors may 
impose up to two additional special assessments, each at up to the same 
rate, at the end of the third and fourth quarters of 2009, without the 
need for additional notice-and-comment rulemaking.
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    \4\ 74 FR 25639 (May 29, 2009).
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    Instead of imposing any additional special assessments when the 
industry is in a weakened condition, the FDIC seeks to address its 
upcoming liquidity needs through this notice of proposed rulemaking, by 
requiring institutions to prepay their regular risk-based assessments 
for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. 
The FDIC is relying on its section 7 authorities set forth above.

III. Proposed Prepaid Assessments

A. Calculation of Prepaid Assessment Amounts

    For purposes of calculating an institution's prepaid amount, for 
the fourth quarter of 2009 and for all of 2010, that institution's 
assessment rate would be its total base assessment rate in effect on 
September 30, 2009.\5\ That rate would be increased by 3 basis points 
for all of 2011 and 2012. Again for purposes of calculating the prepaid 
amount, an institution's third quarter 2009 assessment base would be 
increased quarterly at an estimated 5 percent annual growth rate 
through the end of 2012. Changes to data underlying an institution's 
September 30, 2009, assessment rate or assessment base received by the 
FDIC after December 24, 2009, would not affect an institution's 
prepayment amount.6 7 However, an insured depository 
institution may continue to request review or revision (as appropriate) 
of its regular risk-based assessment each quarter under sections 
327.4(c) and 327.3(f) of the FDIC regulations. The FDIC proposes to 
collect the prepaid assessments for the fourth quarter of 2009, and for 
all of 2010, 2011, and 2012 on December 30, 2009, along with the 
regular quarterly deposit insurance assessments for the third quarter 
of 2009.\8\
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    \5\ An institution's risk-based assessment rate may change 
during a quarter when a new CAMELS rating is transmitted, or a new 
long-term debt-issuer rating is assigned. 12 CFR 327.4(f). For 
purposes of calculating an institution's prepaid assessment, the 
FDIC will use the institution's CAMELS ratings and, where 
applicable, long-term debt-issuer ratings, and the resulting 
assessment rate in effect on September 30, 2009.
    \6\ Thus, for purposes of calculating the prepaid assessment, 
the FDIC would take into account mergers and consolidations that are 
recorded in the FDIC's computer systems as of December 24, 2009. If 
a merger is recorded by this date, the e assessment for the acquired 
institution would be paid by the acquirer at the acquirer's rate.
    \7\ An institution's failure to file its third quarter of 2009 
report of condition would not exempt it from the requirement to 
prepay under this rulemaking.
    \8\ The amount and calculation of each insured depository 
institution's prepaid assessment would be included on its quarterly 
certified statement invoice for the third quarter of 2009, which is 
made available on FDICconnect no later than 15 days prior to the 
December 30, 2009, payment date.
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    Requiring prepaid assessments would not preclude the FDIC from 
changing assessment rates or from further revising the risk-based 
assessment system during 2009, 2010, 2011, 2012, or thereafter, 
pursuant to notice-and-comment rulemaking under 12 U.S.C. 1817(b)(1). 
Prepaid assessments made by insured depository institutions would 
continue to be applied against quarterly assessments as they may be so 
revised.

B. Implementing Prepaid Assessments

    The FDIC would begin to offset prepaid assessments on March 30, 
2010, representing payment of the regular quarterly risk-based deposit 
insurance assessment for the fourth quarter of 2009. If the prepaid 
assessment is not exhausted by December 30, 2014, any remaining amount 
would be returned to the institution.

