[Federal Register Volume 87, Number 126 (Friday, July 1, 2022)]
[Proposed Rules]
[Pages 39388-39411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13578]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Proposed 
Rules

[[Page 39388]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF83


Assessments, Revised Deposit Insurance Assessment Rates

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is seeking comment on a proposed rule that would 
increase initial base deposit insurance assessment rates by 2 basis 
points, beginning with the first quarterly assessment period of 2023. 
The proposal would increase the likelihood that the reserve ratio would 
reach the required minimum level of 1.35 percent by the statutory 
deadline of September 30, 2028, consistent with the FDIC's Amended 
Restoration Plan, and is intended to support growth in the Deposit 
Insurance Fund (DIF or fund) in progressing toward the FDIC's long-term 
goal of a 2 percent Designated Reserve Ratio (DRR).

DATES: Comments must be received no later than August 20, 2022.

ADDRESSES: You may submit comments on the notice of proposed rulemaking 
using any of the following methods:
    <bullet> Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for 
submitting comments on the agency website.
    <bullet> Email: <a href="/cdn-cgi/l/email-protection#92f1fdfffff7fce6e1d2f4f6fbf1bcf5fde4"><span class="__cf_email__" data-cfemail="6e0d0103030b001a1d2e080a070d40090118">[email protected]</span></a>. Include RIN 3064-AF83 on the 
subject line of the message.
    <bullet> Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-AF83, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
    <bullet> Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street NW, building (located on F 
Street NW) on business days between 7 a.m. and 5 p.m.
    <bullet> Public Inspection: Comments received, including any 
personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. 
Commenters should submit only information that the commenter wishes to 
make available publicly. The FDIC may review, redact, or refrain from 
posting all or any portion of any comment that it may deem to be 
inappropriate for publication, such as irrelevant or obscene material. 
The FDIC may post only a single representative example of identical or 
substantially identical comments, and in such cases will generally 
identify the number of identical or substantially identical comments 
represented by the posted example. All comments that have been 
redacted, as well as those that have not been posted, that contain 
comments on the merits of this document will be retained in the public 
comment file and will be considered as required under all applicable 
laws. All comments may be accessible under the Freedom of Information 
Act.

FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director, 
Financial Risk Management Branch, 202-898-7041, <a href="/cdn-cgi/l/email-protection#14797d777c6764717a7771665472707d773a737b62"><span class="__cf_email__" data-cfemail="0865616b607b786d666b6d7a486e6c616b266f677e">[email protected]</span></a>; 
Ashley Mihalik, Chief, Banking and Regulatory Policy, 202-898-3793, 
<a href="/cdn-cgi/l/email-protection#c6a7abafaea7aaafad86a0a2afa5e8a1a9b0"><span class="__cf_email__" data-cfemail="1e7f7377767f7277755e787a777d30797168">[email protected]</span></a>; Kayla Shoemaker, Senior Policy Analyst, 202-898-
6962, <a href="/cdn-cgi/l/email-protection#305b5143585f555d515b554270565459531e575f46"><span class="__cf_email__" data-cfemail="5c373d2f343339313d37392e1c3a38353f723b332a">[email protected]</span></a>; Sheikha Kapoor, Senior Counsel, 202-898-
3960, <a href="/cdn-cgi/l/email-protection#92e1f9f3e2fdfde0d2f4f6fbf1bcf5fde4"><span class="__cf_email__" data-cfemail="33405852435c5c417355575a501d545c45">[email protected]</span></a>; Ryan McCarthy, Senior Attorney, 202-898-7301, 
<a href="/cdn-cgi/l/email-protection#d6a4afbbb5b5b7a4a2beaf96b0b2bfb5f8b1b9a0"><span class="__cf_email__" data-cfemail="abd9d2c6c8c8cad9dfc3d2ebcdcfc2c885ccc4dd">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Legal Authority and Policy Objectives

    The FDIC, under its general rulemaking authority in Section 9 of 
the Federal Deposit Insurance Act (FDI Act), and its specific authority 
under Section 7 of the FDI Act to set assessments, is proposing to 
increase initial base deposit insurance assessment rates by 2 basis 
points, effective January 1, 2023, and applicable to the first 
quarterly assessment period of 2023 (i.e., January 1-March 31, 
2023).\1\
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    \1\ See 12 U.S.C. 1817 and 1819.
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    The proposed increase in initial base assessment rates is intended 
to achieve two objectives. First, the proposal is intended to increase 
assessment revenue in order to build the DIF, which is used to pay 
deposit insurance in the event of failure of an insured depository 
institution (IDI), and to restore the reserve ratio to the statutory 
minimum of 1.35 percent within the deadline set by statute, consistent 
with the Restoration Plan, as amended by the FDIC Board of Directors 
(Board) on June 21, 2022 (Amended Restoration Plan).\2\ While the 
banking industry has remained a source of strength for the economy and 
the DIF has experienced low losses from IDI failures in recent years, 
slowing growth in the fund balance combined with continued elevated 
estimated insured deposit levels, described below, have decreased the 
likelihood that the reserve ratio will meet the statutory minimum by 
September 30, 2028.\3\ The proposal would increase the likelihood that 
the reserve ratio will meet the statutory minimum by the required 
deadline and reduce the likelihood that the FDIC would need to raise 
assessment rates during a potential future period of banking industry 
stress.
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    \2\ Under the FDI Act, a restoration plan must restore the 
reserve ratio to at least 1.35 percent within 8 years of 
establishing the restoration plan, absent extraordinary 
circumstances. See 12 U.S.C. 1817(b)(3)(E). The reserve ratio is 
calculated as the ratio of the net worth of the DIF to the value of 
the aggregate estimated insured deposits at the end of a given 
quarter. See 12 U.S.C. 1813(y)(3).
    \3\ 12 U.S.C. 1817(b)(3)(E)(ii). As used in this proposed rule, 
the term ``bank'' is synonymous with the term ``insured depository 
institution'' as it is used in section 3(c)(2) of the FDI Act, 12 
U.S.C. 1813(c)(2).
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    Second, the proposed change in assessment rates is further intended 
to support growth in the DIF in progressing toward the 2 percent DRR. 
Therefore, the proposed assessment rate schedules would remain in 
effect unless and until the reserve ratio meets or exceeds 2 percent, 
absent further Board action. This continued growth in the DIF is 
intended to reduce the likelihood that the FDIC would need to consider 
a potentially pro-cyclical assessment rate increase, and to increase 
the likelihood of the DIF remaining positive through potential future 
periods of significant losses due to bank failures, consistent with the 
FDIC's long-term fund management plan.\4\ A sufficiently large fund is 
a necessary precondition to maintaining a positive fund balance during 
a banking crisis and allowing for long-term, steady assessment rates. 
Accomplishing these objectives also

[[Page 39389]]

would continue to ensure public confidence in federal deposit 
insurance.
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    \4\ See 75 FR 66273 (Oct. 27, 2010) and 76 FR 10672 (Feb. 25, 
2011).
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II. Background

A. Restoration Plan

    Extraordinary growth in insured deposits during the first and 
second quarters of 2020 caused the DIF reserve ratio to decline below 
the statutory minimum of 1.35 percent.\5\ As of June 30, 2020, the 
reserve ratio had fallen below the statutory minimum and stood at 1.30 
percent. The FDI Act requires that the Board adopt a restoration plan 
when the DIF reserve ratio falls below the statutory minimum of 1.35 
percent or is expected to within 6 months.\6\ On September 15, 2020, 
the Board adopted the Restoration Plan to restore the DIF to at least 
1.35 percent by September 30, 2028.\7\
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    \5\ See 12 U.S.C. 1817(b)(3)(B).
    \6\ See 12 U.S.C. 1817(b)(3)(E).
    \7\ See 85 FR 59306 (Sept. 21, 2020).
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    In its June 21, 2022, semiannual update to the Board, FDIC 
projections of the reserve ratio under different scenarios reflected 
that the reserve ratio is at risk of not reaching 1.35 percent by 
September 30, 2028, the end of the statutory 8-year period.\8\ The 
scenarios are based on updated data and analysis and incorporate 
different rates of insured deposit growth and weighted average 
assessment rates, including sustained elevated insured deposit balances 
and lower assessment rates than previously anticipated. On June 21, 
2022, the Board approved the Amended Restoration Plan, which reflects 
an increase in initial base deposit insurance assessment rates of 2 
basis points, beginning with the first quarterly assessment period of 
2023. Accordingly, the FDIC is concurrently publishing in the Federal 
Register an Amended Restoration Plan.
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    \8\ See FDIC Restoration Plan Semiannual Update, June 21, 2022. 
Available at https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf.
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B. Designated Reserve Ratio

    The FDI Act requires that the Board designate a reserve ratio for 
the DIF and publish the DRR before the beginning of each calendar 
year.\9\ The Board must set the DRR in accordance with its analysis of 
certain statutory factors: risk of losses to the DIF; economic 
conditions generally affecting IDIs; preventing sharp swings in 
assessment rates; and any other factors that the Board determines to be 
appropriate.\10\
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    \9\ Section 7(b)(3)(A) of the FDI Act, 12 U.S.C. 1817(b)(3)(A). 
The DRR is expressed as a percentage of estimated insured deposits.
    \10\ Section 7(b)(3)(C) of the FDI Act, 12 U.S.C. 1817(b)(3)(C).
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    In 2010, the FDIC proposed and later adopted a comprehensive, long-
term management plan for the DIF with the following goals: (1) reduce 
the pro-cyclicality in the existing risk-based assessment system by 
allowing moderate, steady assessment rates throughout economic and 
credit cycles; and (2) maintain a positive fund balance even during a 
banking crisis by setting an appropriate target fund size and a 
strategy for assessment rates and dividends.\11\ Based on the FDIC's 
experience through two banking crises, the analysis concluded that a 
long-term moderate, steady assessment rate of 5.29 basis points would 
have been sufficient to prevent the fund from becoming negative during 
the crises.\12\ The FDIC also found that the fund reserve ratio would 
have had to exceed 2 percent before the onset of the last two crises to 
achieve these results.\13\
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    \11\ See 75 FR 66272 (Oct. 27, 2010) (October 2010 NPR) and 76 
FR 10672 (Feb. 25, 2011).
    \12\ See 75 FR 66273 and 76 FR 10675.
    \13\ The analysis set out in the October 2010 NPR sought to 
determine what assessment rates would have been needed to maintain a 
positive fund balance during the last two crises. This analysis used 
an assessment base derived from domestic deposits to calculate 
assessment income. The Dodd-Frank Wall Street Reform and Consumer 
Protection Act, however, required the FDIC to change the assessment 
base to average consolidated total assets minus average tangible 
equity. In the December 2010 final rule establishing a 2 percent 
DRR, the FDIC undertook additional analysis to determine how the 
results of the original analysis would change had the new assessment 
base been in place from 1950 to 2010. Both the analyses in the 
October 2010 NPR and the December 2010 final rule show that the fund 
reserve ratio would have needed to be approximately 2 percent or 
more before the onset of the crises to maintain both a positive fund 
balance and stable assessment rates. The updated analysis in the 
December 2010 final rule, like the analysis in the October 2010 NPR, 
assumed, in lieu of dividends, that the long-term industry average 
nominal assessment rate would be reduced by 25 percent when the 
reserve ratio reached 2 percent, and by 50 percent when the reserve 
ratio reached 2.5 percent. Eliminating dividends and reducing rates 
successfully limits rate volatility whichever assessment base is 
used. See 75 FR 66273 and 75 FR 79288 (Dec. 20, 2010) (December 2010 
final rule).
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    The FDIC's comprehensive, long-term fund management plan combines 
the moderate, steady assessment rate with a DRR of 2 percent. The Board 
set the DRR at 2 percent in 2010 and has voted annually since then to 
maintain the 2 percent DRR, most recently in December 2021.\14\ The 
FDIC views the DRR as a long-range, minimum goal that will allow the 
fund to grow sufficiently large during times of favorable banking 
conditions, increasing the likelihood that the DIF will remain positive 
throughout periods of significant losses due to bank failures. 
Additionally, in lieu of dividends, the long-term plan prescribes 
progressively lower assessment rates that will become effective when 
the reserve ratio exceeds 2 percent and 2.5 percent. Because analysis 
shows that a reserve ratio higher than 2 percent increases the chance 
that the fund will remain positive during a crisis, the 2 percent DRR 
should not be treated as a cap on the size of the fund.\15\
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    \14\ See 75 FR 79286 (Dec. 20, 2010), codified at 12 CFR 
327.4(g), and 86 FR 71638 (Dec. 17, 2021).
    \15\ See 75 FR 66273 and 75 FR 79287.
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C. Deposit Insurance Assessments

    Pursuant to Section 7 of the FDI Act, the FDIC has established a 
risk-based assessment system through which it charges all IDIs an 
assessment amount for deposit insurance.\16\
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    \16\ See 12 U.S.C. 1817(b).
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    Under the FDIC's regulations, an IDI's assessment is equal to its 
assessment base multiplied by its risk-based assessment rate.\17\ 
Generally, an IDI's assessment base equals its average consolidated 
total assets minus its average tangible equity.\18\ An IDI's assessment 
rate is determined each quarter based on supervisory ratings and 
information collected on the Consolidated Reports of Condition and 
Income (Call Report) or the Report of Assets and Liabilities of U.S. 
Branches and Agencies of Foreign Banks (FFIEC 002), as appropriate. An 
IDI's assessment rate is calculated using different methods based on 
whether the IDI is a small, large, or highly complex institution.\19\ 
For assessment purposes, a small bank is generally defined as an 
institution with less than $10 billion in total assets, a large bank is 
generally defined as an institution with $10 billion or more in total 
assets, and a highly complex bank is generally defined as an 
institution that has $50 billion or more in total assets and is 
controlled by a parent holding company that has $500 billion or more in 
total assets, or is a processing bank or trust company.\20\
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    \17\ See 12 CFR 327.3(b)(1).
    \18\ See 12 CFR 327.5.
    \19\ See 12 CFR 327.16(a) and (b).
    \20\ As used in this proposed rule, the term ``small bank'' is 
synonymous with the term ``small institution'' and the term ``large 
bank'' is synonymous with the term ``large institution'' or ``highly 
complex institution,'' as the terms are defined in 12 CFR 327.8(e), 
(f), and (g), respectively.
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    Assessment rates for established small banks are calculated based 
on eight risk measures that are statistically significant in predicting 
the probability of an institution's failure over a three-year 
horizon.\21\
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    \21\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
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    Large and highly complex institutions are assessed using a 
scorecard approach

[[Page 39390]]

that combines CAMELS ratings and certain forward-looking financial 
measures to assess the risk that a large or highly complex bank poses 
to the DIF.\22\
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    \22\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) 
and 77 FR 66000 (Oct. 31, 2012).
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    All institutions are subject to adjustments to their assessment 
rates for certain liabilities that can increase or reduce loss to the 
DIF in the event the bank fails.\23\ In addition, the FDIC may adjust a 
large bank's total score, which is used in the calculation of its 
assessment rate, based upon significant risk factors not adequately 
captured in the appropriate scorecard.\24\
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    \23\ See 12 CFR 327.16(e).
    \24\ See 12 CFR 327.16(b)(3); see also Assessment Rate 
Adjustment Guidelines for Large and Highly Complex Institutions, 76 
FR 57992 (Sept. 19, 2011).
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D. Current Assessment Rate Schedules

    In 2011, consistent with the FDIC's long-term fund management plan, 
the FDIC adopted lower, moderate assessment rates that would go into 
effect when the DIF reserve ratio reached 1.15 percent.\25\ In 2016, 
the FDIC amended its rules to refine the deposit insurance assessment 
system for established small IDIs (i.e., small IDIs that have been 
federally insured for at least five years) and preserved the lower 
overall range of initial base assessment rates adopted in 2011 pursuant 
to the long-term fund management plan.\26\ Those rates are currently in 
effect and are detailed in the sections that follow. In addition, the 
Board is authorized to uniformly increase or decrease the total base 
rate assessment schedule up to a maximum of 2 basis points or a 
fraction thereof, as the Board deems necessary, without further 
rulemaking.\27\
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    \25\ See 76 FR 10683-10688.
    \26\ See 81 FR 32189-32191.
    \27\ See 12 CFR 327.10(f)(3). However, the lowest initial base 
assessment rate cannot be negative.
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Established Small Institutions and Large and Highly Complex 
Institutions
    Current initial base assessment rates for established small 
institutions and large and highly complex institutions are set forth in 
Table 1 below.\28\
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    \28\ See 12 CFR 327.10(b)(1). An established insured depository 
institution is a bank or savings association that has been federally 
insured for at least five years as of the last day of any quarter 
for which it is being assessed. See 12 CFR 327.8(k).

