FDIC Federal Register Citations

[Federal Register: May 18, 2006 (Volume 71, Number 96)]

[Proposed Rules]

[Page 28809-28819]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr18my06-17]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD08

One-Time Assessment Credit

AGENCY: Federal Deposit Insurance Corporation (FDIC).

[[Page 28810]]

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is

proposing to amend 12 CFR part 327 to implement the one-time assessment

credit for certain eligible insured depository institutions required by

the Federal Deposit Insurance Act (``FDI Act'') as amended by the

Federal Deposit Insurance Reform Act of 2005 (``Reform Act''). The

proposed rule covers: the aggregate amount of the one-time credit; the

institutions that are eligible to receive credits; and the amount of

each eligible institution's credit, which for some institutions may be

largely dependent on how the FDIC defines ``successor'' for these

purposes. The proposed rule also would establish the qualifications and

procedures governing the application of assessment credits, and provide

a reasonable opportunity for an institution to challenge

administratively the amount of the credit.

DATES: Comments must be received on or before July 17, 2006.

ADDRESSES: You may submit comments, identified by RIN number by any of

the following methods:

Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html.

Follow instructions for submitting comments on

the Agency Web site.

E-mail: Comments@FDIC.gov. Include the RIN number in the

subject line of the message.

Mail: Robert E. Feldman, Executive Secretary, Attention:

Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,

Washington, DC 20429

Hand Delivery/Courier: Guard station at the rear of the

550 17th Street Building (located on F Street) on business days between

7 a.m. and 5 p.m.

Instructions: All submissions received must include the agency name

and RIN for this rulemaking. All comments received will be posted

without change to http://www.fdic.gov/regulations/laws/federal/propose.html

including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Munsell W. St.Clair, Senior Policy

Analyst, Division of Insurance and Research, (202) 898-8967; Donna M.

Saulnier, Senior Assessment Policy Specialist, Division of Finance,

(703) 562-6167; and Kymberly K. Copa, Counsel, Legal Division, (202)

898-8832.

SUPPLEMENTARY INFORMATION:

I. Background

Section 7(e)(3) of the Federal Deposit Insurance Act, as amended by

the Reform Act,\1\ requires that the FDIC's Board of Directors

(``Board'') provide by regulation an initial, one-time assessment

credit to each ``eligible'' insured depository institution (or its

successor) based on the assessment base of the institution as of

December 31, 1996, as compared to the combined aggregate assessment

base of all eligible institutions as of that date (``the 1996

assessment base ratio''), taking into account such other factors the

Board may determine to be appropriate. The aggregate amount of one-time

credits is to equal the amount that the FDIC could have collected if it

had imposed an assessment of 10.5 basis points on the combined

assessment base of the Bank Insurance Fund (``BIF'') and Savings

Association Insurance Fund (``SAIF'') as of December 31, 2001. 12

U.S.C. 1817(e)(3).

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\1\ The Reform Act was included as Title II, Subtitle B, of the

Deficit Reduction Act of 2005, Public Law 109-171, 120 Stat. 9,

which was signed into law by the President on February 8, 2006.

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An ``eligible'' insured depository institution is one that:

1. Was in existence on December 31, 1996, and paid a Federal

deposit insurance assessment prior to that date;\2\ or

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\2\ Prior to 1997, the assessments that SAIF member institutions

paid the SAIF were diverted to the Financing Corporation (``FICO''),

which had a statutory priority to those funds. Beginning with

enactment of the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (``FIRREA,'' Pub. L. 101-73, 103 Stat. 183)

and ending with the Deposit Insurance Funds Act of 1996 (``DIFA,''

Pub. L. 104-208, 110 Stat. 3009, 3009-479), FICO had authority, with

the approval of the Board of Directors of the FDIC, to assess

against SAIF members to cover anticipated interest payments,

issuance costs, and custodial fees on FICO bonds. The FICO

assessment could not exceed the amount authorized to be assessed

against SAIF members pursuant to section 7 of the FDI Act, and FICO

had first priority against the assessment. 12 U.S.C. 1441(f), as

amended by FIRREA. Beginning in 1997, the FICO assessments were no

longer drawn from SAIF. Rather, the FDIC began collecting a separate

FICO assessment. 12 U.S.C. 1441(f), as amended by DIFA. Payments to

SAIF prior to December 31, 1996, therefore, are considered deposit

insurance assessments for purposes of the one-time assessment

credit. The new law does not change the existing process through

which the FDIC collects FICO assessments.

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2. Is a ``successor'' to any such insured depository institution.

The FDI Act requires the Board to define ``successor'' for these

purposes and provides that the Board ``may consider any factors as the

Board may deem appropriate.'' The amount of a credit to any eligible

insured depository institution must be applied by the FDIC to the

assessments imposed on such institution that become due for assessment

periods beginning after the effective date of the one-time credit

regulations required to be issued within 270 days after enactment.\3\

12 U.S.C. 1817(e)(3)(D)(i).

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\3\ Section 2109 of the Reform Act also requires the FDIC to

prescribe, within 270 days, rules on the designated reserve ratio,

changes to deposit insurance coverage, the dividend requirement, and

assessments. An interim final rule on deposit insurance coverage was

published on March 23, 2006. See 71 FR 14629. A notice of proposed

rulemaking on the dividend requirement and a notice of proposed

rulemaking on operational changes to the FDIC's assessment

regulations are both being proposed by the FDIC at the same time as

this notice on the one-time assessment credit. Additional

rulemakings on the designated reserve ratio and risk-based

assessments are expected to be proposed in the near future.

