Assessments, 69282-69323 [06-9204]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 71, Number 230 (Thursday, November 30, 2006)]
[Rules and Regulations]
[Pages 69282-69323]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-9204]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD09


Assessments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Reform Act of 2005 requires that 
the Federal Deposit Insurance Corporation (the FDIC) prescribe final 
regulations, after notice and opportunity for comment, to provide for 
deposit insurance assessments under section 7(b) of the Federal Deposit 
Insurance Act (the FDI Act). In this rulemaking, the FDIC is amending 
its regulations to create a new risk differentiation system, to 
establish a new base assessment rate schedule, and to set assessment 
rates effective January 1, 2007.

DATES: Effective Date: January 1, 2007.

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Senior Policy 
Analyst, Division of Insurance and Research, (202) 898-8967; or 
Christopher Bellotto, Counsel, Legal Division, (202) 898-3801.

SUPPLEMENTARY INFORMATION:

I. Background

    On February 8, 2006, the President signed the Federal Deposit 
Insurance Reform Act of 2005 into law; on February 15, 2006, he signed 
the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 
(collectively, the Reform Act).\1\ The Reform Act enacts the bulk of 
the recommendations made by the FDIC in 2001. The Reform Act, among 
other things, requires that the FDIC, within 270 days, ``prescribe 
final regulations, after notice and opportunity for comment * * * 
providing for assessments under section 7(b) of the Federal Deposit 
Insurance Act, as amended * * * ,'' thus giving the FDIC, through its 
rulemaking authority, the opportunity to better price deposit insurance 
for risk.\2\
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    \1\ Federal Deposit Insurance Reform Act of 2005, Public Law 
109-171, 120 Stat. 9; Federal Deposit Insurance Conforming 
Amendments Act of 2005, Public Law 109-173, 119 Stat. 3601.
    \2\ Section 2109(a)(5) of the Reform Act. Pursuant to the 
Section 2109 of the Reform Act, current assessment regulations 
remain in effect until the effective date of new regulations. 
Section 2109(a)(5) of the Reform Act requires the FDIC, within 270 
days of enactment, to prescribe final regulations, after notice and 
opportunity for comment, providing for assessments under section 
7(b) of the Federal Deposit Insurance Act. Section 2109 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 dividends. A final rule on deposit 
insurance coverage was published on September 12, 2006. 71 FR 53547. 
Final rules on the one-time assessment credit and dividends were 
published on October 18, 2006. 71 FR 61374; 71 FR 61385. The FDIC is 
publishing final rulemakings on the designated reserve ratio and on 
operational changes to part 327 elsewhere in this issue of the 
Federal Register.
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    On July 24, 2006, the FDIC published in the Federal Register, for a 
60-day comment period, a notice of proposed rulemaking providing for 
deposit insurance assessments (the NPR). 71 FR 41910. The FDIC sought 
public comment on its proposal and received 707 comment letters, 
including numerous comments from trade organizations.3 4 The 
comments and the final rule providing for assessments are discussed in 
later sections.
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    \3\ The comment period expired on September 22, 2006. The FDIC 
also received many comments relevant to this rulemaking in response 
to the other rulemakings discussed in footnote 2. All comments have 
been considered and are available on the FDIC's Web site, https://
www.fdic.gov/regulations/laws/federal/propose.html.
    \4\ The trade associations included the American Bankers 
Association, the Independent Community Bankers of America, America's 
Community Bankers, the Clearing House, the Financial Services 
Roundtable, the New York Bankers Association, the New Jersey League 
of Community Bankers, the Massachusetts Bankers Association, the 
Kansas Bankers Association, and the Association for Financial 
Professionals.
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A. The Current Risk-Differentiation Framework

    The Federal Deposit Insurance Corporation Improvement Act of 1991 
(FDICIA) required that the FDIC establish a risk-based assessment 
system. To implement this requirement, the FDIC adopted by regulation a 
system that places institutions into risk categories \5\ based on two 
criteria: capital levels and supervisory ratings. Three capital 
groups--well capitalized, adequately capitalized, and undercapitalized, 
which are numbered 1, 2 and 3, respectively--are based on leverage 
ratios and risk-based capital ratios for regulatory capital purposes. 
Three supervisory subgroups, termed A, B, and C, are based upon the 
FDIC's consideration of evaluations provided by the institution's 
primary federal regulator and other information the FDIC deems 
relevant.\6\ Subgroup A

[[Page 69283]]

consists of financially sound institutions with only a few minor 
weaknesses; subgroup B consists of institutions that demonstrate 
weaknesses that, if not corrected, could result in significant 
deterioration of the institution and increased risk of loss to the 
insurance fund; and subgroup C consists of institutions that pose a 
substantial probability of loss to the insurance fund unless effective 
corrective action is taken. In practice, the subgroup evaluations are 
generally based on an institution's composite CAMELS rating, a rating 
assigned by the institution's supervisor at the end of a bank 
examination, with 1 being the best rating and 5 being the lowest.\7\ 
Generally speaking, institutions with a CAMELS rating of 1 or 2 are put 
in supervisory subgroup A, those with a CAMELS rating of 3 are put in 
subgroup B, and those with a CAMELS rating of 4 or 5 are put in 
subgroup C. Thus, in the current assessment system, the highest-rated 
(least risky) institutions are assigned to category 1A and the lowest-
rated (riskiest) institutions to category 3C. The three capital groups 
and three supervisory subgroups form a nine-cell matrix for risk-based 
assessments:
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    \5\ The FDIC's regulations refer to these risk categories as 
``assessment risk classifications.''
    \6\ The term ``primary federal regulator'' is synonymous with 
the statutory term ``appropriate federal banking agency.'' 12 U.S.C. 
1813(q).
    \7\ CAMELS is an acronym for component ratings assigned in a 
bank examination: Capital adequacy, Asset quality, Management, 
Earnings, Liquidity, and Sensitivity to market risk. A composite 
CAMELS rating combines these component ratings, which also range 
from 1 (best) to 5 (worst).
[GRAPHIC] [TIFF OMITTED] TR30NO06.002

