Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Lending Facility, and the Money Market Mutual Fund Liquidity Facility, 30649-30664 [2020-10454]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Proposed Rules]
[Pages 30649-30664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10454]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AF53


Assessments, Mitigating the Deposit Insurance Assessment Effect 
of Participation in the Paycheck Protection Program (PPP), the PPP 
Lending Facility, and the Money Market Mutual Fund Liquidity Facility

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation is seeking comment 
on a proposed rule that would mitigate the deposit insurance assessment 
effects of participating in the Paycheck Protection Program (PPP) 
established by the Small Business Administration (SBA), and the 
Paycheck

[[Page 30650]]

Protection Program Lending Facility (PPPLF) and Money Market Mutual 
Fund Liquidity Facility (MMLF) established by the Board of Governors of 
the Federal Reserve System. The proposed changes would remove the 
effect of participation in the PPP and PPPLF on various risk measures 
used to calculate an insured depository institution's assessment rate, 
remove the effect of participation in the PPPLF and MMLF programs on 
certain adjustments to an IDI's assessment rate, provide an offset to 
an insured depository institution's assessment for the increase to its 
assessment base attributable to participation in the MMLF and PPPLF, 
and remove the effect of participation in the PPPLF and MMLF programs 
when classifying insured depository institutions as small, large, or 
highly complex for assessment purposes.

DATES: Comments must be received no later than May 27, 2020.

ADDRESSES: You may submit comments on the proposed rule, identified by 
RIN 3064-AF53, using 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: [email protected]. Include RIN 3064-AF53 on 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-AF53 in the subject line of the 
letter.
     Hand Delivery: Comments may be hand delivered to the 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.
     Public Inspection: All comments received, including any 
personal information provided, will be posted generally without change 
to https://www.fdic.gov/regulations/laws/federal.

FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director, 
202-898-7041, [email protected]; Ashley Mihalik, Chief, Banking and 
Regulatory Policy, 202-898-3793, [email protected]; Nefretete Smith, 
Counsel, 202-898-6851, [email protected]; Samuel Lutz, Counsel, 
[email protected], 202-898-3773.

SUPPLEMENTARY INFORMATION:

I. Summary

    Pursuant to its authority under the Federal Deposit Insurance Act 
(FDI Act), the FDIC is issuing this notice of proposed rulemaking to 
mitigate the effects of an insured depository institution's 
participation in the PPP, MMLF, and PPPLF programs on its deposit 
insurance assessments.\1\ Absent a change to the assessment rules, an 
IDI that participates in the PPP, PPPLF, or MMLF programs could be 
subject to increased deposit insurance assessments. To remove the 
effect of these programs on the risk measures used to determine the 
deposit insurance assessment rate for each insured depository 
institution (IDI), the FDIC is proposing to exclude PPP loans, which 
include loans pledged to the PPPLF, from an institution's loan 
portfolio; exclude loans pledged to the PPPLF from an institution's 
total assets; and exclude amounts borrowed from the Federal Reserve 
Banks under the PPPLF from an institution's liabilities. In addition, 
because participation in the PPPLF and MMLF programs will have the 
effect of expanding an IDI's balance sheet (and, by extension, its 
assessment base), the FDIC is proposing to exclude loans pledged to the 
PPPLF and assets purchased under the MMLF in the calculation of certain 
adjustments to an IDI's assessment rate, and to provide an offset to an 
IDI's total assessment amount for the increase to its assessment base 
attributable to participation in the MMLF and PPPLF. Finally, in 
defining IDIs for assessment purposes, the FDIC would exclude from an 
IDI's total assets the amount of loans pledged to the PPPLF and assets 
purchased under the MMLF.
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    \1\ See 12 U.S.C. 1817, 1819 (Tenth).
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II. Background

    Recent events have significantly and adversely impacted the global 
economy and financial markets. The spread of the Coronavirus Disease 
(COVID-19) has slowed economic activity in many countries, including 
the United States. Sudden disruptions in financial markets have put 
increasing liquidity pressure on money market mutual funds (MMFs) and 
raised the cost of credit for most borrowers. MMFs have faced 
redemption requests from clients with immediate cash needs and may need 
to sell a significant number of assets to meet these redemption 
requests, which could further increase market pressures. Small 
businesses also are facing severe liquidity constraints and a collapse 
in revenue streams, as millions of Americans have been ordered to stay 
home, severely reducing their ability to engage in normal commerce. 
Many small businesses have been forced to close temporarily or furlough 
employees. Continued access to financing will be crucial for small 
businesses to weather economic disruptions caused by COVID-19 and, 
ultimately, to help restore economic activity.
    In order to prevent the disruption in the money markets from 
destabilizing the financial system, on March 18, 2020, the Board of 
Governors of the Federal Reserve System (Board of Governors), with 
approval of the Secretary of the Treasury, authorized the Federal 
Reserve Bank of Boston (FRBB) to establish the MMLF, pursuant to 
section 13(3) of the Federal Reserve Act.\2\ Under the MMLF, the FRBB 
is extending non-recourse loans to eligible borrowers to purchase 
assets from MMFs. Assets purchased from MMFs will be posted as 
collateral to the FRBB. Eligible borrowers under the MMLF include IDIs. 
Eligible collateral under the MMLF includes U.S. Treasuries and fully 
guaranteed agency securities, securities issued by government-sponsored 
enterprises, and certain types of commercial paper. The MMLF is 
scheduled to terminate on September 30, 2020, unless extended by the 
Board of Governors.
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    \2\ 12 U.S.C. 343(3).
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    As part of the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act) and in recognition of the exigent circumstances faced by 
small businesses, Congress created the PPP.\3\ PPP loans are fully 
guaranteed as to principal and accrued interest by the Small Business 
Administration (SBA), the amount of each being determined at the time 
the guarantee is exercised. As a general matter, SBA guarantees are 
backed by the full faith and credit of the U.S. Government. PPP loans 
also afford borrowers forgiveness up to the principal amount of the PPP 
loan, if the proceeds of the PPP loan are used for certain expenses. 
The SBA reimburses PPP lenders for any amount of a PPP loan that is 
forgiven. PPP lenders are not held liable for any representations made 
by PPP borrowers in connection with a borrower's request for PPP loan 
forgiveness.\4\
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    \3\ Public Law 116-136 (Mar. 27, 2020).
    \4\ Under the PPP, eligible borrowers generally include 
businesses with fewer than 500 employees or that are otherwise 
considered by the SBA to be small, including individuals operating 
sole proprietorships or acting as independent contractors, certain 
franchisees, nonprofit corporations, veterans' organizations, and 
Tribal businesses. The loan amount under the PPP would be limited to 
the lesser of $10 million and 250 percent of a borrower's average 
monthly payroll costs. For more information on the Paycheck 
Protection Program, see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp.
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    In order to provide liquidity to small business lenders and the 
broader credit markets, and to help stabilize the financial system, on 
April 8, 2020, the

[[Page 30651]]

Board of Governors, with approval of the Secretary of the Treasury, 
authorized each of the Federal Reserve Banks to extend credit under the 
PPPLF, pursuant to section 13(3) of the Federal Reserve Act.\5\ Under 
the PPPLF, Federal Reserve Banks are extending non-recourse loans to 
institutions that are eligible to make PPP loans, including IDIs. Under 
the PPPLF, only PPP loans that are guaranteed by the SBA with respect 
to both principal and interest and that are originated by an eligible 
institution may be pledged as collateral to the Federal Reserve Banks 
(loans pledged to the PPPLF). The maturity date of the extension of 
credit under the PPPLF \6\ equals the maturity date of the PPP loans 
pledged to secure the extension of credit.\7\ No new extensions of 
credit will be made under the PPPLF after September 30, 2020, unless 
extended by the Board of Governors and the Department of the Treasury.
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    \5\ 12 U.S.C. 343(3).
    \6\ The maturity date of the extension of credit under the PPPLF 
will be accelerated if the underlying PPP loan goes into default and 
the eligible borrower sells the PPP Loan to the SBA to realize the 
SBA guarantee. The maturity date of the extension of credit under 
the PPPLF also will be accelerated to the extent of any PPP loan 
forgiveness reimbursement received by the eligible borrower from the 
SBA.
    \7\ Under the SBA's interim final rule, a lender may request 
that the SBA purchase the expected forgiveness amount of a PPP loan 
or pool of PPP loans at the end of week seven of the covered period. 
See Interim Final Rule ``Business Loan Program Temporary Changes; 
Paycheck Protection Program,'' 85 FR 20811, 20816 (Apr. 15, 2020).
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    To facilitate use of the MMLF and PPPLF, the FDIC, Board of 
Governors, and Comptroller of the Currency (together, the agencies) 
adopted interim final rules on March 23, 2020, and April 13, 2020, 
respectively, to allow banking organizations to neutralize the 
regulatory capital effects of purchasing assets through the MMLF 
program and loans pledged to the PPPLF.\8\ Consistent with Section 1102 
of the CARES Act, the April 2020 interim final rule also required 
banking organizations to apply a zero percent risk weight to PPP loans 
originated by the banking organization under the PPP for purposes of 
the banking organization's risk-based capital requirements.
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    \8\ See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13, 
2020).
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Deposit Insurance Assessments

    Pursuant to Section 7 of the FDI Act, the FDIC has established a 
risk-based assessment system through which it charges all IDIs an 
assessment amount for deposit insurance.\9\ Under the FDIC's 
regulations, an IDI's assessment is equal to its assessment base 
multiplied by its risk-based assessment rate.\10\ An IDI's assessment 
base and assessment rate are determined each quarter based on 
supervisory ratings and information collected on the Consolidated 
Reports of Condition and Income (Call Report) or the Report of Assets 
and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 
002), as appropriate. Generally, an IDI's assessment base equals its 
average consolidated total assets minus its average tangible 
equity.\11\ An IDI's assessment rate is calculated using different 
methods based on whether the IDI is a small, large, or highly complex 
institution.\12\ For assessment purposes, a large bank is generally 
defined as an institution with $10 billion or more in total assets, a 
small bank is generally defined as an institution with less than $10 
billion in total assets, and a highly complex bank is generally defined 
as an institution that has $50 billion or more in total assets and is 
controlled by a parent holding company that has $500 billion or more in 
total assets, or is a processing bank or trust company.\13\
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    \9\ See 12 U.S.C. 1817(b).
    \10\ See 12 CFR 327.3(b)(1).
    \11\ See 12 CFR 327.5.
    \12\ See 12 CFR 327.16(a) and (b).
    \13\ As used in this proposed rule, the term ``bank'' is 
synonymous with the term ``insured depository institution'' as it is 
used in section 3(c)(2) of the Federal Deposit Insurance Act (FDI 
Act), 12 U.S.C. 1813(c)(2). As used in this proposed rule, the term 
``small bank'' is synonymous with the term ``small institution'' and 
the term ``large bank'' is synonymous with the term ``large 
institution'' or ``highly complex institution,'' as the terms are 
defined in 12 CFR 327.8.
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    Assessment rates for established small banks are calculated based 
on eight risk measures that are statistically significant in predicting 
the probability of an institution's failure over a three-year 
horizon.\14\ Large banks are assessed using a scorecard approach that 
combines CAMELS ratings and certain forward-looking financial measures 
to assess the risk that a large bank poses to the deposit insurance 
fund (DIF).\15\ All institutions are subject to adjustments to their 
assessment rates for certain liabilities that can increase or reduce 
loss to the DIF in the event the bank fails.\16\ In addition, the FDIC 
may adjust a large bank's total score, which is used in the calculation 
of its assessment rate, based upon significant risk factors not 
adequately captured in the appropriate scorecard.\17\
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    \14\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
    \15\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) 
and 77 FR 66000 (Oct. 31, 2012).
    \16\ See 12 CFR 327.16(e).
    \17\ See 12 CFR 327.16(b)(3); see also Assessment Rate 
Adjustment Guidelines for Large and Highly Complex Institutions, 76 
FR 57992 (Sept. 19, 2011).
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    Absent a change to the assessment rules, an IDI that participates 
in the PPP, PPPLF, or MMLF programs could be subject to increased 
deposit insurance assessments. For example, an institution that holds 
PPP loans, including loans pledged to the PPPLF, would increase its 
total loan portfolio, all else equal, which may increase its assessment 
rate. An IDI that receives funding through the PPPLF would increase the 
total assets on its balance sheet (equal to the amount of PPP pledged 
to the Federal Reserve Banks), and increase its liabilities by the same 
amount, which would increase the IDI's assessment base and also may 
increase its assessment rate. Similarly, an IDI that participates in 
the MMLF would increase its total assets by the amount of assets 
purchased from MMFs under the MMLF and increase its liabilities by the 
same amount, which in turn would increase its assessment base and may 
also increase its assessment rate.