  Table 1--Current Initial Base Assessment Rate Schedule Applicable To Established Small Institutions and Large
                                       and Highly Complex Institutions \1\
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                                                   Established small institutions
                                     ---------------------------------------------------------  Large &  highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           3 to 16            6 to 30           16 to 30            3 to 30
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\1\ All amounts for all risk categories are in basis points annually. Initial base rates that are not the
  minimum or maximum rate will vary between these rates.

    An institution's total base assessment rate may vary from the 
institution's initial base assessment rate as a result of possible 
adjustments for certain liabilities that can increase or reduce loss to 
the DIF in the event the institution fails.\29\ After applying all 
possible adjustments, the current minimum and maximum total base 
assessment rates for established small institutions and large and 
highly complex institutions are set out in Table 2 below.\30\
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    \29\ See 12 CFR 327.16(e).
    \30\ See 12 CFR 327.10(b)(2).

    Table 2--Current Total Base Assessment Rate Schedule (After Adjustments) Applicable to Established Small
                         Institutions and Large and Highly Complex Institutions \1\ \2\
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                                                   Established small institutions
                                     ---------------------------------------------------------   Large & highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
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Initial Base Assessment Rate........           3 to 16            6 to 30           16 to 30            3 to 30
Unsecured Debt Adjustment \3\.......           -5 to 0            -5 to 0            -5 to 0            -5 to 0
Brokered Deposit Adjustment.........               N/A                N/A                N/A            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......         1.5 to 16            3 to 30           11 to 30          1.5 to 40
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\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.
\3\ The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
  depository institution's initial base assessment rate; thus, for example, an insured depository institution
  with an initial base assessment rate of 3 basis points will have a maximum unsecured debt adjustment of 1.5
  basis points and cannot have a total base assessment rate of lower than 1.5 basis points.


[[Page 39391]]

    The assessment rates currently applicable to established small 
institutions and large and highly complex institutions in Tables 1 and 
2 above will remain in effect unless and until the reserve ratio meets 
or exceeds 2 percent.\31\
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    \31\ In lieu of dividends, and pursuant to the FDIC's authority 
to set assessments, the progressively lower initial base and total 
base assessment rates set forth in 12 CFR 327.10(c) and (d) will 
come into effect without further action by the Board when the fund 
reserve ratio at the end of the prior assessment period reaches 2 
percent and 2.5 percent, respectively.
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New Small Institutions
    Current assessment rates applicable to new small institutions are 
set forth in Tables 3 and 4 below.\32\ New small institutions will 
remain subject to the assessment schedules in Tables 3 and 4 when the 
reserve ratio reaches 2 percent or 2.5 percent.\33\ As stated in the 
2010 NPR describing the long-term comprehensive fund management plan, 
and adopted in the 2011 Final Rule, the lower assessment rate schedules 
applicable when the reserve ratio reaches 2 percent and 2.5 percent do 
not apply to any new depository institutions; these institutions will 
remain subject to the assessment rates shown below, until they no 
longer are new depository institutions.\34\
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    \32\ See 12 CFR 327.10(e)(1)(iii)(A) and (B). Subject to 
exceptions, a new depository institution is a bank or savings 
association that has been federally insured for less than five years 
as of the last day of any quarter for which it is being assessed. 
See also 12 CFR 327.8(j).
    \33\ See 12 CFR 327.10(e)(1)(iii)(B).
    \34\ See 75 FR 66283 and 76 FR 10686.

         Table 3--Current Initial Base Assessment Rate Schedule Applicable to New Small Institutions \1\
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                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 7                 12                 19                 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.


 Table 4--Current Total Base Assessment Rate Schedule (After Adjustments) Applicable to New Small Institutions 1
                                                        2
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 7                 12                 19                 30
Brokered Deposit Adjustment (added).               N/A            0 to 10            0 to 10            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......                 7           12 to 22           19 to 29           30 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.


Insured Branches of Foreign Banks

    Current assessment rates applicable to insured branches of foreign 
banks are set forth in Table 5 below.\35\ The rates in Tables 5 will 
remain in effect unless and until the reserve ratio meets or exceeds 2 
percent.\36\
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    \35\ See 12 CFR 327.10(e)(2)(i).
    \36\ In lieu of dividends, and pursuant to the FDIC's authority 
to set assessments, the progressively lower initial base and total 
base assessment rates set forth in 12 CFR 327.10(e)(2)(ii) and (iii) 
will come into effect without further action by the Board when the 
fund reserve ratio at the end of the prior assessment period reaches 
2 percent and 2.5 percent, respectively.

 Table 5--Current Initial and Total Base Assessment Rate Schedule \1\ Applicable to Insured Branches of Foreign
                                                    Banks \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...            3 to 7                 12                 19                 30
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

III. The Proposed Rule

A. Overview of the Proposal

    The FDIC is proposing to increase initial base deposit insurance 
assessment rates uniformly by 2 basis points, beginning with the first 
quarterly assessment period of 2023. The proposed change is intended to 
increase assessment revenue in order to raise the reserve ratio to the 
minimum threshold of 1.35 percent within 8 years of the Restoration 
Plan's initial establishment, as required by statute, and consistent 
with the Amended Restoration Plan, and is intended to support growth in 
the DIF in progressing toward the 2 percent DRR. The proposed 
assessment rate schedules would remain in effect unless and until the 
reserve ratio meets or exceeds 2 percent, absent further Board action.
    The proposed change in assessment rates would bring the average 
assessment rate close to the moderate steady assessment rate that would 
have been required to maintain a positive DIF balance from 1950 to 
2010, identified as part of the long-term, comprehensive fund 
management plan in 2011.\37\ This continued growth in the DIF is 
intended to reduce the likelihood that the FDIC would need to consider 
a potentially pro-cyclical assessment rate increase, and to increase 
the likelihood of the DIF remaining positive through potential

[[Page 39392]]

future periods of significant losses due to bank failures. In lieu of 
dividends, the progressively lower assessment rate schedules currently 
in the regulation will remain unchanged and will come into effect 
without further action by the Board when the fund reserve ratio at the 
end of the prior assessment period reaches 2 percent and 2.5 percent, 
respectively.\38\ The FDIC is not proposing changes to the rate 
schedules that come into effect when the reserve ratio reaches 2 and 
2.5 percent.
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    \37\ See 75 FR 66273 and 76 FR 10675.
    \38\ See 12 CFR 327.10(c) and (d).
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    The FDIC proposes to retain the Board's flexibility to adopt higher 
or lower total base assessment rates, provided that the Board cannot 
increase or decrease rates from one quarter to the next by more than 2 
basis points, and cumulative increases and decreases cannot be more 
than 2 basis points higher or lower than the total base assessment 
rates set forth in the assessment rate schedules.\39\ Retention of this 
flexibility will continue to allow the Board to act in a timely manner 
to fulfill its mandate to raise the reserve ratio, particularly in 
light of the uncertainty related to insured deposit growth and the 
economic outlook.
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    \39\ See 12 CFR 327.10(f).
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B. Proposed Assessment Rate Schedules

Proposed Assessment Rates for Established Small Institutions and Large 
and Highly Complex Institutions
    Pursuant to the FDIC's authority to set assessments, the proposed 
initial and total base assessment rates applicable to established small 
institutions and large and highly complex institutions set forth in 
Tables 6 and 7 below would take effect beginning with the first 
quarterly assessment period of 2023.

Table 6--Proposed Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023, Where the
              Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------  Large &  highly
                                                          CAMELS Composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           5 to 18            8 to 32           18 to 32            5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
  vary between these rates.

    An institution's total base assessment rate may vary from the 
institution's initial base assessment rate as a result of possible 
adjustments for certain liabilities that can increase or reduce loss to 
the DIF in the event the institution fails.\40\ These adjustments do 
not reflect a change and are consistent with the current assessment 
regulations. After applying all possible adjustments, the proposed 
minimum and maximum total base assessment rates applicable to 
established small institutions and large and highly complex 
institutions are set out in Table 7 below.
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    \40\ See 12 CFR 327.16(e).

  Table 7--Proposed Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment
 Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------  Large &  highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           5 to 18            8 to 32           18 to 32            5 to 32
Unsecured Debt Adjustment \3\.......           -5 to 0            -5 to 0            -5 to 0            -5 to 0
Brokered Deposit Adjustment.........               N/A                N/A                N/A            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......         2.5 to 18            4 to 32           13 to 32          2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
  vary between these rates.
\3\ The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured
  depository institution's initial base assessment rate; thus, for example, an insured depository institution
  with an initial base assessment rate of 5 basis points will have a maximum unsecured debt adjustment of 2.5
  basis points and cannot have a total base assessment rate of lower than 2.5 basis points.

    The proposed rates applicable to established small institutions and 
large and highly complex institutions in Tables 6 and 7 above would 
remain in effect unless and until the reserve ratio meets or exceeds 2 
percent. In lieu of dividends, and pursuant to the FDIC's authority to 
set assessments, progressively lower initial and total base assessment 
rate schedules applicable to established small institutions and large 
and highly complex institutions as currently set forth in 12 CFR 
327.10(c) and (d) will come into effect without further action by the 
Board when the fund reserve ratio at the end of the prior assessment 
period reaches 2 percent and 2.5 percent, respectively.\41\ The FDIC is 
not proposing changes to these progressively lower assessment rate 
schedules.
---------------------------------------------------------------------------

    \41\ See 12 CFR 327.10(c) and (d).
---------------------------------------------------------------------------

Proposed Assessment Rates for New Small Institutions
    Pursuant to the FDIC's authority to set assessments, the initial 
and total base assessment rates applicable to new small institutions 
set forth in Tables 8 and 9 below would take effect beginning with the 
first quarterly assessment

[[Page 39393]]

period of 2023. New small institutions would remain subject to the 
assessment schedules in Tables 8 and 9, even when the reserve ratio 
reaches 2 percent or 2.5 percent, until they no longer were new 
depository institutions, consistent with current assessment 
regulations.

  Table 8--Proposed Initial Base Assessment Rate Schedule Beginning the First Assessment Period of 2023 and for
                   All Subsequent Assessment Periods, Applicable to New Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 9                 14                 21                 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.


  Table 9--Proposed Total Base Assessment Rate Schedule (After Adjustments) \1\ Beginning the First Assessment
       Period of 2023 and for All Subsequent Assessment Periods, Applicable to New Small Institutions \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 9                 14                 21                 32
Brokered Deposit Adjustment (added).               N/A            0 to 10            0 to 10            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......                 9           14 to 24           21 to 31           32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.


[[Page 39394]]

Proposed Assessment Rates for Insured Branches of Foreign Banks
    Pursuant to the FDIC's authority to set assessments, the initial 
and total base assessment rates applicable to insured branches of 
foreign banks set forth in Table 10 below would take effect beginning 
with the first quarterly assessment period of 2023.

 Table 10--Proposed Initial and Total Base Assessment Rate Schedule \1\ Beginning the First Assessment Period of
2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent, Applicable to
                                      Insured Branches of Foreign Banks \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...            5 to 9                 14                 21                 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

    The proposed rates applicable to insured branches of foreign banks 
in Table 10 above would remain in effect unless and until the reserve 
ratio meets or exceeds 2 percent. In lieu of dividends, and pursuant to 
the FDIC's authority to set assessments, progressively lower initial 
and total base assessment rate schedules applicable to insured branches 
of foreign banks as currently set forth in 12 CFR 327.10(e)(2)(ii) and 
(iii) will come into effect without further action by the Board when 
the fund reserve ratio at the end of the prior assessment period 
reaches 2 percent and 2.5 percent, respectively. The FDIC is not 
proposing changes to these progressively lower assessment rate 
schedules.