B. Reform Act Provisions

    The Federal Deposit Insurance Act, as amended by the Reform Act, 
continues to require that the assessment system be risk-based and 
allows the FDIC to define risk broadly. It defines a risk-based system 
as one based on an institution's probability of causing a loss to the 
deposit insurance fund due to the composition and concentration of the 
institution's assets and liabilities, the amount of loss given failure, 
and revenue needs of the Deposit Insurance Fund (the fund).\8\
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    \8\ 12 U.S.C. 1817(b)(1)(A) and (C). The Bank Insurance Fund and 
Savings Association Insurance Fund were merged into the newly 
created Deposit Insurance Fund on March 31, 2006.
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    At the same time, the Reform Act also restores to the FDIC's Board 
of Directors the discretion to price deposit insurance according to 
risk for all insured institutions regardless of the level of the fund 
reserve ratio.\9\
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    \9\ The Reform Act eliminates the prohibition against charging 
well-managed and well-capitalized institutions when the deposit 
insurnace fund is at or above, and is expected to remain at or 
above, the designated reserve ratio (DRR). This prohibition was 
inclulded as part of the Deposit Insurance Funds Act of 1996. Public 
Law 104-208, 110 Stat. 3009, 3009-479. However, while the Reform Act 
allows the DRR to be set between 1.15 percent and 1.50 percent, it 
also generally requires dividends of one-half of any amount in the 
fund in excess of the amount required to maintain the reserve ratio 
at 1.35 percent when the insurance fund reserve ratio exceeds 1.35 
percent at the end of any year. The Board can suspend these 
dividends under certain circumstances. 12 U.S.C. 1817(e)(2).
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    The Reform Act leaves in place the existing statutory provision 
allowing the FDIC to ``establish separate risk-based assessment systems 
for large and small members of the Deposit Insurance Fund.'' \10\ Under 
the Reform Act, however, separate systems are subject to a new 
requirement that ``[n]o insured depository institution shall be barred 
from the lowest-risk category solely because of size.'' \11\
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    \10\ 12 U.S.C. 1817(b)(1)(D).
    \11\ Section 2104(a)(2) of the Reform Act (to be codified at 12 
U.S.C. 1817(b)(2)(D)).
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II. Summary of the Final Rule

    The final rule is set out in detail in ensuing sections, but is 
briefly summarized here.
    The final rule consolidates the existing nine risk categories into 
four and names them Risk Categories I, II, III and IV. Risk Category I 
replaces the 1A risk category.
    Within Risk Category I, the final rule combines supervisory ratings 
with other risk measures to differentiate risk. For most institutions, 
the final rule combines CAMELS component ratings with financial ratios 
to determine an institution's assessment rate. For large institutions 
that have long-term debt issuer ratings, the final rule differentiates 
risk by combining CAMELS component ratings with these ratings. For 
large institutions within Risk Category I, initial assessment rate 
determinations may be modified within limits upon review of additional 
relevant information.
    The final rule defines a large institution as an institution that 
has $10 billion or more in assets. With certain exceptions, beginning 
in 2010, the final rule treats new institutions (those established for 
less than five years) in Risk Category I the same, regardless of size, 
and assesses them at the maximum rate applicable to Risk Category I 
institutions.
    The final rule sets actual rates beginning January 1, 2007, as 
follows:

------------------------------------------------------------------------
                                             Risk Category
                             -------------------------------------------
                                       I *
                             ----------------------   II     III     IV
                               Minimum    Maximum
------------------------------------------------------------------------
Annual Rates (in basis                5          7     10      28     43
 points)....................
------------------------------------------------------------------------
\*\ Rates for institutions that do not pay the minimum or maximum rate
  vary between these rates.


[[Page 69284]]

    These rates are three basis points above the base rate schedule 
adopted in the final rule:

------------------------------------------------------------------------
                                             Risk Category
                             -------------------------------------------
                                       I *
                             ----------------------   II     III     IV
                               Minimum    Maximum
------------------------------------------------------------------------
Annual Rates (in basis                2          4      7      25     40
 points)....................
------------------------------------------------------------------------
\*\ Rates for institutions that do not pay the minimum or maximum rate
  vary between these rates.

    The final rule continues to allow the FDIC Board to adjust rates 
uniformly from one quarter to the next, except that no single 
adjustment can exceed three basis points. In addition, cumulative 
adjustments cannot exceed a maximum of three basis points higher or 
lower than the base rates without further notice-and-comment 
rulemaking.

III. General Risk Differentiation Framework

    The final rule consolidates the number of assessment risk 
categories from nine to four. The four new categories will continue to 
be defined based upon supervisory and capital evaluations, which are 
both established measures of risk. The consolidation creates four new 
Risk Categories as shown in Table 1:
[GRAPHIC] [TIFF OMITTED] TR30NO06.003

    Risk Category I contains all well-capitalized institutions in 
Supervisory Group A (generally those with CAMELS composite ratings of 1 
or 2); i.e., those institutions that would be placed in the former 1A 
category. Risk Category II contains all institutions in Supervisory 
Groups A and B (generally those with CAMELS composite ratings of 1, 2 
or 3), except those in Risk Category I and undercapitalized 
institutions.\12\ Risk Category III contains all undercapitalized 
institutions in Supervisory Groups A and B, and institutions in 
Supervisory Group C (generally those with CAMELS composite ratings of 4 
or 5) that are not undercapitalized. Risk Category IV contains all 
undercapitalized institutions in Supervisory Group C; i.e., those 
institutions that would be placed in the former 3C category.\13\
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    \12\ Under current regulations, bridge banks and institutions 
for which the FDIC has been appointed or serves as conservator are 
charged the assessment rate applicable to the 2A category. 12 CFR 
327.4(c). The final rule places these institutions in Risk Categoryd 
I and charges them the minimum rate applicable to that category.
    \13\ For clarity, the final rule uses the phrase ``Supervisory 
Group'' to replace ``Supervisory Subground.'' The final rule also 
designates the capital categories as ``Well Capitalized,'' 
``Adequately Capitalized'' and ``Undercapitalilzed,'' rather than 
Capital Groups 1, 2 and 3. However, the definitions of the 
Supervisory Groups and Capital Group have not changed in substance.
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Comments

    No comments disagreed with the proposed reduction in the number of 
risk categories from nine to four. However, one comment recommended 
adding subcategories to Risk Category I to provide a warning to 
institutions that are moving toward Risk Category II if corrective 
action is not taken and giving an institution that slips from Risk 
Category I to Risk Category II an opportunity to show quick 
improvement. The FDIC does not believe that these subcategories are 
necessary. For an institution in Risk Category I, its assessment rate 
will provide the same information. The FDIC also does not believe that 
special treatment should be accorded an institution that slips from 
Risk Category I, as opposed to other institutions already in Risk 
Category II.
    Some comments argued that, for CAMELS 3, 4 and 5-rated institutions 
in Risk Categories II and III, some provision for lower premiums should 
be made for institutions that augment and maintain strong capital, 
maintain adequate reserves for loan losses and have a plan for recovery 
approved by the FDIC. The FDIC does not see a need for special 
provisions for these institutions, as they have other incentives to 
improve capital and business operations.

