97-12587. Assessments  

  • [Federal Register Volume 62, Number 96 (Monday, May 19, 1997)]
    [Rules and Regulations]
    [Pages 27171-27177]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-12587]
    
    
    =======================================================================
    -----------------------------------------------------------------------
    
    FEDERAL DEPOSIT INSURANCE CORPORATION
    
    12 CFR Part 327
    
    RIN 3064-AB59
    
    
    Assessments
    
    AGENCY: Federal Deposit Insurance Corporation (FDIC).
    
    ACTION: Final rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: The FDIC is preserving the current adjusted rate schedule for 
    assessments paid to the Bank Insurance Fund (BIF) for the second 
    semiannual period of 1997 (July-December), and for subsequent 
    semiannual periods subject to review on a semiannual basis. Absent 
    action by the FDIC, the BIF rates would revert to the base rates, which 
    are 4 basis points higher. The resulting assessments would exceed the 
    amount allowed by law.
        The FDIC is issuing the final rule without prior notice and comment 
    under the procedure established by the FDIC's regulations for making 
    limited adjustments to base assessment rates.
        The final rule removes obsolete provisions regarding the special 
    assessment and pre-1997 rates, and clarifies other provisions without 
    altering their substance.
    
    EFFECTIVE DATE: Effective May 6, 1997.
    
    FOR FURTHER INFORMATION CONTACT: Fred Carns, Assistant Director, 
    Division of Insurance, (202) 898-3930; William Farrell, Chief, 
    Assessment Management Section, Division of Finance, (202) 416-7156; 
    Richard Osterman, Senior Counsel, (202) 898-3523, or Jules Bernard, 
    Counsel, (202) 898-3731, Legal Division, Federal Deposit Insurance 
    Corporation, Washington, D.C. 20429.
    
    SUPPLEMENTARY INFORMATION:
    
    I. The Final Rule
    
    A. Background
    
        In accordance with section 7(b) of the Federal Deposit Insurance 
    (FDI Act), 12 U.S.C. 1817(b), the FDIC has adopted a risk-based 
    assessment program for the BIF. The program has two main components. 
    The first component is a set of base rates that are appropriate for the 
    BIF over the long term. These rates, which are presented in the BIF 
    Base Assessment Schedule, see 12 CFR 327.9(a)(2)(i), will be changed 
    only after full notice-and-comment rulemaking. The second component is 
    a mechanism for making limited and relatively short-term adjustments to 
    the BIF base rates. The adjustments are made by rulemaking without 
    prior notice and comment, see id. 327.9(c), but are revisited by the 
    FDIC on a semiannual basis. The adjusted rates are presented in the BIF 
    Adjusted Assessment Schedule. See id. 327.9(b)(2)(i). The adjusted 
    rates are the effective ones--that is, the rates that BIF-assessable 
    institutions currently pay to the BIF.1
    ---------------------------------------------------------------------------
    
        \1\ An institution that holds BIF-assessable deposits must also 
    pay an assessment to the Financing Corporation (FICO) based on those 
    deposits. 12 U.S.C. 1441(f)(2); see Deposit Insurance Funds Act of 
    1996 (Funds Act), Pub. L. 104-208, section 2703, 110 Stat. 3009, 
    3009-479 et seq. (Sept. 30, 1996). The FICO payment is separate 
    from, and in addition to, the BIF assessment.
        The FDIC will continue to collect the FICO assessments on the 
    FICO's behalf. The FDIC's quarterly invoices will reflect the 
    current amount of the FICO assessment.
    ---------------------------------------------------------------------------
    
        The BIF base assessment rates are appropriate, over the long term, 
    to generate assessments that maintain the BIF's capitalization at the 
    level prescribed by statute. The base rates reflect a thorough 
    historical analysis of FDIC experience, including consideration of 
    recent statutory changes that may moderate future deposit insurance 
    losses (e.g., prompt corrective action authority and the least-cost 
    resolution requirement). See 60 FR 42680 (Aug. 16, 1995). The BIF base 
    rates range from 4 basis points (bp) for institutions in the best 
    assessment risk classification (1A institutions) to 31 bp for 
    institutions in the least favorable one. The final rule does not alter 
    these rates.
        Over the short term, however, the BIF base rates would produce a 
    continued rise in the Bank Insurance Fund reserve ratio (BIF reserve 
    ratio)--that is, in the ratio of the BIF's net worth to the aggregate 
    estimated deposits that the BIF insures. See 12 U.S.C. 1817(l)(6). The 
    BIF reserve ratio is currently above the target ratio prescribed by 
    statute, and is rising. (See discussion at I.B., below). The FDIC's 
    Board of Directors (Board) has therefore adopted a temporary adjustment 
    to the BIF base rates. See 61 FR 64609 (Dec. 6, 1996). The adjustment 
    has lowered the base rates by 4 bps. The resulting adjusted rates 
    (which are now in effect) range from zero to 27 bp.
        The adjustment only applies to the current semiannual period 
    (January-June 1997), and expires at the end of it. See 12 CFR 
    327.9(b)(2)(ii). Absent this final rule, the effective BIF rates would 
    revert to the long-term rates set forth in the BIF Base Assessment 
    Schedule.
        The final rule preserves the effective BIF rates at their current 
    levels for the second semiannual period of 1997 (July-December) and 
    indefinitely thereafter. The final rule does so by making an adjustment 
    to the BIF Base Assessment Schedule in accordance with the procedure 
    prescribed in id. 327.9(c). The adjustment lowers the rates in the BIF 
    Base Assessment Schedule by four bp. The adjustment is of indefinite 
    duration, but is reviewed semiannually.
    
