Assessments, 5380-5389 [2019-02761]
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Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Proposed Rules
List of Subjects in 7 CFR Part 1206
Administrative practice and
procedure, Advertising, Consumer
information, Marketing agreements,
Mango promotion, Reporting and
recordkeeping requirements.
Authority: 7 U.S.C. 7411–7425 and 7
U.S.C. 7401.
Dated: February 14, 2019.
Bruce Summers,
Administrator.
[FR Doc. 2019–02851 Filed 2–20–19; 8:45 am]
BILLING CODE 3410–02–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AE98
Assessments
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
AGENCY:
The Federal Deposit
Insurance Corporation (FDIC) invites
public comment on a notice of proposed
rulemaking (NPR or proposal) that
would amend its deposit insurance
assessment regulations to apply the
community bank leverage ratio (CBLR)
framework to the deposit insurance
assessment system. The FDIC, the Board
of Governors of the Federal Reserve
System (Federal Reserve) and the Office
of the Comptroller of the Currency
(OCC) (collectively, the Federal banking
agencies) recently issued an interagency
proposal to implement the community
bank leverage ratio (the CBLR NPR).
Under this proposal, the FDIC would
assess all banks that elect to use the
CBLR framework (CBLR banks) as small
banks. Through amendments to the
assessment regulations and
corresponding changes to the
Consolidated Reports of Condition and
Income (Call Report), CBLR banks
would have the option of using either
CBLR tangible equity or tier 1 capital for
their assessment base calculation, and
using either the CBLR or the tier 1
leverage ratio for the Leverage Ratio that
the FDIC uses to calculate an
established small bank’s assessment
rate. Through this NPR, the FDIC also
would clarify that a CBLR bank that
meets the definition of a custodial bank
would have no change to its custodial
bank deduction or reporting items
required to calculate the deduction; and
the assessment regulations would
continue to reference the prompt
corrective action (PCA) regulations for
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SUMMARY:
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the definitions of capital categories used
in the deposit insurance assessment
system, with technical amendments to
align with the CBLR NPR. To assist
banks in understanding the effects of the
NPR, the FDIC plans to provide on its
website an assessment estimation tool
that estimates deposit insurance
assessment amounts under the proposal.
DATES: Comments must be received on
or before April 22, 2019.
ADDRESSES: You may submit comments,
identified by RIN 3064–AE98, by any of
the following methods:
• Agency website: https://
www.fdic.gov/regulations/laws/federal/.
Follow the instructions for submitting
comments on the Agency website.
• Email: Comments@FDIC.gov.
Include RIN 3064–AE98 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.
Include RIN 3064–AE98 in the subject
line of the letter.
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
NW building (located on F Street) on
business days between 7 a.m. and 5 p.m.
(EDT).
• Public Inspection: All comments
received, including any personal
information provided, will be posted
without change to https://www.fdic.gov/
regulations/laws/federal. Paper copies
of public comments may be ordered
from the FDIC Public Information
Center, 3501 North Fairfax Drive, Room
E–1002, Arlington, VA 22226 or by
telephone at (877) 275–3342 or (703)
562–2200.
FOR FURTHER INFORMATION CONTACT:
Ashley Mihalik, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
3793, amihalik@fdic.gov; Daniel
Hoople, Financial Economist, Banking
and Regulatory Policy Section, Division
of Insurance and Research, dhoople@
fdic.gov; (202) 898–3835; Nefretete
Smith, Counsel, Legal Division, (202)
898–6851, NefSmith@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system.1 Pursuant to this
1 12 U.S.C. 1817(b). Generally, a ‘‘risk-based
assessment system’’ means a system for calculating
a depository institution’s assessment based on the
institution’s probability of causing a loss to the
Deposit Insurance Fund (DIF) due to the
composition and concentration of the institution’s
assets and liabilities, the likely amount of any such
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requirement, the FDIC first adopted a
risk-based deposit insurance assessment
system effective in 1993 that applied to
all insured depository institutions
(IDIs).2 The FDIC implemented a riskbased assessment system with the goals
of making the deposit insurance system
fairer to well-run institutions and
encouraging weaker institutions to
improve their condition, and thus,
promote the safety and soundness of
IDIs.3 Deposit insurance assessments
based on risk also provide incentives for
IDIs to monitor and reduce risks that
could increase potential losses to the
DIF. Since 1993, the FDIC has met its
statutory mandate and has pursued
these policy goals by periodically
introducing improvements to the
deposit insurance assessment system’s
ability to differentiate for risk.
The primary objective of this proposal
is to incorporate the CBLR framework 4
into the current risk-based deposit
insurance assessment system in a
manner that: (1) Maximizes regulatory
relief for small institutions that use the
CBLR framework; and (2) minimizes
increases in deposit insurance
assessments that may arise without a
change in risk. The rulemaking also
would maintain fair and appropriate
pricing of deposit insurance for
institutions that use the CBLR.
II. Background
The FDIC assesses all IDIs an amount
for deposit insurance equal to the
bank’s 5 deposit insurance assessment
base multiplied by its risk-based
assessment rate.6 A bank’s assessment
base and risk-based assessment rate
depend in part, on tier 1 capital and the
tier 1 leverage ratio. This information
would no longer be reported on the
Consolidated Reports of Condition and
Income (Call Report) by banks that elect
the CBLR framework.
A. Notice of Proposed Rulemaking:
Community Bank Leverage Ratio
On February 8, 2019, the Federal
banking agencies published in the
Federal Register the CBLR NPR.7 The
CBLR NPR would provide for a
loss, and the revenue needs of the DIF. See 12
U.S.C. 1817(b)(1)(C).
2 57 FR 45263 (Oct. 1, 1992).
3 See 57 FR at 45264.
4 In this proposal, the term ‘‘CBLR framework’’
refers to the simplified measure of capital adequacy
provided in the CBLR NPR, as well as any
subsequent changes to that proposal that are
adopted during the rulemaking process.
5 As used in this NPR, the term ‘‘bank’’ is
synonymous with the term ‘‘insured depository
institution’’ as it is used in section 3(c)(2) of the FDI
Act, 12 U.S.C. 1817(c)(2).
6 See 12 CFR 327.3(b)(1).
7 See 84 FR 3062 (February 8, 2019).
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Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Proposed Rules
simplified measure of capital adequacy
for qualifying community banking
organizations, consistent with Section
201 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA or the Act).8 The Act defines
a qualifying community banking
organization as a depository institution
or depository institution holding
company with total consolidated assets
of less than $10 billion.9 In addition, the
Act states that the Federal banking
agencies may determine that a banking
organization is not a qualifying
community bank based on its risk
profile.10 A qualifying community
banking organization that reports a
community bank leverage ratio, or CBLR
(defined as the ratio of tangible equity
capital to average total consolidated
assets, both as reported on an
institution’s applicable regulatory
filing), exceeding the level established
by the Federal banking agencies of not
less than 8 percent and not more than
10 percent would be considered well
capitalized. The CBLR NPR proposed to
define tangible equity capital (CBLR
tangible equity) as total bank equity
capital, prior to including minority
interests, and excluding accumulated
other comprehensive income (AOCI),
deferred tax assets arising from net
operating loss and tax credit
carryforwards, goodwill, and certain
other intangible assets, calculated in
accordance with a qualifying
community bank organization’s
regulatory reports.11 The Federal
banking agencies further proposed that
qualifying community banking
organizations 12 that elect to use the
CBLR framework (CBLR banks) would
report their CBLR and other relevant
information on a simpler regulatory
capital schedule in the Call Report, as
opposed to the current schedule RC–R
of the Call Report.13 Finally, under the
8 Public
Law 115–174 (May 24, 2018).
section 201(a)(3)(A) of the Act.
10 See section 201(a)(3)(B) of the Act.
11 See 84 FR at 3068–69.
12 In accordance with the Act, the Federal
banking agencies propose to define a qualifying
community bank generally as a depository
institution or depository institution holding
company with less than $10 billion in total
consolidated assets and that has limited amounts of
off-balance sheet exposures, trading assets and
liabilities, mortgage servicing assets, and certain
deferred tax assets. An advanced approaches
banking organization, including a subsidiary of a
depository institution, bank holding company, or
intermediate holding company that is an advanced
approaches banking organization, would not be a
qualifying community bank. See 84 FR at 3065–67.
13 In the CBLR NPR, the Federal banking agencies
state that they intend to separately seek comment
on the proposed changes to regulatory reports for
qualifying community banking organizations that
elect to use the CBLR framework; however, the
CBLR NPR provides an illustrative reporting form,
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9 See
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CBLR NPR, a CBLR bank must have a
CBLR greater than 9 percent to be
considered well capitalized.14 The
Federal banking agencies also proposed
proxy CBLR thresholds for the
adequately capitalized,
undercapitalized, and significantly
undercapitalized PCA categories.15
In the interagency CBLR NPR, the
Federal banking agencies noted that
deposit insurance assessment
regulations would be affected by the
proposed CBLR framework.16 CBLR
banks would no longer be required to
calculate or report the components of
regulatory capital used in the
calculation of the tier 1 leverage ratio or
risk-based capital, such as tier 1 capital
or risk weighted assets.17
B. Use of Capital Measures in the
Current Deposit Insurance Assessment
System
Assessment Base
In 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) required that the FDIC
amend its regulations to redefine the
assessment base to equal average
consolidated total assets minus average
tangible equity.18 In implementing this
requirement, the FDIC defined tangible
equity as tier 1 capital, in part, because
it minimized regulatory reporting.19 The
FDIC also provides a deduction to the
assessment base for custodial banks 20
using the Call Report as an example, as an
indication of the potential reporting format and
potential reporting burden relief for CBLR banks.
See 84 FR at 3065 and 3074.
14 See 84 FR at 3064 and 3071. However, to be
considered and treated as well capitalized under
the CBLR framework, and consistent with the
Federal banking agencies’ current PCA rule, the
qualifying community banking organization must
demonstrate that it is not subject to any written
agreement, order, capital directive, or prompt
corrective action directive to meet and maintain a
specific capital level for any capital measure. See
84 FR at 3064.
15 See 84 FR at 3071–72.
16 See 84 FR at 3073–74.
17 See 84 FR at 3073.
18 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 331(b), 124
Stat. 1376, 1538 (codified at 12 U.S.C. 1817(note)).
19 See 76 FR 10673, 10678 (Feb. 25, 2011)
(‘‘Defining tangible equity as Tier 1 capital provides
a clearly understood capital buffer for the DIF in the
event of the institution’s failure, while avoiding an
increase in regulatory burden that a new definition
of capital could cause.’’).
20 Generally, a custodial bank is defined as an IDI
with previous calendar year-end trust assets (that is,
fiduciary and custody and safekeeping assets, as
reported on Schedule RC–T of the Call Report) of
at least $50 billion or those insured depository
institutions that derived more than 50 percent of
their revenue (interest income plus non-interest
income) from trust activity over the previous
calendar year. See 12 CFR 327.5(c)(1).
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equal to a certain amount of low riskweighted assets.21
In addition, the FDIC applies certain
adjustments to a bank’s assessment rate
as part of the risk-based assessment
system to better account for risk among
banks based on their funding sources.
The adjustments are calculated, in part,
using a bank’s assessment base. One
adjustment, the depository institution
debt adjustment (DIDA), is limited
based on a bank’s tier 1 capital.22
Assessment Rate
Under the FDI Act, the FDIC has the
authority to ‘‘establish separate riskbased assessment systems for large and
small members of the Deposit Insurance
Fund.’’ 23 Separate systems for large
banks and small banks have been in
place since 2007.24 Assessment rates for
established small banks 25 are calculated
based on a formula that uses financial
measures and a weighted average of
supervisory ratings (CAMELS).26 The
financial measures are derived from a
statistical model estimating the
probability of failure over three years.
The measures are shown in Table 1
below.
TABLE 1—FINANCIAL MEASURES USED
TO DETERMINE ASSESSMENT RATES
FOR ESTABLISHED SMALL BANKS
Financial measures
• Leverage Ratio.
• Net Income before Taxes/Total Assets.
• Nonperforming Loans and Leases/Gross
Assets.
• Other Real Estate Owned/Gross Assets.
• Brokered Deposit Ratio.
• One Year Asset Growth.
• Loan Mix Index.
One of the measures, the Leverage
Ratio, is defined as tier 1 capital divided
by adjusted average assets (herein
referred to as the tier 1 leverage ratio).
The numerator and denominator of the
Leverage Ratio are both based on the
21 The adjustment to the assessment base for
banker’s banks under 12 CFR 327.5(b) would not be
affected by this proposal.
22 See 12 CFR 327.16(e)(2).
23 12 U.S.C. 1817(b)(1)(D).
24 Under the assessment regulations, a ‘‘small
institution’’ generally is an institution with less
than $10 billion in total assets, and a ‘‘large
institution’’ generally is an institution with $10
billion or more in total assets. See 12 CFR 327.8(e)
and (f). A separate system for highly complex
institutions has been in place since 2011. See 12
CFR 326.16(b)(2).
25 Generally, an established institution is one that
has been federally insured for at least five years. See
12 CFR 327.8(v).
26 See 12 CFR 327.16(a)(1).
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Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Proposed Rules
definitions for the relevant PCA
measure.27
III. Summary of Proposal
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Summary
In this NPR, the FDIC is proposing to
apply the CBLR framework to the
deposit insurance assessment system in
a way that minimizes or eliminates any
resulting increase in assessments that
may arise without a change in risk and,
to the fullest extent practicable, reduces
regulatory reporting burden consistent
with the objective of the CBLR
framework, as discussed in the CBLR
NPR.28 As discussed more fully below,
the FDIC is proposing to price all CBLR
banks as small banks. The FDIC is also
proposing to amend its assessment
regulations to calculate the assessment
base of CBLR banks using either CBLR
tangible equity or tier 1 capital, and the
assessment rate of established CBLR
banks using the higher of either the
CBLR or the tier 1 leverage ratio. For a
minority of small banks, the use of the
CBLR or CBLR tangible equity could
result in a higher assessment rate or a
larger assessment base, respectively.