IV. Risk Differentiation Within Risk Category I

A. Overview

    Risk Category I, as of June 30, 2006, would include approximately 
95 percent of all insured institutions. The final rule will further 
differentiate risk within this category using one of two methods. Both 
methods share a common feature, namely, the use of CAMELS component 
ratings. However, each method combines these measures with different 
sources of information on risk. For small institutions within Risk 
Category I and for large institutions within Risk Category I that do 
not have long-term debt issuer ratings, the final rule combines CAMELS 
component ratings with current financial ratios to determine an 
institution's assessment rate. For large institutions within Risk 
Category I that have long-term debt

[[Page 69285]]

issuer ratings, the final rule combines CAMELS component ratings with 
these debt ratings. For all large institutions, initial assessment 
rates may be modified within limits upon review of additional relevant 
information.
    The risk differentiation methods for institutions in Risk Category 
I measure levels of risk and result in rank orderings of risk within 
the category. Within Risk Category I, the final rule assesses those 
institutions that pose the least risk a minimum assessment rate and 
those that pose the greatest risk a maximum assessment rate that is two 
basis points higher than the minimum rate. An institution that poses an 
intermediate risk within Risk Category I will be charged a rate between 
the minimum and maximum that will vary by institution. Under the final 
rule, small changes in an institution's financial ratios, long-term 
debt issuer ratings or CAMELS component ratings should produce only 
small changes in assessment rates.
    The final rule defines a large institution as an institution that 
has $10 billion or more in assets and a small institution as an 
institution that has less than $10 billion in assets. Also, as 
described below in Section VII, beginning in 2010, with certain 
exceptions, the final rule treats new institutions in Risk Category I 
the same, regardless of size, and assesses them at the maximum rate 
applicable to Risk Category I institutions.

B. Distribution of Assessment Rates

    As stated above, within Risk Category I, the final rule results in 
assessing those institutions that pose the least risk a minimum 
assessment rate and those that pose the greatest risk a maximum 
assessment rate that is two basis points higher. An institution that 
poses an intermediate risk within Risk Category I will be charged a 
rate between the minimum and maximum that will vary incrementally by 
institution.
    In this regard, the final rule differs from the NPR in its 
application to large institutions. The NPR had proposed assessing large 
institutions that posed an intermediate risk within Risk Category I one 
of four rates between the minimum and maximum based on subcategory 
assignments. A number of comments expressed concern over the proposed 
use of assessment rate subcategories and the possibility that large 
increases (and decreases) in assessment rates could result from 
relatively small changes in risk. Some of these comments recommended 
using as few as three assessment rate subcategories, and some comments 
recommended using incremental pricing, as proposed in the NPR for small 
institutions. The FDIC has decided to adopt an incremental pricing 
framework for all institutions so that a small change in risk will 
produce a small change in assessment rates.
    Under the final rule, as of June 30, 2006: (1) Approximately 45 
percent of all institutions that would have been in Risk Category I 
(other than institutions less than 5 years old) would have been charged 
the minimum assessment rate; and (2) approximately 5 percent of all 
institutions that would have been in Risk Category I (other than 
institutions less than 5 years old) would have been charged the maximum 
assessment rate. In future periods, different percentages of 
institutions may be charged the minimum and maximum rates.
    Chart 1 shows the cumulative distribution of assessment rates based 
on June 30, 2006 data, using base assessment rates for institutions in 
Risk Category I. The chart excludes Risk Category I institutions less 
than 5 years old.
[GRAPHIC] [TIFF OMITTED] TR30NO06.004


[[Page 69286]]


Comments
    Percentages of institutions paying the minimum rate. A comment 
agreed that charging 45 percent of institutions the minimum rate makes 
sense given the current health of the banking industry. Several 
comments (including comments from some trade groups), however, 
suggested that initially charging 45 percent of institutions the 
minimum rate was arbitrary or inappropriate. These comments suggested 
initially charging a larger percentage of institutions the minimum 
rate, at least in part, because risk in the banking industry is very 
low at present.
    Two comments expressed the view that the decision to place roughly 
45 percent of large institutions in the minimum assessment rate 
subcategory and 5 percent in the maximum assessment rate subcategory 
was subjective and arbitrary. In one of these comments, it was 
suggested that large institutions might be restricted from the lowest 
premium rate by this decision. Several other comments also urged the 
FDIC to expand the availability of the minimum assessment rate to a 
larger proportion of large institutions. Some comments argued for the 
elimination of premiums altogether for the highest-rated large 
institutions.
    The FDIC has found that small institutions with a probability of 
downgrade to a CAMELS 3 or worse that is equal to or less than the 
probability of downgrade for the 40th to 50th percentile as of June 30, 
2006, had minimal risk of a CAMELS downgrade over time. The remainder 
of small institutions in the industry had increasing and 
distinguishable risk of CAMELS downgrades. The FDIC believes it is 
appropriate to initially assign roughly similar proportions of large 
and small institutions to the minimum assessment rate to achieve 
parity. While the initial proportions of large and small institutions 
being charged the minimum and maximum rates will be similar, the final 
rule does not fix the proportions for the future. Thus, in future 
periods, more or less than 45 percent of large (or small) institutions 
may pay the minimum rate and more or less than 5 percent may pay the 
maximum rate.
    Risk Category I assessment rate spread. Several comments (including 
comments from trade groups) recommended that the FDIC eliminate or 
narrow the spread between the minimum and maximum base rates for Risk 
Category I. Arguments in favor of eliminating or narrowing the spread 
included:
     The new risk differentiation system is untested and could 
lead to unintended consequences.
     Improvements in bank risk-management systems, improvements 
in supervisory evaluations and off-site monitoring, and enhanced 
supervisory powers enjoyed by the regulators have reduced risk.
     A narrower spread would reduce the adverse effect of 
changes in subcategories on large banks and the adverse effect of 
paying the maximum rate on new banks.
    Other comments (including comments from some trade groups) 
recommended increasing the spread between minimum and maximum 
assessment rates for Risk Category I to 3 basis points. According to 
these comments, a wider spread would improve risk differentiation and 
could subject more institutions to incremental rates between the 
minimum and maximum rates.
    The final rule strikes a balance between the arguments for a 
narrower spread and those for a wider spread. The two basis point 
spread adopted in the final rule is narrower than the historical loss 
data would suggest.\14\ However, as the comments have noted, the new 
system is, as yet, untested.
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    \14\ See Table 1.6 in Appendix 1 to the NPR, 71 FR 41910.
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C. CAMELS Ratings