III. The Proposed Rule

A. Summary

    The FDIC, under its general rulemaking authority in Section 9 of 
the FDI Act, and its specific authority under Section 7 of the FDI Act 
to establish a risk-based assessment system and set assessments,\18\ is 
proposing to mitigate the deposit insurance assessment effects of 
holding PPP loans, pledging loans to the PPPLF, and purchasing assets 
under the MMLF. Under the proposal, an IDI generally would not be 
subject to a higher deposit insurance assessment rate solely due to its 
participation in the PPP, PPPLF, or MMLF. In addition, the FDIC would 
provide an offset against an IDI's assessment amount for the increase 
to its assessment base attributable to participation in the MMLF and 
PPPLF.
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    \18\ 12 U.S.C. 1817 and 12 U.S.C. 1819 (Tenth).
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    Changes to reporting requirements applicable to the Consolidated 
Reports of Condition and Income (Call Report), the Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks, and their 
respective instructions, would be required in order to make the 
proposed adjustments to the assessment system. These changes are 
concurrently being effectuated in coordination with the other member 
entities of the Federal Financial Institutions Examination Council.\19\
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    \19\ As discussed in greater detail in the section on the 
Paperwork Reduction Act, the agencies have submitted requests for 
seven additional items on the Call Report (FFIEC 031, FFIEC 041, and 
FFIEC 051): (1) The outstanding balance of PPP loans; (2) the 
outstanding balance of loans pledged to the PPPLF as of quarter-end; 
(3) the quarterly average amount of loans pledged to the PPPLF; (4) 
the outstanding balance of borrowings from the Federal Reserve Banks 
under the PPPLF with a remaining maturity of one year or less, as of 
quarter-end; (5) the outstanding balance of borrowings from the 
Federal Reserve Banks under the PPPLF with a remaining maturity of 
greater than one year, as of quarter-end; (6) the outstanding amount 
of assets purchased from MMFs under the MMLF as of quarter-end; and 
(7) the quarterly average amount of assets purchased under the MMLF. 
In addition, the agencies have submitted requests for two additional 
items on the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks (FFIEC 002): the quarterly average amount 
of loans pledged to the PPPLF and the quarterly average amount of 
assets purchased from MMFs under the MMLF. The FDIC is requesting 
these items in order to make the proposed adjustments described 
below.

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B. Mitigating the Effects of Loans Pledged to the PPPLF and of PPP 
Loans Held by an IDI on an IDI's Assessment Rate

    To mitigate the assessment effect of PPP loans, including loans 
pledged to the PPPLF, the FDIC is proposing to exclude PPP loans held 
by an IDI from its loan portfolio for purposes of calculating the IDI's 
deposit insurance assessment rate.\20\ Consistent with the substantial 
protections from risk provided by the Federal Reserve, the FDIC is also 
proposing to modify various risk measures to exclude loans pledged to 
the PPPLF from total assets and to exclude borrowings from the Federal 
Reserve Banks under the PPPLF from total liabilities when calculating 
an IDI's deposit insurance assessment rate.
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    \20\ The FDIC is not proposing to modify its assessment pricing 
system with respect to the Tier 1 leverage ratio, which is one of 
the measures used to determine the assessment rate for both large 
and small IDIs. In accordance with the agencies' April 13, 2020, 
interim final rule, banking organizations are required to neutralize 
the regulatory capital effects of assets pledged to the PPPLF on 
leverage capital ratios. See 85 FR 20387 (April 13, 2020). 
Therefore, the effects of participation in the PPPLF will be 
automatically incorporated in an IDI's regulatory capital reporting 
and the FDIC does not need to make any adjustments to an IDI's 
deposit insurance assessment.
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    Based on data from the SBA and on the terms of the PPP, the FDIC 
expects that most PPP loans will be categorized as Commercial and 
Industrial (C&I) Loans.\21\ PPP loans may also be reported in other 
loan types, including Agricultural Loans and All Other Loans.\22\ Under 
the proposed rule, and to minimize reporting burden, the FDIC would 
therefore exclude outstanding PPP loans, which includes loans pledged 
to the PPPLF, from an IDI's loan portfolio using assumptions under a 
waterfall approach. First, the FDIC would exclude the balance of PPP 
loans outstanding, which includes loans pledged to the PPPLF, from the 
balance of C&I Loans. In the unlikely event that the outstanding 
balance of PPP loans, which includes loans pledged to the PPPLF, 
exceeds the balance of C&I Loans, the FDIC would exclude any remaining 
balance of these loans from the balance of All Other Loans, up to the 
balance of All Other Loans, then exclude any remaining balance of PPP 
loans from the balance of Agricultural Loans, up to the total amount of 
Agricultural Loans. As described below, the FDIC proposes to apply this 
waterfall approach, as appropriate, in the calculation of the Loan Mix 
Index (LMI) for small banks, and in the calculation of the growth-
adjusted portfolio concentration measure and loss severity measure for 
large or highly complex banks.
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    \21\ At least 75 percent of the PPP loan proceeds shall be used 
for payroll costs, and collateral is not required to secure the 
loans. Therefore, the FDIC expects that PPP loans will not be 
included in other loan categories, such as those that are secured by 
real estate or consumer loans, in measures used to determine an 
IDI's deposit insurance assessment rate. See 85 FR 20811 (Apr. 15, 
2020) and Slide 5, Industry by NAICS Subsector, Paycheck Protection 
Program (PPP) Report: Approvals through 12 p.m. EST, April 16, 2020, 
Small Business Administration, available at: https://home.treasury.gov/system/files/136/SBA%20PPP%20Loan%20Report%20Deck.pdf.
    \22\ According to the instruction for the Call Report, All Other 
Loans includes loans to finance agricultural production and other 
loans to farmers and loans to nondepository financial institutions.
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    Question 1: The FDIC invites comment on its proposal to apply a 
waterfall approach in excluding PPP loans, which include loans pledged 
to the PPPLF, from C&I Loans, All Other Loans, and Agricultural Loans 
in the calculation of an IDI's assessment rate. Is the assumption that 
all PPP loans are C&I Loans appropriate, or should these loans be 
distributed across loan categories in another manner? Should the FDIC 
collect additional data on how PPP loans are categorized in order to 
more accurately mitigate the deposit insurance assessment effects of 
these loans? Alternatively, should institutions report PPP loans as a 
separate loan category instead of including them in C&I Loans or other 
loan categories, thus providing data that would reduce the need for the 
FDIC to rely on certain assumptions, reduce the amount of necessary 
changes to specific risk measures and other factors, and potentially 
more accurately mitigate the deposit insurance assessment effects of an 
IDI's participation in the program? Would this be overly burdensome for 
institutions?
1. Established Small Institutions
a. Exclusion of Loans Pledged to the PPPLF in Various Risk Measures
    For established small banks, the outstanding balance of loans 
pledged to the PPPLF would be excluded from total assets in the 
calculation of six risk measures: The net income before taxes to total 
assets ratio,\23\ the nonperforming loans and leases to gross assets 
ratio, the other real estate owned to gross assets ratio, the brokered 
deposit ratio, the one-year asset growth measure, and the LMI.
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    \23\ The FDIC expects that IDIs that participate in the PPP, 
PPPLF, and MMLF will earn additional income from participation in 
these programs. To minimize additional reporting burden, however, 
the FDIC is not proposing to exclude income related to participation 
in these programs from the net income before taxes to total assets 
ratio in the calculation of an IDI's deposit insurance assessment 
rate.
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b. Exclusion of PPP Loans and Loans Pledged to the PPPLF in the LMI
    The LMI is a measure of the extent to which a bank's total assets 
include higher-risk categories of loans. In its calculation of the LMI, 
the FDIC is proposing to exclude PPP loans, which include loans pledged 
to the PPPLF, from an institution's loan portfolio, based on the 
waterfall approach described above. Under the proposed rule, the FDIC 
would therefore exclude outstanding PPP loans, which includes loans 
pledged to the PPPLF, from the balance of C&I Loans in the calculation 
of the LMI. In the unlikely event that the outstanding balance of PPP 
loans, which includes loans pledged to the PPPLF, exceeds the balance 
of C&I Loans, the FDIC would exclude any remaining balance of these 
loans from the balance of Agricultural Loans, up to the total amount of 
Agricultural Loans, in the calculation of the LMI.\24\ The FDIC is also 
proposing to exclude loans pledged to the PPPLF from total assets in 
the calculation of the LMI.
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    \24\ All Other Loans are not included in the LMI; therefore, the 
FDIC proposes to exclude the outstanding balance of PPP loans, which 
include loans pledged to the PPPLF, first from the balance of C&I 
Loans, followed by Agricultural Loans. The loan categories used in 
the Loan Mix Index are: Construction and Development, Commercial and 
Industrial, Leases, Other Consumer, Real Estate Loans Residual, 
Multifamily Residential, Nonfarm Nonresidential, 1-4 Family 
Residential, Loans to Depository Banks, Agricultural Real Estate, 
Agricultural Loans. 12 CFR 327.16(a)(1)(ii)(B).
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2. Large and Highly Complex Institutions
    For IDIs defined as large or highly complex for deposit insurance 
assessment purposes, the FDIC is proposing to exclude the outstanding 
balance of loans pledged to the PPPLF and borrowings from the Federal 
Reserve Banks under the PPPLF from five risk measures used in the 
scorecard method: the core earnings ratio, the core deposit ratio, the 
balance sheet liquidity ratio, the average short-term funding ratio and 
the loss severity measure. For four risk measures--the growth-adjusted 
portfolio concentration measure, the

