Assessment Compliance Reviews

Overview

The Assessment Compliance Section (ACS) performs reviews of insured institutions to ensure assessment reporting compliance.  During a review, the ACS verifies whether the insured institution accurately calculates and reports data upon which the FDIC assesses deposit insurance.  These reviews primarily focus on the calculation of average consolidated total assets and average tangible equity. As a part of the review process, the ACS compares institutions’ supporting documentation to the values reported in its Report of Condition and Income (“Call Report”). 

A review for a given period typically takes place after the assessment for that period has been collected.  For example, a review of March 31st, Call Report data for a given year (insuring deposits for January 1st-March 31st) usually will not take place until after June 30th(collections are in arears, so the June 30th collection is for the March 31st quarter) of that year.  An institution must maintain all records that the FDIC may require for  verifying the correctness of any assessment for up to three years from the due date of the assessment, as set forth in Section 7 (b)(4) of the Federal Deposit Insurance Act (FDI Act)

The ACS may perform either a full scope review (FSR) or a limited scope review (LSR). LSRs typically require institutions to submit significantly less documentation than FSRs do. Upon completion of a review, the ACS issues a report discussing the institution’s compliance with assessment reporting requirements. In some circumstances, an institution may be required to submit an amended Call Report(s) to correct material errors in prior periods.

The ACS utilizes a risk-based approach when determining how frequently to review an institution’s assessment base reporting (review cycle). Generally, the review cycle ranges from four to seven years depending on the size of an institution’s assessment base, with larger more complex institutions being reviewed more often than their smaller counterparts are. The general FSR process is the same for all institutions with over $10 billion in assets, but more documentation may be requested for banker’s banks, custodial banks, or highly complex institutions. For both FSRs and LSRs, after receipt of the initial documentation package, the ACS may request additional support or clarification to validate reported data upon which the FDIC assesses deposit insurance.

Assessment Review Process

At the initiation of a review, the FDICconnect Coordinator of an institution receives an email stating the institution has been selected for an assessment review.  The email requests that the FDICconnect Coordinator identify a Designated Contact (someone with user access to the Enterprise File Exchange (EFX) feature of FDICconnect) within the institution to facilitate the review.  In addition, the email indicates all documentation and subsequent communication should be conducted through the EFX, and notes that an Engagement Letter will be made available through the EFX once the session is opened.

Within two business days of receiving an email, an institution should:

• Provide its Designated Contact information to the ACS;
• Ensure the Designated Contact is an established user in FDICconnect and has been given EFX transaction authority within the system;
• Provide the Designated Contact with a copy of the email

Within 10 business days of receiving an Engagement Letter, an institution should provide the following through the Examination File Exchange feature of FDICconnect:

• A consolidated general ledger in Excel format for each of the three month-end dates for the quarterly period subject to the review.  Preferably, the consolidated general ledger accounts should be re-formatted so that subtotals are provided for each line item (1a thru 26) in Schedule RC;  
• An unconsolidated general ledger balance sheet for the institution and general ledger balance sheets for each consolidated subsidiary;
• A completed review questionnaire; and
• Completed averaging calculation detail for consolidated total assets, total tangible equity, and if applicable, for the banker’s bank deduction/limit and custodial bank deduction/limit.  These amounts should materially agree to the amounts reported in the Call Report schedules.  If they do not, institutions should provide an explanation for the differences or a reconciliation of the balances.  

Limited Scope Review
The process for a limited scope review is generally the same as for a full scope review. Documentation requested in a limited scope review is comprised of a review questionnaire, averaging calculation details for average consolidated total assets and average tangible equity. Additional documentation may be requested if there are material differences between the amounts computed and the amount reported.

Full Scope Review
Within 10 business days of receiving an Engagement Letter (uploaded through EFX), an institution should provide the following through the EFX feature of FDICconnect for:

• A consolidated general ledger in Excel format for each of the three month-end dates for the quarterly period subject to the review;  
• An unconsolidated general ledger balance sheet for the institution and general ledger balance sheets for each consolidated subsidiary;
• Completed documentation requested by ACS
• Review questionnaire;
• Averaging calculation detail for consolidated total assets, total tangible equity, and if applicable, for banker’s bank deduction/limit and custodial bank deduction/limit.  These amounts should materially agree to the amounts reported in the Call Report schedules.

