Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility, 38282-38299 [2020-13751]

Download as PDF 38282 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 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 Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility Federal Deposit Insurance Corporation (FDIC). ACTION: Final rule. AGENCY: The Federal Deposit Insurance Corporation is adopting a final rule that mitigates the deposit insurance assessment effects of participating in the Paycheck Protection Program (PPP) established by the Small Business Administration (SBA), and the Paycheck Protection Program Liquidity Facility (PPPLF) and Money Market Mutual Fund Liquidity Facility (MMLF) established by the Board of Governors of the Federal Reserve System. The final rule removes the effect of participation in the PPP and borrowings under the PPPLF on various risk measures used to calculate an insured depository institution’s assessment rate, removes the effect of participation in the PPP and MMLF program on certain adjustments to an insured depository institution’s assessment rate; provides an offset to an insured depository institution’s assessment for the increase to its assessment base attributable to participation in the PPP and MMLF; and removes the effect of participation in the PPP and MMLF when classifying insured depository institutions as small, large, or highly complex for assessment purposes. DATES: The final rule is effective June 26, 2020, and will apply as of April 1, 2020. FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director, 202–898–7041, michspencer@fdic.gov; Ashley Mihalik, Chief, Banking and Regulatory Policy, 202–898–3793, amihalik@fdic.gov; Nefretete Smith, Counsel, 202–898–6851, nefsmith@ fdic.gov; Samuel Lutz, Counsel, 202– 898–3773, salutz@fdic.gov. SUPPLEMENTARY INFORMATION: SUMMARY: jbell on DSKJLSW7X2PROD with RULES I. Introduction A. Legal Authority 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 VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 assessments, is finalizing modifications to mitigate the deposit insurance assessment effects of participation in the PPP, PPPLF, and MMLF. For the reasons explained below, an IDI that participates in the PPP, PPPLF, or MMLF programs could be subject to increased deposit insurance assessments absent a change to the assessment regulations. B. Background Recent events have significantly and adversely impacted the global economy and financial markets. The spread of the Coronavirus Disease (COVID–19) slowed economic activity in many countries, including the United States. Sudden disruptions in financial markets placed increasing liquidity pressure on money market mutual funds (MMFs) and raised the cost of credit for most borrowers. MMFs 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. 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.1 Under the MMLF, the FRBB is extending nonrecourse loans to eligible borrowers to purchase assets from MMFs. Assets purchased from MMFs are 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. Small businesses also are facing severe liquidity constraints and a collapse in revenue streams, as millions of Americans were ordered to stay home, severely reducing their ability to engage in normal commerce. Many small businesses were 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. As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES 1 12 PO 00000 U.S.C. 343(3). Frm 00010 Fmt 4700 Sfmt 4700 Act) and in recognition of the exigent circumstances faced by small businesses, Congress created the PPP.2 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.3 On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) was signed into law, amending key provisions of the CARES Act, including provisions related to loan maturity, deferral of loan payments, and loan forgiveness.4 Among other changes, the amendments increase from two to five years the maturity of PPP loans that are approved by the SBA on or after June 5, 2020, and provide greater flexibility for borrowers to qualify for loan forgiveness. 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 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 2 Public Law 116–136 (Mar. 27, 2020). 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. 4 Public Law 116–142 (June 5, 2020). The SBA subsequently issued an interim final rule revising the SBA’s interim final rule implementing sections 1102 and 1106 of the CARES Act temporarily adding the Paycheck Protection Program to the SBA’s 7(a) Loan Program published on April 15, 2020. See 85 FR 20811 (Apr. 15, 2020) and 85 FR 36308 (June 16, 2020). 5 12 U.S.C. 343(3). On April 30, 2020, the facility was renamed the Paycheck Protection Program Liquidity Facility, from Paycheck Protection Program Lending Facility. See Periodic Report: Update on Outstanding Lending Facilities Authorized by the Board under Section 13(3) of the 3 Under E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations Reserve Banks are extending nonrecourse loans to institutions that are eligible to make PPP loans, including insured depository institutions (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. 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 under 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. C. Deposit Insurance Assessments jbell on DSKJLSW7X2PROD with RULES 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 Federal Reserve Act May 15, 2020, Board of Governors of the Federal Reserve System, available at: https://www.federalreserve.gov/publications/ files/mlf-msnlf-mself-and-ppplf-5-15-20.pdf. 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 the covered period. See Interim Final Rule ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program,’’ 85 FR 20811, 20816 (Apr. 15, 2020) and 85 FR 36308 (June 16, 2020). 8 See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13, 2020). 9 See 12 U.S.C. 1817(b). VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 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 small bank is generally defined as an institution with less than $10 billion in total assets, a large bank is generally defined as an institution with $10 billion or more 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 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 10 See 12 CFR 327.3(b)(1). 12 CFR 327.5. 12 See 12 CFR 327.16(a) and (b). 13 As used in this final 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 final 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. 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). 11 See PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 38283 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 under the PPPLF would increase the total assets on its balance sheet (equal to the amount of PPP loans pledged to the Federal Reserve Banks), and increase its total liabilities by the same amount, which would increase the IDI’s assessment base and also may increase its assessment rate. An IDI that obtains additional funding, such as additional deposits or secured borrowings, to make PPP loans would increase its total liabilities and total assets by that amount of funding, which would increase its assessment base and also may increase its assessment rate. An IDI that relies on existing funding, including deposits already at the institution, to make PPP loans would not increase its total liabilities or total assets, which would not increase its assessment base. 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. C. The Proposed Rule On May 20, 2020, the FDIC published in the Federal Register a notice of proposed rulemaking (the proposed rule, or proposal) 18 that would mitigate the deposit insurance assessment effects of an IDI’s participation in the PPP, PPPLF, and MMLF programs.19 To remove the effect of these programs on the risk measures used to determine the deposit insurance assessment rate for each IDI, the FDIC proposed 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, for institutions subject to the large or highly complex bank scorecard, 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 proposed to exclude 18 85 FR 30649 (May 20, 2020). 12 U.S.C. 1817, 1819 (Tenth). 19 See E:\FR\FM\26JNR1.SGM 26JNR1 38284 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 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 PPPLF and MMLF. Finally, in classifying IDIs as small, large, or highly complex for assessment purposes, the FDIC proposed to exclude from an IDI’s total assets the amount of loans pledged to the PPPLF and assets purchased under the MMLF. In response to the proposal, the FDIC received 41 comment letters from depository institutions, depository institution holding companies, trade associations, and other interested parties.20 As further detailed below, commenters generally supported the FDIC’s efforts to mitigate the deposit insurance effects of an IDI’s participation in the PPP, PPPLF, and MMLF programs, but expressed concerns with certain aspects of the proposal. The FDIC considered all comments received and is making some changes in the final rule, while clarifying other aspects of the rule that remain unchanged from the proposed rule. jbell on DSKJLSW7X2PROD with RULES II. The Final Rule A. Summary Under the final rule, the FDIC will remove the effect of participation in the PPP and borrowings under the PPPLF on various risk measures used to calculate an IDI’s assessment rate, remove the effect of participation in the PPP and MMLF program on certain adjustments to an insured depository institution’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 PPP and MMLF; and remove the effect of participation in the PPP and MMLF when classifying insured depository institutions as small, large, or highly complex for assessment purposes. In the final rule, the FDIC tried to balance its policy objective of mitigating, to the fullest extent possible, the deposit insurance assessment effect of participation in the PPP, PPPLF, and MMLF, while minimizing the extent to which the final rule would result in an IDI paying less than it would have paid if it did not participate in the PPP, PPPLF, or MMLF. In response to comments and based on updated assumptions, as described further 20 See comments on the proposal, available at https://www.fdic.gov/regulations/laws/federal/ 2020/2020-assessments-ppp-3064-af53.html. VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 below, the final rule includes certain additional mitigation steps beyond those in the proposed rule that will more fully mitigate the assessment effect of participation in the aforementioned programs for more institutions, but may in certain cases result in over-mitigation for some institutions. At the same time, the FDIC declined to make certain adjustments requested by commenters, in part because such additional adjustments, when combined with the other provisions of the final rule, would likely have resulted, in the FDIC’s estimation, in more over-mitigation than would be acceptable. 1. Exclusion of All PPP Loans Most of the comments the FDIC received in response to the proposed rule stated that the proposed modifications would not completely offset the impact of PPP lending on assessments. Many of these commenters requested that the FDIC exclude all PPP loans, whether funded under the PPPLF or through other sources of liquidity, including deposits or Federal Home Loan Bank (FHLB) advances, from the calculation of an IDI’s assessment rate, assessment base, or both, so that the bank’s assessment would be mitigated accordingly, rather than excluding only loans pledged to the PPPLF. A bank that funded its PPP loans with existing balance sheet liquidity would not have increased its total assets or total liabilities, and including these loans in the offset to its assessment would not be necessary because its assessment base would not have increased. Similarly, removing PPP loans from total assets in calculating an IDI’s assessment rate would not be necessary if such loans did not increase the bank’s total assets. For these reasons, the proposal would have removed only PPP loans pledged to the PPPLF from an IDI’s total assets in calculating its deposit insurance assessment rate and certain other measures, and in calculating the offset due to the increase in its assessment base due to participation in the PPPLF. The FDIC understands that some banks have funded PPP loans through additional liabilities other than borrowings under the PPPLF, which would result in an increase to a bank’s total assets and total liabilities. For banks that funded PPP loans by obtaining additional liabilities other than borrowings under the PPPLF, the proposal would not have fully mitigated the deposit insurance assessment effects of participation in the PPP. After considering comments received, and in recognition of the important role IDIs play in providing liquidity to small PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 businesses and helping to stabilize the broader economy in the midst of the economic disruption caused by COVID– 19, as well as in recognition that some banks have funded PPP loans through additional liabilities other than borrowings under the PPPLF, under the final rule the FDIC will exclude the quarter-end outstanding balance of all PPP loans from an IDI’s total assets in calculating an IDI’s assessment rate and the offset to an IDI’s assessment amount due to the inclusion of PPP loans in its assessment base. The FDIC expects that this exclusion will result in a more complete mitigation of the assessment effects of participation in PPP lending. As described below, the FDIC will exclude the quarter-end outstanding balance of all PPP loans from an IDI’s total assets in the applicable risk measures used to determine an IDI’s assessment rate. In addition, because participation in the MMLF program will have the effect of expanding an IDI’s balance sheet and because PPP lending funded by additional liabilities could have the effect of expanding an IDI’s balance sheet (and, by extension, its assessment base), the FDIC will provide an offset to an IDI’s total assessment amount for the increase to its assessment base attributable to PPP lending and participation in the MMLF. Under the final rule, the FDIC will calculate the offset to an IDI’s total assessment amount based on its quarterend outstanding balance of PPP loans and the quarterly average amount of assets purchased under the MMLF. The FDIC also will exclude the outstanding balance of PPP loans and assets purchased under the MMLF in the calculation of certain adjustments to an IDI’s assessment rate. Moreover, in classifying IDIs as small, large, or highly complex for assessment purposes, the FDIC also will exclude from an IDI’s total assets the outstanding balance of PPP loans and assets purchased under the MMLF. Because it is not possible for the FDIC to quantify how much of an IDI’s total assets may have increased due to PPP loans relative to other balance sheet changes, including increased cash or other loans made either in response to the economic disruption caused by COVID–19 or that would have otherwise been made in the normal course of business, the final rule excludes all PPP loans from an IDI’s total assets in calculating its deposit insurance assessment, rather than providing incomplete assessment mitigation for banks that funded PPP loans through additional liabilities other than borrowings under the PPPLF. To the extent that an institution did not E:\FR\FM\26JNR1.SGM 26JNR1 jbell on DSKJLSW7X2PROD with RULES Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations increase its total assets as a result of PPP participation, the final rule could provide an assessment reduction that exceeds the actual increase in assessments that an institution would have experienced due to participation in the PPP. Some commenters requested that the FDIC specifically exclude the quarterend balance of outstanding PPP loans when calculating an IDI’s assessment, as opposed to the quarterly average of such loans. Under the NPR, the FDIC proposed to exclude the quarter-end balance of outstanding loans pledged to the PPPLF from an IDI’s total assets in those risk measures used to determine the deposit insurance assessment rate that are based on quarter-end outstanding amounts. For measures reported on an average basis, the FDIC proposed to exclude the quarterly average of loans pledged to the PPPLF. For example, an IDI’s assessment base is determined by subtracting its average tangible equity from average consolidated total assets. In calculating the offset to an IDI’s total assessment amount for the increase due to participation in the PPPLF and MMLF, the FDIC proposed to exclude quarterly average loans pledged to the PPPLF and quarterly average assets purchased under the MMLF. Commenters asserted that the assessment relief provided under the proposal would be limited because an IDI’s average PPPLF participation over a quarter can be considerably less than its quarter-end PPP loan balance. After considering comments received, and to minimize additional reporting burden, under the final rule the FDIC will exclude the quarter-end outstanding balance of PPP loans in mitigating the effect of PPP participation on an IDI’s deposit insurance assessment, both for risk measures that are calculated using amounts reported as of quarter-end and for calculations that use amounts reported on an average basis. 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, have been implemented in order to make the adjustments to the assessment system under the final rule. These changes were effectuated in coordination with the other member entities of the Federal Financial Institutions Examination Council.21 21 The agencies requested and received emergency approvals on May 27, 2020, from the Office of Management and Budget (OMB) to VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 2. Tier 1 Leverage Ratio Some commenters also suggested that the leverage ratio, as applied in the calculation of an IDI’s assessment rate, should be reduced by the quarter-end outstanding balances of all PPP loans. In accordance with the agencies’ April 13, 2020, regulatory capital interim final rule, banking organizations are required to neutralize the regulatory capital effects of assets pledged to the PPPLF on leverage capital ratios.22 This requirement is due to the non-recourse nature of the Federal Reserve’s extension of credit to the banking organization, a protection that does not exist if the banking organization funds PPP loans using other sources of liquidity. To remain consistent with the regulatory capital interim final rule, and consistent with the proposed rule for mitigating assessment effects of participation in the PPP, the FDIC will not modify its deposit insurance assessment pricing system with respect to the Tier 1 leverage ratio, which is one of the measures used to determine the assessment rate for small, large, and highly complex IDIs. Therefore, the neutralization of effects of participation in the PPPLF will be automatically reflected in an IDI’s assessment because the FDIC’s risk-based assessment system incorporates an IDI’s regulatory capital reporting of its Tier 1 leverage ratio. 3. Assessment Calculators Three commenters asked that the FDIC post revised assessment calculators as soon as possible. The FDIC will post on its public website assessment calculators that reflect the revisions under the final rule once data implement revisions to the Call Report and FFIEC 002 that will take effect for the June 30, 2020, reporting period. Starting with the June 30, 2020, report date, the agencies will collect seven additional items on the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051) that the FDIC will use to make the adjustments described in the final rule. The additional items are: (1) The quarter-end 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 will collect 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. 22 See 85 FR 20387 (April 13, 2020). PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 38285 for the reporting period ending on June 30, 2020 becomes available.23 B. Mitigating the Effects of PPP Loans on an IDI’s Assessment Rate Under the final rule, to mitigate the assessment effect of PPP loans, the FDIC will exclude the outstanding amount of PPP loans held by an IDI and borrowings under the PPPLF, from various risk measures used in the calculation of an IDI’s deposit insurance assessment rate, as described in more detail below. 1. Established Small Institutions a. Exclusion of PPP Loans From Total Assets in Various Risk Measures The final rule excludes the outstanding balance of all PPP loans from total assets in risk measures used to determine an established small institution’s assessment rate: the net income before taxes to total assets ratio,24 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 loan mix index (LMI). Under the proposal, for established small banks, the FDIC would have excluded the outstanding balance of loans pledged to the PPPLF from total assets in the calculation of these risk measures. As discussed above, some commenters recommended that the FDIC exclude all PPP loans from specific measures utilized throughout the assessment rate calculation for established small banks, including from the net income before taxes to total assets ratio, the nonperforming loans and leases to gross assets ratio, the other real estate owned to gross assets ratio, the brokered deposit ratio, and the oneyear asset growth measure. For the reasons described above, under the final rule, the FDIC will exclude the quarterend outstanding amount of PPP loans, whether or not they have been pledged to the PPPLF, from total assets in risk measures used to determine an established small institution’s assessment rate. 23 https://www.fdic.gov/deposit/insurance/ calculator.html. 24 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, and as proposed in the NPR, the FDIC is not excluding 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. E:\FR\FM\26JNR1.SGM 26JNR1 38286 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES b. Exclusion of PPP Loans From the Loan Portfolio in the LMI The LMI is a measure of the extent to which an IDI’s total assets include higher-risk categories of loans. Consistent with the proposed rule, under the final rule, the FDIC will exclude PPP loans, which include loans pledged to the PPPLF, from an institution’s loan portfolio in calculating the LMI, based on a waterfall approach.25 Under the final rule, the FDIC will first exclude the outstanding balance of PPP loans from the balance of C&I Loans in the calculation of the LMI. In the unlikely event that the outstanding balance of PPP loans exceeds the balance of C&I Loans, the FDIC will 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.26 While some commenters supported the assumptions applied under the waterfall approach described in the NPR, others viewed the approach as unnecessarily complex. Several commenters confirmed that PPP loans will be reported as C&I Loans, Agricultural Loans, or in All Other Loans. Two commenters suggested reporting PPP loans as a separate loan category on Schedule RC–C rather than in the form of additional memoranda items, while another two commenters supported the reporting revisions recently implemented to make the adjustments to the assessment system, noting that many institutions have already established processes to report these loans in existing categories on Schedule RC–C and would therefore view reporting PPP loans in a separate 25 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. 