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

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

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

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

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

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

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

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

5Public Law 111–203, § 332, 124 Stat. 1376, 1539 

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

6The proceedings of the roundtable can be 

viewed in their entirety at: http://

www.vodium.com/MediapodLibrary/

index.asp?library=pn100472_fdic_RoundTable. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD63 

Assessment Dividends, Assessment 

Rates and Designated Reserve Ratio 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking 

(NPRM) and request for comment. 

SUMMARY: In order to implement a 

comprehensive, long-range management 

plan for the Deposit Insurance Fund, the 

FDIC is proposing to amend its 

regulations to: implement the dividend 

provisions in the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act; set assessment rates; and set the 

designated reserve ratio at 2 percent. 

The FDIC seeks comment on all aspects 

of this NPRM. 

DATES: Comments must be received on 

or before November 26, 2010. 

ADDRESSES: You may submit comments 

on the notice of proposed rulemaking, 

identified by RIN number and the words 

‘‘Assessments, Dividends and DRR 

NPRM,’’ by any of the following 

methods: 

• Agency Web Site: http://

www.FDIC.gov/regulations/laws/

federal/propose.html. Follow the 

instructions for submitting comments 

on the Agency Web Site. 

• E-mail: Comments@FDIC.gov. 

Include the RIN number in the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery: Guard station at the 

rear of the 550 17th Street Building 

(located on F Street) on business days 

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

Instructions: All submissions received 

must include the agency name and RIN 

for this rulemaking. Comments will be 

posted to the extent practicable and, in 

some instances, the FDIC may post 

summaries of categories of comments, 

with the comments themselves available 

in the FDIC’s reading room. Comments 

will be posted at: http://www.fdic.gov/

regulations/laws/federal/propose.html, 

including any personal information 

provided with the comment. 

FOR FURTHER INFORMATION CONTACT: 

Munsell St. Clair, Acting Chief, Fund 

Analysis and Pricing Section, (202) 898– 

8967, Christopher Bellotto, Counsel, 

(202) 898–3801, Donna Saulnier, Deputy 

Director, Assessment Policy and 

Operations, (703) 562–6167, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Overview 

The FDIC has experienced two 

banking crises in the years following the 

Great Depression, one in the late 1980s 

and early 1990s and the current one. In 

both of these crises, the balance of the 

deposit insurance fund (the DIF or the 

fund) became negative, hitting a low of 

negative $20.9 billion in December 

2009, despite high assessment rates and, 

in the most recent crisis, other 

extraordinary measures—including a 

special assessment—that the FDIC was 

forced to adopt as losses mounted. 

In the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank), Congress revised the statutory 

authorities governing the FDIC’s 

management of the fund. The FDIC now 

has the ability to achieve goals for 

deposit insurance fund management 

that it has sought to achieve for decades 

but lacked the tools to accomplish: 

maintaining a positive fund balance 

even during a banking crisis and 

maintaining moderate, steady 

assessment rates throughout economic 

and credit cycles. 

Among other things, Dodd-Frank: (1) 

Raises the minimum designated reserve 

ratio (DRR), which the FDIC must set 

each year, to 1.35 percent (from the 

former minimum of 1.15 percent) and 

removes the upper limit on the DRR 

(which was formerly capped at 1.5 

percent) and therefore on the size of the 

fund; 1 (2) requires that the fund reserve 

ratio reach 1.35 percent by September 

30, 2020 (rather than 1.15 percent by the 

end of 2016, as formerly required); 2 (3) 

requires that, in setting assessments, the 

FDIC ‘‘offset the effect of [requiring that 

the reserve ratio reach 1.35 percent by 

September 30, 2020 rather than 1.15 

percent by the end of 2016] on insured 

depository institutions with total 

consolidated assets of less than 

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

requirement that the FDIC provide 

dividends from the fund when the 

reserve ratio is between 1.35 percent 

and 1.5 percent; 4 and (5) continues the 

FDIC’s authority to declare dividends 

when the reserve ratio at the end of a 

calendar year is at least 1.5 percent, but 

grants the FDIC sole discretion in 

determining whether to suspend or limit 

the declaration or payment of 

dividends.5

Given these changes, the FDIC 

considers the present moment optimal 

for implementing a comprehensive, 

long-range fund management plan, 

while the need for a sufficiently large 

fund and stable premiums is most 

apparent. Memories of the last two 

crises will fade and the need for a strong 

fund will become less apparent. Action 

now will establish standards for prudent 

fund management throughout the 

economic and credit cycle and better 

position the FDIC to resist future calls 

to reduce assessment rates or pay larger 

dividends at the expense of prudent 

fund management. 

The FDIC has developed such a 

comprehensive, long-range management 

plan for the DIF. The FDIC sought 

industry input in developing this plan 

at a September 24, 2010 roundtable 

organized by the FDIC. At the 

roundtable, bank executives and 

industry trade group representatives 

uniformly favored steady, predictable 

assessments and found high assessment 

rates during crises objectionable.6 The 

proposed plan is designed to reduce the 

pro-cyclicality in the existing system 

and achieve moderate, steady 

assessment rates throughout economic 

and credit cycles while also maintaining 

a positive fund balance even during a 

banking crisis, by setting an appropriate 

target fund size and a strategy for 

assessment rates and dividends. 

The plan covers the near term, 

governed by the statutory requirement 

that the fund reserve ratio reach 1.35 

percent by 2020, the medium term, 

when the reserve ratio has recovered to 

pre-crisis levels, and the long term, 

when the reserve ratio is sufficiently 

large that the fund would be able to 

withstand a crisis similar in magnitude 

to that of the late 1980s and early 1990s 

and the current crisis. 

Near Term 

Pursuant to the comprehensive plan, 

the FDIC has adopted a new Restoration 

Plan to ensure that the reserve ratio 

reaches 1.35 percent by September 30, 

2020, as required by statute. The 

Restoration Plan is based on updated 

income, loss and reserve ratio 

projections, which contain lower 

expected losses for the period 2010 

through 2014 than the FDIC’s 


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7While the range of reasonably possible losses is 

large, the FDIC now projects that losses during this 

period will be $52 billion, down from $60 billion 

as projected in June. 

8Under section 7 of the Federal Deposit 

Insurance Act (FDI Act), the FDIC has authority to 

set assessments in such amounts as it determines 

to be necessary or appropriate. In setting 

assessments, the FDIC must consider certain 

enumerated factors, including the operating 

expenses of the DIF, the estimated case resolution 

expenses and income of the DIF, and the projected 

effects of assessments on the capital and earnings 

of IDIs. 

9 12 U.S.C. 1817(e)(2), as amended by § 332 of the 

Dodd-Frank Act. 

10The historical fund analysis uses actual FDIC 

historical assessment base and fund expense data 

and historical interest rate data from the Board of 

Governors of the Federal Reserve System. FDIC 

historical data are altered in only one respect: For 

the year 2007, the FDIC coverage level is assumed 

to be $250,000 because all depositors in failed 

banks during the current crisis were covered at that 

level. Projected data from June 30, 2010 to 2040 are 

based on September 2010 FDIC estimates for losses, 

expenses and insured deposit and assessment base 

growth (using adjusted total domestic deposits). 

Implied forward interest rates (as of September 27, 

2010) from Bloomberg are used for the years after 

2010. The analysis uses a modeled investment 

portfolio. After reviewing available historical FDIC 

portfolio data, a ‘‘default’’ investment portfolio was 

constructed with the following mix of Treasury 

securities: 35 percent in 6-month securities; 25 

percent in 1-year securities; 25 percent in 3-year 

securities; and 15 percent in 5-year securities. This 

portfolio mix is retained unless the FDIC’s 

provision for losses increases for two consecutive 

years. In that event, all income (proceeds from 

maturing securities, as well as net assessment and 

interest income) is invested in 6-month Treasury 

securities. The modeled portfolio therefore becomes 

shorter term as anticipated losses rise. When the 

fund’s income exceeds expenses for two years, the 

fund’s investments are returned to the default 

portfolio mix. The analysis examined fund 

performance over time using multiple combinations 

of different assessment rates and dividend policies. 

The simulated fund does not include the costs of 

FSLIC and RTC failures during the 1980s and early 

1990s. Their inclusion would have required a much 

higher reserve ratio to keep the fund balance 

positive during the late 1980s and early 1990s. 

Supplementary material explaining the analysis 

can be found in the attached Appendix. 

11All assessment rates represent an industry-wide 

average. 

projections in June 2010. Because of the 

lower expected losses and the 

additional time provided by Dodd-Frank 

to meet the minimum (albeit higher) 

required reserve ratio, the new 

Restoration Plan foregoes the uniform 3 

basis point increase in assessment rates 

previously scheduled to go into effect 

on January 1, 2011.7 The FDIC estimates 

that the fund reserve ratio will reach 

1.15 percent by the fourth quarter of 

2018, even without the 3 basis point 

uniform increase in rates. 