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balance sheet liquidity ratio, the trading asset ratio, and the loss 
severity measure--the FDIC is proposing to treat the outstanding 
balance of PPP loans, which includes loans pledged to the PPPLF, as 
riskless. These measures are described in more detail below.
a. Core Earnings Ratio
    For the core earnings ratio, the FDIC divides the four-quarter sum 
of merger-adjusted core earnings by the average of five quarter-end 
total assets (most recent and four prior quarters).\25\ The FDIC is 
proposing to exclude the outstanding balance of loans pledged to the 
PPPLF at quarter-end from total assets for the applicable quarter-end 
periods prior to averaging.\26\
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    \25\ Appendix A to subpart A of 12 CFR part 327.
    \26\ The FDIC expects that IDIs that participate in the PPP, 
PPPLF, and MMLF will earn additional income from participation in 
these programs. To minimize additional reporting burden, the FDIC is 
not proposing to exclude earnings related to participation in these 
programs from the core earnings ratio in the calculation of an IDI's 
deposit insurance assessment rate.
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b. Core Deposit Ratio
    The core deposit ratio is defined as total domestic deposits 
excluding brokered deposits and uninsured non-brokered time deposits 
divided by total liabilities.\27\ For purposes of this calculation, the 
FDIC is proposing to exclude from total liabilities borrowings from 
Federal Reserve Banks under the PPPLF.
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    \27\ Appendix A to subpart A of 12 CFR part 327.
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c. Balance Sheet Liquidity Ratio
    The balance sheet liquidity ratio measures the amount of highly 
liquid assets needed to cover potential cash outflows in the event of 
stress.\28\ In calculating this ratio, the FDIC is proposing to treat 
the outstanding balance of PPP loans as of quarter-end that exceed 
borrowings from the Federal Reserve Banks under the PPPLF as riskless 
and to treat them as highly liquid assets. The FDIC is also proposing 
to exclude from the ratio an IDI's reported borrowings from the Federal 
Reserve Banks under the PPPLF with a remaining maturity of one year or 
less.
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    \28\ The balance sheet liquidity ratio is defined as the sum of 
cash and balances due from depository institutions, federal funds 
sold and securities purchased under agreements to resell, and the 
market value of available-for-sale and held-to-maturity agency 
securities (excludes agency mortgage-backed securities but includes 
all other agency securities issued by the U.S. Treasury, U.S. 
government agencies, and U.S. government sponsored enterprises) 
divided by the sum of federal funds purchased and repurchase 
agreements, other borrowings (including FHLB) with a remaining 
maturity of one year or less, 5 percent of insured domestic 
deposits, and 10 percent of uninsured domestic and foreign deposits. 
Appendix A to subpart A of 12 CFR part 327.
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d. Average Short-Term Funding Ratio
    The ratio of average short-term funding to average total assets is 
one of the measures used to determine the assessment rate for a highly 
complex IDI.\29\ In calculating the average short-term funding ratio, 
the FDIC is proposing to reduce the quarterly average of total assets 
by the quarterly average amount of loans pledged to the PPPLF.
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    \29\ Appendix A to subpart A of 12 CFR part 327 describes the 
average short-term funding ratio.
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e. Growth-Adjusted Portfolio Concentrations
    The growth-adjusted portfolio concentration measure is one of the 
measures used to determine a large IDI's overall concentration 
measure.\30\ Under the proposal, the FDIC would apply a waterfall 
approach as described above and assume that all outstanding PPP loans, 
which include loans pledged to the PPPLF, are categorized as C&I Loans 
and would exclude these loans from C&I Loans in the calculation of the 
portfolio growth rate calculations for this measure.\31\
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    \30\ For large banks, the concentration measure is the higher of 
the ratio of higher-risk assets to Tier 1 capital and reserves, and 
the growth-adjusted portfolio measure. For highly complex 
institutions, the concentration measure is the highest of three 
measures: The ratio of higher risk assets to Tier 1 capital and 
reserves, the ratio of top 20 counterparty exposure to Tier 1 
capital and reserves, and the ratio of the largest counterparty 
exposure to Tier 1 capital and reserves. See Appendix A to subpart A 
of part 327.
    \31\ All Other Loans and Agricultural Loans are not included in 
the growth-adjusted portfolio concentration measure; therefore, the 
FDIC proposes to exclude the outstanding balance of PPP loans, which 
include loans pledged to the PPPLF, from the balance of C&I Loans. 
The loan concentration categories used in the growth-adjusted 
portfolio concentration measure are: Construction and development, 
other commercial real estate, first lien residential mortgages 
(including non-agency residential mortgage-backed securities), 
closed-end junior liens and home equity lines of credit, commercial 
and industrial loans, credit card loans, and other consumer loans. 
Appendix C to subpart A of 12 CFR part 327.
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f. Trading Asset Ratio
    For highly complex IDIs, the trading asset ratio is used to 
determine the relative weights assigned to the credit quality measure 
and the market risk measure.\32\ In calculating this ratio, the FDIC is 
proposing to reduce the balance of loans by the outstanding balance as 
of quarter-end of PPP loans, which includes loans pledged to the 
PPPLF.\33\
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    \32\ See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).
    \33\ To minimize reporting burden, the FDIC would reduce average 
loans by the outstanding balance of PPP loans, which includes loans 
pledged to the PPPLF, as of quarter-end, rather than requiring 
institutions to additionally report the average balance of PPP loans 
and the average balance of loans pledged to the PPPLF.
---------------------------------------------------------------------------

g. Loss Severity Measure
    The loss severity measure estimates the relative magnitude of 
potential losses to the DIF in the event of an IDI's failure.\34\ In 
calculating the loss severity score, the FDIC is proposing to remove 
the total amount of borrowings from the Federal Reserve Banks under the 
PPPLF from short- and long-term secured borrowings, as appropriate. The 
FDIC also would exclude PPP loans, which include loans pledged to the 
PPPLF, using a waterfall approach, described above. Under this 
approach, the FDIC would exclude PPP loans, which include loans pledged 
to the PPPLF, from an IDI's balance of C&I Loans. In the unlikely event 
that the outstanding balance of PPP loans exceeds the balance of C&I 
Loans, the FDIC would exclude any remaining balance from All Other 
Loans, up to the total amount of All Other Loans, followed by 
Agricultural Loans, up to the total amount of Agricultural Loans. To 
the extent that an IDI's outstanding PPP loans exceeds its borrowings 
under the PPPLF, and consistent with the treatment of these loans as 
riskless, the FDIC would then add outstanding PPP loans in excess of 
borrowings under the PPPLF to cash.
---------------------------------------------------------------------------

    \34\ Appendix D to subpart A of 12 CFR 327 describes the 
calculation of the loss severity measure.
---------------------------------------------------------------------------

    Question 2: The FDIC invites comment on its proposal to exclude PPP 
loans from C&I Loans, All Other Loans, and Agricultural Loans in the 
calculation of an IDI's assessment rate. Is the assumption that all PPP 
loans are C&I loans appropriate, or should these loans be distributed 
across loan categories in another manner? If so, how and why? Should 
the FDIC collect additional data on how PPP loans are categorized?
    Question 3: The FDIC invites comment on advantages and 
disadvantages of mitigating the effects of participating in the PPP and 
PPPLF on deposit insurance assessments. How does the approach in the 
proposed rule support or not support the objectives of the Paycheck 
Protection Program and the associated liquidity facility?

C. Mitigating the Effects of Loans Pledged to the PPPLF and Assets 
Purchased Under the MMLF on Certain Adjustments to an IDI's Assessment 
Rate

    The FDIC proposes to exclude the quarterly average amount of loans 
pledged to the PPPLF and the quarterly

[[Page 30654]]

average amount of assets purchased under the MMLF from the calculation 
of the unsecured debt adjustment, depository institution debt 
adjustment, and the brokered deposit adjustment. These adjustments 
would continue to be applied to an IDI's initial base assessment rate, 
as applicable, for purposes of calculating the IDI's total base 
assessment rate.\35\
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    \35\ For certain IDIs, adjustments include the unsecured debt 
adjustment and the depository institution debt adjustment (DIDA). 
The unsecured debt adjustment decreases an IDI's total assessment 
rate based on the ratio of its long-term unsecured debt to its 
assessment base. The DIDA increases an IDI's total assessment rate 
if it holds long-term, unsecured debt issued by another IDI. In 
addition, large banks that meet certain criteria and new small banks 
are subject to the brokered deposit adjustment. The brokered deposit 
adjustment increases the total assessment rate of large IDIs that 
hold significant concentrations of brokered deposits and that are 
less than well capitalized, not CAMELS composite 1- or 2-rated, as 
well as new, small IDIs that are not assigned to Risk Category I. 
See 12 CFR 327.16(e).
---------------------------------------------------------------------------

D. Offset To Deposit Insurance Assessment Due to Increase in the 
Assessment Base Attributable to Assets Pledged to the PPPLF and Assets 
Purchased Under the MMLF

    Under the proposed rule, the FDIC would provide an offset to an 
IDI's total assessment amount due for the increase to its assessment 
base attributable to participation in the PPPLF and MMLF.\36\ To 
determine this offset amount, the FDIC would calculate the total of the 
quarterly average amount of assets pledged to the PPPLF and the 
quarterly average amount of assets purchased under the MMLF, multiply 
that amount by an IDI's total base assessment rate (after excluding the 
effect of participation in the MMLF and PPPLF, as proposed), and 
subtract the resulting amount from an IDI's total assessment 
amount.\37\
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    \36\ Under the proposed rule, the offset to the total assessment 
amount due for the increase to the assessment base attributable to 
participation in the PPPLF and MMLF would apply to all IDIs, 
including new small institutions as defined in 12 CFR 327.8(w), and 
insured U.S. branches and agencies of foreign banks.
    \37\ Currently, an IDI's total assessment amount on its 
quarterly certified statement invoice is equal to the product of the 
institution's assessment base (calculated in accordance with 12 CFR 
327.5) multiplied by the institution's assessment rate (calculated 
in accordance with 12 CFR 327.4 and 12 CFR 327.16). See 12 CFR 
327.3(b)(1).
---------------------------------------------------------------------------

    Question 4: The FDIC invites comment on the advantages and 
disadvantages of adjusting an IDI's assessment to offset the increase 
in its assessment base due to participation in the MMLF and PPPLF. How 
does the approach in the proposed rule support or not support the 
objectives of the Facilities?

E. Classification of IDIs as Small, Large, or Highly Complex for 
Assessment Purposes

    In defining IDIs for assessment purposes, the FDIC would exclude 
from an IDI's total assets the amount of loans pledged to the PPPLF and 
assets purchased under the MMLF. As a result, the FDIC would not 
reclassify a small institution as large or a large institution as a 
highly complex institution solely due to participation in the PPPLF and 
MMLF programs, which would otherwise have the effect of expanding an 
IDI's balance sheet. In addition, an institution with total assets 
between $5 billion and $10 billion, excluding the amount of loans 
pledged to the PPPLF and assets purchased under the MMLF, may request 
that the FDIC determine its assessment rate as a large institution.

F. Other Conforming Amendments to the Assessment Regulations

    The FDIC is proposing to make conforming amendments to the FDIC's 
assessment regulations to effectuate the modifications described above. 
These conforming amendments would ensure that the proposed 
modifications to an IDI's assessment rate and the proposed offset to an 
IDI's assessment payment are properly incorporated into the assessment 
regulation provisions governing the calculation of an IDI's quarterly 
deposit insurance assessment.