C. Conforming, Technical, and Other Amendments to the Assessment 
Regulations

Conforming Amendments
    The FDIC is proposing conforming amendments in Sec. Sec.  327.10 
and 327.16 of the FDIC's assessment regulations to effectuate the 
modifications described above. These conforming amendments would ensure 
that the proposed uniform increase in initial base deposit insurance 
assessment rates of 2 basis points is properly incorporated into the 
assessment regulation provisions governing the calculation of an IDI's 
quarterly deposit insurance assessment. The FDIC is proposing revisions 
to Sec.  327.10 to reflect the assessment rate schedules that would be 
applicable before and after the effective date of this proposal (i.e., 
January 1, 2023). The FDIC also is proposing to revise the uniform 
amounts for small banks and insured branches in Sec. Sec.  327.16(a) 
and (d), respectively, to reflect the 2 basis point increase. Aside 
from the proposed revisions to reflect the assessment rate schedules, 
no additional revisions are required for the regulatory text applicable 
to large or highly complex banks because the formula in Sec.  327.16(b) 
used to calculate their assessment rates incorporates the minimum and 
maximum initial base assessment rates then in effect.
Technical Amendments
    As a technical change, the FDIC is rescinding certain rate 
schedules in Sec.  327.10 that are no longer in effect. FDIC 
regulations provided for changes to deposit insurance assessment rates 
the quarter after the reserve ratio first reached or surpassed 1.15 
percent, which occurred in the third quarter of 2016.\42\ The FDIC is 
rescinding the outdated and obsolete provisions of, and revising 
references to, the superseded assessment rate schedules in its 
regulations. These changes impose no new requirements on FDIC-
supervised institutions.
---------------------------------------------------------------------------

    \42\ See 76 FR 10672 (Feb. 25, 2011) and 81 FR 32180 (May 20, 
2016). In 2016, the FDIC amended its rules to refine the deposit 
insurance assessment system for established small IDIs (i.e., those 
small IDIs that have been federally insured for at least five 
years). The final rule preserved the lower overall range of initial 
base assessment rates adopted in 2011 pursuant to the long-term fund 
management plan.
---------------------------------------------------------------------------

    The FDIC also is rescinding in its entirety Sec.  327.9--Assessment 
Pricing Methods, as such section is no longer applicable. The relevant 
section that includes the method for calculating risk-based assessments 
for all IDIs, particularly established small banks, is now in Sec.  
327.16, which was adopted by the Board in a final rule on April 26, 
2016. That final rule became applicable the calendar quarter in which 
the reserve ratio of the DIF reached 1.15 percent, i.e., the third 
quarter of 2016.\43\ The FDIC also will make technical amendments to 
remove all references to Sec.  327.9.
---------------------------------------------------------------------------

    \43\ See 81 FR 32180 (May 20, 2016).
---------------------------------------------------------------------------

Other Amendments
    The FDIC is proposing additional amendments to update and conform 
Appendix A to subpart A of part 327--Method to Derive Pricing 
Multipliers and Uniform Amount in accordance with the current 
assessment regulations. Specifically, the FDIC is proposing to remove 
sections I through V, which were superseded by the 2016 final rule 
revising the method to calculate risk-based assessment rates for 
established small IDIs.\44\ The FDIC is proposing to replace the 
current language of sections I through V of Appendix A to subpart A of 
part 327 with the content of a previously proposed, but inadvertently 
not adopted, Appendix E--Method to Derive Pricing Multipliers and 
Uniform Amount. Appendix E was published in the 2016 revised notice of 
proposed rulemaking refining the deposit insurance assessment system 
for established small IDIs.\45\ Appendix E was inadvertently not 
included in the final rule.
---------------------------------------------------------------------------

    \44\ See 81 FR 32180 (May 20, 2016).
    \45\ See 81 FR 6153-6155 (Feb. 4, 2016).
---------------------------------------------------------------------------

    Under the 2016 final rule, initial base assessment rates for 
established small banks are calculated by applying statistically 
derived pricing multipliers to weighted CAMELS components and financial 
ratios; then adding the products to a uniform amount.\46\ The content 
of Appendix E describes the statistical model on which the revised and 
current pricing method is based and, accordingly, revises the method to 
derive the pricing multipliers and uniform amount used to determine the 
assessment rate schedules currently in effect.\47\
---------------------------------------------------------------------------

    \46\ See 81 FR 32181.
    \47\ See 81 FR 32191; see also 81 FR 6116-17. Note, subsequent 
to the adoption of the 2016 final rule, the FDIC made other 
conforming and technical amendments to the assessment regulations at 
12 CFR part 327 resulting from other rulemakings. The content of 
Appendix E does not need to be updated to reflect such conforming 
and other technical amendments and will be incorporated into the 
current Appendix A without change. See 83 FR 14565 (Apr. 5, 2018), 
84 FR 1346 (Feb. 4, 2019), and 85 FR 71227 (Nov. 9, 2020).

---------------------------------------------------------------------------

[[Page 39395]]

    The proposed revisions to Appendix A to subpart A of part 327 will 
result in: the removal of the superseded language currently in sections 
I through V; the addition of the language of Appendix E from the 2016 
revised notice of proposed rulemaking reflecting the revised and 
current pricing method; and the retention of the current language 
(without change) of section VI (Description of Scorecard Measures) that 
applies to large and highly complex institutions.

D. Analysis

    In setting assessment rates, the Board is authorized to set 
assessments for IDIs in such amounts as the Board may determine to be 
necessary or appropriate.\48\ In setting assessment rates, the Board is 
required by statute to consider the following factors:
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 1817(b)(2)(A).
---------------------------------------------------------------------------

    (i) The estimated operating expenses of the DIF.
    (ii) The estimated case resolution expenses and income of the DIF.
    (iii) The projected effects of the payment of assessments on the 
capital and earnings of IDIs.
    (iv) The risk factors and other factors taken into account pursuant 
to section 7(b)(1) of the FDI Act (12 U.S.C. 1817(b)(1)) under the 
risk-based assessment system, including the requirement under such 
section to maintain a risk-based system.\49\
---------------------------------------------------------------------------

    \49\ The risk factors referred to in factor (iv) include the 
probability that the Deposit Insurance Fund will incur a loss with 
respect to the institution, the likely amount of any such loss, and 
the revenue needs of the Deposit Insurance Fund. See Section 
7(b)(1)(C) of the FDI Act, 12 U.S.C. 1817(b)(1)(C).
---------------------------------------------------------------------------

    (v) Other factors the Board has determined to be appropriate.\50\
---------------------------------------------------------------------------

    \50\ See Section 7(b)(2)(B) of the FDI Act, 12 U.S.C. 
1817(b)(2)(B).
---------------------------------------------------------------------------

    The following summarizes the factors considered in proposing a 
uniform increase in initial base assessment rates of 2 basis points.
Assessment Revenue Needs
    Under the Restoration Plan, the FDIC is monitoring deposit balance 
trends, potential losses, and other factors that affect the reserve 
ratio. Table 11 shows the components of the reserve ratio for the third 
quarter of 2021 through the first quarter of 2022. Growth in insured 
deposits outpaced growth in the DIF, resulting in a decline in the 
reserve ratio of 4 basis points to 1.23 percent as of March 31, 2022.
    While assessment revenue was the primary contributor to growth in 
the DIF, the weighted average assessment rate for all IDIs was 
approximately 3.7 basis points for the assessment period ending March 
31, 2022, compared to approximately 4.0 basis points when the 
Restoration Plan was established. In the first quarter of 2022, 
unrealized losses on available-for-sale securities in the DIF portfolio 
contributed to a relatively flat DIF balance, driven by rising yields 
as market participants reacted to expectations of increased inflation 
and tighter monetary policy. The DIF has experienced low losses from 
bank failures, with no banks failing in 2021 and thus far in 2022. As 
of March 31, 2022, the DIF balance totaled $123.0 billion, up $3.7 
billion from one year earlier.

                      Table 11--Fund Balance, Estimated Insured Deposits, and Reserve Ratio
                                          [Dollar amounts in billions]
----------------------------------------------------------------------------------------------------------------
                                                                      3Q 2021         4Q 2021         1Q 2022
----------------------------------------------------------------------------------------------------------------
Beginning Fund Balance..........................................          $120.5          $121.9          $123.1
    Plus: Net Assessment Revenue................................            $1.7            $2.0            $1.9
    Plus: Investment Income \a\.................................            $0.1          ($0.3)          ($1.5)
    Less: Loss Provisions.......................................          ($0.1)             (*)            $0.1
    Less: Operating Expenses....................................            $0.5            $0.5            $0.4
Ending Fund Balance \b\.........................................          $121.9          $123.1          $123.0
Estimated Insured Deposits......................................        $9,580.7        $9,733.5        $9,974.9
Q-O-Q Growth in Est. Insured Deposits...........................           0.97%           1.59%           2.48%
Ending Reserve Ratio............................................           1.27%           1.27%           1.23%
----------------------------------------------------------------------------------------------------------------
* Absolute value less than $50 million.
\a\ Includes unrealized gains/losses on available-for-sale securities.
\b\ Components of fund balance changes may not sum to totals due to rounding.

    In recognition that sustained elevated insured deposit balance 
trends, lower than anticipated weighted average assessment rates, and 
other factors have affected the ability of the reserve ratio to return 
to 1.35 percent before September 30, 2028, the FDIC is proposing to 
increase initial base deposit insurance assessment rates uniformly by 2 
basis points. While subject to uncertainty, based on updated analysis 
of deposit balance trends, potential losses, and other factors that 
affect the reserve ratio, the FDIC projects that the increase in 
assessment rates would increase the likelihood that the reserve ratio 
returns to 1.35 percent before September 30, 2028.
    The proposed assessment rate schedules would remain in effect 
unless and until the reserve ratio meets or exceeds 2 percent. The 
proposed increase is further intended to support growth in the DIF in 
progressing toward the 2 percent DRR and would bring the average 
assessment rate close to the moderate steady assessment rate of 5.29 
basis points that would have been required to maintain a positive DIF 
balance from 1950 to 2010, identified as part of the long-term, 
comprehensive fund management plan in 2011.\51\ The assessment rate 
schedules adopted as part of the long-term, comprehensive plan came 
into effect once the reserve ratio reached 1.15 percent in 2016. Since 
then, the industry weighted average assessment rate has been 
consistently and significantly below the moderate, steady assessment 
rate, averaging 3.8 basis points and ranging between 3.5 and 4.1 basis 
points through 2019.\52\ Over the four most recent quarters, the 
weighted average assessment rate ranged between 3.6 and 3.7 basis 
points.
---------------------------------------------------------------------------

    \51\ See 75 FR 66273 and 76 FR 10675.
    \52\ Weighted average assessment rates do not reflect large bank 
surcharges, which were collected beginning December 30, 2016, and 
ending December 30, 2018, or small bank credits, which were applied 
beginning June 30, 2019, and ending June 30, 2020.
---------------------------------------------------------------------------

    The proposed increase in assessment rates would bring the average 
assessment rate of 3.7 basis points as of March 31, 2022, close to the 
moderate, steady assessment rate that would have been required to 
maintain a positive DIF balance from 1950 to 2010. Sustaining this 
additional assessment revenue

[[Page 39396]]

would support continued growth in the DIF, thereby reducing the 
likelihood that the FDIC would need to consider a potentially pro-
cyclical assessment rate increase and increasing the likelihood of the 
DIF remaining positive through potential future periods of significant 
losses due to bank failures. In lieu of dividends, progressively lower 
assessment rate schedules will come into effect without further action 
by the Board when the reserve ratio at the end of the prior assessment 
period reaches 2 percent and 2.5 percent, respectively.\53\
---------------------------------------------------------------------------

    \53\ See 12 CFR 327.10(c) and (d).
---------------------------------------------------------------------------

    The proposed 2 basis point increase in assessment rates would 
increase the likelihood of reaching the statutory minimum reserve ratio 
by September 30, 2028, and accelerate the timeline for achieving the 
long-term goal of a 2 percent DRR without imposing excessive burden on 
the industry. The proposal would have a modest effect on banking 
industry income, resulting in an estimated annual reduction averaging 
less than 2 percent. The banking industry remained resilient moving 
into the second half of 2022 despite the extraordinary challenges of 
the pandemic, and is well-positioned to absorb such a rate increase.
    Overall, it is the FDIC's view that the recommended assessment rate 
increase appropriately balances several considerations, including the 
goal of reaching the statutory minimum reserve ratio reasonably 
promptly, the goal of strengthening the fund to reduce the risk of pro-
cyclical assessments in the event of a future downturn or industry 
stress, and the projected effects on bank earnings at a time when the 
banking industry is better positioned to absorb an assessment rate 
increase.
Deposit Balance Trends
    Over the past four quarters, insured deposits exhibited annual 
growth that was slightly above historical averages. As shown in Chart 
1, fourth and first quarters have historically exhibited the highest 
insured deposit growth rates throughout the year. Insured deposits grew 
by 1.59 percent in the fourth quarter of 2021, slightly above the pre-
pandemic quarterly average of 1.40 percent. In the first quarter of 
2022, insured deposits grew by 2.48 percent, slightly above the 
quarterly average of 2.32 percent. This moderation in insured deposit 
growth, relative to the first half of 2020 and the first quarter of 
2021, was attributable in part to a decline in support from fiscal 
stimulus programs and increases in consumer spending. Over the last 
year, insured deposits have grown by 4.9 percent, which is slightly 
elevated compared to the pre-pandemic average of 4.5 percent.
[GRAPHIC] [TIFF OMITTED] TP01JY22.007

    While insured deposit growth has largely normalized, aggregate 
balances remain significantly elevated. In its previous semiannual 
update, the FDIC estimated that excess insured deposits that flowed 
into banks as the result of actions taken by monetary and fiscal 
authorities, and by individuals, businesses, and financial market 
participants in response to the Coronavirus Disease (COVID-19) pandemic 
totaled approximately $1.13 trillion. This estimate reflects the amount 
of insured deposits as of September 30, 2021, in excess of the amount 
that would have resulted if insured deposits had grown at the pre-
pandemic average rate of 4.5 percent since December 31, 2019.\54\ 
Rather than receding, as previously expected, these excess insured 
deposits have grown by about $200 billion through March 31, 2022.
---------------------------------------------------------------------------

    \54\ By September 30, 2021, deposit balances would have fully 
reflected the more significant actions taken by monetary and fiscal 
authorities in response to the COVID-19 pandemic. September 2021 was 
also the first month that the personal savings rate declined to a 
level within the range reported during the year prior to the 
pandemic.
---------------------------------------------------------------------------

    The outlook for insured deposits remains uncertain and depends on 
several factors, including the outlook for consumer spending and 
incomes. Any unexpected economic weakness or concerns about slower than 
expected economic growth may cause businesses and consumers to maintain 
caution in spending and keep deposit levels elevated. Continued supply 
chain pressures and prolonged higher inflation may cause consumer 
spending to rise further as consumers pay more for a similar amount of 
goods, or may cause consumers to delay or forgo some purchases. 
Similarly, unexpected financial market stress could prompt another 
round of investor risk aversion that could lead to an increase in 
insured deposits.
    In contrast, tighter monetary policy and reduction of the Federal 
Reserve's

[[Page 39397]]

balance sheet may inhibit growth of insured deposits in the banking 
system. Despite the recent increases in the short-term benchmark rate 
set by the Federal Reserve, most IDIs have little incentive to raise 
interest rates on deposit accounts and spur deposit growth in the near-
term, given excess liquidity. If competition for deposits remains 
subdued and rates paid on deposit accounts remain low, depositors may 
shift balances away from deposit accounts and into higher-yielding 
alternatives, including money-market funds.
    A year has passed since the latest quarter of extraordinary growth 
in insured deposits prompted by the last round of fiscal stimulus, but 
those deposits have yet to exhibit any indication of receding. The FDIC 
will continue to closely monitor depositor behavior and the effects on 
insured deposits.
Case Resolution Expenses (Insurance Fund Losses)
    Losses from past and future bank failures affect the reserve ratio 
by lowering the fund balance. In recent years, the DIF has experienced 
low losses from IDI failures. On average, four IDIs per year failed 
between 2016 and 2021, at an average annual cost to the fund of about 
$208 million.\55\ No banks have failed thus far in 2022, marking 19 
consecutive months without a bank failure and the seventh year in a row 
with few or no failures. Based on currently available information about 
banks expected to fail in the near term; analyses of longer-term 
prospects for troubled banks; and trends in CAMELS ratings, failure 
rates, and loss rates; the FDIC projects that failures for the five-
year period from 2022 to 2026 would cost the fund approximately $1.8 
billion.
---------------------------------------------------------------------------

