[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Rules and Regulations]
[Pages 64135-64138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31867]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 8

[Docket No. 97-23]
RIN 1557-AB41


Assessment of Fees; National Banks; District of Columbia Banks

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), in order 
to more accurately reflect the OCC's costs of

[[Page 64136]]

supervising banks, is amending its assessment regulation to impose a 
surcharge on banks that receive a rating of 3, 4, or 5 under the 
Uniform Financial Institutions Rating System (UFIRS) (also referred to 
as the CAMELS rating) and on Federal branches and agencies of foreign 
banks that receive a rating of 3, 4, or 5 under the ROCA rating system 
(which rates risk management, operational controls, compliance, and 
asset quality). This amendment will enable the OCC to distribute more 
equitably the costs it incurs when supervising institutions that are 
experiencing significant problems. The OCC also is eliminating the 
annual franchise fee on banks that are registered as municipal and/or 
government securities dealers.

EFFECTIVE DATE: December 31, 1997.

FOR FURTHER INFORMATION CONTACT: Roy Madsen, Deputy Chief Financial 
Officer, Financial Review, Policy and Analysis, (202) 874-5130; or Mark 
Tenhundfeld, Assistant Director, Legislative and Regulatory Activities 
Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

    The OCC charters, regulates, and supervises approximately 2,700 
national banks and 64 Federal branches and agencies of foreign banks in 
the United States, accounting for nearly 60 percent of the nation's 
banking assets. Its mission is to ensure a safe, sound, and competitive 
national banking system that supports the citizens, communities, and 
economy of the United States. The OCC funds the activities that further 
this mission by imposing assessments, fees, and other charges on banks 
within its jurisdiction, as necessary and appropriate to meet the OCC's 
expenses, pursuant to 12 U.S.C. 482.
    The OCC charges each national bank and Federal branch and agency a 
semiannual assessment according to a formula that is described in 12 
CFR 8.2. In general, the OCC calculates the semiannual assessment by 
using a marginal rate that declines as an institution's asset size 
grows. The OCC also reduces assessments charged to a ``non-lead bank'' 
(which, generally speaking, refers to a national bank that is not the 
largest national bank owned by the same company) by a percentage 
determined in accordance with each assessment. For example, the OCC 
reduced the assessment for non-lead national banks that was due January 
31, 1997, by 12 percent.
    The marginal rate structure (which applies a declining marginal 
rate as bank asset size grows) and the assessment reduction for non-
lead national banks reflect the OCC's cost savings resulting from the 
economies of scale realized in the examination and supervision of large 
institutions and non-lead banks. However, the current assessment 
regulation does not reflect the increased costs that the OCC incurs 
when supervising a bank whose condition requires special attention. As 
a result, healthy banks subsidize banks that are experiencing 
significant problems. The imposition of a surcharge on banks requiring 
additional OCC resources, discussed in the section that follows, 
addresses this concern.

