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Financial Institution Letters


DETERMINATION OF ASSESSMENT RISK CLASSIFICATIONS

For purposes of determining the annual assessment rate for insured depository institutions, each insured institution is assigned an assessment risk classification. Each institution's assigned risk classification is composed of a group and subgroup assignment based on the capital and supervisory factors discussed below.

ASSIGNMENT OF CAPITAL GROUPS

Capital group assignments are made in accordance with section 327.4(a)(1) of the FDIC's Rules and Regulations. Capital ratios are calculated according to the methodology agreed upon by the Federal Financial Institutions Examination Council. The method uses data reported in an institution's Report of Income and Condition, Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, or Thrift Financial Report (collectively referred to as Call Reports) for the preceding September 30 to calculate the January 1 to June 30 semiannual period, and the preceding March 31 to calculate the July 1 to December 31 semiannual period.

Capital ratios are subject to change as a result of amendments to Call Reports. Changes in capital group assignments for any assessment period resulting from amendments to Call Reports are made only after appropriately filed amendments have been properly edited and analyzed. Any changes to capital group assignments resulting from these amendments are subject to verification.

The three capital groups are:

Group 1 - Well Capitalized:

Total Risk-Based Capital Ratio equal to or greater than 10 percent, and Tier 1 Risk-Based Capital Ratio equal to or greater than 6 percent, and Tier 1 Leverage Capital Ratio equal to or greater than 5 percent.

Group 2 - Adequately Capitalized:

Not Well Capitalized and Total Risk-Based Capital Ratio equal to or greater than 8 percent, and Tier 1 Risk-Based Capital Ratio equal to or greater than 4 percent, and Tier 1 Leverage Capital Ratio equal to or greater than 4 percent.

Group 3 - Undercapitalized:

Neither Well Capitalized nor Adequately Capitalized.

For insured branches of foreign banks, the capital groups are:
Group 1 - Well Capitalized:

The insured branch maintains the pledge of assets required under 12 CFR 347.210, and the branch maintains the eligible assets prescribed under 12 CFR 347.211 at 108 percent or more of the average book value of the insured branch's third-party liabilities for the quarter ending on the capital group cut-off date.

Group 2 - Adequately Capitalized:

Not Well Capitalized, and the insured branch maintains the pledge of assets required under 12 CFR 347.210, and the branch maintains the eligible assets prescribed under 12 CFR 347.211 at 106 percent or more of the average book value of the insured branch's third-party liabilities for the quarter ending on the capital group cut-off date.

Group 3 - Undercapitalized:

Neither Well Capitalized nor Adequately Capitalized.

ASSIGNMENT OF SUPERVISORY SUBGROUPS

Supervisory subgroup assignments for members of the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) are made in accordance with section 327.4(a)(2) of the FDIC's Rules and Regulations, which provides as follows:
"...each institution will be assigned to one of three subgroups based on the Corporation's consideration of supervisory evaluations provided by the institution's primary federal regulator. The supervisory evaluations include the results of examination findings by the primary federal regulator, as well as other information the primary federal regulator determines to be relevant. In addition, the Corporation will take into consideration such other information (such as state examination findings, if appropriate) as it determines to be relevant to the institution's financial condition and the risk posed to the BIF or SAIF."
The FDIC will assign a supervisory subgroup to each BIF or SAIF institution for each semiannual assessment period based on a variety of factors. These include:
  • FDIC review of the results of the last examination finalized and transmitted to an institution on or before the cut-off date by the primary regulator;
  • Review of other written findings that result in a composite rating change by the primary regulator;
  • Review of the finalized results of independent, joint or concurrent FDIC examinations;
  • Results of offsite statistical analysis of reported financial statements; or
  • Analysis of other pertinent information.
In addition to the above factors, the FDIC uses offsite information to identify institutions with atypically high-risk profiles among those in the best-rated premium category, and to determine whether there are unresolved supervisory concerns regarding the risk-management practices of these institutions. Where such concerns are present, the institutions will be given an opportunity to address the cited deficiencies with risk-management practices before higher premiums are assessed. For more information regarding the use of offsite information for these purposes, refer to FIL-7-2000, "Deposit Insurance Assessments," dated February 4, 2000.