    \55\ FDIC, Annual Report 2021, Assets and Deposits of Failed or 
Assisted Insured Institutions and Losses to the Deposit Insurance 
Fund, 1934-2021, page 190, available at https://www.fdic.gov/about/financial-reports/reports/2021annualreport/2021-arfinal.pdf.
---------------------------------------------------------------------------

    The total number of institutions on the FDIC's Problem Bank List 
was 40 at the end of the first quarter of 2022, the lowest level since 
publication of the FDIC's Quarterly Banking Profile began in 1984.\56\ 
The number of troubled banks is currently expected to remain at low 
levels.
---------------------------------------------------------------------------

    \56\ ``Problem'' institutions are institutions with a CAMELS 
composite rating of ``4'' or ``5'' due to financial, operational, or 
managerial weaknesses that threaten their continued financial 
viability.
---------------------------------------------------------------------------

    Future losses to the DIF remain uncertain, although some sources of 
uncertainty have changed since the Restoration Plan was adopted in 
September of 2020. The uncertainties include, among others, the 
variable trends in COVID-19 infections, rising inflation and interest 
rates, the possibility of recession, supply chain pressures, 
geopolitical tensions, and evolving consumer and depositor behavior, 
any of which could have longer-term effects on the condition and 
performance of the banking industry. However, the banking industry has 
remained a source of strength for the economy, in part, because its 
stronger capital position has better positioned banks to withstand 
losses compared to 2008.
Operating Expenses and Investment Income
    Operating expenses remain steady, while low investment returns 
coupled with elevated unrealized losses on securities held by the DIF 
have limited growth in the fund balance, particularly in the first 
quarter of 2022.
    Operating expenses partially offset increases in the DIF balance. 
Operating expenses have remained steady, ranging between $450 and $475 
million per quarter since the Restoration Plan was first adopted in 
September 2020, totaling $453 million as of March 31, 2022.
    Growth in the fund balance has been limited by a prolonged period 
of low investment returns on securities held by the DIF. Recently, as a 
result of the rising interest rate environment and market expectations 
leading up to such rate increases, the DIF has also experienced 
elevated unrealized losses on securities. Unrealized losses on 
available-for-sale securities in the DIF portfolio contributed to a 
relatively flat DIF balance in the first quarter of 2022. Unrealized 
losses were primarily due to rising yields as market participants 
reacted to expectations of increased inflation and tighter monetary 
policy. Future market movements may temporarily increase unrealized 
losses in the near term, to the extent that market participants have 
not already priced in these actions. However, the FDIC expects that 
these unrealized losses will be outpaced by higher investment returns 
over the longer-term as future cash proceeds are reinvested at higher 
rates.
Projections for Fund Balance and Reserve Ratio
    In its consideration of proposed rates, the FDIC sought to increase 
the likelihood that the reserve ratio would reach the statutory minimum 
of 1.35 percent by the statutory deadline of September 30, 2028, and to 
support growth in the DIF in progressing toward the long-term goal of a 
2 percent DRR. With these objectives in mind, the FDIC updated its 
analysis and projections for the fund balance and reserve ratio to 
estimate how changes in insured deposit growth and assessment rates 
affect when the reserve ratio would reach the statutory minimum of 1.35 
percent and the DRR of 2 percent.
    Based on this analysis, the FDIC projects that, absent an increase 
in assessment rates, the reserve ratio is at risk of not reaching the 
statutory minimum of 1.35 percent by the statutory deadline of 
September 30, 2028. In estimating how soon the reserve ratio would 
reach 1.35 percent, the FDIC developed two scenarios that assume 
different levels of insured deposit growth and average assessment 
rates, both of which the FDIC views as reasonable based on current and 
historical data. For insured deposit growth, the FDIC assumed annual 
growth rates of 4.0 percent and 3.5 percent, respectively. These 
insured deposit growth rates represent a range of excess insured 
deposits resulting from the pandemic being retained. The assumption of 
a 4.0 percent annual growth rate reflects retention of all of the 
estimated $1.13 trillion of excess deposits in insured accounts, with 
this amount not contributing to further growth, while the remaining 
balance of insured deposits continues to grow at the pre-pandemic 
average annual rate of 4.5 percent.
    Alternatively, a 3.5 percent annual growth rate assumption reflects 
banks retaining about 60 percent of the estimated excess insured 
deposits resulting from the pandemic, with this amount not contributing 
to further growth, while the remaining balance of insured deposits 
grows at the pre-pandemic average annual rate of 4.5 percent.
    The two scenarios also apply different assumptions for average 
annual assessment rates. The weighted average assessment rate for all 
banks during 2019, prior to the pandemic, was about 3.5 basis points 
and rose to 4.0 basis points, on average, during 2020. The weighted 
average assessment rate for all IDIs was approximately 3.7 basis points 
for the assessment period ending March 31, 2022. For the scenario in 
which all excess insured deposits are retained, the FDIC assumed a 
lower assessment rate of 3.5 basis points, and for the scenario in 
which some excess insured deposits recede, the FDIC assumed an 
assessment rate of 4.0 basis points.
    In developing the proposal, the FDIC projected the date that the 
reserve ratio would likely reach the statutory minimum of 1.35 percent 
in each

[[Page 39398]]

scenario, shown in Table 12 below.\57\ Under Scenario A, which assumes 
annual insured deposit growth of 4.0 percent and an average annual 
assessment rate of 3.5 basis points, the FDIC projects that the reserve 
ratio would reach 1.35 percent in the third quarter of 2034, after the 
statutory deadline of September 30, 2028.
---------------------------------------------------------------------------

    \57\ For simplicity, the analysis shown in Table 12 assumes 
that: (1) the assessment base grows 4.5 percent, annually; (2) 
interest income on the deposit insurance fund balance is zero; (3) 
operating expenses grow at 1 percent per year; and (4) failures for 
the five-year period from 2022 to 2026 would cost approximately $1.8 
billion.

                                    Table 12--Scenario Analysis: Expected Time To Reach a 1.35 Percent Reserve Ratio
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         As of 1Q 2023, average annual
                                                                 Annual insured    Average annual   Date the reserve  assessment rate increases by . . .
                                                                 deposit growth    assessment rate    ratio reaches  -----------------------------------
                                                                 rate [percent]    [basis points]     1.35 percent          1 BPS             2 BPS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Scenario A....................................................               4.0               3.5           3Q 2034           3Q 2026           4Q 2024
Scenario B....................................................               3.5               4.0           2Q 2027           2Q 2025           2Q 2024
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In Scenario B, which assumed annual insured deposit growth of 3.5 
percent and an average annual assessment rate of 4.0 basis points, the 
FDIC projects that the reserve ratio would reach 1.35 percent in the 
second quarter of 2027, five years from the second quarter of 2022 and 
only five quarters before the statutory deadline. Even under these 
relatively favorable conditions, which assume lower insured deposit 
growth and a higher average assessment rate than experienced over the 
last year, the reserve ratio reaches the statutory minimum of 1.35 
percent close to the statutory deadline. While the FDIC projects that 
the reserve ratio would reach the statutory minimum before the deadline 
in this Scenario, any number of uncertain factors--including unexpected 
losses, accelerated insured deposit growth, or lower weighted average 
assessment rates due to improving risk profiles of institutions--could 
materialize between now and the second quarter of 2027, and easily 
prevent the reserve ratio from reaching the minimum by the statutory 
deadline.
    Both Scenarios apply assumptions for insured deposit growth and 
average assessment rates that the FDIC views as reasonable based on 
current and historical data, and that do not widely differ from each 
other in magnitude. These relatively minor changes in the underlying 
assumptions result in considerably different outcomes, as the reserve 
ratio is projected to reach the statutory minimum of 1.35 percent in 
2034 in Scenario A, compared to 7 years earlier in Scenario B. The 
disparity between outcomes under these Scenarios demonstrates the 
sensitivity of the projections to slight variations in any key 
variable.
    Given these uncertainties, the FDIC projected the DIF balance and 
associated reserve ratio under each Scenario, applying an increase in 
average assessment rates beginning in the first assessment period of 
2023. Under Scenario A, a 1 basis point increase in the average 
assessment rate is projected to result in the reserve ratio reaching 
the minimum in the third quarter of 2026, and a 2 basis point increase 
is projected to result in the reserve ratio reaching the minimum in the 
fourth quarter of 2024. Under Scenario B, a 1 basis point increase in 
the average assessment rate is projected to result in the reserve ratio 
reaching the minimum in the second quarter of 2025, and a 2 basis point 
increase is projected to result in the reserve ratio reaching the 
minimum in the second quarter of 2024.
    While the FDIC projects that the reserve ratio would reach the 
minimum before the statutory deadline under Scenario B with no increase 
in assessment rates, or under Scenario A with a 1 basis point increase 
in the average assessment rate, these outcomes are still over 4 years 
away and carry higher risk that the FDIC would have to increase 
assessment rates in the face of a future downturn or industry stress.
    In contrast, the proposed increase of 2 basis points would improve 
the likelihood that the reserve ratio will reach the minimum ahead of 
the statutory deadline, building in a buffer in the event of 
uncertainties as described above that could stall or counter growth in 
the reserve ratio. Under both scenarios described above, an increase in 
assessment rates of 2 basis points is projected to result in the 
reserve ratio reaching the statutory minimum reserve ratio of 1.35 
percent approximately two years from now.
    Reaching the minimum reserve ratio of 1.35 percent ahead of the 
statutory deadline would mean that the FDIC would exit its Restoration 
Plan. If the reserve ratio subsequently declined below the statutory 
minimum, the FDIC would establish a new restoration plan and would have 
an additional eight years to restore the reserve ratio.
    The FDIC also analyzed the effects of an increase in assessment 
rates in supporting growth in the DIF in progressing toward the 2 
percent DRR. For this analysis, the FDIC assumed a near-term annual 
insured deposit growth rate of 3.5 percent and a weighted average 
assessment rate of 4.0 basis points.\58\ These assumptions reflect the 
ranges of insured deposit growth and assessment rates used in Scenario 
B, described above, and result in the shortest projected timeline to 
reach a 2 percent reserve ratio. As illustrated in Chart 2, even under 
these relatively favorable conditions, absent an increase in assessment 
rates, the projected reserve ratio would not reach 2 percent until 
2045, over twenty years from now.\59\ When the FDIC proposed the long-
term, comprehensive fund management plan in 2010, it estimated that the 
reserve ratio would reach 2 percent in 2027.\60\
---------------------------------------------------------------------------

    \58\ After September 30, 2028, the deadline to restore the 
reserve ratio to the 1.35 percent minimum, insured deposits are 
assumed to grow at the pre-pandemic annual average of 4.5 percent.
    \59\ The analysis shown in Chart 2 is based on the assumptions 
used in Scenario B through the projected quarter that the reserve 
ratio meets or exceeds 1.35 percent. Afterward, the analysis 
assumes: (1) net income on investments by the fund based on market-
implied forward rates; (2) the assessment base grows 4.5 percent, 
annually; (3) operating expenses grow at 1 percent per year; and (4) 
failures for the five-year period from 2022 to 2026 cost 
approximately $1.8 billion, with a low level of losses each year 
thereafter. The uniform increase in assessment rates of 1 or 2 basis 
points from the current rate schedule is assumed to take effect on 
January 1, 2023.
    \60\ See 75 FR 66281.
---------------------------------------------------------------------------

    Using the same assumptions, an increase in assessment rates would 
significantly accelerate the timeline for achieving a 2 percent DRR. An 
increase in assessment rates of 1 basis point resulted in the projected 
reserve ratio reaching 2 percent in 2036, nine years faster. Applying a 
2 basis point increase in assessment rates would accelerate the 
timeline by an additional four years, to 2032.

[[Page 39399]]

[GRAPHIC] [TIFF OMITTED] TP01JY22.008

    The proposed 2 basis point increase in assessment rates would bring 
the average assessment rate of 3.7 basis points, as of March 31, 2022, 
close to the moderate steady assessment rate that would have been 
required to maintain a positive DIF balance from 1950 to 2010, and 
identified as part of the long-term, comprehensive fund management plan 
in 2011.\61\ Upon achieving the 2 percent DRR, progressively lower 
assessment rate schedules would take effect. The proposed 2 basis point 
increase would accelerate the timeline for achieving the 2 percent DRR 
significantly, would reduce the likelihood that the FDIC would need to 
consider a potentially pro-cyclical assessment rate increase, and would 
increase the likelihood of the DIF remaining positive through potential 
future periods of significant losses due to bank failures, consistent 
with the FDIC's long-term fund management plan.
---------------------------------------------------------------------------

    \61\ See 75 FR 66273 and 76 FR 10675.
---------------------------------------------------------------------------

Capital and Earnings Analysis and Expected Effects
    This analysis estimates the effect of the changes in deposit 
insurance assessments resulting from the proposed uniform increase in 
initial base assessment rates of 2 basis points. For this analysis, 
data as of March 31, 2022, are used to calculate each bank's assessment 
base and risk-based assessment rate, absent the proposed increase. The 
base and rate are assumed to remain constant throughout the one-year 
projection period.\62\
---------------------------------------------------------------------------

    \62\ All income statement items used in this analysis were 
adjusted for the effect of mergers. Institutions for which four 
quarters of non-zero earnings data were unavailable, including 
insured branches of foreign banks, were excluded from this analysis.
---------------------------------------------------------------------------

    The analysis assumes that pre-tax income for the four quarters 
beginning on the proposed effective date of the rate increase, January 
1, 2023, is equal to income reported from April 1, 2021, through March 
31, 2022, adjusted for mergers. The analysis also assumes that the 
effects of changes in assessments are not transferred to customers in 
the form of changes in borrowing rates, deposit rates, or service fees. 
Since deposit insurance assessments are a tax-deductible operating 
expense, increases in the assessment expense can lower taxable income. 
Therefore, the analysis considers the effective after-tax cost of 
assessments in calculating the effect on capital.\63\
---------------------------------------------------------------------------

    \63\ The analysis does not incorporate any tax effects from an 
operating loss carry forward or carry back.
---------------------------------------------------------------------------