C. Accounting and Risk-Weight for Prepaid Assessments

1. Accounting for Prepaid Assessments
    Each institution would record the entire amount of its prepaid 
assessment as a prepaid expense (asset) as of December 30, 2009. 
Notwithstanding the prepaid assessment, each institution would have to 
record the estimated expense for its regular risk-based assessment each 
calendar quarter. However, the offsetting entry to the expense for a 
particular quarter would depend on the method of payment for that 
quarter's expense. Therefore, as of September 30, 2009, each 
institution should have accrued an expense (a charge to earnings) for 
its estimated regular quarterly risk-based assessment for the third 
quarter of 2009, which is a quarter for which assessments would not 
have been prepaid, and a corresponding accrued expense payable (a 
liability). On December 30, 2009, each institution would pay both its 
assessment for the third quarter of 2009, thereby eliminating the 
related accrued expense payable, and the entire amount of its prepaid 
assessments, which it would record as a prepaid expense (asset). As of 
December 31, 2009, each institution would record (1) an expense (a 
charge to earnings) for its estimated regular quarterly risk-based 
assessment for the fourth quarter of 2009, and (2) an offsetting credit 
to the prepaid assessment asset because the fourth quarter assessment 
of 2009 would have been prepaid.
    Each quarter thereafter, an institution would record an expense (a 
charge to earnings) for its regular quarterly risk-based assessment for 
that quarter and an offsetting credit to the prepaid assessment asset 
until this asset is exhausted. Once the asset is exhausted, the 
institution would record an expense and an accrued expense payable each 
quarter for its regular assessment payment, which would be paid in 
arrears at the end of the following quarter. If the prepaid assessment 
is not exhausted by December 30, 2014, any remaining amount would be 
returned to the institution.
2. Risk Weighting of Prepaid Assessments
    The federal banking agencies' risk-based capital rules \9\ permit 
an institution to apply a zero percent risk weight to claims on U.S. 
Government agencies. The FDIC believes the prepaid assessment would 
qualify for a zero risk weight.
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    \9\ 12 CFR Part 3, Appendix A (OCC); 12 CFR Parts 208 and 225, 
Appendix A (Federal Reserve Board); 12 CFR Part 325, Appendix A 
(FDIC); and 12 CFR Part 567, Appendix C (OTS).
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    Upon further consideration, for the same reasons, the FDIC believes 
that Temporary Liquidity Guarantee Program (TLGP) nondeposit debt 
obligations should also receive a zero percent risk weight consistent 
with the risk weight proposed for prepaid assessment assets. When the 
FDIC determined that a depository institution may apply a 20 percent 
risk weight to debt covered by the TLGP, the determination referenced 
the 20 percent risk weight that has traditionally been applied to 
assets covered by the FDIC's deposit insurance. Insofar as insured 
deposits are fully backed by the full faith and

[[Page 51065]]

credit of the United States government and no insured depositor has 
ever or will ever take a loss, the FDIC will also review reducing the 
risk weight on insured deposits to zero percent consistent with the 
treatment of other government backed obligations. The FDIC requests 
commenters to provide their views on the appropriateness of a different 
risk weight and the effect that any change would have on risk-weighted 
assets.

D. Restrictions on Use of Prepaid Assessments

    Under the proposal, prepaid assessments could only be used to 
offset regular quarterly risk-based deposit insurance assessments. For 
example, prepaid assessments could not be used for the following:
     To offset FICO assessments (which are governed by section 
21(f) of the Federal Home Loan Bank Act, 12 U.S.C. 1441(f));
     To offset any future special assessments under FDI Act 
section 7(b)(5);
     To offset any future systemic risk assessments under FDI 
Act section 13(c)(4)(G)(ii);
     To offset Temporary Liquidity Guarantee Program 
assessments under 12 C.F.R. 370;
     To pay assessments for quarters prior to the fourth 
quarter of 2009;
     To pay civil money penalties; or
     To offset interest owed to the FDIC for underpayment of 
assessments for assessment periods prior to the fourth quarter of 2009.
    The FDIC would apply an institution's remaining one-time assessment 
credits under Part 327 subpart B before applying its prepaid assessment 
to its quarterly deposit insurance assessments.\10\
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    \10\ One-time assessment credits would not reduce an 
institution's prepaid assessment.
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E. Exemptions for Certain Insured Depository Institutions