Therefore, through corresponding
changes to the Call Report, the FDIC
would propose to allow CBLR banks the
option to use tier 1 capital in lieu of
CBLR tangible equity when reporting
‘‘average tangible equity’’ on their Call
Report, for purposes of calculating their
assessment base. Through Call Report
changes, CBLR banks also would have
the option to report the tier 1 leverage
ratio on Schedule RC–O of the Call
Report, in addition to the CBLR on the
simpler regulatory capital schedule
under the CBLR framework, and the
FDIC would apply the value that would
result in the lower assessment rate (i.e.,
the higher value). The FDIC, in
coordination with the Federal Financial
Institutions Examination Council
(FFIEC), would seek comment on
proposed changes to Schedule RC–O
and its instructions in the Call Reports
in a separate Paperwork Reduction Act
notice that would align with the
proposed amendments to the
assessment regulations. This proposal
meets the FDIC’s goal of extending the
regulatory relief made available to small
institutions under the proposed CBLR
framework while minimizing or
potentially eliminating increases in
27 See
12 CFR 327.16(a)(1)(ii).
changes proposed in this rulemaking do
not apply to insured branches of foreign banks.
These institutions file the FFIEC 002, which does
not include many of the items, including capital
measures, found in the Call Report schedules filed
by other IDIs.
deposit insurance assessments that are
unrelated to a change in risk.
The FDIC, through this NPR, also
proposes to clarify that a CBLR bank
that meets the definition of a custodial
bank would have no change to its
custodial bank deduction or reporting
items required to calculate the
deduction. A CBLR bank that meets the
definition of a custodial bank would
continue to report items related to the
custodial bank deduction on Schedule
RC–O of the Call Report for assessment
purposes, one of which is calculated
based on the risk weighting of
qualifying low-risk liquid assets;
however, to utilize the deduction the
bank would not be required to report the
more detailed schedule of risk-weighted
assets for regulatory capital purposes
consistent with adoption of the CBLR
framework. In addition, the proposal
would clarify that the assessment
regulations would continue to reference
the PCA regulations for the definitions
of capital categories for deposit
insurance assessment purposes,
including the proposed CBLR capital
categories.
A. Assessment Base and Assessment
Rate Adjustments
Tangible Equity
The FDIC is proposing to amend the
definition of ‘‘tangible equity,’’ for
purposes of calculating a CBLR bank’s
average tangible equity and the
assessment base, to mean either CBLR
tangible equity or tier 1 capital.29 For
CBLR banks that do not elect the option,
discussed below, to use tier 1 capital
when reporting average tangible equity,
CBLR tangible equity would be used to
calculate the bank’s assessment base.
All other banks would continue to use
tier 1 capital when reporting average
tangible equity, which the FDIC would
use to calculate a bank’s assessment
base.
The proposed change minimizes
increases in deposit insurance
assessments for CBLR banks that may
arise without a change in risk. Based on
Call Report data as of September 30,
2018, the FDIC estimates that for most,
but not all, CBLR banks, CBLR tangible
equity would equal or exceed tier 1
capital. However, in the event that a
bank’s CBLR tangible equity is less than
tier 1 capital, calculating a bank’s
assessment base using CBLR tangible
equity instead of tier 1 capital could
result in a larger assessment base and a
28 The
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29 As previously stated, the assessment base is
equal to average consolidated total assets minus
average tangible equity. This proposal would not
change the calculation of average consolidated total
assets as it relates to an IDI’s assessment base.
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higher assessment amount. Therefore,
the FDIC is proposing to give CBLR
banks the option to use either tier 1
capital or CBLR tangible equity when
calculating ‘‘average tangible equity’’ for
purposes of the bank’s assessment base
calculation.30 Banks currently report
average tangible equity on item 5 of
Schedule RC–O of their Call Report.
Through changes to the Call Report, the
FDIC would propose to retain this item,
but amend the Call Report instructions
to allow CBLR banks to report average
tangible equity using either CBLR
tangible equity or, if using tier 1 capital
would result in a higher amount for
average tangible equity (and
subsequently a lower assessment base),
the bank would have the option to use
tier 1 capital.31 As discussed above, the
FDIC, in coordination with the FFIEC,
would seek comment on corresponding
changes to Schedule RC–O and its
instructions in a separate Paperwork
Reduction Act notice.
The proposed change to ‘‘tangible
equity’’ also maximizes regulatory relief
for CBLR banks. A CBLR bank would
experience a decrease in reporting
burden as a result of this proposal. If the
bank chooses the option to use tier 1
capital for assessment purposes, the
bank would experience an increase in
reporting burden relative to other CBLR
banks by having to calculate tier 1
capital for purposes of reporting average
tangible equity. Compared to current
reporting, however, this would still
result in an overall reduction in
reporting, because the number of items
reported by a CBLR bank that elects to
use tier 1 capital for assessment
purposes would not increase (tier 1
capital would be used in lieu of CBLR
tangible equity in calculating and
reporting ‘‘average tangible equity’’ on
Schedule RC–O of its Call Report). The
FDIC would continue to require all
banks to maintain records required to
verify the correctness of any assessment
for three years from the due date of the
assessment.32 The FDIC expects that a
CBLR bank would only elect the option
to use tier 1 capital if it would result in
a lower assessment.
30 All IDIs are instructed to calculate average
tangible equity using the average of the three
month-end balances within a quarter (monthly
averaging). Some institutions with total
consolidated assets of less than $1 billion may
report average tangible equity using an end-ofquarter balance. See 12 CFR 327.5(a)(2).
31 To illustrate the effect of using CBLR tangible
equity or tier 1 capital on an IDI’s assessment, the
FDIC plans to provide on its website an assessment
estimation tool that banks can use to estimate
deposit insurance assessment amounts under the
proposal.
32 See 12 U.S.C. 1817(b)(4).
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The proposed definition of ‘‘tangible
equity’’ for purposes of calculating an
IDI’s assessment base would affect
adjustments that could apply to a CBLR
bank’s initial base assessment rate
because the assessment base is used in
the denominator of each adjustment.33
The FDIC expects that a CBLR bank
would consider how the proposed
change to ‘‘tangible equity’’ for purposes
of calculating its assessment base could
affect adjustments to its assessment rate
when it makes its decision of whether
to optionally report average tangible
equity using tier 1 capital for deposit
insurance assessment purposes. Thus,
the FDIC does not propose any
additional change to the assessment
base as it is used for purposes of
calculating the adjustments referenced
above.
Question 1: The FDIC invites
comment on providing a CBLR bank
with the option to use tier 1 capital for
purposes of reporting average tangible
equity, which is used in the assessment
base calculation. Is the proposed change
appropriate? Should the FDIC only use
CBLR tangible equity to calculate the
assessment base of a CBLR bank, even
if it could result in a higher assessment
amount? Should CBLR banks be
required to specify whether they are
reporting tier 1 capital or CBLR tangible
equity for assessments purposes in a
separate line item of the Call Report?
Should this option only stay in effect for
a limited time to permit a transition to
the new CBLR?
Depository Institution Debt Adjustment
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The FDIC also proposes to amend the
DIDA to incorporate CBLR tangible
equity for CBLR banks. Under the
proposal, the FDIC would exclude from
the unsecured debt amount used in
calculating the DIDA of a CBLR bank an
amount equal to no more than 3 percent
of CBLR tangible equity. For all other
banks, the FDIC would continue to
exclude an amount equal to no more
than 3 percent of tier 1 capital, and thus
those banks would see no change.34 The
33 For example, the unsecured debt adjustment
applied to an IDI’s assessment rate equals the
amount of long-term unsecured liabilities an IDI
reports times the sum of 40 basis points plus the
bank’s initial base assessment rate (that is, the
assessment rate before any adjustments) divided by
the assessment base. The other two adjustments
affected by the proposed change to the definition
of ‘‘tangible equity’’ for purposes of calculating an
IDI’s assessment base are: the depository institution
debt adjustment and the brokered deposit
adjustment. See 12 CFR 327.16(e).
34 The FDIC implemented the DIDA in a 2011
final rule to offset the benefit received by
institutions that issue long-term, unsecured
liabilities when these liabilities are held by another
IDI. The exclusion of no more than 3 percent of tier
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NPR would not change the 3 percent
cap for the exclusion and would not
require any change in reporting. For a
CBLR bank, the FDIC would calculate
the exclusion using end-of-quarter CBLR
tangible equity, as reported in the
simpler regulatory capital schedule
under the CBLR framework. For a nonCBLR bank, the FDIC would continue to
calculate the exclusion using end-ofquarter tier 1 capital, as reported in
Schedule RC–R of the Call Report.
The FDIC is proposing to only use
CBLR tangible equity for purposes of
calculating the DIDA for CBLR banks
because the adjustment currently
applies to so few banks. Based on Call
Report data as of September 30, 2018, 24
IDIs are subject to the DIDA and 22 of
those could qualify as a CBLR bank. The
majority of the 22 CBLR banks subject
to the DIDA would experience little to
no effect if the FDIC substitutes CBLR
tangible equity for tier 1 capital. Based
on the latest Call Report data, only 2 of
the 22 CBLR banks subject to the DIDA
would experience a change in their
DIDA calculation, and the effect would
be approximately $1,500 per quarter. As
such, the FDIC is proposing to substitute
CBLR tangible equity, as reported on the
simpler regulatory capital schedule
under the CBLR framework, for tier 1
capital so that CBLR banks subject to the
DIDA would not have to report tier 1
capital separately. The proposed change
would extend the regulatory relief made
available to small institutions under the
proposed CBLR framework while
minimizing increases to the DIDA that
may arise without a corresponding
increase to the debt issued by another
IDI that is held by the bank.
Question 2: Should the FDIC allow
CBLR banks to use either CBLR tangible
equity or tier 1 capital for the DIDA
calculation, whichever is highest? If so,
should CBLR banks be required to report
an additional line item for tier 1 capital?
Question 3: Should the FDIC use
average tangible equity as a proxy for
tier 1 capital for CBLR banks only, so
that such banks do not have to report
an additional line item for tier 1 capital?
In this case, for CBLR banks only, the
FDIC would use the amount reported in
line item 5 of Schedule RC–O of their
Call Report for the DIDA calculation in
place of tier 1 capital.
B. Assessment Rates for Established
Small Institutions
The FDIC is proposing to amend the
definition of the Leverage Ratio in the
small bank pricing methodology, which
is used to calculate an established small
1 capital represents a de minimis amount of risk.
See 76 FR at 10681.
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5383
bank’s assessment rate, to mean the
higher of either the CBLR or tier 1
leverage ratio, as applicable. For
established CBLR banks, the CBLR
would be used to calculate the bank’s
assessment rate unless the bank opts to
additionally report the tier 1 leverage
ratio. For all other established small
banks, the FDIC would continue to use
the tier 1 leverage ratio to calculate an
institution’s assessment rate. As
discussed in more detail below, FDIC
analysis suggests that substituting the
CBLR for the current Leverage Ratio in
the small bank pricing methodology
would not materially change the
predictive accuracy of the underlying
statistical model used to determine
assessment rates for established small
banks.
The proposed change to ‘‘Leverage
Ratio’’ minimizes increases in deposit
insurance assessments that may arise
without a change in risk. Based on Call
Report data as of September 30, 2018,
the FDIC estimates that for most, but not
all, CBLR banks, the CBLR would equal
or exceed the tier 1 leverage ratio and,
therefore, would reduce or have no
effect on an established small bank’s
deposit insurance assessment rate. In
the event that an established small
bank’s CBLR is less than its tier 1
leverage ratio, however, calculating the
bank’s assessment rate using the CBLR
instead of the tier 1 leverage ratio could
result in a higher assessment rate and a
higher assessment amount.35 Therefore,
through upcoming Call Report changes,
CBLR banks would have the option to
separately report their tier 1 leverage
ratio, in addition to the CBLR. As
reflected in the proposed changes to the
definition of ‘‘Leverage Ratio,’’ the FDIC
would then use the higher value (i.e.,
the value that results in the lower
assessment when calculating the
institution’s assessment rate). To
provide for this option in reporting, the
FDIC, through changes to the Call
Report, would retain and transfer item
44 from Schedule RC–R of the Call
Report, to Schedule RC–O. A CBLR
bank that elects to report its tier 1
leverage ratio for purposes of calculating
its assessment rate would report that
ratio on the item transferred to Schedule
RC–O. A CBLR bank that does not elect
to report the tier 1 leverage ratio would
leave this item blank.36 All CBLR banks
35 To illustrate the effect of using the CBLR or tier
1 leverage ratio on an IDI’s assessment rate, the
FDIC will provide on its website an assessment
estimation tool that banks can use to estimate
deposit insurance assessment rates under the
proposal.
36 By leaving this item blank, the FDIC would
consider the value for the tier 1 leverage ratio to be
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would report their CBLR as part of the
simpler capital schedule under the
CBLR framework. As discussed above,
to effectuate this option, the FDIC, in
coordination with the FFIEC, would
seek comment on corresponding
changes to Schedule RC–O and its
instructions in a separate Paperwork
Reduction Act notice.
The proposed change to ‘‘Leverage
Ratio’’ also maximizes regulatory relief
for CBLR banks. A CBLR bank would
experience a decrease in its reporting
burden under the proposal. If the bank
chooses the option to report the tier 1
leverage ratio for assessment purposes,
the bank would experience an increase
in reporting burden relative to other
CBLR banks by having to calculate and
report this additional line item on
Schedule RC–O. The FDIC expects that
a CBLR bank would only elect the
option to calculate and report its tier 1
capital ratio if it would result in a lower
assessment. A CBLR bank that elects to
report its tier 1 leverage ratio would still
benefit from the reduced reporting
provided by the simpler regulatory
capital schedule under the CBLR
framework, relative to non-CBLR banks.
