FDIG 

Federal Deposit Insurance Corporation 

550 17th Street NW, Washington, D.C. 20429-9990 Division of Insurance and Research 

July 21, 2011 

MEMORANDUM TO: The Board of Directors 

FROM: Arthur J. Murton 

Director 

Division of Insurance and Research 

SUBJECT: Assessment Rate Adjustment Guidelines for Large and Highly 

Complex Institutions 

Staff recommends that the Board of Directors (FDIC or Board) approve the attached final 

guidelines related to the assessment rate adjustment (the large bank adjustment) for large and 

highly complex institutions. The guidelines describe the process that staff would follow to 

determine whether to implement a large bank adjustment, the size of the adjustment, and the 

procedures used to notify an institution of the adjustment. 

I. Background 

On February 7, 2011, the FDIC adopted a final rule amending assessment regulations 

(Amended Assessment Regulations) in light of changes made to the Federal Deposit Insurance 

Act by the Dodd-Frank Wall Street Reform and Consumer Protection Act. As part of the 

Amended Assessment Regulations, the FDIC revised the methodology used to determine the 

assessment rates for large and highly complex institutions to better capture risk at the time the 

institution assumes the risk, to better differentiate risk among large insured depository 

institutions during periods of good economic and banking conditions based on how they would 

fare during periods of stress or economic downturns, and to better take into account the losses 

that the FDIC may incur if a large insured depository institution fails. 

The new methodology combines CAMELS ratings and forward-looking financial 

measures into one of two scorecards, one for highly-complex institutions and another for all 

other large institutions. Each of the two scorecards produces two scoresa performance score 

and a loss severity scorethat are combined into a total score. The total score is converted to an 

institution’s initial base assessment rate. 

The Amended Assessment Regulations provide that the FDIC, after consultation with an 

institution’s primary federal regulator, may make a limited adjustment to an institution’s total 

score based upon risks that are not adequately captured in the institution’s scorecard. The FDIC 

Concur: 

WM ichael H. Krimmingt LI 

General Counsel 
promulgated regulations allowing for the adjustment of large institutions’ quarterly assessment 

rates in 2006.’ The FDIC set forth the procedures for these adjustments in guidelines that were 

published in 2007 (2007 Guidelines). 2Although not required, the Amended Assessments 

Regulations provide that no adjustment will be made under the Amended Assessment 

Regulations until after revised guidelines are published for comment and approved by the Board. 

The guidelines were published for notice and comment in April 2011. 

The FDIC received eight comments related to the guidelines. The FDIC also received a 

number of comments related to the scorecard methodology and measures used in the scorecard. 

The FDIC considered similar comments prior to finalizing the Amended Assessments 

Regulations and prior to issuing the proposed adjustment guidelines in May. Because the 

Amended Assessment Regulations are final, and the FDIC has not proposed changing them, 

suggestions or comments related to the scorecard methodology or the measures used within the 

scorecard have not been considered in finalizing these adjustment guidelines. Rather, staff has 

focused on comments related to the guidelines and how they would be used in making a large 

bank adjustment. These comments are discussed in the relevant section of the attached final 

guidelines. 

The final guidelines would supersede the 2007 Guidelines. 4Staff notes that, although the 

proposed guidelines reflect changes made as a result of the Amended Assessment Regulations, 

the processes for communicating with affected institutions and implementing adjustments remain 

largely unchanged from the 2007 Guidelines. 

II. Overview of Proposed Guidelines on Large Bank Adjustment 

The following general principles are intended to ensure that the large bank adjustment 

process is fair and transparent and that any decision to adjust an institution’s total score is well 

supported. Staff only intends to make material adjustments (an adjustment of at least 5 points) to 

an institution’s total score, which should result in only a limited number of adjustments on a 

quarterly basis. 

Analytical Guidelines 

 The FDIC would focus on identifying institutions for which a combination of risk 

measures and other information suggests either materially higher or lower risk than 

their total scores indicate. The FDIC would consider all available material 

information relating to the likelihood of failure or loss severity in the event of failure. 

71 FR 69282 (Nov. 30, 2006). 

2 12 CFR 327.9(d)(4) (2011). 