Review Results
Upon successful completion of a full scope or limited scope review, the ACS issues an Assessment Review Report that details any deficiencies identified during the review to the institution’s Designated Contact. Depending on the severity of the error(s) identified during the review, the report will require the institution to either send the report to Senior Management and respond within 10 business days, or present the findings from the review to the Board of Directors and respond within 45 days.

Special Circumstances

1. Mergers and Consolidations
   

Average Consolidated Total Assets
If the reporting institution is the surviving or resulting institution in a merger or consolidation that occurred during the calendar quarter, the reporting institution should calculate its average consolidated total assets by including the consolidated total assets of all insured depository institutions that were merged or consolidated into the reporting institution as if the merger or consolidation occurred on the first day of the calendar quarter. Acceptable methods for including a merged or consolidated insured depository institution’s consolidated total assets in this calculation for the days during the calendar quarter preceding the merger or consolidation date include using either (a) the acquisition date fair value of the merged or consolidated institution’s consolidated total assets for all days (or all Wednesdays) during the calendar quarter preceding the acquisition date or (b) the merged or consolidated institution’s consolidated total assets, as defined for Schedule RC-K, item 9, average “Total assets,” for each day (or each Wednesday) during the calendar quarter preceding the acquisition date.¹

If the reporting institution was acquired in a transaction that became effective during the calendar quarter and push down accounting was used to account for the acquisition, the reporting institution should calculate its average consolidated total assets as if the acquisition occurred on the first day of the calendar quarter. Acceptable methods for including the institution’s consolidated total assets in this calculation for the days during the calendar quarter preceding the acquisition date include using either (a) the acquisition date fair value of the reporting institution’s consolidated total assets for all days (or all Wednesdays) during the calendar quarter preceding the acquisition date or (b) the reporting institution’s consolidated total assets, as defined for Schedule RC-K, item 9, average “Total assets,” for each day (or each Wednesday) during the calendar quarter preceding the acquisition date.

If the reporting institution is the surviving institution in a merger or consolidation that occurred after the end of the first month of the calendar quarter and it reports its average tangible equity on a monthly average basis, the reporting institution should calculate its average tangible equity as if the merger or consolidation occurred on the first day of the calendar quarter. An acceptable method for measuring tangible equity for month-end dates during the calendar quarter preceding the merger or consolidation date would be to use the amount of Tier 1 capital for the month-end date immediately following the merger or consolidation date as the amount of Tier 1 capital for the month end date or dates preceding the merger or consolidation date.

If the reporting institution was acquired in a transaction that became effective after the end of the first month of the calendar quarter, push down accounting was used to account for the acquisition, and the institution reports its average tangible equity on a monthly average basis, the reporting institution should calculate its average tangible equity as if the acquisition occurred on the first day of the calendar quarter. An acceptable method for measuring tangible equity for month-end dates during the calendar quarter preceding the acquisition date would be to use the amount of Tier 1 capital for the month-end date immediately following the acquisition date as the amount of Tier 1 capital for the month-end date or dates preceding the acquisition date.

A few insured banks and thrifts own another separately chartered, FDIC- insured bank or thrift, and operate it as a subsidiary. The FDIC is required to assess each insured institution separately. If the reporting institution has an FDIC-insured depository institution subsidiary, the reporting institution should report its average consolidated total assets and tangible equity capital without consolidating its insured depository institution subsidiaries. In order to avoid paying duplicate assessments, both the parent institution and subsidiary bank or thrift should each report only their own average consolidated total assets and average tangible equity on the assessment lines.

3. Allowable Deductions for Qualifying Banker’s Banks and Custodial Banks
   

Certain assessment base deductions are allowed for qualifying banker’s banks and qualifying custodial banks, as defined in part 327 of the FDIC’s regulations.