All banks would continue to be required
to maintain all records that the FDIC
may require for verifying the correctness
of any assessment for three years from
the due date of the assessment.37
Question 4: The FDIC invites
comment on allowing a CBLR bank to
additionally report the tier 1 leverage
ratio to determine its deposit insurance
assessment rate. Is the proposed change
appropriate? Should the FDIC only use
the CBLR to calculate the assessment
rate of a CBLR bank, even if it could
result in a higher assessment amount?
C. Pricing CBLR Banks as Small
Institutions
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The FDIC is proposing to amend the
definition of ‘‘small institution’’ to
include all banks that elect to adopt the
CBLR framework, even if such a bank
would otherwise be classified as a
‘‘large institution’’ under the assessment
regulations.38 This modification is
necessary because otherwise the
different eligibility thresholds used to
define a small bank in assessment
regulations and a CBLR bank under the
zero and the CBLR would be used to calculate a
CBLR bank’s assessment rate because it would be
the higher amount.
37 See 12 U.S.C. 1817(b)(4).
38 A CBLR bank that meets the definition of an
established institution under 12 CFR 327.8(v),
generally one that has been federally insured for at
least five years, would be assessed as an established
small bank. A CBLR bank that has been federally
insured for less than five years would be assessed
as a new small bank. See 12 CFR 327.8(w).
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CBLR framework could result in a CBLR
bank being assessed as a large bank.39
For example, a substantial divestiture
might cause a bank classified as large for
the purpose of pricing deposit insurance
to have less than $10 billion in total
consolidated assets in a particular
quarter. Assuming that the bank meets
the other criteria to be a qualifying
community banking organization, the
bank would be eligible to report under
the CBLR framework beginning with the
following quarter. Under existing
assessment regulations, however, the
bank would still be classified as a large
institution until it reported total assets
below $10 billion for four consecutive
quarters. Therefore, the bank could
report the CBLR for regulatory capital
purposes but, for a short period, it
would continue to be priced as a large
bank.
The proposed change to the
assessment definition of ‘‘small
institution’’ would prevent a scenario,
such as the one described above, where
a CBLR bank is priced as a large bank
because it has not yet reported total
assets below $10 billion for four
consecutive quarters. In addition, the
FDIC also proposes to clarify that a
CBLR bank with assets of between $5
billion and $10 billion cannot request to
be treated as a large bank.40 The FDIC
believes that pricing a CBLR bank as a
large bank would be inconsistent with
the intention of the proposed CBLR
framework to provide regulatory relief
to small, community banks with a
limited risk profile.41 The pricing
methodology for large banks uses
measures that are not reported by small
banks and are meant to measure the risk
of banks with more complex operations
and organizational structures.42 Further,
CBLR banks would no longer report the
tier 1 leverage ratio or tier 1 capital,
which are used for multiple measures in
39 Under the current assessment regulations, a
large bank is reclassified as small once it has
reported less than $10 billion in total assets for four
consecutive quarters, and a small bank is
reclassified as large once it has reported $10 billion
or more in total assets for four consecutive quarters.
See 12 CFR 327.8(e). Under the CBLR NPR, a
qualifying community banking organization is
defined generally as a depository institution or
depository institution holding company with less
than $10 billion in total consolidated assets at the
end of the most recent quarter and that meet certain
qualifying criteria. See 84 FR at 3065.
40 Under current regulations, a bank with between
$5 billion and $10 billion may request treatment as
a large bank for deposit insurance assessments. See
12 CFR 327.16(f).
41 See 84 FR at 3067.
42 For example, the FDIC uses data on Schedule
RC–O regarding higher-risk assets to calculate
financial ratios used to determine a large or highly
complex institution’s assessment rate, and small
institutions are not required to report such
information.
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the large bank pricing methodology.
Substituting the CBLR for the tier 1
leverage ratio or CBLR tangible equity
for tier 1 capital in the large bank
assessment methodology would require
more extensive modifications to ensure
that risk is priced appropriately.
Question 5: The FDIC invites
comment on amending the definition of
‘‘small institution’’ to include CBLR
banks. Are there limited instances
where the FDIC should permit CBLR
banks to be assessed as large
institutions? If so, what are they and
how should such institutions report the
data necessary to be priced as a large
bank (as determined under the
assessment regulations)?
D. Clarifications Not Requiring a
Substantive Change to Regulations
The FDIC, through this NPR, proposes
to clarify that for any CBLR bank that
meets the definition of a custodial bank
there is no change in the reporting that
is necessary to calculate and receive the
custodial bank deduction under the
assessment regulations. The NPR would
not change the custodial bank
deduction. A CBLR bank that also meets
the definition of a custodial bank under
the assessment regulations would
continue to report items related to the
custodial bank deduction on Schedule
RC–O of the Call Report for assessment
purposes, one of which is calculated
based on the risk weighting of
qualifying low-risk liquid assets.
However, consistent with the CBLR
framework, CBLR banks that meet the
definition of a custodial bank would not
be required to report the more detailed
schedule of its risk-weighted assets for
regulatory capital purposes in order to
utilize the deduction.
In calculating the assessment base for
custodial banks, the FDIC excludes a
certain amount of low-risk assets, which
are reported in Schedule RC–R of the
Call Report, subject to the deduction
limit.43 Under the CBLR framework,
these line items would not be included
in the simpler regulatory capital
schedule that would be filed by CBLR
banks in the Call Report.44 However, the
FDIC is clarifying that it would not
43 See 12 CFR 327.5(c)(2) (the FDIC will exclude
from a custodial bank’s assessment base the daily
or weekly average (depending on how the bank
reports its average consolidated total assets) of all
asset types described in the instructions to lines 1,
2, and 3 of Schedule RC of the Call Report with a
standardized approach risk weight of 0 percent,
regardless of maturity, plus 50 percent of those
asset types described in the instructions to lines 1,
2, and 3 of Schedule RC of the Call Report, with
a standardized approach risk-weight greater than 0
and up to and including 20 percent, regardless of
maturity).
44 See 84 FR at 3073.
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require a custodial bank that elects to
use the CBLR framework to separately
report these items in order to continue
utilizing the custodial bank deduction.
A custodial bank would continue to
report the numerical value of its
custodial bank deduction and custodial
bank deduction limit in Schedule RC–
O of the Call Report. Also, the FDIC
would require custodial banks to
continue to maintain the proper
documentation of their calculation for
the custodial bank adjustment, and to
make that documentation available
upon request.45
Question 6: The FDIC invites
comment on allowing a custodial bank
that is a CBLR bank to continue to
utilize the custodial bank deduction by
only reporting its custodial bank
deduction and custodial bank limit on
Schedule RC–O of its Call Report.
Should such a bank be required to
report additional items on the Call
Report to support its calculation of the
custodial bank deduction?
The FDIC also proposes to clarify that
the assessment regulations would
continue to reference the PCA
regulations for the definitions of capital
categories used in the deposit insurance
assessment system. Capital categories
for deposit insurance assessment
purposes are defined by reference to the
agencies’ regulatory capital rules that
would be amended under the CBLR
NPR.46 Any changes to the thresholds
that are made as a result of the CBLR
rulemaking process will be
automatically incorporated into the
assessment regulations. In the NPR, the
FDIC also proposes to make technical
amendments to the FDIC’s assessment
regulations to align with the changes in
the CBLR NPR.
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IV. Expected Effects
Based on Call Report data as of
September 30, 2018, the FDIC does not
expect that the proposed changes to the
assessment regulations would have a
material impact on aggregate assessment
revenue or on rates paid by individual
institutions. The FDIC estimates that
4,450 out of 5,477 IDIs (81.2 percent)
would meet the proposed qualifying
community banking organization
criteria for the CBLR framework and
would have a CBLR greater than 9
percent.47 Of all banks, 4,479 (81.8
45 See
12 U.S.C. 1817(b)(4).
12 CFR 327.8(z).
47 In the CBLR NPR, the Federal banking agencies
estimated that 4,469 IDIs met all of the proposed
qualifying criteria, as of June 30, 2018. See 84 FR
at 3072. The estimate of 4,450 qualifying
community banking organizations in this NPR is
based on data as of September 30, 2018. The
difference of 19 institutions is attributable to
46 See
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percent) would see no change in their
deposit insurance assessment under the
proposal.
Certain CBLR banks, however, could
see a decrease or, potentially an
increase, in their assessments under the
proposal. A CBLR bank could
experience a decreased assessment
amount because its tier 1 capital is less
than its CBLR tangible equity (resulting
in a smaller assessment base and any
applicable assessment adjustments) or
because its tier 1 leverage ratio is lower
than its CBLR (resulting in a higher
Leverage Ratio and potentially a lower
assessment rate). Conversely, a CBLR
bank could experience an increased
assessment amount if its tier 1 capital is
greater than its CBLR tangible equity
(resulting in a larger assessment base) or
because its tier 1 leverage ratio is higher
than its CBLR (resulting in a lower
Leverage Ratio and potentially a higher
assessment rate).
The FDIC estimates that the proposal
would decrease assessments for 560
CBLR banks (10.2 percent of all banks).
Of those, 458 (8.4 percent of all banks)
would experience a decrease of less
than 1 percent, and 40 (0.7 percent of
all banks) would experience a decrease
greater than 5 percent. On the other
hand, the proposal could also result in
increased assessments for 438 banks (8.0
percent of all banks). Of those, 347 (6.3
percent of all banks) could experience
an increase of less than 1 percent, and
22 (0.4 percent of all banks) could
experience an increase greater than 5
percent. CBLR banks facing an increase
in assessments would have the option of
avoiding that increase by using tier 1
capital for the assessment base
calculation, reporting the tier 1 leverage
ratio for the assessment rate calculation,
or both. Therefore, the number of banks
that would experience an increase in
assessments as the result of this
proposal is likely to be less than 438,
depending on the number of banks that
utilize the options.
If all CBLR banks that could
experience an increase in assessments
by opting into the CBLR framework
choose to use tier 1 capital for the
assessment base calculation and the tier
1 leverage ratio for the assessment rate
calculation (in order to prevent an
increase in assessments), and
assessments for the remaining CBLR
banks are determined using CBLR
tangible equity and the CBLR, the FDIC
estimates that aggregate revenue to the
DIF would decline by $4.3 million
annually (0.08% of annual assessments),
changes in the number of institutions and to
relevant Call Report data and was not the result of
any change to the proposed qualifying criteria.
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5385
based on Call Report data as of
September 30, 2018.
Based on Call Report data as of
September 30, 2018, five custodial
banks would meet the definition of a
‘‘qualifying community banking
organization’’ under the CBLR NPR.
Under the proposal, a custodial bank
that is a CBLR bank would be able to
continue to report the custodial bank
deduction for its assessment base and
would be able to report the simpler
regulatory capital schedule proposed
under the CBLR NPR. All five custodial
banks that would meet the definition of
a ‘‘qualifying community banking
organization’’ would see no change to
their assessments.
The relatively small change in
aggregate deposit insurance assessment
revenue suggests that substituting the
CBLR for the tier 1 leverage ratio, as
proposed, would have minimal impact
on the FDIC’s ability to fairly and
adequately price a bank’s risk to the
DIF. The FDIC further evaluated this
claim by performing out-of-sample
backtesting to compare the accuracy
ratio 48 of a model that uses the CBLR
to the accuracy ratio of the current
model that uses the tier 1 leverage ratio.
The backtests show that substituting
the CBLR for the tier 1 leverage ratio
would not materially change the
predictive accuracy of the underlying
statistical model used to determine
assessment rates for established small
banks. To make this point, the table
below compares the accuracy ratios of
the statistical model using a close
approximation of the CBLR in lieu of
the tier 1 leverage ratio (column A) with
the current model using the tier 1
leverage ratio (column B).49 Column A
shows that the resulting accuracy ratio
when substituting the CBLR for the tier
1 leverage ratio is 0.646. Column B
shows that the current small bank
assessment system basically performed
48 Briefly, an accuracy ratio is a number between
0 and 1 (inclusive) that measures how well the
model performs a correct rank-ordering of banks
that failed over the projection horizon. A ‘‘perfect’’
model is one that always assigns a higher
probability of failure to a bank that subsequently
failed in the projection horizon compared to a bank
that does not fail; such a model receives an
accuracy ratio of 1. At the other extreme, a model
that performs no better than random guessing
would receive an accuracy ratio of 0. A technical
explanation of an accuracy ratio can be found at 81
FR 6127–28 (Feb. 4, 2016).
49 The substitution of the CBLR for the tier 1
leverage ratio is made only for cases in which the
bank is estimated to meet the definition of a
qualifying community bank organization.
Regressions were done on an out-of-sample basis.
For example, the backtest from the first row is based
on parameter estimates based on data from 2003
and earlier. Then the projection is made using data
available at the end of 2006 to make projections
over the next three years.
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the same, with an accuracy ratio of
0.645. Similar backtests are repeated for
other years with the average accuracy
ratio for all of the backtests virtually the
same between a model that uses the
CBLR in lieu of the tier 1 leverage ratio
and a model that reflects the current
small bank assessment system. These
results provide a strong case that
substituting the CBLR for the tier 1
leverage ratio has little impact on
predictive accuracy of the underlying
model used to determine assessments
for established small banks.
TABLE 2—ACCURACY RATIO COMPARISON BETWEEN THE PROPOSED RULE AND THE CURRENT SMALL BANK DEPOSIT
INSURANCE ASSESSMENT SYSTEM
Year of projection
Accuracy ratio for
the proposal *
Accuracy ratio for
the current small
bank assessment
system
Accuracy ratio for
the proposal—
accuracy ratio for
the current system
(A)
(B)
(A¥B)
2006 ...............................................................................................................
2007 ...............................................................................................................
2008 ...............................................................................................................
2009 ...............................................................................................................
2010 ...............................................................................................................
2011 ...............................................................................................................
2012 ...............................................................................................................
2013 ...............................................................................................................
2014 ...............................................................................................................
2015 ...............................................................................................................
Average ..........................................................................................................