G. Expected Effects

    To facilitate participation in the PPP and use of PPPLF and MMLF, 
the FDIC is proposing to mitigate the deposit insurance assessment 
effects of PPP loans, loans pledged to the PPPLF, and assets purchased 
under the MMLF. Because IDIs are not yet reporting the necessary data, 
the FDIC does not have sufficient data on the distribution of loans 
among IDIs and other non-bank financial institutions made under the 
PPP, loans pledged to the PPPLF, and dollar volume of assets purchased 
under the MMLF by IDIs, nor on the loan categories of PPP loans held. 
Therefore, the FDIC has estimated the potential effects of these 
programs on deposit insurance assessments based on certain assumptions. 
Although this estimate is subject to considerable uncertainty, the FDIC 
estimates that absent the proposed rule, PPP loans, loans pledged to 
the PPPLF, and assets purchased under the MMLF could increase quarterly 
assessment revenue from IDIs by approximately $90 million, based on the 
assumptions described below.
    The FDIC anticipates that PPP loans will be held by both IDIs and 
non-IDIs, and that some IDIs will hold PPP loans without pledging them 
to the PPPLF, although the rate of IDI participation in the PPP and 
PPPLF is uncertain. Based on Call Report data as of December 31, 2019, 
and assuming that (1) $600 billion of PPP loans are held by IDIs, (2) 
the PPP loans that are held by IDIs are evenly distributed across all 
IDIs that have C&I loans, which results in a 27 percent increase in 
those loans, (3) 25 percent of PPP loans held by IDIs are pledged to 
the PPPLF, (4) 100 percent of loans pledged to the PPPLF are matched by 
borrowings from the Federal Reserve Banks with maturities greater than 
one year, and (5) large and highly complex banks hold approximately $50 
billion in assets pledged under the MMLF,\38\ the FDIC estimates that 
quarterly deposit insurance assessments would increase by approximately 
$90 million.
---------------------------------------------------------------------------

    \38\ These assumptions reflect current participation in the PPP 
and PPPLF and an expectation of increased participation in the PPPLF 
over time, based on data published by the SBA and Federal Reserve 
Board. These assumptions use SBA data to estimate the participation 
in the PPP program of nonbank lenders including CDFI funds, CDCs, 
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck 
Protection Program (PPP) Report: Second Round, Approvals from 4/27/
2020 through 05/01/2020, Small Business Administration, available 
at: https://www.sba.gov/sites/default/files/2020-05/PPP2%20Data%2005012020.pdf; Factors Affecting Reserve Balances, 
Federal Reserve statistical release H.4.1, as of May 7, 2020, 
available at: https://www.federalreserve.gov/releases/h41/current/, 
and Board of Governors of the Federal Reserve System as of April 1, 
2020, available at https://fred.stlouisfed.org/series/H41RESPPALDBNWW.
---------------------------------------------------------------------------

    The actual effect of these programs on deposit insurance 
assessments will vary depending on participation in the programs by 
IDIs and non-IDIs, the maturity of borrowings from the Federal Reserve 
Banks under these programs, and the types of loans held under the PPP, 
as described above.

H. Alternatives Considered

    The FDIC considered the reasonable and possible alternatives 
described below. On balance, the FDIC believes the current proposal 
would mitigate the deposit insurance assessments effects of an IDI's 
participation in the PPP, PPPLF, and MMLF in the most appropriate and 
straightforward manner.
    One alternative would be to leave in place the current assessment 
regulations. As a result, participation in the PPP, PPPLF, and MMLF 
could have the effect of increasing an IDI's quarterly deposit 
insurance assessment. This option, however, would not accomplish the 
policy objective of mitigating the assessment effects of holding PPP 
loans, pledging loans to the PPPLF, and purchasing assets under the 
MMLF and would potentially lead to sharp increases in assessments for 
an

[[Page 30655]]

individual IDI solely due to its participation in programs intended to 
provide liquidity to small businesses and stabilize the financial 
system.
    As described above, a second alternative is that the FDIC could 
require that institutions report PPP loans as a separate loan category 
instead of including them in C&I Loans or other loan categories, as 
appropriate, depending on the nature of the loan. Under the current 
proposal, the FDIC would exclude PPP loans from C&I Loans, Agricultural 
Loans, and All Other Loans using a waterfall approach in the 
calculation of an IDI's assessment rate, and would have to apply 
certain assumptions to do so. Under this approach, the FDIC would 
assume that all PPP loans are C&I Loans, and to the extent that balance 
of PPP loans exceed the balance of C&I Loans, any excess loan amounts 
are assumed to be categorized as either All Other Loans or Agricultural 
Loans, as applicable for a given measure. Under the alternative 
considered, institutions would report PPP loans as a separate loan 
category, thus providing data that would reduce the need for the FDIC 
to rely on certain assumptions, reduce the amount of necessary changes 
to specific risk measures and other factors, and potentially more 
accurately mitigate the deposit insurance assessment effects of an 
IDI's participation in the program. The FDIC did not propose this 
alternative due to concerns that it may shift additional reporting 
burden onto IDIs in comparison to the current proposal, which would 
achieve a similar result with less burden. However, as mentioned below, 
the FDIC is interested in feedback on this alternative.
    The FDIC also considered excluding the effects of participation in 
the MMLF from measures used to determine an IDI's deposit insurance 
assessment rate. For example, an IDI that participates in the MMLF 
could increase its total assets by the amount of assets that are 
eligible collateral pledged to the FRBB, and increase its liabilities 
by the amount of borrowings received from the FRBB through the MMLF. 
With respect to the MMLF, the FDIC expects a limited number of IDIs to 
participate in the program, and that all of these IDIs are priced as 
large or highly complex institutions. Furthermore, the FDIC expects 
that participation in the MMLF will have minimal to no effect on an 
IDI's deposit insurance assessment rate. The MMLF is scheduled to cease 
on September 30, 2020, and eligible collateral includes a variety of 
assets, including U.S. Treasuries and fully guaranteed agency 
securities, Certificates of Deposit, securities issued by government-
sponsored enterprises, and certain types of commercial paper. Given the 
minimal expected effect of participation in the MMLF on an IDI's 
assessment rate and the short duration of the program, and to minimize 
the additional reporting burden associated with the variety of 
potential assets in the program, the FDIC decided not to propose this 
alternative. Under the proposal, the FDIC would exclude loans pledged 
to the PPPLF and assets purchased from the MMLF from the calculation of 
certain adjustments to an IDI's assessment rate, and would provide an 
offset to an IDI's assessment for the increase to its assessment base 
attributable to participation in the MMLF and PPPLF. In addition, an 
IDI that is priced as large or highly complex may request an adjustment 
to its total score, used in determining an institution's assessment 
rate, based on supporting data reflecting its participation in the 
MMLF.\39\
---------------------------------------------------------------------------

    \39\ See Assessment Rate Adjustment Guidelines for Large and 
Highly Complex Institutions, 76 FR 57992 (Sept. 19, 2011).
---------------------------------------------------------------------------

    Question 5: The FDIC invites comment on the reasonable and possible 
alternatives described in this proposed rule. Should the FDIC consider 
other reasonable and possible alternatives?

I. Comment Period, Proposed Effective Date and Application Date

    The FDIC is issuing this proposal with a 7-day comment period, in 
order to allow sufficient time for the FDIC to consider comments and 
ensure publication of a final rule before June 30, 2020 (the end of the 
second quarterly assessment period).
    As stated above, in response to recent events which have 
significantly and adversely impacted global financial markets along 
with the spread of COVID-19, which has slowed economic activity in many 
countries, including the United States, the agencies moved quickly due 
to exigent circumstances and issued two interim final rules to allow 
banking organizations to neutralize the regulatory capital effects of 
purchasing assets through the MMLF program and loans pledged to the 
PPPL Facility. Since the implementation of the PPP, PPPLF, and MMLF, 
the FDIC has observed uncertainty from the public and the banking 
industry and wants to provide clarity on how, if at all, these programs 
would affect the assessments of IDIs which participate in these 
programs. Because PPP loans must be issued by June 30, 2020, the full 
assessment impact of these programs will first occur in the second 
quarterly assessment period. Congress has also given indications that 
implementation of these programs is an urgent policy matter, 
instructing the SBA to issue regulations for the PPP within 15 days of 
the CARES Act's enactment.\40\ The FDIC has therefore concluded that 
rapid administrative action is critical and warrants an abbreviated 
comment period.
---------------------------------------------------------------------------

    \40\ See CARES Act, Sec.  1114.
---------------------------------------------------------------------------

    The 7-day comment period will afford the public and affected 
institutions with an opportunity to review and comment on the proposal, 
and will allow the FDIC sufficient time to consider and respond to 
comments received. In addition, a proposed effective date by June 30, 
2020 and a proposed application date of April 1, 2020 will enable the 
FDIC to provide the relief contemplated in this rulemaking as soon as 
practicable, starting with the second quarter of 2020, and provide 
certainty to IDIs regarding the assessment effects of participating in 
the PPP, PPPLF, or MMLF for the second quarter of 2020, which is the 
first assessment quarter in which the assessments will be affected.

IV. Request for Comment

    The FDIC is requesting comment on all aspects of the notice of 
proposed rulemaking, in addition to the specific requests for comment 
above.

V. Administrative Law Matters

A. Administrative Procedure Act

    Under the Administrative Procedure Act (APA),\41\ ``[t]he required 
publication or service of a substantive rule shall be made not less 
than 30 days before its effective date, except as otherwise provided by 
the agency for good cause found and published with the rule.'' \42\ 
Under this proposal, the amendments to the FDIC's deposit insurance 
assessment regulations would be effective upon publication of a final 
rule in the Federal Register. It is anticipated that the FDIC would 
find good cause that the publication of a final rule implementing the 
proposal can be less than 30 days before its effective date in order to 
fully effectuate the intent of ensuring that IDIs benefit from the 
mitigation effects to their deposit insurance assessments as soon as 
practicable, and to provide banks with certainty regarding the 
assessment effects of participating in the PPP, PPPLF, or MMLF for the 
second quarter of 2020, which is the first assessment quarter in which 
the assessments will be affected.
---------------------------------------------------------------------------

    \41\ 5 U.S.C. 553.
    \42\ 5 U.S.C. 553(d).

---------------------------------------------------------------------------

[[Page 30656]]

    As explained in the Supplementary Information section, the FDIC 
expects that an IDI that participates in either the PPP, the PPPLF, or 
the MMLF program could be subject to increased deposit insurance 
assessments, beginning with the second quarter of 2020. The FDIC 
invoices for quarterly deposit insurance assessments in arrears. As a 
result, invoices for the second quarterly assessment period of 2020 
(i.e., April 1-June 30) would be made available to IDIs in September 
2020, with a payment due date of September 30, 2020.
    While it is anticipated that the FDIC would find good cause to 
issue the final rule with an immediate effective date, the FDIC is 
interested in the views of the public and requests comment on all 
aspects of the proposal.