Under Dodd-Frank, the FDIC is 

required to offset the effect on small 

institutions (those with less than $10 

billion in assets) of the statutory 

requirement that the fund reserve ratio 

increase from 1.15 percent to 1.35 

percent by September 30, 2020. Thus, 

assessment rates applicable to all 

insured depository institutions (IDIs) 

need be set only high enough to reach 

1.15 percent; the mechanism for 

reaching 1.35 percent by the statutory 

deadline of September 30, 2020, and the 

manner of offset can be determined 

separately. Assessing large IDIs for that 

offset can be done in several ways, 

consistent with maintaining a risk-based 

assessment system for all IDIs. The 

Restoration Plan postpones until 2011 

rulemaking regarding the method that 

will be used to effectuate the offset. 

Medium Term 

Using historical fund loss and 

simulated income data from 1950 to the 

present, the FDIC has undertaken an 

analysis to determine how high the 

reserve ratio would have had to have 

been before the onset of the two crises 

that occurred during this period to have 

maintained both a positive fund balance 

and stable assessment rates throughout 

the crises. The analysis, which is 

described in detail below, concludes 

that a moderate, long-term average 

industry assessment rate, combined 

with an appropriate dividend or 

assessment rate reduction policy, would 

have been sufficient to have prevented 

the fund from becoming negative during 

the crises, though the fund reserve ratio 

would have had to have exceeded 2 

percent before the onset of the crises. 

Once the reserve ratio reaches 1.15 

percent, the FDIC believes that 

assessment rates (other than those 

necessary to effectuate the offset) can be 

reduced to a moderate level. In this 

rulemaking, pursuant to its statutory 

authority to set assessments, the FDIC is 

proposing a lower assessment rate 

schedule to take effect when the fund 

reserve ratio exceeds 1.15 percent.8

Long Term 

To increase the probability that the 

fund reserve ratio will reach a level 

sufficient to withstand a future crisis, 

the FDIC, based on its authority to 

suspend or limit dividends, is also 

proposing to suspend dividends 

permanently when the fund reserve 

ratio exceeds 1.5 percent.9 In lieu of 

dividends, and pursuant to its authority 

to set risk-based assessments, the FDIC 

is proposing to adopt progressively 

lower assessment rate schedules when 

the reserve ratio exceeds 2 percent and 

2.5 percent. These lower assessment rate 

schedules would serve much the same 

function as dividends but would 

provide more stable and predictable 

effective assessment rates, an objective 

that representatives at the September 24, 

2010 roundtable organized by the FDIC 

valued highly. 

The FDIC also proposes setting the 

DRR at 2 percent, which the FDIC views 

as a long-range goal and the minimum 

level needed to withstand a future crisis 

of the magnitude of past crises. 

However, the FDIC’s analysis shows that 

a reserve ratio higher than 2 percent 

would increase the chance that the fund 

will remain positive during a future 

economic and banking downturn 

similar or more severe than past crises. 

Thus, the 2 percent DRR should not be 

viewed as a cap on the fund. 

B. Historical Analysis of Loss, Income 

and Reserve Ratios 

For purposes of developing a longterm fund management strategy, the 

FDIC undertook an analysis to evaluate 

the tradeoffs between assessment rates 

and policies that either award dividends 

or reduce assessment rates by creating a 

simulated deposit insurance fund 

covering the years 1950 to 2010.10 The 

analysis varied assessment rates and 

dividends to determine what would 

have happened to the simulated fund’s 

balance over time. 

As a starting point, the analysis 

sought to determine what constant 

average nominal assessment rate across 

the entire 60-year period would have 

maintained a positive fund balance 

during both crisis periods, assuming a 

policy that provided no dividends.11

The result is a moderate rate of 7.44 

basis points, which would have allowed 

the fund’s reserve ratio to reach 2.48 

percent (in 1981) before the crisis of the 

1980s and early 1990s, and 2.03 percent 

(in 2006) before the current crisis. (See 

Charts A and B.) Failure to reach these 

reserve ratios would have resulted in a 

negative balance. Assessment rate 

volatility was by design completely 

eliminated. 

BILLING CODE 6714–01–P 


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12Average effective assessment rates are 

calculated by subtracting dividends paid from 

assessments received. 

During most years since 1950, 

however, there has been either a credit 

or dividend policy provided for by 

statute (although since 1985 no 

recurring credits or dividends have been 

awarded). As amended by Dodd-Frank, 

the FDI Act continues to authorize the 

FDIC to dividend 100 percent of the 

amount in the fund in excess of the 

amount required to maintain the reserve 

ratio at 1.5 percent, but provides the 

FDIC with sole discretion to suspend or 

limit these dividends. The analysis 

(given its method and assumptions) 

sought to evaluate the consequences had 

the full amount of dividends possible 

under Dodd-Frank been granted from 

1950–2010. (See Charts C and D.) 

Granting dividends in this way 

necessitates a constant average nominal 

assessment rate of 21.96 basis points to 

maintain a positive fund balance during 

both periods of crisis. Such a rate is 

historically very high, and corresponds 

most closely to the rates charged to 

recapitalize the fund after a crisis. This 

policy would have also resulted in 

substantial premium volatility and procyclical average effective assessment 

rates.12 In some years, the effective 

assessment rate would have been 

negative. 


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The analysis was therefore extended 

to examine options that limited 

dividends or reduced assessment rates 

in lieu of dividends, in keeping with the 

broad set of goals for fund management. 

The analysis examined multiple options 

with different levels of dividend or 

assessment rate reduction, and found 

that many options would still have 

required relatively high assessment 

rates. However, the FDIC did identify 

two options that would achieve the 

FDIC’s goals of maintaining a positive 

fund balance even during a banking 

crisis and maintaining moderate, steady 

assessment rates throughout economic 

and credit cycles. 

One option awards dividends as a 

percentage of the amount in the fund in 

excess of the amount required to 

maintain the reserve ratio at a specified 

level. The analysis above has already 

shown that granting dividends equal to 

100 percent of the amount in the fund 

in excess of the amount required to 

maintain the reserve ratio at 1.5 percent 

would have required a very high 

constant average nominal assessment 

rate of 21.96 basis points. However, 

granting dividends equal to 25 percent 

of the amount in the fund in excess of 

the amount required to maintain the 

reserve ratio at 2 percent and increasing 

dividends to 50 percent of the amount 

in the fund in excess of the amount 

required to maintain the reserve ratio at 

2.5 percent permitted a significantly 

lower constant average nominal 

assessment rate to maintain a positive 

fund balance. 

This dividend method, however, 

introduces a potential problem—the 

possibility that an IDI could receive a 

dividend that approaches 100 percent of 

its assessment. The nearer a dividend 

comes to 100 percent of an IDI’s 

assessment, the more it introduces 

moral hazard and reduces or eliminates 

the FDIC’s ability to control and price 

for risk taking. To avoid this problem, 

dividends are limited such that no IDI 

could receive a dividend greater than 50 

percent of its annual assessment. 

The analysis (reflected in Charts E 

and F) shows that this option results in 

a moderate constant nominal 

assessment rate of 8.45 basis points 

across the entire 60-year period. The 

reserve ratios necessary to maintain a 

positive fund balance are 2.24 percent 

before the crisis of the 1980s and early 

1990s and 1.98 percent before the 

current crisis. These ratios are, of 

course, significantly higher than the 

level that the DRR has been set 

historically, but should be sufficient to 

withstand a future crisis similar in 

depth to those the FDIC has 

experienced. Pro-cyclicality is limited, 

but this option generates moderate 

premium volatility. 


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The second option that achieves the 

FDIC’s fund management goals of 

maintaining a positive fund balance 

even during a banking crisis and 

maintaining moderate, steady 

assessment rates throughout economic 

and credit cycles would, in lieu of a 

dividend, reduce the long-term industry 

average nominal assessment rate by 25 

percent when the reserve ratio reached 

2 percent, and by 50 percent when the 

reserve ratio reached 2.5 percent. 

The analysis (reflected in Charts G 

and H) shows that this option results in 

a moderate constant nominal 

assessment rate of 8.47 basis points 

during the entire 60-year period (except 

when reduced as the result of the fund 

exceeding the 2 percent threshold), 

almost identical to the rate required 

under the immediately preceding option 

(limiting dividends). The reserve ratios 

necessary to maintain a positive fund 

balance are 2.31 percent before the crisis 

of the 1980s and early 1990s and 2.01 

percent before the current crisis, very 

similar to the ratios required under the 

option that would limit dividends. 

Premium volatility and pro-cyclicality 

are both successfully minimized, and 

premium volatility is significantly lower 

than under the option that would limit 

dividends. 


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13Because of the offset requirements of DoddFrank discussed earlier, the fund reserve ratio is 

assumed to reach 1.35 percent immediately upon 

reaching 1.15 percent. 

BILLING CODE 6714–01–C 

One final concern is whether the fund 

recovers sufficiently, both in magnitude 

and in time, to withstand another crisis. 

Extending the analysis into the future, 

using estimates based on implied 

forward interest rates and assuming 

current FDIC assessment rates and loss 

projections until the reserve ratio 

reaches 1.15 percent (approximately the 

fourth quarter of 2018) and low losses 

and an 8.47 basis point average nominal 

assessment rate thereafter, the reserve 

ratio reaches 2 percent in 2027.13 This 

would bring the fund to a level able to 

withstand past crises in 17 years, 

approximately the length of time 

between the depth of the crisis of the 

late 1980s and early 1990s (in 1991) and 

the beginning of the current crisis (in 

2008). 

