Assessment Dividends, 15459-15468 [E8-5670]
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15459
Proposed Rules
Federal Register
Vol. 73, No. 57
Monday, March 24, 2008
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AD27
Assessment Dividends
Federal Deposit Insurance
Corporation (‘‘FDIC’’).
ACTION: Notice of proposed rulemaking.
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AGENCY:
SUMMARY: The FDIC is proposing
regulations to implement the assessment
dividend requirements in the Federal
Deposit Insurance Reform Act of 2005
(‘‘Reform Act’’) and the Federal Deposit
Insurance Reform Conforming
Amendments Act of 2005
(‘‘Amendments Act’’). The proposed
rule is the follow-up to the advanced
notice of proposed rulemaking on
assessment dividends the FDIC issued
in September 2007 and the temporary
final rule on assessment dividends the
FDIC issued in October 2006. The
temporary final rule sunsets on
December 31, 2008.
DATES: Comments must be received on
or before May 23, 2008.
ADDRESSES: You may submit comments
by any of the following methods:
• Agency Web Site: https://
www.fdic.gov/regulations/laws/federal.
Follow instructions for submitting
comments on the Agency Web Site.
• E-mail: Comments@FDIC.gov.
Please include ‘‘Assessment Dividends’’
in the subject line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7 a.m. and 5 p.m.
(EST).
• Federal eRulemaking Portal: https://
www.regulations.gov. Please follow the
instructions for submitting comments.
Public Inspection: All comments
received will be posted without change
to https://www.fdic.gov/regulations/laws/
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federal including any personal
information provided. Comments may
be inspected and photocopied in the
FDIC Public Information Center, 3501
North Fairfax Drive, Room E–1002,
Arlington, VA 22226, between 9 a.m.
and 5 p.m. (EST) on business days.
Paper copies of public comments may
be ordered from the Public Information
Center by telephone at (877) 275–3342
or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
8967; Missy Craig, Program Analyst,
Division of Insurance and Research,
(202) 898–8724; Donna Saulnier,
Division of Finance, Team Leader,
Assessment Management, (703) 562–
6167; or Joseph A. DiNuzzo, Counsel,
Legal Division, (202) 898–7349.
SUPPLEMENTARY INFORMATION:
I. Background
A. Reform Act Requirements
Section 7(e)(2) of the Federal Deposit
Insurance Act (‘‘FDI Act’’), as amended
by the Reform Act, requires the FDIC,
under most circumstances, to declare
dividends from the Deposit Insurance
Fund (‘‘DIF’’) when the DIF reserve ratio
(‘‘Reserve Ratio’’) at the end of a
calendar year equals or exceeds 1.35
percent. When the Reserve Ratio equals
or exceeds 1.35 percent, and is not
higher than 1.50 percent, the FDIC
generally must 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. The FDIC Board
of Directors (‘‘Board’’) may suspend or
limit dividends to be paid, however, if
it determines in writing, after taking a
number of statutory factors into account,
that: 1
1 The statutory factors that the Board must
consider are:
1. National and regional conditions and their
impact on insured depository institutions;
2. Potential problems affecting insured depository
institutions or a specific group or type of depository
institution;
3. The degree to which the contingent liability of
the Corporation for anticipated failures of insured
institutions adequately addresses concerns over
funding levels in the Deposit Insurance Fund; and
4. Any other factors that the Board determines are
appropriate.
12 U.S.C. 1817(e)(2)(F).
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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 1.50 percent or to exceed
1.50 percent.2
When the Reserve Ratio exceeds 1.50
percent at the end of a calendar quarter,
the FDI Act requires the FDIC, absent
certain limited circumstances
(discussed in footnote 2), to declare a
dividend equal to the excess of the
amount required to maintain the
Reserve Ratio at 1.50 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
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
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.
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.
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
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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 Reform Act expressly requires the
FDIC to prescribe by regulation the
method for calculating, declaring and
paying dividends. The dividend
regulation must include provisions
allowing an insured depository
institution a reasonable opportunity to
challenge administratively the amount
of dividends it is awarded. Under the
Reform Act, any review by the FDIC
pursuant to these administrative
procedures is final and not subject to
judicial review.
explore alternative methods for
distributing future dividends after the
temporary dividend rules expired on
December 31, 2008. The publication of
the assessment dividend advance notice
of proposed rulemaking in September
2007 (‘‘ANPR’’) commenced that
process. 72 FR 53181 (September 18,
2007).
C. The Advanced Notice of Proposed
Rulemaking
In the ANPR the FDIC presented two
general approaches to allocating
dividends—the fund balance method
and the payments method.6
The Fund Balance Method
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B. The Temporary Final Rule on
Assessment Dividends
In compliance with the Reform Act
requirement to issue regulations on
assessment dividends within 270 days
of the statute’s enactment, in October
2006, the FDIC issued a temporary final
rule to implement the dividend
requirements of the Reform Act
(‘‘Temporary Final Rule’’). 71 FR 61385
(October 18, 2006).5
The Temporary Final Rule, which
will expire on December 31, 2008,
mirrors the dividend provisions of the
Reform Act, provides definitions
(including the definition of a
‘‘predecessor’’ depository institution) to
implement the statute and details how
an institution may request that the
FDIC’s Division of Finance (‘‘DOF’’)
review an FDIC determination of the
institution’s dividend amount and how
an institution may appeal the DOF’s
response to that request. In the
Temporary Final Rule, the FDIC
adopted a simple system for allocating
any dividends that might be declared
during the two-year duration of the
regulation. 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. 12 CFR 327.53.
In publishing the Temporary Final
Rule, the FDIC stated its intention to
initiate a second, more comprehensive
notice-and-comment rulemaking on
dividends beginning with an advanced
notice of proposed rulemaking to
Under the fund balance method, every
quarter, each institution would be
assigned a dollar portion of the fund
balance (its fund allocation), solely for
purposes of determining the
institution’s dividend share. Each
institution’s most recent fund allocation
(as a percentage of the fund balance)
would determine its share of any
dividend. The fund allocation would
increase or decrease each quarter
depending upon fund performance and
assessments paid by each institution.
Specifically:
• Initially, the December 31, 2006
fund balance would be divided up
among institutions in proportion to
1996 assessment bases. Thus, initially,
each institution’s fund allocation would
equal its 1996 ratio times the December
31, 2006 fund balance.
• Thereafter, from quarter to quarter,
fund allocations would grow or shrink
depending upon the performance of the
fund.
• In addition, each ‘‘eligible’’
premium would increase an
institution’s fund allocation, dollar for
dollar. An ‘‘eligible’’ premium would be
the portion of an institution’s premium
that would count toward increasing its
share of dividends.
• Possible definitions for an eligible
premium include: (1) All premiums
charged; (2) premiums charged up to the
lowest rate charged a Risk Category I
institution; or (3) something in between,
for example, premiums charged up to
the maximum rate for a Risk Category I
institution, in all cases minus any credit
use.7 Ineligible premiums would be
those paid through the use of credits or
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.
5 Prior to issuing the temporary final rule, the
FDIC published and received comment on a
proposed temporary final rule. 71 FR 28804.
6 The sole focus of the ANPR was on the type of
assessment dividend allocation method the FDIC
should adopt. The ANPR indicated that whether
and how the FDIC should retain or revise the other
aspects of the Temporary Final Rule would be
addressed in this proposed rule.
7 However, an eligible premium would never be
negative.
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those paid in cash at rates in excess of
the eligible premium rate.
The Payments Method
Under the payments method an
institution’s share of any dividend
would depend upon its (and its
predecessors’) 1996 assessment base,
weighted in some manner, and its
quarterly assessments. Specifically:
• At the start of the new assessments
system, each institution’s dividend
share would depend upon its 1996
assessment base compared to all other
institutions, weighted in some manner.
• The resulting value assigned to each
institution based on its 1996 ratio could
either remain unchanged or be assigned
a declining weight over time.
• The possible definitions of an
eligible (and an ineligible) premium are
the same as those under the fund
balance method. (However, under
certain variations of this method
discussed below, assessments offset
through credit use could increase an
institution’s dividend share.)
• Cumulative eligible premiums paid
into the fund since 1996 would add to
an institution’s share.
• Alternatively, the FDIC could count
only eligible premiums paid over some
recent period, for example, the most
recent 3, 5, 10 or 15 years. In contrast,
the fund balance method would
necessarily take into account all
assessment payments made under the
new assessment system.
• Another variation would allow the
FDIC to subtract dividends paid to an
institution from its eligible premiums.
The ANPR presented two illustrative
variations of the payments method.
Under Variation 1, the Board could, as
under the fund balance method, initially
divide the 2006 fund balance based on
each institution’s share of the December
1996 assessment base. Eligible
premiums after 1996 would be added to
that amount. Under Variation 2, only
premiums paid over some prior period
(such as the previous 15 years) would be
considered. When the prior period
covered any year before 2007, the years
1997 through 2006 would be skipped,
since the great majority of institutions
paid no deposit insurance premiums
then. Thus, for example, to determine
dividend shares at the end of 2009, the
method would consider premiums paid
from 1985 through 1996 and from 2007
through 2009. Premiums paid during
2007, 2008 and 2009 would include
only eligible premiums. However,
because the weight accorded the 1996
ratio would effectively decline to zero
over time, eligible premiums after 2006
would include eligible premiums offset
with credits. An eligible premium paid
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in 1996 or any earlier year would be
calculated as an institution’s share of
the 1996 assessment base times total
deposit insurance fund assessment
income in that year.8
The ANPR provided additional details
and variations on the alternate
allocation methods, addressing issues
including: risk reduction incentives, the
treatment of older versus newer
institutions, simplicity, relative
dividend shares, the treatment of
institutions chartered in the future and
remaining decision-making for the
Board. The ANPR also included charts
and tables on the alternate allocation
methods as well as formulas for
determining dividends under different
scenarios.
II. Comments on the ANPR
We received five comment letters on
the ANPR: two from banking trade
associations; one from a trade
association representing large financial
services companies; one from a coalition
of four insured depository institutions;
and one from a single depository
institution that also was a member of
the coalition. As the single institution’s
comments and recommendations were
virtually identical to the coalition’s, its
response is not included separately in
the following summary.