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 Public Law 116–136 (Mar. 27, 2020), Public Law 116–142 (June 5, 2020), 85 FR 20811 (Apr. 15, 2020), 85 FR 36308 (June 16, 2020), and Slide 8, Industry by NAICS Subsector, Paycheck Protection Program (PPP) Report: Approvals through 06/06/2020, Small Business Administration, available at: https:// www.sba.gov/sites/default/files/2020-06/PPP_ Report_Public_200606%20FINAL_-508.pdf. 26 All Other Loans are not included in the LMI; therefore, the FDIC will 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). VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 loan category rather than as a memoranda item as operationally burdensome. Two commenters supported reducing unnecessary data collection and categorization and reporting of PPP loans as C&I Loans. The FDIC has considered these comments and is adopting the waterfall approach as proposed. The FDIC views the waterfall approach as the approach that most effectively balances the goal of minimizing reporting burden while providing reasonably accurate mitigation for most institutions of the assessment effect of PPP loans. Accordingly, the FDIC is adopting the proposed waterfall approach as final and will apply it, as appropriate, in the calculation of the LMI for small banks (and in the calculation of the growthadjusted portfolio concentration measure and loss severity measure for large or highly complex banks, as discussed below). Two commenters requested that all PPP loans be excluded from total assets in the calculation of the LMI while others expressed support for the proposed modifications to the LMI. Under the final rule and as described above, the FDIC will exclude the quarter-end outstanding balance of PPP loans from an IDI’s loan portfolio (the numerator) and its total assets (the denominator) in the calculation of the LMI. 2. Large or Highly Complex Institutions Under the final rule, the FDIC will remove the outstanding balance of PPP loans from a large or highly complex bank’s loan portfolio and its total assets in calculating its assessment rate. As proposed, under the final rule the FDIC will also exclude amounts borrowed from the Federal Reserve Banks under the PPPLF from a large or highly complex bank’s liabilities in calculating its assessment rate. a. Exclusion of PPP Loans From Total Assets in the Core Earnings Ratio and the Short-Term Funding Measure As described above, the FDIC received numerous comments stating that the proposed modifications would not completely offset the impact of PPP lending on assessment rates, and many of these commenters recommended that the FDIC exclude the outstanding balance of PPP loans when calculating a large or highly complex bank’s assessment, rather than excluding only the loans pledged to the PPPLF. Specifically, several commenters recommended that the FDIC exclude all PPP loans from total assets in the calculation of the core earnings ratio and the average short-term funding PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 measure for purposes of determining a large or highly complex bank’s assessment rate. Some commenters specified that, in making these modifications, the FDIC should exclude the quarter-end balance of outstanding PPP loans, as opposed to the quarterly average. For the reasons described above, under the final rule the FDIC will exclude the quarter-end outstanding amount of PPP loans, whether or not they have been pledged to the PPPLF, from total assets in the core earnings ratio 27 and the short-term funding measure 28 used to determine a large or highly complex institution’s assessment rate. b. Exclusion of PPP Loans From the Loan Portfolio in Various Risk Measures As proposed, the FDIC will exclude PPP loans from an IDI’s loan portfolio in risk measures used to determine a large or highly complex IDI’s assessment rate. In calculating the growth-adjusted portfolio concentration measure,29 which is applicable to large IDIs, the FDIC will exclude the quarter-end outstanding balance of PPP loans from C&I Loans.30 In calculating the trading asset ratio,31 which is applicable to highly complex IDIs, the FDIC will reduce the balance of loans by the quarter-end outstanding balance of PPP loans.32 The FDIC also will exclude the 27 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). See Appendix A to subpart A of 12 CFR part 327. 28 For highly complex IDIs, the short-term funding ratio is calculated by dividing average short-term funding by average total assets. See Appendix A to subpart A of 12 CFR part 327. 29 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. 30 All Other Loans and Agricultural Loans are not included in the growth-adjusted portfolio concentration measure; therefore, consistent with the proposal, the FDIC will exclude the outstanding balance of PPP loans from the balance of C&I Loans under the final rule. 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. 31 See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii). 32 To minimize reporting burden, the FDIC will reduce average loans in the trading asset ratio by the outstanding balance of PPP loans, as of quarter- E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations quarter-end balance of outstanding PPP loans from a large or highly complex IDI’s loan portfolio in calculating the loss severity measure, as described below. A few commenters suggested that PPP loans should not be classified as ‘‘higher risk assets’’ in calculating the concentration measures for large or highly complex institutions. In response to these comments the FDIC is clarifying that government guaranteed loans are not considered ‘‘higher-risk assets’’ for assessment purposes. Because PPP loans are guaranteed by the SBA, they are already excluded from ‘‘higher-risk assets’’ in calculating the concentration measures for large or highly complex institutions and no additional modification is necessary.33 jbell on DSKJLSW7X2PROD with RULES c. Exclusion of Borrowings Under the PPPLF From Total Liabilities in Various Risk Measures As proposed, under the final rule the FDIC will exclude borrowings from the Federal Reserve Banks under the PPPLF from an institution’s liabilities in the calculation of the core deposit ratio, the balance sheet liquidity ratio, and the loss severity measure used to determine a large or highly complex IDI’s assessment rate. The final rule clarifies that the exclusion of amounts borrowed from the Federal Reserve Banks under the PPPLF from an institution’s total liabilities will only affect risk measures used to determine the assessment rate for a large or highly complex IDI because secured liabilities are not factored into the risk measures for determining the rate for an established small IDI. Under the final rule, in calculating the core deposit ratio 34 for large or highly complex IDI, the FDIC will exclude from total liabilities borrowings from Federal Reserve Banks under the PPPLF. Also as proposed, under the final rule the FDIC will exclude an IDI’s reported borrowings from the Federal Reserve Banks under the PPPLF with a remaining maturity of one year or less from liabilities included in the denominator of the balance sheet liquidity ratio.35 Additionally, in end, rather than requiring institutions to additionally report the average balance of PPP loans. 33 Appendix C to subpart A of part 327 describes the concentration measures, including the ratio of higher-risk assets to tier 1 capital and reserves. 34 The core deposit ratio is defined as total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total liabilities. See Appendix A to subpart A of 12 CFR part 327. 35 The balance sheet liquidity ratio is defined as the sum of cash and balances due from depository institutions, federal funds sold and securities VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 calculating the balance sheet liquidity ratio, the FDIC will treat the quarter-end outstanding balance of PPP loans that exceed borrowings from the Federal Reserve Banks under the PPPLF as highly liquid assets, as proposed. Because PPP loans are riskless and banks with PPP loans in excess of PPPLF borrowings can access additional liquidity by pledging such loans to PPPLF, the FDIC will treat these PPP loans as highly liquid assets. To the extent that a PPP loan represents collateral for borrowings other than under the PPPLF—such as an FHLB advance—treating the loan as highly liquid will provide an assessment benefit for IDIs that may not be able to readily access additional liquidity. PPP loans can no longer be pledged as collateral to the PPPLF after September 30, 2020, the date after which no new extensions of credit will be made under the PPPLF, unless extended by the Board of Governors and the Department of Treasury. Therefore, under the final rule, the quarter-end outstanding balance of PPP loans that exceed borrowings from the Federal Reserve Banks under the PPPLF will be treated as highly liquid assets until September 30, 2020, unless the Board of Governors and the Department of Treasury extend the deadline to apply for new extensions of credit under the PPPLF. d. Treatment of PPP Loans and Borrowings Under the PPPLF in Calculating the Loss Severity Measure The loss severity measure estimates the relative magnitude of potential losses to the DIF in the event of a large or highly complex IDI’s failure.36 Under the final rule, the FDIC will remove the effect of participation in the PPP and PPPLF, as proposed. In calculating the loss severity score under the final rule, the FDIC will remove the effect of PPP loans in an IDI’s loan portfolio using a waterfall approach, as proposed. Under this approach, the FDIC will exclude PPP loans 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 purchased under agreements to resell, and the market value of available-for-sale and held-tomaturity 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. 36 Appendix D to subpart A of 12 CFR 327 describes the calculation of the loss severity measure. PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 38287 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 IDI’s outstanding PPP loans are not pledged to the PPPLF, such loans may be funded by a variety of liabilities, such as deposits and secured borrowings. While IDIs will report borrowings under the PPPLF that are secured by PPP loans, the FDIC will not have sufficient data to determine other sources of funding for an IDI’s PPP loans. Obtaining such data would require additional reporting burden on IDIs. Because the FDIC will not have sufficient data to remove each type of non-PPPLF funding used to make PPP loans, under the final rule the FDIC will remove PPP loans in excess of its PPPLF borrowings from a large or highly complex IDI’s loan portfolio based on the waterfall approach described above and reallocate the same amount to cash. Such treatment of PPP loans is consistent with the proposal to treat PPP loans in excess of PPPLF borrowings as riskless for purposes of calculating a large or highly complex IDI’s loss severity score. To match the removal of PPP loans funded through borrowings under the PPPLF from an IDI’s loan portfolio, the FDIC will remove the total amount of outstanding borrowings from the Federal Reserve Banks under the PPPLF from short- and long-term secured borrowings, as appropriate. C. Mitigating the Effects of PPP Loans and Assets Purchased Under the MMLF on Certain Adjustments to an IDI’s Assessment Rate The FDIC proposed to exclude the quarterly average amount of loans pledged to the PPPLF and the quarterly 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.37 37 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 IDIs that meet certain criteria and new small IDIs are subject to the brokered deposit adjustment. The brokered deposit adjustment increases the total assessment rate of large IDIs that hold significant E:\FR\FM\26JNR1.SGM Continued 26JNR1 38288 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations As previously described, many commenters requested that the FDIC provide relief throughout the assessment calculations for all PPP lending, whether funded under the PPPLF or through other sources of liquidity, including deposits. A few commenters expressed support for the proposed modifications to these adjustments. After considering comments received, and in recognition of the important role IDIs play in providing liquidity to small businesses and helping to stabilize the broader economy in the midst of the economic disruption caused by COVID– 19, as well as in recognition that some banks have funded PPP loans through liabilities other than borrowings under the PPPLF, under the final rule, the FDIC will exclude the quarter-end outstanding amount of PPP loans and the quarterly 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. While the deposit insurance assessment calculations typically adjust quarter-end amounts by quarter-end amounts and average amounts by average amounts, in the interest of minimizing reporting burden, the agencies are collecting only the quarterend outstanding balance of PPP loans and not the average amount. Accordingly, there are a few modifications under this final rule for which an average amount is adjusted by the quarter-end outstanding balance of PPP loans, as is the case with these three adjustments to an IDI’s assessment rate. jbell on DSKJLSW7X2PROD with RULES D. Offset to Deposit Insurance Assessment Due To Increase in the Assessment Base Attributable to PPP Loans and Assets Purchased Under the MMLF Under the final rule, the FDIC will provide an offset to an IDI’s total assessment amount due for the increase to its assessment base attributable to the quarter-end outstanding balance of PPP loans and participation in the MMLF.38 Under the proposed rule, the FDIC would have provided an offset to an IDI’s total assessment amount due for 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). 38 Under the final rule, the offset to the total assessment amount due for the increase to the assessment base attributable to the quarter-end outstanding balance of PPP loans and participation in the MMLF will 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. VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 the increase to its assessment base attributable to participation in the PPPLF and MMLF.39 To determine this offset amount, the FDIC proposed to 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.40 The FDIC received numerous comments stating that the proposed modifications would not completely offset the impact of PPP lending on the assessment base. Some commenters requested that the FDIC exclude the quarter-end balance of outstanding PPP loans from the assessment base. After considering the comments received, and recognizing that some banks have funded PPP loans by obtaining additional funding, such as deposits or borrowings other than under the PPPLF, and therefore increased their total assets and total liabilities, under the final rule the FDIC will use the quarter-end outstanding amount of PPP loans rather than the quarterly average amount of assets pledged to the PPPLF in calculating the offset to an IDI’s total assessment amount. To determine this offset amount, the FDIC will sum the total of the quarter-end outstanding balance of PPP loans 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 effects of participation in the PPP, MMLF, and PPPLF, consistent with the final rule), and subtract the resulting amount from an IDI’s total assessment amount. While IDIs will report loans pledged to the PPPLF and borrowings under the PPPLF starting with the June 30, 2020, Call Report, it will not be possible for the FDIC to differentiate between an IDI that increased its total assets solely due to PPP funded by additional liabilities, and an IDI that used existing balance sheet liquidity to fund PPP loans and therefore did not increase its total assets 39 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 have applied 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. 40 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). PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 or its assessment base. To the extent an IDI relies on existing balance sheet liquidity, including cash and securities to fund PPP loans, the IDI would not increase its total assets and would therefore not experience an increase to the assessment base as a result of its participation in the PPP. An IDI that obtains additional funding to make PPP loans, however, would increase its total liabilities by the amount of additional funding and increase its total assets by the amount of PPP loans made with such funding, resulting in an increase in its assessment base. In recognition of the extraordinary steps taken by IDIs to provide liquidity to small businesses and help stabilize the broader economy in the midst of the economic disruption caused by COVID– 19, and to more fully mitigate the deposit insurance assessment effect of participation in the PPP, the final rule will provide an offset to an IDI’s assessment amount that is calculated using the total outstanding balance of PPP loans at quarter end and the quarterly average balance of assets purchased under the MMLF. Including total PPP loans in the calculation of the offset ensures that the final rule will more fully mitigate the assessment effects of participation in PPP lending. To the extent that an institution did not increase its total assets as a result of PPP participation, the final rule may, for some institutions, result in an assessment reduction that exceeds the actual increase in assessments that an institution would have experienced due to participation in the PPP. As discussed above, in the interest of minimizing reporting burden, there are a few modifications under this final rule for which an average amount is adjusted by the quarter-end outstanding balance of PPP loans, as is the case with the calculation of the offset to the assessment base. Because the FDIC proposed to calculate the offset as the sum of the quarterly average amount of loans pledged to the PPPLF and the quarterly average of assets purchased under the MMLF, the Board of Governors is requiring that insured branches of foreign banks report only these two additional items on the FFIEC 002 starting with the report filed as of June 30, 2020. Adjustments to the calculation of the assessment rate of an insured branch of foreign banks to mitigate the effect of participation in the PPP, PPPLF, and MMLF are not necessary.41 Under the final rule, the FDIC will provide an offset to the assessment of an 41 Insured branches are assessed for deposit insurance in accordance with 12 CFR 327.16(c). E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations insured branch of a foreign bank that is calculated by summing the quarterly average amount of assets purchased under the MMLF with either the quarterly average amount of loans pledged to the PPPLF or the amount of outstanding PPP loans at the end of the quarter, based on available data.42 E. Classification of IDIs as Small, Large, or Highly Complex for Assessment Purposes In defining IDIs for assessment purposes under the proposed rule, the FDIC would have excluded from an IDI’s total assets the amount of loans pledged to the PPPLF and assets purchased under the MMLF. Several commenters specifically requested that the FDIC provide full credit for the outstanding balance of PPP loans throughout the assessment calculations, including in the classification of an IDI as small, large, or highly complex for deposit insurance assessment purposes. After considering these comments and for the reasons described above, the FDIC will exclude the quarter-end outstanding balance of all PPP loans, rather than only those PPP loans pledged to the PPPLF, in the classification of an IDI as small, large, or highly complex for assessment purposes. As a result, the FDIC will 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 PPP loans and assets purchased under the MMLF, may request that the FDIC determine its assessment rate as a large institution.43 jbell on DSKJLSW7X2PROD with RULES F. Other Conforming Amendments to the Assessment Regulations Under the final rule, the FDIC will make conforming amendments to the FDIC’s assessment regulations to effectuate the modifications described above and consistent with the proposed rule. These conforming amendments will ensure that the modifications to an IDI’s assessment rate and the offset to an 42 Through the Board of Governors, the FDIC anticipates revising the reporting of the quarterly average amount of loans pledged to the PPPLF and instead requiring insured branches of foreign banks to report the outstanding balance of PPP loans at quarter-end, beginning as of September 30, 2020. For purposes of determining the deposit insurance assessment amount for an insured branch of a foreign bank as of June 30, 2020, an insured branch additionally may provide to the FDIC certified information on the amount of outstanding PPP loans at the end of the quarter. 43 See 12 CFR 327.16(f). VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 IDI’s assessment amount under the final rule are properly incorporated into the assessment regulation provisions governing the calculation of an IDI’s quarterly deposit insurance assessment. III. Expected Effects To facilitate participation in the PPP and use of the PPPLF and MMLF, under the final rule the FDIC will mitigate the deposit insurance assessment effects of PPP loans, amounts borrowed under the PPPLF, and assets purchased under the MMLF. Estimating the dollar amount of assessment mitigation resulting from the rule is difficult. 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, the loan categories of PPP loans held, the types of liabilities used to fund PPP lending, the extent to which PPP participation resulted in an increase to an IDI’s total assets and total liabilities, nor on the dollar volume of assets purchased under the MMLF by IDIs. 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 application of the final rule could provide quarterly assessment relief to IDIs participating in these programs totaling approximately $150 million, based on the assumptions described below which improve upon the assumptions applied in the proposal given information provided by commenters and FDIC analysis of updated data published by the SBA on the PPP and Federal Reserve Board on the PPPLF and MMLF. Because PPP loans must be issued by June 30, 2020, and because the FDIC expects that eligible IDIs will begin receiving PPP loan forgiveness reimbursement from the SBA, the FDIC expects that the amount of assessment relief provided under this final rule will decline in subsequent quarters. The FDIC anticipates that PPP loans will be held by both IDIs and non-IDIs, and that IDIs will fund PPP loans through growth in liabilities, including through additional deposits, borrowings from Federal Reserve Banks under the PPPLF, and other secured borrowings, although the rate of IDI participation in the PPP and PPPLF is uncertain. Based on Call Report data as of March 31, 2020, and assuming that (1) $600 billion of PPP loans are held by IDIs,44 44 Section 101(a)(1) of the Paycheck Protection Program and Health Care Enhancement Act, Public Law 116–139, authorizes $659 billion for the PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 38289 (2) the PPP loans that are held by IDIs are evenly distributed across all IDIs that have C&I loans, which results in a 33 percent increase in those loans, except where IDI-specific data are available, (3) 5.9 percent of PPP loans held by IDIs are pledged to the PPPLF, except where IDI-specific data are available from the Federal Reserve Board, (4) 100 percent of loans pledged to the PPPLF are matched by borrowings from the Federal Reserve Banks with maturities greater than one year, (5) IDIs fund the remaining 94.1 percent of PPP loans with additional funding, including deposits or secured borrowings, and (6) large and highly complex IDIs hold approximately $30 billion in assets pledged under the MMLF,45 the FDIC estimates that (1) quarterly deposit insurance assessments would increase for some institutions absent the final rule and (2) the final rule could provide quarterly assessment relief of approximately $150 million. 