Assessment Dividends, 61385-61391 [E6-17304]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 71, Number 201 (Wednesday, October 18, 2006)]
[Rules and Regulations]
[Pages 61385-61391]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-17304]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD07


Assessment Dividends

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule to implement the dividend 
requirements of the Federal Deposit Insurance Reform Act of 2005 
(Reform Act) and the Federal Deposit Insurance Reform Conforming 
Amendments Act of 2005 (Amendments Act) for an initial two-year period. 
The final rule will take effect on January 1, 2007, and sunset on 
December 31, 2008. During this period the FDIC expects to initiate a 
second, more comprehensive notice-and-comment rulemaking on dividends 
beginning with an advanced notice of proposed rulemaking to explore 
alternative methods for distributing future dividends after this 
initial two-year period.

EFFECTIVE DATE: January 1, 2007.

FOR FURTHER INFORMATION CONTACT: Munsell W. St.Clair, Senior Policy 
Analyst, Division of Insurance and Research, (202) 898-8967; Donna M. 
Saulnier, Senior Assessment Policy Specialist, Division of Finance, 
(703) 562-6167; or Joseph A. DiNuzzo, Counsel, Legal Division, (202) 
898-7349.

SUPPLEMENTARY INFORMATION:

I. Background

    In May of this year, the FDIC published a proposed rule (the 
proposed rule) to implement the dividend requirements of the Reform 
Act. 71 FR 28804 (May 18, 2006). The Reform Act requires the FDIC to 
prescribe final regulations, within 270 days of enactment, to implement 
the assessment dividend requirements, including regulations governing 
the method for the calculation, declaration, and payment of dividends 
and administrative appeals of individual dividend amounts. See sections 
2107(a) and 2109(a)(3) of the Reform Act.\1\
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    \1\ The Reform Act was included as Title II, Subtitle B, of the 
Deficit Reduction Act of 2005, Public Law 109-171, 120 Stat. 9, 
which was signed into law by the President on February 8, 2006. 
Section 2109 of the Reform Act also requires the FDIC to prescribe, 
within 270 days, rules on the designated reserve ratio, changes to 
deposit insurance coverage, the one-time assessment credit, and 
assessments. The final rule on deposit insurance coverage was 
published on September 12, 2006, 71 FR 53547. The final rule on the 
one-time assessment credit is being published on the same day as 
this final rule. Final rules on the remaining matters are expected 
to be published in the near future.
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    Section 7(e)(2) of the Federal Deposit Insurance Act (FDI Act), as 
amended by the Reform Act, requires that the FDIC, under most 
circumstances, declare dividends from the Deposit Insurance Fund (DIF 
or fund) when the reserve ratio at the end of a calendar year exceeds 
1.35 percent, but is no greater than 1.5 percent. In that event, the 
FDIC must generally declare one-half of the amount in the DIF in excess 
of the amount required to maintain the reserve ratio at 1.35 percent as 
dividends to be paid to insured depository institutions. However, the 
FDIC's Board of Directors (Board) may suspend or limit dividends to be 
paid, if the Board determines in writing, after taking a number of 
statutory factors into account, that:
    1. The DIF faces a significant risk of losses over the next year; 
and
    2. It is likely that such losses will be sufficiently high as to 
justify a finding by the Board that the reserve ratio should 
temporarily be allowed to grow without requiring dividends when the 
reserve ratio is between 1.35 and 1.5 percent or exceeds 1.5 
percent.\2\
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    \2\ This provision would allow the FDIC's Board to suspend or 
limit dividends in circumstances where the reserve ratio has 
exceeded 1.5 percent, if the Board made a determination to continue 
a suspension or limitation that it had imposed initially when the 
reserve ratio was between 1.35 and 1.5 percent.
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    In addition, the statute requires that the FDIC, absent certain 
limited circumstances (discussed in footnote 2), declare a dividend 
from the DIF when the reserve ratio at the end of a calendar