The two banking trade associations
recommended that conservative fund
management ensure that the fund be
kept below the 1.35 percent statutory
level that would trigger dividends. Both
argued that low and steady premiums
would limit the effect on both the old
and new segments of the industry and
not unfairly favor one set of institutions
over the other. The financial services
trade association concurred with the
bank trade associations on the
importance of keeping the fund balance
below the level that would trigger
dividends.
The two banking trade associations
took no position on either of the two
proposed dividend allocation methods,
the fund balance method or the
payments method. The depository
institution coalition recommended
adopting a modified form of the ANPR’s
Variation 2 of the payments method:
instead of a 15-year look-back period
that would exclude the years 1997–
2006, it recommended a shortened lookback period of 5 years, without skipping
the years 1997–2006. Unlike the ANPR’s
Variation 2, it did not explicitly
describe how, if at all, the 1996
8 For
years prior to 1990, deposit insurance fund
assessment income used to produce Chart 5 and
Table 5 includes such income for both the FDIC and
the Federal Savings and Loan Insurance
Corporation.
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assessment base would be considered in
determining an institution’s dividends.
The financial services trade association
recommended that, if the FDIC is not
able to maintain the fund below 1.35
percent, it adopt the payments method,
structured as simply as possible.
Specifically, it supported a 3–5 year
look-back period for premiums, with no
weight given to the 1996 assessment
base.
The three trade associations
recommended that eligible premiums be
defined as premiums charged up to the
maximum rate for a Risk Category I
institution. The coalition did not
explicitly discuss this aspect of the
ANPR.9 The financial services
association and the coalition
recommended that premiums offset
with credits be excluded from eligible
premiums. One banking trade
association argued that, if the fund
balance method were adopted,
premiums offset by credits should be
excluded.
Respondents generally were
interested in simplicity and
transparency. One trade association
cautioned that any method adopted
should be simple, transparent, and not
require constant FDIC intervention and
decision-making.
III. Explanation of the Proposed Rule
A. Overview
As part of the proposed rule, the
FDIC, in accordance with requirements
in the Reform Act, must establish the
process for the Board’s annual
determination of whether a declaration
of a dividend is required and whether
circumstances indicate that a dividend
should be limited or suspended. In
addition, the FDIC must establish
procedures for calculating the aggregate
amount of any dividend, allocating that
aggregate amount among insured
depository institutions and paying
dividends to individual insured
depository institutions. The regulations
also must allow an insured depository
institution a reasonable opportunity to
challenge the amount of its dividend.
B. Annual Determination of Whether
Dividends Are Required/Declaration of
Dividends
The provisions in the proposed rule
for the annual determination of whether
dividends are required and the
declaration of dividends are unchanged,
9 The
coalition did, however, argue against
skipping the 1997–2006 period in determining the
look-back period. During these years, however, only
institutions that were not in what is now called
Risk Category I would have paid premiums.
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15461
with one minor exception, from the
provisions in the Temporary Final Rule.
Under the proposed rule, the FDIC
would 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
1.50 percent, thereby triggering a
dividend requirement. At the same time,
if a dividend is triggered, the FDIC
would 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. As proposed, any
declaration with respect to dividends
would be made on or before May 10th
for the preceding calendar year. The
May 10th date for the declaration of
dividends differs from the May 15th
date in the Temporary Final Rule. This
slightly revised timing still would
provide enough time for the Board to
consider final data for the end of the
preceding year regarding the Reserve
Ratio, as well as to perform an 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. In addition, the May 10th
date would allow more time,
operationally, for the notification and
payment of dividends and the FDIC’s
handling of requests for review of
dividend amounts.
Under the proposed rule, if the FDIC
does not limit or suspend the payment
of dividends or does not renew such a
determination, then the aggregate
amount of the dividend would be
determined as provided by the Reform
Act. When the Reserve Ratio equals or
exceeds 1.35 percent (but is not higher
than 1.50 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 percent as the aggregate amount
of dividends to be paid to insured
depository institutions. When the
Reserve Ratio exceeds 1.50 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 1.50 percent as
dividends to be paid to institutions.
C. Allocation of Dividends
As noted, in the Temporary Final
Rule the FDIC adopted a simple system
for allocating dividends, which will
remain in place until December 31,
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2008, when the Temporary Final Rule
terminates. Under that allocation
method, any dividends awarded in 2007
or 2008 would have been distributed
simply in proportion to an institution’s
1996 assessment base ratio. However, no
dividend was awarded in 2007 and
none will be awarded in 2008 because
the Reserve Ratio at the end of 2006 and
2007 was less than 1.35 percent.
After thoroughly considering the
comments received, the FDIC is
proposing a variation of the payments
method for allocating future assessment
dividends to FDIC-insured institutions.
The proposed rule would divide the
total dividend in any year into two
parts. One of the two parts would be
allocated based on the ratio of each
institution’s (including any
predecessors’) 1996 assessment base
compared to the total of all existing
eligible institutions’ 1996 assessment
bases (an institution’s ‘‘1996 assessment
base share’’). The other part of the total
dividend would be allocated based on
each institution’s (including any
predecessors’) ratio of cumulative
eligible premiums (defined below) over
the previous five years to the total of
cumulative eligible premiums paid by
all existing institutions (or their
predecessors) over the previous five
years (an institution’s ‘‘eligible premium
share’’). The part of any potential
dividend that would be allocated based
upon 1996 assessment base shares
would decline steadily from 100 percent
to zero over 15 years; the part of any
potential dividend that would be
allocated based upon eligible premium
shares would increase steadily over the
same 15-year period from zero to 100
percent. After the 15-year period, any
dividend would be allocated solely
based on eligible premium shares.
The 15-year period would run from
the end of 2006 to the end of 2021 and
would govern dividends based upon the
Reserve Ratio at the end of the years
2008 through 2021.10 Actual dividends,
if any, would be allocated and paid the
following year. Table A shows the
change in the allocation of potential
dividends over time.
TABLE A.—TOTAL DIF DIVIDEND DISTRIBUTION TABLE
Part of total DIF dividend determined
by:
Based upon the DIF reserve ratio at year-end
1996 Assessment
base shares
2006 10 .........................................................................................................................................................
2007 10 .........................................................................................................................................................
2008 .............................................................................................................................................................
2009 .............................................................................................................................................................
2010 .............................................................................................................................................................
2011 .............................................................................................................................................................
2012 .............................................................................................................................................................
2013 .............................................................................................................................................................
2014 .............................................................................................................................................................
2015 .............................................................................................................................................................
2016 .............................................................................................................................................................
2017 .............................................................................................................................................................
2018 .............................................................................................................................................................
2019 .............................................................................................................................................................
2020 .............................................................................................................................................................
2021 .............................................................................................................................................................
Thereafter ....................................................................................................................................................
1 (100.0%)
14/15 (93.3%)
13/15 (86.7%)
4/5 (80.0%)
11/15 (73.3%)
2/3 (66.7%)
3/5 (60.0%)
8/15 (53.3%)
7/15 (46.7%)
2/5 (40.0%)
1/3 (33.3%)
4/15 (26.7%)
1/5 (20.0%)
2/15 (13.3%)
1/15 (6.7%)
0 (0%)
0%
Eligible premium
shares
0 (0%)
1/15 (6.7%)
2/15 (13.3%)
1/5 (20.0%)
4/15 (26.7%)
1/3 (33.3%)
2/5 (40.0%)
7/15 (46.7%)
8/15 (53.3%)
3/5 (60.0%)
2/3 (66.7%)
11/15 (73.3%)
4/5 (80.0%)
13/15 (86.7%)
14/15 (93.3%)
1 (100.0%)
100.0%
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10 As discussed earlier, had dividends actually been awarded based upon the 2006 and 2007 reserve ratios, the dividends would have been allocated pursuant to the existing rule governing dividends.
Thus, for example, if a dividend were
awarded based upon the Reserve Ratio
at the end of 2018, one-fifth of the total
dividend would be allocated based
upon 1996 assessment base shares and
four-fifths of the total dividend would
be allocated based upon eligible
premium shares.11
The 15-year period over which the
influence of 1996 assessment bases
would decline represents a compromise
between two legitimate, but opposing,
arguments. On one hand, a 15-year
period recognizes the significant
contributions made by some institutions
in the early 1990s to capitalize the
deposit insurance fund and that the
interest earned on this capital continues
to help fund the FDIC. On the other
11 The dividend would actually be awarded and
paid in 2019.
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hand, a 15-year period does not give
these institutions an advantage that
could last indefinitely in obtaining
dividends, as would occur under the
fund balance method absent very large
insurance losses. It is also consistent
with an argument noted in a comment
letter that the $4.7 billion one-time
assessment credit, which was awarded
under the Reform Act and distributed
according to the 1996 assessment base
shares, was intended to compensate
institutions that helped capitalize the
insurance funds in the early 1990s.
Cumulating eligible premiums over
the 5-year period preceding the year of
the dividend is consistent with the
specific recommendations made by the
large financial services company trade
association and the coalition in their
comment letters. A 5-year look-back
period recognizes that the Reform Act
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enhances the FDIC’s ability to control
the growth of the fund over time
through the level of assessment rates.
Certain events, however, such as an
unanticipated decline in estimated
insured deposits or unexpectedly high
investment income, could raise the fund
over the 1.35 percent dividend
threshold. Thus, assessments charged
over some relatively short period
preceding the unexpected events would
have proven in retrospect to be too high,
and the dividend would serve as a
rebate of excess funds.12
Eligible Premiums
Based upon the unanimous
recommendations of all respondents
12 One of the banking trade associations that
commented on the ANPR cited essentially the same
argument as a justification for adopting the
payments method.
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who commented specifically on the
issue, the FDIC is proposing that an
eligible premium be defined as the part
of any actual assessment that is charged
at no more than the maximum rate then
applicable to a Risk Category I
institution. Under the assessment rate
schedule presently in effect, the
minimum and maximum rates that can
be charged a Risk Category I institution
differ by two basis points. At present,
the minimum annual rate applicable to
a Risk Category I institution is 5 basis
points and the maximum rate is 7 basis
points. Thus, the entire assessment of an
institution charged anywhere between 5
and 7 basis points would be an eligible
premium, but only 7/10 of the
assessment of an institution in Risk
Category II (charged 10 basis points
under the current schedule) would be
eligible so long as this rate schedule is
in effect.13
Under the proposed rule, whether an
institution paid its assessment in cash
or offset it with assessment credits
would not affect its eligible premiums.