    Under the proposed rule, the FDIC would exercise its discretion as 
supervisor and insurer to exempt an institution from the prepayment 
requirement if the FDIC determines that the prepayment would adversely 
affect the safety and soundness of the institution. The FDIC would 
consult with the institution's primary federal regulator in making this 
determination, but would retain the ultimate authority to exercise such 
discretion. The FDIC would notify any affected institution of its 
exemption by December 24, 2009.
    In addition, an insured depository institution could apply to the 
FDIC for an exemption from all or part of the prepayment requirement if 
the prepayment would significantly impair the institution's liquidity, 
or would otherwise create significant hardship. The FDIC would consider 
exemption requests on a case-by-case basis and expects that only a few 
would be necessary. Based on currently available data, the FDIC does 
not expect the number of exemptions to significantly affect the amount 
of prepaid assessments that the FDIC would receive.
    Written applications for exemption from the prepayment obligation 
would be submitted to the Director of the Division of Supervision and 
Consumer Protection on or before December 1, 2009, by fax or electronic 
mail.\11\ In order for an application to be accepted and considered by 
the FDIC, the application must contain a full explanation of the need 
for the exemption and include supporting documentation, such as current 
financial statements and cash flow projections, a description of 
management's plans to correct the circumstances that caused the 
inability to pay the assessment, and any other relevant information 
that the FDIC deems appropriate.
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    \11\ The fax number and electronic mail address will be provided 
in the final rule.
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    The FDIC would notify any insured depository institution that has 
made such a request by December 24, 2009, of the FDIC's determination 
whether the institution is eligible for exemption from the prepaid 
assessment. Determinations of eligibility for exemption made by the 
FDIC would be final and not subject to further agency review.

F. Transfer of Prepaid Assessments

    An insured depository institution would be permitted to transfer 
any portion of its prepaid assessment to another insured depository 
institution, provided that the institutions notify the FDIC's Division 
of Finance and submit a written agreement signed by the legal 
representatives of both institutions. In their submission to the FDIC, 
the institutions must include documentation that each representative 
has the legal authority to bind the institution. Adjustments to the 
institutions' prepaid assessments would be made by the FDIC on the next 
assessment invoice that is made available via FDICconnect at least 10 
days after the FDIC receives the written agreement. This aspect of the 
proposal is similar to the procedural requirements associated with the 
transfer of the one-time assessment credit provided by the Federal 
Deposit Insurance Reform Act of 2005, Public Law 109-171, 120 Stat. 9, 
and implemented by regulation. See 12 CFR 327.34(c).
    In the event that an insured depository institution merged with, or 
consolidated into, another insured depository institution, the 
surviving or resulting institution would be entitled to use any unused 
portion of the disappearing institution's prepaid assessment not 
otherwise transferred.\12\
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    \12\ As noted above, the parties to a transfer agreement must 
provide notice to the FDIC.
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G. Disposition in the Event of Failure or Termination of Insured Status

    In the event that an insured depository institution's insured 
status terminates, any amount of its prepaid assessment remaining 
(other than any amounts needed to satisfy assessment obligations not 
yet offset against the prepaid amount) would be refunded to the 
institution. In the event of failure of an insured depository 
institution, any amount of its prepaid assessment remaining (other than 
any amounts needed to satisfy assessment obligations not yet offset 
against the prepaid amount) would be refunded to the institution's 
receiver.\13\
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    \13\ See 12 CFR 327.6 (2009).
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IV. Alternatives

A. Description of Alternatives

    The FDIC has considered other alternative potential funding sources 
for purposes of restoring liquidity to the DIF. These alternatives 
include imposing additional special assessments or borrowing from 
Treasury or the FFB.14 15 These alternatives are set forth 
in some detail below.
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    \14\ The FDIC's borrowings under 12 U.S.C. 1824 are subject to 
the maximum obligation limit set forth in section 15(c)(5), 12 
U.S.C. 1825(c)(5).
    \15\ The FDIC also has the authority to borrow from insured 
depository institutions under section 14(d) of the FDI Act and from 
Federal Home Loan Banks under Section 14(e) of the FDI Act. 12 
U.S.C. 1824(d) and (e). However, prepaying assessments would be 
simpler than borrowing from these sources because the assessment 
system already exists and requires only minor modifications to 
accommodate prepayment of assessments. Furthermore, borrowing from 
the industry would be voluntary and would not ensure that the DIF 
collects enough cash to fund future failures.
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1. Imposing Additional Special Assessments
    The FDIC could meet its upcoming liquidity needs by imposing 
additional special assessments. To acquire enough cash to meet future 
liquidity needs, special assessments would be required in a much 
greater amount than the two special assessments provided for in the

[[Page 51066]]