    For all institutions in Risk Category I, supervisory ratings will 
be taken into account in setting assessment rates using a weighted 
average of an institution's CAMELS components. This weighted average 
will be created by combining the components as follows: \15\
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    \15\ The FDIC and other bank supervisors do not use a weighting 
system to determine CAMELS composite ratings. The weights in the 
table reflect the view of the FDIC regarding the relative importance 
of each of the CAMELS components for differentiating risk among 
institutions in Risk Category I for deposit insurance purposes. 
Different weights might apply if this measure were being used to 
evaluate risk for deposit insurance purposes for all institutions, 
including those outside Risk Category I.
[GRAPHIC] [TIFF OMITTED] TR30NO06.005

Comments
    Almost every comment that discussed the use of CAMELS ratings to 
differentiate risk within Risk Category I supported their use. One 
comment questioned their use and a few comments opposed any 
differentiation within Risk Category I.
    One trade group asserted that the FDIC should use a simple, rather 
than weighted, average of CAMELS components on the grounds that using 
financial ratios related to these components effectively weights the 
components. The trade group noted that capital, for example, is already 
reflected in an institution's risk category and as a CAMELS component. 
The trade group also asserted that asset quality is given extra 
emphasis in the proposed weighting scheme by including several asset 
quality financial ratios as well as the A rating in the CAMELS 
component average. With regards to the M component, the trade group 
asserted that:

    Management--the most subjective of all the CAMELS components--
must by necessity be involved in all the financial ratios and other 
examination components. In practice,

[[Page 69287]]

therefore, it is unlikely that examiners would rate management 
higher than the other components. Thus, there is always a bias 
against a high management rating.

    Several comments proposed different weighting schemes for large 
institutions, such as heavier weights for Liquidity, Capital, and Asset 
quality.
    The final rule retains the weights proposed in the NPR to determine 
the weighted average CAMELS component rating. These weights reflect the 
view of the FDIC on the relative importance of each of the CAMELS 
components in differentiating risk among institutions in Risk Category 
I for deposit insurance purposes.

D. Financial Ratios

    For small institutions and for large institutions without a long-
term debt issuer rating, the final rule uses certain financial ratios, 
in addition to supervisory ratings, to differentiate risk. The final 
rule differs slightly from the proposal in the NPR with respect to the 
financial ratios being used and their definitions.
    The financial ratios that will be used are:
     The Tier 1 Leverage Ratio;
     Loans past due 30-89 days/gross assets;
     Nonperforming assets/gross assets; \16\
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    \16\ The NPR used the phrase ``nonperforming loans'' rather than 
``nonperforming assets.'' Because this ratio includes repossessed 
real estate in the numerator, the FDIC has concluded that the phrase 
``nonperforming assets'' would be more accurate. No change in the 
definition of the ratio is intended by this name change (although, 
as discussed later, a slight revision to the definition is being 
made for other reasons).
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     Net loan charge-offs/gross assets; and
     Net income before taxes/risk-weighted assets.
    The Tier 1 Leverage Ratio has the definition used for regulatory 
capital purposes. Appendix A defines each of the ratios.
    Many comments (including comments from several industry trade 
groups) opposed including time deposits greater than $100,000 in the 
definition of volatile liabilities for a variety of reasons, including: 
(1) These deposits are core deposits or should be so considered; and 
(2) including them would have an effect on attracting municipal 
deposits. One comment opposed including brokered deposits in the 
definition of volatile liabilities on the grounds that they are less 
volatile than many core deposits. One trade group argued that deposits 
in excess of $100,000 that are insured by excess deposit insurance 
should not be included in the definition of volatile liabilities.
    The final rule eliminates the basis for these concerns by excluding 
one of the financial ratios proposed in the NPR, the ratio of volatile 
liabilities to gross assets. The financial data used to compute 
volatile liabilities reported by thrifts in the Thrift Financial 
Reports (TFRs) and reported by banks in their Reports of Condition and 
Income (Call Reports) were not compatible and could not be made 
compatible without changes in reporting requirements.\17\
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    \17\ The largest item in volatile liabilities for the great 
majority of institutions is time-and-savings deposits greater than 
$100,000. Institutions that file Call Reports report this figure, 
but institutions that file TFRs do not report this item separately. 
Instead, they report all deposits greater than $100,000, including 
demand deposits. Time-and-savings deposits greater than $100,000 
cannot be determined from TFRs.
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    The final rule also excludes the portion of loans and leases that 
is guaranteed by the U.S. Government, including government agencies and 
government-sponsored agencies, from the computation of loans past due 
30-89 days and from the computation of non-performing assets. These 
types of guaranteed loans are treated as less risky than other loans 
for risk-based capital purposes. Moreover, the use of past due and 
nonaccrual loan measures that do not adjust for these guaranteed loans 
might overstate credit risk and result in assessment rates that are too 
high for some institutions.
Comments
    Almost all comments (including comments from a trade group) on 
using financial ratios (in addition to CAMELS ratings) to determine 
assessment rates supported their use. However, some suggested that 
different financial ratios be used.
    In the NPR, the definition of volatile liabilities did not include 
Federal Home Loan Bank advances, but the FDIC asked for comment on 
whether it should. The FDIC received 569 comments on this issue. All 
but one argued that the definition of volatile liabilities should not 
include Federal Home Loan Bank advances; one argued that the definition 
should include these advances. The final rule does not include the 
volatile liability ratio.
    A trade group suggested excluding the loans past due 30-89 days to 
gross assets ratio on the grounds that loan delinquencies are already 
considered in two CAMELS components, A (Assets) and M (Management). The 
final rule retains the loans past due 30-89 days to gross assets ratio. 
Independent of the CAMELS components, this ratio is statistically 
significant and highly predictive of CAMELS downgrades and institution 
failures even when it is considered together with the nonperforming 
ratio.\18\
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    \18\ One comment suggested excluding total loans and lease 
financing receivables past due 30 to 59 days in the ratio. Call 
Reports and TFRs currently do not collect separate data on loans and 
lease financing receivables past due 30 to 59 days; thus, it is not 
feasible to exclude these past due receivables from the ratio.
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    A trade group commented that the risk weighting formula used to 
establish risk weighted assets is biased against residential mortgage 
lenders. It argued that, since they are secured by property liens, all 
1-4 family, owner occupied residential mortgage loans with a loan-to-
value ratio under 80 percent should be given a risk weighting of zero.
    In the final rule, pre-tax earnings are divided by risk-weighted 
assets rather than by gross assets to avoid penalizing certain types of 
institutions, including those that hold low-risk and low-yielding 
assets. The FDIC's analysis shows that institutions specializing in 
mortgage lending are not charged a higher average assessment rate than 
other institutions under the final rule. Moreover, Call Reports and 
TFRs currently do not collect separate data on the loan-to-value ratio 
for 1-4 family, owner occupied residential mortgage loans; thus, it is 
not feasible to treat loans with a low loan-to-value ratio differently.
    This trade group also requested that the FDIC study how mutual 
institutions are affected by including earnings in the financial 
ratios. The FDIC found that, while mutual institutions typically have a 
lower ratio of pre-tax earnings to risk-weighted assets, they typically 
have a higher Tier 1 leverage ratio and lower non-performing loan and 
charge-off ratios than other small institutions in Risk Category I. As 
a result, mutual institutions are not charged a higher average 
assessment rate than other institutions under the final rule.
    Another trade group advocated averaging financial ratios over a 
period not less than four quarters, arguing that taking ``a one-quarter 
snap shot'' can be a misleading indicator of risk, since many financial 
institutions can experience seasonal variations. By averaging, these 
seasonalities would be removed.
    The final rule uses a four-quarter sum for two of the five 
financial ratios--the pre-tax earnings and net charge-offs ratios--to 
reduce volatility related to seasonality. The final rule uses the 
values of the three other financial ratios as of each quarter-end for 
several reasons. First, the seasonality of these