Thus, again assuming present
assessment rates, the entire assessment
of an institution charged 7 basis points
would be an eligible premium, whether
the institution paid in cash or offset its
assessment liability with an assessment
credit. The FDIC currently anticipates
that the great bulk of assessment credits
(over 95 percent) will have been used by
the end of 2008.
An institution’s eligible premiums
would include eligible premiums paid
by a predecessor.
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How the Dividend Allocation Method
Would Affect Different Institutions
The proposed dividend allocation
method would affect institutions
differently depending upon their 1996
assessment base and the amount of
eligible premiums charged during the
five years before a dividend is declared.
Assume, for example, that a
hypothetical dividend of $1 billion were
awarded based upon the 2018 Reserve
Ratio. Of the $1 billion total dividend,
$200 million-one-fifth (20 percent)—
would be allocated based upon 1996
assessment base shares and $800
million—four-fifths (80 percent)—
would be allocated based upon eligible
premium shares.14 An institution that
13 If the year-end reserve ratio in 2009 or 2010
exceeds 1.35 percent and the FDIC declares a
dividend for that year, the 5-year look-back period
would include years before 2007. Institutions in
what is now termed Risk Category I (formerly the
‘‘1A’’ risk classification), however, were charged a
zero rate from 1997 through 2006. Thus, under the
proposal, no premium paid before 2007 would be
eligible.
14 Again, the dividend would actually be awarded
and paid in 2019.
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held 0.1 percent of the 1996 assessment
base and had made 0.05 percent of total
eligible premiums from 2014 through
2018 would receive a dividend of
$600,000 (0.1 percent of $200 million—
which equals $200,000—plus 0.05
percent of $800 million—which equals
$400,000). An institution that had no
1996 assessment base but had made the
identical percentage (0.05 percent) of
total eligible premiums from 2014
through 2018 would receive $400,000.
An institution that consistently paid
the lowest rate applicable to Risk
Category I would receive a smaller
dividend than one that paid the highest
rate applicable to Risk Category I,
assuming identical future assessment
bases and identical 1996 assessment
base shares, since the institution paying
the higher rate would have paid higher
premiums and would have a larger
eligible premium share. However, an
institution that consistently paid a rate
outside of Risk Category I (for example,
the Risk Category II rate) would receive
the same dividend as an institution that
paid the highest rate applicable to Risk
Category I, again assuming identical
future assessment bases and identical
1996 assessment base shares.
An addendum explains the dividend
allocation calculation in greater detail.
Predecessor Insured Depository
Institutions
Under the proposed rule, consistent
with the requirements of the Reform
Act, the allocation of dividends to an
insured depository institution would in
part be based on the 1996 assessment
base ratio of, and the post-l996
assessments paid by, insured depository
institutions of which the insured
depository institution is the successor.
As in the Temporary Final Rule, the
proposed rule would define a
predecessor insured depository
institution by cross referencing the
definition of successor insured
depository institution in the one-time
assessment credit rule. (See 12 CFR 327,
subpart B.) In effect, a predecessor
institution is the mirror image of a
successor institution. Notably, the
definition of successor in the one-time
credit regulation includes a de facto
rule, applicable in transactions in which
an insured depository institution
assumes substantially all of the deposit
liabilities and acquires substantially all
of the assets of another insured
depository institution.
D. Notification and Payment of
Dividends
Under the proposed rule, the FDIC
would advise each institution of its
dividend amount as soon as practicable
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15463
after the Board’s declaration of a
dividend on or before May 10th.
Individual dividend amounts would be
paid to institutions no later than 45
days, or as soon as practicable, after the
issuance of the special notice. This
timeframe would 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 10th, and the expiration of
the 30-day period for requesting review
(explained below), 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 would be paid
through the Automated Clearing House
(‘‘ACH’’). If they are paid at the time of
assessment payments, offsets would be
made. If 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). The FDIC
plans to notify institutions whether
dividends would offset the next
assessment payments with the next
invoice.
Under the proposed rule, the FDIC
would freeze the payment of the
disputed portion of dividend amounts
involved in requests for review. In the
absence of such action, institutions
would receive the amount indicated on
the notice. Any adjustment to an
individual institution’s dividend
amount resulting from its request for
review would be handled through ACH
in the same manner as existing
procedures for underpayment or
overpayment of assessments.
The FDIC intends, beginning no later
than 2010, to include with its quarterly
assessment invoices to insured
depository institutions the institution’s
1996 assessment base share and its
rolling five-year eligible premium share.
E. Requests for Review
The Reform 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 request-for-review provisions of
the proposed rule, for dividend
amounts, are similar to those in the
Temporary Final Rule, but they reflect
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Federal Register / Vol. 73, No. 57 / Monday, March 24, 2008 / Proposed Rules
the FDIC’s intention to provide,
beginning in 2010, quarterly dividendrelated information with each
institution’s assessment invoice. If a
dividend were declared before 2010, an
institution would have 30 days from the
date of the notice advising it of its
dividend amount to request review.
Review could be requested if an
institution disagrees with the
computation of the dividend or if it
believes that it does not accurately
reflect appropriate adjustments to the
institution’s 1996 assessment base ratio
or eligible premium share, such as for a
purchase and assumption transaction
that triggers application of the de facto
rule for purposes of determining any
predecessor institutions. Once the
quarterly invoice updates become
available as contemplated under the
proposed rule, an institution generally
would have 90 days from the date of the
invoice to request review of that
dividend-related information, except in
a year in which a dividend is declared.
If the FDIC were to declare a dividend,
the institution would have 30 days from
the date of its notice of dividend
amount to request review either of that
amount or of any dividend-related
information in its March invoice for that
year; the institution would not have the
full 90-day period following the March
invoice to request review.
An institution must timely request
review of its dividend-related
information and must request review
within 90 days of the first invoice that
fails to reflect accurate information. If
an institution does not submit a timely
request for review of its dividendrelated information, it would be barred
from subsequently requesting review of
that information.
The requirement that insured
depository institutions monitor their
dividend-related information quarterly
and promptly request review is
necessitated by the proposed timing for
the payment of dividends. In the
absence of such a strict quarterly
requirement, the FDIC would need to
reconsider both the timing of dividend
payment and possibly the look-back
period for calculating institutions’
dividend shares, which at 5 years is
longer than the 3-year recordkeeping
requirement in the FDI Act and longer
than the 3-year statute of limitations for
bringing action on assessment
underpayments and overpayments.
As under the current rule, at the time
of the request for review, the requesting
institution also would be required to
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
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would be required to 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 would make reasonable efforts,
based on its official systems of records,
to determine that such institutions have
been identified and notified.
These institutions would 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 notified
through this process does not submit a
timely response, that institution would
be foreclosed from subsequently
disputing the information submitted by
any other institution on the
transaction(s) at issue in the review
process. Also under the proposed rule,
the FDIC could request additional
information as part of its review, and
the institution from which such
information is requested would be
required to supply that information
within 21 days of the date of the FDIC’s
request.
The proposed rule would require a
written response from the FDIC’s
Director of the Division of Finance
(‘‘Director’’), or his or her designee,
notifying the 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 could appeal its
dividend determination to the FDIC’s
Assessment Appeals Committee
(‘‘AAC’’). Under the proposed rule, 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 would be included with the
written response. The AAC’s
determination would be final and not
subject to judicial review.
As noted, and as under the Temporary
Final Rule, the FDIC proposes to freeze
temporarily the distribution of the
dividend amount in dispute for the
institutions involved in the challenge
until the challenge is resolved.
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IV. Request for Comments
The FDIC requests comments on all
aspects of the proposed rule. Comments
are specifically requested on the
proposed dividend allocation method.
V. Regulatory Analysis and Procedure
A. Solicitation of Comments on Use of
Plain Language
Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113
Stat. 1338, 1471 (Nov. 12, 1999),
requires the Federal banking agencies to
use plain language in all proposed and
final rules published after January 1,
2000. We invite your comments on how
to make this proposal easier to
understand. For example:
• Have we organized the material to
suit your needs? If not, how could this
material be better organized?
• Are the requirements in the
proposed regulation clearly stated? If
not, how could the regulation be more
clearly stated?
• Does the proposed regulation
contain language or jargon that is not
clear? If so, which language requires
clarification?
• Would a different format (grouping
and order of sections, use of headings,
paragraphing) make the regulation
easier to understand? If so, what
changes to the format would make the
regulation easier to understand?
• What else could we do to make the
regulation easier to understand?
B. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) requires a federal agency
publishing a notice of proposed
rulemaking to prepare and make
available for public comment an initial
regulatory flexibility analysis that
describes the impact of the proposed
rule on small entities. 5 U.S.C. 603(a).
Pursuant to regulations issued by the
Small Business Administration (13 CFR
121.201), a ‘‘small entity’’ includes a
bank holding company, commercial
bank or savings association with assets
of $165 million or less (collectively,
small banking organizations). The RFA
provides that an agency is not required
to prepare and publish a regulatory
flexibility analysis if the agency certifies
that the proposed rule would not have
a significant impact on a substantial
number of small entities. 5 U.S.C.
605(b).
Pursuant to section 605(b) of the RFA,
the FDIC certifies that the proposed rule
would not have a significant economic
impact on a substantial number of small
entities. The proposed rule, if adopted
in final form, would provide the
procedures for the FDIC’s declaration,
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Federal Register / Vol. 73, No. 57 / Monday, March 24, 2008 / Proposed Rules
distribution, and payment of dividends
to insured depository institutions under
the circumstances set forth in the FDI
Act. While each insured depository
institution would have the opportunity
to request review of the amount of its
dividend each time a dividend is
declared, the proposed rule would rely
on information already collected and
maintained by the FDIC in the regular
course of business. The proposed rule,
if adopted, would not directly or
indirectly impose any reporting,
recordkeeping or compliance
requirements on insured depository
institutions.
C. Paperwork Reduction Act
No collections of information
pursuant to the Paperwork Reduction
Act (44 U.S.C. Ch. 3501 et seq.) are
contained in the proposed rule.
D. The Treasury and General
Government Appropriations Act, 1999—
Assessment of Federal Regulations and
Policies on Families
The FDIC has determined that the
proposed rule will not affect family
well-being within the meaning of
section 654 of the Treasury and General
Government Appropriations Act,
enacted as part of the Omnibus
Consolidated and Emergency
Supplemental Appropriations Act of
1999 (Pub. L. 105–277, 112 Stat. 2681).