Discussion of the Final Rule

Surcharge

    In the proposed rule (62 FR 54747 (October 21, 1997)), the OCC 
sought comment on the addition of new paragraphs (a)(7) and (b)(5) to 
Sec. 8.2, pursuant to which the OCC would impose a surcharge equal to 
25 percent of the amount of the assessment that otherwise would be due 
from (a) national banks that receive a UFIRS rating of 3, 4, or 5 and 
(b) Federal branches and agencies of foreign banks that receive a ROCA 
rating of 3, 4, or 5. This proposal stemmed from OCC cost data, which 
show that there is a significant increase in supervision costs once an 
institution's rating moves from 2 to 3 and that these increased costs 
continue while the bank is rated 3, 4, or 5. To reflect this increase 
in costs of supervising a bank rated 3 or worse, the OCC proposed to 
use a UFIRS or ROCA rating (as appropriate) of 3 as the threshold for 
applying the surcharge. Using the most recently available data, the 
surcharge would affect approximately 94 national banks and Federal 
branches and agencies of foreign banks, resulting in an aggregate 
annual increase in assessments for these banks of approximately 
$983,000.
    The OCC received three comments on the proposal, all of which were 
generally supportive of imposing the surcharge. The first commenter 
acknowledged that banks rated a 3, 4, or 5 require greater supervisory 
attention and concluded that the fee structure should reflect this. 
This commenter observed, however, that the surcharge might worsen the 
financial condition of institutions having to pay the surcharge. The 
second commenter, while supporting the imposition of a surcharge, 
suggested that the OCC (a) raise the surcharge for all banks rated a 3, 
4, or 5 to some percentage higher than 25%, (b) increase the amount of 
the surcharge the worse a bank's condition becomes, and (c) charge 
banks a higher assessment the longer they fail to improve their 
condition. The third commenter agreed that banks rated a 3, 4, or 5 
should pay a surcharge, but suggested that the OCC adopt a sliding 
scale that would impose a higher surcharge the worse a bank's rating 
became. This commenter also suggested that the OCC consider charging 
banks by the hour for examinations, but then noted that such an 
approach would raise the possibility of disputes over the number and 
qualifications of examiners used and the length of examinations.
    The OCC believes, based on available cost data, that a 25% 
surcharge is an appropriate step toward minimizing the extent to which 
healthy banks subsidize banks requiring additional supervision without 
having counterproductive results. The data do not at this point support 
increasing the assessment surcharge in the other ways proposed by the 
commenters. Accordingly, the OCC, acting pursuant to 12 U.S.C. 482, 
adopts the proposed surcharge without change. The OCC will continue to 
review its cost data and make further adjustments to the assessment 
calculation as appropriate.
    The OCC will use the date of the most recent Report of Examination 
to determine whether a surcharge should be imposed. If a bank is rated 
3, 4, or 5 in the most recent exam report that is dated before the end 
of the relevant assessment period, a surcharge will be applied. Thus, 
for instance, if a bank is downgraded from a 2 to a 3 and receives this 
rating in an exam report dated on or before December 31, that bank 
would have to pay the surcharge with the assessment that is due by the 
following January 31. If, however, the exam report is dated January 1, 
in this example the bank would not have to pay the surcharge with the 
payment due the following January 31 but would have to pay the 
surcharge with all subsequent assessments until it is upgraded.

Assessments of a Bank That Owns Another Bank

    In the preamble to the proposed rule, the OCC sought comment on the 
proper method of calculating the assessments of national banks that own 
other banks. This issue stems from a recent change in the Consolidated 
Report of Condition and Income (Call Report) instructions <SUP>1</SUP> 
pursuant to which the assets of a subsidiary bank are reported on a 
consolidated basis in the Call Report of its parent bank. Given that 
the subsidiary bank also must file a Call Report, the current 
assessment regulation, which bases assessments on

[[Page 64137]]

assets reported in a bank's Call Report, has the unintended effect of 
double-counting at least some of the assets of the subsidiary bank.
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    \1\ See 62 FR 8078 (February 21, 1997).
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    The OCC received two comments on this issue. Both commenters 
suggested that subsidiary bank assets be subtracted from consolidated 
parent bank assets in determining the supervisory assessment base for 
the parent bank. The OCC agrees that it is appropriate to subtract the 
assets of the subsidiary bank for purposes of calculating the 
assessment of the parent bank. However, given the small number of banks 
that own other banks and the wide divergence in circumstances of these 
banks, the OCC has determined that it is appropriate to address this 
situation on a case-by-case basis instead of adopting a regulation that 
attempts to cover all situations. In order to ensure that these banks 
are assessed fairly, the OCC will inform the affected institutions in 
each semiannual assessment notice that they may submit information to 
the OCC demonstrating what the appropriate adjustment should be to the 
top-tier bank's total assets. The OCC then will review the information 
and adjust the assessment accordingly.