The three supervisory subgroups are:

Subgroup A This subgroup consists of financially sound institutions with only a few minor weaknesses and generally corresponds to the primary federal regulator's composite rating of "1" or "2."
Subgroup B This subgroup consists of institutions that demonstrate weaknesses that, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the BIF or SAIF. This subgroup assignment generally corresponds to the primary federal regulator's composite rating of "3."
Subgroup C This subgroup consists of institutions that pose a substantial probability of loss to the BIF or the SAIF unless effective corrective action is taken. This subgroup assignment generally corresponds to the primary federal regulator's composite rating of "4" or "5."
The authority to set dates applicable to the determination of supervisory subgroups has been delegated to the Corporation's Director of the Division of Supervision and Consumer Protection, or his or her designee. The Director has determined that the cut-off dates for assessment periods beginning January 1 will be the preceding September 30, and for the assessment period beginning July 1, the cut-off date will be the previous March 31.

The cut-off date relates to the FDIC's determination of an institution's risk profile as of that date. In determining the supervisory subgroup, the FDIC considers the last examination finalized and transmitted to the institution by the primary federal regulator on or before the cut-off date. The FDIC continues to consider other pertinent information during a reconcilement period following the cut-off date. Institutions whose risk profile might have changed since their last examination can be subject to supervisory subgroup upgrades or downgrades, as more recent examination information may reflect, during the reconcilement period.

OTHER ASSESSMENT RISK CLASSIFICATIONS

Bridge banks and institutions for which the FDIC has been appointed conservator are assigned RRPS assessment risk classifications of Capital Group 2, Supervisory Subgroup A.

New or de novo institutions beginning operations after the cut-off date for determining RRPS capital groups will be assigned to Capital Group 1. In general, such institutions also will be assigned to Supervisory Subgroup A, unless a different subgroup is warranted based upon a review of the institution using the criteria for assigning supervisory subgroups.

For institutions merging after the capital group cut-off date and prior to the beginning of the semiannual assessment period, the capital group classification for the surviving institution is subject to review. If the merger involved institutions with different capital group classifications, the capital group assignment of the surviving entity will be based on combined capital ratios calculated using the Call Reports of the merged institutions as of the required cut-off date. The combined capital ratios are calculated by summing the numerators and denominators of the applicable capital ratios for the merged institutions as reported in the Call Reports for the applicable cut-off date.

REQUESTS FOR REVIEW

Institutions have the right to request a review of their assessment risk classifications. However, the review process is not intended as a means for an institution to dispute the composite rating assigned to the institution by its primary federal regulator. Each federal regulator has established procedures for that purpose.

Request-for-Review Procedures

Requests for review must be:

  • In writing and sent via mail or commercial carrier to:
  • Director, Division of Insurance and Research
    Federal Deposit Insurance Corporation
    550 17th Street, NW
    Washington, D.C. 20429

    ATTN: Pricing Section
    Room 4002

  • Postmarked or dated by commercial carrier within 90 days of the date of the assessment risk classification notice.1 To ensure proof of mailing, institutions may wish to send requests for review by certified or registered mail or commercial carrier; and
  • Sufficiently documented to support the reclassification sought by the institution.
The request will be reviewed by the Division of Insurance and Research or the Division of Supervision and Consumer Protection, as deemed appropriate. For reviews related to the supervisory subgroup, the focus of the review will be the FDIC's determination of the risk profile of the institution as of the cut-off date. The institution will be notified in writing of the division's determination regarding its request. If the institution's request is denied, the institution will be advised of its right to appeal that denial to the Assessment Appeals Committee (AAC). If an institution appeals the denial to the AAC, the AAC will conduct a review and determine the final disposition of the matter. The institution will be notified in writing of the AAC's final decision.

Requests for review, or for reclassification, may be rejected for reasons that include:
  • The appropriate resolution is an amendment to Call Reports. Capital group assignments and reassignments are generated from information provided by institutions in Call Reports and in subsequent amendments;
  • Improvements in capital ratios occurring after the applicable Call Report cut-off date;
  • Requests based on capital ratio formulas established by other regulations;
  • A supervisory subgroup assignment is consistent with the most recent finalized composite rating assigned to the institution under the Uniform Financial Institutions Rating System at the time the supervisory subgroup was determined;
  • Improvements in the bank's risk profile as of a date after the applicable cut-off date;
  • The request for review is not provided in writing;
  • The request for review is postmarked or dated by commercial carrier later than 90 days from the date of the assessment risk classification notice; or
  • Any additional information requested by the FDIC is not provided by the institution in writing or is postmarked or dated by commercial carrier later than 21 days from the date of the request for the information.

1The notices are mailed in mid-June for semiannual assessment periods beginning on July 1 and in mid-December for semiannual periods beginning on January 1.
Last Updated 11/28/2003 communications@fdic.gov