15465
Addendum
The illustrations below provide a
more detailed description of the
dividend allocation calculation. Both
illustrations again assume that a
hypothetical dividend of $1 billion is
awarded based upon a hypothetical
2018 Reserve Ratio. In the illustrations,
Institution A and Institution B are
assumed to be identical except that A
has a 1996 assessment base, and B does
not. They both pay Risk Category I
premiums at the same rate. Institution C
is identical to Institution A (it has a
1996 assessment base), but it differs
from both A and B in that it pays the
higher Risk Category II assessment rate.
ILLUSTRATION 1.—DIVIDEND OF $1 BILLION BASED ON 2018 RESERVE RATIO
20 percent ($200 million) allocated based on 1996 assessment base shares
80 percent ($800 million) allocated based upon eligible premium shares
Bank A’s 1996 assessment base = $400 million (0.01203% of industry total)
Bank B’s 1996 assessment base = $0
Banks have identical assessment bases and pay the lowest assessment rate applicable to Risk Category I (assumed to be 2 basis points) 15
Year
2014
2015
2016
2017
2018
Assessment base
($000)
.........................................................................................
.........................................................................................
.........................................................................................
.........................................................................................
.........................................................................................
Rate (B.P.)
500,000
522,500
546,013
570,583
596,259
Premium ($000)
2
2
2
2
2
Eligible premium
($000)
100
105
109
114
119
100
105
109
114
119
5-year sum .....................................................................................................................................................................................
Industry 5-year sum .......................................................................................................................................................................
Each bank’s share of industry 5-year eligible premium ................................................................................................................
Bank A’s dividend ($000) = 0.01203% of $200 million + 0.00456% of $800 million: ..................................................................
Bank B’s dividend ($000) = 0.0456% of $800 million: ..................................................................................................................
547
12,000,000
0.00456%
60.531
36.471
ILLUSTRATION 2.—DIVIDEND OF $1 BILLION BASED ON 2018 RESERVE RATIO
[20 percent ($200 million) allocated based on 1996 assessment base shares]
[80 percent ($800 million) allocated based upon eligible premium shares]
Bank C’s 1996 assessment base = $400 million (0.01203% of industry total).
Bank C’s 1996 assessment base is identical to Banks A and B (Illustration 1).
Pays rate applicable to Risk Category II (assumed to be 7 basis points).
Year
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2014
2015
2016
2017
2018
Assessment base
($000)
.........................................................................................
.........................................................................................
.........................................................................................
.........................................................................................
.........................................................................................
500,000
522,500
546,013
570,583
596,259
Rate (B.P.)
Premium ($000)
7
7
7
7
7
Eligible premium
($000)
350
366
382
417
417
200
209
218
239
239
5-year sum .....................................................................................................................................................................................
Industry 5-year sum .......................................................................................................................................................................
Bank C’s share of industry 5-year eligible premium .....................................................................................................................
Bank C’s dividend ($000) = 0.01203% of $200 million + 0.00912% of $800 million: ..................................................................
1,094
12,000,000
0.00912%
97.003
15 The illustrations assume that assessment rates
charged in 2014–2018 equal the base assessment
rates adopted by the Board at the end of 2006: 2–
4 basis points for Risk Category I and 7 basis points
for Risk Category II.
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Federal Register / Vol. 73, No. 57 / Monday, March 24, 2008 / Proposed Rules
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks,
Banking, Savings associations.
Authority and Issuance
For the reasons set forth in the
preamble, chapter III of title 12 of the
Code of Federal Regulations is amended
by revising subpart C to read as follows:
PART 327—ASSESSMENTS
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.
Subpart C—Implementation of
Dividend Requirements
Authority: 12 U.S.C. 1817(e)(2), (4).
§ 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 provides 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.
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§ 327.51
Definitions.
For purposes of this subpart:
(a) Assessment base share means an
insured depository institution’s 1996
assessment base ratio divided by the
total of all existing, eligible insured
depository institution’s shares of the
1996 assessment base (rounded to seven
decimal places).
(b) Board has the same meaning as
under subpart B of this part.
(c) DIF means the Deposit Insurance
Fund.
(d) An eligible premium means an
assessment paid by an insured
depository institution (or its
predecessor) that did not exceed, for the
applicable assessment period, the
maximum assessment applicable in that
assessment period to a Risk Category 1
institution under subpart A of this part.
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(e) An insured depository institution’s
eligible premium share means that
institution’s cumulative eligible
premiums over the previous five years
(ending on December 31st of the year
prior to the year in which the dividend
is declared) divided by the cumulative
total of all eligible premiums paid by all
existing insured depository institutions
or their predecessors over that five-year
period (rounded to seven decimal
places).
(f) An insured depository institution’s
1996 assessment base ratio means an
institution’s 1996 assessment base ratio,
as determined pursuant to the § 327.33
of subpart B of this part, adjusted as
necessary 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
§ 327.34. The 1996 assessment base ratio
shall be rounded to seven decimal
places.
(g) Predecessor, when used in the
context of insured depository
institutions, refers to the institution
merged with or into a resulting
institution or acquired by an institution
under § 327.33(c) of subpart B under the
de facto rule, consistent with the
definition of successor in section
327.31.
§ 327.52
Annual dividend determination.
(a) On or before May 10th 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 1.50 percent, the Board shall
declare the amount that is equal to onehalf 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 1.50 percent of estimated
insured deposits, except as provided in
paragraph (d), the Board shall declare
the amount in excess of the amount
required to maintain the reserve ratio at
1.50 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:
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(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 1.50 percent;
or
(B) To exceed 1.50 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.
§ 327.53 Allocation and payment of
dividends.
(a) (1) The allocation of any dividend
among insured depository institutions
shall be based on the institution’s 1996
assessment base share and the
institution’s eligible premium share.
(2) As set forth in the following table,
the part of a dividend allocated based
upon an institution’s 1996 assessment
base share shall decline steadily from
100 percent to zero over fifteen years,
and the part of a dividend allocated
based upon an institution’s eligible
premium share shall increase steadily
over the same fifteen-year period from
zero to 100 percent. The 15-year period
shall begin as if it had applied to a
dividend based upon the reserve ratio at
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the end of 2006 and shall end with
respect to any dividend based upon the
reserve ratio at the end of 2021.
Dividends based upon the reserve ratio
as of December 31, 2021, and thereafter
shall be allocated among insured
15467
depository institutions based solely on
eligible premium shares.
TOTAL DIF DIVIDEND DISTRIBUTION TABLE
Part of total DIF dividend determined
by:
Based upon the DIF reserve ratio at year-end
1996 Assessment
base shares
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2006 .............................................................................................................................................................
2007 .............................................................................................................................................................
2008 .............................................................................................................................................................
2009 .............................................................................................................................................................
2010 .............................................................................................................................................................
2011 .............................................................................................................................................................
2012 .............................................................................................................................................................
2013 .............................................................................................................................................................
2014 .............................................................................................................................................................
2015 .............................................................................................................................................................
2016 .............................................................................................................................................................
2017 .............................................................................................................................................................
2018 .............................................................................................................................................................
2019 .............................................................................................................................................................
2020 .............................................................................................................................................................
2021 .............................................................................................................................................................
Thereafter ....................................................................................................................................................
The 15-year period shall be computed
as if it had applied to dividends based
upon the reserve ratios at the end of
2006 and 2007.
(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, unless they are the
subject of a request for review under
§ 327.54 of this subpart, to insured
depository institutions no later than 45
days, or as soon as practicable
thereafter, 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 by the FDIC to reflect
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the net amount owed to the FDIC as an
assessment.
(d) If an insured depository
institution’s dividend amount is subject
to review under § 327.54, and that
request is not finally resolved prior to
the dividend payment date, the FDIC
shall withhold the payment of the
disputed portion of the dividend
amount involved in the request for
review. 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.
§ 327.54
Requests for review.
(a) An insured depository institution
may submit a request for review of the
FDIC’s determination of the institution’s
1996 assessment base share and/or its
eligible premium share as shown on the
institution’s quarterly assessment
invoice. Such requests shall be subject
to the provisions of § 327.3(f)(3) of
subpart A of this part, except for the
invoice provided by the FDIC in March
of any calendar year in which the FDIC
declares a dividend. If the FDIC declares
a dividend, any request for review of an
institution’s 1996 assessment base share
and/or its eligible premium share as
shown on the institution’s March
quarterly assessment invoice must be
filed within 30 days of the date that the
FDIC notifies the institution of its
dividend amount. If an institution does
not submit a timely request for review
for the first invoice in which the
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Sfmt 4702
1 (100.0%)
14/15 (93.3%)
13/15 (86.7%)
4/5 (80.0%)
11/15 (73.3%)
2/3 (66.7%)
3/5 (60.0%)
8/15 (53.3%)
7/15 (46.7%)
2/5 (40.0%)
1/3 (33.3%)
4/15 (26.7%)
1/5 (20.0%)
2/15 (13.3%)
1/15 (6.7%)
0 (0%)
0 (0%)
Eligible premium
shares
0 (0%)
1/15 (6.7%)
2/15 (13/3%)
1/5 (20.0%)
4/15 (26.7%)
1/3 (33.3%)
2/5 (40.0%)
7/15 (46.7%)
8/15 (53.3%)
3/5 (60.0%)
2/3 (66.7%)
11/15 (73.3%)
4/5 (80.0%)
13/15 (86.7%)
14/15 (93.3%)
1 (100.0%)
1 (100%)
dividend-related information that forms
the basis for the request appears, the
institution shall be barred from
subsequently requesting review of that
information.
(b) 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. 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
(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 §§ 327.33 and
327.34 of subpart B of this part and
§ 327.51(g) of this subpart, and the
institution has not had a prior
opportunity to request review or appeal
under subpart B of this part or
paragraph (a) of this section; or
(3) The institution believes that the
special notice does not fully or
accurately reflect its eligible premiums
or those of any of its predecessors and
the institution has not had a prior
opportunity to request review or appeal
under subpart B of this part or
paragraph (a) of this section.