0.646
0.746–0.754
0.910–0.912
0.937–0.938
0.969
0.952–0.953
0.917–0.919
0.958–0.960
0.879–0.887
0.857
0.877–0.879
0.645
0.748
0.910
0.938
0.969
0.953
0.918
0.960
0.889
0.857
0.879
0.001
(0.002)–0.006
0.000–0.002
0.000–0.001
0.000
(0.001)–0.000
(0.001)–0.001
(0.002)–0.000
(0.010)–(0.002)
0.000
(0.002)–0.000
Note: Table only includes institutions with less than $10 billion in assets that filed a Call Report. Thus, for projections made from 2011 and
earlier, Thrift Financial Report filers are excluded.
* Data necessary to calculate the CBLR, as defined in the CBLR rule, are not available prior to 2015 (except for a small number of banks in
2014). Instead, the FDIC used two alternative capital ratio definitions that are upper and lower bounds of the CBLR in over 99 percent of cases.
Column (A) reflects a range of estimates of accuracy ratios for the proposal based on those two alternative capital ratio definitions.
** The difference uses the midpoint of the range in column (A).
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Question 7: The FDIC invites
comments on all aspects of the
information provided in this Expected
Effects section. In particular, would this
proposal have any significant effects on
institutions that the FDIC has not
identified?
V. Alternatives
The FDIC considered the reasonable
and possible alternatives described
below. On balance, the FDIC believes
the current proposal would meet its
stated policy objectives in the most
appropriate and straightforward
manner.
One alternative would be to leave in
place the current assessment regulations
and require CBLR banks to report all of
the necessary data related to tier 1
capital and the tier 1 leverage ratio, to
determine the bank’s assessment base
and rate. In other words, the FDIC
would not incorporate CBLR tangible
equity or the CBLR into the current
assessment regulations and require
CBLR banks to report all of the
necessary data related to tier 1 capital
and the tier 1 leverage ratio, to
determine an institution’s assessment
base and rate. This option, however,
would not accomplish the policy
objective of aligning with the CBLR
framework to reduce regulatory
reporting burden for small institutions.
The FDIC could also require all CBLR
banks to use CBLR tangible equity and
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the CBLR, as appropriate, for
determining deposit insurance
assessments, either without the option
to use tier 1 capital or report the tier 1
leverage ratio if it resulted in a lower
deposit insurance assessment, or with a
time limit on a bank’s ability to elect
that option. This alternative would be
easy to understand and implement, but
it would raise costs for some banks and,
therefore, would fail to meet the policy
objective of minimizing increases in
deposit insurance assessments for some
banks with no corresponding change in
their risk profile.
Under a third alternative, the FDIC
could use historical data to estimate
each CBLR bank’s assessment amount
based on the CBLR framework and
compare this estimate to the bank’s
assessment amount based on tier 1
capital and the tier 1 leverage ratio. For
CBLR banks that are expected to
experience an assessment increase, the
FDIC could estimate the amount of the
increase using historical data and
reduce the bank’s assessment by the
estimated increase for one year. This
alternative would temporarily eliminate
the unintended consequence of higher
assessments for banks with no change in
risk profile, but the estimates would
only be valid for the historical quarter
estimated and the relationship between
the estimate and the actual amount
would likely become less accurate over
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time. At the conclusion of the one year
period, a CBLR bank may continue to
experience a higher assessment, but
would no longer receive an assessment
reduction and would have no other
option to offset that increase other than
to alter its risk profile. Finally, this
alternative would also be operationally
complex, particularly in comparison to
the current proposal, which the FDIC
believes would achieve a similar result
in a more straightforward manner.
Question 8: The FDIC invites
comment on the reasonable and
possible alternatives described in this
proposed rule. Should the FDIC
consider other reasonable and possible
alternatives?
VI. Request for Comments
In addition to its request for comment
on specific parts of the proposal, the
FDIC seeks comment on all aspects of
this proposed rulemaking.
VII. Effective Date
The effective date of amendments to
the assessment regulations that
accommodate reduced reporting under
the CBLR framework would coincide
with the effective date of a final rule
establishing the CBLR framework, but is
not expected to occur prior to
September 30, 2019.
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VIII. Solicitation of Comments on Use
of Plain Language
Section 722 of the Gramm-LeachBliley Act 50 requires the Federal
banking agencies to use plain language
in all proposed final rules published
after January 1, 2000. The FDIC has
sought to present the proposed
regulation in a simple and
straightforward manner, and invites
your comments on how to make this
proposal easier to understand. For
example:
• Has the FDIC organized the material
to suit your needs? If not, how could the
material be better organized?
• Are the requirements in the
proposed regulation clearly stated? If
not, how could the regulation be stated
more clearly?
• Does the proposed regulation
contain language or jargon that is
unclear? 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?
IX. Regulatory Flexibility Act
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The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., generally requires
an agency, in connection with a
proposed rule, to prepare and make
available for public comment an initial
regulatory flexibility analysis that
describes the impact of a proposed rule
on small entities.51 However, a
regulatory flexibility analysis is not
required if the agency certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities. The Small
Business Administration (SBA) has
defined ‘‘small entities’’ to include
banking organizations with total assets
of less than or equal to $550 million.52
Certain types of rules, such as rules of
particular applicability relating to rates,
corporate or financial structures, or
practices relating to such rates or
structures, are expressly excluded from
the definition of ‘‘rule’’ for purposes of
50 Public Law 106–102, sec. 722, 113 Stat. 1338,
1471 (1999).
51 5 U.S.C. 601 et seq.
52 The SBA defines a small banking organization
as having $550 million or less in assets, where ‘‘a
financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ See 13
CFR 121.201 (as amended, effective December 2,
2014). ‘‘SBA counts the receipts, employees, or
other measure of size of the concern whose size is
at issue and all of its domestic and foreign
affiliates.’’ See 13 CFR 121.103. Following these
regulations, the FDIC uses a covered entity’s
affiliated and acquired assets, averaged over the
preceding four quarters, to determine whether the
covered entity is ‘‘small’’ for the purposes of RFA.
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the RFA.53 Because the proposed rule
relates directly to the rates imposed on
IDIs for deposit insurance and to the
deposit insurance assessment system
that measures risk and determines each
bank’s assessment rate, the proposed
rule is not subject to the RFA.
Nonetheless, the FDIC is voluntarily
presenting information in this RFA
section.
As of June 30, 2018—the most recent
period for which full data on small
entities is available—there were 4,062
FDIC-insured depository institutions
considered to be small entities for the
purposes of RFA.54 Of these, 3,450 (84.9
percent) institutions are currently
eligible to use the CBLR. The proposed
rule could affect deposit insurance
assessments for these FDIC-insured
small entities, but as explained below,
these effects are likely to be small.
Using data from the Call Report as of
September 30, 2018, the FDIC calculated
that 2,870 small, FDIC-insured
institutions (83.2 percent) are unlikely
to experience a change in their
assessments because of this rule. The
FDIC estimates that 378 small, FDICinsured institutions (11.0 percent) are
likely to experience a decrease in their
assessments under the proposal;
however 305 of these (7.5 percent) are
likely to see assessments reduced by
less than one percent. Only 30 small
institutions (0.7 percent) are likely to
see their assessments reduced by more
than five percent. The FDIC estimates
that 202 small, FDIC-insured
institutions (5.9 percent) could
experience an increase in their
assessments under the proposal.
However, since the proposal allows
banks the option to report tier 1 capital
or the tier 1 leverage ratio if it results
in a lower assessment, the FDIC
presumes that none of these banks
would choose higher assessments.
The proposed changes would not
require any additional reporting, unless
a CBLR bank chooses the option to
report its tier 1 leverage ratio to
calculate its assessment rate or use tier
1 capital in the calculation of its
assessment base. The FDIC expects that
a CBLR bank would only elect to use
tier 1 capital or the tier 1 leverage ratio
if it would result in a lower assessment.
The proposed rule could pose some
additional regulatory costs for covered
institutions associated with changes to
internal systems or processes, or
changes to reporting requirements.
53 5
U.S.C. 601.
is the latest date for which data from bank
holding company financial reports (Y–9C) is
available for determining which banks are small
under the SBA definition.
54 This
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However, the FDIC believes that these
additional costs are likely to be de
minimis because the banks likely
already collect and report the data that
would be used in revised calculations.
Banks opting to report the tier 1 leverage
ratio on Schedule RC–O would have an
offsetting reduction in burden from no
longer reporting the current Schedules
RC–R and would benefit from a lower
assessment than it would have using the
CBLR.
Question 9: The FDIC invites
comments on all aspects of the
supporting information provided in this
RFA section. In particular, would this
rule have any significant effects on
small entities that the FDIC has not
identified?
X. Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act (PRA)
of 1995,55 the FDIC may not conduct or
sponsor, and the respondent is not
required to respond to, an information
collection unless it displays a currentlyvalid Office of Management and Budget
(OMB) control number. The FDIC’s
OMB control numbers for its assessment
regulations are 3064–0057, 3064–0151,
and 3064–0179. The proposed rule does
not revise any of these existing
assessment information collections
pursuant to the PRA and consequently,
no submissions in connection with
these OMB control numbers will be
made to the OMB for review. However,
the proposed rule will require changes
to Schedule RC–O of the Call Reports
(FFIEC 031, FFIEC 041, and FFIEC 051
(OMB No. 3064–0052 (FDIC), 7100–
0036 (Federal Reserve System) and
1557–0081 (Office of the Comptroller of
the Currency)), which will be
coordinated by the Federal Financial
Institutions Examination Council and
addressed in a separate Federal Register
notice.
XI. Riegle Community Development
and Regulatory Improvement Act of
1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act
(RCDRIA),56 in determining the effective
date and administrative compliance
requirements for new regulations that
impose additional reporting, disclosure,
or other requirements on insured
depository institutions, each Federal
banking agency must consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
55 44
56 12
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regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions generally to take effect on
the first day of a calendar quarter that
begins on or after the date on which the
regulations are published in final
form.57
The FDIC notes that comment on
these matters has been solicited in other
sections of this SUPPLEMENTARY
INFORMATION section, and that the
requirements of RCDRIA will be
considered as part of the overall
rulemaking process. In addition, FDIC
invites any other comments that further
will inform the FDIC’s consideration of
RCDRIA.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks,
Banking, Savings associations.
Authority and Issuance
For the reasons set forth above, the
FDIC proposes to amend part 327 of title
12 of the Code of Federal Regulations as
follows:
PART 327—ASSESSMENTS
1. The authority for 12 CFR part 327
continues to read as follows:
■
Authority: 12 U.S.C. 1441, 1813, 1815,
1817–19, 1821.
2. In § 327.5 revise paragraphs (a)(2)
and (a)(2)(iii) to read as follows:
■
§ 327.5
community banking organization that
elects to use the community bank
leverage ratio framework under 12 CFR
3.12(a)(3), 12 CFR 217.12(a)(3), or 12
CFR 324.12(a)(3), tangible equity is
defined as Tier 1 capital or CBLR
tangible equity as defined in 12 CFR
3.12(b)(2), 12 CFR 217.12(b)(2), and 12
CFR 324.12(b)(2).
(i) * * *
(ii) * * *
(iii) Calculation of average tangible
equity for the surviving institution in a
merger or consolidation. For the
surviving institution in a merger or
consolidation, tangible equity shall be
calculated as if the merger occurred on
the first day of the quarter in which the
merger or consolidation occurred.
*
*
*
*
*
■ 3. Revise § 327.6, paragraph (b) to read
as follows:
§ 327.6 Mergers and consolidations; other
terminations of insurance.
*
*
*
*
*
(b) Assessment for quarter in which
the merger or consolidation occurs. For
an assessment period in which a merger
or consolidation occurs, consolidated
total assets for the surviving or resulting
institution shall include the
consolidated total assets of all insured
depository institutions that are parties
to the merger or consolidation as if the
merger or consolidation occurred on the
first day of the assessment period.
Tangible equity shall be reported in the
same manner.
*
*
*
*
*
■ 4. Revise § 327.8, paragraphs (e) and
(z) to read as follows:
§ 327.8
Definitions.
*
Assessment base.
(a) * * *
(1) * * *
(2) Average tangible equity defined
and calculated. Average tangible equity
is defined as tangible equity using either
the monthly averaging or quarter-end
averaging in paragraphs (a)(2)(i) or (ii) of
this section, as applicable. Tangible
equity is defined as Tier 1 capital,
except that in the case of a qualifying
*
*
*
*
(e) Small institution. An insured
depository institution with assets of less
than $10 billion as of December 31,
2006, and an insured branch of a foreign
institution shall be classified as a small
institution. If, after December 31, 2006,
an institution classified as large under
paragraph (f) of this section (other than
an institution classified as large for
purposes of §§ 327.9(e) and 327.16(f))
reports assets of less than $10 billion in
its quarterly reports of condition for four
consecutive quarters, the FDIC will
reclassify the institution as small
beginning the following quarter. An
insured depository institution that
elects to use the community bank
leverage ratio framework under 12 CFR
3.12(a)(3), 12 CFR 217.12(a)(3), or 12
CFR 324.12(a)(3) shall be classified as a
small institution, even if that institution
otherwise would be classified as a large
institution under paragraph (f) of this
section.
*
*
*
*
*
(z) Well capitalized, adequately
capitalized and undercapitalized. For
any insured depository institution other
than an insured branch of a foreign
bank, Well Capitalized, Adequately
Capitalized and Undercapitalized have
the same meaning as in: 12 CFR 6.4 (for
national banks and federal savings
associations), as either may be amended
from time to time, except that 12 CFR
6.4(b)(1)(E) and (e), as they may be
amended from time to time, shall not
apply; 12 CFR 208.43 (for state member
institutions), as either may be amended
from time to time, except that 12 CFR
208.43(b)(1)(E) and (c), as they may be
amended from time to time, shall not
apply; and 12 CFR 324.403 (for state
nonmember institutions and state
savings associations), as either may be
amended from time to time, except that
12 CFR 324.403(b)(1)(E) and (d), as they
may be amended from time to time,
shall not apply.