    The effect of the change in assessments on an institution's income 
is measured by the change in deposit insurance assessments as a percent 
of income before assessments and taxes (hereafter referred to as 
``income''). This income measure is used in order to eliminate the 
potentially transitory effects of taxes on profitability. The FDIC 
analyzed the impact of assessment changes on institutions that were 
profitable in the period covering the 12 months before March 31, 2022.
    An institution's earnings retention and dividend policies also 
influence the extent to which assessments affect equity levels. If an 
institution maintains the same dollar amount of dividends when it pays 
a higher deposit insurance assessment under the final rule, equity 
(retained earnings) will be less by the full amount of the after-tax 
cost of the increase in the assessment. This analysis instead assumes 
that an institution will maintain its dividend rate (that is, dividends 
as a fraction of net income) unchanged from the weighted average rate 
reported over the four quarters ending March 31, 2022. In the event 
that the ratio of equity to assets falls below 4 percent, however, this 
assumption is modified such that an institution retains the amount 
necessary to reach a 4 percent minimum and distributes any remaining 
funds according to the dividend payout rate.\64\
---------------------------------------------------------------------------

    \64\ The analysis uses 4 percent as the threshold because IDIs 
generally need to maintain a leverage ratio of 4.0 percent or 
greater to be considered ``adequately capitalized'' under Prompt 
Corrective Action Standards, in addition to the following 
requirements: (i) total risk-based capital ratio of 8.0 percent or 
greater; and (ii) Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and (iii) common equity tier 1 capital ratio of 4.5 percent 
or greater; and (iv) does not meet the definition of ``well 
capitalized.'' (iv) Beginning January 1, 2018, an advanced 
approaches or Category III FDIC-supervised institution will be 
deemed to be ``adequately capitalized'' if it satisfies the above 
criteria and has a supplementary leverage ratio of 3.0 percent or 
greater, as calculated in accordance with Sec.  324.10. See 12 CFR 
324.403. For purposes of this analysis, equity to assets is used as 
the measure of capital adequacy.
---------------------------------------------------------------------------

    The FDIC estimates that a uniform increase in initial base 
assessment rates of 2 basis points would contribute approximately $4.5 
billion in assessment revenue in 2023.\65\ Given the assumptions in the 
analysis, for the industry as a whole, the FDIC estimates

[[Page 39400]]

that, on average, a uniform increase in assessment rates of 2 basis 
points would decrease Tier 1 capital by an estimated 0.1 percent. The 
proposed increase is estimated to cause no banks whose ratio of equity 
to assets would have equaled or exceeded 4 percent under the current 
assessment rate schedule to fall below that percentage (becoming 
undercapitalized), and no banks whose ratio of equity to assets would 
have exceeded 2 percent under the current rate schedule to fall below 
that percentage, becoming critically undercapitalized.
---------------------------------------------------------------------------

    \65\ Estimates and projections are based on the assumptions used 
in Scenario B.
---------------------------------------------------------------------------

    The banking industry reported an increase in full year 2021 income 
primarily due to negative provision expense in all four quarters of the 
year. Fourth quarter net income improved from a year ago due to higher 
net interest income and negative provisions while first quarter 2022 
net income declined due to higher and positive provisions. While 
provisions are positive and caused the decline in quarterly net income, 
the current level remains low compared to pre-pandemic levels. The net 
interest margin for the industry remained stable from the prior quarter 
and from the year-ago quarter, as growth in earning assets has been 
equal to the growth in net interest income. The average return-on-
assets (ROA) decreased from a decade-high of 1.38 percent in first 
quarter 2021 to 1.00 percent in first quarter 2022. The banking 
industry remained resilient moving into the second half of 2022 despite 
the extraordinary challenges of the pandemic, and is well-positioned to 
absorb the proposed rate increase.
    Given the assumptions in the analysis, for the industry as a whole, 
the FDIC estimates that the annual increase in assessments would 
average 1.0 percent of income, which includes an average of 0.9 percent 
for small banks and an average of 1.0 percent for large and highly 
complex institutions.\66\
---------------------------------------------------------------------------

    \66\ Earnings or income are annual income before assessments and 
taxes. Annual income is assumed to equal income from April 1, 2021, 
through March 31, 2022.
---------------------------------------------------------------------------

    Table 13 shows that approximately 95 percent of profitable 
institutions are projected to have an increase in assessments of less 
than 5 percent of income. Another 5 percent of profitable institutions 
are projected to have an increase in assessments equal to or exceeding 
5 percent of income.

      Table 13--Estimated Annual Effect of the Proposed Rule on Income for All Profitable Institutions \1\
----------------------------------------------------------------------------------------------------------------
                                                                                     Assets of
   Change in assessments as percent of income        Number of      Percent of     institutions     Percent of
                                                   institutions    institutions    ($ billions)       assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................               8               0               1              <1
20% to 30%......................................              11              <1               1              <1
10% to 20%......................................              48               1               7              <1
5% to 10%.......................................             145               3              28              <1
Less than 5%....................................           4,400              95          23,724             100
No Change.......................................               3              <1              <1              <1
                                                 ---------------------------------------------------------------
    Total.......................................           4,615             100          23,762             100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
  from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
  having positive merger-adjusted income for the 12 months ending March 31, 2022. Excludes 9 insured branches of
  foreign banks and 7 institutions reporting fewer than 4 quarters of reported earnings. Some columns do not add
  to total due to rounding.

    Among profitable small institutions, 95 percent are projected to 
have an increase in assessments of less than 5 percent of income, as 
shown in Table 14. The remaining 5 percent of profitable small 
institutions are projected to have an increase in assessments equal to 
or exceeding 5 percent of income. As shown in Table 15, 100 percent of 
profitable large and highly complex institutions are projected to have 
an increase in assessments below 5 percent of income.

     Table 14--Estimated Annual Effect of the Proposed Rule on Income for Profitable Small Institutions \1\
----------------------------------------------------------------------------------------------------------------
                                                                                     Assets of
   Change in assessments as percent of income        Number of      Percent of     institutions     Percent of
                                                   institutions    institutions    ($ billions)       assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................               8              <1               1              <1
20% to 30%......................................              11              <1               1              <1
10% to 20%......................................              48               1               7              <1
5% to 10%.......................................             145               3              28               1
Less than 5%....................................           4,258              95           3,466              99
No Change.......................................               3              <1              <1              <1
                                                 ---------------------------------------------------------------
    Total.......................................           4,473             100           3,503             100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
  from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
  having positive merger-adjusted income for the 12 months ending March 31, 2022. Some columns do not add to
  total due to rounding.


[[Page 39401]]


    Table 15--Estimated Annual Effect of the Proposed Rule on Income for Profitable Large and Highly Complex
                                                Institutions \1\
----------------------------------------------------------------------------------------------------------------
                                                                                     Assets of
   Change in assessments as percent of income        Number of      Percent of     institutions     Percent of
                                                   institutions    institutions    ($ billions)       assets
----------------------------------------------------------------------------------------------------------------
Over 30%........................................               0               0               0               0
20% to 30%......................................               0               0               0               0
10% to 20%......................................               0               0               0               0
5% to 10%.......................................               0               0               0               0
Less than 5%....................................             142             100          20,258             100
No Change.......................................               0               0               0               0
                                                 ---------------------------------------------------------------
    Total.......................................             142             100          20,258             100
----------------------------------------------------------------------------------------------------------------
\1\ Income is defined as annual income before assessments and taxes. Annual income is assumed to equal income
  from April 1, 2021, through March 31, 2022, adjusted for mergers. Profitable institutions are defined as those
  having positive merger-adjusted income for the 12 months ending March 31, 2022. Some columns do not add to
  total due to rounding.

Strengthening the DIF
    As discussed above, the proposed rule is unlikely to have large 
material effects on any individual institution. However, the resulting 
increase in assessment revenue, combined across all institutions, would 
grow the DIF by over $4 billion a year. This growth would strengthen 
the DIF's ability to withstand potential future periods of significant 
losses due to bank failures and reduce the likelihood that the FDIC 
would need to increase assessment rates during a future banking crisis. 
Accelerating the time in which the reserve ratio would reach the 
statutory minimum of 1.35 percent and the DRR of 2 percent would allow 
the banking industry to remain a source of strength for the economy 
during a potential future downturn and would continue to ensure public 
confidence in federal deposit insurance.

E. Alternatives Considered

    The FDIC considered the reasonable and possible alternatives 
described below. On balance, the FDIC views the current proposal as the 
most appropriate and most straightforward manner in which to achieve 
the objectives of the Amended Restoration Plan and the long-term fund 
management plan.
Alternative 1: Maintain Current Assessment Rate Schedule
    The first alternative would be to maintain the current schedule of 
assessment rates. As described above, the FDIC projected that the 
reserve ratio would reach the statutory minimum of 1.35 percent in the 
third quarter of 2034, after the statutory deadline under Scenario A, 
which assumes annual insured deposit growth of 4.0 percent and an 
average annual assessment rate of 3.5 basis points. Under Scenario B, 
which assumes insured deposit growth of 3.5 percent and an average 
assessment rate of 4.0 basis points, the FDIC projected that the 
reserve ratio would reach the statutory minimum of 1.35 percent in the 
second quarter of 2027, only five quarters before the statutory 
deadline of September 30, 2028.
    As described above, the FDIC rejected maintaining the current 
schedule of assessment rates. Absent an increase in assessment rates, 
under Scenario A growth in the DIF would not be sufficient for the 
reserve ratio to reach the statutory minimum of 1.35 percent ahead of 
the required deadline. While the reserve ratio would reach the 
statutory minimum ahead of the required deadline under Scenario B, 
growth in the fund resulting from current assessment rates could be 
offset if unexpected losses materialize, insured deposit growth 
accelerates, or risk profiles of institutions continue to improve 
resulting in lower assessment rates.
    Additionally, relative to the other alternatives and the current 
proposal, maintaining the current schedule of assessment rates would 
not result in any acceleration of growth in the DIF in progressing 
toward the FDIC's long-term goal of a 2 percent DRR. Absent an increase 
in assessment rates and assuming annual insured deposit growth of 3.5 
percent and a weighted average assessment rate of 4.0 basis points, the 
FDIC projected that the reserve ratio would achieve the 2 percent DRR 
in 2045, thirteen years later than if the FDIC were to apply an 
increase in assessment rates of 2 basis points beginning in 2023.
Alternative 2: Increase in Assessment Rates of 1 Basis Point
    A second alternative would be to increase initial base assessment 
rates uniformly by 1 basis point. As described above, the FDIC 
projected that a 1 basis point increase in the average assessment rate 
would result in the reserve ratio reaching the minimum in the third 
quarter of 2026 under Scenario A and in the second quarter of 2025 
under Scenario B.
    However, also as described above, the FDIC rejected this 
alternative in favor of a 2 basis point increase. Reaching the minimum 
reserve ratio in 2026, as projected under Scenario A, would be very 
close to the statutory deadline and could result in the FDIC having to 
consider higher assessment rates in the face of a future downturn or 
industry stress. While a 1 basis point increase under Scenario B is 
projected to result in the reserve ratio reaching 1.35 percent in 2025, 
the increase in associated assessment revenue would generate a smaller 
buffer to absorb unexpected losses, accelerated insured deposit growth, 
or lower average assessment rates that could materialize over this 
period.
    Additionally, the FDIC projected that a 1 basis point increase in 
assessment rates would result in the reserve ratio achieving the 2 
percent DRR in approximately 2036, about 4 years later than if the FDIC 
were to apply an increase in assessment rates of 2 basis points 
beginning in 2023.
Alternative 3: One-Time Special Assessment of 4.5 Basis Points
    A third alternative would be to impose a one-time special 
assessment of 4.5 basis points, applicable to the assessment base of 
all IDIs. Utilizing data as of March 31, 2022, and assuming an 
effective date of January 1, 2023, the FDIC estimated that a one-time 
special assessment of 4.5 basis points would contribute approximately 
$9.8 billion in assessment revenue and the reserve ratio would reach 
1.35 percent the quarter following the effective date (i.e., the second 
assessment period of 2023).\67\ Accordingly, the FDIC

[[Page 39402]]

estimates that, on average, a one-time special assessment of 4.5 basis 
points would decrease Tier 1 capital by an estimated 0.4 percent and 
reduce the annual earnings of IDIs by approximately 2.3 percent, in 
aggregate.\68\
---------------------------------------------------------------------------

    \67\ Estimates and projections related to the one-time special 
assessment assume that: (1) insured deposit growth is 4 percent 
annually; (2) the average assessment rate before any rate increase 
is 3.5 basis points; (3) losses to the DIF from bank failures total 
$1.8 billion from 2022 to 2026; (4) the assessment base grows 4.5 
percent, annually; (5) interest income on the deposit insurance fund 
balance is zero; and (6) operating expenses grow at 1 percent per 
year.
    \68\ Earnings or income are annual income before assessments, 
taxes, and extraordinary items. Annual income is assumed to equal 
income from April 1, 2021 through March 31, 2022.
---------------------------------------------------------------------------

    While a one-time special assessment of 4.5 basis points is 
projected to increase the DIF reserve ratio to 1.35 percent the most 
quickly and precisely, and would significantly mitigate the potential 
that the FDIC would need to consider a potentially pro-cyclical 
increase in assessment rates, it is estimated to result in a quarterly 
assessment expense that is more than 8 times greater than the proposal. 
Additionally, while the reserve ratio is projected to be restored to 
1.35 percent immediately under this alternative, the risk would remain 
that it could fall back below the statutory minimum shortly thereafter 
if a sufficient cushion is not built in. This would result in the 
establishment of a new restoration plan. Further, a one-time special 
assessment would not meaningfully accelerate the timeline for achieving 
the 2 percent DRR.
    The FDIC requests comments on the proposal and the alternative 
approaches considered. On balance, in the FDIC's view, the proposed 
increase in assessment rates appropriately balances several 
considerations, including the goal of reaching the statutory minimum 
reserve ratio reasonably promptly, accelerating the timeline for 
achieving a 2 percent DRR, strengthening the fund to reduce the risk 
that the FDIC would need to consider a potentially pro-cyclical 
assessment increase in the event of a future downturn or industry 
stress, and the projected effects on bank earnings at a time when the 
banking industry is better positioned to absorb an assessment rate 
increase.

F. Comment Period, Effective Date, and Application Date

    The FDIC is issuing this proposal with an opportunity for public 
comment through August 20, 2022. Following the comment period, the FDIC 
expects to issue a final rule with an effective date of January 1, 
2023, and applicable to the first quarterly assessment period of 2023 
(i.e., January 1-March 31, 2023).

IV. Request for Comment

    The FDIC is requesting comment on all aspects of the notice of 
proposed rulemaking, in addition to the specific requests below.
    Question 1: The FDIC invites comment on its proposal to increase 
deposit insurance assessment rates uniformly by 2 basis points, 
beginning with the first quarterly assessment period of 2023. How does 
the approach in the proposed rule support or not support the objectives 
of the Amended Restoration Plan and the FDIC's long-term fund 
management plan?
    Question 2: The FDIC invites comment on the reasonable and possible 
alternatives described in this proposed rule. What are other reasonable 
and possible alternatives that the FDIC should consider?