(c) Any such request for review under
paragraph (b) of this section must be
submitted within 30 days of the date of
the special notice of dividend for which
a change is requested. The request for
review shall be submitted to the
E:\FR\FM\24MRP1.SGM
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pwalker on PROD1PC71 with PROPOSALS
15468
Federal Register / Vol. 73, No. 57 / Monday, March 24, 2008 / Proposed Rules
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.
(d) During the FDIC’s consideration of
a request for review, the amount of
dividend in dispute will not be
available for use by any institution.
(e) Within 30 days of receiving notice
of the request for review under
paragraph (b) of this section, 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 (c) 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.
(f) 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.
(g) Any institution submitting a
timely request for review under
paragraph (b) of this section 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 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
VerDate Aug<31>2005
16:41 Mar 21, 2008
Jkt 214001
(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.
(h) 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 (b)
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.
Dated at Washington, DC, this 14th day of
March, 2008.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. E8–5670 Filed 3–21–08; 8:45 am]
BILLING CODE 6714–01–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
Lender Oversight and Credit Risk
Management Program; Public
Comment Meetings
U.S. Small Business
Administration.
ACTION: Notice of Public Comment
Meetings.
AGENCY:
SUMMARY: The U.S. Small Business
Administration (SBA) announces that it
will be holding a series of public
comment meetings on SBA’s proposed
lender oversight/credit risk management
rule. These public comment meetings
will be held in selected cities across the
country. The purpose of the meetings is
to broaden the opportunity for public
participation in the rulemaking.
Comments presented at these public
comment meetings will become part of
the administrative record for SBA’s
consideration in promulgating SBA’s
lender oversight/credit risk management
regulations.
DATES: The public comment meetings
will be held on the dates, times and at
the locations specified in the Meetings
Schedule section below. All attendees
should register at least one week prior
to the scheduled meeting date.
ADDRESSES: Parties interested in
commenting at or attending a public
comment meeting must register by
providing a request to Keri Pessagno,
SBA Office of Credit Risk Management,
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
at keri.pessagno@SBA.gov, or (202) 205–
6496, or by facsimile to (202) 481–0744.
FOR FURTHER INFORMATION CONTACT:
Bryan Hooper, Director, SBA Office of
Credit Risk Management, at
bryan.hooper@SBA.gov, or (202) 205–
3049, or by facsimile (202) 205–6891.
SUPPLEMENTARY INFORMATION:
I. Background
On October 31, 2007, SBA published
a proposed rule to incorporate SBA’s
risk based lender oversight program into
SBA regulations (72 FR 61752) and, on
December 20, 2007, extended the
comment period on the proposed rule to
February 29, 2008. (72 FR 72264). SBA
included in the proposed rule a
proposed regulatory framework for
SBA’s oversight of participants in the
7(a), 504 and Microloan lending
programs. This regulatory framework
would enhance SBA’s Office of Credit
Risk Management’s (OCRM) ability to
maximize the efficiency of SBA’s
lending programs by effectively
managing program credit risk,
monitoring lender performance, and
enforcing lending program
requirements. It is SBA’s intent that the
proposed framework would also
incorporate the mission of SBA to assist
small business access to credit. While
the comments received on the proposed
rule are greatly assisting SBA with its
deliberations, SBA would like to
broaden public participation by offering
the public an opportunity to meet with
SBA in person and communicate their
comments. This Notice provides
information on the purpose, format,
scheduling, and registration for the
public comment meetings.
II. Public Comment Meetings
The purpose of these public comment
meetings is to broaden the opportunity
for public participation in the
rulemaking by providing a mechanism
beyond the single written round of
notice and comment and enable SBA to
more fully comprehend the views of the
public. SBA considers public comment
meetings a valuable component of its
deliberations and believes that these
comment meetings will allow for
constructive input by the lending
community, their appointed
representatives, and other members of
the public. The comments conveyed
would assist SBA in assessing and
refining SBA’s proposed rule.
The format will consist of a panel of
SBA representatives who will represent
the Agency and moderate the oral
comments. The panel will listen to the
views of the oral commenters on the
proposed regulations. SBA respectfully
E:\FR\FM\24MRP1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 57 (Monday, March 24, 2008)]
[Proposed Rules]
[Pages 15459-15468]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5670]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 73, No. 57 / Monday, March 24, 2008 /
Proposed Rules
[[Page 15459]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AD27
Assessment Dividends
AGENCY: Federal Deposit Insurance Corporation (``FDIC'').
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The FDIC is proposing regulations to implement the assessment
dividend requirements in the Federal Deposit Insurance Reform Act of
2005 (``Reform Act'') and the Federal Deposit Insurance Reform
Conforming Amendments Act of 2005 (``Amendments Act''). The proposed
rule is the follow-up to the advanced notice of proposed rulemaking on
assessment dividends the FDIC issued in September 2007 and the
temporary final rule on assessment dividends the FDIC issued in October
2006. The temporary final rule sunsets on December 31, 2008.
DATES: Comments must be received on or before May 23, 2008.
ADDRESSES: You may submit comments by any of the following methods:
Agency Web Site: https://www.fdic.gov/regulations/laws/
federal. Follow instructions for submitting comments on the Agency Web
Site.
E-mail: Comments@FDIC.gov. Please include ``Assessment
Dividends'' in the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m. (EST).
Federal eRulemaking Portal: https://www.regulations.gov.
Please follow the instructions for submitting comments.
Public Inspection: All comments received will be posted without
change to https://www.fdic.gov/regulations/laws/federal including any
personal information provided. Comments may be inspected and
photocopied in the FDIC Public Information Center, 3501 North Fairfax
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m.
(EST) on business days. Paper copies of public comments may be ordered
from the Public Information Center by telephone at (877) 275-3342 or
(703) 562-2200.
FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Chief, Banking
and Regulatory Policy Section, Division of Insurance and Research,
(202) 898-8967; Missy Craig, Program Analyst, Division of Insurance and
Research, (202) 898-8724; Donna Saulnier, Division of Finance, Team
Leader, Assessment Management, (703) 562-6167; or Joseph A. DiNuzzo,
Counsel, Legal Division, (202) 898-7349.
SUPPLEMENTARY INFORMATION:
I. Background
A. Reform Act Requirements
Section 7(e)(2) of the Federal Deposit Insurance Act (``FDI Act''),
as amended by the Reform Act, requires the FDIC, under most
circumstances, to declare dividends from the Deposit Insurance Fund
(``DIF'') when the DIF reserve ratio (``Reserve Ratio'') at the end of
a calendar year equals or exceeds 1.35 percent. When the Reserve Ratio
equals or exceeds 1.35 percent, and is not higher than 1.50 percent,
the FDIC generally must 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. The
FDIC Board of Directors (``Board'') may suspend or limit dividends to
be paid, however, if it determines in writing, after taking a number of
statutory factors into account, that: \1\
---------------------------------------------------------------------------
\1\ The statutory factors that the Board must consider are:
1. National and regional conditions and their impact on insured
depository institutions;
2. Potential problems affecting insured depository institutions
or a specific group or type of depository institution;
3. The degree to which the contingent liability of the
Corporation for anticipated failures of insured institutions
adequately addresses concerns over funding levels in the Deposit
Insurance Fund; and
4. Any other factors that the Board determines are appropriate.
12 U.S.C. 1817(e)(2)(F).
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 1.50 percent or to exceed 1.50
percent.\2\
---------------------------------------------------------------------------
\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.
When the Reserve Ratio exceeds 1.50 percent at the end of a
calendar quarter, the FDI Act requires the FDIC, absent certain limited
circumstances (discussed in footnote 2), to declare a dividend equal to
the excess of the amount required to maintain the Reserve Ratio at 1.50
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
[[Page 15460]]
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 Reform Act expressly requires the FDIC to prescribe by
regulation the method for calculating, declaring and paying dividends.
The dividend regulation must include provisions allowing an insured
depository institution a reasonable opportunity to challenge
administratively the amount of dividends it is awarded. Under the
Reform Act, any review by the FDIC pursuant to these administrative
procedures is final and not subject to judicial review.
B. The Temporary Final Rule on Assessment Dividends
In compliance with the Reform Act requirement to issue regulations
on assessment dividends within 270 days of the statute's enactment, in
October 2006, the FDIC issued a temporary final rule to implement the
dividend requirements of the Reform Act (``Temporary Final Rule''). 71
FR 61385 (October 18, 2006).\5\
---------------------------------------------------------------------------
\5\ Prior to issuing the temporary final rule, the FDIC
published and received comment on a proposed temporary final rule.
71 FR 28804.
---------------------------------------------------------------------------
The Temporary Final Rule, which will expire on December 31, 2008,
mirrors the dividend provisions of the Reform Act, provides definitions
(including the definition of a ``predecessor'' depository institution)
to implement the statute and details how an institution may request
that the FDIC's Division of Finance (``DOF'') review an FDIC
determination of the institution's dividend amount and how an
institution may appeal the DOF's response to that request. In the
Temporary Final Rule, the FDIC adopted a simple system for allocating
any dividends that might be declared during the two-year duration of
the regulation. 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. 12 CFR 327.53.
In publishing the Temporary Final Rule, the FDIC stated its
intention 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 the temporary dividend rules expired on December 31,
2008. The publication of the assessment dividend advance notice of
proposed rulemaking in September 2007 (``ANPR'') commenced that
process. 72 FR 53181 (September 18, 2007).
C. The Advanced Notice of Proposed Rulemaking
In the ANPR the FDIC presented two general approaches to allocating
dividends--the fund balance method and the payments method.\6\
---------------------------------------------------------------------------
\6\ The sole focus of the ANPR was on the type of assessment
dividend allocation method the FDIC should adopt. The ANPR indicated
that whether and how the FDIC should retain or revise the other
aspects of the Temporary Final Rule would be addressed in this
proposed rule.
---------------------------------------------------------------------------
The Fund Balance Method
Under the fund balance method, every quarter, each institution
would be assigned a dollar portion of the fund balance (its fund
allocation), solely for purposes of determining the institution's
dividend share. Each institution's most recent fund allocation (as a
percentage of the fund balance) would determine its share of any
dividend. The fund allocation would increase or decrease each quarter
depending upon fund performance and assessments paid by each
institution. Specifically:
Initially, the December 31, 2006 fund balance would be
divided up among institutions in proportion to 1996 assessment bases.
Thus, initially, each institution's fund allocation would equal its
1996 ratio times the December 31, 2006 fund balance.
Thereafter, from quarter to quarter, fund allocations
would grow or shrink depending upon the performance of the fund.