[[Page 61386]]

year exceeds 1.5 percent. In that event, the FDIC must declare the 
amount in the DIF in excess of the amount required to maintain the 
reserve ratio at 1.5 percent as dividends to be paid to insured 
depository institutions.
    If the Board decides to suspend or limit dividends, it must submit, 
within 270 days of making the determination, a report to the Committee 
on Banking, Housing, and Urban Affairs of the Senate and to the 
Committee on Financial Services of the House of Representatives. The 
report must include a detailed explanation for the determination and a 
discussion of the factors required to be considered.\3\
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    \3\ See section 5 of the Amendments Act. Public Law 109-173, 119 
Stat. 3601, which was signed into law by the President on February 
15, 2006.
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    The FDI Act directs the FDIC to consider each insured depository 
institution's relative contribution to the DIF (or any predecessor 
deposit insurance fund) when calculating such institution's share of 
any dividend. More specifically, when allocating dividends, the Board 
must consider:
    1. The ratio of the assessment base of an insured depository 
institution (including any predecessor) on December 31, 1996, to the 
assessment base of all eligible insured depository institutions on that 
date;
    2. The total amount of assessments paid on or after January 1, 
1997, by an insured depository institution (including any predecessor) 
to the DIF (and any predecessor fund); \4\
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    \4\ This factor is limited to deposit insurance assessments paid 
to the DIF (or previously to the Bank Insurance Fund (BIF) or the 
Savings Association Insurance Fund (SAIF)) and does not include 
assessments paid to the Financing Corporation (FICO) used to pay 
interest on outstanding FICO bonds, although the FDIC collects those 
assessments on behalf of FICO. Beginning in 1997, the FDIC collected 
separate FICO assessments from both SAIF and BIF members.
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    3. That portion of assessments paid by an insured depository 
institution (including any predecessor) that reflects higher levels of 
risk assumed by the institution; and
    4. Such other factors as the Board deems appropriate.
    The statute does not define the term ``predecessor'' for purposes 
of the distribution of dividends to insured depository institutions. 
Predecessor deposit insurance funds are the BIF and the SAIF, as those 
were the deposit insurance funds in existence after 1996 and prior to 
enactment of the Reform Act, and which merged into the DIF. That merger 
was effective on March 31, 2006.
    The statute expressly requires the FDIC to prescribe by regulation 
the method for calculating, declaring, and paying dividends. As with 
the one-time assessment credit, the dividend regulation must include 
provisions allowing a bank or thrift a reasonable opportunity to 
challenge administratively the amount of dividends it is awarded. Any 
review by the FDIC pursuant to these administrative procedures is final 
and not subject to judicial review.

II. The Proposed Rule

    In May, the FDIC proposed a temporary rule for dividends that would 
sunset after two years, which would allow the FDIC to undertake a more 
comprehensive rulemaking that would not be subject to the 270-day 
deadline. The proposed rule: Described a process for the Board's annual 
determination of whether a declaration of a dividend is required and 
consideration, to the extent appropriate, of whether circumstances 
indicate that a dividend should be limited or suspended; set forth the 
procedures for calculating the aggregate amount of any dividend, 
allocating that aggregate amount among insured depository institutions 
considering the statutory factors provided, and paying such dividends 
to individual insured depository institutions; and provided insured 
depository institutions with a reasonable opportunity to challenge the 
amount of their dividends.
    The FDIC proposed that the Board announce its determination 
regarding dividends by May 15th of each year, which would allow for the 
Board's consideration of the dividend determination using complete data 
for the reserve ratio for the preceding December 31st. Absent a Board 
determination that dividends should be limited or foregone, the 
aggregate amount of a dividend would be calculated as set forth in the 
statute.\5\
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    \5\ In most circumstances, if the reserve ratio exceeds 1.5 
percent, the FDIC would declare a dividend of the amount in excess 
of the amount required to maintain the reserve ratio at 1.5 percent, 
as determined by the FDIC. At the same time, the FDIC would 
generally expect to declare a dividend of one-half of the amount 
necessary to maintain the reserve ratio at 1.35 percent, unless the 
Board makes a determination that suspension or limitation of that 
dividend is justified under section 7(e)(2)(E) of the FDI Act. That 
might happen, for example, if based on its consideration of the 
various statutory factors, the Board determines that it is 
appropriate, in light of foreseen risks cited in the statute, for 
the reserve ratio to rise to 1.5 percent and set assessments to 
maintain the reserve ratio at that level. Sections 2104(a) and 
2105(a) of the Reform Act (to be codified at 12 U.S.C. 1817(b)(2) 
and (3), respectively).
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    With respect to allocation of the aggregate dividend amount, the 
FDIC proposed adopting initially a simple system that would remain in 
place for two years with a definite sunset date (December 31, 2008). 
During the two-year lifespan of the initial dividend regulations, the 
FDIC plans to undertake another rulemaking, beginning with the issuance 
of an advance notice of proposed rulemaking, seeking industry comment 
on more comprehensive alternatives for allocating future dividends.
    Specifically, after considering and weighing all the statutory 
factors, including other factors the Board deemed appropriate, the FDIC 
proposed that, during the life of this rule, any dividends be awarded 
simply in proportion to an institution's 1996 assessment base ratio 
(including any predecessors' 1996 ratios). This factor essentially 
parallels the basis for distribution of the one-time assessment credit, 
and institutions' 1996 assessment base ratios will have been determined 
under the final rule for the one-time assessment credit. The ratio will 
continue in effect for dividend purposes, subject to subsequent 
adjustments for transactions that result in the combination of insured 
depository institutions, thereby recognizing ``predecessor'' 
institutions as time goes by.
    As noted above, the statute also requires that the FDIC consider 
other factors in allocating dividends--the total amount of assessments 
paid after 1996; the portion of those assessments paid that reflects 
higher levels of risk; and other factors that the Board may deem 
appropriate. Because no institution while in the lowest risk category 
(sometimes referred to as ``the 1A category'') has paid any deposit 
insurance assessments since the end of 1996, all assessments paid since 
then have reflected higher levels of risk. Moreover, within the 
proposed initial two-year period, any assessments that institutions pay 
that do not reflect higher levels of risk are likely to be small in 
comparison to the assessments that institutions paid over time to 
capitalize the deposit insurance funds, for which the 1996 assessment 
base is intended to act as a proxy. As a result, the FDIC proposed that 
payments since 1996 should not be included in the proposed temporary 
allocation method.\6\
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    \6\ It is in large part because post-2006 payments may become 
material over time that the FDIC proposed adoption of a transitional 
rule, with the expectation that in 2007 the process of developing a 
more comprehensive long-term rule will begin.
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    In the FDIC's view, other factors supported an initially simple 
allocation based upon institutions' 1996 ratio. As a practical matter, 
it appears quite unlikely that the reserve ratio of the DIF