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, the extent of reliance on existing sources of funding for PPP lending, and the types of loans held under the PPP, as described above. While items on the Call Report will enable the FDIC to quantify funding from the PPPLF, it is not possible for the FDIC to quantify how much an IDI’s total assets grew due to PPP loans relative to other balance sheet changes, including increased cash or other loans made either in response to the economic disruption caused by COVID–19 or that would have otherwise Paycheck Protection Program. The FDIC assumes all the authorized funds will be distributed and roughly 90 percent will be held by IDIs. 45 These assumptions reflect current participation in the PPP and PPPLF and that all authorized funds under the PPP will be distributed, based on data published by the SBA and Federal Reserve Board. These assumptions use transaction-level data published by the Federal Reserve Board, 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: Approvals through 06/06/2020, Small Business Administration, available at: https://www.sba.gov/ sites/default/files/2020-06/PPP_Report_Public_ 200606%20FINAL_-508.pdf; Factors Affecting Reserve Balances, Federal Reserve statistical release H.4.1, as of June 11, 2020, available at: https:// www.federalreserve.gov/releases/h41/current/; Board of Governors of the Federal Reserve System, Money Market Mutual Fund Liquidity Facility, as of June 10, 2020, available at: https:// fred.stlouisfed.org/series/H41RESPPALDBNWW; and Board of Governors of the Federal Reserve System, PPPLF Transaction-specific Disclosures as of May 15, 2020, available at: https:// www.federalreserve.gov/publications/files/PPPLFtransaction-specific-disclosures-5-15-20.xlsx. E:\FR\FM\26JNR1.SGM 26JNR1 38290 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations been made in the normal course of business. For example, to the extent an IDI relies on existing balance sheet liquidity including cash and securities to fund PPP lending, the IDI would not experience an increase in liabilities and would therefore not experience an increase to the assessment base as a result of its participation in PPP lending. Accordingly, the assumption that IDIs will rely entirely on additional funding for PPP lending could reduce quarterly assessments by more than they will increase due to participation in PPP lending, as some IDIs may rely on existing balance sheet liquidity to fund PPP lending. jbell on DSKJLSW7X2PROD with RULES IV. Effective Date of the Final Rule 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 under the MMLF and loans pledged to the PPPLF. 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.46 The final rule will take effect immediately upon publication in the Federal Register with an application date of April 1, 2020, and changes made as a result of this rule will be reflected in the invoices for deposit insurance assessments due September 30, 2020.47 46 See CARES Act, § 1114. Public Law 116–142 (June 05, 2020). The SBA subsequently issued an interim final rule implementing sections 1102 and 1106 of the CARES Act. See 85 FR 20811 (April 15, 2020). On June 5, 2020, the PPP Flexibility Act was signed into law, amending key provisions of the CARES Act. The SBA issued an interim final rule implementing these provisions. See 85 FR 36308 (June 16, 2020). 47 The application date of April 1, 2020, is permissible because the effects of the final rule will occur after its publication. The assessment amount owed on an IDI’s quarterly certified statement invoice for the second quarterly assessment period VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 An immediate effective date and an 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. V. Administrative Law Matters A. Administrative Procedure Act Under the Administrative Procedure Act (APA),48 ‘‘[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.’’ 49 Under this rulemaking, the amendments to the FDIC’s deposit insurance assessment regulations would be effective upon publication of the final rule in the Federal Register. The FDIC finds good cause that the publication of this final rule can be effective immediately 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 IDIs 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. As explained in the Supplementary Information section and in the proposed rule, 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 of 2020 (i.e., April 1–June 30) will be calculated on the basis of Call Report data as of June 30, 2020, with a payment due date of September 30, 2020. Furthermore, even if the effects of the final rule were retroactive, a rule is impermissibly retroactive only when it ‘‘takes away or impairs vested rights acquired under existing law, or creates a new obligation, imposes a new duty, or attaches a new disability in respect to transactions or considerations already past.’’ See Nat’l Mining Ass’n v. Dep’t of Labor, 292 F.3d 849, 859 (D.C. Cir. 2002) (quoting Nat’l Mining Ass’n v. Dep’t of Interior, 177 F.3d 1, 8 (D.C. Cir. 1999)) (internal quotations omitted). This final rule does none of those things. 48 5 U.S.C. 553. 49 5 U.S.C. 553(d). PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 2020, with a payment due date of September 30, 2020. B. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., generally requires an agency, in connection with a final rule, to prepare and make available for public comment a final regulatory flexibility analysis that describes the impact of a final rule on small entities.50 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.51 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 noninterest 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.52 The final 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. Based on quarterly regulatory report data as of March 31, 2020, the FDIC insures 5,125 depository institutions,53 of which 3,771 are defined as small entities by the terms of the RFA.54 The final rule applies to all FDIC-insured 50 5 U.S.C. 601 et seq. 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. 52 5 U.S.C. 601. 53 FDIC Call Report data, as of March 31, 2020. 54 The FDIC does not have data to identify small entities as of March 2020. This count includes small entities as of December 31, 2019, as well as small entities that opened between December 2019 and March 2020. 51 The E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES 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. As previously discussed, to facilitate participation in the PPP and use of the PPPLF and MMLF, the final rule mitigates the deposit insurance assessment effects of PPP loans, borrowings under 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 March 31, 2020, assuming that (1) $600 billion of PPP loans are held by IDIs,55 (2) the PPP loans that are held by IDIs are evenly distributed across all IDIs that have C&I loans, which results in a 33 percent increase in those loans, except where IDI-specific data are available, (3) 5.9 percent of PPP loans held by IDIs are pledged to the PPPLF, except where IDI-specific data are available, (4) 100 percent of loans pledged to the PPPLF are matched by borrowings from the Federal Reserve Banks with maturities greater than one year,56 and (5) IDIs fund the remaining 94.1 percent of PPP loans with additional funding, including deposits or secured borrowings, the FDIC estimates that the final rule will save small IDIs approximately $10 million in quarterly deposit insurance assessments. The actual effect of these programs on deposit insurance assessments will vary 55 Section 101(a)(1) of the Paycheck Protection Program and Health Care Enhancement Act, Pub. L. 116–139, authorizes $659 billion for the Paycheck Protection Program. The FDIC assumes that all the authorized funds will be distributed and roughly 90 percent will be held by IDIs. 56 These assumptions reflect current participation in the PPP and PPPLF and that all the authorized funds under the PPP will be distributed, 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: Approvals from through 06/06/2020, Small Business Administration, available at: https://www.sba.gov/ sites/default/files/2020-06/PPP_Report_Public_ 200606%20FINAL_-508.pdf; Factors Affecting Reserve Balances, Federal Reserve statistical release H.4.1, as of June 11, 2020, available at: https:// www.federalreserve.gov/releases/h41/current/, and Board of Governors of the Federal Reserve System, Money Market Mutual Fund Liquidity Facility, as of June 10, 2020, available at: https:// fred.stlouisfed.org/series/H41RESPPALDBNWW; Board of Governors of the Federal Reserve System, PPPLF Transaction-specific Disclosures as of May 15, 2020, available at: https:// www.federalreserve.gov/publications/files/PPPLFtransaction-specific-disclosures-5-15-20.xlsx. VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 depending on IDIs’ participation in the PPP and Federal Reserve Facilities, the maturity of borrowings from the Federal Reserve Banks under these programs, the extent of reliance on existing sources of funding for PPP lending, and the types of loans held under the PPP. 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.57 The amendments to the FDIC’s deposit insurance assessment regulations under this final rule do not impose additional reporting, disclosures, or other new requirements. Nonetheless, the FDIC considered the requirements of RCDRIA when finalizing this rule with an immediate effective date. The FDIC invited comments regarding the application of RCDRIA to the final rule, but did not receive comments on this topic. 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.58 The final rule affects the agencies’ current information collections for the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051). The agencies’ OMB control numbers for the Call Reports are: Comptroller of the 57 5 U.S.C. 553(b)(B), 5 U.S.C. 553(d), 5 U.S.C. 601 et seq., 5 U.S.C. 801 et seq., 5 U.S.C. 801(a)(3), 5 U.S.C. 804(2), 5 U.S.C. 808(2), 12 U.S.C. 4802(a), 12 U.S.C. 4802(b). 58 4 U.S.C. 3501–3521. PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 38291 Currency OMB No. 1557–0081; Board of Governors OMB No. 7100–0036; and FDIC OMB No. 3064–0052. The final 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 were 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, have been addressed in a separate Federal Register notice or notices. E. Plain Language Section 722 of the Gramm-LeachBliley Act 59 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 invited comment regarding the use of plain language, but did not receive any comments on this topic. F. The Congressional Review Act For purposes of Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a ‘‘major’’ rule.60 The OMB has determined that the final rule is a major rule for purposes of the Congressional Review Act. If a rule is deemed a ‘‘major rule’’ by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication.61 The Congressional Review Act defines a ‘‘major rule’’ as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in—(A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or Local government agencies or geographic regions, or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreignbased enterprises in domestic and export markets.62 As required by the Congressional Review Act, the FDIC will submit the final rule and other appropriate reports to Congress and the 59 12 U.S.C. 4809. U.S.C. 801 et seq. 61 5 U.S.C. 801(a)(3). 62 5 U.S.C. 804(2). 60 5 E:\FR\FM\26JNR1.SGM 26JNR1 38292 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations Government Accountability Office for review. Section 808 of the Congressional Review Act provides that any rule as to which an agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rule issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest, shall take effect at such time as the Federal agency promulgating the rule determines.63 Although OMB has determined that this is a major rule for purposes of the Congressional review Act, and hence would ordinarily be subject to a 60-day delayed effective date, the FDIC believes there is good cause for an immediate effective date. In this case, the FDIC provided notice and accepted comment, as required by section 7 of the FDI Act, but further public procedure and the attendant delay would be contrary to the public interest.64 The FDIC believes that, under section 808 of the Congressional Review Act, good cause exists for the final rule to become effective without further public procedure and immediately upon its filing for publication, as delaying the effective date would be contrary to the public interest. In particular, by providing for an immediate effective date for the final rule, the intent of ensuring that IDIs benefit from the mitigation effects to their deposit insurance assessments starting with the second quarter of 2020, which is the first assessment quarter in which the assessments will be affected, and will thereby provide IDIs with certainty regarding the assessment effects of participating in the PPP, PPPLF, or MMLF. 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 amends 12 CFR part 327 as follows: PART 327—ASSESSMENTS 1. The authority citation for part 327 is revised to read as follows: ■ Authority: 12 U.S.C. 1813, 1815, 1817–19, 1821. 2. Amend § 327.3 by revising paragraph (b)(1) to read as follows: jbell on DSKJLSW7X2PROD with RULES ■ § 327.3 * * 63 5 Payment of assessments. * * * U.S.C. 808(2). 12 U.S.C. 1817(b)(1)(F). 64 See VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 (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 § 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 § 327.5 multiplied by the institution’s rate for that prior quarter as assigned to the institution pursuant to §§ 327.4(a) and 327.16. * * * * * ■ 3. Amend § 327.8 by revising paragraphs (e), (f), and (g)(1) to read as follows: § 327.8 Definitions. * * * * * (e) Small institution. (1) An insured depository institution with assets of less than $10 billion, excluding assets as described in § 327.17(e), as of December 31, 2006, and an insured branch of a foreign institution shall be classified as a small institution. (2) Except as provided in paragraph (e)(3) of this section and § 327.17(e), if, after December 31, 2006, an institution classified as large under paragraph (f) of this section (other than an institution classified as large for purposes of §§ 327.9(e) and 327.16(f)) reports assets of less than $10 billion in its quarterly reports of condition for four consecutive quarters, excluding assets as described in § 327.17(e), the FDIC will reclassify the institution as small beginning the following quarter. (3) An insured depository institution that elects to use the community bank leverage ratio framework under 12 CFR 3.12(a)(3), 12 CFR 217.12(a)(3), or 12 CFR 324.12(a)(3), shall be classified as a small institution, even if that institution otherwise would be classified as a large institution under paragraph (f) of this section. (f) Large institution. An institution classified as large for purposes of §§ 327.9(e) and 327.16(f) or an insured depository institution with assets of $10 billion or more, excluding assets as described in § 327.17(e), as of December 31, 2006 (other than an insured branch of a foreign bank or a highly complex institution) shall be classified as a large PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 institution. If, after December 31, 2006, an institution classified as small under paragraph (e) of this section reports assets of $10 billion or more in its quarterly reports of condition for four consecutive quarters, excluding assets as described in § 327.17(e), the FDIC will reclassify the institution as large beginning the following quarter. (g) * * * (1) A highly complex institution is: (i) An insured depository institution (excluding a credit card bank) that has had $50 billion or more in total assets for at least four consecutive quarters, excluding assets as described in § 327.17(e), that is controlled by a U.S. parent holding company that has had $500 billion or more in total assets for four consecutive quarters, or controlled by one or more intermediate U.S. parent holding companies that are controlled by a U.S. holding company that has had $500 billion or more in assets for four consecutive quarters; or (ii) A processing bank or trust company. * * * * * ■ 4. Amend § 327.16 by adding introductory text and revising paragraph (f)(1) to read as follows: § 327.16 Assessment pricing methods— beginning the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent. Subject to the modifications described in § 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. * * * * * (f) * * * (1) Procedure. Any small institution with assets of between $5 billion and $10 billion, excluding assets as described in § 327.17(e), may request that the FDIC determine its assessment rate as a large institution. The FDIC will consider such a request provided that it has sufficient information to do so. Any such request must be made to the FDIC’s Division of Insurance and Research. Any approved change will become effective within one year from the date of the request. If an institution whose request has been granted subsequently reports assets of less than $5 billion in its report of condition for four consecutive quarters, excluding assets as described in § 327.17(e), the institution shall be deemed a small institution for assessment purposes. E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations beginning April 1, 2020, the FDIC will take the following actions when § 327.17 Mitigating the Deposit Insurance calculating the assessment rate for large Assessment Effect of Participation in the institutions and highly complex Money Market Mutual Fund Liquidity institutions under § 327.16: Facility, the Paycheck Protection Program (1) Exclusion of Paycheck Protection Liquidity Facility, and the Paycheck Program loans from average short-term Protection Program. (a) Mitigating the assessment effects of funding ratio, core earnings ratio, growth-adjusted portfolio concentration loans provided under the Paycheck Protection Program for established small measure, and trading asset ratio. As described in appendix E of this subpart, institutions. Applicable beginning April the FDIC will exclude the outstanding 1, 2020, the FDIC will take the following balance of loans provided under the actions when calculating the assessment Paycheck Protection Program, as rate for established small institutions reported on the Consolidated Report of under § 327.16: Condition and Income, from the (1) Exclusion of loans provided under calculation of the average short-term the Paycheck Protection Program from funding ratio, the core earnings ratio, net income before taxes ratio, the growth-adjusted portfolio nonperforming loans and leases ratio, concentration measure, and the trading other real estate owned ratio, brokered asset ratio. deposit ratio, and one-year asset growth (2) Exclusion of Paycheck Protection measure. As described in appendix E to Program Liquidity Facility borrowings this subpart, the FDIC will exclude the from core deposit ratio. As described in outstanding balance of loans provided appendix E of this subpart, the FDIC under the Paycheck Protection Program, will exclude the total outstanding as reported on the Consolidated Report balance of borrowings from the Federal of Condition and Income, from the total Reserve Banks under the Paycheck assets in the calculation of the following Protection Program Liquidity Facility, as risk measures: Net income before taxes reported on the Consolidated Report of ratio, the nonperforming loans and Condition and Income, from the leases ratio, the other real estate owned calculation of the core deposit ratio. ratio, the brokered deposit ratio, and the (3) Exclusion of Paycheck Protection one-year asset growth measure, which Program Liquidity Facility borrowings are described in § 327.16(a)(1)(ii)(A). from balance sheet liquidity ratio. As (2) Exclusion of loans provided under described in appendix E to this subpart, the Paycheck Protection Program from when calculating the balance sheet Loan Mix Index. As described in liquidity measure described under appendix E to this subpart A, when appendix A to this subpart, the FDIC calculating the loan mix index will: described in § 327.16(a)(1)(ii)(B), the (i) Include the outstanding balance of FDIC will exclude: loans provided under the Paycheck (i) The outstanding balance of loans Protection Program that exceed total provided under the Paycheck Protection borrowings from the Federal Reserve Program, as reported on the Banks under the Paycheck Protection Consolidated Report of Condition and Program Liquidity Facility, as reported Income, from the total assets; and on the Consolidated Report of Condition (ii) The outstanding balance loans and Income, in the amount of highly provided under the Paycheck Protection liquid assets until September 30, 2020, Program, as reported on the or, if the Board of Governors of the Consolidated Report of Condition and Federal Reserve System and the Income, from an established small Secretary of the Treasury determine to institution’s balance of commercial and extend the Paycheck Protection Program industrial loans. To the extent that the Liquidity Facility, until such date of outstanding balance of loans provided extension; and (ii) Exclude the outstanding balance under the Paycheck Protection Program of borrowings from the Federal Reserve exceeds an established small Banks under the Paycheck Protection institution’s balance of commercial and Program Liquidity Facility with a industrial loans, as reported on the remaining maturity of one year or less Consolidated Report of Condition and from other borrowings with a remaining Income, the FDIC will exclude any maturity of one year or less, both as remaining balance of these loans from reported on the Consolidated Report of the balance of agricultural loans, up to Condition and Income. (4) Exclusion of the amount of agricultural loans, in the loans provided under the Paycheck calculation of the loan mix index. Protection Program and Paycheck (b) Mitigating the assessment effects Protection Program Liquidity Facility of loans provided under the Paycheck borrowings from loss severity measure. Protection Program for large or highly As described in appendix E to this complex institutions. Applicable jbell on DSKJLSW7X2PROD with RULES ■ 5. Add § 327.17 to read as follows: VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 38293 subpart, when calculating the loss severity measure described under appendix A to this subpart, the FDIC will exclude: (i) The total outstanding balance of borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, as reported on the Consolidated Report of Condition and Income, from short- and long-term secured borrowings, as appropriate; and (ii) The outstanding balance of loans provided under 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 under 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, as reported on the Consolidated Report of Condition and Income. To the extent that an institution’s outstanding balance of loans provided under the Paycheck Protection Program exceeds its borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, the FDIC will add the amount of outstanding loans provided under the Paycheck Protection Program in excess of borrowings under the Paycheck Protection Program Liquidity Facility to cash. (c) Mitigating the effects of loans provided under the Paycheck Protection Program and assets purchased under the Money Market Mutual Fund Liquidity Facility on the unsecured adjustment, depository institution debt adjustment, and the brokered deposit adjustment to an insured depository institution’s assessment rate. 