In addition, each ``eligible'' premium would increase an
institution's fund allocation, dollar for dollar. An ``eligible''
premium would be the portion of an institution's premium that would
count toward increasing its share of dividends.
Possible definitions for an eligible premium include: (1)
All premiums charged; (2) premiums charged up to the lowest rate
charged a Risk Category I institution; or (3) something in between, for
example, premiums charged up to the maximum rate for a Risk Category I
institution, in all cases minus any credit use.\7\ Ineligible premiums
would be those paid through the use of credits or those paid in cash at
rates in excess of the eligible premium rate.
---------------------------------------------------------------------------
\7\ However, an eligible premium would never be negative.
---------------------------------------------------------------------------
The Payments Method
Under the payments method an institution's share of any dividend
would depend upon its (and its predecessors') 1996 assessment base,
weighted in some manner, and its quarterly assessments. Specifically:
At the start of the new assessments system, each
institution's dividend share would depend upon its 1996 assessment base
compared to all other institutions, weighted in some manner.
The resulting value assigned to each institution based on
its 1996 ratio could either remain unchanged or be assigned a declining
weight over time.
The possible definitions of an eligible (and an
ineligible) premium are the same as those under the fund balance
method. (However, under certain variations of this method discussed
below, assessments offset through credit use could increase an
institution's dividend share.)
Cumulative eligible premiums paid into the fund since 1996
would add to an institution's share.
Alternatively, the FDIC could count only eligible premiums
paid over some recent period, for example, the most recent 3, 5, 10 or
15 years. In contrast, the fund balance method would necessarily take
into account all assessment payments made under the new assessment
system.
Another variation would allow the FDIC to subtract
dividends paid to an institution from its eligible premiums.
The ANPR presented two illustrative variations of the payments
method. Under Variation 1, the Board could, as under the fund balance
method, initially divide the 2006 fund balance based on each
institution's share of the December 1996 assessment base. Eligible
premiums after 1996 would be added to that amount. Under Variation 2,
only premiums paid over some prior period (such as the previous 15
years) would be considered. When the prior period covered any year
before 2007, the years 1997 through 2006 would be skipped, since the
great majority of institutions paid no deposit insurance premiums then.
Thus, for example, to determine dividend shares at the end of 2009, the
method would consider premiums paid from 1985 through 1996 and from
2007 through 2009. Premiums paid during 2007, 2008 and 2009 would
include only eligible premiums. However, because the weight accorded
the 1996 ratio would effectively decline to zero over time, eligible
premiums after 2006 would include eligible premiums offset with
credits. An eligible premium paid
[[Page 15461]]
in 1996 or any earlier year would be calculated as an institution's
share of the 1996 assessment base times total deposit insurance fund
assessment income in that year.\8\
---------------------------------------------------------------------------
\8\ For years prior to 1990, deposit insurance fund assessment
income used to produce Chart 5 and Table 5 includes such income for
both the FDIC and the Federal Savings and Loan Insurance
Corporation.
---------------------------------------------------------------------------
The ANPR provided additional details and variations on the
alternate allocation methods, addressing issues including: risk
reduction incentives, the treatment of older versus newer institutions,
simplicity, relative dividend shares, the treatment of institutions
chartered in the future and remaining decision-making for the Board.
The ANPR also included charts and tables on the alternate allocation
methods as well as formulas for determining dividends under different
scenarios.
II. Comments on the ANPR
We received five comment letters on the ANPR: two from banking
trade associations; one from a trade association representing large
financial services companies; one from a coalition of four insured
depository institutions; and one from a single depository institution
that also was a member of the coalition. As the single institution's
comments and recommendations were virtually identical to the
coalition's, its response is not included separately in the following
summary.
The two banking trade associations recommended that conservative
fund management ensure that the fund be kept below the 1.35 percent
statutory level that would trigger dividends. Both argued that low and
steady premiums would limit the effect on both the old and new segments
of the industry and not unfairly favor one set of institutions over the
other. The financial services trade association concurred with the bank
trade associations on the importance of keeping the fund balance below
the level that would trigger dividends.
The two banking trade associations took no position on either of
the two proposed dividend allocation methods, the fund balance method
or the payments method. The depository institution coalition
recommended adopting a modified form of the ANPR's Variation 2 of the
payments method: instead of a 15-year look-back period that would
exclude the years 1997-2006, it recommended a shortened look-back
period of 5 years, without skipping the years 1997-2006. Unlike the
ANPR's Variation 2, it did not explicitly describe how, if at all, the
1996 assessment base would be considered in determining an
institution's dividends. The financial services trade association
recommended that, if the FDIC is not able to maintain the fund below
1.35 percent, it adopt the payments method, structured as simply as
possible. Specifically, it supported a 3-5 year look-back period for
premiums, with no weight given to the 1996 assessment base.
The three trade associations recommended that eligible premiums be
defined as premiums charged up to the maximum rate for a Risk Category
I institution. The coalition did not explicitly discuss this aspect of
the ANPR.\9\ The financial services association and the coalition
recommended that premiums offset with credits be excluded from eligible
premiums. One banking trade association argued that, if the fund
balance method were adopted, premiums offset by credits should be
excluded.
---------------------------------------------------------------------------
\9\ The coalition did, however, argue against skipping the 1997-
2006 period in determining the look-back period. During these years,
however, only institutions that were not in what is now called Risk
Category I would have paid premiums.
---------------------------------------------------------------------------
Respondents generally were interested in simplicity and
transparency. One trade association cautioned that any method adopted
should be simple, transparent, and not require constant FDIC
intervention and decision-making.
III. Explanation of the Proposed Rule
A. Overview
As part of the proposed rule, the FDIC, in accordance with
requirements in the Reform Act, must establish the process for the
Board's annual determination of whether a declaration of a dividend is
required and whether circumstances indicate that a dividend should be
limited or suspended. In addition, the FDIC must establish procedures
for calculating the aggregate amount of any dividend, allocating that
aggregate amount among insured depository institutions and paying
dividends to individual insured depository institutions. The
regulations also must allow an insured depository institution a
reasonable opportunity to challenge the amount of its dividend.
B. Annual Determination of Whether Dividends Are Required/Declaration
of Dividends
The provisions in the proposed rule for the annual determination of
whether dividends are required and the declaration of dividends are
unchanged, with one minor exception, from the provisions in the
Temporary Final Rule.
Under the proposed rule, the FDIC would 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 1.50 percent, thereby
triggering a dividend requirement. At the same time, if a dividend is
triggered, the FDIC would 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. As proposed, any declaration with respect
to dividends would be made on or before May 10th for the preceding
calendar year. The May 10th date for the declaration of dividends
differs from the May 15th date in the Temporary Final Rule. This
slightly revised timing still would provide enough time for the Board
to consider final data for the end of the preceding year regarding the
Reserve Ratio, as well as to perform an 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.
In addition, the May 10th date would allow more time, operationally,
for the notification and payment of dividends and the FDIC's handling
of requests for review of dividend amounts.
Under the proposed rule, if the FDIC does not limit or suspend the
payment of dividends or does not renew such a determination, then the
aggregate amount of the dividend would be determined as provided by the
Reform Act. When the Reserve Ratio equals or exceeds 1.35 percent (but
is not higher than 1.50 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 percent as
the aggregate amount of dividends to be paid to insured depository
institutions. When the Reserve Ratio exceeds 1.50 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 1.50 percent as
dividends to be paid to institutions.
C. Allocation of Dividends
As noted, in the Temporary Final Rule the FDIC adopted a simple
system for allocating dividends, which will remain in place until
December 31,
[[Page 15462]]
2008, when the Temporary Final Rule terminates. Under that allocation
method, any dividends awarded in 2007 or 2008 would have been
distributed simply in proportion to an institution's 1996 assessment
base ratio. However, no dividend was awarded in 2007 and none will be
awarded in 2008 because the Reserve Ratio at the end of 2006 and 2007
was less than 1.35 percent.
After thoroughly considering the comments received, the FDIC is
proposing a variation of the payments method for allocating future
assessment dividends to FDIC-insured institutions. The proposed rule
would divide the total dividend in any year into two parts. One of the
two parts would be allocated based on the ratio of each institution's
(including any predecessors') 1996 assessment base compared to the
total of all existing eligible institutions' 1996 assessment bases (an
institution's ``1996 assessment base share''). The other part of the
total dividend would be allocated based on each institution's
(including any predecessors') ratio of cumulative eligible premiums
(defined below) over the previous five years to the total of cumulative
eligible premiums paid by all existing institutions (or their
predecessors) over the previous five years (an institution's ``eligible
premium share''). The part of any potential dividend that would be
allocated based upon 1996 assessment base shares would decline steadily
from 100 percent to zero over 15 years; the part of any potential
dividend that would be allocated based upon eligible premium shares
would increase steadily over the same 15-year period from zero to 100
percent. After the 15-year period, any dividend would be allocated
solely based on eligible premium shares.
The 15-year period would run from the end of 2006 to the end of
2021 and would govern dividends based upon the Reserve Ratio at the end
of the years 2008 through 2021.\10\ Actual dividends, if any, would be
allocated and paid the following year. Table A shows the change in the
allocation of potential dividends over time.
Table A.--Total DIF Dividend Distribution Table
------------------------------------------------------------------------
Part of total DIF dividend
determined by:
Based upon the DIF reserve ratio -------------------------------------
at year-end 1996 Assessment Eligible premium
base shares shares
------------------------------------------------------------------------
2006 \10\......................... 1 (100.0%) 0 (0%)
2007 \10\......................... 14/15 (93.3%) 1/15 (6.7%)
2008.............................. 13/15 (86.7%) 2/15 (13.3%)
2009.............................. 4/5 (80.0%) 1/5 (20.0%)
2010.............................. 11/15 (73.3%) 4/15 (26.7%)
2011.............................. 2/3 (66.7%) 1/3 (33.3%)
2012.............................. 3/5 (60.0%) 2/5 (40.0%)
2013.............................. 8/15 (53.3%) 7/15 (46.7%)
2014.............................. 7/15 (46.7%) 8/15 (53.3%)
2015.............................. 2/5 (40.0%) 3/5 (60.0%)
2016.............................. 1/3 (33.3%) 2/3 (66.7%)
2017.............................. 4/15 (26.7%) 11/15 (73.3%)
2018.............................. 1/5 (20.0%) 4/5 (80.0%)
2019.............................. 2/15 (13.3%) 13/15 (86.7%)
2020.............................. 1/15 (6.7%) 14/15 (93.3%)
2021.............................. 0 (0%) 1 (100.0%)
Thereafter........................ 0% 100.0%
------------------------------------------------------------------------
\10\ As discussed earlier, had dividends actually been awarded based
upon the 2006 and 2007 reserve ratios, the dividends would have been
allocated pursuant to the existing rule governing dividends.