V. Administrative Law Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency, 
in connection with a proposed rule, to prepare and make available for 
public comment an initial regulatory flexibility analysis that 
describes the impact of a proposed rule on small entities.\69\ However, 
an initial regulatory flexibility analysis is not required if the 
agency certifies that the proposed rule will not have a significant 
economic impact on a substantial number of small entities. The Small 
Business Administration (SBA) has defined ``small entities'' to include 
banking organizations with total assets of less than or equal to $750 
million.\70\ Certain types of rules, such as rules of particular 
applicability relating to rates, corporate or financial structures, or 
practices relating to such rates or structures, are expressly excluded 
from the definition of ``rule'' for purposes of the RFA.\71\ Because 
the proposed rule relates directly to the rates imposed on IDIs for 
deposit insurance, the proposed rule is not subject to the RFA. 
Nonetheless, the FDIC is voluntarily presenting information in this RFA 
section.
---------------------------------------------------------------------------

    \69\ 5 U.S.C. 601 et seq.
    \70\ The SBA defines a small banking organization as having $750 
million or less in assets, where an organization's assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year. See 13 CFR 121.201 (as 
amended by 87 FR 18627, effective May 2, 2022). In its 
determination, the SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. See 13 CFR 121.103. Following these 
regulations, the FDIC uses a banking organization's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the banking organization is ``small'' for the 
purposes of RFA.
    \71\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    The proposed rule is expected to affect all FDIC-insured depository 
institutions. According to recent Call Report data, there are currently 
4,848 IDIs holding approximately $24 trillion in assets.\72\ Of these, 
approximately 3,478 IDIs would be considered small entities for the 
purposes of RFA.\73\ These small entities hold approximately $905 
billion in assets.
---------------------------------------------------------------------------

    \72\ Based on Call Report data as of December 31, 2021, the most 
recent period for which small entities can be identified.
    \73\ Id.
---------------------------------------------------------------------------

    The proposed rule would increase initial base assessment rates for 
these small entities by 2 basis points. In aggregate, the total annual 
amount paid in assessments by small entities would increase by 
approximately $160 million, from $320 million to $480 million.\74\
---------------------------------------------------------------------------

    \74\ Id.
---------------------------------------------------------------------------

    At the individual bank level, few institutions would be 
significantly affected by the proposed rule. Fewer than 330 small 
entities would experience annual assessment increases greater than 
$100,000, and none would experience annual assessment increases greater 
than $150,000. When compared to the banks' expenses, the annual 
assessment increases are significant for only a handful of small 
entities: only five small entities would experience annual assessment 
increases greater than 2.5 percent of their noninterest expenses, and 
only three would experience annual assessment increases greater than 5 
percent of what they paid in employee salaries and benefits.\75\
---------------------------------------------------------------------------

    \75\ Id. For purposes of the RFA, the FDIC generally considers a 
significant effect to be a quantified effect in excess of 5 percent 
of total annual salaries and benefits per institution, or 2.5 
percent of total noninterest expenses.
---------------------------------------------------------------------------

    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
proposed rule have any significant effects on small entities that the 
FDIC has not identified?

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) states that no agency may 
conduct or sponsor, nor is the respondent required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number.\76\ The FDIC's OMB control 
numbers for its assessment regulations are 3064-0057, 3064-0151, and 
3064-0179. The proposed rule does not revise any of these existing 
assessment information

[[Page 39403]]

collections pursuant to the PRA and consequently, no submissions in 
connection with these OMB control numbers will be made to the OMB for 
review.
---------------------------------------------------------------------------

    \76\ 4 U.S.C. 3501-3521.
---------------------------------------------------------------------------

C. Riegle Community Development and Regulatory Improvement Act

    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA) requires that the Federal banking 
agencies, including the FDIC, in determining the effective date and 
administrative compliance requirements of new regulations that impose 
additional reporting, disclosure, or other requirements on IDIs, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations.\77\ Subject to certain exceptions, new 
regulations and amendments to regulations prescribed by a Federal 
banking agency which impose additional reporting, disclosures, or other 
new requirements on insured depository institutions shall take effect 
on the first day of a calendar quarter which begins on or after the 
date on which the regulations are published in final form.\78\
---------------------------------------------------------------------------

    \77\ 12 U.S.C. 4802(a).
    \78\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The proposed rule would not impose additional reporting, 
disclosure, or other new requirements on insured depository 
institutions, including small depository institutions, or on the 
customers of depository institutions. Accordingly, section 302 of 
RCDRIA does not apply. Nevertheless, the requirements of RCDRIA have 
been considered in setting the proposed effective date. The FDIC 
invites comments that will further inform its consideration of RCDRIA.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \79\ requires the Federal 
banking agencies to use plain language in all proposed and final 
rulemakings published in the Federal Register after January 1, 2000. 
The FDIC invites your comments on how to make this proposed rule easier 
to understand. For example:
---------------------------------------------------------------------------

    \79\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999), 12 U.S.C. 4809.
---------------------------------------------------------------------------

    <bullet> Has the FDIC organized the material to suit your needs? If 
not, how could the material be better organized?
    <bullet> Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
    <bullet> Does the proposed regulation contain language or jargon 
that is unclear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand?

VI. Revisions to Code of Federal Regulations

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend 12 CFR part 327 as follows:

PART 327--ASSESSMENTS

0
1. The authority for 12 CFR part 327 continues to read as follows:

    Authority:  12 U.S.C. 1813, 1815, 1817-19, 1821.

0
2. Amend Sec.  327.4 by revising paragraphs (a) and (c) to read as 
follows:


Sec.  327.4   Assessment rates.

    (a) Assessment risk assignment. For the purpose of determining the 
annual assessment rate for insured depository institutions under Sec.  
327.16, each insured depository institution will be provided an 
assessment risk assignment. Notice of an institution's current 
assessment risk assignment will be provided to the institution with 
each quarterly certified statement invoice. Adjusted assessment risk 
assignments for prior periods may also be provided by the Corporation. 
Notice of the procedures applicable to reviews will be included with 
the notice of assessment risk assignment provided pursuant to this 
paragraph (a).
* * * * *
    (c) Requests for review. An institution that believes any 
assessment risk assignment provided by the Corporation pursuant to 
paragraph (a) of this section is incorrect and seeks to change it must 
submit a written request for review of that risk assignment. An 
institution cannot request review through this process of the CAMELS 
ratings assigned by its primary federal regulator or challenge the 
appropriateness of any such rating; each federal regulator has 
established procedures for that purpose. An institution may also 
request review of a determination by the FDIC to assess the institution 
as a large, highly complex, or a small institution (Sec.  327.16(f)(3)) 
or a determination by the FDIC that the institution is a new 
institution (Sec.  327.16(g)(5)). Any request for review must be 
submitted within 90 days from the date the assessment risk assignment 
being challenged pursuant to paragraph (a) of this section appears on 
the institution's quarterly certified statement invoice. The request 
shall be submitted to the Corporation's Director of the Division of 
Insurance and Research in Washington, DC, and shall include 
documentation sufficient to support the change sought by the 
institution. If additional information is requested by the Corporation, 
such information shall be provided by the institution within 21 days of 
the date of the request for additional information. Any institution 
submitting a timely request for review will receive written notice from 
the Corporation regarding the outcome of its request. Upon completion 
of a review, the Director of the Division of Insurance and Research (or 
designee) or the Director of the Division of Supervision and Consumer 
Protection (or designee) or any successor divisions, as appropriate, 
shall promptly notify the institution in writing of his or her 
determination of whether a change is warranted. If the institution 
requesting review disagrees with that determination, it may appeal to 
the FDIC's Assessment Appeals Committee. Notice of the procedures 
applicable to appeals will be included with the written determination.
* * * * *
0
3. Amend Sec.  327.8 by revising paragraphs (e)(2), (f), (k)(1), and 
(l) through (p) to read as follows:


Sec.  327.8   Definitions.

* * * * *
    (e) * * *
    (2) Except as provided in paragraph (e)(3) of this section and 
Sec.  327.17(e), if, after December 31, 2006, an institution classified 
as large under paragraph (f) of this section (other than an institution 
classified as large for purposes of Sec.  327.16(f)) reports assets of 
less than $10 billion in its quarterly reports of condition for four 
consecutive quarters, excluding assets as described in Sec.  327.17(e), 
the FDIC will reclassify the institution as small beginning the 
following quarter.
* * * * *
    (f) Large institution. An institution classified as large for 
purposes of Sec.  327.16(f) or an insured depository institution with 
assets of $10 billion or more, excluding assets as described in Sec.  
327.17(e), as of December 31, 2006 (other than an insured branch of a 
foreign bank or a highly complex institution) shall be classified as a 
large institution. If, after December 31, 2006,

[[Page 39404]]

an institution classified as small under paragraph (e) of this section 
reports assets of $10 billion or more in its quarterly reports of 
condition for four consecutive quarters, excluding assets as described 
in Sec.  327.17(e), the FDIC will reclassify the institution as large 
beginning the following quarter.
* * * * *
    (k) * * *
    (1) Merger or consolidation involving new and established 
institution(s). Subject to paragraphs (k)(2) through (5) of this 
section and Sec.  327.16(g)(3) and (4), when an established institution 
merges into or consolidates with a new institution, the resulting 
institution is a new institution unless:
* * * * *
    (l) Risk assignment. Under Sec.  327.16, for all new small 
institutions and insured branches of foreign banks, risk assignment 
includes assignment to Risk Category I, II, III, or IV, and for insured 
branches of foreign banks within Risk Category I, assignment to an 
assessment rate or rates. For all established small institutions, and 
all large institutions and all highly complex institutions, risk 
assignment includes assignment to an assessment rate.
    (m) Unsecured debt. For purposes of the unsecured debt adjustment 
as set forth in Sec.  327.16(e)(1) and the depository institution debt 
adjustment as set forth in Sec.  327.16(e)(2), unsecured debt shall 
include senior unsecured liabilities and subordinated debt.
    (n) Senior unsecured liability. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.16(e)(1) and the depository 
institution debt adjustment as set forth in Sec.  327.16(e)(2), senior 
unsecured liabilities shall be the unsecured portion of other borrowed 
money as defined in the quarterly report of condition for the reporting 
period as defined in paragraph (b) of this section.
    (o) Subordinated debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.16(e)(1) and the depository 
institution debt adjustment as set forth in Sec.  327.16(e)(2), 
subordinated debt shall be as defined in the quarterly report of 
condition for the reporting period; however, subordinated debt shall 
also include limited-life preferred stock as defined in the quarterly 
report of condition for the reporting period.
    (p) Long-term unsecured debt. For purposes of the unsecured debt 
adjustment as set forth in Sec.  327.16(e)(1) and the depository 
institution debt adjustment as set forth in Sec.  327.16(e)(2), long-
term unsecured debt shall be unsecured debt with at least one year 
remaining until maturity; however, any such debt where the holder of 
the debt has a redemption option that is exercisable within one year of 
the reporting date shall not be deemed long-term unsecured debt.
* * * * *


Sec.  327.9   [Removed and Reserved]

0
4. Remove and reserve Sec.  327.9.
0
5. Amend Sec.  327.10 as follows:
0
a. Remove paragraph (a);
0
b. Redesignate paragraph (b) as paragraph (a) and revise it;
0
c. Add new paragraph (b);
0
d. Remove paragraph (e)(1)(i);
0
e. Redesignate paragraph (e)(1)(ii) as paragraph (e)(1)(i) and revise 
it;
0
f. Add new paragraph (e)(1)(ii);
0
g. Revise paragraph (e)(1)(iii);
0
h. Add paragraph (e)(1)(iv);
0
i. Revise paragraph (e)(2)(i);
0
j. Redesignate paragraphs (e)(2)(ii) and (iii) as (e)(2)(iii) and (iv), 
respectively; and
0
k. Add new paragraph (e)(2)(ii).
    The revisions and additions read as follows:


Sec.  327.10   Assessment rate schedules.

    (a) Assessment rate schedules for established small institutions 
and large and highly complex institutions applicable in the first 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and in all subsequent assessment periods through 
the assessment period ending December 31, 2022, where the reserve ratio 
of the DIF as of the end of the prior assessment period is less than 2 
percent.
    (1) Initial base assessment rate schedule for established small 
institutions and large and highly complex institutions. In the first 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and for all subsequent assessment periods 
through the assessment period ending December 31, 2022, where the 
reserve ratio as of the end of the prior assessment period is less than 
2 percent, the initial base assessment rate for established small 
institutions and large and highly complex institutions, except as 
provided in paragraph (f) of this section, shall be the rate prescribed 
in the schedule in the following table:

    Table 1 to Paragraph (a)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
 Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December 31
      2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \1\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------   Large & highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           3 to 16            6 to 30           16 to 30            3 to 30
----------------------------------------------------------------------------------------------------------------
\1\All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
  vary between these rates.

    (i) CAMELS composite 1- and 2-rated established small institutions 
initial base assessment rate schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 1 or 2 shall range from 3 to 16 basis points.
    (ii) CAMELS composite 3-rated established small institutions 
initial base assessment rate schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 3 shall range from 6 to 30 basis points.
    (iii) CAMELS composite 4- and 5-rated established small 
institutions initial base assessment rate schedule. The annual initial 
base assessment rates for all established small institutions with a 
CAMELS composite rating of 4 or 5 shall range from 16 to 30 basis 
points.
    (iv) Large and highly complex institutions initial base assessment 
rate schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 3 to 30 basis points.

[[Page 39405]]

    (2) Total base assessment rate schedule after adjustments. In the 
first assessment period after June 30, 2016, that the reserve ratio of 
the DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent, and for all subsequent assessment periods 
through the assessment period ending December 31, 2022, where the 
reserve ratio for the prior assessment period is less than 2 percent, 
the total base assessment rates after adjustments for established small 
institutions and large and highly complex institutions, except as 
provided in paragraph (f) of this section, shall be as prescribed in 
the schedule in the following table:

    Table 2 to Paragraph (a)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments)\1\
 Beginning the First Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has
  Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period ending December
    31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------  Large &  highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           3 to 16            6 to 30           16 to 30            3 to 30
Unsecured Debt Adjustment...........           -5 to 0            -5 to 0            -5 to 0            -5 to 0
Brokered Deposit Adjustment.........               N/A                N/A                N/A            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......         1.5 to 16            3 to 30           11 to 30          1.5 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
  vary between these rates.