[[Page 61387]]

will equal or exceed 1.35 percent in the near future.
    The FDI Act does not define the term ``predecessor'' for purposes 
of the distribution of dividends to individual insured depository 
institutions. In addition, unlike the term ``successor'' used in the 
context of the one-time assessment credit, the FDI Act does not 
expressly charge the FDIC with defining ``predecessor.'' Nonetheless, 
in order to implement the dividend requirements, the FDIC must define 
``predecessor'' for these purposes when it is used in connection with 
an insured depository institution and the distribution of dividends.
    The FDIC proposed a definition of ``predecessor'' that is 
consistent with general principles of corporate law and the proposed 
definition of ``successor'' in the one-time assessment credit proposed 
rulemaking. Therefore, a ``predecessor'' would be defined as an 
institution that combined with another institution through merger or 
consolidation and did not survive as an entity.
    The FDIC proposed that the FDIC advise each institution of its 
dividend amount as soon as practicable after the Board's declaration of 
a dividend on or before May 15th. Depending on circumstances, 
notification would take place through a special notice of dividend or, 
at the latest, with the institution's next assessment invoice. To allow 
time for requests for review of dividend amounts, the FDIC proposed 
that the individual dividend amounts be paid to insured depository 
institutions at the time of the assessment collection for the second 
calendar quarter beginning after the declaration of the dividend and 
offset each institution's assessment amount. Under the proposed rule, 
the settlement would be handled through the Automated Clearing House 
consistent with existing procedures for underpayment or overpayment of 
assessments. Thus, in the event that the institution owes assessments 
in excess of the dividend amount, there would be a net debit (resulting 
in payment to the FDIC). Conversely, if the FDIC owes an additional 
dividend amount in excess of the assessment to the institution, there 
would be a net credit (resulting in payment from the FDIC).
    As it does for the regulations governing the one-time assessment 
credit, the FDI Act requires the FDIC to include in its dividend 
regulations provisions allowing an insured depository institution a 
reasonable opportunity to challenge administratively the amount of its 
dividend. The FDIC's determination under such procedures is to be final 
and not subject to judicial review.
    The proposed rule largely paralleled the procedures for requesting 
revision of computation of a quarterly assessment payment as shown on 
the quarterly invoice. Requests for review of dividend amounts would be 
considered by the Director of the Division of Finance, and appeals of 
those decisions would be made to the FDIC's Assessment Appeals 
Committee. As with the one-time credit notice of proposed rulemaking, 
the FDIC proposed shorter timeframes in the dividend appeals process so 
that requests for review could be resolved by the time payment of 
dividends is due, to the extent possible. The FDIC further proposed to 
freeze temporarily the distribution of the dividend amount in dispute 
for the institutions involved in a request for review or appeal until 
the request for review or appeal is resolved. If an institution 
prevails on its request for review or appeal, then any additional 
amount of dividend would be remitted to the institution, with interest 
for the period of time between the payment of dividends that were not 
in dispute and the resolution of the dispute.
    The comment period for this proposed rule was extended to August 
16, 2006, to allow all interested parties to consider the proposed rule 
while proposed rules on the designated reserve ratio and risk-based 
assessments were pending.