However, the average rates assumed 

in the previous paragraph between now 

and 2018 are much higher than 8.47 

basis points, which, if the proposed 

comprehensive plan is implemented, 

would be approximately the average rate 

in effect in the event a future banking 

crisis causes the fund balance to fall to 

or near zero. Starting at a reserve ratio 

of zero, assessment rates of 8.45 to 8.47 

basis points (the rates under the option 

that limits dividends and the one that 

lowers rates) it would take 25 years for 

the simulated fund to reach a level of 2 

percent. However, allowing the reserve 

ratio to exceed 2 percent should reduce 

the chance that the reserve ratio during 

a crisis would fall all the way to zero. 

II. The Proposed Rule 

A. Dividends 

To increase the probability that the 

fund reserve ratio will reach a level 

sufficient to withstand a future crisis, 

the FDIC is proposing to suspend 

dividends permanently whenever the 

fund reserve ratio exceeds 1.5 percent. 

In lieu of dividends, and pursuant to its 

authority to set risk-based assessments, 

the FDIC is proposing to adopt 

progressively lower assessment rate 

schedules when the reserve ratio 

exceeds 2 percent and 2.5 percent, as 

discussed below. These lower 

assessment rate schedules would serve 

much the same function as dividends in 

preventing the DIF from growing 

unnecessarily large but, as discussed 

above, would provide more stable and 

predictable effective assessment rates, a 

feature that industry representatives 


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14For purposes of determining assessment rates, 

each IDI is placed into one of four risk categories 

(Risk Category I, II, III or IV), depending upon 

supervisory ratings and capital levels. 12 CFR 

327.9. Within Risk Category I, there are different 

assessment systems for large and small IDIs, but the 

possible range of rates is the same for all IDIs in 

Risk Category I. 

15Unsecured debt excludes debt guaranteed by 

the FDIC under its Temporary Liquidity Guarantee 

Program. 

16The initial base assessment rate cannot increase 

more than 50 percent as a result of the secured 

liability adjustment. 

17 12 CFR 327.9(d)(7). 

18Specifically: 

The Board may increase or decrease the total base 

assessment rate schedule up to a maximum increase 

of 3 basis points or a fraction thereof or a maximum 

decrease of 3 basis points or a fraction thereof (after 

aggregating increases and decreases), as the Board 

deems necessary. Any such adjustment shall apply 

uniformly to each rate in the total base assessment 

rate schedule. In no case may such Board rate 

adjustments result in a total base assessment rate 

that is mathematically less than zero or in a total 

base assessment rate schedule that, at any time, is 

more than 3 basis points above or below the total 

base assessment schedule for the Deposit Insurance 

Fund, nor may any one such Board adjustment 

constitute an increase or decrease of more than 3 

basis points. 

12 CFR 327.10(c). On October 19, 2010, the FDIC 

adopted a new Restoration Plan that foregoes a 

uniform 3 basis point increase in assessment rates 

previously scheduled to go into effect on January 

1, 2011. Thus, the assessment rates in the current 

regulation will remain in effect. 

19The first year in which rates applicable to Risk 

Category I spanned a range (as opposed to being a 

single rate) was 2007, when initial assessment rates 

ranged between 5 and 7 basis points. During that 

year, weighted average annualized industry 

assessment rates for the first three quarters varied 

between 5.41 and 5.44 basis points. (By the end of 

said was very important at the 

September 24, 2010 roundtable 

organized by the FDIC. 

B. Assessment Rates 

Current Assessment Rates 

Current initial base assessment rates 

are set forth in Table 1 below. 

TABLE 1—CURRENT INITIAL BASE ASSESSMENT RATES 14

Risk Category 

I * 

II III IV 

Minimum Maximum 

Annual Rates (in basis points) ................................................................. 12 16 22 32 45 

*Rates for institutions that do not pay the minimum or maximum rate will vary between these rates. 

These initial assessment rates are 

subject to adjustment. An IDI’s total 

base assessment rate can vary from its 

initial base assessment rate as the result 

of an unsecured debt adjustment and a 

secured liability adjustment. The 

unsecured debt adjustment lowers an 

IDI’s initial base assessment rate using 

its ratio of long-term unsecured debt 

(and, for small IDIs, certain amounts of 

Tier 1 capital) to domestic deposits.15

The secured liability adjustment 

increases an IDI’s initial base 

assessment rate if the IDI’s ratio of 

secured liabilities to domestic deposits 

is greater than 25 percent (the secured 

liability adjustment).16 In addition, IDIs 

in Risk Categories II, III and IV are 

subject to an adjustment for large levels 

of brokered deposits (the brokered 

deposit adjustment).17

After applying all possible 

adjustments, the current minimum and 

maximum total base assessment rates for 

each risk category are set out in Table 

2 below. 

TABLE 2—INITIAL AND TOTAL BASE ASSESSMENT RATES

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 12–16 22 32 45 

Unsecured debt adjustment ............................................................................................. (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–8 0–11 0–16 0–22.5 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total Base Assessment Rate ................................................................................... 7–24 17–43 27–58 40–77.5 

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. 

The FDIC may uniformly adjust the 

total base rate assessment schedule up 

or down by up to 3 basis points without 

further rulemaking.18

Proposed Assessment Rates Once the 

Reserve Ratio Reaches 1.15 Percent 

As discussed earlier, under DoddFrank, the FDIC is required to offset the 

effect on small institutions (those with 

less than $10 billion in assets) of the 

statutory requirement that the fund 

reserve ratio increase from 1.15 percent 

to 1.35 percent by September 30, 2020. 

Thus, assessment rates applicable to all 

IDIs need to be set only high enough to 

reach 1.15 percent. The Restoration Plan 

postpones until 2011 rulemaking 

regarding the method that will be used 

to reach 1.35 percent by the statutory 

deadline of September 30, 2020, and the 

manner of offset. 

When the reserve ratio reaches 1.15 

percent, the FDIC believes that it would 

be appropriate to lower assessment rates 

so that the average assessment rate 

would approximately equal the longterm moderate, steady assessment rate— 

approximately 8.5 basis points, as 

discussed above—that would have been 

needed to maintain a positive fund 

balance throughout past crises. Based on 

the FDIC’s analysis of weighted average 

assessment rates paid immediately prior 

to the current crisis (when the industry 

was relatively prosperous, and had both 

good CAMELS ratings and substantial 

capital), weighted average rates during 

times of industry prosperity tend to be 

somewhat less than 1 basis point greater 

than the minimum rate applicable to 

Risk Category I.19 Thus, to achieve 


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2007, deterioration in the industry became more 

marked and weighted average rates began 

increasing.) 0.4 basis points is 20 percent of the 2 

basis point difference between the minimum and 

maximum rates. 20 percent of the 4 basis point 

difference between the current minimum and 

maximum rates is 0.8 basis points. Thus, by 

analogy, in 2007 the current assessment schedule 

would have produced average assessment rates of 

about 12.8 basis points. 20Subject to exceptions, a new insured 

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. 12 CFR 327.8(m). Under 

the proposal, other assessment rules related to new 

depository institutions would generally remain 

unchanged. For example, subject to the exceptions 

contained in the regulation, a new institution that 

is well capitalized would continue to be assessed 

the Risk Category I maximum initial base 

assessment rate in Table 3 for the relevant 

assessment period. 12 CFR 327.9(d)(9). Also, for 

example, a new institution would not be subject to 

the unsecured debt adjustment. 12 CFR 327.9(d)(5). 

approximately an 8.5 basis point 

average assessment rate during 

prosperous times, current initial base 

rates would have to be set 4 basis points 

lower than current initial base 

assessment rates. Consequently, 

pursuant to the FDIC’s authority to set 

assessments, the FDIC proposes that, 

when the fund reserve ratio first meets 

or exceeds 1.15 percent, the initial base 

and total base assessment rates set forth 

in Table 3 would take effect beginning 

the next quarter without the necessity of 

further action by the FDIC’s Board. 

These rates would remain in effect 

unless and until the reserve ratio met or 

exceeded 2 percent. The unsecured debt 

adjustment could not exceed the lesser 

of 5 basis points or 50 percent of an 

IDI’s initial base assessment rate. The 

FDIC’s Board would retain its current 

authority to uniformly adjust the total 

base rate assessment schedule up or 

down by up to 3 basis points without 

further rulemaking. 

TABLE 3—INITIAL AND TOTAL BASE ASSESSMENT RATES EFFECTIVE FOR THE QUARTER BEGINNING IMMEDIATELY AFTER

THE QUARTER IN WHICH THE RESERVE RATIO MEETS OR EXCEEDS 1.15 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 8–12 18 28 40 

Unsecured debt adjustment* ........................................................................................... (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–6 0–9 0–14 0–20 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total Base Assessment Rate ................................................................................... 4–18 13–37 23–52 35–70 

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. 