    B. Statutory and Regulatory Framework for Adjusting the Base Assessment 
    Rates
    
    1. Statutory Provisions
        The touchstone for setting a fund's assessments is the fund's 
    reserve ratio. When that ratio is below the ``designated reserve 
    ratio'' (DRR),2 the
    
    [[Page 27172]]
    
    FDIC must set assessments to increase the fund's reserve ratio to the 
    DRR. When the reserve ratio is at or above the DRR--as is now the case 
    for the BIF--the FDIC must set assessments to maintain the reserve 
    ratio at the target DRR. 12 U.S.C. 1817(b)(2)(A)(i). The FDIC may not 
    generally set assessments in excess of the amounts needed to meet these 
    goals. Id. 1817(b)(2)(A)(iii). But the FDIC may set such assessments 
    for institutions that exhibit financial, operational, or compliance 
    weaknesses or are not well capitalized. Id. 
    1817(b)(2)(A)(v).3
    ---------------------------------------------------------------------------
    
        \2\ The DRR is a target ratio that has a fixed value for each 
    year. The default value is 1.25 percent. The FDIC may set a higher 
    value under certain conditions, but has not exercised that power. 
    See 12 U.S.C. 1817(b)(2)(A)(iv).
        \3\ The FDIC has by regulation interpreted this provision to 
    embrace institutions that have an assessment risk classification 
    other than 1A. See 12 CFR 327.10.
    ---------------------------------------------------------------------------
    
        In order to determine the aggregate amount to be collected for a 
    fund, the FDIC must consider: (1) The fund's expected operating 
    expenses; (2) the fund's case resolution expenditures and income; (3) 
    the effect of assessments on the earnings and capital of fund members; 
    and (4) any other factors that the FDIC deems appropriate. Id. 
    1817(b)(2)(A)(ii).4
    ---------------------------------------------------------------------------
    
        \4\ The FDIC must base a particular institution's semiannual 
    assessment on the following factors: (1) The probability that the 
    institution will cause a loss to the fund, (2) the likely amount of 
    the loss, and (3) the fund's revenue needs. 12 U.S.C. 1817(b)(1)(C). 
    To that end, the FDIC assigns every institution to an ``assessment 
    risk classification,'' and sets rates for each of the 
    classifications. See 12 CFR 327.4 and 327.9.
    ---------------------------------------------------------------------------
    
    2. Regulatory Provisions
        The FDIC has adopted a special procedure for making limited and 
    relatively short-term adjustments to a fund's base rates in order to 
    maintain the fund's reserve ratio at the target DRR. See 12 CFR 
    327.9(c).
        Adjustments are subject to strict constraints. An adjustment must 
    apply uniformly to every rate in the base assessment schedule. No 
    adjustment may, when aggregated with prior adjustments, cause the 
    adjusted rates to deviate at any time from the base rates by more than 
    5 bp. No one adjustment may constitute an increase or decrease of more 
    than 5 bp. And no adjustment may result in a negative assessment rate. 
    Id. 327.9(c)(1).
        In line with the statutory requirements for setting assessments, an 
    adjustment is determined by (1) the amount of assessment revenue 
    necessary to maintain the fund's reserve ratio at the DRR, and (2) the 
    assessment schedule that would provide the amount so needed considering 
    the risk profile of the institutions that pay assessments to the fund. 
    Id. To determine the assessment revenue needed for a fund, the FDIC 
    considers the fund's expected operating expenses, its case resolution 
    expenditures and income, the effect of assessments on the earnings and 
    capital of the institutions paying assessments to the fund, and any 
    other relevant factors. Id. 327.9(c)(2).
    