B. 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.\43\ 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 $600 million.\44\ Generally, the FDIC considers a significant 
effect to be a quantified effect in excess of 5 percent of total annual 
salaries and benefits per institution, or 2.5 percent of total non-
interest expenses. The FDIC believes that effects in excess of these 
thresholds typically represent significant effects for FDIC-insured 
institutions. Certain types of rules, such as rules of particular 
applicability relating to rates or 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.\45\ 
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 established small bank's assessment 
rate and is, therefore, not subject to the RFA. Nonetheless, the FDIC 
is voluntarily presenting information in this RFA section.
---------------------------------------------------------------------------

    \43\ 5 U.S.C. 601 et seq.
    \44\ The SBA defines a small banking organization as having $600 
million or less in assets, where an organization'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 August 19, 2019). In its determination, the 
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.'' 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.
    \45\ 5 U.S.C. 601.
---------------------------------------------------------------------------

    Based on quarterly regulatory report data as of December 31, 2019, 
the FDIC insures 5,186 depository institutions, of which 3,841 are 
defined as small entities by the terms of the RFA.\46\ The proposed 
rule applies to all FDIC-insured institutions, but is expected to 
affect only those institutions that participate in the PPP, PPPLF, and 
MMLF. The FDIC does not presently have access to information that would 
enable it to identify which institutions are participating in these 
programs and lending facilities.
---------------------------------------------------------------------------

    \46\ FDIC Call Report data, as of December 31, 2019.
---------------------------------------------------------------------------

    As previously discussed in this Notice, to facilitate participation 
in the PPP and use of PPPLF and MMLF, the FDIC is proposing to mitigate 
the deposit insurance assessment effects of PPP loans, loans pledged to 
the PPPLF, and assets purchased under the MMLF. Therefore, the FDIC 
estimated the potential effects of these programs on deposit insurance 
assessments based on certain assumptions. Based on Call Report data as 
of December 31, 2019, assuming that (1) $600 billion of PPP loans are 
held by IDIs, (2) the PPP loans that are held by IDIs are evenly 
distributed across all IDIs that have C&I loans, which results in a 27 
percent increase in those loans, (3) 25 percent of PPP loans held by 
IDIs are pledged to the PPPLF, and (4) 100 percent of loans pledged to 
the PPPLF are matched by borrowings from the Federal Reserve Banks with 
maturities greater than one year,\47\ the FDIC estimates that the 
proposal would save small IDIs approximately $5 million in quarterly 
deposit insurance assessments.
---------------------------------------------------------------------------

    \47\ These assumptions reflect current participation in the PPP 
and PPPLF and an expectation of increased participation in the PPPLF 
over time, based on data published by the SBA and Federal Reserve 
Board. These assumptions use SBA data to estimate the participation 
in the PPP program of nonbank lenders including CDFI funds, CDCs, 
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck 
Protection Program (PPP) Report: Second Round, Approvals from 4/27/
2020 through 05/01/2020, Small Business Administration, available 
at: https://www.sba.gov/sites/default/files/2020-05/PPP2%20Data%2005012020.pdf; Factors Affecting Reserve Balances, 
Federal Reserve statistical release H.4.1, as of May 7, 2020, 
available at: https://www.federalreserve.gov/releases/h41/current/, 
and Board of Governors of the Federal Reserve System as of April 1, 
2020, available at https://fred.stlouisfed.org/series/H41RESPPALDBNWW.
---------------------------------------------------------------------------

    The actual effect of these programs on deposit insurance 
assessments will vary depending on IDI's participation in the PPP and 
Federal Reserve Facilities, the maturity of borrowings from the Federal 
Reserve Banks under these programs, and the types of loans held under 
the PPP.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
proposed rule have any significant effects on small entities that the 
FDIC has not identified?

C. Riegle Community Development and Regulatory Improvement Act

    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act (RCDRIA) requires that the Federal banking agencies, 
including the FDIC, in determining the effective date and 
administrative compliance requirements of new regulations that impose 
additional reporting, disclosure, or other requirements on IDIs, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such 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 IDIs 
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, with certain exceptions, including for good cause.\48\ The 
FDIC invites comments that will further inform its consideration of 
RCDRIA.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 553(b)(B).
    \48\ 5 U.S.C. 553(d).
    \48\ 5 U.S.C. 601 et seq.
    \48\ 5 U.S.C. 801 et seq.
    \48\ 5 U.S.C. 801(a)(3).
    \48\ 5 U.S.C. 804(2).
    \48\ 5 U.S.C. 808(2).
    \48\ 12 U.S.C. 4802(a).
    \48\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

D. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) states that no agency may 
conduct or sponsor, nor is the respondent required to respond to, an 
information collection unless it displays a currently valid OMB control 
number.\49\ The proposed rule affects the agencies' current information 
collections for the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051). 
The

[[Page 30657]]

agencies' OMB control numbers for the Call Reports are: Comptroller of 
the Currency OMB No. 1557-0081; Board of Governors OMB No. 7100-0036; 
and FDIC OMB No. 3064-0052. The proposed rule also affects the Report 
of Assets and Liabilities of U.S. Branches and Agencies of Foreign 
Banks (FFIEC 002), which the Federal Reserve System collects and 
processes on behalf of the three agencies (Board of Governors OMB No. 
7100-0032). Submissions will be made by the agencies to OMB for their 
respective information collections. The changes to the Call Report, the 
Report of Assets and Liabilities of U.S. Branches and Agencies of 
Foreign Banks, and their respective instructions, will be addressed in 
a separate Federal Register notice or notices.
---------------------------------------------------------------------------

    \49\ 4 U.S.C. 3501-3521.
---------------------------------------------------------------------------

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \50\ requires the Federal 
banking agencies to use plain language in all proposed and final 
rulemakings published in the Federal Register after January 1, 2000. 
The FDIC invites your comments on how to make this proposed rule easier 
to understand. For example:
---------------------------------------------------------------------------

    \50\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

     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 rule clearly stated? 
If not, how could the proposed rule be stated more clearly?
     Does the proposed rule 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 proposed rule easier to 
understand?

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

Authority and Issuance

    For the reasons stated above, the Federal Deposit Insurance 
Corporation proposes to amend 12 CFR part 327 as follows:

PART 327--ASSESSMENTS

0
1. The authority citation for part 327 is revised to read as follows:

    Authority:  12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend Sec.  327.3 by revising paragraph (b)(1) to read as follows:


Sec.  327.3   Payment of assessments.

* * * * *
    (b) * * *
    (1) Quarterly certified statement invoice. Starting with the first 
assessment period of 2007, no later than 15 days prior to the payment 
date specified in paragraph (b)(2) of this section, the Corporation 
will provide to each insured depository institution a quarterly 
certified statement invoice showing the amount of the assessment 
payment due from the institution for the prior quarter (net of credits 
or dividends, if any), and the computation of that amount. Subject to 
paragraph (e) of this section and Sec.  327.17, the invoiced amount on 
the quarterly certified statement invoice shall be the product of the 
following: The assessment base of the institution for the prior quarter 
computed in accordance with Sec.  327.5 multiplied by the institution's 
rate for that prior quarter as assigned to the institution pursuant to 
Sec. Sec.  327.4(a) and 327.16.
* * * * *
0
3. Amend Sec.  327.16 by adding introductory text to read as follows:


Sec.  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.

    Subject to the modifications described in Sec.  327.17, the 
following pricing methods shall apply beginning in 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, and for all subsequent assessment periods.
* * * * *
0
4. Add Sec.  327.17 to read as follows:


Sec.  327.17   Mitigating the Deposit Insurance Assessment Effect of 
participation in the Money Market Mutual Fund Liquidity Facility, the 
Paycheck Protection Program Lending Facility, and the Paycheck 
Protection Program.

    (a) Mitigating the assessment effects of Paycheck Protection 
Program loans for established small institutions. Effective as of April 
1, 2020, the FDIC will take the following actions when calculating the 
assessment rate for established small institutions under Sec.  327.16:
    (1) Exclusion from net income before taxes ratio, nonperforming 
loans and leases ratio, other real estate owned ratio, brokered deposit 
ratio, and one-year asset growth measure. Notwithstanding any other 
section of this part, and as described in Appendix E to this subpart, 
the FDIC will exclude the outstanding balance of loans that are pledged 
as collateral to the Paycheck Protection Program Lending Facility, as 
reported on the Consolidated Report of Condition and Income, from the 
total assets in the calculation of the following risk measures: Net 
income before taxes ratio, the nonperforming loans and leases ratio, 
the other real estate owned ratio, the brokered deposit ratio, and the 
one-year asset growth measure, which are described in Sec.  
327.16(a)(1)(ii)(A).
    (2) Exclusion from Loan Mix Index. Notwithstanding any other 
section of this part, and as described in appendix E to this subpart A, 
when calculating the loan mix index described in Sec.  
327.16(a)(1)(ii)(B), the FDIC will exclude:
    (i) The outstanding balance of loans that are pledged as collateral 
to the Paycheck Protection Program Lending Facility, as reported on the 
Consolidated Report of Condition and Income, from the total assets; and
    (ii) The amount of outstanding loans provided as part of the 
Paycheck Protection Program, including loans pledged to the Paycheck 
Protection Program Lending Facility, as reported on the Consolidated 
Report of Condition and Income, from an established small institution's 
balance of commercial and industrial loans. To the extent that the 
outstanding balance of loans provided as part of the Paycheck 
Protection Program, including loans pledged to the Paycheck Protection 
Program Lending Facility, exceeds an established small institution's 
balance of commercial and industrial loans, the FDIC will exclude any 
remaining balance of these loans from the balance of agricultural 
loans, up to the amount of agricultural loans, in the calculation of 
the loan mix index.
    (b) Mitigating the assessment effects of Paycheck Protection 
Program loans for large or highly complex institutions. Effective as of 
April 1, 2020, the FDIC will take the following actions when 
calculating the assessment rate for large institutions and highly 
complex institutions under Sec.  327.16:
    (1) Exclusion from average short-term funding ratio. 
Notwithstanding any other section of this part, and as described in 
appendix E of this subpart, the FDIC will exclude the quarterly average 
amount of loans that are pledged as collateral to the Paycheck 
Protection Program Lending Facility, as reported on the Consolidated 
Report of Condition and Income, from the calculation of the average 
short-term funding ratio, which is described in appendix E to this 
subpart.
    (2) Exclusion from core earnings ratio. Notwithstanding any other 
section of this part, and as described in appendix E of this subpart, 
the FDIC will exclude the outstanding balance of loans that are pledged 
as collateral to the Paycheck

[[Page 30658]]