* The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial assessment rate; thus, for example, an IDI with an initial assessment rate of 8 would have a maximum unsecured debt adjustment of 4 basis points and could not have a total 

base assessment rate lower than 4 basis points. 

Proposed Assessment Rates Once the 

Reserve Ratio Reaches 2.0 Percent 

In lieu of dividends, and pursuant to 

its authority to set assessments, the 

FDIC proposes that, so long as the fund 

reserve ratio at the end of the prior 

quarter meets or exceeds 2 percent, but 

is less than 2.5 percent, the initial base 

and total base assessment rates set forth 

in Table 4 would come into effect 

without the necessity of further action 

by the FDIC’s Board. If, however, after 

reaching a reserve ratio of 1.15 percent, 

the fund reserve ratio subsequently falls 

below 2 percent at the end of a quarter, 

the initial base and total base 

assessment rates set forth in Table 3 

would take effect beginning the next 

quarter without the necessity of further 

action by the FDIC’s Board. However, 

the assessment rates in Table 4 would 

not apply to any new depository 

institutions; these IDIs would remain 

subject to the assessment rates in Table 

3, until they no longer were new 

depository institutions.20 Under the 

proposal, the unsecured debt 

adjustment could not exceed the lesser 

of 5 basis points or 50 percent of an 

IDI’s initial base assessment rate. The 

FDIC’s Board would retain its current 

authority to uniformly adjust the total 

base rate assessment schedule up or 

down by up to 3 basis points without 

further rulemaking. 

TABLE 4—INITIAL AND TOTAL BASE ASSESSMENT RATES EFFECTIVE FOR ANY QUARTER WHEN THE RESERVE RATIO FOR

THE PRIOR QUARTER MEETS OR EXCEEDS 2 PERCENT (BUT IS LESS THAN 2.5 PERCENT) 

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 6–10 16 26 38 

Unsecured debt adjustment* ........................................................................................... (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–5 0–8 0–13 0–19 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total Base Assessment Rate ................................................................................... 3–15 11–34 21–49 33–67 

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. 

* The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial assessment rate; thus, for example, an IDI with an initial assessment rate of 6 would have a maximum unsecured debt adjustment of 3 basis points and could not have a total 

base assessment rate lower than 3 basis points. 

Compared to Table 3, the proposed 

assessment rates in Table 4 should 

approximately reduce weighted average 

assessment rates by 25 percent, 

consistent with the analysis reflected in 

Chart H above. Based upon the FDIC’s 


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21 In setting assessment rates, the FDIC’s Board of 

Directors is authorized to set assessments for IDIs 

in such amounts as the Board of Directors may 

determine to be necessary. 12 U.S.C. 1817(b)(2)(A). 

In so doing, the Board shall consider: (1) the 

estimated operating expenses of the DIF; (2) the 

estimated case resolution expenses and income of 

the DIF; (3) the projected effects of the payment on 

the capital and earnings of IDIs; (4) the risk factors 

and other factors taken into account pursuant to 12 

U.S.C.1817(b) (1) under the risk-based assessment 

system, including the requirement under such 

paragraph to maintain a risk-based system; and (5) 

any other factors the Board of Directors may 

determine to be appropriate. 12 U.S.C. 

1817(b)(2)(B). As reflected in the text, the FDIC has 

taken into account all of these statutory factors. 

22Public Law 111–203, § 331(b), 124 Stat. 1376, 

1538 (to be codified at 12 U.S.C. 1817(nt)). 

historical simulations, these rates 

should allow the fund to remain 

positive during a crisis of the magnitude 

of the prior two crises without 

significantly increasing pro-cyclicality 

or premium volatility. 

Proposed Assessment Rates Once the 

Reserve Ratio Reaches 2.5 Percent 

Again in lieu of dividends, and to 

reduce the low probability of the fund 

growing unreasonably large, the FDIC, 

under its authority to set assessments, 

proposes that the initial base and total 

base assessment rates set forth in Table 

5 would apply if the fund reserve ratio 

at the end of the prior quarter meets or 

exceeds 2.5 percent, without the 

necessity of further action by the FDIC’s 

Board. If, however, after reaching a 

reserve ratio of 1.15 percent, the fund 

reserve ratio subsequently falls below 

2.5 percent at the end of a quarter, the 

rates set forth in Tables 3 or 4, 

whichever is applicable, would take 

effect beginning the next quarter 

without the necessity of further action 

by the FDIC’s Board. Again, however, 

the assessment rates in Table 5 would 

not apply to any new depository 

institutions; these IDIs would remain 

subject to the assessment rates in Table 

3, until they no longer were new 

depository institutions. Under the 

proposal, the unsecured debt 

adjustment could not exceed the lesser 

of 5 basis points or 50 percent of an 

IDI’s initial base assessment rate. The 

FDIC’s Board would retain its current 

authority to uniformly adjust the total 

base rate assessment schedule up or 

down by up to 3 basis points without 

further rulemaking. 

TABLE 5—INITIAL AND TOTAL BASE ASSESSMENT RATES EFFECTIVE FOR ANY QUARTER WHEN THE RESERVE RATIO FOR

THE PRIOR QUARTER MEETS OR EXCEEDS 2.5 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 4–8 14 24 36 

Unsecured debt adjustment* ........................................................................................... (4)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–4 0–7 0–12 0–18 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total Base Assessment Rate ................................................................................... 2–12 9–31 19–46 31–64 

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. 

* The unsecured debt adjustment could not exceed the lesser of 5 basis points or 50 percent of an IDI’s initial assessment rate; thus, for example, an IDI with an initial assessment rate of 6 would have a maximum unsecured debt adjustment of 3 basis points and could not have a total 

base assessment rate lower than 3 basis points. 

Compared to Table 3, the proposed 

assessment rates in Table 5 should 

approximately reduce weighted average 

assessment rates by 50 percent, 

consistent with the analysis reflected in 

Chart H above and should allow the 

fund to remain positive during a crisis 

of the magnitude of the prior two crises 

without significantly increasing procyclicality or premium volatility. 

Capital and Earnings Analysis 

The FDIC has analyzed the effect of its 

proposed rate schedules on the capital 

and earnings of IDIs.21 The FDIC 

anticipates that when the reserve ratio 

exceeds 1.15 percent, and particularly 

when it exceeds 2 or 2.5 percent, the 

industry is likely to be prosperous. 

Consequently, the FDIC has examined 

the effect of the proposed lower rates on 

the industry at the end of 2006, when 

the industry was prosperous. Reducing 

average assessment rates by 4 basis 

points then (the approximate effect of 

reducing assessment rates from the 

current rate schedule to the one 

proposed when the reserve ratio reaches 

1.15 percent) would have increased 

average after-tax income by 1.25 percent 

and average capital by 0.14 percent. 

Reducing average assessment rates by an 

additional 2 basis points (the effect of 

reducing assessment rates from the 

proposed rate schedule when the 

reserve ratio reaches 1.15 percent to the 

proposed rate schedule when the 

reserve ratio reaches 2 percent) would 

have increased average after-tax income 

by 0.62 percent and average capital by 

0.07 percent. Similarly, reducing 

average assessment rates by an 

additional 2 basis points (the effect of 

reducing assessment rates from the 

proposed rate schedule when the 

reserve ratio reaches 2 percent to the 

proposed rate schedule when the 

reserve ratio reaches 2.5 percent) would 

have increased average after-tax income 

by 0.61 percent and average capital by 

0.07 percent. 

Effect of Upcoming Rulemakings 

Dodd-Frank also requires the FDIC to 

amend its regulations to define an IDI’s 

assessment base (with some possible 

exceptions) as ‘‘the average consolidated 

total assets of the insured depository 

institution during the assessment period 

* * * minus * * * the sum of * * * 

the average tangible equity of the 

insured depository institution during 

the assessment period * * *.’’ 22 This 

assessment base will be more than 50 

percent larger than the current 

assessment base, at least initially. Before 

the expiration of the comment period on 

this proposed rule, the FDIC plans to 

adopt and publish a notice of proposed 

rulemaking to define the assessment 

base. The FDIC anticipates that the 

notice will also include proposed 

changes to the risk-based pricing system 

necessitated by the change in 

assessment base. 

The net effect of this proposal will 

necessitate that the FDIC also adjust the 

proposed assessment rates. These 

adjustments will ensure that the 

revenue collected under the new 

assessment system will approximately 

equal that under the existing assessment 

system. 

For several reasons, however, it is 

neither possible nor advisable to 

attempt to make the new assessment 

system or changes to the assessment rate 

schedules proposed above perfectly 

revenue neutral. First, for simplicity, the 

FDIC prefers, when possible, to use 

whole numbers when it establishes 


srobinson on DSKHWCL6B1PROD with PROPOSALS3
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23Public Law 111–203, § 334(a), 124 Stat. 1376, 

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

24 12 U.S.C. 1817(b)(3)(A). 

25The 2 percent DRR is expressed as a percentage 

of estimated insured deposits. 

26Specifically, in setting the DRR for any year, 

the FDIC must consider the following factors: 

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

future years, including historical experience and 

potential and estimated losses from IDIs. 

