Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 51063 

1Section 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)). 

2The 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)). 

3The 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. 

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. 

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 riskbased 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: Comments@FDIC.gov. 

Include the RIN number in the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

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

Instructions: All submissions received 

must include the agency name and RIN 

for this rulemaking. All comments 

received will be posted without change 

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

federal/propose.html including any 

personal information provided. 

FOR FURTHER INFORMATION CONTACT: 

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

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 industryfunded, 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
51064 Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 

4 74 FR 25639 (May 29, 2009). 

5An 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. 

6Thus, 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. 

7An 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. 

8The 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. 

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). 

Board of Directors prescribes by 

regulation. 12 U.S.C. 1817(c)(2)(B). 

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 noticeand-comment rulemaking. 

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

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 riskbased 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’ riskbased 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. 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 51065 

10One-time assessment credits would not reduce 

an institution’s prepaid assessment. 

11The fax number and electronic mail address 

will be provided in the final rule. 

12As noted above, the parties to a transfer 

agreement must provide notice to the FDIC. 

13See 12 CFR 327.6 (2009). 

14The 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). 

15The 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. 

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 riskweighted 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

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. 

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

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

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. 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
51066 Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 

16See 5 U.S.C. 603, 604 and 605. 

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 industryfunded. 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-LeachBliley Act, Public Law 106–102, 113 

Stat. 1338, 1471 (Nov. 12, 1999), 

requires the federal banking agencies to 

use plain language in all proposed and 

final rules published after January 1, 

2000. The FDIC invites your comments 

on how to make this proposal easier to 

understand. For example: 

• Has the FDIC organized the material 

to suit your needs? If not, how could 

this material be better organized? 

• Are the requirements in the 

proposed regulation clearly stated? If 

not, how could the regulation be more 

clearly stated? 

• Does the proposed regulation 

contain language or jargon that is not 

clear? If so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes to the format would make the 

regulation easier to understand? 

• What else could the FDIC do to 

make the regulation easier to 

understand? 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that each federal agency either 

certify that a proposed rule would not, 

if adopted in final form, have a 

significant economic impact on a 

substantial number of small entities or 

prepare an initial regulatory flexibility 

analysis of the 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 51067 

17 5 U.S.C. 601. 

18Throughout 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. 

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. 

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

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 § 327.12 to 

Subpart A to read as follows: 

§ 327.12 Prepayment of quarterly riskbased 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 §§ 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 riskbased 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
51068 Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Proposed Rules 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2