    C. The BIF Adjusted Assessment Schedule
    
        For the reasons given below, the FDIC considers that there is no 
    current need for assessment income to maintain the BIF's reserve ratio 
    at the target DRR. Accordingly, the final rule adjusts the rates in the 
    BIF Base Assessment Schedule by lowering each rate 4 bp, effective July 
    1, 1997, thereby retaining the rates currently in effect. The adjusted 
    rates are as follows:
    
                        BIF Adjusted Assessment Schedule                    
    ------------------------------------------------------------------------
                                                    Supervisory subgroup    
                   Capital group               -----------------------------
                                                    A         B         C   
    ------------------------------------------------------------------------
    1.........................................         0         3        17
    2.........................................         3        10        24
    3.........................................        10        24        27
    ------------------------------------------------------------------------
    
        1. Maintaining the BIF Reserve Ratio at the Target DRR. As of 
    December 31, 1996 (unaudited), the latest date for which complete data 
    are available, the BIF had a balance of $26.854 billion (see Table 3) 
    and a reserve ratio of 1.34 percent. The industry's performance in 
    recent months has been strong; the growth of the BIF reserve ratio has 
    been robust. Accordingly, the near-term outlook for the BIF reserve 
    ratio is favorable.
        Expected operating expenses. Operating expenses were approximately 
    $505 million during 1996. They averaged $42 million per month for the 
    year, but increased to an average of $55 million per month during the 
    last quarter of 1996 (a full-year equivalent figure of $656 million). 
    For 1997, operating expenses are projected to be $652 million. The 
    savings from corporate downsizing is offset by a higher allocation of 
    overhead expenses to corporate, a result of fewer receiverships.
        Case resolution expenditures and income. Expected case resolution 
    expenditures and income are reflected in projected insurance losses, 
    which consist of two components: a contingent liability for future 
    failures, and an allowance for losses on institutions that have already 
    failed. Using the FDIC's current estimates of failed-bank assets and a 
    20 percent loss rate on such assets, the change in the contingent 
    liability for future failures is estimated to be between $100 million 
    (low estimate) and $300 million (high estimate) for calendar year 1997.
        While annual changes in the allowance for losses on past failures, 
    as a percent of the estimated net recovery value of closed 
    banks,5 have been as high as +13 percent and as low as -16 
    percent over the last five years, the change in 1994 was -5.75 percent 
    , +10.2 percent in 1995, and -3.0 percent in 1996. An estimated range 
    of +5 percent to -5 percent was used in the projections detailed below.
    ---------------------------------------------------------------------------
    
        \5\ The estimated recovery value of closed banks was $4.34 
    billion as of December 31, 1996.
    ---------------------------------------------------------------------------
    
        Table 1 summarizes the effect of these assumptions on projections 
    of the provision for losses:
    
    Table 1.--Changes in Contingent Liabilities and Allowance for Losses (1)
    ------------------------------------------------------------------------
                                                      Low loss    High loss 
                                                      estimate     estimate 
                                                     (million)    (million) 
    ------------------------------------------------------------------------
    Contingent Liability for Future Cases.........         $100         $300
    Allowance for Losses: Closed Banks (2)........        (200)          200
    Total Provision for Losses....................        (100)         500 
    ------------------------------------------------------------------------
    Notes:                                                                  
    (1) Both projections assume a continuation of current economic          
      conditions during 1997.                                               
    (2) Assumes a range of -5 percent to +5 percent of the estimated net    
      recovery value of closed banks ($4.34 billion as of 12/31/96).        
    
    
    [[Page 27173]]
    
        Assessment Income. Based on the distribution of the assessment base 
    across the BIF assessment rate matrix as of January 1, 1997, BIF 
    assessment income for 1997 would be $23 million under the existing 
    assessment rate schedule.
        Table 2 summarizes the distribution of institutions across the 
    risk-based assessment matrix:
    
                                     Table 2.--BIF Assessment Base Distribution (1)                                 
          [Deposits as of December 31, 1996; Supervisory Subgroup and Capital Groups in Effect January 1, 1997]     
    ----------------------------------------------------------------------------------------------------------------
                                                                  Supervisory subgroups                             
             Capital group          --------------------------------------------------------------------------------
                                           A         Percent          B         Percent          C         Percent  
    ----------------------------------------------------------------------------------------------------------------
    1. Well:                                                                                                        
        Number.....................       9,362           95.0         304            3.1          57            0.6
        Base ($billion)............       2,597.0         98.3          29.4          1.1           2.4          0.1
    2. Adequate:                                                                                                    
        Number.....................          84            0.9          17            0.2          15            0.2
        Base ($billion)............           9.7          0.4           1.2          0.1           1.2          0.1
    3. Under:                                                                                                       
        Number.....................           0            0.0           2            0.0          11            0.1
        Base ($billion)............           0.0          0.0           0.4          0.0           0.8         0.0 
    ----------------------------------------------------------------------------------------------------------------
    Estimated annual assessment revenue--$23 million                                                                
    Assessment Base--$2,642 billion                                                                                 
    Average annual assessment rate (bp)--0.09 bp                                                                    
    Notes: (1) ``Number'' reflects the number of BIF members, including BIF-member Oakar institutions; ``Base''     
      reflects all BIF-assessable deposits.                                                                         
    