(2) Economic conditions generally affecting IDIs 

so as to allow the DRR to increase during more 

favorable economic conditions and to decrease 

during less favorable economic conditions, 

notwithstanding the increased risks of loss that may 

exist during such less favorable conditions, as the 

Board determines to be appropriate. 

(3) That sharp swings in assessment rates for IDIs 

should be prevented. 

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

appropriate, consistent with the requirements of the 

Reform Act. 

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

point assessment rates or the maximum 

and minimum of an assessment rate 

range. Second, the FDIC does not 

presently collect all of the information 

it needs to determine the exact revenue 

effect of many of the changes it 

anticipates proposing. Third, in 

response to the new assessment base, 

changes to the adjustments and possible 

changes to the large IDI assessment 

system, some IDIs may alter their 

funding structure and behavior—in 

ways that are not presently 

predictable—to minimize assessments. 

C. DRR 

As discussed above, Dodd-Frank 

eliminates the previous requirement to 

set the DRR within a range of 1.15 

percent to 1.50 percent, directs the FDIC 

to set the DRR at a minimum of 1.35 

percent (or the comparable percentage 

of the assessment base as amended by 

Dodd-Frank) and eliminates the 

maximum limitation on the DRR.23

Dodd-Frank retains the requirement that 

the FDIC set and publish a DRR 

annually.24

While Dodd-Frank retains the 

requirement that the Board set a DRR 

annually, it does not direct the FDIC 

how to use the DRR. In effect, DoddFrank permits the FDIC to set the DRR 

as it sees fit so long as it is set no lower 

than 1.35 percent. Neither the FDI Act 

nor the amendments under Dodd-Frank 

establish a statutory role for the DRR as 

a trigger, whether for assessment rate 

determination, recapitalization of the 

fund, or dividends. 

The FDIC sets forth below background 

information, its analysis of the statutory 

factors that must be considered in 

setting the DRR and its proposal to set 

the DRR for the DIF at 2 percent.25

Background 

The FDIC must set the DRR in 

accordance with its analysis of the 

following statutory factors: Risk of 

losses to the DIF; economic conditions 

generally affecting IDIs; preventing 

sharp swings in assessment rates; and 

any other factors that the Board may 

determine to be appropriate and 

consistent with these three factors.26

The analysis that follows considers each 

statutory factor, including one ‘‘other 

factor’’: maintaining the DIF at a level 

that can withstand substantial losses. 

The manner in which the FDIC’s Board 

evaluates the statutory factors may 

depend on its view of the role of the 

DRR, which may change over time. 

Based on current circumstances and 

historical analysis, the FDIC has 

identified a role for the DRR as a 

minimum target for the reserve ratio. 

Analysis of Statutory Factors 

Risk of Losses to the DIF 

During 2009 and 2010, losses to the 

DIF have been high. As of June 30, 2010, 

both the fund balance and the reserve 

ratio continue to be negative after 

reserving for probable losses from 

anticipated bank failures. During the 

current downturn the fund balance has 

fallen below zero for the second time in 

the history of the FDIC. The FDIC 

reported a negative fund balance in the 

early 1990s during the last banking 

crisis. The FDIC projects that, over the 

period 2010 through 2014, the fund 

could incur approximately $52 billion 

in failure-resolution costs. The FDIC 

projects that most of these costs will 

occur in 2010 and 2011. 

In the FDIC’s view, the high losses 

experienced by the DIF during the crisis 

of the 1980s and early 1990s and during 

the current economic crisis (and the 

potential for high risk of loss to the DIF 

over the course of future economic 

cycles) suggest that the FDIC should, as 

a long-range, minimum goal and in 

conjunction with the proposed dividend 

and assessment rate policy, set a DRR at 

a level that would have maintained a 

zero or greater fund balance during both 

crises so that the DIF will be better able 

to handle losses during periods of 

severe industry stress. 

Economic Conditions Affecting FDICInsured Institutions 

U.S. economic growth, which started 

in the second half of 2009, remains low. 

Leading economic indicators have fallen 

slightly after rising steadily since the 

spring of 2009. Continued weakness in 

labor and real estate markets coupled 

with concern about rising public debt 

levels have increased uncertainty in the 

economic outlook and heightened 

financial market volatility. Consensus 

forecasts call for the economy to grow 

at a slower pace in the second half of 

2010 compared with the first half of the 

year, as fiscal stimulus measures wane. 

The slow and uncertain pace of 

economic recovery creates a challenging 

operating environment for IDIs. 

Industry-wide loans outstanding 

continued to fall in the second quarter. 

As of June 30, there were 829 IDIs on 

the problem list, representing more than 

10 percent of all IDIs. Through October 

1, 129 IDIs have failed this year, making 

this year’s total likely to match or 

exceed the 140 failures that occurred in 

2009. 

IDIs continue to experience 

significant credit distress, although loan 

losses and delinquencies may have 

peaked. Despite this, the financial 

performance of IDIs has shown signs of 

improvement. The industry reported 

aggregate net income of $26 billion in 

second quarter 2010, compared to an 

aggregate net loss of $4.4 billion a year 

ago. Almost 80 percent of IDIs were 

profitable in the quarter, and almost 

two-thirds reported year-over-year 

earnings growth. 

Although these short-term economic 

conditions can inform the FDIC’s 

decision on setting the DRR, they 

become less relevant in setting the DRR 

when, as now, the DIF is negative. In 

this context, the FDIC believes that the 

DRR should be viewed in a longer-term 

perspective. Twice within the past 30 

years, serious economic dislocations 

have resulted in a significant 

deterioration in the condition of many 

IDIs and in a consequent large number 

of IDI failures at high costs to the DIF. 

In the FDIC’s view, the DRR should, 

therefore, be viewed as a minimum goal 

needed to achieve a reserve ratio that 

can withstand these periodic economic 

downturns and their attendant IDI 

failures. Taking these longer-term 

economic realities into account, a 

prudent and consistent policy would set 

the DRR at a minimum of 2 percent, 

since that is the lowest level that would 

have prevented a negative fund balance 

at any time since 1950. 

Preventing Sharp Swings in Assessment 

Rates 

Current law directs the FDIC to 

consider preventing sharp swings in 

assessment rates for IDIs. Setting the 

DRR at 2 percent as a minimum goal 

rather than a final target would signal 

that the FDIC plans for the DIF to grow 

in good times so that funds are available 

to handle multiple bank failures in bad 

times. This plan would help prevent 

sharp fluctuations in deposit insurance 

premiums over the course of the 

business cycle. In particular, it would 


srobinson on DSKHWCL6B1PROD with PROPOSALS3
66286 Federal Register / Vol. 75, No. 207 / Wednesday, October 27, 2010 / Proposed Rules 

27See 5 U.S.C. 603, 604, 605. 

28See 5 U.S.C. 601. 

help reduce the risk of large rate 

increases during crises, when IDIs can 

least afford an increase. 

Maintaining the DIF at a Level That Can 

Withstand Substantial Losses 

Setting the DRR as a minimum goal 

and adopting the proposed dividend 

and assessment rate policy, which 

would allow the fund to grow 

sufficiently large in good times, would 

increase the likelihood that the DIF 

would remain positive during bad 

times. Having adequate funds available 

when entering a financial crisis would 

reduce the likelihood that the FDIC 

would need to increase assessment 

rates, levy special assessments on the 

industry or borrow from the U.S. 

Treasury. 

Balancing the Statutory Factors 

In the FDIC’s view, the best way to 

balance all of the statutory factors 

(including the ‘‘other factor’’ identified 

above of maintaining the DIF at a level 

that can withstand the substantial losses 

associated with a financial crisis) is to 

set the DRR at 2 percent. 

IV. Request for Comments 

The FDIC requests comments on all 

aspects of the proposed rule. 

V. Regulatory Analysis and Procedure 

A. Solicitation of Comments on Use of 

Plain Language 

Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113 

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

requires the Federal banking agencies to 

use plain language in all proposed and 

final rules published after January 1, 

2000. We invite your comments on how 

to make this proposal easier to 

understand. For example: 

• Have we organized the material to 

suit your needs? If not, how could this 

material be better organized? 

• Are the requirements in the 

proposed regulation clearly stated? If 

not, how could the regulation be more 

clearly stated? 

• Does the proposed regulation 

contain language or jargon that is not 

clear? If so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes to the format would make the 

regulation easier to understand? 

• What else could we do to make the 

regulation easier to understand? 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that each federal agency either 

certify that a proposed rule would not, 

if adopted in final form, have a 

significant economic impact on a 

substantial number of small entities or 

prepare an initial regulatory flexibility 

analysis of the rule and publish the 

analysis for comment.27 Certain types of 

rules, such as rules of particular 

applicability relating to rates or 

corporate or financial structures, or 

practices relating to such rates or 

structures, are expressly excluded from 

the definition of ‘‘rule’’ for purposes of 

the RFA.28

As of June 30, 2010, of the 7,830 

insured commercial banks and savings 

associations, there were 4,665 small 

insured depository institutions as that 

term is defined for purposes of the RFA 

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

less in assets). 