III. Comments on the Proposed Rule

    We received ten comment letters, six from insured depository 
institutions, one from a coalition of seven institutions, and three 
from banking industry trade associations. Commenters focused on the 
proposed temporary allocation method, the definition of 
``predecessor,'' and the timing for dividend declaration and payment. 
Three institutions and three trade groups supported the proposed 
temporary allocation method for dividends during the life of the rule; 
whereas, four letters from institutions opposed it, instead supporting 
an allocation method that immediately takes into account payments made 
under the new assessments system. One trade association recommended 
that, if a dividend becomes likely in the next two years, the FDIC 
accelerate the adoption of the planned, more comprehensive rule.
    Three institutions and one trade association supported the proposed 
definition of predecessor, which relied on whether the resulting 
institution acquired another institution through merger or 
consolidation. One trade association favored a ``follow-the-deposits'' 
approach to the definition. A number of commenters indicated that the 
definition of ``predecessor'' essentially should parallel the 
definition of ``successor'' for purposes of the one-time assessment 
credit rule.
    One institution suggested that the declaration of dividends could 
be moved earlier to March 31st. A trade association commented that the 
FDIC should provide for the payment of dividends prior to the time of 
the assessment collection for the second calendar quarter beginning 
after the declaration of the dividend. It further commented that 
requests for review should not delay the payment of dividends.
    All of the comment letters have been considered and are available 
on the FDIC's Web site, https://www.fdic.gov/regulations/laws/federal/
propose.html.

IV. The Final Rule

    Upon considering the comments, the FDIC has adopted a final rule 
similar to the proposed rule with changes to the provisions for the 
payment of dividends, the definition of predecessor and the time period 
for appealing an FDIC decision on a request to review a dividend 
determination, as well as minor technical changes. Consistent with the 
proposal, this rule is temporary; it will take effect on January 1, 
2007, and will sunset on December 31, 2008.
    As proposed, the FDIC will determine annually whether the reserve 
ratio at the end of the prior year equals or exceeds 1.35 percent of 
estimated insured deposits or exceeds 1.5 percent, thereby triggering a 
dividend requirement. At the same time, if a dividend is triggered, the 
FDIC will determine whether it should limit or suspend the payment of 
dividends based on the statutory factors. Any determination to limit or 
suspend dividends would be reviewed annually and would have to be 
justified to renew or make a new determination to limit or suspend 
dividends. Each decision to limit or suspend dividends must be reported 
to Congress. Any declaration with respect to dividends will be made on 
or before May 15th for the preceding calendar year. This timing allows 
for the Board's consideration of final data for the end of the 
preceding year regarding the reserve ratio of the DIF, as well as 
analysis of what amount is necessary to maintain the fund at the 
required level and whether circumstances warrant limiting or suspending 
the payment of dividends.
    If the FDIC does not limit or suspend the payment of dividends or 
does not renew such a determination, then the

[[Page 61388]]