Protection Program Lending Facility as of quarter-end, as reported on 
the Consolidated Report of Condition and Income, from the calculation 
of the core earnings ratio, which is described in appendix E to this 
subpart.
    (3) Exclusion from core deposit ratio. Notwithstanding any other 
section of this part, and as described in appendix E of this subpart, 
the FDIC will exclude the amount of borrowings from the Federal Reserve 
Banks under the Paycheck Protection Program Lending Facility, as 
reported on the Consolidated Report of Condition and Income, from the 
calculation of the core deposit ratio, which is described in appendix E 
to this subpart.
    (4) Exclusion from growth-adjusted portfolio concentration measure 
and trading asset ratio. Notwithstanding any other section of this 
part, and as described in appendix E to this subpart, the FDIC will 
exclude, as applicable, the outstanding balance of loans provided under 
the Paycheck Protection Program, including loans pledged to the 
Paycheck Protection Program Lending Facility, as reported on the 
Consolidated Report of Condition and Income, from the calculation of 
the growth-adjusted portfolio concentration measure and the trading 
asset ratio, which are described in appendix E to this subpart.
    (5) Balance sheet liquidity ratio. Notwithstanding any other 
section of this part, and as described in appendix E to this subpart, 
when calculating the balance sheet liquidity measure described under 
appendix A to this subpart, the FDIC will include the outstanding 
balance of loans provided under the Paycheck Protection Program that 
exceed total borrowings from the Federal Reserve Banks under the 
Paycheck Protection Program Lending Facility, as reported on the 
Consolidated Report of Condition and Income in highly liquid assets, 
and exclude the amount of borrowings from the Federal Reserve Banks 
under the Paycheck Protection Program Lending Facility with a remaining 
maturity of one year or less, as reported on the Consolidated Report of 
Condition and Income from other borrowings with a remaining maturity of 
one year or less.
    (6) Exclusion from loss severity measure. Notwithstanding any other 
section of this part, and as described in appendix E to this subpart, 
when calculating the loss severity measure described under appendix A 
to this subpart, the FDIC will exclude the total amount of borrowings 
from the Federal Reserve Banks under the Paycheck Protection Program 
Lending Facility from short- and long-term secured borrowings, as 
appropriate. The FDIC will exclude the total amount of outstanding 
loans provided as part of the Paycheck Protection Program, as reported 
on the Consolidated Report of Condition and Income, from an 
institution's balance of commercial and industrial loans. To the extent 
that the outstanding balance of loans provided as part of the Paycheck 
Protection Program exceeds an institution's balance of commercial and 
industrial loans, the FDIC will exclude any remaining balance from all 
other loans, up to the total amount of all other loans, followed by 
agricultural loans, up to the total amount of agricultural loans. To 
the extent that an institution's outstanding loans under the Paycheck 
Protection Program exceeds its borrowings under the Paycheck Protection 
Program Loan Facility, the FDIC will add outstanding loans under the 
Paycheck Protection Program in excess of borrowings under the Paycheck 
Protection Program Loan Facility to cash and interest-bearing balances.
    (c) Mitigating the effects of loans pledged to the PPPLF and assets 
purchased under the MMLF on the unsecured adjustment, depository 
institution debt adjustment, and the brokered deposit adjustment to an 
IDI's assessment rate. Notwithstanding any other section of this part, 
and as described in appendix E to this subpart, when calculating an 
insured depository institution's unsecured debt adjustment, depository 
institution debt adjustment, or the brokered deposit adjustment 
described in Sec.  327.16(e), as applicable, the FDIC will exclude the 
quarterly average amount of loans pledged to the Paycheck Protection 
Program Lending Facility and the quarterly average amount of assets 
purchased under the Money Market Mutual Fund Liquidity Facility, as 
reported on the Consolidated Report of Condition and Income.
    (d) Mitigating the effects on the assessment base attributable to 
the Paycheck Protection Program Lending Facility and the Money Market 
Mutual Fund Liquidity Facility. Notwithstanding any other section of 
this part, and as described in appendix E to this subpart, when 
calculating an insured depository institution's quarterly deposit 
insurance assessment payment due under this part, the FDIC will provide 
an offset to an institution's assessment for the increase to its 
assessment base attributable to participation in the Money Market 
Mutual Fund Liquidity Facility and the Paycheck Protection Program 
Lending Facility.
    (1) Calculation of offset amount. To determine the offset amount, 
the FDIC will take the sum of the quarterly average amount of loans 
pledged to the Paycheck Protection Program Lending Facility and the 
quarterly average amount of assets purchased under the Money Market 
Mutual Fund Liquidity Facility, and multiply the sum by an 
institution's total base assessment rate, as calculated under Sec.  
327.16, including any adjustments under Sec.  327.16(e).
    (2) Calculation of assessment amount due. Notwithstanding any other 
section of this part, the FDIC will subtract the offset amount 
described in Sec.  327.17(d)(1) from an insured depository 
institution's total assessment amount.
    (e) Definitions. For the purposes of this section:
    (1) Paycheck Protection Program. The term ``Paycheck Protection 
Program'' means the program that was created in section 1102 of the 
Coronavirus Aid, Relief, and Economic Security Act.
    (2) Paycheck Protection Program Liquidity Facility. The term 
``Paycheck Protection Program Liquidity Facility'' means the program of 
that name that was announced by the Board of Governors of the Federal 
Reserve System on April 9, 2020.
    (3) Money Market Mutual Fund Liquidity Facility. The term ``Money 
Market Mutual Fund Liquidity Facility'' means the program of that name 
announced by the Board of Governors of the Federal Reserve System on 
March 18, 2020.
0
5. Add Appendix E to subpart A of part 327 to read as follows:

Appendix E to Subpart A of Part 327--Mitigating the Deposit Insurance 
Assessment Effect of Participation in the Money Market Mutual Fund 
Liquidity Facility, the Paycheck Protection Program Lending Facility, 
and the Paycheck Protection Program

I. Mitigating the Assessment Effects of Paycheck Protection Program 
Loans for Established Small Institutions

[[Page 30659]]



 Table E.1--Exclusions From Certain Risk Measures Used To Calculate the
           Assessment Rate for Established Small Institutions
------------------------------------------------------------------------
           Variables                  Description          Exclusions
------------------------------------------------------------------------
Leverage Ratio (%)............  Tier 1 capital divided  No Exclusion.
                                 by adjusted average
                                 assets. (Numerator
                                 and denominator are
                                 both based on the
                                 definition for prompt
                                 corrective action.).
Net Income before Taxes/Total   Income (before          Exclude from
 Assets (%).                     applicable income       total assets
                                 taxes and               the balance of
                                 discontinued            loans pledged
                                 operations) for the     to the PPPLF
                                 most recent twelve      outstanding at
                                 months divided by       end of quarter.
                                 total assets 1.
Nonperforming Loans and Leases/ Sum of total loans and  Exclude from
 Gross Assets (%).               lease financing         total assets
                                 receivables past due    the balance of
                                 90 or more days and     loans pledged
                                 still accruing          to the PPPLF
                                 interest and total      outstanding at
                                 nonaccrual loans and    end of quarter.
                                 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/Gross   Other real estate       Exclude from
 Assets (%).                     owned divided by        total assets
                                 gross assets 2.         the balance of
                                                         loans pledged
                                                         to the PPPLF
                                                         outstanding at
                                                         end of quarter.
Brokered Deposit Ratio........  The ratio of the        Exclude from
                                 difference between      total assets
                                 brokered deposits and   (in both
                                 10 percent of total     numerator and
                                 assets to total         denominator)
                                 assets. For             the balance of
                                 institutions that are   loans pledged
                                 well capitalized and    to the PPPLF
                                 have a CAMELS           outstanding at
                                 composite rating of 1   end of quarter.
                                 or 2, brokered
                                 reciprocal deposits
                                 as defined in Sec.
                                 327.8(q) are deducted
                                 from brokered
                                 deposits. If the
                                 ratio is less than
                                 zero, the value is
                                 set to zero.
Weighted Average of C, A, M,    The weighted sum of     No Exclusion.
 E, L, and S Component Ratings.  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.
Loan Mix Index................  A measure of credit     Exclusions are
                                 risk described          described in
                                 paragraph (A) of this   paragraph (A)
                                 section.                of this
                                                         section..
One-Year Asset Growth (%).....  Growth in assets        Exclude from
                                 (adjusted for mergers   total assets
                                 3) over the previous    (in both
                                 year in excess of 10    numerator and
                                 percent.4 If growth     denominator)
                                 is less than 10         the balance of
                                 percent, the value is   loans pledged
                                 set to zero.            to the PPPLF
                                                         outstanding at
                                                         end of quarter.
------------------------------------------------------------------------
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) or allowance for credit losses, as
  applicable.
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.

    (A) Definition of Loan Mix Index. The Loan Mix Index assigns 
loans in an institution's loan portfolio to the categories of loans 
described in the following table. Exclude from the balance of 
commercial and industrial loans the balance of PPP loans, which 
includes loans pledged to the PPPLF, outstanding at end of quarter. 
In the event that the balance of outstanding PPP loans, which 
includes loans pledged to the PPPLF, exceeds the balance of 
commercial and industrial loans, exclude the remaining balance from 
the balance of agricultural loans, up to the total amount of 
agricultural loans. The Loan Mix Index is calculated by multiplying 
the ratio of an institution's amount of loans in a particular loan 
category to its total assets, excluding the balance of loans pledged 
to the PPPLF outstanding at end of quarter by the associated 
weighted average charge-off rate for that loan category, and summing 
the products for all loan categories. The table gives the weighted 
average charge-off rate for each category of loan. The Loan Mix 
Index excludes credit card loans.

   Loan Mix Index Categories and Weighted Charge-Off Rate Percentages
------------------------------------------------------------------------
                                                               Weighted
                                                              charge-off
                                                                 rate
                                                                percent
------------------------------------------------------------------------
Construction & Development..................................   4.4965840
Commercial & Industrial.....................................   1.5984506
Leases......................................................   1.4974551
Other Consumer..............................................   1.4559717
Real Estate Loans Residual..................................   1.0169338
Multifamily Residential.....................................   0.8847597
Nonfarm Nonresidential......................................   0.7289274
I-4 Family Residential......................................   0.6973778
Loans to Depository banks...................................   0.5760532
Agricultural Real Estate....................................   0.2376712
Agriculture.................................................   0.2432737
------------------------------------------------------------------------

II. Mitigating the Assessment Effects of Paycheck Protection Program 
Loans for Large or Highly Complex Institutions

[[Page 30660]]