Thus, for example, if a dividend were awarded based upon the
Reserve Ratio at the end of 2018, one-fifth of the total dividend would
be allocated based upon 1996 assessment base shares and four-fifths of
the total dividend would be allocated based upon eligible premium
shares.\11\
---------------------------------------------------------------------------
\11\ The dividend would actually be awarded and paid in 2019.
---------------------------------------------------------------------------
The 15-year period over which the influence of 1996 assessment
bases would decline represents a compromise between two legitimate, but
opposing, arguments. On one hand, a 15-year period recognizes the
significant contributions made by some institutions in the early 1990s
to capitalize the deposit insurance fund and that the interest earned
on this capital continues to help fund the FDIC. On the other hand, a
15-year period does not give these institutions an advantage that could
last indefinitely in obtaining dividends, as would occur under the fund
balance method absent very large insurance losses. It is also
consistent with an argument noted in a comment letter that the $4.7
billion one-time assessment credit, which was awarded under the Reform
Act and distributed according to the 1996 assessment base shares, was
intended to compensate institutions that helped capitalize the
insurance funds in the early 1990s.
Cumulating eligible premiums over the 5-year period preceding the
year of the dividend is consistent with the specific recommendations
made by the large financial services company trade association and the
coalition in their comment letters. A 5-year look-back period
recognizes that the Reform Act enhances the FDIC's ability to control
the growth of the fund over time through the level of assessment rates.
Certain events, however, such as an unanticipated decline in estimated
insured deposits or unexpectedly high investment income, could raise
the fund over the 1.35 percent dividend threshold. Thus, assessments
charged over some relatively short period preceding the unexpected
events would have proven in retrospect to be too high, and the dividend
would serve as a rebate of excess funds.\12\
---------------------------------------------------------------------------
\12\ One of the banking trade associations that commented on the
ANPR cited essentially the same argument as a justification for
adopting the payments method.
---------------------------------------------------------------------------
Eligible Premiums
Based upon the unanimous recommendations of all respondents
[[Page 15463]]
who commented specifically on the issue, the FDIC is proposing that an
eligible premium be defined as the part of any actual assessment that
is charged at no more than the maximum rate then applicable to a Risk
Category I institution. Under the assessment rate schedule presently in
effect, the minimum and maximum rates that can be charged a Risk
Category I institution differ by two basis points. At present, the
minimum annual rate applicable to a Risk Category I institution is 5
basis points and the maximum rate is 7 basis points. Thus, the entire
assessment of an institution charged anywhere between 5 and 7 basis
points would be an eligible premium, but only 7/10 of the assessment of
an institution in Risk Category II (charged 10 basis points under the
current schedule) would be eligible so long as this rate schedule is in
effect.\13\
---------------------------------------------------------------------------
\13\ If the year-end reserve ratio in 2009 or 2010 exceeds 1.35
percent and the FDIC declares a dividend for that year, the 5-year
look-back period would include years before 2007. Institutions in
what is now termed Risk Category I (formerly the ``1A'' risk
classification), however, were charged a zero rate from 1997 through
2006. Thus, under the proposal, no premium paid before 2007 would be
eligible.
---------------------------------------------------------------------------
Under the proposed rule, whether an institution paid its assessment
in cash or offset it with assessment credits would not affect its
eligible premiums. Thus, again assuming present assessment rates, the
entire assessment of an institution charged 7 basis points would be an
eligible premium, whether the institution paid in cash or offset its
assessment liability with an assessment credit. The FDIC currently
anticipates that the great bulk of assessment credits (over 95 percent)
will have been used by the end of 2008.
An institution's eligible premiums would include eligible premiums
paid by a predecessor.
How the Dividend Allocation Method Would Affect Different Institutions
The proposed dividend allocation method would affect institutions
differently depending upon their 1996 assessment base and the amount of
eligible premiums charged during the five years before a dividend is
declared. Assume, for example, that a hypothetical dividend of $1
billion were awarded based upon the 2018 Reserve Ratio. Of the $1
billion total dividend, $200 million-one-fifth (20 percent)--would be
allocated based upon 1996 assessment base shares and $800 million--
four-fifths (80 percent)--would be allocated based upon eligible
premium shares.\14\ An institution that held 0.1 percent of the 1996
assessment base and had made 0.05 percent of total eligible premiums
from 2014 through 2018 would receive a dividend of $600,000 (0.1
percent of $200 million--which equals $200,000--plus 0.05 percent of
$800 million--which equals $400,000). An institution that had no 1996
assessment base but had made the identical percentage (0.05 percent) of
total eligible premiums from 2014 through 2018 would receive $400,000.
---------------------------------------------------------------------------
\14\ Again, the dividend would actually be awarded and paid in
2019.
---------------------------------------------------------------------------
An institution that consistently paid the lowest rate applicable to
Risk Category I would receive a smaller dividend than one that paid the
highest rate applicable to Risk Category I, assuming identical future
assessment bases and identical 1996 assessment base shares, since the
institution paying the higher rate would have paid higher premiums and
would have a larger eligible premium share. However, an institution
that consistently paid a rate outside of Risk Category I (for example,
the Risk Category II rate) would receive the same dividend as an
institution that paid the highest rate applicable to Risk Category I,
again assuming identical future assessment bases and identical 1996
assessment base shares.
An addendum explains the dividend allocation calculation in greater
detail.
Predecessor Insured Depository Institutions
Under the proposed rule, consistent with the requirements of the
Reform Act, the allocation of dividends to an insured depository
institution would in part be based on the 1996 assessment base ratio
of, and the post-l996 assessments paid by, insured depository
institutions of which the insured depository institution is the
successor. As in the Temporary Final Rule, the proposed rule would
define a predecessor insured depository institution by cross
referencing the definition of successor insured depository institution
in the one-time assessment credit rule. (See 12 CFR 327, subpart B.) In
effect, a predecessor institution is the mirror image of a successor
institution. Notably, the definition of successor in the one-time
credit regulation includes a de facto rule, applicable in transactions
in which an insured depository institution assumes substantially all of
the deposit liabilities and acquires substantially all of the assets of
another insured depository institution.
D. Notification and Payment of Dividends
Under the proposed rule, 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 10th. Individual dividend
amounts would be paid to institutions no later than 45 days, or as soon
as practicable, after the issuance of the special notice. This
timeframe would 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 10th, and the expiration of the 30-day period for
requesting review (explained below), 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 would be paid
through the Automated Clearing House (``ACH''). If they are paid at the
time of assessment payments, offsets would be made. If 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). The FDIC plans to notify institutions whether dividends would
offset the next assessment payments with the next invoice.
Under the proposed rule, the FDIC would freeze the payment of the
disputed portion of dividend amounts involved in requests for review.
In the absence of such action, institutions would receive the amount
indicated on the notice. Any adjustment to an individual institution's
dividend amount resulting from its request for review would be handled
through ACH in the same manner as existing procedures for underpayment
or overpayment of assessments.
The FDIC intends, beginning no later than 2010, to include with its
quarterly assessment invoices to insured depository institutions the
institution's 1996 assessment base share and its rolling five-year
eligible premium share.
E. Requests for Review
The Reform 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 request-for-review provisions of the proposed rule, for
dividend amounts, are similar to those in the Temporary Final Rule, but
they reflect
[[Page 15464]]
the FDIC's intention to provide, beginning in 2010, quarterly dividend-
related information with each institution's assessment invoice. If a
dividend were declared before 2010, an institution would have 30 days
from the date of the notice advising it of its dividend amount to
request review. Review could be requested if an institution disagrees
with the computation of the dividend or if it believes that it does not
accurately reflect appropriate adjustments to the institution's 1996
assessment base ratio or eligible premium share, such as for a purchase
and assumption transaction that triggers application of the de facto
rule for purposes of determining any predecessor institutions. Once the
quarterly invoice updates become available as contemplated under the
proposed rule, an institution generally would have 90 days from the
date of the invoice to request review of that dividend-related
information, except in a year in which a dividend is declared. If the
FDIC were to declare a dividend, the institution would have 30 days
from the date of its notice of dividend amount to request review either
of that amount or of any dividend-related information in its March
invoice for that year; the institution would not have the full 90-day
period following the March invoice to request review.
An institution must timely request review of its dividend-related
information and must request review within 90 days of the first invoice
that fails to reflect accurate information. If an institution does not
submit a timely request for review of its dividend-related information,
it would be barred from subsequently requesting review of that
information.
The requirement that insured depository institutions monitor their
dividend-related information quarterly and promptly request review is
necessitated by the proposed timing for the payment of dividends. In
the absence of such a strict quarterly requirement, the FDIC would need
to reconsider both the timing of dividend payment and possibly the
look-back period for calculating institutions' dividend shares, which
at 5 years is longer than the 3-year recordkeeping requirement in the
FDI Act and longer than the 3-year statute of limitations for bringing
action on assessment underpayments and overpayments.
As under the current rule, at the time of the request for review,
the requesting institution also would be required to 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
would be required to 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 would make
reasonable efforts, based on its official systems of records, to
determine that such institutions have been identified and notified.
These institutions would 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 notified through this process does not submit a timely
response, that institution would be foreclosed from subsequently
disputing the information submitted by any other institution on the
transaction(s) at issue in the review process. Also under the proposed
rule, the FDIC could request additional information as part of its
review, and the institution from which such information is requested
would be required to supply that information within 21 days of the date
of the FDIC's request.
The proposed rule would require a written response from the FDIC's
Director of the Division of Finance (``Director''), or his or her
designee, notifying the 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 could appeal its dividend determination to
the FDIC's Assessment Appeals Committee (``AAC''). Under the proposed
rule, 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 would
be included with the written response. The AAC's determination would be
final and not subject to judicial review.