Among other things, the proposed 

rule would set the DRR at 2 percent. The 

FDIC views setting the DRR as having 

no significant economic impact on a 

substantial number of small insured 

depository institutions. However, the 

FDIC is voluntarily undertaking a 

regulatory flexibility analysis to aid the 

public in commenting on the small 

business impact of the proposed rule. 

The DRR would have no legal effect on 

small business entities for purposes of 

the RFA. The DRR is a minimum target 

only, and although the Dodd-Frank Act 

sets a minimum DRR of 1.35 percent of 

estimated insured deposits, the FDIC 

has the discretion to set the DRR above 

that level as it chooses. The DRR does 

not drive the needs of the Deposit 

Insurance Fund: the FDIC’s total 

assessment needs are driven by 

statutory requirements and by the 

FDIC’s aggregate insurance losses, 

expenses, investment income, and 

insured deposit growth, among other 

factors. Neither the FDI Act nor the 

amendments under Dodd-Frank 

establish a statutory role for the DRR as 

a trigger, whether for assessment rate 

determination, recapitalization of the 

fund, or dividends. Nor would setting 

the DRR at 2 percent under the 

proposed rule alter the distribution of 

assessments among IDIs. Accordingly, 

the proposed rule setting the DRR at 2 

percent of estimated insured deposits 

would not have a significant economic 

effect on small entities for purposes of 

the RFA. 

The remainder of the proposed rule 

would lower assessment rates when the 

reserve ratio reaches 1.15 percent, 

would suspend dividends permanently 

when the fund reserve ratio exceeds 1.5 

percent and, in lieu of dividends, would 

progressively lower assessment rate 

schedules when the reserve ratio 

exceeds 2 percent and 2.5 percent. 

Dividends are simply an indirect way of 

lowering assessment rates; the lower 

assessment rate schedules proposed 

would serve much the same function as 

dividends but, as discussed above, 

would provide more stable and 

predictable effective assessment rates. 

This portion of the proposed rule (that 

is, the portion unrelated to setting the 

DRR) thus relates to the rates imposed 

on IDIs for deposit insurance, and to the 

risk-based assessment system 

components that measure risk and 

weigh that risk in determining an IDI’s 

assessment rate. Consequently, a 

regulatory flexibility analysis is not 

required for this portion of the proposed 

rule. Nevertheless, the FDIC is 

voluntarily undertaking an initial 

regulatory flexibility analysis of the 

proposed rule for publication. 

Pursuant to section 605(b) of the RFA, 

the FDIC certifies that the proposed rule 

would not have a significant economic 

effect on small entities unless and until 

the DIF reserve ratio exceeds specific 

thresholds of 1.15, 1.5, 2, and 2.5 

percent. The reserve ratio is unlikely to 

reach these levels for many years. When 

it does, the overall effect of the 

proposed rule will be positive for 

entities of all sizes. All entities, 

including small entities, will receive a 

net benefit as a result of lower 

assessments paid. The proposed rule 

should not alter the distribution of the 

assessment burden between small 

entities and all others. It is difficult to 

realistically quantify the benefit at the 

present time. However, the initial 

magnitude of the benefit (when the 

reserve ratio reaches 1.15 percent) is 

likely to be less than a 2 percent 

increase in after-tax income and less 

than a 20 basis point increase in capital. 

While each IDI will have the 

opportunity to request review of new 

assessments, the proposed rule will rely 

on information already collected and 

maintained by the FDIC in the regular 

course of business. The proposed rule 

will not directly or indirectly impose 

any additional reporting, recordkeeping 

or compliance requirements on IDIs. 

C. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reduction 

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

contained in the proposed rule. 


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D. The Treasury and General 

Government Appropriations Act, 1999— 

Assessment of Federal Regulations and 

Policies on Families 

The FDIC has determined that the 

proposed rule will not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681). 

List of Subjects in 12 CFR Part 327 

Bank deposit insurance, Banks, 

Banking, Savings associations. 

For the reasons set forth in the 

preamble, the FDIC proposes to amend 

chapter III of title 12 of the Code of 

Federal Regulations as follows: 

PART 327—ASSESSMENTS 

1–2. The authority citation for part 

327 is revised to read as follows: 

Authority: 12 U.S.C. 1441, 1813, 1815, 

1817–19, 1821. 

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

§ 327.4 Assessment Rates. 

* * * * * 

(g) Designated reserve ratio. The 

designated reserve ratio for the Deposit 

Insurance Fund is 2 percent. 

4. Revise § 327.9(d)(5)(iii) to read as 

follows: 

§ 327.9 Assessment risk categories and 

pricing methods. 

* * * * * 

(d) * * * 

(5) * * * 

(iii). Limitations—(A) If, after 

September 30, 2010, the reserve ratio of 

the DIF has not reached 1.15 percent, 

the unsecured debt adjustment for any 

institution shall not exceed five basis 

points. 

(B) Once the reserve ratio of the DIF 

first reaches 1.15 percent after 

September 30, 2010, the unsecured debt 

adjustment for any institution shall not 

exceed the lesser of five basis points or 

50 percent of the institution’s initial 

base assessment rate. 

* * * * * 

6. Revise section 327.10 to read as 

follows: 

§ 327.10 Assessment rate schedules. 

(a) Assessment rate schedules prior to 

the reserve ratio of the DIF first reaching 

1.15 percent after September 30, 2010— 

(1) Applicability. The assessment rate 

schedules in this paragraph (a) will 

cease to be applicable when the reserve 

ratio of the DIF first reaches 1.15 

percent after September 30, 2010. 

(2) Initial Base Assessment Rate 

Schedule. After September 30, 2010, if 

the reserve ratio of the DIF has not 

reached 1.15 percent, the initial base 

assessment rate for an insured 

depository institution shall be the rate 

prescribed in the following schedule: 

INITIAL BASE ASSESSMENT RATE SCHEDULE IF, AFTER SEPTEMBER 30, 2010, THE RESERVE RATIO HAS NOT REACHED

1.15 PERCENT

Risk Category 

I * 

II III IV 

Minimum Maximum 

Annual Rates (in basis points) ..................................................................................... 12 16 22 32 45 

* 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. 

(i) Risk Category I Initial Base 

Assessment Rate Schedule. The annual 

initial base assessment rates for all 

institutions in Risk Category I shall 

range from 12 to 16 basis points. 

(ii) Risk Category II, III, and IV Initial 

Base Assessment Rate Schedule. The 

annual initial base assessment rates for 

Risk Categories II, III, and IV shall be 22, 

32, and 45 basis points, respectively. 

(iii) All institutions in any one risk 

category, other than Risk Category I, will 

be charged the same initial base 

assessment rate, subject to adjustment as 

appropriate. 

(3) Total Base Assessment Rate 

Schedule after Adjustments. After 

September 30, 2010, if the reserve ratio 

of the DIF has not reached 1.15 percent, 

the total base assessment rates after 

adjustments for an insured depository 

institution shall be the rate prescribed 

in the following schedule. 

TOTAL BASE ASSESSMENT RATE SCHEDULE (AFTER ADJUSTMENTS) * IF, AFTER SEPTEMBER 30, 2010, THE RESERVE

RATIO HAS NOT REACHED 1.15 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 12–16 22 32 45 

Unsecured debt adjustment ............................................................................................. (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–8 0–11 0–16 0–22.5 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total base assessment rate ............................................................................................ 7–24 17–43 27–58 40–77.5 

* 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. 

(i) Risk Category I Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for all 

institutions in Risk Category I shall 

range from 7 to 24 basis points. 

(ii) Risk Category II Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category II shall range from 17 to 43 

basis points. 

(iii) Risk Category III Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category III shall range from 27 to 58 

basis points. 


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(iv) Risk Category IV Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category IV shall range from 40 to 77.5 

basis points. 

(b) Assessment rate schedules once 

the DIF reserve ratio first reaches 1.15 

percent after September 30, 2010, and 

the reserve ratio for the immediately 

prior assessment period is less than 2 

percent—(1) Initial Base Assessment 

Rate Schedule. After September 30, 

2010, once the reserve ratio of the DIF 

first reaches 1.15 percent, and the 

reserve ratio for the immediately prior 

assessment period is less than 2 percent, 

the initial base assessment rate for an 

insured depository institution shall be 

the rate prescribed in the following 

schedule: 

INITIAL BASE ASSESSMENT RATE SCHEDULE ONCE THE RESERVE RATIO OF THE DIF REACHES 1.15 PERCENT AFTER

SEPTEMBER 30, 2010, AND THE RESERVE RATIO FOR THE IMMEDIATELY PRIOR ASSESSMENT PERIOD IS LESS THAN 2 

PERCENT

Risk Category 

I * II III 

IV 

Minimum Maximum 

Annual Rates (in basis points) ..................................................................................... 8 12 18 28 40 

* 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. 

(i) Risk Category I Initial Base 

Assessment Rate Schedule. The annual 

initial base assessment rates for all 

institutions in Risk Category I shall 

range from 8 to 12 basis points. 