 Table E.2--Exclusions From Certain Risk Measures Used To Calculate the
        Assessment Rate for Large or Highly Complex Institutions
------------------------------------------------------------------------
     Scorecard measures 1             Description          Exclusions
------------------------------------------------------------------------
Leverage Ratio................  Tier 1 capital for      No Exclusion.
                                 Prompt Corrective
                                 Action (PCA) divided
                                 by adjusted average
                                 assets based on the
                                 definition for prompt
                                 corrective action.
Concentration Measure for       The concentration       ................
 Large Insured depository        score for large
 institutions (excluding         institutions is the
 Highly Complex Institutions).   higher of the
                                 following two scores:.
(1) Higher-Risk Assets/Tier 1   Sum of construction     No Exclusion.
 Capital and Reserves.           and land development
                                 (C&D) loans (funded
                                 and unfunded), higher-
                                 risk commercial and
                                 industrial (C&I)
                                 loans (funded and
                                 unfunded),
                                 nontraditional
                                 mortgages, higher-
                                 risk consumer loans,
                                 and higher-risk
                                 securitizations
                                 divided by Tier 1
                                 capital and reserves.
                                 See Appendix C for
                                 the detailed
                                 description of the
                                 ratio.
(2) Growth-Adjusted Portfolio   The measure is          ................
 Concentrations.                 calculated in the
                                 following steps:.
                                (1) Concentration       ................
                                 levels (as a ratio to
                                 Tier 1 capital and
                                 reserves) are
                                 calculated for each
                                 broad portfolio
                                 category:.
                                 Constructions  ................
                                 and land development
                                 (C&D).
                                 Other          ................
                                 commercial real
                                 estate loans.
                                 First lien     ................
                                 residential mortgages
                                 (including non-agency
                                 residential mortgage-
                                 backed securities).
                                 Closed-end     ................
                                 junior liens and home
                                 equity lines of
                                 credit (HELOCs).
                                 Commercial     ................
                                 and industrial loans
                                 (C&I).
                                 Credit card    ................
                                 loans, and.
                                 Other          ................
                                 consumer loans.
                                (2) Risk weights are    ................
                                 assigned to each loan
                                 category based on
                                 historical loss rates.
                                (3) Concentration       ................
                                 levels are multiplied
                                 by risk weights and
                                 squared to produce a
                                 risk-adjusted
                                 concentration ratio
                                 for each portfolio.
                                (4) Three-year merger-  Exclude from C&I
                                 adjusted portfolio      loan growth
                                 growth rates are then   rate the amount
                                 scaled to a growth      of PPP loans,
                                 factor of 1 to 1.2      which includes
                                 where a 3-year          loans pledged
                                 cumulative growth       to the PPPLF,
                                 rate of 20 percent or   outstanding at
                                 less equals a factor    end of quarter.
                                 of 1 and a growth
                                 rate of 80 percent or
                                 greater equals a
                                 factor of 1.2. If
                                 three years of data
                                 are not available, a
                                 growth factor of 1
                                 will be assigned.
                                (5) The risk-adjusted   ................
                                 concentration ratio
                                 for each portfolio is
                                 multiplied by the
                                 growth factor and
                                 resulting values are
                                 summed.
                                See Appendix C for the  ................
                                 detailed description
                                 of the measure.
Concentration Measure for       Concentration score     ................
 Highly Complex Institutions.    for highly complex
                                 institutions is the
                                 highest of the
                                 following three
                                 scores:.
(1) Higher-Risk Assets/Tier 1   Sum of C&D loans        No Exclusion.
 Capital and Reserves.           (funded and
                                 unfunded), higher-
                                 risk C&I loans
                                 (funded and
                                 unfunded),
                                 nontraditional
                                 mortgages, higher-
                                 risk consumer loans,
                                 and higher-risk
                                 securitizations
                                 divided by Tier 1
                                 capital and reserves.
                                 See Appendix C for
                                 the detailed
                                 description of the
                                 measure.
(2) Top 20 Counterparty         Sum of the 20 largest   No Exclusion.
 Exposure/Tier 1 Capital and     total exposure
 Reserves.                       amounts to
                                 counterparties
                                 divided by Tier 1
                                 capital and reserves.
                                 The total exposure
                                 amount is equal to
                                 the sum of the
                                 institution's
                                 exposure amounts to
                                 one counterparty (or
                                 borrower) for
                                 derivatives,
                                 securities financing
                                 transactions (SFTs),
                                 and cleared
                                 transactions, and its
                                 gross lending
                                 exposure (including
                                 all unfunded
                                 commitments) to that
                                 counterparty (or
                                 borrower). A
                                 counterparty includes
                                 an entity's own
                                 affiliates. Exposures
                                 to entities that are
                                 affiliates of each
                                 other are treated as
                                 exposures to one
                                 counterparty (or
                                 borrower).
                                 Counterparty exposure
                                 excludes all
                                 counterparty exposure
                                 to the U.S.
                                 Government and
                                 departments or
                                 agencies of the U.S.
                                 Government that is
                                 unconditionally
                                 guaranteed by the
                                 full faith and credit
                                 of the United States.
                                 The exposure amount
                                 for derivatives,
                                 including OTC
                                 derivatives, cleared
                                 transactions that are
                                 derivative contracts,
                                 and netting sets of
                                 derivative contracts,
                                 must be calculated
                                 using the methodology
                                 set forth in 12 CFR
                                 324.34(b), but
                                 without any reduction
                                 for collateral other
                                 than cash collateral
                                 that is all or part
                                 of variation margin
                                 and that satisfies
                                 the requirements of
                                 12 CFR
                                 324.10(c)(4)(ii)(C)(1
                                 )(ii) and (iii) and
                                 324.10(c)(4)(ii)(C)(3
                                 ) through (7). The
                                 exposure amount
                                 associated with SFTs,
                                 including cleared
                                 transactions that are
                                 SFTs, must be
                                 calculated using the
                                 standardized approach
                                 set forth in 12 CFR
                                 324.37(b) or (c). For
                                 both derivatives and
                                 SFT exposures, the
                                 exposure amount to
                                 central
                                 counterparties must
                                 also include the
                                 default fund
                                 contribution.

[[Page 30661]]

 
(3) Largest Counterparty        The largest total       No Exclusion.
 Exposure/Tier 1 Capital and     exposure amount to
 Reserves.                       one counterparty
                                 divided by Tier 1
                                 capital and reserves.
                                 The total exposure
                                 amount is equal to
                                 the sum of the
                                 institution's
                                 exposure amounts to
                                 one counterparty (or
                                 borrower) for
                                 derivatives, SFTs,
                                 and cleared
                                 transactions, and its
                                 gross lending
                                 exposure (including
                                 all unfunded
                                 commitments) to that
                                 counterparty (or
                                 borrower). A
                                 counterparty includes
                                 an entity's own
                                 affiliates. Exposures
                                 to entities that are
                                 affiliates of each
                                 other are treated as
                                 exposures to one
                                 counterparty (or
                                 borrower).
                                 Counterparty exposure
                                 excludes all
                                 counterparty exposure
                                 to the U.S.
                                 Government and
                                 departments or
                                 agencies of the U.S.
                                 Government that is
                                 unconditionally
                                 guaranteed by the
                                 full faith and credit
                                 of the United States.
                                 The exposure amount
                                 for derivatives,
                                 including OTC
                                 derivatives, cleared
                                 transactions that are
                                 derivative contracts,
                                 and netting sets of
                                 derivative contracts,
                                 must be calculated
                                 using the methodology
                                 set forth in 12 CFR
                                 324.34(b), but
                                 without any reduction
                                 for collateral other
                                 than cash collateral
                                 that is all or part
                                 of variation margin
                                 and that satisfies
                                 the requirements of
                                 12 CFR
                                 324.10(c)(4)(ii)(C)(1
                                 )(ii) and (iii) and
                                 324.10(c)(4)(ii)(C)(3
                                 ) through (7). The
                                 exposure amount
                                 associated with SFTs,
                                 including cleared
                                 transactions that are
                                 SFTs, must be
                                 calculated using the
                                 standardized approach
                                 set forth in 12 CFR
                                 324.37(b) or (c). For
                                 both derivatives and
                                 SFT exposures, the
                                 exposure amount to
                                 central
                                 counterparties must
                                 also include the
                                 default fund
                                 contribution.
Core Earnings/Average Quarter-  Core earnings are       Prior to
 End Total Assets.               defined as net income   averaging,
                                 less extraordinary      exclude from
                                 items and tax-          total assets
                                 adjusted realized       for the
                                 gains and losses on     applicable
                                 available-for-sale      quarter-end
                                 (AFS) and held-to-      periods the
                                 maturity (HTM)          balance of
                                 securities, adjusted    loans pledged
                                 for mergers. The        to the PPPLF
                                 ratio takes a four-     outstanding at
                                 quarter sum of merger-  end of quarter.
                                 adjusted core
                                 earnings and divides
                                 it by an average of
                                 five quarter-end
                                 total assets (most
                                 recent and four prior
                                 quarters). If four
                                 quarters of data on
                                 core earnings are not
                                 available, data for
                                 quarters that are
                                 available will be
                                 added and annualized.
                                 If five quarters of
                                 data on total assets
                                 are not available,
                                 data for quarters
                                 that are available
                                 will be averaged.
Credit Quality Measure 1......  The credit quality      ................
                                 score is the higher
                                 of the following two
                                 scores:.
(1) Criticized and Classified   Sum of criticized and   No Exclusion.
 Items/Tier 1 Capital and        classified items
 Reserves.                       divided by the sum of
                                 Tier 1 capital and
                                 reserves. Criticized
                                 and classified items
                                 include items an
                                 institution or its
                                 primary federal
                                 regulator have graded
                                 ``Special Mention''
                                 or worse and include
                                 retail items under
                                 Uniform Retail
                                 Classification
                                 Guidelines,
                                 securities, funded
                                 and unfunded loans,
                                 other real estate
                                 owned (ORE), other
                                 assets, and marked-to-
                                 market counterparty
                                 positions, less
                                 credit valuation
                                 adjustments.
                                 Criticized and
                                 classified items
                                 exclude loans and
                                 securities in trading
                                 books, and the amount
                                 recoverable from the
                                 U.S. government, its
                                 agencies, or
                                 government-sponsored
                                 enterprises, under
                                 guarantee or
                                 insurance provisions.
(2) Underperforming Assets/     Sum of loans that are   No Exclusion.
 Tier 1 Capital and Reserves.    30 days or more past
                                 due and still
                                 accruing interest,
                                 nonaccrual loans,
                                 restructured loans
                                 (including
                                 restructured 1--4
                                 family loans), and
                                 ORE, excluding the
                                 maximum amount
                                 recoverable from the
                                 U.S. government, its
                                 agencies, or
                                 government-sponsored
                                 enterprises, under
                                 guarantee or
                                 insurance provisions,
                                 divided by a sum of
                                 Tier 1 capital and
                                 reserves.
Core Deposits/Total             Total domestic          Exclude from
 Liabilities.                    deposits excluding      total
                                 brokered deposits and   liabilities
                                 uninsured non-          borrowings from
                                 brokered time           Federal Reserve
                                 deposits divided by     Banks under the
                                 total liabilities.      PPPLF with a
                                                         maturity of one
                                                         year or less
                                                         and borrowings
                                                         from the
                                                         Federal Reserve
                                                         Banks under the
                                                         PPPLF with a
                                                         maturity of
                                                         greater than
                                                         one year,
                                                         outstanding at
                                                         end of quarter.