May 2009 final rule. Any special assessment would require insured 
depository institutions to expense immediately the amount of the 
assessment at the time imposed. The FDIC specifically seeks comment as 
to whether it should impose additional special assessments in lieu of 
mandatory prepaid assessments.
2. Borrowing From Treasury
    Under section 14(a) of the FDI Act, the FDIC may borrow up to $100 
billion from the Treasury Department, subject to approval by the 
Secretary of the Treasury. The statute also provides for a temporary 
increase in borrowing authority for up to $500 billion, which expires 
December 31, 2010. 12 U.S.C. 1824(a). This temporary authority would 
require the concurrence of the FDIC's Board, the Federal Reserve Board, 
and the Secretary of the Treasury in consultation with the President. 
Regardless of the amount actually borrowed under section 14(a), the 
industry must repay such borrowings through assessments (possibly 
including special assessments) pursuant to a repayment schedule agreed 
to by the Secretary and the FDIC after consultation with the Financial 
Services Committee of the House of Representatives and the Committee on 
Banking, Housing and Urban Affairs of the Senate.
3. Borrowing From the Federal Financing Bank
    Section 14(b) of the FDI Act permits the FDIC to obtain financing 
from the FFB. 12 U.S.C. 1824(b). Lending documents in place between the 
FDIC and the FFB have a current stated limit of $100 billion and do not 
allow the FDIC to borrow until the FDIC's cash balance is below $500 
million. The industry also must repay such borrowings through 
assessments (possibly including special assessments).

B. Advantages of FDIC Proposal

    The FDIC is proposing prepaid assessments as a means of collecting 
enough cash to meet upcoming liquidity needs to fund future 
resolutions. The FDIC believes that this proposal has significant 
advantages compared to additional or higher special assessments. 
Additional or higher special assessments could severely reduce industry 
earnings and capital when the industry is under stress. In addition, 
the FDIC believes that most of the prepaid assessment would be drawn 
from available cash and excess reserves, which should not significantly 
affect depository institutions' current lending activities.
    Requiring that institutions prepay assessments is also preferable 
to borrowing from the U.S. Treasury or the FFB. Prepayment of 
assessments ensures that the deposit insurance system remains directly 
industry-funded. Additionally, unlike borrowing from the Treasury or 
the FFB, requiring prepaid assessments would not count toward the 
public debt limit. Furthermore, collecting prepaid assessments would be 
the least costly option to the Fund for raising liquidity, as there 
would be no interest costs.
    The FDIC has carefully weighed the available options in reaching 
this proposal to require prepaid assessments. It is the FDIC's view 
that the proposal reflects an appropriate balancing of the goal of 
keeping the DIF directly industry-funded, while recognizing the near-
term continued weakness in overall earnings and capital of insured 
depository institutions. Nonetheless, the FDIC seeks comments as to 
whether it is striking the appropriate balance or whether it should 
reconsider some of the alternatives.

V. Request for Comments

    The FDIC seeks comment on every aspect of this proposed rulemaking. 
In particular, the FDIC seeks comment on the issues set out below, 
including the reasoning for their positions.
    1. As an alternative to prepaid assessments, should the FDIC meet 
its liquidity needs by imposing one or more special assessments?
    2. Should the FDIC pursue one or more of the other alternatives to 
the prepaid assessments, such as borrowing from Treasury or the FFB?
    3. Should prepaying assessments be voluntary rather than mandatory 
as currently contemplated, and, if so, how would the FDIC ensure that 
it receives sufficient cash to fund resolutions of failed insured 
depository institutions? (If prepayment of assessments were optional, 
the FDIC believes that it would affect the accounting treatment as a 
prepaid expense.)
    4. For purposes of calculating the prepaid assessment, should the 
FDIC estimate the growth in the assessment base at a rate other than 5 
percent for 2009, 2010, 2011 and 2012? Should the FDIC use different 
assessment rate assumptions than those proposed?
    5. As proposed, the FDIC would require prepayment of estimated 
assessments for the fourth quarter of 2009 and for all of 2010, 2011 
and 2012 based on its current liquidity needs projections. Should the 
FDIC require prepayment of estimated assessments over a different 
period or in installments?
    6. Should the FDIC's Amended Restoration Plan incorporate a 
provision requiring a special assessment or a temporarily higher 
assessment rate schedule that brings the reserve ratio back to a 
positive level within a specified time frame (one year or less) from 
January 1, 2011, when the FDIC projects industry earnings will have 
recovered?