    (i) CAMELS composite 1- and 2-rated established small institutions 
total base assessment rate schedule. The annual total base assessment 
rates for all established small institutions with a CAMELS composite 
rating of 1 or 2 shall range from 1.5 to 16 basis points.
    (ii) CAMELS composite 3-rated established small institutions total 
base assessment rate schedule. The annual total base assessment rates 
for all established small institutions with a CAMELS composite rating 
of 3 shall range from 3 to 30 basis points.
    (iii) CAMELS composite 4- and 5-rated established small 
institutions total base assessment rate schedule. The annual total base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 4 or 5 shall range from 11 to 30 basis points.
    (iv) Large and highly complex institutions total base assessment 
rate schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 1.5 to 40 basis points.
    (b) Assessment rate schedules for established small institutions 
and large and highly complex institutions beginning the first 
assessment period of 2023, where the reserve ratio of the DIF as of the 
end of the prior assessment period is less than 2 percent
    (1) Initial base assessment rate schedule for established small 
institutions and large and highly complex institutions. Beginning the 
first assessment period of 2023, where the reserve ratio of the DIF as 
of the end of the prior assessment period is less than 2 percent, the 
initial base assessment rate for established small institutions and 
large and highly complex institutions, except as provided in paragraph 
(f) of this section, shall be the rate prescribed in the schedule in 
the following table:

    Table 3 to Paragraph (b)(1) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
 Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2
                                                   Percent \1\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------   Large & highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           5 to 18            8 to 32           18 to 32            5 to 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts are in basis points annually. Initial base rates that are not the minimum or maximum rate will
  vary between these rates.

    (i) CAMELS composite 1- and 2-rated established small institutions 
initial base assessment rate schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 1 or 2 shall range from 5 to 18 basis points.
    (ii) CAMELS composite 3-rated established small institutions 
initial base assessment rate schedule. The annual initial base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 3 shall range from 8 to 32 basis points.
    (iii) CAMELS composite 4- and 5-rated established small 
institutions initial base assessment rate schedule. The annual initial 
base assessment rates for all established small institutions with a 
CAMELS composite rating of 4 or 5 shall range from 18 to 32 basis 
points.
    (iv) Large and highly complex institutions initial base assessment 
rate schedule. The annual initial base assessment rates for all large 
and highly complex institutions shall range from 5 to 32 basis points.
    (2) Total base assessment rate schedule after adjustments. 
Beginning the first assessment period of 2023,

[[Page 39406]]

where the reserve ratio of the DIF as of the end of the prior 
assessment period is less than 2 percent, the total base assessment 
rates after adjustments for established small institutions and large 
and highly complex institutions, except as provided in paragraph (f) of 
this section, shall be as prescribed in the schedule in the following 
table:

    Table 4 to Paragraph (b)(2) Introductory Text--Total Base Assessment Rate Schedule (After Adjustments)\1\
  Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
                                        Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                                   Established small institutions
                                     ---------------------------------------------------------  Large &  highly
                                                          CAMELS composite                          complex
                                     ---------------------------------------------------------    institutions
                                            1 or 2               3                4 or 5
----------------------------------------------------------------------------------------------------------------
Initial Base Assessment Rate........           5 to 18            8 to 32           18 to 32            5 to 32
Unsecured Debt Adjustment...........           -5 to 0            -5 to 0            -5 to 0            -5 to 0
Brokered Deposit Adjustment.........               N/A                N/A                N/A            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......         2.5 to 18            4 to 32           13 to 32          2.5 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts are in basis points annually. Total base rates that are not the minimum or maximum rate will
  vary between these rates.

    (i) CAMELS composite 1- and 2-rated established small institutions 
total base assessment rate schedule. The annual total base assessment 
rates for all established small institutions with a CAMELS composite 
rating of 1 or 2 shall range from 2.5 to 18 basis points.
    (ii) CAMELS composite 3-rated established small institutions total 
base assessment rate schedule. The annual total base assessment rates 
for all established small institutions with a CAMELS composite rating 
of 3 shall range from 4 to 32 basis points.
    (iii) CAMELS composite 4- and 5-rated established small 
institutions total base assessment rate schedule. The annual total base 
assessment rates for all established small institutions with a CAMELS 
composite rating of 4 or 5 shall range from 13 to 32 basis points.
    (iv) Large and highly complex institutions total base assessment 
rate schedule. The annual total base assessment rates for all large and 
highly complex institutions shall range from 2.5 to 42 basis points.
* * * * *
    (e) * * *
    (1) * * *
    (i) Assessment rate schedules for new large and highly complex 
institutions once the DIF reserve ratio first reaches 1.15 percent on 
or after June 30, 2016 and through the assessment period ending 
December 31, 2022. In the first assessment period after June 30, 2016, 
where the reserve ratio of the DIF as of the end of the prior 
assessment period has reached or exceeded 1.15 percent, and for all 
subsequent assessment periods through the assessment period ending 
December 31, 2022, new large and new highly complex institutions shall 
be subject to the initial and total base assessment rate schedules 
provided for in paragraph (a) of this section.
    (ii) Assessment rate schedules for new large and highly complex 
institutions beginning the first assessment period of 2023 and for all 
subsequent periods. Beginning in the first assessment period of 2023 
and for all subsequent assessment periods, new large and new highly 
complex institutions shall be subject to the initial and total base 
assessment rate schedules provided for in paragraph (b) of this 
section.
    (iii) Assessment rate schedules for new small institutions 
beginning the first assessment period after June 30, 2016, where the 
reserve ratio of the DIF as of the end of the prior assessment period 
has reached or exceeded 1.15 percent, and for all subsequent assessment 
periods through the assessment period ending December 31, 2022--(A) 
Initial base assessment rate schedule for new small institutions. In 
the first assessment period after June 30, 2016, where the reserve 
ratio of the DIF as of the end of the prior assessment period has 
reached or exceeded 1.15 percent, and for all subsequent assessment 
periods through the assessment period ending December 31, 2022, the 
initial base assessment rate for a new small institution shall be the 
rate prescribed in the schedule in the following table:

Table 9 to Paragraph (e)(1)(iii)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
    Assessment Period, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15
  Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending December 31, 2022 \1\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 7                 12                 19                 30
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.

    (1) Risk category I initial base assessment rate schedule. The 
annual initial base assessment rates for all new small institutions in 
Risk Category I shall be 7 basis points.
    (2) Risk category II, III, and IV initial base assessment rate 
schedule. The annual initial base assessment rates for all new small 
institutions in Risk Categories II, III, and IV shall be 12, 19, and 30 
basis points, respectively.
    (B) Total base assessment rate schedule for new small institutions. 
In the first assessment period after June 30, 2016, that the reserve 
ratio of the DIF as of the end of the prior assessment period has 
reached or exceeded 1.15

[[Page 39407]]

percent, and for all subsequent assessment periods through the 
assessment period ending December 31, 2022, the total base assessment 
rates after adjustments for a new small institution shall be the rate 
prescribed in the schedule in the following table:

       Table 10 to Paragraph (e)(1)(iii)(B) Introductory Text--Total Base Assessment Rate Schedule (After
Adjustments)\1\ Beginning the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End
 of the Prior Assessment Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the
                                 Assessment Period Ending December 31, 2022 \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 7                 12                 19                 30
Brokered Deposit Adjustment (added).               N/A            0 to 10            0 to 10            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......                 7           12 to 22           19 to 29           30 to 40
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (1) Risk category I total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category I shall be 7 basis points.
    (2) Risk category II total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category II shall range from 12 to 22 basis points.
    (3) Risk category III total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category III shall range from 19 to 29 basis points.
    (4) Risk category IV total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category IV shall range from 30 to 40 basis points.
    (iv) Assessment rate schedules for new small institutions beginning 
the first assessment period of 2023 and for all subsequent assessment 
periods--(A) Initial base assessment rate schedule for new small 
institutions. Beginning in the first assessment period of 2023 and for 
all subsequent assessment periods, the initial base assessment rate for 
a new small institution shall be the rate prescribed in the schedule in 
the following table, even if the reserve ratio equals or exceeds 2 
percent or 2.5 percent:

Table 11 to Paragraph (e)(1)(iv)(A) Introductory Text--Initial Base Assessment Rate Schedule Beginning the First
                     Assessment Period of 2023 and for All Subsequent Assessment Periods \1\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 9                 14                 21                 32
----------------------------------------------------------------------------------------------------------------
\1\ All amounts for all risk categories are in basis points annually.

    (1) Risk category I initial base assessment rate schedule. The 
annual initial base assessment rates for all new small institutions in 
Risk Category I shall be 9 basis points.
    (2) Risk category II, III, and IV initial base assessment rate 
schedule. The annual initial base assessment rates for all new small 
institutions in Risk Categories II, III, and IV shall be 14, 21, and 32 
basis points, respectively.
    (B) Total base assessment rate schedule for new small institutions. 
Beginning in the first assessment period of 2023 and for all subsequent 
assessment periods, the total base assessment rates after adjustments 
for a new small institution shall be the rate prescribed in the 
schedule in the following table, even if the reserve ratio equals or 
exceeds 2 percent or 2.5 percent:

        Table 12 to Paragraph (e)(1)(iv)(B) Introductory Text--Total Base Assessment Rate Schedule (After
   Adjustments)\1\ Beginning the First Assessment Period of 2023 and for All Subsequent Assessment Periods \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial Assessment Rate.............                 9                 14                 21                 32
Brokered Deposit Adjustment (added).               N/A            0 to 10            0 to 10            0 to 10
                                     ---------------------------------------------------------------------------
    Total Base Assessment Rate......                 9           14 to 24           21 to 31           32 to 42
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Total base rates that are not the minimum
  or maximum rate will vary between these rates.

    (1) Risk category I total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category I shall be 9 basis points.

[[Page 39408]]

    (2) Risk category II total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category II shall range from 14 to 24 basis points.
    (3) Risk category III total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category III shall range from 21 to 31 basis points.
    (4) Risk category IV total assessment rate schedule. The annual 
total base assessment rates for all new small institutions in Risk 
Category IV shall range from 32 to 42 basis points.
    (2) * * *
    (i) Beginning the first assessment period after June 30, 2016, 
where the reserve ratio of the DIF as of the end of the prior 
assessment period has reached or exceeded 1.15 percent, and for all 
subsequent assessment periods through the assessment period ending 
December 31, 2022, where the reserve ratio as of the end of the prior 
assessment period is less than 2 percent. In the first assessment 
period after June 30, 2016, where the reserve ratio of the DIF as of 
the end of the prior assessment period has reached or exceeded 1.15 
percent, and for all subsequent assessment periods through the 
assessment period ending December 31, 2022, where the reserve ratio as 
of the end of the prior assessment period is less than 2 percent, the 
initial and total base assessment rates for an insured branch of a 
foreign bank, except as provided in paragraph (f) of this section, 
shall be the rate prescribed in the schedule in the following table:

Table 13 to Paragraph (e)(2)(i) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\ Beginning
 the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment
 Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Through the Assessment Period Ending
 December 31, 2022, Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent
                                                       \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...            3 to 7                 12                 19                 30
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

    (A) Risk category I initial and total base assessment rate 
schedule. The annual initial and total base assessment rates for an 
insured branch of a foreign bank in Risk Category I shall range from 3 
to 7 basis points.
    (B) Risk category II, III, and IV initial and total base assessment 
rate schedule. The annual initial and total base assessment rates for 
Risk Categories II, III, and IV shall be 12, 19, and 30 basis points, 
respectively.
    (C) All insured branches of foreign banks in any one risk category, 
other than Risk Category I, will be charged the same initial base 
assessment rate, subject to adjustment as appropriate.
    (ii) Assessment rate schedule for insured branches of foreign banks 
beginning the first assessment period of 2023, where the reserve ratio 
of the DIF as of the end of the prior assessment period is less than 2 
percent. Beginning the first assessment period of 2023, where the 
reserve ratio of the DIF as of the end of the prior assessment period 
is less than 2 percent, the initial and total base assessment rates for 
an insured branch of a foreign bank, except as provided in paragraph 
(f) of this section, shall be the rate prescribed in the schedule in 
the following table:

     Table 14 to Paragraph (e)(2)(ii) Introductory Text--Initial and Total Base Assessment Rate Schedule \1\
  Beginning the First Assessment Period of 2023, Where the Reserve Ratio as of the End of the Prior Assessment
                                        Period Is Less Than 2 Percent \2\
----------------------------------------------------------------------------------------------------------------
                                       Risk category I    Risk category II  Risk category III   Risk category IV
----------------------------------------------------------------------------------------------------------------
Initial and Total Assessment Rate...            5 to 9                 14                 21                 32
----------------------------------------------------------------------------------------------------------------
\1\ The depository institution debt adjustment, which is not included in the table, can increase total base
  assessment rates above the maximum assessment rates shown in the table.
\2\ All amounts for all risk categories are in basis points annually. Initial and total base rates that are not
  the minimum or maximum rate will vary between these rates.

    (A) Risk category I initial and total base assessment rate 
schedule. The annual initial and total base assessment rates for an 
insured branch of a foreign bank in Risk Category I shall range from 5 
to 9 basis points.
    (B) Risk category II, III, and IV initial and total base assessment 
rate schedule. The annual initial and total base assessment rates for 
Risk Categories II, III, and IV shall be 14, 21, and 32 basis points, 
respectively.
    (C) Same initial base assessment rate. All insured branches of 
foreign banks in any one risk category, other than Risk Category I, 
will be charged the same initial base assessment rate, subject to 
adjustment as appropriate.
* * * * *
0
6. Amend Sec.  327.11 by revising paragraph (c)(3)(i) to read as 
follows:


Sec.  327.11   Surcharges and assessments required to raise the reserve 
ratio of the DIF to 1.35 percent.

* * * * *
    (c) * * *
    (3) * * *
    (i) Fraction of quarterly regular deposit insurance assessments 
paid by credit accruing institutions. The fraction of assessments paid 
by credit accruing institutions shall equal quarterly deposit insurance 
assessments, as determined under Sec.  327.16, paid by such 
institutions for each assessment period during the credit calculation 
period, divided by the total amount of quarterly deposit insurance 
assessments paid by all insured depository institutions during the 
credit calculation period, excluding the aggregate amount of

[[Page 39409]]

surcharges imposed under paragraph (b) of this section.
* * * * *
0
7. Amend Sec.  327.16 as follows:
0
a. Redesignate paragraphs (a)(1)(i)(A) through (C) as (a)(1)(i)(B) 
through (D), respectively;
0
b. Add new paragraph (a)(1)(i)(A);
0
c. Revise newly redesignated paragraph (a)(1)(i)(B);
0
d. Redesignate paragraphs (d)(4)(ii)(A) through (C) as (d)(4)(ii)(B) 
through (D), respectively;
0
e. Add new paragraph (d)(4)(ii)(A); and
0
f. Revise newly redesignated paragraph (d)(4)(ii)(B).
    The revisions and additions read as follows:


Sec.  327.16   Assessment pricing methods--beginning the first 
assessment period after June 30, 2016, where the reserve ratio of the 
DIF as of the end of the prior assessment period has reached or 
exceeded 1.15 percent.