[[Page 69288]]

financial ratios is more modest. Second, with a quarterly computation 
of assessment rates, the average assessment rate an institution would 
be charged throughout the year would roughly equate to the assessment 
rate calculated with average ratios. Third, averaging financial ratios 
over time has the disadvantage of blunting the effect of changes in an 
institution's financial condition that are not related to seasonality; 
thus, averaging ratios would prevent assessments from fully adjusting 
to changes in risk.
    One trade group supported the FDIC's use of a Tier 1 leverage ratio 
and suggested that it should be weighted heaviest among the financial 
ratios considered. However, several comments (including comments from 
other trade groups) stated that capital should be measured by a risk-
adjusted capital ratio rather than the Tier 1 leverage ratio because a 
risk-adjusted capital ratio is a better measure of capital adequacy.
    Several comments stated that the FDIC should not use a Tier 1 
leverage ratio to determine assessment rates for large institutions, in 
particular. One of these comments argued that this ratio is not an 
accurate measure of risk, effectively penalizes institutions that 
invest in high quality short-term assets, such as U.S. government 
securities, and places U.S. banks at a competitive disadvantage with 
foreign banks. Another comment suggested that larger institutions might 
tend to be penalized by inclusion of a leverage ratio.
    The final rule uses the Tier 1 leverage ratio. The Tier 1 leverage 
ratio is highly significant in predicting CAMELS downgrades and 
failures. Using a risk-based capital measure in place of the Tier 1 
leverage ratio does not improve predictive accuracy. For the relatively 
few large Risk Category I institutions that do not have long-term debt 
issuer ratings, the FDIC's ability to adjust assessment rates based on 
consideration of other risk information, as discussed below, should 
ensure that these institutions are treated equitably.
    Several comments (including comments from several trade groups) 
stated that the capital measure should include subordinated debt and 
stated or implied that subordinated debt should reduce assessment rates 
because it would reduce loss given failure. Several comments (including 
comments from some trade groups) argued that the statutes governing the 
risk-based pricing system require that the FDIC take loss given failure 
into account when determining assessments and that the proposed system 
does not do so. Because it does not do so, they argue, the assessment 
system is actuarially unfair. These issues are discussed in a 
subsequent section (Section IX).
    One commenter explicitly argued that, for large institutions in 
Risk Category I, only CAMELS components should be used to differentiate 
risk. However, the comment also implied that only CAMELS components 
should be used for all Risk Category I institutions, including small 
institutions. The method adopted in the final rule, which combines 
financial ratios and supervisory ratings, predicts downgrades better 
than one without financial ratios. For this reason, the final rule does 
not adopt the method suggested in the comment.

E. Long-Term Debt Issuer Ratings

    For large institutions with long-term debt issuer ratings, the 
final rule uses these ratings, in addition to supervisory ratings, to 
differentiate risk. The final rule uses the current long-term debt 
issuer rating or ratings assigned by the major U.S. rating 
agencies.\19\ Debt issuer ratings of holding companies and other third 
party debt ratings will not be used in the calculation of an assessment 
rate, but may be considered along with other information in determining 
whether adjustments to the resulting assessment rate are appropriate. 
Possible adjustments to assessment rates are discussed in a subsequent 
section.
---------------------------------------------------------------------------

    \19\ That is, Moody's, Standard & Poor's, and Fitch.
---------------------------------------------------------------------------

Comments
    A number of comments (including comments from some trade groups) 
supported the use of debt issuer ratings as an objective measure of 
risk in large institutions and as complementary to supervisory ratings. 
One trade group urged the FDIC to use ratings issued by any nationally 
recognized credit rating agency; a rating agency requested that its 
ratings be used. The rating agency also urged the FDIC to consider 
agency ratings for both small and large institutions when available.
    While there is merit in considering ratings provided by other 
rating agencies, long-term debt issuer ratings issued by the three 
major U.S. rating agencies are widely accepted and used by market 
participants to gauge the relative risk of large financial institutions 
for many purposes, including the determination of required rates of 
return on institution-issued debt. They provide market-based views of 
risk that are complementary to supervisory views.\20\ The final rule 
does not incorporate debt issuer rating information into the pricing 
methodology used for smaller institutions; however, as described in a 
subsequent section, institutions with assets between $5 billion and $10 
billion may request to be treated as a large institution for pricing 
purposes.
---------------------------------------------------------------------------