aggregate amount of the dividend will be determined as provided by the 
statute. When the reserve ratio equals or exceeds 1.35 percent, then 
the FDIC generally is required to declare the amount that is equal to 
one-half the amount in excess of the amount required to maintain the 
reserve ratio at 1.35 as the aggregate amount of dividends to be paid 
to the insured depository institutions. When the reserve ratio exceeds 
1.5 percent, the FDIC generally is required to declare the amount in 
the DIF in excess of the amount required to maintain the reserve ratio 
at 1.5 percent as dividends to be paid to institutions.
    Consistent with the proposal, the FDIC is adopting a simple system 
for allocating any dividends that might be declared during this two-
year period. Any dividends awarded before January 1, 2009, will be 
distributed simply in proportion to an institution's 1996 assessment 
base ratio, as determined pursuant to the one-time assessment credit 
rule. (See 12 CFR part 327, subpart B.) By cross referencing the 
determination under the credit rule, the FDIC will be able to recognize 
subsequent changes to an institutions 1996 ratio due to acquisitions by 
merger or consolidation with another eligible insured depository 
institution or transfers.
    Four commenters suggest that this approach does not consider all 
the statutory factors. The FDIC disagrees. As reflected in the proposed 
rule, the FDIC considered all the statutory factors for distribution, 
including payments made since year-end 1996. Because of statutory 
constraints, deposit insurance assessment payments since that date 
reflect higher levels of risk. In addition, payments to be made under 
the new risk-based assessments system during the limited life of this 
rule are likely to be small when compared to the payments made by the 
industry before 1997. Also, the FDIC does not believe that it is likely 
that the reserve ratio of the DIF will trigger a dividend over the next 
two years. However, the FDIC expects to consider again all payments 
made, including payments under the new system from its inception, as 
part of the more comprehensive rulemaking to be undertaken next year.
    As indicated by the comments, another significant issue for this 
rulemaking was the definition of ``predecessor.'' The FDIC is adopting 
a definition of ``predecessor'' that simply cross references the 
definition of ``successor'' for purposes of the one-time assessment 
credit rule. In effect, a predecessor is the mirror image of successor. 
As noted above, a number of commenters agreed that the definitions of 
``predecessor'' and ``successor'' raise the same issues and should be 
parallel. The FDIC is simultaneously issuing a final rule on one-time 
credits. An analysis of the ``successor'' issue is contained in that 
final rule. Notably, the definition of successor in the one-time credit 
final rule expressly includes a de facto rule, defined as any 
transaction in which an insured depository institution assumes 
substantially all of the deposit liabilities and acquires substantially 
all of the assets of any other insured depository institution.
    As proposed, the FDIC would advise each institution of its dividend 
amount as soon as practicable after the Board's declaration of a 
dividend on or before May 15th. That is the earliest practical time for 
the declaration of dividends given the data availability and the 
statutory analysis required. We agree, however, that earlier payment of 
dividends than in the proposed rule should be workable. To allow time 
for requests for review of dividend amounts, the FDIC had proposed that 
the individual dividend amounts be paid to institutions at the time of 
the assessment collection for the second calendar quarter beginning 
after the declaration of the dividend. In contrast, under the final 
rule, the individual dividend amounts generally will be paid to 
institutions no later than 45 days after the issuance of the special 
notice, which will allow the FDIC to freeze payment of an individual 
institution's dividend amount, if that amount is in dispute.
    Depending on the timing of the Board's declaration, which could 
occur prior to May 15th, and the expiration of the 30-day period for 
requesting review, it is possible that dividends could be paid at the 
same time as the collection of the quarterly assessment and would 
offset those payments. Dividends will be paid through the Automated 
Clearing House (ACH). Although it is expected in most instances that 
dividends will be paid after the first quarter assessment payment, if 
they are paid at the time of assessment payments, offsets will be made. 
If the institution owes assessments in excess of the dividend amount, 
there will be a net debit (resulting in payment to the FDIC). 
Conversely, if the FDIC owes an additional dividend amount in excess of 
the assessment to the institution, there will be a net credit 
(resulting in payment from the FDIC). The FDIC will notify institutions 
whether dividends will offset the next assessment payments with the 
next invoice.
    Under the final rule, the FDIC shall freeze the payment of the 
disputed portion of dividend amounts involved in requests for review. 
In the absence of such action, institutions will receive the amount 
indicated on the notice. Any adjustment to an individual institution's 
dividend amount resulting from its request for review will be handled 
through ACH in the same manner as existing procedures for underpayment 
or overpayment of assessments.
    As set forth in the proposed rule, an institution may request 
review of its dividend amount by submitting documentation sufficient to 
support the change sought to the Division of Finance within 30 days 
from the date of the notice or invoice advising each institution of its 
dividend amount. Review may be requested if (1) an institution 
disagrees with the computation of the dividend as stated on the 
invoice, or (2) it believes that the notice or invoice does not fully 
or accurately reflect appropriate adjustments to the institution's 1996 
assessment base ratio, such as for the acquisition of another 
institution through merger. If an institution does not submit a timely 
request for review, it will be barred from subsequently requesting 
review of that dividend amount.
    At the time of the request for review, the requesting institution 
also must notify all other institutions of which it knew or had reason 
to believe would be directly and materially affected by granting the 
request for review and provide those institutions with copies of the 
request for review, supporting documentation, and the FDIC's procedures 
for these requests for review.
    In addition, the FDIC will make reasonable efforts, based on its 
official systems of records, to determine that such institutions have 
been identified and notified. These institutions will then have 30 days 
to submit a response and any supporting documentation to the FDIC's 
Division of Finance, copying the institution making the original 
request for review. If an institution was identified and notified 
through this process and does not submit a timely response, that 
institution will be foreclosed from subsequently disputing the 
information submitted by any other institution on the transaction(s) at 
issue in the review process.
    The FDIC may request additional information as part of its review, 
and the institution from which such information is requested will be 
required to supply that information within 21 days of the date of the 
FDIC's request.
    The final rule requires a written response from the FDIC's Director 
of the Division of Finance (Director), or his or her designee, which 
notifies the