VI. Effective Date

    The FDIC proposes that a final rule following this proposed rule 
would become effective immediately upon adoption.

VII. Regulatory Analysis and Procedure

A. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The FDIC invites your comments on how to make this 
proposal easier to understand. For example:
     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 proposal and publish the analysis for comment.\16\ 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

[[Page 51067]]

the definition of ``rule'' for purposes of the RFA.\17\ The proposed 
rule relates directly to the rates imposed on insured depository 
institutions for deposit insurance. Nonetheless, the FDIC is 
voluntarily undertaking an initial regulatory flexibility analysis of 
the proposal and seeking comment on it.
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    \16\ See 5 U.S.C. 603, 604 and 605.
    \17\ 5 U.S.C. 601.
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    As of June 30, 2009, of the 8195 insured commercial banks and 
savings institutions, there were 4597 small insured depository 
institutions as that term is defined for purposes of the RFA (i.e., 
those with $175 million or less in assets).\18\
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    \18\ Throughout this section (unlike the rest of the notice of 
proposed rulemaking), a ``small institution'' refers to an 
institution with assets of $175 million or less.
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    The proposal has no significant effect on capital and earnings, 
although there could be a small loss of interest earned by some small 
institutions. In addition, the proposal could affect the liquidity of 
insured depository institutions, including small institutions. However, 
for 95.8 percent of small institutions, the prepayment would be less 
than 25 percent of their cash and cash equivalent assets. Moreover, the 
proposal includes a mechanism for exempting those institutions that 
cannot prepay their assessments without posing safety and soundness 
concerns or imposing undue hardship. Finally, the effect on liquidity 
is further mitigated by the institutions' ability to transfer their 
prepaid assessments. The FDIC invites comment on this analysis.

C. 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.

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

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Public Law 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 continues to read as 
follows:

    Authority:  12 U.S.C. 1441, 1813, 1815, 1817-1819, 1821; Sec. 
2101-2109, Public Law 109-171, 120 Stat. 9-21, and Sec. 3, Public 
Law 109-173, 119 Stat. 3605.

    2. In part 327 add new Sec.  327.12 to Subpart A to read as 
follows:

Sec.  327.12  Prepayment of quarterly risk-based assessments.