    \20\ The FDIC is aware of the enactment of the Credit Rating 
Agency Reform Act of 2006, Public Law 109-291. However, this 
legislation has not yet been implemented. The Act requires the 
Securities and Exchange Commission to issue final implementing 
regulations within 270 days of enactment. The FDIC expects to 
revisit how best to incorporate the ratings of other agencies in the 
future. Any future revisions would involve notice-and-comment 
rulemaking.
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    Other comments (including comments from other trade groups) either 
urged caution in the use of agency ratings on the grounds of bias in 
favor of large institutions or argued they should not be used. The 
FDIC's ability to adjust assessment rates for large institutions, 
discussed below, should alleviate these concerns.
    Several comments urged the FDIC to use holding company debt issuer 
ratings to determine assessment rates. These comments noted that debt 
is often issued at the parent level, that holding companies are 
required to serve as a source of strength to their subsidiary 
institutions, and that holding company considerations apply to insured 
subsidiaries due to the cross guarantee liabilities of affiliated 
institutions.
    The long-term debt issuer rating of an insured entity relates 
directly to the risk in that particular entity. As noted in the NPR, 
the risk profiles of affiliated institutions within a holding company 
can differ. Additionally, the value of a cross-guarantee in the future 
is uncertain because the financial condition of affiliated institutions 
may, in certain circumstances, weigh against the FDIC's invoking such 
cross-guarantee provisions.
    Nevertheless, it is prudent to consider all available risk 
information in setting assessment rates. As discussed below, the FDIC 
will consider additional information, including any holding company 
debt issuer ratings, in determining whether the assessment rate for any 
large institution is appropriate.\21\
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    \21\ There are, at present, only a few cases where holding 
company debt issuer ratings are available and insured entity debt 
issuer ratings are not. Of these, two cases involve entities owned 
by non-bank parents. Where both holding company ratings and insured 
entity debt issuer ratings exist, most insured entity ratings are 
better (indicating lower risk) than those of the parent company.
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F. Combining Supervisory Ratings and Financial Ratios

    For small institutions within Risk Category I and for large 
institutions within Risk Category I that do not have long-term debt 
issuer ratings, the final rule combines supervisory ratings and

[[Page 69289]]

financial ratios to determine assessment rates. The financial ratios 
and the weighted average CAMELS component rating are used to estimate 
the probability that an institution will be downgraded to CAMELS 3, 4 
or 5 at its next examination using data from the end of the years 1984 
to 2004.\22\ This period covers both periods of stress and strength in 
the banking industry.\23\ The final rule converts the probabilities of 
downgrade to specific base assessment rates. The analysis and 
conversion produced the following multipliers for each risk measure:
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    \22\ The ``S'' component rating was first assigned in 1997. 
Because the statistical analysis relies on data from before 1997, 
the ``S'' component rating was excluded from the analysis. Appendix 
A describes the statistical analysis.
    \23\ 2005 data had to be excluded because the analysis is based 
upon supervisory downgrades within one year and 2006 downgrades have 
yet to be determined.

------------------------------------------------------------------------
                                                             Pricing
                    Risk measures *                      multipliers * *
------------------------------------------------------------------------
Tier 1 Leverage Ratio.................................           (0.042)
Loans Past Due 30-89 Days/Gross Assets................             0.372
Nonperforming Assets/Gross Assets.....................             0.719
Net Loan Charge-Offs/Gross Assets.....................             0.841
Net Income before Taxes/Risk-Weighted Assets..........           (0.420)
Weighted Average CAMELS Component Rating..............             0.534
------------------------------------------------------------------------
* Ratios are expressed as percentages.
* * Multipliers are rounded to three decimal places.

    To determine an institution's insurance assessment rate under the 
base assessment rate schedule, each of these risk measures (that is, 
each institution's financial ratios and weighted average CAMELS 
component rating) will be multiplied by the corresponding pricing 
multipliers. The sum of these products will be added to (or subtracted 
from) a uniform amount, 1.954.\24\ The uniform amount is derived from a 
statistical analysis.\25\ However, no rate within Risk Category I will 
be less than the minimum assessment rate applicable to the category or 
higher than the maximum assessment rate applicable to the category. The 
final rule sets the minimum base assessment rate for Risk Category I at 
two basis points and the maximum base assessment rate for Risk Category 
I two basis points higher.
---------------------------------------------------------------------------

    \24\ Appendix A provides the derivation of the pricing 
multipliers and the uniform amount to be added to compute an 
assessment rate. The rate derived will be an annual rate, but will 
be determined every quarter.
    \25\ The uniform amount will be the same for all institutions in 
Risk Category I (other than large institutions that have long-term 
debt issuer ratings, insured branches of foreign banks and, 
beginning in 2010, new institutions). In the NPR, the FDIC had 
proposed that the uniform amount would be adjusted for assessment 
rates set by the FDIC. The final rule is mathematically equivalent. 
Rather than adjusting the uniform amount, the final rule simply 
calculates rates for Risk Category I institutions with respect to 
the base assessment rates, and adjusts all rates by the same amount 
to conform to actual rates.
---------------------------------------------------------------------------

    To compute the values of the uniform amount and pricing multipliers 
shown above, the FDIC chose cutoff values for the predicted 
probabilities of downgrade such that, as of June 30, 2006: (1) 45 
percent of smaller institutions that would have been in Risk Category I 
(other than institutions less than 5 years old) would have been charged 
the minimum assessment rate; and (2) 5 percent of smaller institutions 
that would have been in Risk Category I (other than institutions less 
than 5 years old) would have been charged the maximum assessment 
rate.\26\ These cutoff values will be used in future periods, which 
could lead to different percentages of institutions being charged the 
minimum and maximum rates.
---------------------------------------------------------------------------

    \26\ The cutoff value for the minimum assessment rate is a 
predicted probability of downgrade of approximately 2 percent. The 
cutoff value for the maximum assessment rate is approximately 14 
percent.
---------------------------------------------------------------------------

    Table 2 gives assessment rates for three institutions with varying 
characteristics, assuming the pricing multipliers given above, using 
the base assessment rates for institutions in Risk Category I (which 
range between a minimum of 2 basis points to a maximum of 4 basis 
points).\27\
---------------------------------------------------------------------------

    \27\ These are the base rates for Risk Category I adopted in 
Section VIII. Under the final rule, actual rates for any year could 
be as much as 3 basis points higher or lower than the base rates 
without the necessity of notice-and-comment rulemaking. Beginning in 
2007, actual rates will be 3 basis points higher than the base 
rates.