        With 99.0 percent of the number of institutions and 99.8 percent of 
    the assessment base in the three lowest assessment risk classifications 
    (1A, 1B and 2A), the current distribution in the matrix reflects little 
    fundamental difference from the previous period when the percentages 
    were 98.7 percent and 99.2 percent, respectively. The slightly lower 
    number of institutions in these three categories (down 229) reflects 
    continuation of industry consolidation trends, as the overall total 
    declined by 247 institutions. There are only 102 institutions outside 
    the three lowest assessment risk classifications compared to 120 during 
    the previous period, and only 490 outside the 1A classification as 
    compared with 561 in the previous period.
        Interest Income. Income from the estimated average investment 
    portfolio of $24.5 billion is estimated at $1.485 billion for 1997 
    (6.06 percent yield). Given a range of + or -19 bp for the yield (5.87 
    percent to 6.25 percent) for 1997, based on a range for interest rate 
    changes of + or -100 bp, interest income is projected to be between 
    $1.438 billion and $1.531 billion.
        Table 3 summarizes the effects on the fund balance of the low and 
    high estimates that define the ranges assumed for interest income and 
    insurance losses:
    
                             Table 3.--Fund Balance                         
                                 [$ in millions]                            
    ------------------------------------------------------------------------
                                               Low projected  High projected
                                                 estimate        estimate   
    ------------------------------------------------------------------------
    Revenue \1\:                                                            
        Assessments \2\.....................             $23             $23
        Interest Income \3\.................           1,438           1,531
                                             -------------------------------
          Total Revenue.....................           1,461           1,554
    Expenses & Losses \1\:                                                  
        Operating Expenses..................             652             652
        Provision for Losses................             500           (100)
                                             -------------------------------
          Total Expenses & Losses...........           1,152             552
    Net Income \1\..........................             309           1,002
    Fund Balance (Unaudited)--12/31/96......          26,854          26,854
    Projected Fund Balance--12/31/97........          27,163         27,856 
    ------------------------------------------------------------------------
    Notes:                                                                  
    \1\ Figures are for the full year ending December 31, 1997.             
    \2\  Assumes that the current assessment rate schedule remains in effect
      through December 31, 1997.                                            
    \3\ Portfolio yield is estimated to be between 5.87 percent (low) and   
      6.25 percent (high), reflecting variation of + or -100 bp in interest 
      rates. The average invested fund balance is estimated to be $24.5     
      billion.                                                              
    
        Growth of insured deposits. Insured deposit growth has been 
    volatile. Since 1986, annual growth of BIF-insured deposits has been as 
    high as 7.1 percent and annual shrinkage as much as 2.1 percent:
    
    BILLING CODE 6714-01-P
    
    
    [[Page 27174]]
    
    [GRAPHIC] [TIFF OMITTED] TR19MY97.012
    
    
    
    BILLING CODE 6714-01-C
    
        The recent trend has been toward growth. Over the last two years 
    there have been only two quarters in which insured deposits have 
    shrunk, and even then the shrinkage has been slight (.01 percent and 
    .03 percent). It is difficult to determine whether this development 
    primarily reflects the incentives created by reduced BIF assessment 
    rates, including the incentive for deposit-shifting from the Savings 
    Association Insurance Fund (SAIF) to the BIF, or whether it indicates a 
    change in the pattern of BIF-insured deposit growth due to other 
    causes. With the passage of the Funds Act and the recent revision of 
    FDIC rules governing the allocation of deposit growth or shrinkage 
    between the BIF and the SAIF, both of which should inhibit deposit-
    shifting, the primary causes of recent BIF-insured deposit growth 
    should become clearer. In the interim, considering the experience of 
    the last five years taken together, the FDIC considers that BIF-insured 
    deposits are likely to experience a growth rate in the range of -2 
    percent to +5 percent between year-end 1996 and year-end 1997.
        Based on the projected BIF balance and the growth of the insured 
    deposit base, the FDIC projects the BIF reserve ratio to be within the 
    range of 1.29 to 1.42 at December 31, 1997:
    