(ii) Risk Category II, III, and IV Initial 

Base Assessment Rate Schedule. The 

annual initial base assessment rates for 

Risk Categories II, III, and IV shall be 18, 

28, and 40 basis points, respectively. 

(iii) All institutions in any one risk 

category, other than Risk Category I, will 

be charged the same initial base 

assessment rate, subject to adjustment as 

appropriate. (2) Total Base Assessment 

Rate Schedule after Adjustments. After 

September 30, 2010, once the reserve 

ratio of the DIF first reaches 1.15 

percent, and the reserve ratio for the 

immediately prior assessment period is 

less than 2 percent, the total base 

assessment rates after adjustments for an 

insured depository institution shall be 

the rate prescribed in the following 

schedule. 

TOTAL BASE ASSESSMENT RATE SCHEDULE (AFTER ADJUSTMENTS)* ONCE THE RESERVE RATIO OF THE DIF REACHES

1.15 PERCENT AFTER SEPTEMBER 30, 2010, AND THE RESERVE RATIO FOR THE IMMEDIATELY PRIOR ASSESSMENT

PERIOD IS LESS THAN 2 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 8–12 18 28 40 

Unsecured debt adjustment ............................................................................................. (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–6 0–9 0–14 0–20 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total base assessment rate ..................................................................................... 4–18 13–37 23–52 35–70 

* 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. 

(i) Risk Category I Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for 

institutions in Risk Category I shall 

range from 4 to 18 basis points. 

(ii) Risk Category II Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category II shall range from 13 to 37 

basis points. 

(iii) Risk Category III Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category III shall range from 23 to 52 

basis points. 

(iv) Risk Category IV Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category IV shall range from 35 to 70 

basis points. 

(c) Assessment rate schedules if the 

reserve ratio of the DIF for the prior 

assessment period is equal to or greater 

than 2 percent and less than 2.5 

percent. (1) Initial Base Assessment Rate 

Schedule. If the reserve ratio of the DIF 

for the prior assessment period is equal 

to or greater than 2 percent and less 

than 2.5 percent, the initial base 

assessment rate for an insured 

depository institution, except as 

provided in paragraph (e) of this 

section, shall be the rate prescribed in 

the following schedule: 


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Federal Register / Vol. 75, No. 207 / Wednesday, October 27, 2010 / Proposed Rules 66289 

INITIAL BASE ASSESSMENT RATE SCHEDULE IF RESERVE RATIO FOR PRIOR ASSESSMENT PERIOD IS EQUAL TO OR

GREATER THAN 2 PERCENT AND LESS THAN 2.5 PERCENT

Risk Category 

I* 

II III IV 

Minimum Maximum 

Annual Rates (in basis points) ................................................................. 6 10 16 26 38 

* 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. 

(i) Risk Category I Initial Base 

Assessment Rate Schedule. The annual 

initial base assessment rates for all 

institutions in Risk Category I shall 

range from 6 to 10 basis points. 

(ii) Risk Category II, III, and IV Initial 

Base Assessment Rate Schedule. The 

annual initial base assessment rates for 

Risk Categories II, III, and IV shall be 16, 

26, and 38 basis points, respectively. 

(iii) All institutions in any one risk 

category, other than Risk Category I, will 

be charged the same initial base 

assessment rate, subject to adjustment as 

appropriate. 

(2) Total Base Assessment Rate 

Schedule after Adjustments. If the 

reserve ratio of the DIF for the prior 

assessment period is equal to or greater 

than 2 percent and less than 2.5 percent, 

the total base assessment rates after 

adjustments for an insured depository 

institution, except as provided in 

paragraph (e) of this section, shall be the 

rate prescribed in the following 

schedule. 

TOTAL BASE ASSESSMENT RATE SCHEDULE (AFTER ADJUSTMENTS)* IF RESERVE RATIO FOR PRIOR ASSESSMENT PERIOD

IS EQUAL TO OR GREATER THAN 2 PERCENT AND LESS THAN 2.5 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 6–10 16 26 38 

Unsecured debt adjustment ............................................................................................. (5)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–5 0–8 0–13 0–19 

Brokered deposit adjustment ........................................................................................... .................... 0–10 0–10 0–10 

Total base assessment rate ..................................................................................... 3–15 11–34 21–49 33–67 

* 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. 

(i) Risk Category I Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for 

institutions in Risk Category I shall 

range from 3 to 15 basis points. 

(ii) Risk Category II Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category II shall range from 11 to 34 

basis points. 

(iii) Risk Category III Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category III shall range from 21 to 49 

basis points. 

(iv) Risk Category IV Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category IV shall range from 33 to 67 

basis points. 

(d) Assessment rate schedules if the 

reserve ratio of the DIF for the prior 

assessment period is greater than 2.5 

percent—(1) Initial Base Assessment 

Rate Schedule. If the reserve ratio of the 

DIF for the prior assessment period is 

greater than 2.5 percent, the initial base 

assessment rate for an insured 

depository institution, except as 

provided in paragraph (e) of this 

section, shall be the rate prescribed in 

the following schedule: 

INITIAL BASE ASSESSMENT RATE SCHEDULE IF RESERVE RATIO FOR PRIOR ASSESSMENT PERIOD IS GREATER THAN 2.5 

PERCENT

Risk Category 

I* 

II III IV 

Minimum Maximum 

Annual Rates (in basis points) ................................................................. 4 8 14 24 36 

* 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. 

(i) Risk Category I Initial Base 

Assessment Rate Schedule. The annual 

initial base assessment rates for all 

institutions in Risk Category I shall 

range from 4 to 8 basis points. 

(ii) Risk Category II, III, and IV Initial 

Base Assessment Rate Schedule. The 

annual initial base assessment rates for 

Risk Categories II, III, and IV shall be 14, 

24, and 36 basis points, respectively. 


srobinson on DSKHWCL6B1PROD with PROPOSALS3
66290 Federal Register / Vol. 75, No. 207 / Wednesday, October 27, 2010 / Proposed Rules 

(iii) All institutions in any one risk 

category, other than Risk Category I, will 

be charged the same initial base 

assessment rate, subject to adjustment as 

appropriate. 

(2) Total Base Assessment Rate 

Schedule after Adjustments. If the 

reserve ratio of the DIF for the prior 

assessment period is greater than 2.5 

percent, the total base assessment rates 

after adjustments for an insured 

depository institution, except as 

provided in paragraph (e) of this 

section, shall be the rate prescribed in 

the following schedule. 

TOTAL BASE ASSESSMENT RATE SCHEDULE (AFTER ADJUSTMENTS)* IF RESERVE RATIO FOR PRIOR ASSESSMENT PERIOD

IS GREATER THAN 2.5 PERCENT

Risk 

Category I 

Risk 

Category II 

Risk 

Category III 

Risk 

Category IV 

Initial base assessment rate ............................................................................................ 4–8 14 24 36 

Unsecured debt adjustment ............................................................................................. (4)–0 (5)–0 (5)–0 (5)–0 

Secured liability adjustment ............................................................................................. 0–4 0–7 0–12 0–18 

Brokered deposit adjustment ........................................................................................... 0–10 0–10 0–10 

Total base assessment rate ..................................................................................... 2–12 9–31 19–46 31–64 

* 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. 

(i) Risk Category I Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for 

institutions in Risk Category I shall 

range from 2 to 12 basis points. 

(ii) Risk Category II Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category II shall range from 9 to 31 basis 

points. 

(iii) Risk Category III Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category III shall range from 19 to 46 

basis points. 

(iv) Risk Category IV Total Base 

Assessment Rate Schedule. The annual 

total base assessment rates for Risk 

Category IV shall range from 31 to 64 

basis points. 

(e) Assessment Rate Schedules for 

New Institutions. New depository 

institutions, as defined in 327.8(l), shall 

be subject to the assessment rate 

schedules as follows: 

(1) Prior to the reserve ratio of the DIF 

first reaching 1.15 percent after 

September 30, 2010. After September 

30, 2010, if the reserve ratio of the DIF 

has not reached 1.15 percent, new 

institutions shall be subject to the initial 

and total base assessment rate schedules 

provided for in subsection (a). 

(2) Assessment rate schedules once 

the DIF reserve ratio first reaches 1.15 

percent after September 30, 2010, and 

the reserve ratio for the immediately 

prior assessment period is less than 2 

percent. After September 30, 2010, once 

the reserve ratio of the DIF first reaches 

1.15 percent, and if the reserve ratio for 

the immediately prior assessment 

period is less than 2 percent, new 

institutions shall be subject to the initial 

and total base assessment rate schedules 

provided for in subsection (b). 

(f) Total Base Assessment Rate 

Schedule adjustments and procedures— 

(1) Board Rate Adjustments. The Board 

may increase or decrease the total base 

assessment rate schedule in paragraphs 

(a) through (d) of this section up to a 

maximum increase of 3 basis points or 

a fraction thereof or a maximum 

decrease of 3 basis points or a fraction 

thereof (after aggregating increases and 

decreases), as the Board deems 

necessary. Any such adjustment shall 

apply uniformly to each rate in the total 

base assessment rate schedule. In no 

case may such Board rate adjustments 

result in a total base assessment rate that 

is mathematically less than zero or in a 

total base assessment rate schedule that, 

at any time, is more than 3 basis points 

above or below the total base assessment 

schedule for the Deposit Insurance Fund 

in effect pursuant to subsection (b), nor 

may any one such Board adjustment 

constitute an increase or decrease of 

more than 3 basis points. 