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 § 327.16(e), as applicable, the FDIC will exclude the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility, both as reported on the Consolidated Report of Condition and Income. (d) Mitigating the effects on the assessment base attributable to loans provided under the Paycheck Protection Program and participation in the Money Market Mutual Fund Liquidity Facility. As described in appendix E to this E:\FR\FM\26JNR1.SGM 26JNR1 38294 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 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 loans provided under the Paycheck Protection Program. (1) Calculation of offset amount. (i) To determine the offset amount, the FDIC will take the sum of the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility, both as reported on the Consolidated Report of Condition and Income, and multiply the sum by an institution’s total base assessment rate, as calculated under § 327.16, including any adjustments under § 327.16(e). (ii) To the extent that an institution does not report the outstanding balance of loans provided under the Paycheck Protection Program, such as in an insured branch’s Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, the FDIC will take the sum of either the quarterly average amount of loans pledged to the Paycheck Protection Program Liquidity Facility as reported in the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, or the outstanding balance of loans provided under the Paycheck Protection Program, as such certified data is provided to the FDIC, and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility, as reported in the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, and multiply the sum by an institution’s total base assessment rate, as calculated under § 327.16. (2) Calculation of assessment amount due. The FDIC will subtract the offset amount described in § 327.17(d)(1) from an insured depository institution’s total assessment amount, consistent with § 327.3(b)(1). (e) Mitigating the effects of loans provided under the Paycheck Protection Program and assets purchased under the Money Market Mutual Fund Liquidity Facility on the classification of insured depository institutions as small, large, or highly complex for deposit insurance purposes. When classifying an insured depository institution as small, large, or complex for assessment purposes under § 327.8, the FDIC will exclude from an institution’s total assets the outstanding balance of loans provided under the Paycheck Protection Program and the balance of assets purchased under the Money Market Mutual Fund Liquidity Facility outstanding, both as reported on the Consolidated Report of Condition and Income. Any institution with assets of between $5 billion and $10 billion, excluding the outstanding balance of loans provided under the Paycheck Protection Program and the balance of assets purchased under the MMLF, both as reported on the Consolidated Report of Condition and Income, may request that the FDIC determine its assessment rate as a large institution under § 327.16(f). (f) Definitions. For the purposes of this section: (1) Paycheck Protection Program. The term ‘‘Paycheck Protection Program’’ means the program of that name 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, and renamed as such on April 30, 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. ■ 6. 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 Liquidity Facility, and the Paycheck Protection Program I. Mitigating the Assessment Effects of Paycheck Protection Program Loans for Established Small Institutions TABLE E.1—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR ESTABLISHED SMALL INSTITUTIONS Variables Description Leverage Ratio (%) .......................... Tier 1 capital divided by adjusted average assets. (Numerator and denominator are both based on the definition for prompt corrective action.) Income (before applicable income taxes and discontinued operations) for the most recent twelve months divided by total assets 1. Net Income before Taxes/Total Assets (%). Nonperforming Loans and Leases/ Gross Assets (%). Other Real Estate Owned/Gross Assets (%). jbell on DSKJLSW7X2PROD with RULES Brokered Deposit Ratio ................... Weighted Average of C, A, M, E, L, and S Component Ratings. Loan Mix Index ................................ VerDate Sep<11>2014 16:24 Jun 25, 2020 Exclusions Sum of total loans and lease financing receivables past due 90 or more days and still accruing interest and total nonaccrual loans and lease financing receivables (excluding, in both cases, the maximum amount recoverable from the U.S. Government, its agencies or government-sponsored enterprises, under guarantee or insurance provisions) divided by gross assets 2. Other real estate owned divided by gross assets 2 ................................. The ratio of the difference between brokered deposits and 10 percent of total assets to total assets. For institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, brokered reciprocal deposits as defined in § 327.8(q) are deducted from brokered deposits. If the ratio is less than zero, the value is set to zero. The weighted sum of the ‘‘C,’’ ‘‘A,’’ ‘‘M,’’ ‘‘E‘‘, ‘‘L‘‘, and ‘‘S’’ CAMELS components, with weights of 25 percent each for the ‘‘C’’ and ‘‘M’’ components, 20 percent for the ‘‘A’’ component, and 10 percent each for the ‘‘E‘‘, ‘‘L’’ and ‘‘S’’ components. A measure of credit risk described paragraph (A) of this section ........... Jkt 250001 PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 No Exclusion. Exclude from total assets the outstanding balance of loans provided under the Paycheck Protection Program. Exclude from gross assets the outstanding balance of loans provided under the Paycheck Protection Program. Exclude from gross assets the outstanding balance of loans provided under the Paycheck Protection Program. Exclude from total assets (in both numerator and denominator) the outstanding balance of loans provided under the Paycheck Protection Program. No Exclusion. Exclusions are described in paragraph (A) of this section. E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38295 TABLE E.1—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR ESTABLISHED SMALL INSTITUTIONS—Continued Variables Description Exclusions One-Year Asset Growth (%) ............ Growth in assets (adjusted for mergers 3) over the previous year in excess of 10 percent.4 If growth is less than 10 percent, the value is set to zero. Exclude from total assets (in both numerator and denominator) the outstanding balance of loans provided under the Paycheck Protection Program. 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 outstanding balance of loans provided under the Paycheck Protection Program. In the event that the outstanding balance of loans provided under the Paycheck Protection Program 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 outstanding balance of loans provided under the Paycheck Protection Program 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 chargeoff rate for each category of loan. The Loan Mix Index excludes credit card loans. (b) [Reserved] LOAN MIX INDEX CATEGORIES AND WEIGHTED CHARGE-OFF RATE PERCENTAGES Weighted charge-off rate percent Construction & Development ................................................................................................................................................... Commercial & Industrial .......................................................................................................................................................... Leases ..................................................................................................................................................................................... Other Consumer ...................................................................................................................................................................... Real Estate Loans Residual .................................................................................................................................................... Multifamily Residential ............................................................................................................................................................. Nonfarm Nonresidential ........................................................................................................................................................... I—4 Family Residential ............................................................................................................................................................ Loans to Depository banks ...................................................................................................................................................... Agricultural Real Estate ........................................................................................................................................................... Agriculture ................................................................................................................................................................................ 4.4965840 1.5984506 1.4974551 1.4559717 1.0169338 0.8847597 0.7289274 0.6973778 0.5760532 0.2376712 0.2432737 II. Mitigating the Assessment Effects of Paycheck Protection Program Loans for Large or Highly Complex Institutions TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR HIGHLY COMPLEX INSTITUTIONS Scorecard Measures1 Description Leverage Ratio .................................................... Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average assets based on the definition for prompt corrective action. The concentration score for large institutions is the higher of the following two scores: No Exclusion. Sum of construction 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. The measure is 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. No Exclusion. Concentration Measure for Large Insured depository institutions (excluding Highly Complex Institutions). (1) Higher-Risk Assets/Tier 1 Capital and Reserves. jbell on DSKJLSW7X2PROD with RULES (2) Growth-Adjusted Portfolio Concentrations. VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 Exclusions E:\FR\FM\26JNR1.SGM 26JNR1 38296 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR HIGHLY COMPLEX INSTITUTIONS—Continued Scorecard Measures1 Description Concentration Measure for Highly Complex Institutions. (1) Higher-Risk Assets/Tier 1 Capital and Reserves. (2) Top 20 Counterparty Exposure/Tier 1 Capital and Reserves. jbell on DSKJLSW7X2PROD with RULES (3) Largest Counterparty Exposure/Tier 1 Capital and Reserves. VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 Exclusions (3) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration ratio for each portfolio. (4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less equals a factor 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 score for highly complex institutions is the highest of the following three scores: Sum of C&D loans (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. Sum of the 20 largest total exposure 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. The largest total exposure amount to 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. PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 Exclude from C&I loan growth rate the outstanding amount of loans provided under the Paycheck Protection Program. No Exclusion. No Exclusion. No Exclusion. E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38297 TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR HIGHLY COMPLEX INSTITUTIONS—Continued Scorecard Measures1 Description Exclusions Core Earnings/Average Quarter-End Total Assets. Core earnings are defined as net income less extraordinary items and tax-adjusted realized gains and losses on availablefor-sale (AFS) and held-to-maturity (HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of merger-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. The credit quality score is the higher of the following two scores: Sum of criticized and classified items 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. Sum of loans that are 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. Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total liabilities. Prior to averaging, exclude from total assets for the applicable quarter-end periods the outstanding balance of loans provided under the Paycheck Protection Program. Credit Quality Measure 1 ..................................... (1) Criticized and Classified Items/Tier 1 Capital and Reserves. (2) Underperforming Assets/Tier 1 Capital and Reserves. Core Deposits/Total Liabilities ...................... Balance Sheet Liquidity Ratio ...................... 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 mortgagebacked 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. Potential Losses/Total Domestic Deposits (Loss Severity Measure). Potential losses to the DIF in the event of failure divided by total domestic deposits. Paragraph [A] of this section describes the calculation of the loss severity measure in detail. The market risk score is a weighted average of the following three scores: Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital. Market risk capital divided by Tier 1 capital ................................. Level 3 trading assets divided by Tier 1 capital ........................... Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of total assets as reported on Schedule RC–K of the Call Reports. Market Risk Measure for Highly Complex Institutions. (1) Trading Revenue Volatility/Tier 1 Capital (2) Market Risk Capital/Tier 1 Capital .......... (3) Level 3 Trading Assets/Tier 1 Capital .... Average Short-term Funding/Average Total Assets. No Exclusion. No Exclusion. Exclude from total liabilities outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a maturity of one year or less and outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a maturity of greater than one year. Include in highly liquid assets the outstanding balance of PPP loans that exceed borrowings from the Federal Reserve Banks under the PPPLF, until September 30, 2020, or if extended by the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, until such date of extension. Exclude from other borrowings with a remaining maturity of one year or less the balance of outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a remaining maturity of one year or less. Exclusions are described in paragraph (A) of this section. No Exclusion. No Exclusion. No Exclusion. Exclude from the quarterly average of total assets the outstanding balance of loans provided under the Paycheck Protection Program. jbell on DSKJLSW7X2PROD with RULES 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 outstanding balance of loans provided under the Paycheck Protection Program. (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 VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 institution’s failure. To determine an institution’s loss severity rate, the FDIC first applies assumptions about uninsured deposit and other liability runoff, and growth in insured deposits, to adjust the size and PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 composition of the institution’s liabilities. Exclude total outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility from short-and long-term secured borrowings, as E:\FR\FM\26JNR1.SGM 26JNR1 38298 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations appropriate. Assets are then reduced to match any reduction in liabilities. Exclude from an institution’s balance of commercial and industrial loans the outstanding balance of loans provided under the Paycheck Protection Program. In the event that the outstanding balance of loans provided under the Paycheck Protection Program exceeds the balance of commercial and industrial loans, exclude any remaining balance of loans provided under the Paycheck Protection Program 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 balances by outstanding loans provided under the Paycheck Protection Program that exceed total outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, 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 * (percent) Liability type Insured Deposits .............................................................................................................................................................................. Uninsured Deposits ......................................................................................................................................................................... Foreign Deposits .............................................................................................................................................................................. Federal Funds Purchased ............................................................................................................................................................... Repurchase Agreements ................................................................................................................................................................. Trading Liabilities ............................................................................................................................................................................. Unsecured Borrowings < = 1 Year .................................................................................................................................................. Secured Borrowings < = 1 Year, excluding outstanding borrowings from the Federal Reserve Banks under the PPPLF < = 1 Year .............................................................................................................................................................................................. Subordinated Debt and Limited Liability Preferred Stock ............................................................................................................... (10) 58 80 100 75 50 75 25 15 * 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 loans provided under the Paycheck Protection Program in excess of borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility; • 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 (percent) jbell on DSKJLSW7X2PROD with RULES Asset category Cash and Interest Bearing Balances, including outstanding loans provided under the Paycheck Protection Program in excess of borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility ................................... 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 ........................................................................................................................................................ Agricultural Real Estate Loans ........................................................................................................................................................ Agricultural Loans, excluding outstanding loans under the Paycheck Protection Program, as described in § 327.17 and this appendix ....................................................................................................................................................................................... Commercial and Industrial Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17 and this appendix ......................................................................................................................................................................... Credit Card Loans ........................................................................................................................................................................... Other Consumer Loans ................................................................................................................................................................... All Other Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17 and this appendix ................................................................................................................................................................................................. Other Assets .................................................................................................................................................................................... VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 E:\FR\FM\26JNR1.SGM 26JNR1 0.0 0.0 0.0 0.0 10.0 15.0 38.2 17.6 10.8 19.4 41.0 41.0 19.7 11.8 21.5 18.3 18.3 51.0 75.0 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 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 An end-of-quarter loss severity ratio is LGD divided by total domestic deposits at quarterend and the loss severity measure for the scorecard is an average of end-of-period loss severity ratios for three most recent quarters. (b) [Reserved] fully secured because of the potential for ring fencing. Exclude total outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility. 38299 Loss Severity Ratio Calculation The FDIC’s loss given failure (LGD) is calculated as: III. Mitigating the Effects of Loans Provided Under the Paycheck Protection Program and Assets Purchased Under the Money Market Mutual Fund Liquidity Facility on the Unsecured Adjustment, Depository Institution Debt Adjustment, and the Brokered Deposit Adjustment to an IDI’s Assessment Rate TABLE E.5—EXCLUSIONS FROM ADJUSTMENTS TO THE INITIAL BASE ASSESSMENT RATE Adjustment Calculation Exclusion Unsecured debt adjustment ............. The unsecured debt adjustment shall be determined as the sum of the initial base assessment rate plus 40 basis points; that sum shall be 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. An insured depository institution shall pay a 50 basis point adjustment on the amount of unsecured debt it holds that was issued by another insured depository institution to the extent that such debt exceeds 3 percent of the institution’s Tier 1 capital. 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. The brokered deposit adjustment shall be determined by multiplying 25 basis points by the ratio of the difference between an insured depository institution’s brokered deposits and 10 percent of its domestic deposits to its assessment base. Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. Brokered deposit adjustment ........... IV. Mitigating the Effects on the Assessment Base Attributable to Loans Provided Under the Paycheck Protection Program and Participation in the Money Market Mutual Fund Liquidity Facility BUREAU OF CONSUMER FINANCIAL PROTECTION Total Assessment Amount Due = Total Assessment Amount LESS: (SUM (Outstanding balance of loans provided under the Paycheck Protection Program and quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility) * Total Base Assessment Rate) Truth in Lending (Regulation Z); Determining ‘‘Underserved’’ Areas Using Home Mortgage Disclosure Act Data Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on June 22, 2020. James P. Sheesley, Acting Assistant Executive Secretary. jbell on DSKJLSW7X2PROD with RULES [FR Doc. 2020–13751 Filed 6–24–20; 2:30 pm] BILLING CODE 6714–01–P VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 12 CFR Part 1026 Bureau of Consumer Financial Protection. ACTION: Interpretive rule. AGENCY: This interpretive rule construes the Bureau of Consumer Financial Protection’s (Bureau’s) Regulation Z, which implements the Truth in Lending Act (TILA). The Bureau produces annually a list of rural and underserved counties and areas that is used in applying various Regulation Z provisions, such as the exemption from the requirement to establish an escrow account for a higher-priced mortgage loan and the ability to originate balloon-payment qualified SUMMARY: PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. mortgages. Regulation Z states that an area is ‘‘underserved’’ during a calendar year if, according to Home Mortgage Disclosure Act (HMDA) data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions, as defined in Regulation Z, secured by first liens on properties in the county five or more times. The official commentary provides an interpretation relating to this standard that refers to certain data elements from the previous version of the Bureau’s Regulation C, which implements HMDA, that were modified or eliminated in the 2015 amendments to Regulation C. The Bureau is issuing this interpretive rule to supersede that now outdated interpretation, specifically by describing below the HMDA data that will instead be used in determining that an area is ‘‘underserved.’’ This interpretive rule is effective on June 26, 2020. DATES: E:\FR\FM\26JNR1.SGM 26JNR1 ER26JN20.300</GPH> Depository institution debt adjustment.