A qualifying “banker’s bank”² is eligible to have certain assets deducted from its assessment base, as defined in Section 327.5 of the FDIC’s regulations, subject to a limit. There are three reporting elements for a qualifying banker’s bank allowable deduction: (1) banker’s bank certification; (2) banker’s bank allowable deduction; and (3) banker’s bank deduction limit. Although these reporting elements are summarized below, please refer to the current Call Report instructions, for Schedule RC-O, items 10, 10(a) and 10(b), and the relevant FDIC Rules and Regulations, for more specific guidance.

A banker’s bank certifies itself as a banker’s bank by answering “Yes” on Schedule RC-O, item 10, in the Call Report.  In order to meet the certification criteria, a bank must meet the definition of a banker’s bank as defined in 12 U.S.C.A. § 24 and must also meet the business conduct test set forth in Part 327.5(b)(3) of the FDIC Rules and Regulations.  To meet the business conduct test, a bank must conduct 50 percent or more of its business with entities other than its parent holding company or entities other than those controlled either directly or indirectly by its parent holding company.  Control has the same meaning as in section 3(w)(5) of the Federal Deposit Insurance Act [12 U.S.C. 1813(w)(5)]. 

The banker’s bank allowable deduction, subject to the deduction limitation, equals the sum of the qualifying banker’s bank’s average balances due from Federal Reserve Banks plus its average federal funds sold.  These averages should be calculated on a daily or weekly basis consistent with the qualifying banker’s bank’s calculation of its average consolidated total assets in Schedule RC-O, item 4. 

The banker’s bank allowable deduction cannot exceed the sum of the banker’s bank’s average deposits due to commercial banks and other depository institutions in the U. S. plus its average federal funds purchased.  These averages should be calculated on a daily or weekly basis consistent with the banker’s bank’s calculation of its average consolidated total assets in Schedule RC-O, item 4.

Custodial Banks
There are three reporting elements for a qualifying custodial bank: (1) custodial bank certification; (2) custodial bank deduction; and (3) custodial bank deduction limit.   These are reported in Schedule RC-O of the Call Report on items 11, 11(a) and 11(b).  Although these reporting elements are summarized below, please refer to the current Call Report instructions and the relevant FDIC Rules and Regulations for more detailed guidance.

Certification
An institution that meets the definition of a “custodial bank”³ per 12 CFR § 327.5(c)(1) certifies itself as a custodial bank by answering “Yes” to item 11 and completes Schedule RC-O, items 11a and 11b.

Custodial Bank Deduction
The custodial bank’s allowable deduction, subject to the deduction limitation, equals the average sum of certain qualifying low-risk assets as detailed in the Call Report instructions for item 11(a) of Schedule RC-O.  Qualifying low-risk liquid assets are determined without regard to the maturity of the assets.  These averages should be calculated on a daily or weekly basis consistent with the custodial bank’s calculation of its average consolidated total assets in Schedule RC-O, item 4.

Custodial Bank Deduction Limitation
The Custodial Bank deduction is limited to an amount no greater than the average daily or weekly balances of transaction account deposit liabilities that are directly linked to a fiduciary, custodial, or safekeeping account reported in Schedule RC-T.  This limitation is reported on Schedule RC-O, item 11(b), of the Call Report.   The term “transaction account” is defined in Federal Reserve Regulation D.  In general, a transaction account is a deposit or account from which the depositor or account holder is permitted to make transfers or withdrawals by negotiable or transferable instruments, payment orders of withdrawal, telephone transfers, or other similar devices for the purpose of making payments or transfers to third persons or others, or from which the depositor may make third party payments at an automated teller machine, a remote service unit, or another electronic device, including by debit card.   

FDICconnect and Enterprise File Exchange (EFX)

FDICconnect
FDICconnect is the secure online channel for FDIC-insured institutions to conduct business and exchange information with the FDIC.  It is imperative that your institution have an active FDICconnect Coordinator and that a succession plan exists to replace the Coordinator and any other designated FDICconnect users in the event of staffing and/or responsibility changes within your institution.