(2) Amount of revenue. In setting 

assessment rates, the Board shall take 

into consideration the following: 

(i) Estimated operating expenses of 

the Deposit Insurance Fund; 

(ii) Case resolution expenditures and 

income of the Deposit Insurance Fund; 

(iii) The projected effects of 

assessments on the capital and earnings 

of the institutions paying assessments to 

the Deposit Insurance Fund; 

(iv) The risk factors and other factors 

taken into account pursuant to 12 U.S.C. 

1817(b)(1); and 

(v) Any other factors the Board may 

deem appropriate. 

(3) Adjustment procedure. Any 

adjustment adopted by the Board 

pursuant to this paragraph will be 

adopted by rulemaking, except that the 

Corporation may set assessment rates as 

necessary to manage the reserve ratio, 

within set parameters not exceeding 

cumulatively 3 basis points, pursuant to 

paragraph (c)(1) of this section, without 

further rulemaking. 

(4) Announcement. The Board shall 

announce the assessment schedules and 

the amount and basis for any adjustment 

thereto not later than 30 days before the 

quarterly certified statement invoice 

date specified in § 327.3(b) of this part 

for the first assessment period for which 

the adjustment shall be effective. Once 

set, rates will remain in effect until 

changed by the Board. 

§§ 327.51 through 327.54 [Removed] 

7. Remove §§ 327.51 through 327.54. 

8. Revise § 327.50 to read as follows: 

§ 327.50 Dividends. 

(a) Suspension of Dividends. The 

Board will suspend dividends 

permanently whenever the DIF reserve 

ratio exceeds 1.50 percent at the end of 

any year. 

(b) Assessment Rate Schedule if DIF 

Reserve Ratio Exceeds 1.50 Percent. In 

lieu of dividends, when the DIF reserve 

ratio exceeds 1.50 percent, assessment 

rates shall be determined as set forth in 

section 327.10, as appropriate. 

By order of the Board of Directors. 

Dated at Washington, DC, this 19th day of 

October, 2010. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

The following appendix will not 

appear in the Code of Federal 

Regulations. 

Appendix 

The Appendix provides supplementary 

details on the method used to generate fund 

simulations in the FDIC’s analysis. It also 

presents additional comparative examples of 

simulations using a variety of assessment rate 

policies that combine different constant 

nominal assessment rates with different 


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29The assessment base used in this analysis is 

adjusted total domestic deposits. The Dodd-Frank 

Act provides that the assessment base be changed 

to average total consolidated assets minus average 

tangible equity. 

30Specifically, the analysis sought to implement 

an assessment rate policy (a constant nominal rate 

in combination with assessment rate reductions) 

that would result in the fund falling to zero in 2009 

(the fund’s trough during the current crisis). Using 

assessment rates greater than those identified would 

cause the simulated fund to grow higher during 

periods of benign economic conditions and give the 

fund a capital buffer above zero in 2009. 

levels of assessment rate reduction awarded 

at different reserve ratio thresholds. 

Methodology and Assumptions 

Data 

The simulated fund’s assessment base and 

fund expenses are actual FDIC historical 

data.29 For the years 1950 to 1988, data are 

from the FDIC insurance fund; from 1989 to 

2005, data combine the BIF and the SAIF; 

from 2006 onwards, DIF data are used. FDIC 

historical data are altered in only one respect: 

Because all depositors in failed banks during 

the current crisis were covered up to 

$250,000, the FDIC deposit insurance 

coverage level for 2007 is assumed to be 

$250,000 even though the coverage limit in 

effect at the time was $100,000. (The DoddFrank Act extended the $250,000 coverage 

limit retroactively to depositors in any IDI for 

which the FDIC was appointed receiver or 

conservator on or after January 1, 2008.) 

Historical interest rate data are from the 

Board of Governors of the Federal Reserve 

System. From 2011 to 2040, projections are 

based on September 2010 FDIC estimates for 

losses, expenses and insured deposit and 

assessment base growth (using adjusted total 

domestic deposits). Implied forward interest 

rates (as of September 27, 2010) from 

Bloomberg are used for the years after 2010. 

Treatment of Historical Assessment Credits, 

Special Assessments and FSLIC/RTC Costs 

The simulated fund implements neither 

the assessment credit policies in effect from 

1950 to 1984, nor the one-time assessment 

credit provided under the Deposit Insurance 

Reform Act of 2005. In addition, the 

simulated fund’s income includes neither the 

one-time special assessment to recapitalize 

the SAIF in 1996 nor the one-time special 

assessment imposed in 2009. The simulated 

fund does not include as expenses the costs 

of FSLIC and RTC failures during the 1980s 

and early 1990s. The inclusion of these costs 

would require a much higher reserve ratio to 

keep the fund balance positive during the 

late 1980s and early 1990s than the analysis 

shows. 

Investment Strategy 

No consistent historical data are available 

describing the FDIC’s investment portfolio 

over time. Moreover, as a simulated fund 

diverges from the actual fund, the FDIC’s 

actual investment choices become 

increasingly irrelevant to the simulated 

fund’s likely choices. After reviewing 

available FDIC data, the method chosen for 

the analysis was a modeled investment 

portfolio with the following investment 

strategy and set of rules for the simulated 

fund. The fund assumes a ‘‘default’’ portfolio 

mix of Treasury securities to be maintained 

under most conditions: 35 Percent in 6- 

month securities; 25 percent in 1-year 

securities; 25 percent in 3-year securities; 

and 15 percent in 5-year securities. This 

portfolio mix remains fixed unless the FDIC’s 

provision for losses increases for two 

consecutive years. In that event, all income 

(proceeds from maturing securities, as well as 

net assessment and interest income) is 

invested in 6-month Treasury securities. The 

simulated fund therefore has an increasingly 

shorter term bias as anticipated losses from 

failures rise. When the fund’s income 

exceeds expenses for two years, the fund’s 

investments are returned to the 35–25–25–15 

mix. 

Assessment Rate, Dividend and Reserve Ratio 

Variables 

Constant nominal industry average 

assessment rates in the analysis range from 

7.44 to 25.88 basis points. The analysis 

examines two sets of policy options: 

Percentage reductions in assessment rates, 

and dividends as a percent of the amount in 

the fund over a specified reserve ratio. Rate 

reductions and dividend amounts range from 

zero to 100 percent. Reserve ratios at which 

assessment reductions or dividends are first 

awarded range from 1.5 percent to 2.5 

percent. 

Additional Comparative Examples 

This section provides further detail and 

examples of the tradeoffs the FDIC examined 

in seeking an appropriate long-term fund 

management policy that takes into account 

the goals of maintaining a positive fund 

balance even during banking crises, and 

maintaining low, steady assessment rates 

throughout economic and credit cycles.30

The examples below vary assessment rate 

reductions and the reserve ratio at which 

reductions are first awarded. 

Maintaining Relatively Low Assessment Rates 

Table A.1 shows the constant nominal 

assessment rates that need to be applied to 

keep the fund from becoming negative during 

both crises using various levels of assessment 

rate reduction and reserve ratios at which 

rates are first reduced. 


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66292 Federal Register / Vol. 75, No. 207 / Wednesday, October 27, 2010 / Proposed Rules 

31Crisis years are defined as 1981–96 (although 

in terms of bank failures this crisis ended by 1994, 

the industry had to pay high premiums for an 

additional two years in order to recapitalize the 

fund) and 2008–10, while all other years in the 

sample are non-crisis years: 1950–80 and 1997– 

2007. 

In general, policies with low reserve ratios 

at which assessment rate reductions are first 

awarded and high rate reductions require 

relatively high nominal assessment rates, and 

so fail to keep assessment rates relatively low 

and steady. Policy options with high reserve 

ratios at which assessment rate reductions 

are awarded and low rate reductions require 

the lowest nominal assessment rates. 

Reducing Pro-cyclical Assessments 

In its analysis, the FDIC sought policies 

that reduced pro-cyclical assessments, which 

are assessments that are lower during 

prosperous times but higher when both IDIs 

and the fund are stressed by significant 

losses. Table A.2 compares average effective 

assessment rates during crisis years with 

average effective assessment rates during 

non-crisis years as a measure of how procyclical effective assessment rates are 

throughout time.31

Again, policies using low reserve ratios at 

which assessment reductions begin to be 

paid and high rate reductions are least 

desirable and produce greater pro-cyclicality. 

As a point of reference, the average 

assessment rates of the actual fund (which 

has historically had to implement procyclical assessment policies during times of 

crisis to cover losses and rebuild the fund) 

more than quadrupled during crisis periods. 

An appropriate assessment reduction policy 

should seek relatively small changes in 

effective assessment rates across both crisis 

and non-crisis periods. 

[FR Doc. 2010–27036 Filed 10–26–10; 8:45 am] 

BILLING CODE 6714–01–P 


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