    (a) Prepaid assessment. On December 30, 2009, each insured 
depository institution shall prepay to the FDIC a prepaid assessment, 
which shall equal its estimated quarterly risk-based assessments 
aggregated for the fourth quarter of 2009, and all of 2010, 2011, and 
2012 (the ``prepayment period'').
    (b) Calculation of prepaid assessment--(1) Prepaid assessment.
    (i) An institution's estimated prepaid assessment for the fourth 
quarter of 2009 and for all of 2010 shall be determined by multiplying 
its total base assessment rate for the third quarter of 2009, 
calculated using the institution's CAMELS rating and, where applicable, 
long-term debt issuer rating(s), in effect on September 30, 2009, times 
the corresponding assessment base for each quarter, determined pursuant 
to paragraph (b)(2) of this section.
    (ii) An institution's estimated prepaid assessment for all of 2011 
and 2012 shall be determined by multiplying the sum of its total base 
assessment rate for the third quarter of 2009, calculated using the 
institution's CAMELS rating and, where applicable, long-term debt 
issuer rating(s), in effect on September 30, 2009, plus 3 basis points, 
times the corresponding assessment base for each quarter, determined 
pursuant to paragraph (b)(2) of this section.
    (2) Prepaid assessment base. For each quarter of the prepayment 
period, an institution's prepaid assessment base shall be calculated by 
increasing its third quarter 2009 assessment base at an annual rate of 
5 percent.
    (3) Finality of prepaid assessment amount. Changes to data 
underlying an institution's prepaid assessment rate or base received by 
the FDIC after December 24, 2009, shall not affect an institution's 
prepayment amount.. The September 30, 2009 assessment rate and 
assessment base used in paragraphs (b)(1) and (2) of this section shall 
be determined based upon data in the FDIC's computer systems as of 
December 24, 2009. Changes to underlying data after that date, whether 
by amendment to a report of condition or otherwise, shall not affect 
the amount of an institution's prepaid assessment.
    (4) Prepaid assessment rates for mergers and consolidations. For 
mergers and consolidations recorded in the FDIC's computer systems no 
later than December 24, 2009, the assessment rate used to determine an 
acquired institution's prepaid assessment under paragraphs (b)(1) and 
(2) of this section shall be the assessment rate of the acquiring 
institution.
    (c) Invoicing of prepaid assessment. The FDIC shall advise each 
insured depository institution of the amount and calculation of its 
prepaid assessment amount at the same time the FDIC provides the 
institution's quarterly certified statement invoice for the third 
quarter of 2009. However, the amount will be updated through December 
24, 2009, based upon any changes to data in the FDIC's computer systems 
used to calculate an institution's September 30, 2009, assessment rate 
and assessment base. Changes to data underlying an institution's 
prepaid assessment rate or base received by the FDIC after December 24, 
2009, shall not affect an institution's prepayment amount.
    (d) Payment of prepaid assessment. Each insured depository 
institution shall pay to the Corporation the amount of its prepaid 
assessment as provided under paragraph (a) of this section in 
compliance with and subject to the provisions of Sec. Sec.  327.3 and 
327.7 of subpart A. The FDIC will not apply an institution's one-time 
assessment credit under subpart B of this part 327 to reduce that 
institution's prepaid assessment.
    (e) Use of prepaid assessments. Prepaid assessments shall only be 
used to offset regular quarterly risk-based deposit insurance 
assessments payable under this subpart A. The FDIC will begin 
offsetting regular quarterly risk-based deposit insurance assessments 
against prepaid assessments on March 30, 2010. The FDIC will continue 
to make such offsets until the earlier of the exhaustion of the 
institution's prepaid assessment or December 30, 2014. Any prepaid 
assessment remaining after December 30, 2014, shall be promptly 
returned to the institution. The FDIC will apply an institution's 
remaining one-time assessment credits under Part 327 subpart B to its 
quarterly deposit insurance assessments before applying its prepaid 
assessments.
    (f) Transfers. An insured depository institution may enter into an 
agreement to transfer any portion of that institution's prepaid 
assessment to another insured depository institution, provided that the 
parties to the agreement notify the FDIC's Division of Finance and 
submit a written agreement, signed by legal

[[Page 51068]]

representatives of both institutions. The parties must include 
documentation stating that each representative has the legal authority 
to bind the institution. The adjustment to the amount of the prepaid 
assessment will be made in the next assessment invoice that is sent at 
least 10 days after the FDIC's receipt of the written agreement. In the 
event that an insured depository institution merges with, or 
consolidates into, another insured depository institution, the 
surviving or resulting institution will be entitled to use any unused 
portion of the acquired institution's prepaid assessment not otherwise 
transferred.
    (g) Exemptions--(1) Exemption without application. The FDIC, after 
consultation with the primary Federal regulator, will exercise its 
discretion as supervisor and insurer to exempt an institution from the 
prepayment requirement under paragraph (a) of this section if the FDIC 
determines that the prepayment would adversely affect the safety and 
soundness of that institution. No application is required for this 
review and the FDIC will notify any affected institutions of its 
exemption by December 24, 2009.
    (2) Application for exemptions. An institution may also apply to 
the FDIC for an exemption from all or part of the prepayment 
requirement under paragraph (a) of this section if the prepayment would 
significantly impair the institution's liquidity, or would otherwise 
create significant hardship. Written applications for exemption from 
the prepayment obligation must be submitted to the Director of the 
Division of Supervision and Consumer Protection on or before December 
1, 2009, by fax ((202) XXX-XXXX) or electronic mail (XXX@XXX). The 
application must contain a full explanation of the need for the 
exemption and include supporting documentation, such as current 
financial statements and cash flow projections, a description of 
management's plans to correct the circumstances that caused the 
inability to pay the assessment, and any other relevant information, 
including any information the FDIC may request. The FDIC will notify 
the insured depository institution of its determination by December 24, 
2009; that determination will be final and not subject to further 
agency review.

    By order of the Board of Directors.

    Dated at Washington, DC, this 29th of September, 2009.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-23803 Filed 9-30-09; 11:15 am]
BILLING CODE 6714-01-P
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