■ 5. Revise the table under § 327.16,
paragraph (a)(1)(ii)(A) to read as follows:
§ 327.16 Assessment pricing methods—
beginning the first assessment period after
June 30, 2016, where the reserve ratio of the
DIF as of the end of the prior assessment
period has reached or exceeded 1.15
percent.
(a) * * *
(1) * * *
(i) * * *
(ii) Definitions of measures used in
the financial ratios method—(A)
Definitions. The following table lists
and defines the measures used in the
financial ratios method:
amozie on DSK3GDR082PROD with PROPOSALS1
DEFINITIONS OF MEASURES USED IN THE FINANCIAL RATIOS METHOD
Variables
Description
Leverage Ratio (%) ..............
The Leverage Ratio means Tier 1 capital divided by adjusted average assets (numerator and denominator are
both based on the definition for prompt corrective action). In the case of a qualifying community banking organization that elects to use the community bank leverage ratio framework under 12 CFR 3.12(a)(3), 12 CFR
217.12(a)(3), or 12 CFR 324.12(a)(3), the Leverage Ratio means the higher of: Tier 1 capital divided by adjusted average assets (numerator and denominator are both based on the definition for prompt corrective action); or CBLR tangible equity divided by average total consolidated assets (numerator and denominator are
both based on the definition for prompt corrective action, as applicable).
57 Id.
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DEFINITIONS OF MEASURES USED IN THE FINANCIAL RATIOS METHOD—Continued
Variables
Description
Net Income before Taxes/
Total Assets (%).
Nonperforming Loans and
Leases/Gross Assets (%).
Income (before applicable income taxes and discontinued operations) for the most recent twelve months divided
by total assets.1
Sum of total loans and lease financing receivables past due 90 or more days and still accruing interest and total
nonaccrual loans and lease financing receivables (excluding, in both cases, the maximum amount recoverable
from the U.S. Government, its agencies or government-sponsored enterprises, under guarantee or insurance
provisions) divided by gross assets.2
Other real estate owned divided by gross assets.2
Other Real Estate Owned/
Gross Assets (%).
Brokered Deposit Ratio ........
Weighted Average of C, A,
M, E, L, and S Component
Ratings.
Loan Mix Index .....................
One-Year Asset Growth (%)
The ratio of the difference between brokered deposits and 10 percent of total assets to total assets. For institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted
from brokered deposits. If the ratio is less than zero, the value is set to zero.
The weighted sum of the ‘‘C,’’ ‘‘A,’’ ‘‘M,’’ ‘‘E’’, ‘‘L’’, and ‘‘S’’ CAMELS components, with weights of 25 percent
each for the ‘‘C’’ and ‘‘M’’ components, 20 percent for the ‘‘A’’ component, and 10 percent each for the ‘‘E’’,
‘‘L’’, and ‘‘S’’ components.
A measure of credit risk described paragraph (a)(1)(ii)(B) of this section.
Growth in assets (adjusted for mergers 3) over the previous year in excess of 10 percent.4 If growth is less than
10 percent, the value is set to zero.
1 The ratio of Net Income before Taxes to Total Assets is bounded below by (and cannot be less than) ¥25 percent and is bounded above by
(and cannot exceed) 3 percent.
2 Gross assets are total assets plus the allowance for loan and lease financing receivable losses (ALLL).
3 Growth in assets is also adjusted for acquisitions of failed banks.
4 The maximum value of the Asset Growth measure is 230 percent; that is, asset growth (merger adjusted) over the previous year in excess of
240 percent (230 percentage points in excess of the 10 percent threshold) will not further increase a bank’s assessment rate.
*
*
*
*
*
6. Revise § 327.16, paragraph (e)(2)(i)
to read as follows:
■
§ 327.16 Assessment pricing methods—
beginning the first assessment period after
June 30, 2016, where the reserve ratio of the
DIF as of the end of the prior assessment
period has reached or exceeded 1.15
percent.
amozie on DSK3GDR082PROD with PROPOSALS1
*
*
*
*
*
(e) * * *
(2) * * *
(i) Application of depository
institution debt adjustment. An insured
depository institution shall pay a 50
basis point adjustment on the amount of
unsecured debt it holds that was issued
by another insured depository
institution to the extent that such debt
exceeds 3 percent of the institution’s
Tier 1 capital or, in the case of a
qualifying community banking
organization that elects to use the
community bank leverage ratio
framework under 12 CFR 3.12(a)(3), 12
CFR 217.12(a)(3), or 12 CFR
324.12(a)(3), CBLR tangible equity as
defined in 12 CFR 3.12(b)(2), 12 CFR
217.12(b)(2), or 12 CFR 324.12(b)(2), as
applicable. The amount of long-term
unsecured debt issued by another
insured depository institution shall be
calculated using the same valuation
methodology used to calculate the
amount of such debt for reporting on the
asset side of the balance sheets.
*
*
*
*
*
Dated at Washington, DC, on December 18,
2018.
By order of the Board of Directors.
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Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2019–02761 Filed 2–20–19; 8:45 am]
BILLING CODE 6714–01–P
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052–AD32
Advance Notice of Proposed
Rulemaking—Young, Beginning, and
Small Farmers and Ranchers
Farm Credit Administration.
Advance notice of proposed
rulemaking.
AGENCY:
ACTION:
The Farm Credit
Administration (FCA, Agency, we, our)
is requesting comments on ways to
collect, evaluate, and report data on
how the Farm Credit System (FCS or
System) is fulfilling its mission to
finance and provide services to young,
beginning, and small (YBS) farmers,
ranchers, and producers or harvesters of
aquatic products (YBS Farmer(s)).
Additionally, we are seeking comments
on how FCA should define or clarify
key terms associated with the collection
and reporting of YBS data.
DATES: You may send comments on or
before May 22, 2019.
ADDRESSES: We offer a variety of
methods for you to submit comments on
this advance notice of proposed
rulemaking (ANPRM). For accuracy and
efficiency reasons, commenters are
encouraged to submit comments by
SUMMARY:
PO 00000
Frm 00011
Fmt 4702
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email or through the Agency’s website.
As facsimiles (fax) are difficult for us to
process and achieve compliance with
section 508 of the Rehabilitation Act, we
are no longer accepting comments
submitted by fax. Regardless of the
method you use, please do not submit
your comment multiple times via
different methods. You may submit
comments by any of the following
methods:
• Email: Send us an email at
regcomm@fca.gov.
• FCA website: https://www.fca.gov/.
Click inside the ‘‘I want to . . .’’ field
near the top of the page; select
‘‘comment on a pending regulation’’
from the dropdown menu; and click
‘‘Go.’’
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Barry F. Mardock, Deputy
Director, Office of Regulatory Policy,
Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia, or on our website at
https://www.fca.gov. Once you are in the
website, click inside the ‘‘I want to
. . .’’ field near the top of the page;
select ‘‘find comment on pending
regulation’’ from the dropdown menu;
and click ‘‘Go.’’ We will show your
comments as submitted, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
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[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Proposed Rules]
[Pages 5380-5389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02761]
=======================================================================
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AE98
Assessments
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Deposit Insurance Corporation (FDIC) invites
public comment on a notice of proposed rulemaking (NPR or proposal)
that would amend its deposit insurance assessment regulations to apply
the community bank leverage ratio (CBLR) framework to the deposit
insurance assessment system. The FDIC, the Board of Governors of the
Federal Reserve System (Federal Reserve) and the Office of the
Comptroller of the Currency (OCC) (collectively, the Federal banking
agencies) recently issued an interagency proposal to implement the
community bank leverage ratio (the CBLR NPR). Under this proposal, the
FDIC would assess all banks that elect to use the CBLR framework (CBLR
banks) as small banks. Through amendments to the assessment regulations
and corresponding changes to the Consolidated Reports of Condition and
Income (Call Report), CBLR banks would have the option of using either
CBLR tangible equity or tier 1 capital for their assessment base
calculation, and using either the CBLR or the tier 1 leverage ratio for
the Leverage Ratio that the FDIC uses to calculate an established small
bank's assessment rate. Through this NPR, the FDIC also would clarify
that a CBLR bank that meets the definition of a custodial bank would
have no change to its custodial bank deduction or reporting items
required to calculate the deduction; and the assessment regulations
would continue to reference the prompt corrective action (PCA)
regulations for the definitions of capital categories used in the
deposit insurance assessment system, with technical amendments to align
with the CBLR NPR. To assist banks in understanding the effects of the
NPR, the FDIC plans to provide on its website an assessment estimation
tool that estimates deposit insurance assessment amounts under the
proposal.
DATES: Comments must be received on or before April 22, 2019.
ADDRESSES: You may submit comments, identified by RIN 3064-AE98, by any
of the following methods:
Agency website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the Agency
website.
Email: Comments@FDIC.gov. Include RIN 3064-AE98 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. Include RIN 3064-AE98 in the subject line of the
letter.
Hand Delivery/Courier: Guard station at the rear of the
550 17th Street NW building (located on F Street) on business days
between 7 a.m. and 5 p.m. (EDT).
Public Inspection: All comments received, including any
personal information provided, will be posted without change to https://www.fdic.gov/regulations/laws/federal. Paper copies of public comments
may be ordered from the FDIC Public Information Center, 3501 North
Fairfax Drive, Room E-1002, Arlington, VA 22226 or by telephone at
(877) 275-3342 or (703) 562-2200.
FOR FURTHER INFORMATION CONTACT: Ashley Mihalik, Chief, Banking and
Regulatory Policy Section, Division of Insurance and Research, (202)
898-3793, amihalik@fdic.gov; Daniel Hoople, Financial Economist,
Banking and Regulatory Policy Section, Division of Insurance and
Research, dhoople@fdic.gov; (202) 898-3835; Nefretete Smith, Counsel,
Legal Division, (202) 898-6851, NefSmith@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The Federal Deposit Insurance Act (FDI Act) requires that the FDIC
establish a risk-based deposit insurance assessment system.\1\ Pursuant
to this requirement, the FDIC first adopted a risk-based deposit
insurance assessment system effective in 1993 that applied to all
insured depository institutions (IDIs).\2\ The FDIC implemented a risk-
based assessment system with the goals of making the deposit insurance
system fairer to well-run institutions and encouraging weaker
institutions to improve their condition, and thus, promote the safety
and soundness of IDIs.\3\ Deposit insurance assessments based on risk
also provide incentives for IDIs to monitor and reduce risks that could
increase potential losses to the DIF. Since 1993, the FDIC has met its
statutory mandate and has pursued these policy goals by periodically
introducing improvements to the deposit insurance assessment system's
ability to differentiate for risk.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1817(b). Generally, a ``risk-based assessment
system'' means a system for calculating a depository institution's
assessment based on the institution's probability of causing a loss
to the Deposit Insurance Fund (DIF) due to the composition and
concentration of the institution's assets and liabilities, the
likely amount of any such loss, and the revenue needs of the DIF.
See 12 U.S.C. 1817(b)(1)(C).
\2\ 57 FR 45263 (Oct. 1, 1992).
\3\ See 57 FR at 45264.
---------------------------------------------------------------------------
The primary objective of this proposal is to incorporate the CBLR
framework \4\ into the current risk-based deposit insurance assessment
system in a manner that: (1) Maximizes regulatory relief for small
institutions that use the CBLR framework; and (2) minimizes increases
in deposit insurance assessments that may arise without a change in
risk. The rulemaking also would maintain fair and appropriate pricing
of deposit insurance for institutions that use the CBLR.
---------------------------------------------------------------------------
\4\ In this proposal, the term ``CBLR framework'' refers to the
simplified measure of capital adequacy provided in the CBLR NPR, as
well as any subsequent changes to that proposal that are adopted
during the rulemaking process.
---------------------------------------------------------------------------
II. Background
The FDIC assesses all IDIs an amount for deposit insurance equal to
the bank's \5\ deposit insurance assessment base multiplied by its
risk-based assessment rate.\6\ A bank's assessment base and risk-based
assessment rate depend in part, on tier 1 capital and the tier 1
leverage ratio. This information would no longer be reported on the
Consolidated Reports of Condition and Income (Call Report) by banks
that elect the CBLR framework.
---------------------------------------------------------------------------
\5\ As used in this NPR, the term ``bank'' is synonymous with
the term ``insured depository institution'' as it is used in section
3(c)(2) of the FDI Act, 12 U.S.C. 1817(c)(2).
\6\ See 12 CFR 327.3(b)(1).
---------------------------------------------------------------------------
A. Notice of Proposed Rulemaking: Community Bank Leverage Ratio
On February 8, 2019, the Federal banking agencies published in the
Federal Register the CBLR NPR.\7\ The CBLR NPR would provide for a
[[Page 5381]]
simplified measure of capital adequacy for qualifying community banking
organizations, consistent with Section 201 of the Economic Growth,
Regulatory Relief, and Consumer Protection Act (EGRRCPA or the Act).\8\
The Act defines a qualifying community banking organization as a
depository institution or depository institution holding company with
total consolidated assets of less than $10 billion.\9\ In addition, the
Act states that the Federal banking agencies may determine that a
banking organization is not a qualifying community bank based on its
risk profile.\10\ A qualifying community banking organization that
reports a community bank leverage ratio, or CBLR (defined as the ratio
of tangible equity capital to average total consolidated assets, both
as reported on an institution's applicable regulatory filing),
exceeding the level established by the Federal banking agencies of not
less than 8 percent and not more than 10 percent would be considered
well capitalized. The CBLR NPR proposed to define tangible equity
capital (CBLR tangible equity) as total bank equity capital, prior to
including minority interests, and excluding accumulated other
comprehensive income (AOCI), deferred tax assets arising from net
operating loss and tax credit carryforwards, goodwill, and certain
other intangible assets, calculated in accordance with a qualifying
community bank organization's regulatory reports.\11\ The Federal
banking agencies further proposed that qualifying community banking
organizations \12\ that elect to use the CBLR framework (CBLR banks)
would report their CBLR and other relevant information on a simpler
regulatory capital schedule in the Call Report, as opposed to the
current schedule RC-R of the Call Report.\13\ Finally, under the CBLR
NPR, a CBLR bank must have a CBLR greater than 9 percent to be
considered well capitalized.\14\ The Federal banking agencies also
proposed proxy CBLR thresholds for the adequately capitalized,
undercapitalized, and significantly undercapitalized PCA
categories.\15\
---------------------------------------------------------------------------
\7\ See 84 FR 3062 (February 8, 2019).