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[[Page 69290]]

[GRAPHIC] [TIFF OMITTED] TR30NO06.006

    The assessment rate for an institution in the table is calculated 
by multiplying the pricing multipliers (Column B) by the risk measure 
values (Column C, E or G) to produce each measure's contribution to the 
assessment rate. The sum of the products (Column D, F or H) plus the 
uniform amount (the first item in Column D, F and H) yields the total 
assessment rate. For Institution 1 in the table, this sum actually 
equals 1.56, but the table reflects the assumed minimum assessment rate 
of 2 basis points. For Institution 3 in the table, the sum actually 
equals 4.25, but the table reflects the assumed maximum assessment rate 
of 4 basis points.
---------------------------------------------------------------------------

    \28\ The final rule provides that pricing multipliers, the 
uniform amount, and financial ratios will be rounded to three digits 
after the decimal point. Resulting assessment rates will be rounded 
to the nearest one-hundredth (1/100th) of a basis point.
---------------------------------------------------------------------------

    Under the final rule, the FDIC will have the flexibility to update 
the pricing multipliers and the uniform amount annually, without 
further notice-and-comment rulemaking. In particular, the FDIC will be 
able to add data from each new year to its analysis and may, from time 
to time, exclude some earlier years from its analysis. For example, 
some time during 2007 the FDIC may include data in the statistical 
analysis covering the period 1984 to 2005, rather than 1984 to 2004. 
Because the analysis will continue to use many earlier years' data as 
well, pricing multiplier changes from year to year should usually be 
relatively small.
    On the other hand, as a result of the annual review and analysis, 
the FDIC may conclude that additional or alternative financial 
measures, ratios or other risk factors should be used to determine 
risk-based assessments or that a new method of differentiating for risk 
should be used. In any of these events, changes would be made through 
notice-and-comment rulemaking.
    Under the final rule, the financial ratios for any given quarter 
will be calculated from the report of condition filed by each 
institution as of the last day of the quarter.\29\ In a separate rule, 
the FDIC has determined that, for purposes of assigning an institution 
to one of the four risk categories, changes to an institution's 
supervisory rating will be reflected as of the date that the rating 
change is transmitted to the institution.\30\ This final rule adopts 
the same rule with respect to CAMELS component rating changes for 
purposes of determining assessment rates for all institutions in Risk 
Category I.31 32
---------------------------------------------------------------------------

    \29\ Reports of condition include Reports of Condition and 
Income and Thrift Financial Reports.
    \30\ See final rule on Operational Changes to Assessments, 
published elsewhere in this issue of the Federal Register. However, 
if the FDIC disagrees with the CAMELS composite rating assigned by 
an institution's primary federal regulator, and assigns a different 
composite rating, the supervisory change will be effective for 
assessment purposes as of the date that the FDIC assigned the new 
rating. Disagreements of this type have been rare.
    \31\ Pursuant to existing supervisory practice, the FDIC does 
not assign a different component rating from that assigned by an 
institution's primary federal regulator, even if the FDIC disagrees 
with a CAMELS component rating assigned by an institution's primary 
federal regulator, unless: (1) the disagreement over the component 
rating also involves a disagreement over a CAMELS composite rating; 
and (2) the disagreement over the CAMELS composite rating is not a 
disagreement over whether the CAMELS composite rating should be a 1 
or a 2. The FDIC has no plans to alter this practice.
    \32\ A rating change that is transmitted before this final rule 
becomes effective (i.e., before January 1, 2007) will be deemed to 
have been transmitted prior to January 1, 2007.
---------------------------------------------------------------------------

    Using the transmittal date of a ratings change for assessment 
purposes represents a change from the method proposed in the NPR. Under 
the NPR, transmittal dates would only have been used in the absence of 
an examination start date (for example, for a large institution with 
continuous on-site supervision). Otherwise, in almost all instances, 
the examination start date would have been used.
    The final rule adopts a suggestion contained in a banking trade 
group comment and alters the proposed rule for several reasons 
discussed in more detail in the final rule on operational changes to 
the assessment system.\33\
---------------------------------------------------------------------------

    \33\ See final rule on Operational Changes to Assessments, 
published elsewhere in this issue of the Federal Register.
---------------------------------------------------------------------------

    The final rule also differs from the NPR for large institutions 
without long-term debt issuer ratings. The NPR proposed determining 
assessment rates for these institutions from insurance scores using a 
weighted average CAMELS rating and a financial ratio factor, with each 
weighted 50 percent. While the supervisory ratings and financial ratios 
in the final rule are

[[Page 69291]]

nearly the same as those proposed in the NPR, they are combined 
differently.\34\
---------------------------------------------------------------------------

    \34\ The ratio of volatile liabilities to gross assets was 
included in the proposed rule, but is not included in the final 
rule. Other minor changes to the ratios have been made. The changes 
are discussed earlier in the text.
---------------------------------------------------------------------------

    The approach in the final rule is simpler because it uses one 
consistent method for all institutions other than those with at least 
$10 billion in assets that have long-term debt issuer ratings.
Comments
    Supervisory ratings. Several comments supported the use of 
supervisory ratings. One comment asserted that supervisory ratings are 
the only reliable method to differentiate risk among financial 
institutions. One trade group supported using supervisory ratings as 
one of the variables used to determine assessment rates as proposed in 
the NPR and opposed either allowing supervisory ratings to ``be greater 
than 50 percent of the overall risk score'' or automatically giving 
supervisory ratings a 50 percent weight for small institutions, which 
was suggested in the NPR as an alternative method of determining 
assessment rates. Another trade group urged that ``supervisory ratings 
should never be weighted more than half of the total weight of both the 
supervisory ratings and financial ratios.'' Both trade groups urged 
these limitations because of the perceived subjectivity of supervisory 
ratings.
    The FDIC has decided not to impose a cap on the contribution that 
supervisory ratings can make to an institution's assessment rate for 
two reasons. First, the final rule combining supervisory ratings and 
financial ratios does not use a weighting scheme or a risk score. The 
final rule uses pricing multipliers, which can be either positive or 
negative, based on a statistical model that relates financial ratios 
and component ratings to CAMELS downgrades. The pricing multipliers--
including the multiplier for the weighted average CAMELS component 
rating--are based on the actual historical experience of how well 
financial ratios and weighted average CAMELS component ratings predict 
whether an institution will be downgraded to a CAMELS composite rating 
of 3 or worse at its next examination. Second, a cap on the 
contribution that supervisory ratings can make to an institution's 
assessment rate would affect only a small percentage of institutions 
and the effect would be very small.\35\
---------------------------------------------------------------------------