                     Table 4.--Projected BIF Reserve Ratios                 
                                 [$ in millions]                            
    ------------------------------------------------------------------------
                                                                   December 
                                                                   31, 1996 
    ------------------------------------------------------------------------
    Fund Balance (Unaudited)...................................      $26,854
    Estimated Insured Deposits.................................   $2,007,447
    BIF Ratio..................................................         1.34
    ------------------------------------------------------------------------
    
    
    ----------------------------------------------------------------------------------------------------------------
                                                                          Low Estimate \1\--    High Estimate \2\-- 
                                                                          December 31, 1997      December 31, 1997  
                                                                                                                    
    ----------------------------------------------------------------------------------------------------------------
    Projected Fund Balance............................................           $27,163                $27,856     
    Estimated Insured Deposits........................................        $2,107,819             $1,967,298     
    Estimated BIF Ratio...............................................              1.29                  1.42      
    ----------------------------------------------------------------------------------------------------------------
    Notes:                                                                                                          
    \1\ The low estimate refers to the scenario of lower interest income (portfolio yield: 5.87 percent), higher    
      insurance losses ($500 million) and a higher insured deposit growth rate (+5 percent).                        
    \2\ The high estimate refers to the scenario of higher interest income (portfolio yield: 6.25 percent), a       
      reduction in insurance losses (-$100 million) and a shrinkage of the insured deposit base (-2 percent).       
    
        The low estimate produces a 5 bp decrease below the December 31, 
    1996, ratio. It reflects an assumed increase in the insured deposit 
    base (+5 percent for 1997) and a small offset from an increase in the 
    fund balance. (The fund balance in the low-estimate scenario increases 
    because the higher projected insurance losses still do not fully offset 
    interest income.) The high-estimate scenario produces an 8 bp increase 
    above the December 31, 1996, ratio. It reflects an assumed shrinkage of 
    the BIF-insured deposit base (-2 percent for 1997) and a strong 
    increase in the BIF balance due to low insurance losses and high 
    interest income.
        In light of recent trends and current conditions in the banking 
    industry, the FDIC considers that the low-estimate scenario is not 
    likely to be realized. Even if it were, however, the current rate 
    schedule still would be sufficient to maintain the BIF's reserve ratio 
    at the DRR through year-end 1997.
        2. Impact on Institutions' Earnings and Capital
        The estimated annual costs to BIF-assessable institutions, before 
    taxes, from the existing rate schedule is $23 million, down from the 
    $43 million estimate based on July 1, 1996, classifications. This 
    decline is largely due to the assessment base of 1A institutions 
    increasing from 96.8 percent to 98.3 percent of the total. 
    Additionally, the estimated total base increased $148.0 billion while 
    the 1A base increased $181.3 billion.
        Institutions having approximately $45 billion in deposits, out of a 
    total base of approximately $2,642.0 billion (1.7 percent), will be 
    charged a non-zero risk-based assessment. Having considered the impact 
    on these institutions' earnings and capital, the FDIC believes that the 
    BIF adjusted rates will have no unwarranted adverse effects.
        3. Assessment Schedule Needed to Generate the Revenue
        The FDIC does not presently need to collect assessment revenues 
    from 1A institutions in order to maintain the BIF reserve ratio at the 
    DRR over the short term.6 The FDIC is therefore lowering the 
    rates in the BIF Base Assessment Schedule by four bp. The adjustment 
    results in an effective assessment rate for 1A institutions of zero bp. 
    The BIF effective rates are set forth in the BIF Adjusted Assessment 
    Schedule.
    ---------------------------------------------------------------------------
    
        \6\ The assessments payable by non-1A institutions reflect the 
    amounts needed to maintain a risk-based assessment system for the 
    BIF.
    ---------------------------------------------------------------------------
    
    D. Technical Changes
    
    1. Removal of Pre-1997 SAIF Adjusted Rates
        The final rule removes provisions pertaining to pre-1997 SAIF 
    adjusted rates. These provisions are obsolete.
    
    [[Page 27175]]
    