\8\ Public Law 115-174 (May 24, 2018).
\9\ See section 201(a)(3)(A) of the Act.
\10\ See section 201(a)(3)(B) of the Act.
\11\ See 84 FR at 3068-69.
\12\ In accordance with the Act, the Federal banking agencies
propose to define a qualifying community bank generally as a
depository institution or depository institution holding company
with less than $10 billion in total consolidated assets and that has
limited amounts of off-balance sheet exposures, trading assets and
liabilities, mortgage servicing assets, and certain deferred tax
assets. An advanced approaches banking organization, including a
subsidiary of a depository institution, bank holding company, or
intermediate holding company that is an advanced approaches banking
organization, would not be a qualifying community bank. See 84 FR at
3065-67.
\13\ In the CBLR NPR, the Federal banking agencies state that
they intend to separately seek comment on the proposed changes to
regulatory reports for qualifying community banking organizations
that elect to use the CBLR framework; however, the CBLR NPR provides
an illustrative reporting form, using the Call Report as an example,
as an indication of the potential reporting format and potential
reporting burden relief for CBLR banks. See 84 FR at 3065 and 3074.
\14\ See 84 FR at 3064 and 3071. However, to be considered and
treated as well capitalized under the CBLR framework, and consistent
with the Federal banking agencies' current PCA rule, the qualifying
community banking organization must demonstrate that it is not
subject to any written agreement, order, capital directive, or
prompt corrective action directive to meet and maintain a specific
capital level for any capital measure. See 84 FR at 3064.
\15\ See 84 FR at 3071-72.
---------------------------------------------------------------------------
In the interagency CBLR NPR, the Federal banking agencies noted
that deposit insurance assessment regulations would be affected by the
proposed CBLR framework.\16\ CBLR banks would no longer be required to
calculate or report the components of regulatory capital used in the
calculation of the tier 1 leverage ratio or risk-based capital, such as
tier 1 capital or risk weighted assets.\17\
---------------------------------------------------------------------------
\16\ See 84 FR at 3073-74.
\17\ See 84 FR at 3073.
---------------------------------------------------------------------------
B. Use of Capital Measures in the Current Deposit Insurance Assessment
System
Assessment Base
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act) required that the FDIC amend its regulations to
redefine the assessment base to equal average consolidated total assets
minus average tangible equity.\18\ In implementing this requirement,
the FDIC defined tangible equity as tier 1 capital, in part, because it
minimized regulatory reporting.\19\ The FDIC also provides a deduction
to the assessment base for custodial banks \20\ equal to a certain
amount of low risk-weighted assets.\21\
---------------------------------------------------------------------------
\18\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 331(b), 124 Stat. 1376, 1538 (codified at 12
U.S.C. 1817(note)).
\19\ See 76 FR 10673, 10678 (Feb. 25, 2011) (``Defining tangible
equity as Tier 1 capital provides a clearly understood capital
buffer for the DIF in the event of the institution's failure, while
avoiding an increase in regulatory burden that a new definition of
capital could cause.'').
\20\ Generally, a custodial bank is defined as an IDI with
previous calendar year-end trust assets (that is, fiduciary and
custody and safekeeping assets, as reported on Schedule RC-T of the
Call Report) of at least $50 billion or those insured depository
institutions that derived more than 50 percent of their revenue
(interest income plus non-interest income) from trust activity over
the previous calendar year. See 12 CFR 327.5(c)(1).
\21\ The adjustment to the assessment base for banker's banks
under 12 CFR 327.5(b) would not be affected by this proposal.
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In addition, the FDIC applies certain adjustments to a bank's
assessment rate as part of the risk-based assessment system to better
account for risk among banks based on their funding sources. The
adjustments are calculated, in part, using a bank's assessment base.
One adjustment, the depository institution debt adjustment (DIDA), is
limited based on a bank's tier 1 capital.\22\
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\22\ See 12 CFR 327.16(e)(2).
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Assessment Rate
Under the FDI Act, the FDIC has the authority to ``establish
separate risk-based assessment systems for large and small members of
the Deposit Insurance Fund.'' \23\ Separate systems for large banks and
small banks have been in place since 2007.\24\ Assessment rates for
established small banks \25\ are calculated based on a formula that
uses financial measures and a weighted average of supervisory ratings
(CAMELS).\26\ The financial measures are derived from a statistical
model estimating the probability of failure over three years. The
measures are shown in Table 1 below.
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\23\ 12 U.S.C. 1817(b)(1)(D).
\24\ Under the assessment regulations, a ``small institution''
generally is an institution with less than $10 billion in total
assets, and a ``large institution'' generally is an institution with
$10 billion or more in total assets. See 12 CFR 327.8(e) and (f). A
separate system for highly complex institutions has been in place
since 2011. See 12 CFR 326.16(b)(2).
\25\ Generally, an established institution is one that has been
federally insured for at least five years. See 12 CFR 327.8(v).
\26\ See 12 CFR 327.16(a)(1).
Table 1--Financial Measures Used To Determine Assessment Rates for
Established Small Banks
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Financial measures
-------------------------------------------------------------------------
Leverage Ratio.
Net Income before Taxes/Total Assets.
Nonperforming Loans and Leases/Gross Assets.
Other Real Estate Owned/Gross Assets.
Brokered Deposit Ratio.
One Year Asset Growth.
Loan Mix Index.
------------------------------------------------------------------------
One of the measures, the Leverage Ratio, is defined as tier 1
capital divided by adjusted average assets (herein referred to as the
tier 1 leverage ratio). The numerator and denominator of the Leverage
Ratio are both based on the
[[Page 5382]]
definitions for the relevant PCA measure.\27\
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\27\ See 12 CFR 327.16(a)(1)(ii).
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III. Summary of Proposal
Summary
In this NPR, the FDIC is proposing to apply the CBLR framework to
the deposit insurance assessment system in a way that minimizes or
eliminates any resulting increase in assessments that may arise without
a change in risk and, to the fullest extent practicable, reduces
regulatory reporting burden consistent with the objective of the CBLR
framework, as discussed in the CBLR NPR.\28\ As discussed more fully
below, the FDIC is proposing to price all CBLR banks as small banks.
The FDIC is also proposing to amend its assessment regulations to
calculate the assessment base of CBLR banks using either CBLR tangible
equity or tier 1 capital, and the assessment rate of established CBLR
banks using the higher of either the CBLR or the tier 1 leverage ratio.
For a minority of small banks, the use of the CBLR or CBLR tangible
equity could result in a higher assessment rate or a larger assessment
base, respectively. Therefore, through corresponding changes to the
Call Report, the FDIC would propose to allow CBLR banks the option to
use tier 1 capital in lieu of CBLR tangible equity when reporting
``average tangible equity'' on their Call Report, for purposes of
calculating their assessment base. Through Call Report changes, CBLR
banks also would have the option to report the tier 1 leverage ratio on
Schedule RC-O of the Call Report, in addition to the CBLR on the
simpler regulatory capital schedule under the CBLR framework, and the
FDIC would apply the value that would result in the lower assessment
rate (i.e., the higher value). The FDIC, in coordination with the
Federal Financial Institutions Examination Council (FFIEC), would seek
comment on proposed changes to Schedule RC-O and its instructions in
the Call Reports in a separate Paperwork Reduction Act notice that
would align with the proposed amendments to the assessment regulations.
This proposal meets the FDIC's goal of extending the regulatory relief
made available to small institutions under the proposed CBLR framework
while minimizing or potentially eliminating increases in deposit
insurance assessments that are unrelated to a change in risk.
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\28\ The changes proposed in this rulemaking do not apply to
insured branches of foreign banks. These institutions file the FFIEC
002, which does not include many of the items, including capital
measures, found in the Call Report schedules filed by other IDIs.
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The FDIC, through this NPR, also proposes to clarify that a CBLR
bank that meets the definition of a custodial bank would have no change
to its custodial bank deduction or reporting items required to
calculate the deduction. A CBLR bank that meets the definition of a
custodial bank would continue to report items related to the custodial
bank deduction on Schedule RC-O of the Call Report for assessment
purposes, one of which is calculated based on the risk weighting of
qualifying low-risk liquid assets; however, to utilize the deduction
the bank would not be required to report the more detailed schedule of
risk-weighted assets for regulatory capital purposes consistent with
adoption of the CBLR framework. In addition, the proposal would clarify
that the assessment regulations would continue to reference the PCA
regulations for the definitions of capital categories for deposit
insurance assessment purposes, including the proposed CBLR capital
categories.
A. Assessment Base and Assessment Rate Adjustments
Tangible Equity
The FDIC is proposing to amend the definition of ``tangible
equity,'' for purposes of calculating a CBLR bank's average tangible
equity and the assessment base, to mean either CBLR tangible equity or
tier 1 capital.\29\ For CBLR banks that do not elect the option,
discussed below, to use tier 1 capital when reporting average tangible
equity, CBLR tangible equity would be used to calculate the bank's
assessment base. All other banks would continue to use tier 1 capital
when reporting average tangible equity, which the FDIC would use to
calculate a bank's assessment base.
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\29\ As previously stated, the assessment base is equal to
average consolidated total assets minus average tangible equity.
This proposal would not change the calculation of average
consolidated total assets as it relates to an IDI's assessment base.
---------------------------------------------------------------------------
The proposed change minimizes increases in deposit insurance
assessments for CBLR banks that may arise without a change in risk.
Based on Call Report data as of September 30, 2018, the FDIC estimates
that for most, but not all, CBLR banks, CBLR tangible equity would
equal or exceed tier 1 capital. However, in the event that a bank's
CBLR tangible equity is less than tier 1 capital, calculating a bank's
assessment base using CBLR tangible equity instead of tier 1 capital
could result in a larger assessment base and a higher assessment
amount. Therefore, the FDIC is proposing to give CBLR banks the option
to use either tier 1 capital or CBLR tangible equity when calculating
``average tangible equity'' for purposes of the bank's assessment base
calculation.\30\ Banks currently report average tangible equity on item
5 of Schedule RC-O of their Call Report. Through changes to the Call
Report, the FDIC would propose to retain this item, but amend the Call
Report instructions to allow CBLR banks to report average tangible
equity using either CBLR tangible equity or, if using tier 1 capital
would result in a higher amount for average tangible equity (and
subsequently a lower assessment base), the bank would have the option
to use tier 1 capital.\31\ As discussed above, the FDIC, in
coordination with the FFIEC, would seek comment on corresponding
changes to Schedule RC-O and its instructions in a separate Paperwork
Reduction Act notice.
---------------------------------------------------------------------------
\30\ All IDIs are instructed to calculate average tangible
equity using the average of the three month-end balances within a
quarter (monthly averaging). Some institutions with total
consolidated assets of less than $1 billion may report average
tangible equity using an end-of-quarter balance. See 12 CFR
327.5(a)(2).
\31\ To illustrate the effect of using CBLR tangible equity or
tier 1 capital on an IDI's assessment, the FDIC plans to provide on
its website an assessment estimation tool that banks can use to
estimate deposit insurance assessment amounts under the proposal.
---------------------------------------------------------------------------
The proposed change to ``tangible equity'' also maximizes
regulatory relief for CBLR banks. A CBLR bank would experience a
decrease in reporting burden as a result of this proposal. If the bank
chooses the option to use tier 1 capital for assessment purposes, the
bank would experience an increase in reporting burden relative to other
CBLR banks by having to calculate tier 1 capital for purposes of
reporting average tangible equity. Compared to current reporting,
however, this would still result in an overall reduction in reporting,
because the number of items reported by a CBLR bank that elects to use
tier 1 capital for assessment purposes would not increase (tier 1
capital would be used in lieu of CBLR tangible equity in calculating
and reporting ``average tangible equity'' on Schedule RC-O of its Call
Report). The FDIC would continue to require all banks to maintain
records required to verify the correctness of any assessment for three
years from the due date of the assessment.\32\ The FDIC expects that a
CBLR bank would only elect the option to use tier 1 capital if it would
result in a lower assessment.
---------------------------------------------------------------------------
\32\ See 12 U.S.C. 1817(b)(4).
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[[Page 5383]]
The proposed definition of ``tangible equity'' for purposes of
calculating an IDI's assessment base would affect adjustments that
could apply to a CBLR bank's initial base assessment rate because the
assessment base is used in the denominator of each adjustment.\33\ The
FDIC expects that a CBLR bank would consider how the proposed change to
``tangible equity'' for purposes of calculating its assessment base
could affect adjustments to its assessment rate when it makes its
decision of whether to optionally report average tangible equity using
tier 1 capital for deposit insurance assessment purposes. Thus, the
FDIC does not propose any additional change to the assessment base as
it is used for purposes of calculating the adjustments referenced
above.
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\33\ For example, the unsecured debt adjustment applied to an
IDI's assessment rate equals the amount of long-term unsecured
liabilities an IDI reports times the sum of 40 basis points plus the
bank's initial base assessment rate (that is, the assessment rate
before any adjustments) divided by the assessment base. The other
two adjustments affected by the proposed change to the definition of
``tangible equity'' for purposes of calculating an IDI's assessment
base are: the depository institution debt adjustment and the
brokered deposit adjustment. See 12 CFR 327.16(e).
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Question 1: The FDIC invites comment on providing a CBLR bank with
the option to use tier 1 capital for purposes of reporting average
tangible equity, which is used in the assessment base calculation. Is
the proposed change appropriate? Should the FDIC only use CBLR tangible
equity to calculate the assessment base of a CBLR bank, even if it
could result in a higher assessment amount? Should CBLR banks be
required to specify whether they are reporting tier 1 capital or CBLR
tangible equity for assessments purposes in a separate line item of the
Call Report? Should this option only stay in effect for a limited time
to permit a transition to the new CBLR?