[[Page 30662]]

 
Balance Sheet Liquidity Ratio.  Sum of cash and         Include in
                                 balances due from       highly liquid
                                 depository              assets the
                                 institutions, federal   outstanding
                                 funds sold and          balance of PPP
                                 securities purchased    loans that
                                 under agreements to     exceed
                                 resell, and the         borrowings from
                                 market value of         the Federal
                                 available for sale      Reserve Banks
                                 and held to maturity    under the PPPLF
                                 agency securities       at end of
                                 (excludes agency        quarter.
                                 mortgage-backed         Exclude from
                                 securities but          other
                                 includes all other      borrowings with
                                 agency securities       a remaining
                                 issued by the U.S.      maturity of one
                                 Treasury, U.S.          year or less
                                 government agencies,    the balance of
                                 and U.S. government     borrowings from
                                 sponsored               the Federal
                                 enterprises) divided    Reserve Banks
                                 by the sum of federal   under the PPPLF
                                 funds purchased and     with a
                                 repurchase              remaining
                                 agreements, other       maturity of one
                                 borrowings (including   year or less
                                 FHLB) with a            outstanding at
                                 remaining maturity of   end of quarter.
                                 one year or less, 5
                                 percent of insured
                                 domestic deposits,
                                 and 10 percent of
                                 uninsured domestic
                                 and foreign deposits.
Potential Losses/Total          Potential losses to     Exclusions are
 Domestic Deposits (Loss         the DIF in the event    described in
 Severity Measure).              of failure divided by   paragraph (A)
                                 total domestic          of this
                                 deposits. Paragraph     section.
                                 [A] of this section
                                 describes the
                                 calculation of the
                                 loss severity measure
                                 in detail.
Market Risk Measure for Highly  The market risk score   ................
 Complex Institutions.           is a weighted average
                                 of the following
                                 three scores:.
(1) Trading Revenue Volatility/ Trailing 4-quarter      No Exclusion.
 Tier 1 Capital.                 standard deviation of
                                 quarterly trading
                                 revenue (merger-
                                 adjusted) divided by
                                 Tier 1 capital.
(2) Market Risk Capital/Tier 1  Market risk capital     No Exclusion.
 Capital.                        divided by Tier 1
                                 capital.
(3) Level 3 Trading Assets/     Level 3 trading assets  No Exclusion.
 Tier 1 Capital.                 divided by Tier 1
                                 capital.
Average Short-term Funding/     Quarterly average of    Exclude from the
 Average Total Assets.           federal funds           quarterly
                                 purchased and           average of
                                 repurchase agreements   total assets
                                 divided by the          the quarterly
                                 quarterly average of    average amount
                                 total assets as         of loans
                                 reported on Schedule    pledged to the
                                 RC-K of the Call        PPPLF.
                                 Reports.
------------------------------------------------------------------------
1 The credit quality score is the greater of the criticized and
  classified items to Tier 1 capital and reserves score or the
  underperforming assets to Tier 1 capital and reserves score. The
  market risk score is the weighted average of three scores--the trading
  revenue volatility to Tier 1 capital score, the market risk capital to
  Tier 1 capital score, and the level 3 trading assets to Tier 1 capital
  score. All of these ratios are described in appendix A of this subpart
  and the method of calculating the scores is described in appendix B of
  this subpart. Each score is multiplied by its respective weight, and
  the resulting weighted score is summed to compute the score for the
  market risk measure. An overall weight of 35 percent is allocated
  between the scores for the credit quality measure and market risk
  measure. The allocation depends on the ratio of average trading assets
  to the sum of average securities, loans and trading assets (trading
  asset ratio) as follows: (1) Weight for credit quality score = 35
  percent * (1-trading asset ratio); and, (2) Weight for market risk
  score = 35 percent * trading asset ratio. In calculating the trading
  asset ratio, exclude from the balance of loans the balance of PPP
  loans, which includes loans pledged to the PPPLF, outstanding as of
  quarter-end.

    (A) Description of the loss severity measure. The loss severity 
measure applies a standardized set of assumptions to an 
institution's balance sheet to measure possible losses to the FDIC 
in the event of an institution's failure. To determine an 
institution's loss severity rate, the FDIC first applies assumptions 
about uninsured deposit and other unsecured liability runoff, and 
growth in insured deposits, to adjust the size and composition of 
the institution's liabilities. Exclude from liabilities total 
borrowings from Federal Reserve Banks under the PPPLF from short-and 
long-term secured borrowings outstanding at end of quarter, as 
appropriate. Assets are then reduced to match any reduction in 
liabilities Exclude from commercial and industrial loans included in 
assets PPP loans, which include loans pledged to the PPPLF, 
outstanding at end of quarter. In the event that the outstanding 
balance of PPP loans exceeds the balance of C&I loans, exclude any 
remaining balance first from the balance of all other loans, up to 
the total amount of all other loans, followed by the balance of 
agricultural loans, up to the total amount of agricultural loans. 
Increase cash and interest-bearing balances by outstanding PPP loans 
exceeding total borrowings under the PPPLF, if any. The 
institution's asset values are then further reduced so that the 
Leverage ratio reaches 2 percent. In both cases, assets are adjusted 
pro rata to preserve the institution's asset composition. 
Assumptions regarding loss rates at failure for a given asset 
category and the extent of secured liabilities are then applied to 
estimated assets and liabilities at failure to determine whether the 
institution has enough unencumbered assets to cover domestic 
deposits. Any projected shortfall is divided by current domestic 
deposits to obtain an end-of-period loss severity ratio. The loss 
severity measure is an average loss severity ratio for the three 
most recent quarters of data available.

Runoff and Capital Adjustment Assumptions

    Table E.3 contains run-off assumptions.

                   Table E.3--Runoff Rate Assumptions
------------------------------------------------------------------------
                                                         Runoff rate *
                    Liability type                         (percent)
------------------------------------------------------------------------
Insured Deposits.....................................               (10)
Uninsured Deposits...................................                 58
Foreign Deposits.....................................                 80
Federal Funds Purchased..............................                100
Repurchase Agreements................................                 75
Trading Liabilities..................................                 50
Unsecured Borrowings < = 1 Year......................                 75
Secured Borrowings < = 1 Year, excluding outstanding                  25
 borrowings from the Federal Reserve Banks under the
 PPPLF < = 1 Year....................................

[[Page 30663]]

 
Subordinated Debt and Limited Liability Preferred                     15
 Stock...............................................
------------------------------------------------------------------------
* A negative rate implies growth.

    Given the resulting total liabilities after runoff, assets are 
then reduced pro rata to preserve the relative amount of assets in 
each of the following asset categories and to achieve a Leverage 
ratio of 2 percent:
     Cash and Interest Bearing Balances, including 
outstanding PPP loans in excess of borrowings under the PPPLF;
     Trading Account Assets;
     Federal Funds Sold and Repurchase Agreements;
     Treasury and Agency Securities;
     Municipal Securities;
     Other Securities;
     Construction and Development Loans;
     Nonresidential Real Estate Loans;
     Multifamily Real Estate Loans;
     1--4 Family Closed-End First Liens;
     1--4 Family Closed-End Junior Liens;
     Revolving Home Equity Loans; and
     Agricultural Real Estate Loans.

Recovery Value of Assets at Failure

    Table E.4 shows loss rates applied to each of the asset 
categories as adjusted above.

                 Table E.4--Asset Loss Rate Assumptions
------------------------------------------------------------------------
                                                           Loss rate
                    Asset category                         (percent)
------------------------------------------------------------------------
Cash and Interest Bearing Balances, including                        0.0
 outstanding PPP loans in excess of borrowings under
 the PPPLF...........................................
Trading Account Assets...............................                0.0
Federal Funds Sold and Repurchase Agreements.........                0.0
Treasury and Agency Securities.......................                0.0
Municipal Securities.................................               10.0
Other Securities.....................................               15.0
Construction and Development Loans...................               38.2
Nonresidential Real Estate Loans.....................               17.6
Multifamily Real Estate Loans........................               10.8
1--4 Family Closed-End First Liens...................               19.4
1--4 Family Closed-End Junior Liens..................               41.0
Revolving Home Equity Loans..........................               41.0
Agricultural Real Estate Loans.......................               19.7
Agricultural Loans, excluding outstanding PPP loans,                11.8
 which include loans pledged to the PPPLF, as
 applicable..........................................
Commercial and Industrial Loans, excluding                          21.5
 outstanding PPP loans, which include loans pledged
 to the PPPLF, as applicable.........................
Credit Card Loans....................................               18.3
Other Consumer Loans.................................               18.3
All Other Loans, excluding outstanding PPP loans,                   51.0
 which include loans pledged to the PPPLF, as
 applicable..........................................
Other Assets.........................................               75.0
------------------------------------------------------------------------

Secured Liabilities at Failure

    Federal home loan bank advances, secured federal funds purchased 
and repurchase agreements are assumed to be fully secured. Foreign 
deposits are treated as fully secured because of the potential for 
ring fencing.
    Exclude outstanding borrowings from the Federal Reserve Banks 
under the PPPLF.

Loss Severity Ratio Calculation

    The FDIC's loss given failure (LGD) is calculated as:
    [GRAPHIC] [TIFF OMITTED] TP20MY20.000
    
    An end-of-quarter loss severity ratio is LGD divided by total 
domestic deposits at quarter-end and the loss severity measure for 
the scorecard is an average of end-of-period loss severity ratios 
for three most recent quarters.

III. Mitigating the Effects of Loans Pledged to the PPPLF and Assets 
Purchased under the MMLF on the Unsecured Adjustment, Depository 
Institution Debt Adjustment, and the Brokered Deposit Adjustment to an 
IDI's Assessment Rate.

[[Page 30664]]



  Table E.5--Exclusions From Adjustments to the Initial Base Assessment
                                  Rate
------------------------------------------------------------------------
           Adjustment                 Calculation          Exclusion
------------------------------------------------------------------------
Unsecured debt adjustment.......  The unsecured debt  Exclude the
                                   adjustment shall    quarterly average
                                   be determined as    amount of assets
                                   the sum of the      purchased under
                                   initial base        MMLF and
                                   assessment rate     quarterly average
                                   plus 40 basis       amount of loans
                                   points; that sum    pledged to the
                                   shall be            PPPLF.
                                   multiplied by the
                                   ratio of an
                                   insured
                                   depository
                                   institution's
                                   long-term
                                   unsecured debt to
                                   its assessment
                                   base. The amount
                                   of the reduction
                                   in the assessment
                                   rate due to the
                                   adjustment is
                                   equal to the
                                   dollar amount of
                                   the adjustment
                                   divided by the
                                   amount of the
                                   assessment base.
Depository institution debt       An insured          Exclude the
 adjustment.                       depository          quarterly average
                                   institution shall   amount of assets
                                   pay a 50 basis      purchased under
                                   point adjustment    MMLF and
                                   on the amount of    quarterly average
                                   unsecured debt it   amount of loans
                                   holds that was      pledged to the
                                   issued by another   PPPLF
                                   insured             outstanding.
                                   depository
                                   institution to
                                   the extent that
                                   such debt exceeds
                                   3 percent of the
                                   institution's
                                   Tier 1 capital.
                                   This amount is
                                   divided by the
                                   institution's
                                   assessment base.
                                   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.
Brokered deposit adjustment.....  The brokered        Exclude the
                                   deposit             quarterly average
                                   adjustment shall    amount of assets
                                   be determined by    purchased under
                                   multiplying 25      MMLF and
                                   basis points by     quarterly average
                                   the ratio of the    amount of loans
                                   difference          pledged to the
                                   between an          PPPLF
                                   insured             outstanding.
                                   depository
                                   institution's
                                   brokered deposits
                                   and 10 percent of
                                   its domestic
                                   deposits to its
                                   assessment base.
------------------------------------------------------------------------

    IV. Mitigating the Effects on the Assessment Base Attributable 
to the Paycheck Protection Program Lending Facility and the Money 
Market Mutual Fund Liquidity Facility.

Total Assessment Amount Due = Total Assessment Amount LESS: (SUM 
(Quarterly average amount of assets pledged to the PPPLF and 
quarterly average amount of assets purchased under the MMLF) * Total 
Base Assessment Rate)

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on May 12, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-10454 Filed 5-18-20; 2:30 pm]
 BILLING CODE 6714-01-P