    Removing them simplifies and clarifies the current regulation.
        During the final calendar quarter of 1996, a particular group of 
    SAIF-assessable institutions--namely, SAIF-member savings 
    associations--were subject to a special interim set of adjusted rates. 
    The interim rates expired on December 31, 1996. From the start of 1997 
    forward, all SAIF-assessable institutions have been subject to the same 
    SAIF adjusted rates. The references to the pre-1997 SAIF adjusted 
    rates--and, in particular, to the special interim rates--are no longer 
    needed.
        The final rule does not alter either the SAIF Base Assessment 
    Schedule or the SAIF Adjusted Assessment Schedule now in effect, but 
    merely republishes these schedules. The effective SAIF rates, which 
    range from zero to 27 bp, remain at the current levels.
    2. Removal of Special-Assessment Provisions
        The final rule eliminates subpart C of part 327, which is chiefly 
    concerned with the special assessment imposed by the Funds Act. The 
    FDIC has assessed and collected the special assessment. The vast 
    majority of subpart C has therefore become obsolete.
        A few provisions of Subpart C--those that pertain to institutions 
    that were exempted from the special assessment--have a continuing 
    vitality. The Funds Act requires these institutions (and their 
    successors) to pay SAIF assessments at the rates in effect on June 30, 
    1995, for three years. Funds Act section 2702(f)(4)(A). The Funds Act 
    also gives the institutions (and their successors) the power to 
    terminate that obligation by paying a pro rata share of the amount 
    otherwise due for the special assessment. Funds Act section 
    2702(f)(4)(B). The final rule retains but relocates the provisions from 
    subpart C that pertain to these matters.
    3. Definitions
        The final rule adds an introductory phrase to 12 CFR 327.8, which 
    sets forth definitions. The introductory phrase makes it clear that 
    Sec. 327.8's definitions apply throughout part 327, and not just within 
    subpart A.
        The final rule retains the provisions, heretofore found in subpart 
    C, defining ``BIF'' and ``SAIF.''
    
    E. Rulemaking Procedures; Effective Date
    
    1. The BIF Rate Adjustment
        The Board is issuing this final rule in pursuant to id. 327.9(c), 
    which enables the Board to adjust the rates in a fund's base assessment 
    schedule without engaging in notice-and-comment rulemaking proceedings 
    for each adjustment. The final rule is therefore effective immediately 
    upon adoption. The adjustment made by the final rule, and the BIF 
    adjusted rates specified in the final rule, apply during the second 
    semiannual period of 1997 (July-December, 1997) and subsequent 
    semiannual periods.
        The Board has found it necessary to establish this procedure 
    because the FDIC must set ``semiannual'' assessments, see 12 U.S.C. 
    1817(b)(2)(A), and therefore reviews the assessment schedule for each 
    insurance fund every six months. Moreover, the FDIC ``shall set 
    assessments when necessary, and only to the extent necessary'' to 
    maintain an insurance fund's reserve ratio at the DRR, or to raise an 
    insurance fund's reserve ratio to that level, id. 1817(b)(2)(A)(i); 
    conversely, the FDIC ``shall not set assessment rates in excess of the 
    amount needed'' for those purposes, id. 1817(b)(2)(A)(iii). These twin 
    commands require the FDIC to respond quickly in order to keep each 
    fund's assessments commensurate with its level of capitalization.
        As discussed in more detail in the Federal Register of December 24, 
    1996, in which the FDIC established the current procedure for adjusting 
    the base rates, and also in the Federal Register of August 16, 1995, in 
    which the FDIC adopted its prior procedure for adjusting the BIF base 
    rates temporarily by means of a Board resolution, the FDIC recognizes 
    and understands the concern for the possibility of assessment rate 
    increases without the benefit of full notice-and-comment rulemaking. 
    See 61 FR 67687, 67693-67694 (Dec. 24, 1996); see also 60 FR 42680, 
    42739-42740 (Aug. 16, 1995). Nevertheless, for the reasons given below, 
    the FDIC considers that notice and public participation with respect to 
    the adjustment made by this final rule would generally be 
    ``impracticable, unnecessary, or contrary to the public interest'' 
    within the meaning of 5 U.S.C. 553(b). For the same reasons, the FDIC 
    considers that it has ``good cause'' within the meaning of id. 553(d) 
    to make the final rule effective immediately, and not after a 30-day 
    delay.
        Notice-and-comment rulemaking procedures are ``unnecessary'' in 
    this case because BIF-assessable institutions are already on notice 
    with respect to: (1) The benchmark rates that are set forth in the BIF 
    Base Assessment Schedule; (2) the need for making routine semiannual 
    adjustments to those rates; and (3) the maximum amount of the 
    adjustment. In short, institutions are fully aware that the effective 
    rates are subject to some limited amount of variability, and that any 
    variations in the rates are directly tied to the capitalization of the 
    BIF.
        Notice-and-comment rulemaking procedures are also ``unnecessary'' 
    because they would not provide additional relevant information. 
    Institutions provide part of the needed information in their quarterly 
    reports of condition. The FDIC generates the rest of the information 
    internally: e.g., the current balance and expected operating expenses 
    of the BIF, and the BIF's case resolution expenditures and income.
        Notice-and-comment rulemaking procedures are ``impracticable'' and 
    ``contrary to the public interest'' in this case because they are not 
    compatible with the need to satisfy two competing interests. On one 
    hand, the FDIC must comply with the statutory directive to maintain the 
    BIF's reserve ratio at the target DRR. The FDIC must monitor the BIF 
    closely, and must use data that are as current as possible to set BIF 
    assessments on a semiannual basis. On the other hand, the FDIC must 
    give institutions adequate notice of those assessments. In the current 
    case, the assessment is due on June 30. See 12 CFR 327.3(c)(2). The 
    FDIC must issue invoices by May 31. See id. 327.3(d)(1). The FDIC must 
    announce the rates--and therefore must adopt the final rule--by May 16. 
    See id. 327.9(c)(4). Notice-and-comment procedures entail delays that 
    are incompatible with these tight scheduling requirements.
    2. Other Changes
        The other changes made by the final rule are ``housekeeping'' 
    measures of a purely interpretative nature. Neither prior notice and 
    comment, nor a delayed effective date, are required for such rules. 5 
    U.S.C. 553(b) and (d).
    