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requesting institution and any materially affected institutions of the 
determination of the Director as to whether the requested change is 
warranted, whenever feasible: (1) Within 60 days of receipt by the FDIC 
of the request for revision; (2) if additional institutions are 
notified by the requesting institution or the FDIC, within 60 days of 
the date of the last response to the notification; or (3) if the FDIC 
has requested additional information, within 60 days of its receipt of 
the additional information, whichever is latest.
    If a requesting institution disagrees with the determination of the 
Director, that institution may appeal its dividend determination to the 
FDIC's Assessments Appeals Committee (AAC). The final rule extends the 
time for filing an appeal; an appeal to the AAC must be filed within 30 
calendar days of the date of the Director's written determination. 
Notice of the procedures applicable to appeals of the Director's 
determination to the AAC will be included with the written response. 
The AAC's determination is final and not subject to judicial review.

V. Regulatory Analysis and Procedure

Regulatory Flexibility Act

    Under section 605(b) of the Regulatory Flexibility Act (RFA), 5 
U.S.C. 605(b), the FDIC certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities, 
within the meaning of those terms as used in the RFA. The final rule 
implementing the dividend requirements of the Reform Act relies on 
information already collected and maintained by the FDIC in the regular 
course of business. The rule imposes no new reporting, recordkeeping, 
or other compliance requirements. For the two-year duration of this 
rule, it also appears unlikely that a dividend would be required. 
Accordingly, the RFA's requirements relating to an initial and final 
regulatory flexibility analysis are not applicable. No comments on the 
RFA were received.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1), the FDIC reviewed the final rule. 
No collections of information pursuant to the Paperwork Reduction Act 
are contained in the final rule.

Plain Language

    Section 722 of the Gramm-Leach-Bliley 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. No commenters suggested that the proposed rule was 
unclear, and the final rule is substantively similar to the proposed 
rule.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
wellbeing 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).

Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the Government 
Accountability Office so that the final rule may be reviewed.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, Banking, Savings associations.

12 CFR Chapter III

Authority and Issuance

0
For the reasons set forth in the preamble, chapter III of title 12 of 
the Code of Federal Regulations is amended as follows:

PART 327--ASSESSMENTS

0
1. Add subpart C, consisting of Sec. Sec.  327.50 through 327.55, to 
read as follows:

Subpart C--Implementation of Dividend Requirements

Sec.
327.50 Purpose and scope.
327.51 Definitions.
327.52 Annual dividend determination.
327.53 Allocation and payment of dividends.
327.54 Requests for review of dividend amount.
327.55 Sunset date.

    Authority: 12 U.S.C. 1817(e)(2), (4).


Sec.  327.50  Purpose and scope.

    (a) Scope. This subpart C of part 327 implements the dividend 
provisions of section 7(e)(2) of the Federal Deposit Insurance Act, 12 
U.S.C. 1817(e)(2), and applies to insured depository institutions.
    (b) Purpose. This subpart C of part 327 sets forth the rules for:
    (1) The FDIC's annual determination of whether to declare a 
dividend and the aggregate amount of any dividend;
    (2) The FDIC's determination of the amount of each insured 
depository institution's share of any declared dividend;
    (3) The time and manner for the FDIC's payments of dividends; and
    (4) An institution's appeal of the FDIC's determination of its 
dividend amount.