Agencies

[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Rules and Regulations]
[Pages 38282-38299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13751]



[[Page 38282]]

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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 
Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation is adopting a final 
rule that mitigates the deposit insurance assessment effects of 
participating in the Paycheck Protection Program (PPP) established by 
the Small Business Administration (SBA), and the Paycheck Protection 
Program Liquidity Facility (PPPLF) and Money Market Mutual Fund 
Liquidity Facility (MMLF) established by the Board of Governors of the 
Federal Reserve System. The final rule removes the effect of 
participation in the PPP and borrowings under the PPPLF on various risk 
measures used to calculate an insured depository institution's 
assessment rate, removes the effect of participation in the PPP and 
MMLF program on certain adjustments to an insured depository 
institution's assessment rate; provides an offset to an insured 
depository institution's assessment for the increase to its assessment 
base attributable to participation in the PPP and MMLF; and removes the 
effect of participation in the PPP and MMLF when classifying insured 
depository institutions as small, large, or highly complex for 
assessment purposes.

DATES: The final rule is effective June 26, 2020, and will apply as of 
April 1, 2020.

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, 202-
898-3773, [email protected].

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Legal Authority

    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, is 
finalizing modifications to mitigate the deposit insurance assessment 
effects of participation in the PPP, PPPLF, and MMLF. For the reasons 
explained below, an IDI that participates in the PPP, PPPLF, or MMLF 
programs could be subject to increased deposit insurance assessments 
absent a change to the assessment regulations.

B. Background

    Recent events have significantly and adversely impacted the global 
economy and financial markets. The spread of the Coronavirus Disease 
(COVID-19) slowed economic activity in many countries, including the 
United States. Sudden disruptions in financial markets placed 
increasing liquidity pressure on money market mutual funds (MMFs) and 
raised the cost of credit for most borrowers. MMFs 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.
    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.\1\ Under the MMLF, the FRBB 
is extending non-recourse loans to eligible borrowers to purchase 
assets from MMFs. Assets purchased from MMFs are 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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    \1\ 12 U.S.C. 343(3).
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    Small businesses also are facing severe liquidity constraints and a 
collapse in revenue streams, as millions of Americans were ordered to 
stay home, severely reducing their ability to engage in normal 
commerce. Many small businesses were 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.
    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.\2\ 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.\3\ On June 5, 2020, the Paycheck Protection Program 
Flexibility Act of 2020 (PPP Flexibility Act) was signed into law, 
amending key provisions of the CARES Act, including provisions related 
to loan maturity, deferral of loan payments, and loan forgiveness.\4\ 
Among other changes, the amendments increase from two to five years the 
maturity of PPP loans that are approved by the SBA on or after June 5, 
2020, and provide greater flexibility for borrowers to qualify for loan 
forgiveness.
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    \2\ Public Law 116-136 (Mar. 27, 2020).
    \3\ 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.
    \4\ Public Law 116-142 (June 5, 2020). The SBA subsequently 
issued an interim final rule revising the SBA's interim final rule 
implementing sections 1102 and 1106 of the CARES Act temporarily 
adding the Paycheck Protection Program to the SBA's 7(a) Loan 
Program published on April 15, 2020. See 85 FR 20811 (Apr. 15, 2020) 
and 85 FR 36308 (June 16, 2020).
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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 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

[[Page 38283]]

Reserve Banks are extending non-recourse loans to institutions that are 
eligible to make PPP loans, including insured depository institutions 
(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). On April 30, 2020, the facility was 
renamed the Paycheck Protection Program Liquidity Facility, from 
Paycheck Protection Program Lending Facility. See Periodic Report: 
Update on Outstanding Lending Facilities Authorized by the Board 
under Section 13(3) of the Federal Reserve Act May 15, 2020, Board 
of Governors of the Federal Reserve System, available at: https://www.federalreserve.gov/publications/files/mlf-msnlf-mself-and-ppplf-5-15-20.pdf.
    \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 the covered period. See Interim 
Final Rule ``Business Loan Program Temporary Changes; Paycheck 
Protection Program,'' 85 FR 20811, 20816 (Apr. 15, 2020) and 85 FR 
36308 (June 16, 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 under 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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C. 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\
---------------------------------------------------------------------------

    \9\ See 12 U.S.C. 1817(b).
---------------------------------------------------------------------------

    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 small bank 
is generally defined as an institution with less than $10 billion in 
total assets, a large bank is generally defined as an institution with 
$10 billion or more 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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    \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 final 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 final 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 under the PPPLF would increase the 
total assets on its balance sheet (equal to the amount of PPP loans 
pledged to the Federal Reserve Banks), and increase its total 
liabilities by the same amount, which would increase the IDI's 
assessment base and also may increase its assessment rate. An IDI that 
obtains additional funding, such as additional deposits or secured 
borrowings, to make PPP loans would increase its total liabilities and 
total assets by that amount of funding, which would increase its 
assessment base and also may increase its assessment rate. An IDI that 
relies on existing funding, including deposits already at the 
institution, to make PPP loans would not increase its total liabilities 
or total assets, which would not increase its assessment base.
    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.

C. The Proposed Rule

    On May 20, 2020, the FDIC published in the Federal Register a 
notice of proposed rulemaking (the proposed rule, or proposal) \18\ 
that would mitigate the deposit insurance assessment effects of an 
IDI's participation in the PPP, PPPLF, and MMLF programs.\19\ To remove 
the effect of these programs on the risk measures used to determine the 
deposit insurance assessment rate for each IDI, the FDIC proposed 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, for institutions subject to the 
large or highly complex bank scorecard, 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 proposed to exclude

[[Page 38284]]

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 PPPLF and 
MMLF. Finally, in classifying IDIs as small, large, or highly complex 
for assessment purposes, the FDIC proposed to exclude from an IDI's 
total assets the amount of loans pledged to the PPPLF and assets 
purchased under the MMLF.
---------------------------------------------------------------------------

    \18\ 85 FR 30649 (May 20, 2020).
    \19\ See 12 U.S.C. 1817, 1819 (Tenth).
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    In response to the proposal, the FDIC received 41 comment letters 
from depository institutions, depository institution holding companies, 
trade associations, and other interested parties.\20\ As further 
detailed below, commenters generally supported the FDIC's efforts to 
mitigate the deposit insurance effects of an IDI's participation in the 
PPP, PPPLF, and MMLF programs, but expressed concerns with certain 
aspects of the proposal. The FDIC considered all comments received and 
is making some changes in the final rule, while clarifying other 
aspects of the rule that remain unchanged from the proposed rule.
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    \20\ See comments on the proposal, available at https://www.fdic.gov/regulations/laws/federal/2020/2020-assessments-ppp-3064-af53.html.
---------------------------------------------------------------------------

II. The Final Rule

A. Summary

    Under the final rule, the FDIC will remove the effect of 
participation in the PPP and borrowings under the PPPLF on various risk 
measures used to calculate an IDI's assessment rate, remove the effect 
of participation in the PPP and MMLF program on certain adjustments to 
an insured depository institution'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 PPP and MMLF; 
and remove the effect of participation in the PPP and MMLF when 
classifying insured depository institutions as small, large, or highly 
complex for assessment purposes.
    In the final rule, the FDIC tried to balance its policy objective 
of mitigating, to the fullest extent possible, the deposit insurance 
assessment effect of participation in the PPP, PPPLF, and MMLF, while 
minimizing the extent to which the final rule would result in an IDI 
paying less than it would have paid if it did not participate in the 
PPP, PPPLF, or MMLF. In response to comments and based on updated 
assumptions, as described further below, the final rule includes 
certain additional mitigation steps beyond those in the proposed rule 
that will more fully mitigate the assessment effect of participation in 
the aforementioned programs for more institutions, but may in certain 
cases result in over-mitigation for some institutions. At the same 
time, the FDIC declined to make certain adjustments requested by 
commenters, in part because such additional adjustments, when combined 
with the other provisions of the final rule, would likely have 
resulted, in the FDIC's estimation, in more over-mitigation than would 
be acceptable.
1. Exclusion of All PPP Loans
    Most of the comments the FDIC received in response to the proposed 
rule stated that the proposed modifications would not completely offset 
the impact of PPP lending on assessments. Many of these commenters 
requested that the FDIC exclude all PPP loans, whether funded under the 
PPPLF or through other sources of liquidity, including deposits or 
Federal Home Loan Bank (FHLB) advances, from the calculation of an 
IDI's assessment rate, assessment base, or both, so that the bank's 
assessment would be mitigated accordingly, rather than excluding only 
loans pledged to the PPPLF.
    A bank that funded its PPP loans with existing balance sheet 
liquidity would not have increased its total assets or total 
liabilities, and including these loans in the offset to its assessment 
would not be necessary because its assessment base would not have 
increased. Similarly, removing PPP loans from total assets in 
calculating an IDI's assessment rate would not be necessary if such 
loans did not increase the bank's total assets. For these reasons, the 
proposal would have removed only PPP loans pledged to the PPPLF from an 
IDI's total assets in calculating its deposit insurance assessment rate 
and certain other measures, and in calculating the offset due to the 
increase in its assessment base due to participation in the PPPLF. The 
FDIC understands that some banks have funded PPP loans through 
additional liabilities other than borrowings under the PPPLF, which 
would result in an increase to a bank's total assets and total 
liabilities. For banks that funded PPP loans by obtaining additional 
liabilities other than borrowings under the PPPLF, the proposal would 
not have fully mitigated the deposit insurance assessment effects of 
participation in the PPP.
    After considering comments received, and in recognition of the 
important role IDIs play in providing liquidity to small businesses and 
helping to stabilize the broader economy in the midst of the economic 
disruption caused by COVID-19, as well as in recognition that some 
banks have funded PPP loans through additional liabilities other than 
borrowings under the PPPLF, under the final rule the FDIC will exclude 
the quarter-end outstanding balance of all PPP loans from an IDI's 
total assets in calculating an IDI's assessment rate and the offset to 
an IDI's assessment amount due to the inclusion of PPP loans in its 
assessment base. The FDIC expects that this exclusion will result in a 
more complete mitigation of the assessment effects of participation in 
PPP lending.
    As described below, the FDIC will exclude the quarter-end 
outstanding balance of all PPP loans from an IDI's total assets in the 
applicable risk measures used to determine an IDI's assessment rate. In 
addition, because participation in the MMLF program will have the 
effect of expanding an IDI's balance sheet and because PPP lending 
funded by additional liabilities could have the effect of expanding an 
IDI's balance sheet (and, by extension, its assessment base), the FDIC 
will provide an offset to an IDI's total assessment amount for the 
increase to its assessment base attributable to PPP lending and 
participation in the MMLF. Under the final rule, the FDIC will 
calculate the offset to an IDI's total assessment amount based on its 
quarter-end outstanding balance of PPP loans and the quarterly average 
amount of assets purchased under the MMLF. The FDIC also will exclude 
the outstanding balance of PPP loans and assets purchased under the 
MMLF in the calculation of certain adjustments to an IDI's assessment 
rate.
    Moreover, in classifying IDIs as small, large, or highly complex 
for assessment purposes, the FDIC also will exclude from an IDI's total 
assets the outstanding balance of PPP loans and assets purchased under 
the MMLF.
    Because it is not possible for the FDIC to quantify how much of an 
IDI's total assets may have increased due to PPP loans relative to 
other balance sheet changes, including increased cash or other loans 
made either in response to the economic disruption caused by COVID-19 
or that would have otherwise been made in the normal course of 
business, the final rule excludes all PPP loans from an IDI's total 
assets in calculating its deposit insurance assessment, rather than 
providing incomplete assessment mitigation for banks that funded PPP 
loans through additional liabilities other than borrowings under the 
PPPLF. To the extent that an institution did not

[[Page 38285]]

increase its total assets as a result of PPP participation, the final 
rule could provide an assessment reduction that exceeds the actual 
increase in assessments that an institution would have experienced due 
to participation in the PPP.
    Some commenters requested that the FDIC specifically exclude the 
quarter-end balance of outstanding PPP loans when calculating an IDI's 
assessment, as opposed to the quarterly average of such loans. Under 
the NPR, the FDIC proposed to exclude the quarter-end balance of 
outstanding loans pledged to the PPPLF from an IDI's total assets in 
those risk measures used to determine the deposit insurance assessment 
rate that are based on quarter-end outstanding amounts. For measures 
reported on an average basis, the FDIC proposed to exclude the 
quarterly average of loans pledged to the PPPLF. For example, an IDI's 
assessment base is determined by subtracting its average tangible 
equity from average consolidated total assets. In calculating the 
offset to an IDI's total assessment amount for the increase due to 
participation in the PPPLF and MMLF, the FDIC proposed to exclude 
quarterly average loans pledged to the PPPLF and quarterly average 
assets purchased under the MMLF. Commenters asserted that the 
assessment relief provided under the proposal would be limited because 
an IDI's average PPPLF participation over a quarter can be considerably 
less than its quarter-end PPP loan balance.
    After considering comments received, and to minimize additional 
reporting burden, under the final rule the FDIC will exclude the 
quarter-end outstanding balance of PPP loans in mitigating the effect 
of PPP participation on an IDI's deposit insurance assessment, both for 
risk measures that are calculated using amounts reported as of quarter-
end and for calculations that use amounts reported on an average basis.
    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, have been implemented in order to make the 
adjustments to the assessment system under the final rule. These 
changes were effectuated in coordination with the other member entities 
of the Federal Financial Institutions Examination Council.\21\
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    \21\ The agencies requested and received emergency approvals on 
May 27, 2020, from the Office of Management and Budget (OMB) to 
implement revisions to the Call Report and FFIEC 002 that will take 
effect for the June 30, 2020, reporting period. Starting with the 
June 30, 2020, report date, the agencies will collect seven 
additional items on the Call Report (FFIEC 031, FFIEC 041, and FFIEC 
051) that the FDIC will use to make the adjustments described in the 
final rule. The additional items are: (1) The quarter-end 
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 will collect 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.
---------------------------------------------------------------------------

2. Tier 1 Leverage Ratio
    Some commenters also suggested that the leverage ratio, as applied 
in the calculation of an IDI's assessment rate, should be reduced by 
the quarter-end outstanding balances of all PPP loans. In accordance 
with the agencies' April 13, 2020, regulatory capital interim final 
rule, banking organizations are required to neutralize the regulatory 
capital effects of assets pledged to the PPPLF on leverage capital 
ratios.\22\ This requirement is due to the non-recourse nature of the 
Federal Reserve's extension of credit to the banking organization, a 
protection that does not exist if the banking organization funds PPP 
loans using other sources of liquidity.
---------------------------------------------------------------------------

    \22\ See 85 FR 20387 (April 13, 2020).
---------------------------------------------------------------------------

    To remain consistent with the regulatory capital interim final 
rule, and consistent with the proposed rule for mitigating assessment 
effects of participation in the PPP, the FDIC will not modify its 
deposit insurance assessment pricing system with respect to the Tier 1 
leverage ratio, which is one of the measures used to determine the 
assessment rate for small, large, and highly complex IDIs. Therefore, 
the neutralization of effects of participation in the PPPLF will be 
automatically reflected in an IDI's assessment because the FDIC's risk-
based assessment system incorporates an IDI's regulatory capital 
reporting of its Tier 1 leverage ratio.
3. Assessment Calculators
    Three commenters asked that the FDIC post revised assessment 
calculators as soon as possible. The FDIC will post on its public 
website assessment calculators that reflect the revisions under the 
final rule once data for the reporting period ending on June 30, 2020 
becomes available.\23\
---------------------------------------------------------------------------

    \23\ https://www.fdic.gov/deposit/insurance/calculator.html.
---------------------------------------------------------------------------

B. Mitigating the Effects of PPP Loans on an IDI's Assessment Rate

    Under the final rule, to mitigate the assessment effect of PPP 
loans, the FDIC will exclude the outstanding amount of PPP loans held 
by an IDI and borrowings under the PPPLF, from various risk measures 
used in the calculation of an IDI's deposit insurance assessment rate, 
as described in more detail below.
1. Established Small Institutions
a. Exclusion of PPP Loans From Total Assets in Various Risk Measures
    The final rule excludes the outstanding balance of all PPP loans 
from total assets in risk measures used to determine an established 
small institution's assessment rate: the net income before taxes to 
total assets ratio,\24\ 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 loan 
mix index (LMI).
---------------------------------------------------------------------------

    \24\ 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, and as 
proposed in the NPR, the FDIC is not excluding 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.
---------------------------------------------------------------------------

    Under the proposal, for established small banks, the FDIC would 
have excluded the outstanding balance of loans pledged to the PPPLF 
from total assets in the calculation of these risk measures. As 
discussed above, some commenters recommended that the FDIC exclude all 
PPP loans from specific measures utilized throughout the assessment 
rate calculation for established small banks, including from the net 
income before taxes to total assets ratio, the nonperforming loans and 
leases to gross assets ratio, the other real estate owned to gross 
assets ratio, the brokered deposit ratio, and the one-year asset growth 
measure. For the reasons described above, under the final rule, the 
FDIC will exclude the quarter-end outstanding amount of PPP loans, 
whether or not they have been pledged to the PPPLF, from total assets 
in risk measures used to determine an established small institution's 
assessment rate.