76 Fed. Reg. 21256 (April 15, 2011). 

"72 Fed. Reg. 27122 (May 14, 2007). 

2 
The FDIC would primarily consider two types of information in determining whether 

to make a large bank adjustment: (a) a scorecard ratio or measure that exceeds the 

maximum cutoff value for a ratio or measure or is less than the minimum cutoff value 

for a ratio or measure, along with the degree to which the ratio or measure differs 

from the cutoff value (scorecard measure outliers); and (b) information not directly 

captured in the scorecard, including complementary quantitative risk measures and 

qualitative risk considerations. 

 If an institution has one or more scorecard measure outliers, the FDIC would conduct 

further analysis to determine whether underlying scorecard ratios are materially 

higher or lower than the established cutoffs for a given scorecard measure and 

whether other mitigating or supporting information exists. 

 The FDIC would use complementary quantitative risk measures to determine whether 

a given scorecard measure is an appropriate measure for a particular institution. 

Examples of some complementary quantitative risk measures are included in the 

guidelines. 

When qualitative risk considerations materially affect the FDIC’s view of an 

institution’s probability of failure or loss given failure, these considerations could be 

the primary factor supporting the adjustment. Qualitative risk considerations include, 

but are not limited to, underwriting practices related to material concentrations, risk 

management practices, strategic risk, and factors affecting loss severity. 

Specific risk measures would vary in importance for different types of institutions. In 

some cases, a single risk factor or indicator may support an adjustment if the factor 

suggests a significantly higher or lower likelihood of failure or loss given failure than 

the total score reflects. 

 To the extent possible when comparing risk measures, the FDIC would consider the 

performance of similar institutions, taking into account that variations in risk 

measures exist among institutions with substantially different business models. 

Adjustments to an institution’s total score would be made only if the comprehensive 

analysis of an institution’s risk generally based on the two types of information listed 

above and the institution’s relative risk ranking warrant a material adjustment of the 

institution’s total score. For purposes of the proposed guidelines, a material 

adjustment would be an adjustment of five points or more to an institution’s total 

score. 

Procedural Guidelines 

The processes for communicating a potential adjustment to affected institutions and 

implementing adjustments would remain largely unchanged from that used under the 2007 
Guidelines, except that the revised guidelines provide for an institution-initiated request for an 

adjustment. 

 The FDIC would consult with an institution’s primary federal regulator and 

appropriate state banking supervisor before making any decision to adjust an 

institution’s total score (and before removing a previously implemented adjustment). 

 The FDIC would give institutions advance notice of any decision to make an upward 

adjustment to a total score, or to remove a previously implemented downward 

adjustment. The notice would include the reasons for the proposed adjustment or 

removal and the size of the proposed adjustment or removal would specify when the 

adjustment or removal would take effect, and would provide institutions with up to 60 

days to respond. 

 The FDIC would re-evaluate the need for total score adjustments on a quarterly basis. 

 An institution may make a written request to the FDIC for an adjustment. Any 

institution-initiated adjustment must be supported by evidence of a material risk or 

risk-mitigating factor that is not adequately accounted for in the institution’s 

scorecard. An institution-initiated request should be received by the FDIC no later 

than 35 days following the end of the quarter for which the institution is requesting 

the adjustment. An institution-initiated request for adjustment received after this time 

may be considered for the following quarter. 

An institution may request review of or appeal an upward adjustment, the magnitude 

of an upward adjustment, removal of a previously implemented downward 

adjustment or an increase in a previously implemented upward adjustment pursuant to 

12 C.F.R. 327.4(c). An institution could similarly request review of or appeal a 

decision not to apply an adjustment following an institution-initiated request for an 

adjustment. 

ru 
The Division of Insurance and Research would seek the advice of the Office of Complex 

Financial Institutions (OCFI) and the Division of Risk Management Supervision (RMS), 

depending on which organization is responsible for ongoing supervision of the specific insured 

depository institution, for any adjustment it wishes to initiate and will also pursue adjustments 

based on OCFI and RMS recommendations. 

The attached guidelines describe the adjustment process in detail and set out examples. 

Staff contacts: 

DIR 

Patrick Mitchell, (202) 898-3943 

Legal Division 

Christopher Bellotto, (202) 898-3801 

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