Sec.  327.51  Definitions.

    For purposes of this subpart:
    (a) Board has the same meaning as under subpart B of this part.
    (b) DIF means the Deposit Insurance Fund.
    (c) An insured depository institution's 1996 assessment base ratio 
means an institution's 1996 assessment base ratio as determined 
pursuant to Sec.  327.33 of subpart B of this part, adjusted as 
necessary after the effective date of subpart B of this part to reflect 
subsequent transactions in which the institution succeeds to another 
institution's assessment base ratio, or a transfer of the assessment 
base ratio pursuant to Sec.  327.34.
    (d) Predecessor, when used in the context of insured depository 
institutions, refers to the institution merged with or into a resulting 
institution, consistent with the definition of ``successor'' in Sec.  
327.31.


Sec.  327.52  Annual dividend determination.

    (a) On or before May 15th of each calendar year, beginning in 2007, 
the Board shall determine whether to declare a dividend based upon the 
reserve ratio of the DIF as of December 31st of the preceding year, and 
the amount of the dividend, if any.
    (b) Except as provided in paragraph (d) of this section, if the 
reserve ratio of the DIF equals or exceeds 1.35 percent of estimated 
insured deposits and does not exceed 1.5 percent, the Board shall 
declare the amount that is equal to one-half of the amount in excess of 
the amount required to maintain the reserve ratio at 1.35 percent as 
the aggregate dividend to be paid to insured depository institutions.
    (c) If the reserve ratio of the DIF exceeds 1.5 percent of 
estimated insured deposits, except as provided in paragraph (d) of this 
section, the Board shall declare the amount in excess of the amount 
required to maintain the reserve

[[Page 61390]]

ratio at 1.5 percent as the aggregate dividend to be paid to insured 
depository institutions and shall declare a dividend under paragraph 
(b) of this section.
    (d)(1) The Board may suspend or limit a dividend otherwise required 
to be paid if the Board determines that:
    (i) A significant risk of losses to the DIF exists over the next 
one-year period; and
    (ii) It is likely that such losses will be sufficiently high as to 
justify the Board concluding that the reserve ratio should be allowed:
    (A) To grow temporarily without requiring dividends when the 
reserve ratio is between 1.35 and 1.5 percent; or
    (B) To exceed 1.5 percent.
    (2) In making a determination under this paragraph, the Board shall 
consider:
    (i) National and regional conditions and their impact on insured 
depository institutions;
    (ii) Potential problems affecting insured depository institutions 
or a specific group or type of depository institution;
    (iii) The degree to which the contingent liability of the FDIC for 
anticipated failures of insured institutions adequately addresses 
concerns over funding levels in the DIF; and
    (iv) Any other factors that the Board may deem appropriate.
    (3) Within 270 days of making a determination under this paragraph, 
the Board shall submit a report to the Committee on Financial Services 
and the Committee on Banking, Housing, and Urban Affairs, providing a 
detailed explanation of its determination, including a discussion of 
the factors considered.
    (e) The Board shall annually review any determination to suspend or 
limit dividend payments and must either:
    (1) Make a new finding justifying the renewal of the suspension or 
limitation under paragraph (d) of this section, and submit a report as 
required under paragraph (d)(3) of this section; or
    (2) Reinstate the payment of dividends as required by paragraph (b) 
or (c) of this section.


Sec.  327.53  Allocation and payment of dividends.

    (a) For any dividend declared before January 1, 2009, allocation of 
such dividend among insured depository institutions shall be based 
solely on an insured depository institution's 1996 assessment base 
ratio, as determined pursuant to paragraph 327.51(c) of this subpart, 
as of December 31st of the year for which dividends are declared.
    (b) The FDIC shall notify each insured depository institution of 
the amount of such institution's dividend payment based on its share as 
determined pursuant to paragraph (a) of this section. Notice shall be 
given as soon as practicable after the Board's declaration of a 
dividend through a special notice of dividend.
    (c) The FDIC shall pay individual dividend amounts, which are not 
subject to request for review under section 327.54 of this subpart, to 
insured depository institutions no later than 45 days after the 
issuance of the special notices of dividend. The FDIC shall notify 
institutions whether dividends will offset the next collection of 
assessments at the time of the invoice. An institution's dividend 
amount may be remitted with that institution's assessment or paid 
separately. If remitted with the institution's assessment, any excess 
dividend amount will be a net credit to the institution and will be 
deposited into the deposit account designated by the institution for 
assessment payment purposes pursuant to subpart A of this part. If 
remitted with the institution's assessment and the dividend amount is 
less than the amount of assessment due, then the institution's account 
will be directly debited to the FDIC to reflect the net amount owed to 
the FDIC as an assessment.
    (d) If an insured depository institution's dividend amount is 
subject to review under Sec.  327.54, and that request is not finally 
resolved prior to the dividend payment date, the FDIC may credit the 
institution with the dividend amount provided on the invoice or freeze 
the amount in dispute. Adjustments to an individual institution's 
dividend amount based on the final determination of a request for 
review will be handled in the same manner as assessment underpayments 
and overpayments.