[[Page 38286]]

b. Exclusion of PPP Loans From the Loan Portfolio in the LMI
    The LMI is a measure of the extent to which an IDI's total assets 
include higher-risk categories of loans. Consistent with the proposed 
rule, under the final rule, the FDIC will exclude PPP loans, which 
include loans pledged to the PPPLF, from an institution's loan 
portfolio in calculating the LMI, based on a waterfall approach.\25\ 
Under the final rule, the FDIC will first exclude the outstanding 
balance of PPP loans from the balance of C&I Loans in the calculation 
of the LMI. In the unlikely event that the outstanding balance of PPP 
loans exceeds the balance of C&I Loans, the FDIC will 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.\26\
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    \25\ 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. 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 Public Law 116-136 
(Mar. 27, 2020), Public Law 116-142 (June 5, 2020), 85 FR 20811 
(Apr. 15, 2020), 85 FR 36308 (June 16, 2020), and Slide 8, Industry 
by NAICS Subsector, Paycheck Protection Program (PPP) Report: 
Approvals through 06/06/2020, Small Business Administration, 
available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf.
    \26\ All Other Loans are not included in the LMI; therefore, the 
FDIC will 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).
---------------------------------------------------------------------------

    While some commenters supported the assumptions applied under the 
waterfall approach described in the NPR, others viewed the approach as 
unnecessarily complex. Several commenters confirmed that PPP loans will 
be reported as C&I Loans, Agricultural Loans, or in All Other Loans. 
Two commenters suggested reporting PPP loans as a separate loan 
category on Schedule RC-C rather than in the form of additional 
memoranda items, while another two commenters supported the reporting 
revisions recently implemented to make the adjustments to the 
assessment system, noting that many institutions have already 
established processes to report these loans in existing categories on 
Schedule RC-C and would therefore view reporting PPP loans in a 
separate loan category rather than as a memoranda item as operationally 
burdensome. Two commenters supported reducing unnecessary data 
collection and categorization and reporting of PPP loans as C&I Loans.
    The FDIC has considered these comments and is adopting the 
waterfall approach as proposed. The FDIC views the waterfall approach 
as the approach that most effectively balances the goal of minimizing 
reporting burden while providing reasonably accurate mitigation for 
most institutions of the assessment effect of PPP loans. Accordingly, 
the FDIC is adopting the proposed waterfall approach as final and will 
apply it, as appropriate, in the calculation of the 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, as 
discussed below).
    Two commenters requested that all PPP loans be excluded from total 
assets in the calculation of the LMI while others expressed support for 
the proposed modifications to the LMI. Under the final rule and as 
described above, the FDIC will exclude the quarter-end outstanding 
balance of PPP loans from an IDI's loan portfolio (the numerator) and 
its total assets (the denominator) in the calculation of the LMI.
2. Large or Highly Complex Institutions
    Under the final rule, the FDIC will remove the outstanding balance 
of PPP loans from a large or highly complex bank's loan portfolio and 
its total assets in calculating its assessment rate. As proposed, under 
the final rule the FDIC will also exclude amounts borrowed from the 
Federal Reserve Banks under the PPPLF from a large or highly complex 
bank's liabilities in calculating its assessment rate.
a. Exclusion of PPP Loans From Total Assets in the Core Earnings Ratio 
and the Short-Term Funding Measure
    As described above, the FDIC received numerous comments stating 
that the proposed modifications would not completely offset the impact 
of PPP lending on assessment rates, and many of these commenters 
recommended that the FDIC exclude the outstanding balance of PPP loans 
when calculating a large or highly complex bank's assessment, rather 
than excluding only the loans pledged to the PPPLF. Specifically, 
several commenters recommended that the FDIC exclude all PPP loans from 
total assets in the calculation of the core earnings ratio and the 
average short-term funding measure for purposes of determining a large 
or highly complex bank's assessment rate. Some commenters specified 
that, in making these modifications, the FDIC should exclude the 
quarter-end balance of outstanding PPP loans, as opposed to the 
quarterly average.
    For the reasons described above, under the final rule the FDIC will 
exclude the quarter-end outstanding amount of PPP loans, whether or not 
they have been pledged to the PPPLF, from total assets in the core 
earnings ratio \27\ and the short-term funding measure \28\ used to 
determine a large or highly complex institution's assessment rate.
---------------------------------------------------------------------------

    \27\ 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). See 
Appendix A to subpart A of 12 CFR part 327.
    \28\ For highly complex IDIs, the short-term funding ratio is 
calculated by dividing average short-term funding by average total 
assets. See Appendix A to subpart A of 12 CFR part 327.
---------------------------------------------------------------------------

b. Exclusion of PPP Loans From the Loan Portfolio in Various Risk 
Measures
    As proposed, the FDIC will exclude PPP loans from an IDI's loan 
portfolio in risk measures used to determine a large or highly complex 
IDI's assessment rate. In calculating the growth-adjusted portfolio 
concentration measure,\29\ which is applicable to large IDIs, the FDIC 
will exclude the quarter-end outstanding balance of PPP loans from C&I 
Loans.\30\ In calculating the trading asset ratio,\31\ which is 
applicable to highly complex IDIs, the FDIC will reduce the balance of 
loans by the quarter-end outstanding balance of PPP loans.\32\ The FDIC 
also will exclude the

[[Page 38287]]

quarter-end balance of outstanding PPP loans from a large or highly 
complex IDI's loan portfolio in calculating the loss severity measure, 
as described below.
---------------------------------------------------------------------------

    \29\ 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.
    \30\ All Other Loans and Agricultural Loans are not included in 
the growth-adjusted portfolio concentration measure; therefore, 
consistent with the proposal, the FDIC will exclude the outstanding 
balance of PPP loans from the balance of C&I Loans under the final 
rule. 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.
    \31\ See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).
    \32\ To minimize reporting burden, the FDIC will reduce average 
loans in the trading asset ratio by the outstanding balance of PPP 
loans, as of quarter-end, rather than requiring institutions to 
additionally report the average balance of PPP loans.
---------------------------------------------------------------------------

    A few commenters suggested that PPP loans should not be classified 
as ``higher risk assets'' in calculating the concentration measures for 
large or highly complex institutions. In response to these comments the 
FDIC is clarifying that government guaranteed loans are not considered 
``higher-risk assets'' for assessment purposes. Because PPP loans are 
guaranteed by the SBA, they are already excluded from ``higher-risk 
assets'' in calculating the concentration measures for large or highly 
complex institutions and no additional modification is necessary.\33\
---------------------------------------------------------------------------

    \33\ Appendix C to subpart A of part 327 describes the 
concentration measures, including the ratio of higher-risk assets to 
tier 1 capital and reserves.
---------------------------------------------------------------------------

c. Exclusion of Borrowings Under the PPPLF From Total Liabilities in 
Various Risk Measures
    As proposed, under the final rule the FDIC will exclude borrowings 
from the Federal Reserve Banks under the PPPLF from an institution's 
liabilities in the calculation of the core deposit ratio, the balance 
sheet liquidity ratio, and the loss severity measure used to determine 
a large or highly complex IDI's assessment rate. The final rule 
clarifies that the exclusion of amounts borrowed from the Federal 
Reserve Banks under the PPPLF from an institution's total liabilities 
will only affect risk measures used to determine the assessment rate 
for a large or highly complex IDI because secured liabilities are not 
factored into the risk measures for determining the rate for an 
established small IDI.
    Under the final rule, in calculating the core deposit ratio \34\ 
for large or highly complex IDI, the FDIC will exclude from total 
liabilities borrowings from Federal Reserve Banks under the PPPLF.
---------------------------------------------------------------------------

    \34\ The core deposit ratio is defined as total domestic 
deposits excluding brokered deposits and uninsured non-brokered time 
deposits divided by total liabilities. See Appendix A to subpart A 
of 12 CFR part 327.
---------------------------------------------------------------------------

    Also as proposed, under the final rule the FDIC will exclude an 
IDI's reported borrowings from the Federal Reserve Banks under the 
PPPLF with a remaining maturity of one year or less from liabilities 
included in the denominator of the balance sheet liquidity ratio.\35\ 
Additionally, in calculating the balance sheet liquidity ratio, the 
FDIC will treat the quarter-end outstanding balance of PPP loans that 
exceed borrowings from the Federal Reserve Banks under the PPPLF as 
highly liquid assets, as proposed. Because PPP loans are riskless and 
banks with PPP loans in excess of PPPLF borrowings can access 
additional liquidity by pledging such loans to PPPLF, the FDIC will 
treat these PPP loans as highly liquid assets. To the extent that a PPP 
loan represents collateral for borrowings other than under the PPPLF--
such as an FHLB advance--treating the loan as highly liquid will 
provide an assessment benefit for IDIs that may not be able to readily 
access additional liquidity. PPP loans can no longer be pledged as 
collateral to the PPPLF after September 30, 2020, the date after which 
no new extensions of credit will be made under the PPPLF, unless 
extended by the Board of Governors and the Department of Treasury. 
Therefore, under the final rule, the quarter-end outstanding balance of 
PPP loans that exceed borrowings from the Federal Reserve Banks under 
the PPPLF will be treated as highly liquid assets until September 30, 
2020, unless the Board of Governors and the Department of Treasury 
extend the deadline to apply for new extensions of credit under the 
PPPLF.
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    \35\ 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. Treatment of PPP Loans and Borrowings Under the PPPLF in Calculating 
the Loss Severity Measure
    The loss severity measure estimates the relative magnitude of 
potential losses to the DIF in the event of a large or highly complex 
IDI's failure.\36\ Under the final rule, the FDIC will remove the 
effect of participation in the PPP and PPPLF, as proposed. In 
calculating the loss severity score under the final rule, the FDIC will 
remove the effect of PPP loans in an IDI's loan portfolio using a 
waterfall approach, as proposed. Under this approach, the FDIC will 
exclude PPP loans 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 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.
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    \36\ Appendix D to subpart A of 12 CFR 327 describes the 
calculation of the loss severity measure.
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    To the extent that an IDI's outstanding PPP loans are not pledged 
to the PPPLF, such loans may be funded by a variety of liabilities, 
such as deposits and secured borrowings. While IDIs will report 
borrowings under the PPPLF that are secured by PPP loans, the FDIC will 
not have sufficient data to determine other sources of funding for an 
IDI's PPP loans. Obtaining such data would require additional reporting 
burden on IDIs. Because the FDIC will not have sufficient data to 
remove each type of non-PPPLF funding used to make PPP loans, under the 
final rule the FDIC will remove PPP loans in excess of its PPPLF 
borrowings from a large or highly complex IDI's loan portfolio based on 
the waterfall approach described above and reallocate the same amount 
to cash. Such treatment of PPP loans is consistent with the proposal to 
treat PPP loans in excess of PPPLF borrowings as riskless for purposes 
of calculating a large or highly complex IDI's loss severity score.
    To match the removal of PPP loans funded through borrowings under 
the PPPLF from an IDI's loan portfolio, the FDIC will remove the total 
amount of outstanding borrowings from the Federal Reserve Banks under 
the PPPLF from short- and long-term secured borrowings, as appropriate.

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

    The FDIC proposed to exclude the quarterly average amount of loans 
pledged to the PPPLF and the quarterly 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.\37\
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    \37\ 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 IDIs that meet certain criteria and new small IDIs 
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).

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[[Page 38288]]

    As previously described, many commenters requested that the FDIC 
provide relief throughout the assessment calculations for all PPP 
lending, whether funded under the PPPLF or through other sources of 
liquidity, including deposits. A few commenters expressed support for 
the proposed modifications to these adjustments.
    After considering comments received, and in recognition of the 
important role IDIs play in providing liquidity to small businesses and 
helping to stabilize the broader economy in the midst of the economic 
disruption caused by COVID-19, as well as in recognition that some 
banks have funded PPP loans through liabilities other than borrowings 
under the PPPLF, under the final rule, the FDIC will exclude the 
quarter-end outstanding amount of PPP loans and the quarterly 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.
    While the deposit insurance assessment calculations typically 
adjust quarter-end amounts by quarter-end amounts and average amounts 
by average amounts, in the interest of minimizing reporting burden, the 
agencies are collecting only the quarter-end outstanding balance of PPP 
loans and not the average amount. Accordingly, there are a few 
modifications under this final rule for which an average amount is 
adjusted by the quarter-end outstanding balance of PPP loans, as is the 
case with these three adjustments to an IDI's assessment rate.

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

    Under the final rule, the FDIC will provide an offset to an IDI's 
total assessment amount due for the increase to its assessment base 
attributable to the quarter-end outstanding balance of PPP loans and 
participation in the MMLF.\38\
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    \38\ Under the final rule, the offset to the total assessment 
amount due for the increase to the assessment base attributable to 
the quarter-end outstanding balance of PPP loans and participation 
in the MMLF will 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.
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    Under the proposed rule, the FDIC would have provided 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.\39\ To 
determine this offset amount, the FDIC proposed to 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.\40\
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    \39\ 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 have applied 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.
    \40\ 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).
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    The FDIC received numerous comments stating that the proposed 
modifications would not completely offset the impact of PPP lending on 
the assessment base. Some commenters requested that the FDIC exclude 
the quarter-end balance of outstanding PPP loans from the assessment 
base.
    After considering the comments received, and recognizing that some 
banks have funded PPP loans by obtaining additional funding, such as 
deposits or borrowings other than under the PPPLF, and therefore 
increased their total assets and total liabilities, under the final 
rule the FDIC will use the quarter-end outstanding amount of PPP loans 
rather than the quarterly average amount of assets pledged to the PPPLF 
in calculating the offset to an IDI's total assessment amount. To 
determine this offset amount, the FDIC will sum the total of the 
quarter-end outstanding balance of PPP loans 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 effects of 
participation in the PPP, MMLF, and PPPLF, consistent with the final 
rule), and subtract the resulting amount from an IDI's total assessment 
amount.
    While IDIs will report loans pledged to the PPPLF and borrowings 
under the PPPLF starting with the June 30, 2020, Call Report, it will 
not be possible for the FDIC to differentiate between an IDI that 
increased its total assets solely due to PPP funded by additional 
liabilities, and an IDI that used existing balance sheet liquidity to 
fund PPP loans and therefore did not increase its total assets or its 
assessment base. To the extent an IDI relies on existing balance sheet 
liquidity, including cash and securities to fund PPP loans, the IDI 
would not increase its total assets and would therefore not experience 
an increase to the assessment base as a result of its participation in 
the PPP. An IDI that obtains additional funding to make PPP loans, 
however, would increase its total liabilities by the amount of 
additional funding and increase its total assets by the amount of PPP 
loans made with such funding, resulting in an increase in its 
assessment base.
    In recognition of the extraordinary steps taken by IDIs to provide 
liquidity to small businesses and help stabilize the broader economy in 
the midst of the economic disruption caused by COVID-19, and to more 
fully mitigate the deposit insurance assessment effect of participation 
in the PPP, the final rule will provide an offset to an IDI's 
assessment amount that is calculated using the total outstanding 
balance of PPP loans at quarter end and the quarterly average balance 
of assets purchased under the MMLF. Including total PPP loans in the 
calculation of the offset ensures that the final rule will more fully 
mitigate the assessment effects of participation in PPP lending. To the 
extent that an institution did not increase its total assets as a 
result of PPP participation, the final rule may, for some institutions, 
result in an assessment reduction that exceeds the actual increase in 
assessments that an institution would have experienced due to 
participation in the PPP.
    As discussed above, in the interest of minimizing reporting burden, 
there are a few modifications under this final rule for which an 
average amount is adjusted by the quarter-end outstanding balance of 
PPP loans, as is the case with the calculation of the offset to the 
assessment base.
    Because the FDIC proposed to calculate the offset as the sum of the 
quarterly average amount of loans pledged to the PPPLF and the 
quarterly average of assets purchased under the MMLF, the Board of 
Governors is requiring that insured branches of foreign banks report 
only these two additional items on the FFIEC 002 starting with the 
report filed as of June 30, 2020. Adjustments to the calculation of the 
assessment rate of an insured branch of foreign banks to mitigate the 
effect of participation in the PPP, PPPLF, and MMLF are not 
necessary.\41\ Under the final rule, the FDIC will provide an offset to 
the assessment of an