As noted, and as under the Temporary Final Rule, the FDIC proposes
to freeze temporarily the distribution of the dividend amount in
dispute for the institutions involved in the challenge until the
challenge is resolved.
IV. Request for Comments
The FDIC requests comments on all aspects of the proposed rule.
Comments are specifically requested on the proposed dividend allocation
method.
V. Regulatory Analysis and Procedure
A. Solicitation of Comments on Use of 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. We invite your comments on how to make this proposal
easier to understand. For example:
Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be more clearly stated?
Does the proposed regulation contain language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to
understand?
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires a federal agency
publishing a notice of proposed rulemaking to prepare and make
available for public comment an initial regulatory flexibility analysis
that describes the impact of the proposed rule on small entities. 5
U.S.C. 603(a). Pursuant to regulations issued by the Small Business
Administration (13 CFR 121.201), a ``small entity'' includes a bank
holding company, commercial bank or savings association with assets of
$165 million or less (collectively, small banking organizations). The
RFA provides that an agency is not required to prepare and publish a
regulatory flexibility analysis if the agency certifies that the
proposed rule would not have a significant impact on a substantial
number of small entities. 5 U.S.C. 605(b).
Pursuant to section 605(b) of the RFA, the FDIC certifies that the
proposed rule would not have a significant economic impact on a
substantial number of small entities. The proposed rule, if adopted in
final form, would provide the procedures for the FDIC's declaration,
[[Page 15465]]
distribution, and payment of dividends to insured depository
institutions under the circumstances set forth in the FDI Act. While
each insured depository institution would have the opportunity to
request review of the amount of its dividend each time a dividend is
declared, the proposed rule would rely on information already collected
and maintained by the FDIC in the regular course of business. The
proposed rule, if adopted, would not directly or indirectly impose any
reporting, recordkeeping or compliance requirements on insured
depository institutions.
C. Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act (44 U.S.C. Ch. 3501 et seq.) are contained in the proposed rule.
D. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
Addendum
The illustrations below provide a more detailed description of the
dividend allocation calculation. Both illustrations again assume that a
hypothetical dividend of $1 billion is awarded based upon a
hypothetical 2018 Reserve Ratio. In the illustrations, Institution A
and Institution B are assumed to be identical except that A has a 1996
assessment base, and B does not. They both pay Risk Category I premiums
at the same rate. Institution C is identical to Institution A (it has a
1996 assessment base), but it differs from both A and B in that it pays
the higher Risk Category II assessment rate.
Illustration 1.--Dividend of $1 Billion Based on 2018 Reserve Ratio
20 percent ($200 million) allocated based on 1996 assessment base shares
80 percent ($800 million) allocated based upon eligible premium shares
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Bank A's 1996 assessment base = $400 million (0.01203% of industry total).......................................
Bank B's 1996 assessment base = $0..............................................................................
Banks have identical assessment bases and pay the lowest assessment rate applicable to Risk Category I (assumed
to be 2 basis points) \15\.....................................................................................
----------------------------------------------------------------------------------------------------------------
Year Assessment base Rate (B.P.) Premium ($000) Eligible premium
($000) ($000)
----------------------------------------------------------------------------------------------------------------
2014................................ 500,000 2 100 100
2015................................ 522,500 2 105 105
2016................................ 546,013 2 109 109
2017................................ 570,583 2 114 114
2018................................ 596,259 2 119 119
----------------------------------------------------------------------------------------------------------------
5-year sum................................................................................... 547
Industry 5-year sum.......................................................................... 12,000,000
Each bank's share of industry 5-year eligible premium........................................ 0.00456%
Bank A's dividend ($000) = 0.01203% of $200 million + 0.00456% of $800 million:.............. 60.531
Bank B's dividend ($000) = 0.0456% of $800 million:.......................................... 36.471
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
\15\ The illustrations assume that assessment rates charged in
2014-2018 equal the base assessment rates adopted by the Board at
the end of 2006: 2-4 basis points for Risk Category I and 7 basis
points for Risk Category II.
Illustration 2.--Dividend of $1 Billion Based on 2018 Reserve Ratio
[20 percent ($200 million) allocated based on 1996 assessment base shares]
[80 percent ($800 million) allocated based upon eligible premium shares]
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Bank C's 1996 assessment base = $400 million (0.01203% of industry total).
Bank C's 1996 assessment base is identical to Banks A and B (Illustration 1).
Pays rate applicable to Risk Category II (assumed to be 7 basis points).
----------------------------------------------------------------------------------------------------------------
Year Assessment base Rate (B.P.) Premium ($000) Eligible premium
($000) ($000)
----------------------------------------------------------------------------------------------------------------
2014................................ 500,000 7 350 200
2015................................ 522,500 7 366 209
2016................................ 546,013 7 382 218
2017................................ 570,583 7 417 239
2018................................ 596,259 7 417 239
----------------------------------------------------------------------------------------------------------------
5-year sum................................................................................... 1,094
Industry 5-year sum.......................................................................... 12,000,000
Bank C's share of industry 5-year eligible premium........................................... 0.00912%
Bank C's dividend ($000) = 0.01203% of $200 million + 0.00912% of $800 million:.............. 97.003
----------------------------------------------------------------------------------------------------------------
[[Page 15466]]
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, Banking, Savings associations.
Authority and Issuance
For the reasons set forth in the preamble, chapter III of title 12
of the Code of Federal Regulations is amended by revising subpart C to
read as follows:
PART 327--ASSESSMENTS
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.
Subpart C--Implementation of Dividend Requirements
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 provides 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) Assessment base share means an insured depository institution's
1996 assessment base ratio divided by the total of all existing,
eligible insured depository institution's shares of the 1996 assessment
base (rounded to seven decimal places).
(b) Board has the same meaning as under subpart B of this part.
(c) DIF means the Deposit Insurance Fund.
(d) An eligible premium means an assessment paid by an insured
depository institution (or its predecessor) that did not exceed, for
the applicable assessment period, the maximum assessment applicable in
that assessment period to a Risk Category 1 institution under subpart A
of this part.
(e) An insured depository institution's eligible premium share
means that institution's cumulative eligible premiums over the previous
five years (ending on December 31st of the year prior to the year in
which the dividend is declared) divided by the cumulative total of all
eligible premiums paid by all existing insured depository institutions
or their predecessors over that five-year period (rounded to seven
decimal places).
(f) An insured depository institution's 1996 assessment base ratio
means an institution's 1996 assessment base ratio, as determined
pursuant to the Sec. 327.33 of subpart B of this part, adjusted as
necessary 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. The 1996
assessment base ratio shall be rounded to seven decimal places.
(g) Predecessor, when used in the context of insured depository
institutions, refers to the institution merged with or into a resulting
institution or acquired by an institution under Sec. 327.33(c) of
subpart B under the de facto rule, consistent with the definition of
successor in section 327.31.
Sec. 327.52 Annual dividend determination.
(a) On or before May 10th 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 1.50 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 1.50 percent of
estimated insured deposits, except as provided in paragraph (d), the
Board shall declare the amount in excess of the amount required to
maintain the reserve ratio at 1.50 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 1.50 percent; or
(B) To exceed 1.50 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) (1) The allocation of any dividend among insured depository
institutions shall be based on the institution's 1996 assessment base
share and the institution's eligible premium share.
(2) As set forth in the following table, the part of a dividend
allocated based upon an institution's 1996 assessment base share shall
decline steadily from 100 percent to zero over fifteen years, and the
part of a dividend allocated based upon an institution's eligible
premium share shall increase steadily over the same fifteen-year period
from zero to 100 percent. The 15-year period shall begin as if it had
applied to a dividend based upon the reserve ratio at
[[Page 15467]]
the end of 2006 and shall end with respect to any dividend based upon
the reserve ratio at the end of 2021. Dividends based upon the reserve
ratio as of December 31, 2021, and thereafter shall be allocated among
insured depository institutions based solely on eligible premium
shares.
Total DIF Dividend Distribution Table
------------------------------------------------------------------------
Part of total DIF dividend
determined by:
Based upon the DIF reserve ratio -------------------------------------
at year-end 1996 Assessment Eligible premium
base shares shares
------------------------------------------------------------------------
2006.............................. 1 (100.0%) 0 (0%)
2007.............................. 14/15 (93.3%) 1/15 (6.7%)
2008.............................. 13/15 (86.7%) 2/15 (13/3%)
2009.............................. 4/5 (80.0%) 1/5 (20.0%)
2010.............................. 11/15 (73.3%) 4/15 (26.7%)
2011.............................. 2/3 (66.7%) 1/3 (33.3%)
2012.............................. 3/5 (60.0%) 2/5 (40.0%)
2013.............................. 8/15 (53.3%) 7/15 (46.7%)
2014.............................. 7/15 (46.7%) 8/15 (53.3%)
2015.............................. 2/5 (40.0%) 3/5 (60.0%)
2016.............................. 1/3 (33.3%) 2/3 (66.7%)
2017.............................. 4/15 (26.7%) 11/15 (73.3%)
2018.............................. 1/5 (20.0%) 4/5 (80.0%)
2019.............................. 2/15 (13.3%) 13/15 (86.7%)
2020.............................. 1/15 (6.7%) 14/15 (93.3%)
2021.............................. 0 (0%) 1 (100.0%)
Thereafter........................ 0 (0%) 1 (100%)
------------------------------------------------------------------------
The 15-year period shall be computed as if it had applied to
dividends based upon the reserve ratios at the end of 2006 and 2007.
(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, unless they are
the subject of a request for review under Sec. 327.54 of this subpart,
to insured depository institutions no later than 45 days, or as soon as
practicable thereafter, 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
by 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 shall withhold
the payment of the disputed portion of the dividend amount involved in
the request for review. 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.
(a) An insured depository institution may submit a request for
review of the FDIC's determination of the institution's 1996 assessment
base share and/or its eligible premium share as shown on the
institution's quarterly assessment invoice. Such requests shall be
subject to the provisions of Sec. 327.3(f)(3) of subpart A of this
part, except for the invoice provided by the FDIC in March of any
calendar year in which the FDIC declares a dividend. If the FDIC
declares a dividend, any request for review of an institution's 1996
assessment base share and/or its eligible premium share as shown on the
institution's March quarterly assessment invoice must be filed within
30 days of the date that the FDIC notifies the institution of its
dividend amount. If an institution does not submit a timely request for
review for the first invoice in which the dividend-related information
that fo