* * * * *
    (a) * * *
    (1) * * *
    (i) Uniform amount. Except as adjusted for the actual assessment 
rates set by the Board under Sec.  327.10(f), the uniform amount shall 
be:
    (A) 7.352 whenever the assessment rate schedule set forth in Sec.  
327.10(a) is in effect;
    (B) 9.352 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
* * * * *
    (d) * * *
    (4) * * *
    (ii) * * *
    (A) -5.127 whenever the assessment rate schedule set forth in Sec.  
327.10(a) is in effect;
    (B) -3.127 whenever the assessment rate schedule set forth in Sec.  
327.10(b) is in effect;
* * * * *
0
8. Amend appendix A to subpart A of part 327 as follows:
0
a. Revise sections I through III;
0
b. Remove sections IV and V; and
0
c. Redesignate section VI as section IV;
    The revisions read as follows:

Appendix A to Subpart A of Part 327--Method To Derive Pricing 
Multipliers and Uniform Amount

I. Introduction

    The uniform amount and pricing multipliers are derived from:
    <bullet> A model (the Statistical Model) that estimates the 
probability of failure of an institution over a three-year horizon;
    <bullet> The minimum initial base assessment rate;
    <bullet> The maximum initial base assessment rate;
    <bullet> Thresholds marking the points at which the maximum and 
minimum assessment rates become effective.

II. The Statistical Model

    The Statistical Model estimates the probability of an insured 
depository institution failing within three years using a logistic 
regression and pooled time-series cross-sectional data; \1\ that is, 
the dependent variable in the estimation is whether an insured 
depository institution failed during the following three-year 
period. Actual model parameters for the Statistical Model are an 
average of each of three regression estimates for each parameter. 
Each of the three regressions uses end-of-year data from insured 
depository institutions' quarterly reports of condition and income 
(Call Reports and Thrift Financial Reports or TFRs \2\) for every 
third year to estimate probability of failure within the ensuing 
three years. One regression (Regression 1) uses insured depository 
institutions' Call Report and TFR data for the end of 1985 and 
failures from 1986 through 1988; Call Report and TFR data for the 
end of 1988 and failures from 1989 through 1991; and so on, ending 
with Call Report data for the end of 2009 and failures from 2010 
through 2012. The second regression (Regression 2) uses insured 
depository institutions' Call Report and TFR data for the end of 
1986 and failures from 1987 through 1989, and so on, ending with 
Call Report data for the end of 2010 and failures from 2011 through 
2013. The third regression (Regression 3) uses insured depository 
institutions' Call Report and TFR data for the end of 1987 and 
failures from 1988 through 1990, and so on, ending with Call Report 
data for the end of 2011 and failures from 2012 through 2014. The 
regressions include only Call Report data and failures for 
established small institutions.
    \1\ Tests for the statistical significance of parameters use 
adjustments discussed by Tyler Shumway (2001) ``Forecasting 
Bankruptcy More Accurately: A Simple Hazard Model,'' Journal of 
Business 74:1, 101-124.
    \2\ Beginning in 2012, all insured depository institutions began 
filing quarterly Call Reports and the TFR was no longer filed.
    Table A.1 lists and defines the explanatory variables 
(regressors) in the Statistical Model.

 Table A.1--Definitions of Measures Used in the Financial Ratios Method
------------------------------------------------------------------------
             Variables                           Description
------------------------------------------------------------------------
Leverage Ratio (%)................  Tier 1 capital divided by adjusted
                                     average assets. (Numerator and
                                     denominator are both based on the
                                     definition for prompt corrective
                                     action.)
Net Income before Taxes/Total       Income (before applicable income
 Assets (%).                         taxes and discontinued operations)
                                     for the most recent twelve months
                                     divided by total assets.\1\
Nonperforming Loans and Leases/     Sum of total loans and lease
 Gross Assets (%).                   financing receivables past due 90
                                     or more days and still accruing
                                     interest and total nonaccrual loans
                                     and lease financing receivables
                                     (excluding, in both cases, the
                                     maximum amount recoverable from the
                                     U.S. Government, its agencies or
                                     government-sponsored enterprises,
                                     under guarantee or insurance
                                     provisions) divided by gross
                                     assets.\2\ \3\
Other Real Estate Owned/Gross       Other real estate owned divided by
 Assets (%).                         gross assets.\2\
Brokered Deposit Ratio............  The ratio of the difference between
                                     brokered deposits and 10 percent of
                                     total assets to total assets. For
                                     institutions that are well
                                     capitalized and have a CAMELS
                                     composite rating of 1 or 2,
                                     reciprocal deposits are deducted
                                     from brokered deposits. If the
                                     ratio is less than zero, the value
                                     is set to zero.
Weighted Average of C, A, M, E, L,  The weighted sum of the ``C,''
 and S Component Ratings.            ``A,'' ``M,'' ``E'', ``L'', and
                                     ``S'' CAMELS components, with
                                     weights of 25 percent each for the
                                     ``C'' and ``M'' components, 20
                                     percent for the ``A'' component,
                                     and 10 percent each for the ``E'',
                                     ``L'', and ``S'' components. In
                                     instances where the ``S'' component
                                     is missing, the remaining
                                     components are scaled by a factor
                                     of 10/9.\4\
Loan Mix Index....................  A measure of credit risk described
                                     below.
One-Year Asset Growth (%).........  Growth in assets (adjusted for
                                     mergers \5\) over the previous year
                                     in excess of 10 percent.\6\ If
                                     growth is less than 10 percent, the
                                     value is set to zero.
------------------------------------------------------------------------
\1\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the ratio of Net Income before Taxes to Total
  Assets is bounded below by (and cannot be less than) -25 percent and
  is bounded above by (and cannot exceed) 3 percent. For purposes of
  model estimation only, the ratio of Net Income before Taxes to Total
  Assets is defined as income (before income taxes and extraordinary
  items and other adjustments) for the most recent twelve months divided
  by total assets.

[[Page 39410]]

 
\2\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), ``Gross assets'' are total assets plus the
  allowance for loan and lease financing receivable losses (ALLL); for
  purposes of estimating the Statistical Model, for years before 2001,
  when allocated transfer risk was not included in ALLL in Call Reports,
  allocated transfer risk is included in gross assets separately.
\3\ Delinquency and non-accrual data on government guaranteed loans are
  not available for the entire estimation period. As a result, the
  Statistical Model is estimated without deducting delinquent or past-
  due government guaranteed loans from the nonperforming loans and
  leases to gross assets ratio.
\4\ The component rating for sensitivity to market risk (the ``S''
  rating) is not available for years before 1997. As a result, and as
  described in the table, the Statistical Model is estimated using a
  weighted average of five component ratings excluding the ``S''
  component where the component is not available.
\5\ Growth in assets is also adjusted for acquisitions of failed banks.
\6\ For purposes of calculating actual assessment rates (as opposed to
  model estimation), the maximum value of the One-Year Asset Growth
  measure is 230 percent; that is, asset growth (merger adjusted) over
  the previous year in excess of 240 percent (230 percentage points in
  excess of the 10 percent threshold) will not further increase a bank's
  assessment rate.

    The financial variable measures used to estimate the failure 
probabilities are obtained from Call Reports and TFRs. The weighted 
average of the ``C,'' ``A,'' ``M,'' ``E'', ``L'', and ``S'' 
component ratings measure is based on component ratings obtained 
from the most recent bank examination conducted within 24 months 
before the date of the Call Report or TFR.
    The Loan Mix Index assigns loans to the categories of loans 
described in Table A.2. For each loan category, a charge-off rate is 
calculated for each year from 2001 through 2014. The charge-off rate 
for each year is the aggregate charge-off rate on all such loans 
held by small institutions in that year. A weighted average charge-
off rate is then calculated for each loan category, where the weight 
for each year is based on the number of small-bank failures during 
that year.\3\ A Loan Mix Index for each established small 
institution is calculated by: (1) multiplying the ratio of the 
institution's amount of loans in a particular loan category to its 
total assets by the associated weighted average charge-off rate for 
that loan category; and (2) summing the products for all loan 
categories. Table A.2 gives the weighted average charge-off rate for 
each category of loan, as calculated through the end of 2014. The 
Loan Mix Index excludes credit card loans.
    \3\ An exception is ``Real Estate Loans Residual,'' which 
consists of real estate loans held in foreign offices. Few small 
insured depository institutions report this item and a statistically 
reliable estimate of the weighted average charge-off rate could not 
be obtained. Instead, a weighted average of the weighted average 
charge-off rates of the other real estate loan categories is used. 
(The other categories are construction & development, multifamily 
residential, nonfarm nonresidential, 1-4 family residential, and 
agricultural real estate.) The weight for each of the other real 
estate loan categories is based on the aggregate amount of the loans 
held by small insured depository institutions as of December 31, 
2014.

                  Table A.2--Loan Mix Index Categories
------------------------------------------------------------------------
                                                        Weighted  charge-
                                                            off  rate
                                                             percent
------------------------------------------------------------------------
Construction and Development..........................         4.4965840
Commercial & Industrial...............................         1.5984506
Leases................................................         1.4974551
Other Consumer........................................         1.4559717
Loans to Foreign Government...........................         1.3384093
Real Estate Loans Residual............................         1.0169338
Multifamily Residential...............................         0.8847597
Nonfarm Nonresidential................................         0.7286274
1-4 Family Residential................................         0.6973778
Loans to Depository banks.............................         0.5760532
Agricultural Real Estate..............................         0.2376712
Agriculture...........................................         0.2432737
------------------------------------------------------------------------

    For each of the three regression estimates (Regression 1, 
Regression 2 and Regression 3), the estimated probability of failure 
(over a three-year horizon) of institution i at time T is

Equation 1

PiT = 1/((1+ exp(-ZiT))

where

Equation 2
ZiT = [beta]<INF>0</INF> + [beta]<INF>1</INF> (Leverage RatioiT) + 
[beta]<INF>2</INF> (Nonperforming loans and leases ratioiT) + 
[beta]<INF>3</INF> (Other real estate owned ratioiT) + 
[beta]<INF>4</INF> (Net income before taxes ratioiT) + 
[beta]<INF>5</INF> (Brokered deposit ratioiT) + [beta]<INF>6</INF> 
(Weighted average CAMELS component ratingiT) + [beta]<INF>7</INF> 
(Loan mix indexiT) + [beta]<INF>8</INF> (One-year asset growthiT)

where the [beta] variables are parameter estimates. As stated 
earlier, for actual assessments, the [beta] values that are applied 
are averages of each of the individual parameters over three 
separate regressions. Pricing multipliers (discussed in the next 
section) are based on ZiT.\4\
    \4\ The ZiT values have the same rank ordering as the 
probability measures PiT.

III. Derivation of Uniform Amount and Pricing Multipliers

    The uniform amount and pricing multipliers used to compute the 
annual initial base assessment rate in basis points, RiT, for any 
such institution i at a given time T will be determined from the 
Statistical Model as follows:

Equation 3

RiT = [alpha]<INF>0</INF> + [alpha]<INF>1</INF> * ZiT subject to Min 
<= RiT <= Max 5

where [alpha]0 and [alpha]1 are a constant term and a scale factor 
used to convert ZiT to an assessment rate, Max is the maximum 
initial base assessment rate in effect and Min is the minimum 
initial base assessment rate in effect. (RiT is expressed as an 
annual rate, but the actual rate applied in any quarter will be RiT/
4.)

    \5\ R<INF>iT</INF> is also subject to the minimum and maximum 
assessment rates applicable to established small institutions based 
upon their CAMELS composite ratings.
    Solving equation 3 for minimum and maximum initial base 
assessment rates simultaneously,

Min = [alpha]<INF>0</INF> + [alpha]<INF>1</INF> * Z<INF>N</INF> and 
Max = [alpha]<INF>0</INF> + [alpha]<INF>1</INF> * Z<INF>X</INF>

where Z<INF>X</INF> is the value of Z<INF>iT</INF> above which the 
maximum initial assessment rate (Max) applies and Z<INF>N</INF> is 
the value of Z<INF>iT</INF> below which the minimum initial 
assessment rate (Min) applies, results in values for the constant 
amount, [alpha]<INF>0</INF>, and the scale factor, 
[alpha]<INF>1</INF>:

[[Page 39411]]

[GRAPHIC] [TIFF OMITTED] TP01JY22.009

[GRAPHIC] [TIFF OMITTED] TP01JY22.010

    The values for Z<INF>X</INF> and Z<INF>N</INF> will be selected 
to ensure that, for an assessment period shortly before adoption of 
a final rule, aggregate assessments for all established small 
institutions would have been approximately the same under the final 
rule as they would have been under the assessment rate schedule 
that--under rules in effect before adoption of the final rule--will 
automatically go into effect when the reserve ratio reaches 1.15 
percent. As an example, using aggregate assessments for all 
established small institutions for the third quarter of 2013 to 
determine Z<INF>X</INF> and Z<INF>N</INF>, and assuming that Min had 
equaled 3 basis points and Max had equaled 30 basis points, the 
value of Z<INF>X</INF> would have been 0.87 and the value of 
Z<INF>N</INF> -6.36. Hence based on equations 4 and 5,

[alpha]<INF>0</INF> = 26.751 and
[alpha]<INF>1</INF> = 3.734.

    Therefore from equation 3, it follows that

Equation 6

RiT = 26.751 + 3.734 * ZiT subject to 3 <= RiT <= 30

    Substituting equation 2 produces an annual initial base 
assessment rate for institution i at time T, RiT, in terms of the 
uniform amount, the pricing multipliers and model variables:

Equation 7

RiT = [26.751 + 3.734 * [beta]<INF>0</INF>] + 3.734 * 
[[beta]<INF>1</INF> (Leverage ratioiT)] + 3.734 * [beta]<INF>2</INF> 
(Nonperforming loans and leases ratioiT) + 3.734 * 
[beta]<INF>3</INF> (Other real estate owned ratioiT) + 3.734 * 
[beta]<INF>4</INF> (Net income before taxes ratioiT) + 3.734 * 
[beta]<INF>5</INF> (Brokered deposit ratioiT) + 3.734 * 
[beta]<INF>6</INF> (Weighted average CAMELS component ratingiT) + 
3.734 * [beta]<INF>7</INF> (Loan mix indexiT) + 3.734 * 
[beta]<INF>8</INF> (One-year asset growthiT)

again subject to 3 <= RiT <= 30 \6\
where 26.751 + 3.734 * [beta]<INF>0</INF> equals the uniform amount, 
3.734 * [beta]<INF>j</INF> is a pricing multiplier for the 
associated risk measure j, and T is the date of the report of 
condition corresponding to the end of the quarter for which the 
assessment rate is computed.

    \6\ As stated above, RiT is also subject to the minimum and 
maximum assessment rates applicable to established small 
institutions based upon their CAMELS composite ratings.
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.
    Dated at Washington, DC, on June 21, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-13578 Filed 6-30-22; 8:45 am]
BILLING CODE 6714-01-P


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