Depository Institution Debt Adjustment
The FDIC also proposes to amend the DIDA to incorporate CBLR
tangible equity for CBLR banks. Under the proposal, the FDIC would
exclude from the unsecured debt amount used in calculating the DIDA of
a CBLR bank an amount equal to no more than 3 percent of CBLR tangible
equity. For all other banks, the FDIC would continue to exclude an
amount equal to no more than 3 percent of tier 1 capital, and thus
those banks would see no change.\34\ The NPR would not change the 3
percent cap for the exclusion and would not require any change in
reporting. For a CBLR bank, the FDIC would calculate the exclusion
using end-of-quarter CBLR tangible equity, as reported in the simpler
regulatory capital schedule under the CBLR framework. For a non-CBLR
bank, the FDIC would continue to calculate the exclusion using end-of-
quarter tier 1 capital, as reported in Schedule RC-R of the Call
Report.
---------------------------------------------------------------------------
\34\ The FDIC implemented the DIDA in a 2011 final rule to
offset the benefit received by institutions that issue long-term,
unsecured liabilities when these liabilities are held by another
IDI. The exclusion of no more than 3 percent of tier 1 capital
represents a de minimis amount of risk. See 76 FR at 10681.
---------------------------------------------------------------------------
The FDIC is proposing to only use CBLR tangible equity for purposes
of calculating the DIDA for CBLR banks because the adjustment currently
applies to so few banks. Based on Call Report data as of September 30,
2018, 24 IDIs are subject to the DIDA and 22 of those could qualify as
a CBLR bank. The majority of the 22 CBLR banks subject to the DIDA
would experience little to no effect if the FDIC substitutes CBLR
tangible equity for tier 1 capital. Based on the latest Call Report
data, only 2 of the 22 CBLR banks subject to the DIDA would experience
a change in their DIDA calculation, and the effect would be
approximately $1,500 per quarter. As such, the FDIC is proposing to
substitute CBLR tangible equity, as reported on the simpler regulatory
capital schedule under the CBLR framework, for tier 1 capital so that
CBLR banks subject to the DIDA would not have to report tier 1 capital
separately. The proposed change would extend the regulatory relief made
available to small institutions under the proposed CBLR framework while
minimizing increases to the DIDA that may arise without a corresponding
increase to the debt issued by another IDI that is held by the bank.
Question 2: Should the FDIC allow CBLR banks to use either CBLR
tangible equity or tier 1 capital for the DIDA calculation, whichever
is highest? If so, should CBLR banks be required to report an
additional line item for tier 1 capital?
Question 3: Should the FDIC use average tangible equity as a proxy
for tier 1 capital for CBLR banks only, so that such banks do not have
to report an additional line item for tier 1 capital? In this case, for
CBLR banks only, the FDIC would use the amount reported in line item 5
of Schedule RC-O of their Call Report for the DIDA calculation in place
of tier 1 capital.
B. Assessment Rates for Established Small Institutions
The FDIC is proposing to amend the definition of the Leverage Ratio
in the small bank pricing methodology, which is used to calculate an
established small bank's assessment rate, to mean the higher of either
the CBLR or tier 1 leverage ratio, as applicable. For established CBLR
banks, the CBLR would be used to calculate the bank's assessment rate
unless the bank opts to additionally report the tier 1 leverage ratio.
For all other established small banks, the FDIC would continue to use
the tier 1 leverage ratio to calculate an institution's assessment
rate. As discussed in more detail below, FDIC analysis suggests that
substituting the CBLR for the current Leverage Ratio in the small bank
pricing methodology would not materially change the predictive accuracy
of the underlying statistical model used to determine assessment rates
for established small banks.
The proposed change to ``Leverage Ratio'' minimizes increases in
deposit insurance assessments that may arise without a change in risk.
Based on Call Report data as of September 30, 2018, the FDIC estimates
that for most, but not all, CBLR banks, the CBLR would equal or exceed
the tier 1 leverage ratio and, therefore, would reduce or have no
effect on an established small bank's deposit insurance assessment
rate. In the event that an established small bank's CBLR is less than
its tier 1 leverage ratio, however, calculating the bank's assessment
rate using the CBLR instead of the tier 1 leverage ratio could result
in a higher assessment rate and a higher assessment amount.\35\
Therefore, through upcoming Call Report changes, CBLR banks would have
the option to separately report their tier 1 leverage ratio, in
addition to the CBLR. As reflected in the proposed changes to the
definition of ``Leverage Ratio,'' the FDIC would then use the higher
value (i.e., the value that results in the lower assessment when
calculating the institution's assessment rate). To provide for this
option in reporting, the FDIC, through changes to the Call Report,
would retain and transfer item 44 from Schedule RC-R of the Call
Report, to Schedule RC-O. A CBLR bank that elects to report its tier 1
leverage ratio for purposes of calculating its assessment rate would
report that ratio on the item transferred to Schedule RC-O. A CBLR bank
that does not elect to report the tier 1 leverage ratio would leave
this item blank.\36\ All CBLR banks
[[Page 5384]]
would report their CBLR as part of the simpler capital schedule under
the CBLR framework. As discussed above, to effectuate this option, the
FDIC, in coordination with the FFIEC, would seek comment on
corresponding changes to Schedule RC-O and its instructions in a
separate Paperwork Reduction Act notice.
---------------------------------------------------------------------------
\35\ To illustrate the effect of using the CBLR or tier 1
leverage ratio on an IDI's assessment rate, the FDIC will provide on
its website an assessment estimation tool that banks can use to
estimate deposit insurance assessment rates under the proposal.
\36\ By leaving this item blank, the FDIC would consider the
value for the tier 1 leverage ratio to be zero and the CBLR would be
used to calculate a CBLR bank's assessment rate because it would be
the higher amount.
---------------------------------------------------------------------------
The proposed change to ``Leverage Ratio'' also maximizes regulatory
relief for CBLR banks. A CBLR bank would experience a decrease in its
reporting burden under the proposal. If the bank chooses the option to
report the tier 1 leverage ratio for assessment purposes, the bank
would experience an increase in reporting burden relative to other CBLR
banks by having to calculate and report this additional line item on
Schedule RC-O. The FDIC expects that a CBLR bank would only elect the
option to calculate and report its tier 1 capital ratio if it would
result in a lower assessment. A CBLR bank that elects to report its
tier 1 leverage ratio would still benefit from the reduced reporting
provided by the simpler regulatory capital schedule under the CBLR
framework, relative to non-CBLR banks. All banks would continue to be
required to maintain all records that the FDIC may require for
verifying the correctness of any assessment for three years from the
due date of the assessment.\37\
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\37\ See 12 U.S.C. 1817(b)(4).
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Question 4: The FDIC invites comment on allowing a CBLR bank to
additionally report the tier 1 leverage ratio to determine its deposit
insurance assessment rate. Is the proposed change appropriate? Should
the FDIC only use the CBLR to calculate the assessment rate of a CBLR
bank, even if it could result in a higher assessment amount?
C. Pricing CBLR Banks as Small Institutions
The FDIC is proposing to amend the definition of ``small
institution'' to include all banks that elect to adopt the CBLR
framework, even if such a bank would otherwise be classified as a
``large institution'' under the assessment regulations.\38\ This
modification is necessary because otherwise the different eligibility
thresholds used to define a small bank in assessment regulations and a
CBLR bank under the CBLR framework could result in a CBLR bank being
assessed as a large bank.\39\
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\38\ A CBLR bank that meets the definition of an established
institution under 12 CFR 327.8(v), generally one that has been
federally insured for at least five years, would be assessed as an
established small bank. A CBLR bank that has been federally insured
for less than five years would be assessed as a new small bank. See
12 CFR 327.8(w).
\39\ Under the current assessment regulations, a large bank is
reclassified as small once it has reported less than $10 billion in
total assets for four consecutive quarters, and a small bank is
reclassified as large once it has reported $10 billion or more in
total assets for four consecutive quarters. See 12 CFR 327.8(e).
Under the CBLR NPR, a qualifying community banking organization is
defined generally as a depository institution or depository
institution holding company with less than $10 billion in total
consolidated assets at the end of the most recent quarter and that
meet certain qualifying criteria. See 84 FR at 3065.
---------------------------------------------------------------------------
For example, a substantial divestiture might cause a bank
classified as large for the purpose of pricing deposit insurance to
have less than $10 billion in total consolidated assets in a particular
quarter. Assuming that the bank meets the other criteria to be a
qualifying community banking organization, the bank would be eligible
to report under the CBLR framework beginning with the following
quarter. Under existing assessment regulations, however, the bank would
still be classified as a large institution until it reported total
assets below $10 billion for four consecutive quarters. Therefore, the
bank could report the CBLR for regulatory capital purposes but, for a
short period, it would continue to be priced as a large bank.
The proposed change to the assessment definition of ``small
institution'' would prevent a scenario, such as the one described
above, where a CBLR bank is priced as a large bank because it has not
yet reported total assets below $10 billion for four consecutive
quarters. In addition, the FDIC also proposes to clarify that a CBLR
bank with assets of between $5 billion and $10 billion cannot request
to be treated as a large bank.\40\ The FDIC believes that pricing a
CBLR bank as a large bank would be inconsistent with the intention of
the proposed CBLR framework to provide regulatory relief to small,
community banks with a limited risk profile.\41\ The pricing
methodology for large banks uses measures that are not reported by
small banks and are meant to measure the risk of banks with more
complex operations and organizational structures.\42\ Further, CBLR
banks would no longer report the tier 1 leverage ratio or tier 1
capital, which are used for multiple measures in the large bank pricing
methodology. Substituting the CBLR for the tier 1 leverage ratio or
CBLR tangible equity for tier 1 capital in the large bank assessment
methodology would require more extensive modifications to ensure that
risk is priced appropriately.
---------------------------------------------------------------------------
\40\ Under current regulations, a bank with between $5 billion
and $10 billion may request treatment as a large bank for deposit
insurance assessments. See 12 CFR 327.16(f).
\41\ See 84 FR at 3067.
\42\ For example, the FDIC uses data on Schedule RC-O regarding
higher-risk assets to calculate financial ratios used to determine a
large or highly complex institution's assessment rate, and small
institutions are not required to report such information.
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Question 5: The FDIC invites comment on amending the definition of
``small institution'' to include CBLR banks. Are there limited
instances where the FDIC should permit CBLR banks to be assessed as
large institutions? If so, what are they and how should such
institutions report the data necessary to be priced as a large bank (as
determined under the assessment regulations)?
D. Clarifications Not Requiring a Substantive Change to Regulations
The FDIC, through this NPR, proposes to clarify that for any CBLR
bank that meets the definition of a custodial bank there is no change
in the reporting that is necessary to calculate and receive the
custodial bank deduction under the assessment regulations. The NPR
would not change the custodial bank deduction. A CBLR bank that also
meets the definition of a custodial bank under the assessment
regulations would continue to report items related to the custodial
bank deduction on Schedule RC-O of the Call Report for assessment
purposes, one of which is calculated based on the risk weighting of
qualifying low-risk liquid assets. However, consistent with the CBLR
framework, CBLR banks that meet the definition of a custodial bank
would not be required to report the more detailed schedule of its risk-
weighted assets for regulatory capital purposes in order to utilize the
deduction.
In calculating the assessment base for custodial banks, the FDIC
excludes a certain amount of low-risk assets, which are reported in
Schedule RC-R of the Call Report, subject to the deduction limit.\43\
Under the CBLR framework, these line items would not be included in the
simpler regulatory capital schedule that would be filed by CBLR banks
in the Call Report.\44\ However, the FDIC is clarifying that it would
not
[[Page 5385]]
require a custodial bank that elects to use the CBLR framework to
separately report these items in order to continue utilizing the
custodial bank deduction. A custodial bank would continue to report the
numerical value of its custodial bank deduction and custodial bank
deduction limit in Schedule RC-O of the Call Report. Also, the FDIC
would require custodial banks to continue to maintain the proper
documentation of their calculation for the custodial bank adjustment,
and to make that documentation available upon request.\45\
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\43\ See 12 CFR 327.5(c)(2) (the FDIC will exclude from a
custodial bank's assessment base the daily or weekly average
(depending on how the bank reports its average consolidated total
assets) of all asset types described in the instructions to lines 1,
2, and 3 of Schedule RC of the Call Report with a standardized
approach risk weight of 0 percent, regardless of maturity, plus 50
percent of those asset types described in the instructions to lines
1, 2, and 3 of Schedule RC of the Call Report, with a standardized
approach risk-weight greater than 0 and up to and including 20
percent, regardless of maturity).
\44\ See 84 FR at 3073.
\45\ See 12 U.S.C. 1817(b)(4).
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Question 6: The FDIC invites comment on allowing a custodial bank
that is a CBLR bank to continue to utilize the custodial bank deduction
by only reporting its custodial bank deduction and custodial bank limit
on Schedule RC-O of its Call Report. Should such a bank be required to
report additional items on the Call Report to support its calculation
of the custodial bank deduction?
The FDIC also proposes to clarify that the assessment regulations
would continue to reference the PCA regulations for the definitions of
capital categories used in the deposit insurance assessment system.
Capital categories for deposit insurance assessment purposes are
defined by reference to the agencies' regulatory capital rules that
would be amended under the CBLR NPR.\46\ Any changes to the thresholds
that are made as a result of the CBLR rulemaking process will be
automatically incorporated into the assessment regulations. In the NPR,
the FDIC also proposes to make technical amendments to the FDIC's
assessment regulations to align with the changes in the CBLR NPR.
---------------------------------------------------------------------------
\46\ See 12 CFR 327.8(z).
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IV. Expected Effects
Based on Call Report data as of September 30, 2018, the FDIC does
not expect that the proposed changes to the assessment regulations
would have a material impact on aggregate assessment revenue or on
rates paid by individual institutions. The FDIC estimates that 4,450
out of 5,477 IDIs (81.2 percent) would meet the proposed qualifying
community banking organization criteria for the CBLR framework and
would have a CBLR greater than 9 percent.\47\ Of all banks, 4,479 (81.8
percent) would see no change in their deposit insurance assessment
under the proposal.