    \35\ As of June 30, 2006: (1) the contribution of CAMELS 
component ratings would have exceeded 50 percent of the assessment 
rate; and (2) assessment rates would have exceeded the minimum rate 
for less than 1.3 percent of small institutions in Risk Category I 
(other than institutions less than 5 years old). Most of these 
institutions, however, would have been charged a rate only slightly 
above the minimum rate. For a Risk Category I institution being 
charged the minimum rate, the contribution of the weighted average 
CAMELS component rating does not increase the institution's 
assessment rate.
---------------------------------------------------------------------------

    Updating pricing multipliers. One trade group agreed that the FDIC 
should have the flexibility to update the pricing multipliers and the 
uniform amount annually, without further notice-and-comment rulemaking 
and that adding additional or alternative financial measures, ratios or 
other risk factors to determine risk-based assessments or adopting a 
new method of differentiating for risk should be done through notice-
and-comment rulemaking. The final rule is consistent with this comment. 
No comments disagreed.
    Additional comments. One trade group urged that the FDIC avoid 
having low-risk multi-family loans lead to higher assessment rates to 
avoid chilling this type of lending. The final rule does not target 
this kind of lending.

G. Combining Supervisory Ratings With Long-Term Debt Issuer Ratings

    For large institutions that have long-term debt issuer ratings, a 
combination of these ratings and supervisory ratings will determine 
assessment rates, using equal weighting for each. The base assessment 
rate will be derived as follows: (1) CAMELS component ratings will be 
weighted to derive a weighted average CAMELS rating; \36\ (2) long-term 
debt issuer ratings will be converted to numerical values between 1 and 
3 using the conversion values in Appendix B; \37\ (3) the weighted 
average CAMELS rating and converted long-term debt issuer rating will 
be multiplied by a pricing multiplier and the products will be summed; 
and (4) a uniform amount, which will always be negative, will be added 
to the result. The resulting base assessment rate will be subject to a 
minimum and a maximum assessment rate. The pricing multiplier for both 
the weighted average CAMELS ratings and converted long-term debt issuer 
rating will be 1.176, and the uniform amount will be -1.882.
---------------------------------------------------------------------------

    \36\ Each component rating will typically, if not always, range 
from ``1'' to ``3'' for institutions in Risk Category I.
    \37\ Where more than one long-term debt issuer rating is 
available, the converted values will be averaged.
---------------------------------------------------------------------------

    The conversion of long-term debt issuer ratings into numerical 
values in the final rule differs slightly from the conversion proposed 
in the NPR. Specifically, the final rule assigns the lowest conversion 
value of ``1'' to the best possible long-term debt issuer rating rather 
than to double A ratings or better (Aa2 or better for Moody's ratings), 
and the highest conversion value of ``3'' to triple B or worse ratings 
(Baa2 or worse for Moody's ratings), rather than to double B plus or 
worse ratings (Ba1 or worse for Moody's ratings). This revised 
conversion methodology takes better advantage of the possible range of 
ratings for large Risk Category I institutions, which are concentrated 
primarily in the triple B rating range and higher.
    Pricing multipliers and the uniform amount for large institutions 
with debt ratings were derived using cutoff values of the combination 
of weighted average CAMELS ratings and converted long-term debt issuer 
ratings (weighted 50 percent each) such that, as of June 30, 2006: (1) 
Approximately 44 percent of large institutions with long-term debt 
issuer ratings that would have been in Risk Category I (other than 
institutions less than 5 years old) would have been charged the minimum 
assessment rate; and (2) approximately 6 percent of the large 
institutions with long-term debt issuer ratings that would have been in 
Risk Category I (other than institutions less than 5 years old) would 
have been charged the maximum assessment rate.\38\ The derivation of 
pricing multipliers and the uniform amount is described in Appendix 1.
---------------------------------------------------------------------------

    \38\ As of June 30, 2006, approximately 46 percent of all large 
institutions that would have been in Risk Category I (other than 
institutions less than 5 years old) would have been charged the 
minimum assessment rate and approximately 5 percent of all large 
institutions that would have been in Risk Category I (other than 
institutions less than 5 years old) would have been charged the 
maximum assessment rate.
---------------------------------------------------------------------------

    Under the final rule, the base assessment rate for an institution 
with CAMELS component ratings of ``222111,'' a Moody's long-term debt 
issuer rating of ``A1,'' and a Standard and Poor's long-term debt 
issuer rating of ``A'' would be 2.06 basis points. This rate is 
calculated as follows:
     The weighted average CAMELS rating is computed by 
multiplying each component rating by its associated weight to produce 
values of 0.50, 0.40, 0.50, 0.10, 0.10, and 0.10, respectively. The sum 
of these values, the weighted average CAMELS rating, is 1.70.
     The Moody's and Standard and Poor's long-term debt issuer 
ratings are converted to numerical values and averaged. The average of 
the two long-term debt issuer ratings, converted to numerical values of 
1.50 and 1.80, respectively, is 1.65.
     The weighted average CAMELS rating and converted long-term 
debt

[[Page 69292]]

issuer ratings are multiplied by the pricing multiplier and summed 
(1.700*1.176 + 1.650*1.176) \39\ to produce a value of 3.940. A uniform 
amount of 1.882 is subtracted from this result to produce a base 
assessment rate of 2.06 basis points.\40\
---------------------------------------------------------------------------

    \39\ Under the final rule, the pricing multipliers will be 
rounded to three digits after the decimal point.
    \40\ Under the final rule, the assessment rates resulting from 
these calculations will be rounded to the nearest one-hundredth (1/
100th) of a basis point.
---------------------------------------------------------------------------

    The final rule also differs from the NPR in that it does not use 
financial ratios to determine assessment rates for any large 
institution that has long-term debt issuer ratings, and does not use 
varying weights for long-term debt issuer ratings for institutions with 
between $10 billion and $30 billion in assets. The final rule 
simplifies the derivation of assessment rates by applying the same 
weight to weighted average CAMELS component ratings and long-term debt 
issuer ratings (when they exist) regardless of an institution's size.
    Several trade groups commented that the proposed risk 
differentiation methodology for large banks was too complex, in part 
because of the varying weights given risk factors for institutions 
between $10 billion and $30 billion in assets. These comments noted 
that an institution's assessment rate could change simply because of an 
increase or decrease in assets even when the institution's risk profile 
remained unchanged. After considering comments, the FDIC concluded that 
this simpler approach for all large institutions with debt issuer 
ratings achieves the objective of differentiating risk in these large 
institutions without the need to introduce further complexity in the 
form of varying weights for large institutions in different size