Removal of Annual Franchise Fees (Sec. 8.15)

    The OCC also is removing Sec. 8.15 from the current rule, which 
states that national banks that are registered or on file as municipal 
and/or government securities dealers shall pay an annual franchise fee 
covering each dealer activity. National banks engage in a wide variety 
of activities requiring an equally wide variety of supervisory 
activities. Rather than impose special fees on a few activities or, 
conversely, attempt to segregate and define all different types of 
supervisory activities and costs, the OCC has determined that it is 
more efficient and simpler for the industry for the OCC to recover its 
costs by imposing only one fee, namely, the semiannual assessment. 
Thus, the special fee charged to those banks that are registered as 
municipal and government securities dealers will be removed.

Adoption of Final Rule Removing Annual Franchise Fees

    The OCC has determined that notice and comment is not required 
before removing Sec. 8.15. The rule involves agency practice and 
procedure and thus is exempt under 5 U.S.C. 553(b)(A) from the prior 
notice requirements of the Administrative Procedure Act (5 U.S.C. 551 
et seq.). The determination of how fees are imposed is internal to the 
OCC, since the Comptroller is required by 12 U.S.C. 482 to recover 
expenses but is not required to follow specific calculations or 
formulae when making this determination. As a result, the OCC may 
revise its assessment structure as necessary to meet its expenses. In 
addition, the rule is exempt pursuant to 5 U.S.C. 553(b)(B) from the 
prior notice requirements because delaying adoption of the final rule 
pending receipt of comments would be unnecessary and contrary to the 
public interest. The rule confers a benefit on national banks that are 
registered as municipal and/or government securities dealers by 
eliminating the franchise fee.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) 
(5 U.S.C. 605(b)), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA (5 U.S.C. 604) is not required if 
the agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities and the agency 
publishes that certification and a short, explanatory statement in the 
Federal Register along with the final rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this final rule will not have a significant economic impact on a 
substantial number of small entities. While the rule requires national 
banks, Federal branches, and Federal agencies of all sizes that receive 
a UFIRS or ROCA rating of 3, 4, or 5 to pay an assessment surcharge, 
this will not create a significant or disparate impact on small 
institutions. The assessments for the 69 national banks, Federal 
branches, and Federal agencies with total assets of under $100 million 
that currently are rated 3, 4, or 5 would increase, in the aggregate, 
by approximately $357,683 per year, which is equal to approximately 
$5,184 per institution. Accordingly, a regulatory flexibility analysis 
under section 604 of the RFA is not required.

Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that this final rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. The increase in the 
assessments of institutions rated a 3, 4, or 5 will be less than $1.0 
million in the aggregate. Accordingly, the OCC has not prepared a 
budgetary impact statement or specifically addressed any regulatory 
alternatives.

List of Subjects in 12 CFR Part 8

    Assessments, Fees, National banks.

Authority and Issuance

    For the reasons set forth in the preamble, part 8 of chapter I of 
title 12 of the Code of Federal Regulations is amended as follows:

PART 8--ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA 
BANKS

    1. The authority citation for part 8 continues to read as follows:

    Authority: 12 U.S.C. 93a, 481, 482, 3102, and 3108; 15 U.S.C. 
78c and 78l; and 26 D.C. Code 102.

    2. Section 8.2 is amended by adding new paragraphs (a)(7) and 
(b)(5) to read as follows:


Sec. 8.2  Semiannual assessment.

    (a) * * *
    (7) The OCC shall adjust the semiannual assessment computed in 
accordance with paragraphs (a)(1) through (a)(6) of this section by 
multiplying that figure by 1.25 for each bank that receives a rating of 
3, 4, or 5 under the Uniform Financial Institutions Rating System at 
its most recent examination.
    (b) * * *
    (5) The OCC shall adjust the semiannual assessment computed in 
accordance with paragraphs (b)(1) through (b)(4) of this section by 
multiplying that figure by 1.25 for each Federal branch or Federal 
agency that receives a ROCA rating (which rates risk management, 
operational controls, compliance, and asset quality) of 3, 4, or 5 at 
its most recent examination.


Sec. 8.15  [Removed]

    3. Section 8.15 is removed.


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    Dated: December 1, 1997.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 97-31867 Filed 12-2-97; 11:32 am]
BILLING CODE 4810-33-P