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\47\ In the CBLR NPR, the Federal banking agencies estimated
that 4,469 IDIs met all of the proposed qualifying criteria, as of
June 30, 2018. See 84 FR at 3072. The estimate of 4,450 qualifying
community banking organizations in this NPR is based on data as of
September 30, 2018. The difference of 19 institutions is
attributable to changes in the number of institutions and to
relevant Call Report data and was not the result of any change to
the proposed qualifying criteria.
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Certain CBLR banks, however, could see a decrease or, potentially
an increase, in their assessments under the proposal. A CBLR bank could
experience a decreased assessment amount because its tier 1 capital is
less than its CBLR tangible equity (resulting in a smaller assessment
base and any applicable assessment adjustments) or because its tier 1
leverage ratio is lower than its CBLR (resulting in a higher Leverage
Ratio and potentially a lower assessment rate). Conversely, a CBLR bank
could experience an increased assessment amount if its tier 1 capital
is greater than its CBLR tangible equity (resulting in a larger
assessment base) or because its tier 1 leverage ratio is higher than
its CBLR (resulting in a lower Leverage Ratio and potentially a higher
assessment rate).
The FDIC estimates that the proposal would decrease assessments for
560 CBLR banks (10.2 percent of all banks). Of those, 458 (8.4 percent
of all banks) would experience a decrease of less than 1 percent, and
40 (0.7 percent of all banks) would experience a decrease greater than
5 percent. On the other hand, the proposal could also result in
increased assessments for 438 banks (8.0 percent of all banks). Of
those, 347 (6.3 percent of all banks) could experience an increase of
less than 1 percent, and 22 (0.4 percent of all banks) could experience
an increase greater than 5 percent. CBLR banks facing an increase in
assessments would have the option of avoiding that increase by using
tier 1 capital for the assessment base calculation, reporting the tier
1 leverage ratio for the assessment rate calculation, or both.
Therefore, the number of banks that would experience an increase in
assessments as the result of this proposal is likely to be less than
438, depending on the number of banks that utilize the options.
If all CBLR banks that could experience an increase in assessments
by opting into the CBLR framework choose to use tier 1 capital for the
assessment base calculation and the tier 1 leverage ratio for the
assessment rate calculation (in order to prevent an increase in
assessments), and assessments for the remaining CBLR banks are
determined using CBLR tangible equity and the CBLR, the FDIC estimates
that aggregate revenue to the DIF would decline by $4.3 million
annually (0.08% of annual assessments), based on Call Report data as of
September 30, 2018.
Based on Call Report data as of September 30, 2018, five custodial
banks would meet the definition of a ``qualifying community banking
organization'' under the CBLR NPR. Under the proposal, a custodial bank
that is a CBLR bank would be able to continue to report the custodial
bank deduction for its assessment base and would be able to report the
simpler regulatory capital schedule proposed under the CBLR NPR. All
five custodial banks that would meet the definition of a ``qualifying
community banking organization'' would see no change to their
assessments.
The relatively small change in aggregate deposit insurance
assessment revenue suggests that substituting the CBLR for the tier 1
leverage ratio, as proposed, would have minimal impact on the FDIC's
ability to fairly and adequately price a bank's risk to the DIF. The
FDIC further evaluated this claim by performing out-of-sample
backtesting to compare the accuracy ratio \48\ of a model that uses the
CBLR to the accuracy ratio of the current model that uses the tier 1
leverage ratio.
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\48\ Briefly, an accuracy ratio is a number between 0 and 1
(inclusive) that measures how well the model performs a correct
rank-ordering of banks that failed over the projection horizon. A
``perfect'' model is one that always assigns a higher probability of
failure to a bank that subsequently failed in the projection horizon
compared to a bank that does not fail; such a model receives an
accuracy ratio of 1. At the other extreme, a model that performs no
better than random guessing would receive an accuracy ratio of 0. A
technical explanation of an accuracy ratio can be found at 81 FR
6127-28 (Feb. 4, 2016).
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The backtests show that substituting the CBLR for the tier 1
leverage ratio would not materially change the predictive accuracy of
the underlying statistical model used to determine assessment rates for
established small banks. To make this point, the table below compares
the accuracy ratios of the statistical model using a close
approximation of the CBLR in lieu of the tier 1 leverage ratio (column
A) with the current model using the tier 1 leverage ratio (column
B).\49\ Column A shows that the resulting accuracy ratio when
substituting the CBLR for the tier 1 leverage ratio is 0.646. Column B
shows that the current small bank assessment system basically performed
[[Page 5386]]
the same, with an accuracy ratio of 0.645. Similar backtests are
repeated for other years with the average accuracy ratio for all of the
backtests virtually the same between a model that uses the CBLR in lieu
of the tier 1 leverage ratio and a model that reflects the current
small bank assessment system. These results provide a strong case that
substituting the CBLR for the tier 1 leverage ratio has little impact
on predictive accuracy of the underlying model used to determine
assessments for established small banks.
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\49\ The substitution of the CBLR for the tier 1 leverage ratio
is made only for cases in which the bank is estimated to meet the
definition of a qualifying community bank organization. Regressions
were done on an out-of-sample basis. For example, the backtest from
the first row is based on parameter estimates based on data from
2003 and earlier. Then the projection is made using data available
at the end of 2006 to make projections over the next three years.
Table 2--Accuracy Ratio Comparison Between the Proposed Rule and the Current Small Bank Deposit Insurance
Assessment System
----------------------------------------------------------------------------------------------------------------
Accuracy ratio for Accuracy ratio for
Accuracy ratio for the current small the proposal--
Year of projection the proposal * bank assessment accuracy ratio for
system the current system
(A) (B) (A-B)
----------------------------------------------------------------------------------------------------------------
2006............................................. 0.646 0.645 0.001
2007............................................. 0.746-0.754 0.748 (0.002)-0.006
2008............................................. 0.910-0.912 0.910 0.000-0.002
2009............................................. 0.937-0.938 0.938 0.000-0.001
2010............................................. 0.969 0.969 0.000
2011............................................. 0.952-0.953 0.953 (0.001)-0.000
2012............................................. 0.917-0.919 0.918 (0.001)-0.001
2013............................................. 0.958-0.960 0.960 (0.002)-0.000
2014............................................. 0.879-0.887 0.889 (0.010)-(0.002)
2015............................................. 0.857 0.857 0.000
Average.......................................... 0.877-0.879 0.879 (0.002)-0.000
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Note: Table only includes institutions with less than $10 billion in assets that filed a Call Report. Thus, for
projections made from 2011 and earlier, Thrift Financial Report filers are excluded.
* Data necessary to calculate the CBLR, as defined in the CBLR rule, are not available prior to 2015 (except for
a small number of banks in 2014). Instead, the FDIC used two alternative capital ratio definitions that are
upper and lower bounds of the CBLR in over 99 percent of cases. Column (A) reflects a range of estimates of
accuracy ratios for the proposal based on those two alternative capital ratio definitions.
** The difference uses the midpoint of the range in column (A).
Question 7: The FDIC invites comments on all aspects of the
information provided in this Expected Effects section. In particular,
would this proposal have any significant effects on institutions that
the FDIC has not identified?
V. Alternatives
The FDIC considered the reasonable and possible alternatives
described below. On balance, the FDIC believes the current proposal
would meet its stated policy objectives in the most appropriate and
straightforward manner.
One alternative would be to leave in place the current assessment
regulations and require CBLR banks to report all of the necessary data
related to tier 1 capital and the tier 1 leverage ratio, to determine
the bank's assessment base and rate. In other words, the FDIC would not
incorporate CBLR tangible equity or the CBLR into the current
assessment regulations and require CBLR banks to report all of the
necessary data related to tier 1 capital and the tier 1 leverage ratio,
to determine an institution's assessment base and rate. This option,
however, would not accomplish the policy objective of aligning with the
CBLR framework to reduce regulatory reporting burden for small
institutions.
The FDIC could also require all CBLR banks to use CBLR tangible
equity and the CBLR, as appropriate, for determining deposit insurance
assessments, either without the option to use tier 1 capital or report
the tier 1 leverage ratio if it resulted in a lower deposit insurance
assessment, or with a time limit on a bank's ability to elect that
option. This alternative would be easy to understand and implement, but
it would raise costs for some banks and, therefore, would fail to meet
the policy objective of minimizing increases in deposit insurance
assessments for some banks with no corresponding change in their risk
profile.
Under a third alternative, the FDIC could use historical data to
estimate each CBLR bank's assessment amount based on the CBLR framework
and compare this estimate to the bank's assessment amount based on tier
1 capital and the tier 1 leverage ratio. For CBLR banks that are
expected to experience an assessment increase, the FDIC could estimate
the amount of the increase using historical data and reduce the bank's
assessment by the estimated increase for one year. This alternative
would temporarily eliminate the unintended consequence of higher
assessments for banks with no change in risk profile, but the estimates
would only be valid for the historical quarter estimated and the
relationship between the estimate and the actual amount would likely
become less accurate over time. At the conclusion of the one year
period, a CBLR bank may continue to experience a higher assessment, but
would no longer receive an assessment reduction and would have no other
option to offset that increase other than to alter its risk profile.
Finally, this alternative would also be operationally complex,
particularly in comparison to the current proposal, which the FDIC
believes would achieve a similar result in a more straightforward
manner.
Question 8: The FDIC invites comment on the reasonable and possible
alternatives described in this proposed rule. Should the FDIC consider
other reasonable and possible alternatives?
VI. Request for Comments
In addition to its request for comment on specific parts of the
proposal, the FDIC seeks comment on all aspects of this proposed
rulemaking.
VII. Effective Date
The effective date of amendments to the assessment regulations that
accommodate reduced reporting under the CBLR framework would coincide
with the effective date of a final rule establishing the CBLR
framework, but is not expected to occur prior to September 30, 2019.
[[Page 5387]]
VIII. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \50\ requires the Federal
banking agencies to use plain language in all proposed final rules
published after January 1, 2000. The FDIC has sought to present the
proposed regulation in a simple and straightforward manner, and invites
your comments on how to make this proposal easier to understand. For
example:
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\50\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999).
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Has the FDIC organized the material to suit your needs? If
not, how could the material be better organized?
Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be stated more clearly?
Does the proposed regulation contain language or jargon
that is unclear? 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?
IX. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires an agency, in connection with a proposed rule, to
prepare and make available for public comment an initial regulatory
flexibility analysis that describes the impact of a proposed rule on
small entities.\51\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $550 million.\52\ Certain types of rules, such as rules of
particular applicability relating to rates, corporate or financial
structures, or practices relating to such rates or structures, are
expressly excluded from the definition of ``rule'' for purposes of the
RFA.\53\ Because the proposed rule relates directly to the rates
imposed on IDIs for deposit insurance and to the deposit insurance
assessment system that measures risk and determines each bank's
assessment rate, the proposed rule is not subject to the RFA.
Nonetheless, the FDIC is voluntarily presenting information in this RFA
section.
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\51\ 5 U.S.C. 601 et seq.
\52\ The SBA defines a small banking organization as having $550
million or less in assets, where ``a financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' See 13 CFR
121.201 (as amended, effective December 2, 2014). ``SBA counts the
receipts, employees, or other measure of size of the concern whose
size is at issue and all of its domestic and foreign affiliates.''
See 13 CFR 121.103. Following these regulations, the FDIC uses a
covered entity's affiliated and acquired assets, averaged over the
preceding four quarters, to determine whether the covered entity is
``small'' for the purposes of RFA.
\53\ 5 U.S.C. 601.
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As of June 30, 2018--the most recent period for which full data on
small entities is available--there were 4,062 FDIC-insured depository
institutions considered to be small entities for the purposes of
RFA.\54\ Of these, 3,450 (84.9 percent) institutions are currently
eligible to use the CBLR. The proposed rule could affect deposit
insurance assessments for these FDIC-insured small entities, but as
explained below, these effects are likely to be small.
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\54\ This is the latest date for which data from bank holding
company financial reports (Y-9C) is available for determining which
banks are small under the SBA definition.
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Using data from the Call Report as of September 30, 2018, the FDIC
calculated that 2,870 small, FDIC-insured institutions (83.2 percent)
are unlikely to experience a change in their assessments because of
this rule. The FDIC estimates that 378 small, FDIC-insured institutions
(11.0 percent) are likely to experience a decrease in their assessments
under the proposal; however 305 of these (7.5 percent) are likely to
see assessments reduced by less than one percent. Only 30 small
institutions (0.7 percent) are likely to see their assessments reduced
by more than five percent. The FDIC estimates that 202 small, FDIC-
insured institutions (5.9 percent) could experience an increase in
their assessments under the proposal. However, since the proposal
allows banks the option to report tier 1 capital or the tier 1 leverage
ratio if it results in a lower assessment, the FDIC presumes that none
of these banks would choose higher assessments.
The proposed changes would not require any additional reporting,
unless a CBLR bank chooses the option to report its tier 1 leverage
ratio to calculate its assessment rate or use tier 1 capital in the
calculation of its assessment base. The FDIC expects that a CBLR bank
would only elect to use tier 1 capital or the tier 1 leverage ratio if
it would result in a lower assessment.
The proposed rule could pose some additional regulatory costs for
covered institutions associated with changes to internal systems or
processes, or changes to reporting requirements. However, the FDIC
believes that these additional costs are likely to be de minimis
because the banks likely already collect and report the data that would
be used in revised calculations. Banks opting to report the tier 1
leverage ratio on Schedule RC-O would have an offsetting reduction in
burden from no longer reporting the current Schedules RC-R and would
benefit from a lower assessment than it would have using the CBLR.
Question 9: The FDIC invites comments on all aspects of the
supporting information provided in this RFA section. In particular,
would this rule have any significant effects on small entities that the
FDIC has not identified?
X. Paperwork Reduction Act
In accordance with the requirements of the Paperwork R