[[Page 38289]]

insured branch of a foreign bank that is calculated by summing the 
quarterly average amount of assets purchased under the MMLF with either 
the quarterly average amount of loans pledged to the PPPLF or the 
amount of outstanding PPP loans at the end of the quarter, based on 
available data.\42\
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    \41\ Insured branches are assessed for deposit insurance in 
accordance with 12 CFR 327.16(c).
    \42\ Through the Board of Governors, the FDIC anticipates 
revising the reporting of the quarterly average amount of loans 
pledged to the PPPLF and instead requiring insured branches of 
foreign banks to report the outstanding balance of PPP loans at 
quarter-end, beginning as of September 30, 2020. For purposes of 
determining the deposit insurance assessment amount for an insured 
branch of a foreign bank as of June 30, 2020, an insured branch 
additionally may provide to the FDIC certified information on the 
amount of outstanding PPP loans at the end of the quarter.
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E. Classification of IDIs as Small, Large, or Highly Complex for 
Assessment Purposes

    In defining IDIs for assessment purposes under the proposed rule, 
the FDIC would have excluded from an IDI's total assets the amount of 
loans pledged to the PPPLF and assets purchased under the MMLF. Several 
commenters specifically requested that the FDIC provide full credit for 
the outstanding balance of PPP loans throughout the assessment 
calculations, including in the classification of an IDI as small, 
large, or highly complex for deposit insurance assessment purposes.
    After considering these comments and for the reasons described 
above, the FDIC will exclude the quarter-end outstanding balance of all 
PPP loans, rather than only those PPP loans pledged to the PPPLF, in 
the classification of an IDI as small, large, or highly complex for 
assessment purposes. As a result, the FDIC will 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 PPP loans and assets purchased 
under the MMLF, may request that the FDIC determine its assessment rate 
as a large institution.\43\
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    \43\ See 12 CFR 327.16(f).
---------------------------------------------------------------------------

F. Other Conforming Amendments to the Assessment Regulations

    Under the final rule, the FDIC will make conforming amendments to 
the FDIC's assessment regulations to effectuate the modifications 
described above and consistent with the proposed rule. These conforming 
amendments will ensure that the modifications to an IDI's assessment 
rate and the offset to an IDI's assessment amount under the final rule 
are properly incorporated into the assessment regulation provisions 
governing the calculation of an IDI's quarterly deposit insurance 
assessment.

III. Expected Effects

    To facilitate participation in the PPP and use of the PPPLF and 
MMLF, under the final rule the FDIC will mitigate the deposit insurance 
assessment effects of PPP loans, amounts borrowed under the PPPLF, and 
assets purchased under the MMLF. Estimating the dollar amount of 
assessment mitigation resulting from the rule is difficult. 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, the loan categories of 
PPP loans held, the types of liabilities used to fund PPP lending, the 
extent to which PPP participation resulted in an increase to an IDI's 
total assets and total liabilities, nor on the dollar volume of assets 
purchased under the MMLF by IDIs. 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 application of the 
final rule could provide quarterly assessment relief to IDIs 
participating in these programs totaling approximately $150 million, 
based on the assumptions described below which improve upon the 
assumptions applied in the proposal given information provided by 
commenters and FDIC analysis of updated data published by the SBA on 
the PPP and Federal Reserve Board on the PPPLF and MMLF. Because PPP 
loans must be issued by June 30, 2020, and because the FDIC expects 
that eligible IDIs will begin receiving PPP loan forgiveness 
reimbursement from the SBA, the FDIC expects that the amount of 
assessment relief provided under this final rule will decline in 
subsequent quarters.
    The FDIC anticipates that PPP loans will be held by both IDIs and 
non-IDIs, and that IDIs will fund PPP loans through growth in 
liabilities, including through additional deposits, borrowings from 
Federal Reserve Banks under the PPPLF, and other secured borrowings, 
although the rate of IDI participation in the PPP and PPPLF is 
uncertain.
    Based on Call Report data as of March 31, 2020, and assuming that 
(1) $600 billion of PPP loans are held by IDIs,\44\ (2) the PPP loans 
that are held by IDIs are evenly distributed across all IDIs that have 
C&I loans, which results in a 33 percent increase in those loans, 
except where IDI-specific data are available, (3) 5.9 percent of PPP 
loans held by IDIs are pledged to the PPPLF, except where IDI-specific 
data are available from the Federal Reserve Board, (4) 100 percent of 
loans pledged to the PPPLF are matched by borrowings from the Federal 
Reserve Banks with maturities greater than one year, (5) IDIs fund the 
remaining 94.1 percent of PPP loans with additional funding, including 
deposits or secured borrowings, and (6) large and highly complex IDIs 
hold approximately $30 billion in assets pledged under the MMLF,\45\ 
the FDIC estimates that (1) quarterly deposit insurance assessments 
would increase for some institutions absent the final rule and (2) the 
final rule could provide quarterly assessment relief of approximately 
$150 million.
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    \44\ Section 101(a)(1) of the Paycheck Protection Program and 
Health Care Enhancement Act, Public Law 116-139, authorizes $659 
billion for the Paycheck Protection Program. The FDIC assumes all 
the authorized funds will be distributed and roughly 90 percent will 
be held by IDIs.
    \45\ These assumptions reflect current participation in the PPP 
and PPPLF and that all authorized funds under the PPP will be 
distributed, based on data published by the SBA and Federal Reserve 
Board. These assumptions use transaction-level data published by the 
Federal Reserve Board, 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: Approvals through 06/06/2020, Small 
Business Administration, available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf; 
Factors Affecting Reserve Balances, Federal Reserve statistical 
release H.4.1, as of June 11, 2020, available at: https://www.federalreserve.gov/releases/h41/current/; Board of Governors of 
the Federal Reserve System, Money Market Mutual Fund Liquidity 
Facility, as of June 10, 2020, available at: https://fred.stlouisfed.org/series/H41RESPPALDBNWW; and Board of Governors 
of the Federal Reserve System, PPPLF Transaction-specific 
Disclosures as of May 15, 2020, available at: https://www.federalreserve.gov/publications/files/PPPLF-transaction-specific-disclosures-5-15-20.xlsx.
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    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, the extent of reliance on existing sources 
of funding for PPP lending, and the types of loans held under the PPP, 
as described above. While items on the Call Report will enable the FDIC 
to quantify funding from the PPPLF, it is not possible for the FDIC to 
quantify how much an IDI's total assets grew due to PPP loans relative 
to other balance sheet changes, including increased cash or other loans 
made either in response to the economic disruption caused by COVID-19 
or that would have otherwise

[[Page 38290]]

been made in the normal course of business. For example, to the extent 
an IDI relies on existing balance sheet liquidity including cash and 
securities to fund PPP lending, the IDI would not experience an 
increase in liabilities and would therefore not experience an increase 
to the assessment base as a result of its participation in PPP lending. 
Accordingly, the assumption that IDIs will rely entirely on additional 
funding for PPP lending could reduce quarterly assessments by more than 
they will increase due to participation in PPP lending, as some IDIs 
may rely on existing balance sheet liquidity to fund PPP lending.

IV. Effective Date of the Final Rule

    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 under the MMLF and loans pledged to the PPPLF. 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.\46\
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    \46\ See CARES Act, Sec.  1114. Public Law 116-142 (June 05, 
2020). The SBA subsequently issued an interim final rule 
implementing sections 1102 and 1106 of the CARES Act. See 85 FR 
20811 (April 15, 2020). On June 5, 2020, the PPP Flexibility Act was 
signed into law, amending key provisions of the CARES Act. The SBA 
issued an interim final rule implementing these provisions. See 85 
FR 36308 (June 16, 2020).
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    The final rule will take effect immediately upon publication in the 
Federal Register with an application date of April 1, 2020, and changes 
made as a result of this rule will be reflected in the invoices for 
deposit insurance assessments due September 30, 2020.\47\ An immediate 
effective date and an 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.
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    \47\ The application date of April 1, 2020, is permissible 
because the effects of the final rule will occur after its 
publication. The assessment amount owed on an IDI's quarterly 
certified statement invoice for the second quarterly assessment 
period of 2020 (i.e., April 1-June 30) will be calculated on the 
basis of Call Report data as of June 30, 2020, with a payment due 
date of September 30, 2020. Furthermore, even if the effects of the 
final rule were retroactive, a rule is impermissibly retroactive 
only when it ``takes away or impairs vested rights acquired under 
existing law, or creates a new obligation, imposes a new duty, or 
attaches a new disability in respect to transactions or 
considerations already past.'' See Nat'l Mining Ass'n v. Dep't of 
Labor, 292 F.3d 849, 859 (D.C. Cir. 2002) (quoting Nat'l Mining 
Ass'n v. Dep't of Interior, 177 F.3d 1, 8 (D.C. Cir. 1999)) 
(internal quotations omitted). This final rule does none of those 
things.
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V. Administrative Law Matters

A. Administrative Procedure Act

    Under the Administrative Procedure Act (APA),\48\ ``[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.'' \49\ 
Under this rulemaking, the amendments to the FDIC's deposit insurance 
assessment regulations would be effective upon publication of the final 
rule in the Federal Register. The FDIC finds good cause that the 
publication of this final rule can be effective immediately 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 IDIs 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.
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    \48\ 5 U.S.C. 553.
    \49\ 5 U.S.C. 553(d).
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    As explained in the Supplementary Information section and in the 
proposed rule, 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.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a final rule, to 
prepare and make available for public comment a final regulatory 
flexibility analysis that describes the impact of a final rule on small 
entities.\50\ 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.\51\ 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.\52\ 
The final 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.
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    \50\ 5 U.S.C. 601 et seq.
    \51\ 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.
    \52\ 5 U.S.C. 601.
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    Based on quarterly regulatory report data as of March 31, 2020, the 
FDIC insures 5,125 depository institutions,\53\ of which 3,771 are 
defined as small entities by the terms of the RFA.\54\ The final rule 
applies to all FDIC-insured

[[Page 38291]]

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.
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    \53\ FDIC Call Report data, as of March 31, 2020.
    \54\ The FDIC does not have data to identify small entities as 
of March 2020. This count includes small entities as of December 31, 
2019, as well as small entities that opened between December 2019 
and March 2020.
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    As previously discussed, to facilitate participation in the PPP and 
use of the PPPLF and MMLF, the final rule mitigates the deposit 
insurance assessment effects of PPP loans, borrowings under 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 March 31, 
2020, assuming that (1) $600 billion of PPP loans are held by IDIs,\55\ 
(2) the PPP loans that are held by IDIs are evenly distributed across 
all IDIs that have C&I loans, which results in a 33 percent increase in 
those loans, except where IDI-specific data are available, (3) 5.9 
percent of PPP loans held by IDIs are pledged to the PPPLF, except 
where IDI-specific data are available, (4) 100 percent of loans pledged 
to the PPPLF are matched by borrowings from the Federal Reserve Banks 
with maturities greater than one year,\56\ and (5) IDIs fund the 
remaining 94.1 percent of PPP loans with additional funding, including 
deposits or secured borrowings, the FDIC estimates that the final rule 
will save small IDIs approximately $10 million in quarterly deposit 
insurance assessments.
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    \55\ Section 101(a)(1) of the Paycheck Protection Program and 
Health Care Enhancement Act, Pub. L. 116-139, authorizes $659 
billion for the Paycheck Protection Program. The FDIC assumes that 
all the authorized funds will be distributed and roughly 90 percent 
will be held by IDIs.
    \56\ These assumptions reflect current participation in the PPP 
and PPPLF and that all the authorized funds under the PPP will be 
distributed, 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: Approvals from through 06/06/2020, 
Small Business Administration, available at: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_Public_200606%20FINAL_-508.pdf; Factors Affecting Reserve Balances, Federal Reserve 
statistical release H.4.1, as of June 11, 2020, available at: 
https://www.federalreserve.gov/releases/h41/current/, and Board of 
Governors of the Federal Reserve System, Money Market Mutual Fund 
Liquidity Facility, as of June 10, 2020, available at: https://fred.stlouisfed.org/series/H41RESPPALDBNWW; Board of Governors of 
the Federal Reserve System, PPPLF Transaction-specific Disclosures 
as of May 15, 2020, available at: https://www.federalreserve.gov/publications/files/PPPLF-transaction-specific-disclosures-5-15-20.xlsx.
---------------------------------------------------------------------------

    The actual effect of these programs on deposit insurance 
assessments will vary depending on IDIs' participation in the PPP and 
Federal Reserve Facilities, the maturity of borrowings from the Federal 
Reserve Banks under these programs, the extent of reliance on existing 
sources of funding for PPP lending, and the types of loans held under 
the PPP.

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.\57\
---------------------------------------------------------------------------

    \57\ 5 U.S.C. 553(b)(B), 5 U.S.C. 553(d), 5 U.S.C. 601 et seq., 
5 U.S.C. 801 et seq., 5 U.S.C. 801(a)(3), 5 U.S.C. 804(2), 5 U.S.C. 
808(2), 12 U.S.C. 4802(a), 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The amendments to the FDIC's deposit insurance assessment 
regulations under this final rule do not impose additional reporting, 
disclosures, or other new requirements. Nonetheless, the FDIC 
considered the requirements of RCDRIA when finalizing this rule with an 
immediate effective date. The FDIC invited comments regarding the 
application of RCDRIA to the final rule, but did not receive comments 
on this topic.

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.\58\ The final rule affects the agencies' current information 
collections for the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051). 
The 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 final 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 were 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, have been addressed 
in a separate Federal Register notice or notices.
---------------------------------------------------------------------------

    \58\ 4 U.S.C. 3501-3521.
---------------------------------------------------------------------------

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \59\ 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 invited comment regarding the use of plain language, but did 
not receive any comments on this topic.
---------------------------------------------------------------------------

    \59\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

F. The Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\60\ The OMB has determined that the final rule is a major rule 
for purposes of the Congressional Review Act. If a rule is deemed a 
``major rule'' by the OMB, the Congressional Review Act generally 
provides that the rule may not take effect until at least 60 days 
following its publication.\61\ The Congressional Review Act defines a 
``major rule'' as any rule that the Administrator of the Office of 
Information and Regulatory Affairs of the OMB finds has resulted in or 
is likely to result in--(A) an annual effect on the economy of 
$100,000,000 or more; (B) a major increase in costs or prices for 
consumers, individual industries, Federal, State, or Local government 
agencies or geographic regions, or (C) significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.\62\ As required by 
the Congressional Review Act, the FDIC will submit the final rule and 
other appropriate reports to Congress and the

[[Page 38292]]

Government Accountability Office for review.
---------------------------------------------------------------------------

    \60\ 5 U.S.C. 801 et seq.
    \61\ 5 U.S.C. 801(a)(3).
    \62\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    Section 808 of the Congressional Review Act provides that any rule 
as to which an agency for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the rule issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest, shall take effect at 
such time as the Federal agency promulgating the rule determines.\63\ 
Although OMB has determined that this is a major rule for purposes of 
the Congressional review Act, and hence would ordinarily be subject to 
a 60-day delayed effective date, the FDIC believes there is good cause 
for an immediate effective date. In this case, the FDIC provided notice 
and accepted comment, as required by section 7 of the FDI Act, but 
further public procedure and the attendant delay would be contrary to 
the public interest.\64\
---------------------------------------------------------------------------

    \63\ 5 U.S.C. 808(2).
    \64\ See 12 U.S.C. 1817(b)(1)(F).
---------------------------------------------------------------------------

    The FDIC believes that, under section 808 of the Congressional 
Review Act, good cause exists for the final rule to become effective 
without further public procedure and immediately upon its filing for 
publication, as delaying the effective date would be contrary to the 
public interest. In particular, by providing for an immediate effective 
date for the final rule, the intent of ensuring that IDIs benefit from 
the mitigation effects to their deposit insurance assessments starting 
with the second quarter of 2020, which is the first assessment quarter 
in which the assessments will be affected, and will thereby provide 
IDIs with certainty regarding the assessment effects of participating 
in the PPP, PPPLF, or MMLF.

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 amends 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.  327.8 by revising paragraphs (e), (f), and (g)(1) to 
read as follows:


Sec.  327.8   Definitions.