Enterprise File Exchange (EFX)
EFX is a feature of FDICconnect that establishes secure electronic communication between an insured institution and the FDIC.  The FDIC establishes an EFX “session” with an institution at the beginning of a review.  The FDIC and the institution under review use the EFX session to securely transfer files and messages throughout the review.

Gaining Access
To access EFX, an institution must have at least one FDICconnect Coordinator.  The Coordinator has the ability to approve other personnel as “users” of each individual FDICconnect function. Most FDIC insured institutions have already completed the registration process and designated a FDICconnect Coordinator.  The registration process is explained in detail on the FDICconnect website at https://www.fdicconnect.gov/.  

Use of EFX During an Assessment Review
The FDIC will then initiate an EFX “session” with the Designated Contact(s).  The EFX session will include instructions for the review along with relevant documents, sample templates, and/or questionnaire(s) to be completed.  When the EFX session is initiated, FDICconnect sends an automatic email to your institution’s Designated Contact(s), each time the insured institution or the FDIC submits information to the session. 

An EFX session remains open until the FDIC completes the assessment review, issues a final report, receives the institution response, and (if necessary) confirms that all required Call Report Amendments have been made.  All files and correspondence exchanged during the review remain available while the EFX session is open.  Once the FDIC closes the EFX session at the conclusion of the review, the files and correspondence are no longer available through EFX.  It is your institution’s responsibility to retain backup files of information sent and received to and from the FDIC.

Help with FDICconnect/EFX         

EFX and FDICconnect assistance is available online through the FDICconnect website
(https://www.fdicconnect.gov/), by email (FDICconnect@fdic.gov), or by telephone (1-877 275-3342).
For problems with FDICconnect or EFX, institution personnel should first contact the institution's FDICconnect Coordinator.  A comprehensive EFX Help link is available on each EFX page and provides simple instructions on how to use EFX and exchange files with the FDIC.

Amendments & Adjustments 

If an institution files an amendment to its Call Report within the 3-year Statute of Limitations, and the amendment affects the assessment base, an adjustment amount will flow from the Call Report system to the assessment system and the adjustment amount will be reflected on an upcoming invoice. If the amendment amount is correct, no other action is required by the institution for the adjustment to occur.

Helpful Links

• Sample templates for averaging :
• Daily/Weekly asset averaging PDF 27k
• Monthly tangible equity averaging PDF 97k
• Banker’s Bank deduction/limitation determination PDF 34k
• Custodial Bank deduction/limitation determination PDF 33k
• Common Reporting Errors PDF 319k

Questions?

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¹“This approach to calculating average consolidated total assets for purposes of Schedule RC-O, item 4, does not apply if the reporting institution is the surviving or resulting institution in a merger or consolidation during the calendar quarter involving an entity that is not an insured depository institution. In such a merger or consolidation, the reporting institution should apply the guidance on business combinations in the General Instructions for Schedule RC-K when measuring average consolidated total assets for purposes of Schedule RC-O, item 4.

²“The definition of “banker’s bank” is set forth in 12 U.S.C. 24 Seventh, which states that a banker’s bank is an FDIC-insured bank where the stock of the bank or its parent holding company “is owned exclusively (except to the extent directors’ qualifying shares are required by law) by depository institutions or depository institution holding companies (as defined in section 1813 of this title)” and the bank or its parent holding “company and all subsidiaries thereof are engaged exclusively in providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies, and in providing correspondent banking services at the request of other depository institutions or their holding companies.”

³“A custodial bank for purposes of calculating deposit insurance assessments shall be an insured depository institution with previous calendar-year trust assets (fiduciary and custody and safekeeping assets, as described in the instructions to Schedule RC-T of the Consolidated Report of Condition and Income) of at least $50 billion or an insured depository institution that derived more than 50 percent of its total revenue (interest income plus non-interest income) from trust activity over the previous calendar year.”