    II. Paperwork Reduction Act
    
        No collections of information pursuant to section 3504(h) of the 
    Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.) are contained 
    in this rule. Accordingly, no information has been submitted to the 
    Office of Management and Budget for review.
    
    III. Regulatory Flexibility Analysis
    
        The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., does 
    not apply to this rule. The RFA defines ``rule'' to exclude ``a rule of 
    particular applicability relating to rates''. Id. 601(2). The FDIC 
    considers that the rule is governed by this exclusion.
        In addition, the legislative history of the RFA indicates that its 
    requirements are inappropriate to this proceeding.
    
    [[Page 27176]]
    
    The RFA focuses on the ``impact'' that a rule will have on small 
    entities. The legislative history shows that the ``impact'' at issue is 
    a differential impact--that is, an impact that places a 
    disproportionate burden on small businesses:
    
        Uniform regulations applicable to all entities without regard to 
    size or capability of compliance have often had a disproportionate 
    adverse effect on small concerns. The bill, therefore, is designed 
    to encourage agencies to tailor their rules to the size and nature 
    of those to be regulated whenever this is consistent with the 
    underlying statute authorizing the rule. 126 Cong. Rec. 21453 (1980) 
    (``Description of Major Issues and Section-by-Section Analysis of 
    Substitute for S. 299'').
    
        The final rule does not impose a uniform cost or requirement on all 
    institutions regardless of size. Rather, it imposes an assessment that 
    is directly proportional to each institution's size. Nor does the rule 
    cause an affected institution to incur any ancillary costs of 
    compliance (such as the need to develop new recordkeeping or reporting 
    systems, to seek out the expertise of specialized accountants, lawyers, 
    or managers) that might cause disproportionate harm to small entities. 
    As a result, the purposes and objectives of the RFA are not affected, 
    and an initial regulatory flexibility analysis is not required.
    
    IV. Riegle Community Development and Regulatory Improvement Act
    
        Section 302(b) of the Riegle Community Development and Regulatory 
    Improvement Act of 1994 (Riegle Act) requires that, as a general rule, 
    new and amended regulations that impose additional reporting, 
    disclosure, or other new requirements on insured depository 
    institutions shall take effect on the first day of a calendar quarter. 
    See 12 U.S.C. 4802(b). This restriction is inapplicable because the 
    final rule would not impose such additional or new requirements. 
    Nevertheless, the changes made by the final rule apply beginning July 
    1, 1997, in line with the Riegle Act's specification.
    
    V. Congressional Review
    
        As a general matter, when an agency adopts a final rule, the agency 
    must submit to each House of Congress and to the Comptroller General a 
    report containing a copy of the rule, a general statement relating to 
    the rule, and the rule's proposed effective date. 5 U.S.C. 801(a)(1). 
    But the term ``rule'' excludes ``any rule of particular applicability, 
    including a rule that approves or prescribes for the future rates''. 
    Id. 804(3). The final rule is governed by this exclusion, because the 
    final rule sets assessment rates and relates to the computations 
    associated with assessment rates. Accordingly, the reporting 
    requirement of id. 801(a)(1), and the more general requirements of id. 
    sections 801-808, do not apply.
    
    List of Subjects in 12 CFR Part 327
    
        Assessments, Bank deposit insurance, Banks, banking, Financing 
    Corporation, Savings associations.
    
        For the reasons set forth in the preamble, the Board of Directors 
    of the Federal Deposit Insurance Corporation is amending part 327 of 
    title 12 of the Code of Federal Regulations as follows:
    
    PART 327--ASSESSMENTS
    
        1. The authority citation for part 327 continues to read as 
    follows:
    
        Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L. 
    104-208, 110 Stat. 3009-479 (12 U.S.C. 1821).
    
        2. Section 327.8 is amended by adding introductory text and by 
    revising paragraphs (f) and (g) to read as follows:
    
    
    Sec. 327.8  Definitions.
    