* * * * *
    (e) Small institution. (1) An insured depository institution with 
assets of less than $10 billion, excluding assets as described in Sec.  
327.17(e), as of December 31, 2006, and an insured branch of a foreign 
institution shall be classified as a small institution.
    (2) Except as provided in paragraph (e)(3) of this section and 
Sec.  327.17(e), if, after December 31, 2006, an institution classified 
as large under paragraph (f) of this section (other than an institution 
classified as large for purposes of Sec. Sec.  327.9(e) and 327.16(f)) 
reports assets of less than $10 billion in its quarterly reports of 
condition for four consecutive quarters, excluding assets as described 
in Sec.  327.17(e), the FDIC will reclassify the institution as small 
beginning the following quarter.
    (3) An insured depository institution that elects to use the 
community bank leverage ratio framework under 12 CFR 3.12(a)(3), 12 CFR 
217.12(a)(3), or 12 CFR 324.12(a)(3), shall be classified as a small 
institution, even if that institution otherwise would be classified as 
a large institution under paragraph (f) of this section.
    (f) Large institution. An institution classified as large for 
purposes of Sec. Sec.  327.9(e) and 327.16(f) or an insured depository 
institution with assets of $10 billion or more, excluding assets as 
described in Sec.  327.17(e), as of December 31, 2006 (other than an 
insured branch of a foreign bank or a highly complex institution) shall 
be classified as a large institution. If, after December 31, 2006, an 
institution classified as small under paragraph (e) of this section 
reports assets of $10 billion or more in its quarterly reports of 
condition for four consecutive quarters, excluding assets as described 
in Sec.  327.17(e), the FDIC will reclassify the institution as large 
beginning the following quarter.
    (g) * * *
    (1) A highly complex institution is:
    (i) An insured depository institution (excluding a credit card 
bank) that has had $50 billion or more in total assets for at least 
four consecutive quarters, excluding assets as described in Sec.  
327.17(e), that is controlled by a U.S. parent holding company that has 
had $500 billion or more in total assets for four consecutive quarters, 
or controlled by one or more intermediate U.S. parent holding companies 
that are controlled by a U.S. holding company that has had $500 billion 
or more in assets for four consecutive quarters; or
    (ii) A processing bank or trust company.
* * * * *

0
4. Amend Sec.  327.16 by adding introductory text and revising 
paragraph (f)(1) 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.
* * * * *
    (f) * * *
    (1) Procedure. Any small institution with assets of between $5 
billion and $10 billion, excluding assets as described in Sec.  
327.17(e), may request that the FDIC determine its assessment rate as a 
large institution. The FDIC will consider such a request provided that 
it has sufficient information to do so. Any such request must be made 
to the FDIC's Division of Insurance and Research. Any approved change 
will become effective within one year from the date of the request. If 
an institution whose request has been granted subsequently reports 
assets of less than $5 billion in its report of condition for four 
consecutive quarters, excluding assets as described in Sec.  327.17(e), 
the institution shall be deemed a small institution for assessment 
purposes.

[[Page 38293]]


0
5. 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 Liquidity Facility, and the Paycheck 
Protection Program.

    (a) Mitigating the assessment effects of loans provided under the 
Paycheck Protection Program for established small institutions. 
Applicable beginning 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 of loans provided under the Paycheck Protection 
Program 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. As described in appendix E to this 
subpart, the FDIC will exclude the outstanding balance of loans 
provided under the Paycheck Protection Program, 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 of loans provided under the Paycheck Protection 
Program from Loan Mix Index. 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 provided under the Paycheck 
Protection Program, as reported on the Consolidated Report of Condition 
and Income, from the total assets; and
    (ii) The outstanding balance loans provided under the Paycheck 
Protection Program, 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 under the Paycheck Protection Program exceeds 
an established small institution's balance of commercial and industrial 
loans, as reported on the Consolidated Report of Condition and Income, 
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 loans provided under the 
Paycheck Protection Program for large or highly complex institutions. 
Applicable beginning 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 of Paycheck Protection Program loans from average 
short-term funding ratio, core earnings ratio, growth-adjusted 
portfolio concentration measure, and trading asset ratio. As described 
in appendix E of this subpart, the FDIC will exclude the outstanding 
balance of loans provided under the Paycheck Protection Program, as 
reported on the Consolidated Report of Condition and Income, from the 
calculation of the average short-term funding ratio, the core earnings 
ratio, the growth-adjusted portfolio concentration measure, and the 
trading asset ratio.
    (2) Exclusion of Paycheck Protection Program Liquidity Facility 
borrowings from core deposit ratio. As described in appendix E of this 
subpart, the FDIC will exclude the total outstanding balance of 
borrowings from the Federal Reserve Banks under the Paycheck Protection 
Program Liquidity Facility, as reported on the Consolidated Report of 
Condition and Income, from the calculation of the core deposit ratio.
    (3) Exclusion of Paycheck Protection Program Liquidity Facility 
borrowings from balance sheet liquidity ratio. 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:
    (i) 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 Liquidity 
Facility, as reported on the Consolidated Report of Condition and 
Income, in the amount of highly liquid assets until September 30, 2020, 
or, if the Board of Governors of the Federal Reserve System and the 
Secretary of the Treasury determine to extend the Paycheck Protection 
Program Liquidity Facility, until such date of extension; and
    (ii) Exclude the outstanding balance of borrowings from the Federal 
Reserve Banks under the Paycheck Protection Program Liquidity Facility 
with a remaining maturity of one year or less from other borrowings 
with a remaining maturity of one year or less, both as reported on the 
Consolidated Report of Condition and Income. (4) Exclusion of loans 
provided under the Paycheck Protection Program and Paycheck Protection 
Program Liquidity Facility borrowings from loss severity measure. 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:
    (i) The total outstanding balance of borrowings from the Federal 
Reserve Banks under the Paycheck Protection Program Liquidity Facility, 
as reported on the Consolidated Report of Condition and Income, from 
short- and long-term secured borrowings, as appropriate; and
    (ii) The outstanding balance of loans provided under 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 
under 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, as reported on the Consolidated Report of Condition 
and Income. To the extent that an institution's outstanding balance of 
loans provided under the Paycheck Protection Program exceeds its 
borrowings from the Federal Reserve Banks under the Paycheck Protection 
Program Liquidity Facility, the FDIC will add the amount of outstanding 
loans provided under the Paycheck Protection Program in excess of 
borrowings under the Paycheck Protection Program Liquidity Facility to 
cash.
    (c) Mitigating the effects of loans provided under the Paycheck 
Protection Program and assets purchased under the Money Market Mutual 
Fund Liquidity Facility on the unsecured adjustment, depository 
institution debt adjustment, and the brokered deposit adjustment to an 
insured depository institution's assessment rate. 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 outstanding balance 
of loans provided under the Paycheck Protection Program and the 
quarterly average amount of assets purchased under the Money Market 
Mutual Fund Liquidity Facility, both as reported on the Consolidated 
Report of Condition and Income.
    (d) Mitigating the effects on the assessment base attributable to 
loans provided under the Paycheck Protection Program and participation 
in the Money Market Mutual Fund Liquidity Facility. As described in 
appendix E to this

[[Page 38294]]

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 loans provided under the Paycheck 
Protection Program.
    (1) Calculation of offset amount. (i) To determine the offset 
amount, the FDIC will take the sum of the outstanding balance of loans 
provided under the Paycheck Protection Program and the quarterly 
average amount of assets purchased under the Money Market Mutual Fund 
Liquidity Facility, both as reported on the Consolidated Report of 
Condition and Income, 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).
    (ii) To the extent that an institution does not report the 
outstanding balance of loans provided under the Paycheck Protection 
Program, such as in an insured branch's Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks, the FDIC 
will take the sum of either the quarterly average amount of loans 
pledged to the Paycheck Protection Program Liquidity Facility as 
reported in the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks, or the outstanding balance of loans provided 
under the Paycheck Protection Program, as such certified data is 
provided to the FDIC, and the quarterly average amount of assets 
purchased under the Money Market Mutual Fund Liquidity Facility, as 
reported in the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks, and multiply the sum by an institution's 
total base assessment rate, as calculated under Sec.  327.16.
    (2) Calculation of assessment amount due. The FDIC will subtract 
the offset amount described in Sec.  327.17(d)(1) from an insured 
depository institution's total assessment amount, consistent with Sec.  
327.3(b)(1).
    (e) Mitigating the effects of loans provided under the Paycheck 
Protection Program and assets purchased under the Money Market Mutual 
Fund Liquidity Facility on the classification of insured depository 
institutions as small, large, or highly complex for deposit insurance 
purposes. When classifying an insured depository institution as small, 
large, or complex for assessment purposes under Sec.  327.8, the FDIC 
will exclude from an institution's total assets the outstanding balance 
of loans provided under the Paycheck Protection Program and the balance 
of assets purchased under the Money Market Mutual Fund Liquidity 
Facility outstanding, both as reported on the Consolidated Report of 
Condition and Income. Any institution with assets of between $5 billion 
and $10 billion, excluding the outstanding balance of loans provided 
under the Paycheck Protection Program and the balance of assets 
purchased under the MMLF, both as reported on the Consolidated Report 
of Condition and Income, may request that the FDIC determine its 
assessment rate as a large institution under Sec.  327.16(f).
    (f) Definitions. For the purposes of this section:
    (1) Paycheck Protection Program. The term ``Paycheck Protection 
Program'' means the program of that name 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, and renamed as such on April 30, 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
6. 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 Liquidity Facility, 
and the Paycheck Protection Program

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

 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 outstanding
                                 discontinued            balance of
                                 operations) for the     loans provided
                                 most recent twelve      under the
                                 months divided by       Paycheck
                                 total assets \1\.       Protection
                                                         Program.
Nonperforming Loans and Leases/ Sum of total loans and  Exclude from
 Gross Assets (%).               lease financing         gross assets
                                 receivables past due    the outstanding
                                 90 or more days and     balance of
                                 still accruing          loans provided
                                 interest and total      under the
                                 nonaccrual loans and    Paycheck
                                 lease financing         Protection
                                 receivables             Program.
                                 (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        gross assets
                                 gross assets \2\.       the outstanding
                                                         balance of
                                                         loans provided
                                                         under the
                                                         Paycheck
                                                         Protection
                                                         Program.
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 outstanding
                                 institutions that are   balance of
                                 well capitalized and    loans provided
                                 have a CAMELS           under the
                                 composite rating of 1   Paycheck
                                 or 2, brokered          Protection
                                 reciprocal deposits     Program.
                                 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.

[[Page 38295]]

 
One-Year Asset Growth (%).....  Growth in assets        Exclude from
                                 (adjusted for mergers   total assets
                                 \3\) over the           (in both
                                 previous year in        numerator and
                                 excess of 10            denominator)
                                 percent.\4\ If growth   the outstanding
                                 is less than 10         balance of
                                 percent, the value is   loans provided
                                 set to zero.            under the
                                                         Paycheck
                                                         Protection
                                                         Program.
------------------------------------------------------------------------
\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 outstanding balance of loans 
provided under the Paycheck Protection Program. In the event that 
the outstanding balance of loans provided under the Paycheck 
Protection Program 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 outstanding balance of loans provided 
under the Paycheck Protection Program 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.
    (b) [Reserved]

   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

 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/     Sum of construction     No Exclusion.
     Tier 1 Capital and          and land development
     Reserves.                   (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       The measure is          ................
       Portfolio                 calculated in the
       Concentrations.           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.

[[Page 38296]]

 
                                (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
                                 scaled to a growth      outstanding
                                 factor of 1 to 1.2      amount of loans
                                 where a 3-year          provided under
                                 cumulative growth       the Paycheck
                                 rate of 20 percent or   Protection
                                 less equals a factor    Program.
                                 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/     Sum of C&D loans        No Exclusion.
     Tier 1 Capital and          (funded and
     Reserves.                   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     total exposure
     and 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.
    (3) Largest Counterparty    The largest total       No Exclusion.
     Exposure/Tier 1 Capital     exposure amount to
     and 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.

[[Page 38297]]

 
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)          outstanding
                                 securities, adjusted    balance of
                                 for mergers. The        loans provided
                                 ratio takes a four-     under the
                                 quarter sum of merger-  Paycheck
                                 adjusted core           Protection
                                 earnings and divides    Program.
                                 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          Sum of criticized and   No Exclusion.
     Classified Items/Tier 1     classified items
     Capital and 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          30 days or more past
     Reserves.                   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-          outstanding
                                 brokered time           borrowings from
                                 deposits divided by     Federal Reserve
                                 total liabilities.      Banks under the
                                                         Paycheck
                                                         Protection
                                                         Program
                                                         Liquidity
                                                         Facility with a
                                                         maturity of one
                                                         year or less
                                                         and outstanding
                                                         borrowings from
                                                         the Federal
                                                         Reserve Banks
                                                         under the
                                                         Paycheck
                                                         Protection
                                                         Program
                                                         Liquidity
                                                         Facility with a
                                                         maturity of
                                                         greater than
                                                         one year.
    Balance Sheet Liquidity     Sum of cash and         Include in
     Ratio.                      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
                                 agency securities       PPPLF, until
                                 (excludes agency        September 30,
                                 mortgage-backed         2020, or if
                                 securities but          extended by the
                                 includes all other      Board of
                                 agency securities       Governors of
                                 issued by the U.S.      the Federal
                                 Treasury, U.S.          Reserve System
                                 government agencies,    and the
                                 and U.S. government     Secretary of
                                 sponsored               the Treasury,
                                 enterprises) divided    until such date
                                 by the sum of federal   of extension.
                                 funds purchased and    Exclude from
                                 repurchase              other
                                 agreements, other       borrowings with
                                 borrowings (including   a remaining
                                 FHLB) with a            maturity of one
                                 remaining maturity of   year or less
                                 one year or less, 5     the balance of
                                 percent of insured      outstanding
                                 domestic deposits,      borrowings from
                                 and 10 percent of       the Federal
                                 uninsured domestic      Reserve Banks
                                 and foreign deposits.   under the
                                                         Paycheck
                                                         Protection
                                                         Program
                                                         Liquidity
                                                         Facility with a
                                                         remaining
                                                         maturity of one
                                                         year or less.
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         Trailing 4-quarter      No Exclusion.
     Volatility/Tier 1 Capital.  standard deviation of
                                 quarterly trading
                                 revenue (merger-
                                 adjusted) divided by
                                 Tier 1 capital.
    (2) Market Risk Capital/    Market risk capital     No Exclusion.
     Tier 1 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 outstanding
                                 quarterly average of    balance of
                                 total assets as         loans provided
                                 reported on Schedule    under the
                                 RC-K of the Call        Paycheck
                                 Reports.                Protection
                                                         Program.
------------------------------------------------------------------------
\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 outstanding balance
  of loans provided under the Paycheck Protection Program.

    (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 liability runoff, and growth in 
insured deposits, to adjust the size and composition of the 
institution's liabilities. Exclude total outstanding borrowings from 
Federal Reserve Banks under the Paycheck Protection Program 
Liquidity Facility from short-and long-term secured borrowings, as

[[Page 38298]]

appropriate. Assets are then reduced to match any reduction in 
liabilities. Exclude from an institution's balance of commercial and 
industrial loans the outstanding balance of loans provided under the 
Paycheck Protection Program. In the event that the outstanding 
balance of loans provided under the Paycheck Protection Program 
exceeds the balance of commercial and industrial loans, exclude any 
remaining balance of loans provided under the Paycheck Protection 
Program 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 
balances by outstanding loans provided under the Paycheck Protection 
Program that exceed total outstanding borrowings from Federal 
Reserve Banks under the Paycheck Protection Program Liquidity 
Facility, 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.....................................
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 loans provided under the Paycheck Protection Program in 
excess of borrowings from Federal Reserve Banks under the Paycheck 
Protection Program Liquidity Facility;
     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 loans provided under the Paycheck
 Protection Program in excess of borrowings from
 Federal Reserve Banks under the Paycheck Protection
 Program Liquidity Facility...........................
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 loans under               11.8
 the Paycheck Protection Program, as described in Sec.
   327.17 and this appendix...........................
Commercial and Industrial Loans, excluding outstanding              21.5
 loans under the Paycheck Protection Program,
 described in Sec.   327.17 and this appendix.........
Credit Card Loans.....................................              18.3
Other Consumer Loans..................................              18.3
All Other Loans, excluding outstanding loans under the              51.0
 Paycheck Protection Program, described in Sec.
 327.17 and this appendix.............................
Other Assets..........................................              75.0
------------------------------------------------------------------------


[[Page 38299]]

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 total outstanding borrowings from the Federal Reserve 
Banks under the Paycheck Protection Program Liquidity Facility.

Loss Severity Ratio Calculation

    The FDIC's loss given failure (LGD) is calculated as:
    [GRAPHIC] [TIFF OMITTED] TR26JN20.300
    
    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.
    (b) [Reserved]

III. Mitigating the Effects of Loans Provided Under the Paycheck 
Protection Program and Assets Purchased Under the Money Market Mutual 
Fund Liquidity Facility on the Unsecured Adjustment, Depository 
Institution Debt Adjustment, and the Brokered Deposit Adjustment to an 
IDI's Assessment Rate

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

IV. Mitigating the Effects on the Assessment Base Attributable to Loans 
Provided Under the Paycheck Protection Program and Participation in the 
Money Market Mutual Fund Liquidity Facility

    Total Assessment Amount Due = Total Assessment Amount LESS: (SUM 
(Outstanding balance of loans provided under the Paycheck Protection 
Program and quarterly average amount of assets purchased under the 
Money Market Mutual Fund Liquidity Facility) * Total Base Assessment 
Rate)

    Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on June 22, 2020.
James P. Sheesley,
Acting Assistant Executive Secretary.
[FR Doc. 2020-13751 Filed 6-24-20; 2:30 pm]
BILLING CODE 6714-01-P