Sec.  327.54  Requests for review of dividend amount.

    (a) An insured depository institution may submit a request for 
review of the FDIC's determination of the institution's dividend amount 
as shown on the special notice of dividend or assessment invoice, as 
appropriate. Such review may be requested if:
    (1) The institution disagrees with the calculation of the dividend 
as stated on the special notice of dividend or invoice; or
    (2) The institution believes that the 1996 assessment base ratio 
attributed to the institution has not been adjusted to include the 1996 
assessment base ratio of an institution acquired by merger or transfer 
pursuant to Sec. Sec.  327.33 and 327.34 of subpart B and the 
institution has not had an opportunity (whether or not that opportunity 
was utilized) to appeal that same determination under subpart B.
    (b) Any such request for review must be submitted within 30 days of 
the date of the special notice of dividend or invoice for which a 
change is requested. The request for review shall be submitted to the 
Division of Finance and shall provide documentation sufficient to 
support the change sought by the institution. If an institution does 
not submit a timely request for review, that institution may not 
subsequently request review of its dividend amount, subject to 
paragraph (d) of this section. At the time of filing with the FDIC, the 
requesting institution shall notify, to the extent practicable, any 
other insured depository institution that would be directly and 
materially affected by granting the request for review and provide such 
institution with copies of the request for review, the supporting 
documentation, and the FDIC's procedures for requests under this 
subpart. The FDIC shall make reasonable efforts, based on its official 
systems of records, to determine that such institutions have been 
identified and notified.
    (c) During the FDIC's consideration of the request for review, the 
amount of dividend in dispute may not be available for use by any 
institution.
    (d) Within 30 days of receiving notice of the request for review, 
those institutions identified as potentially affected by the request 
for review may submit a response to such request, along with any 
supporting documentation, to the Division of Finance, and shall provide 
copies to the requesting institution. If an institution that was 
notified under paragraph (b) of this section does not submit a response 
to the request for review, that institution may not subsequently:
    (1) Dispute the information submitted by any other institution on 
the transaction(s) at issue in that review process; or
    (2) Appeal the decision by the Director of the Division of Finance.
    (e) If additional information is requested of the requesting or 
affected institutions by the FDIC, such information shall be provided 
by the institution within 21 days of the date of the FDIC's request for 
additional information.
    (f) Any institution submitting a timely request for review will 
receive a written response from the FDIC's Director of the Division of 
Finance (``Director''), or his or her designee, notifying the affected 
institutions of the determination of the

[[Page 61391]]

Director as to whether the requested change is warranted, whenever 
feasible:
    (1) Within 60 days of receipt by the FDIC of the request for 
revision;
    (2) If additional institutions have been notified by the requesting 
institution or the FDIC, within 60 days of the date of the last 
response to the notification; or
    (3) If additional information has been requested by the FDIC, 
within 60 days of receipt of the additional information, whichever is 
later. Notice of the procedures applicable to appeals under paragraph 
(g) of this section will be included with the Director's written 
determination.
    (g) An insured depository institution may appeal the determination 
of the Director to the FDIC's Assessment Appeals Committee on the same 
grounds as set forth under paragraph (a) of this section. Any such 
appeal must be submitted within 30 calendar days from the date of the 
Director's written determination. The decision of the Assessment 
Appeals Committee shall be the final determination of the FDIC.


Sec.  327.55  Sunset date.

    Subpart C shall cease to be effective on December 31, 2008.

    Dated at Washington, DC, this 10th day of October, 2006.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
 [FR Doc. E6-17304 Filed 10-17-06; 8:45 am]
BILLING CODE 6714-01-P