        For the purpose of this part 327:
    * * * * *
        (f) BIF; BIF member. (1) BIF. The term BIF means the Bank Insurance 
    Fund.
        (2) BIF member. The term BIF member means a depository institution 
    that is a member of the BIF.
        (g) SAIF; SAIF member. (1) SAIF. The term SAIF means the Savings 
    Association Insurance Fund.
        (2) SAIF member. The term SAIF member means a depository 
    institution that is a member of the SAIF.
    * * * * *
        3. Section 327.9 is amended by revising paragraph (b) to read as 
    follows:
    
    
    Sec. 327.9  Assessment schedules.
    
    * * * * *
        (b) Adjusted assessment schedules--(1) In general. Except as 
    provided in paragraph (b)(3)(ii) of this section, institutions shall 
    pay semiannual assessments at the rates specified in this paragraph (b) 
    whenever such rates have been prescribed by the Board.
        (2) Adjusted rates for BIF members. The Board has adjusted the BIF 
    Base Assessment Schedule by reducing each rate therein by 4 basis 
    points for the first semiannual period of 1997 and thereafter. 
    Accordingly, the following adjusted assessment schedule applies to BIF 
    members:
    
                        BIF Adjusted Assessment Schedule                    
    ------------------------------------------------------------------------
                                                    Supervisory subgroup    
                   Capital group               -----------------------------
                                                    A         B         C   
    ------------------------------------------------------------------------
    1.........................................         0         3        17
    2.........................................         3        10        24
    3.........................................        10        24        27
    ------------------------------------------------------------------------
    
        (3) Adjusted rates for SAIF members--(i) In general. The Board has 
    adjusted the SAIF Base Assessment Schedule by reducing each rate 
    therein by 4 basis points for the first semiannual period of 1997 and 
    thereafter. Accordingly, except as provided in paragraph (b)(3)(ii) of 
    this section, the following adjusted assessment schedule applies to 
    SAIF members:
    
                        SAIF Adjusted Assessment Schedule                   
    ------------------------------------------------------------------------
                                                    Supervisory subgroup    
                   Capital group               -----------------------------
                                                    A         B         C   
    ------------------------------------------------------------------------
    1.........................................         0         3        17
    2.........................................         3        10        24
    
    [[Page 27177]]
    
                                                                            
    3.........................................        10        24        27
    ------------------------------------------------------------------------
    
        (ii) Institutions exempt from the special assessment--(A) Rate 
    schedule. An institution that, pursuant to former Sec. 327.43 (a) or 
    (b) as in effect on November 27, 1996 (See 12 CFR 327.43 as revised 
    January 1, 1997.), was exempt from the special assessment prescribed by 
    12 U.S.C. 1817 Note shall pay regular semiannual assessments to the 
    SAIF from the first semiannual period of 1996 through the second 
    semiannual period of 1999 according to the schedule of rates specified 
    in former Sec. 327.9(d)(1) as in effect for SAIF members on June 30, 
    1995 (See 12 CFR 327.9 as revised January 1, 1996.), as follows:
    
    ------------------------------------------------------------------------
                                                    Supervisory subgroup    
                   Capital group               -----------------------------
                                                    A         B         C   
    ------------------------------------------------------------------------
    1.........................................        23        26        29
    2.........................................        26        29        30
    3.........................................        29        30        31
    ------------------------------------------------------------------------
    
        (B) Termination of special rate schedule. An institution that makes 
    a pro-rata payment of the special assessment shall cease to be subject 
    to paragraph (b)(3)(ii)(A) of this section. The pro-rata payment must 
    be equal to the following product: 16.7 percent of the amount the 
    institution would have owed for the special assessment, multiplied by 
    the number of full semiannual periods remaining between the date of the 
    payment and December 31, 1999.
    * * * * *
    
    Subpart C--[Removed]
    
        4. Subpart C is removed.
    
        By order of the Board of Directors.
    
        Dated at Washington, DC, this 6th day of May 1997.
    
    Federal Deposit Insurance Corporation.
    Robert E. Feldman,
    Deputy Executive Secretary.
    [FR Doc. 97-12587 Filed 5-16-97; 8:45 am]
    BILLING CODE 6714-01-P
    
    
    

Document Information

Effective Date:
5/6/1997
Published:
05/19/1997
Department:
Federal Deposit Insurance Corporation
Entry Type:
Rule
Action:
Final rule.
Document Number:
97-12587
Dates:
Effective May 6, 1997.
Pages:
27171-27177 (7 pages)
RINs:
3064-AB59
PDF File:
97-12587.pdf
CFR: (3)
12 CFR 327.8's
12 CFR 327.8
12 CFR 327.9