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There are three restrictions on the use of credits:

1. As a general rule, for assessments that become due for

assessment periods beginning in fiscal years 2008, 2009, and 2010,

credits may not be applied to more than 90 percent of an institution's

assessment. 12 U.S.C. 1817(e)(3)(D)(ii). (This 90 percent limit does

not apply to 2007 assessments.)

2. For an institution that exhibits financial, operational or

compliance weaknesses ranging from moderately severe to unsatisfactory,

or is not at least adequately capitalized (as defined pursuant to

section 38 of the FDI Act) at the beginning of an assessment period,

the amount of any credit that may be applied against the institution's

assessment for the period may not exceed the amount the institution

would have been assessed had it been assessed at the average rate for

all institutions for the period. 12 U.S.C. 1817(e)(3)(E).

3. If the FDIC is operating under a restoration plan to

recapitalize the Deposit Insurance Fund (``DIF'') pursuant to section

7(b)(3)(E) of the FDI Act, as amended by the Reform Act, the FDIC may

elect to restrict credit use; however, an institution must still be

allowed to apply credits up to three basis points of its assessment

base or its actual assessment, whichever is less. 12 U.S.C.

1817(b)(3)(E)(iii).

The one-time credit regulations must include the qualifications and

procedures governing the application of assessment credits. These

regulations also must include provisions allowing a bank or thrift a

reasonable opportunity to challenge administratively the amount of

credits it is awarded.\4\ Any determination of the amount of an

institution's credit by the FDIC pursuant to these administrative

procedures is

[[Page 28811]]

final and not subject to judicial review. 12 U.S.C. 1817(e)(4).

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\4\ Similarly, for dividends under the FDI Act as amended by the

Reform Act, the regulations must include provisions allowing a bank

or thrift a reasonable opportunity to administratively challenge the

amount of dividends it is awarded. 12 U.S.C. 1817(e)(4).

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Accordingly, the FDIC is requesting comment on proposed rules that

would implement the one-time assessment credit requirement added by the

Reform Act.

II. Description of the Proposal

As part of this rulemaking, the FDIC must, among other things:

determine the aggregate amount of the one-time credit; determine the

institutions that are eligible to receive credits; and determine the

amount of each eligible institution's credit, which for some

institutions may be largely dependent on how the FDIC defines

``successor'' for these purposes. The FDIC also must establish the

qualifications and procedures governing the application of assessment

credits, and provide a reasonable opportunity for an institution to

challenge administratively the amount of the credit. The FDIC's

determination after such challenge will be final and not subject to

judicial review.

As set out more fully below, the FDIC proposes that the Board: rely

on the 1996 assessment base figures contained in the Assessment

Information Management System (AIMS II) \5\; define ``successor'' as

the resulting institution in a merger or consolidation, while seeking

comment on alternative definitions; determine that the FDIC will

automatically apply each institution's credit against future

assessments to the maximum extent allowed consistent with the

limitations in the FDI Act; and provide an appeals process for

administrative challenges to the amounts of credits that culminates in

review by the Assessment Appeals Committee (AAC).

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\5\ The current Assessment Information Management Systems

(commonly referred to as AIMS II) contains a record for quarterly

reports of condition data from institutions with bank and thrift

charters. The FFIEC Central Data Repository (``FFIEC-CDR'') for

banks and the Thrift Financial Report for thrifts provide AIMS II

with the values of the deposit line items that are used in the

calculation of an institution's assessment base.

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Shortly after publication of the notice of proposed rulemaking, the

FDIC intends to make available to each insured depository institution

the FDIC's calculation of that institution's 1996 assessment base (if

any), and to give each institution the opportunity to review and verify

its 1996 assessment base, as well as information related to mergers or

consolidations to which it was a party.

A. Aggregate Amount of One-time Assessment Credit

The aggregate amount of the one-time assessment credit is expected

to be $4,707,580,238.19, which is calculated by applying an assessment

rate of 10.5 basis points to the combined assessment base of BIF and

SAIF as of December 31, 2001. The FDIC proposes to rely on the

assessment base numbers available from each institution's certified

statement (or amended certified statement), filed quarterly and

preserved in AIMS II, which records the assessment base for each

insured depository institution as of that date. AIMS II is the FDIC's

official system of records for determination of assessment bases and

assessments due.

B. Determination of Eligible Insured Depository Institutions and Each

Institution's 1996 Assessment Base Ratio

The FDIC must determine the assessment base of each eligible

institution as of December 31, 1996, and any successor institutions, to

determine the 1996 assessment base ratio. In making these

determinations, the Board has the authority to take into account such

factors as the Board may determine to be appropriate. 12 U.S.C.

1817(e)(3)(A).

Stated simply, the denominator of the 1996 assessment base ratio is

the combined aggregate assessment base of all eligible insured

depository institutions and their successors. The numerator of each

eligible institution's 1996 assessment base ratio is its assessment

base as of December 31, 1996, together with the assessment base on

December 31, 1996, of each institution (if any) to which it is a

successor. An eligible insured depository institution is one in

existence as of December 31, 1996, that paid an assessment prior to

that date (or a successor to such institution).

1. Determination of Eligible Institutions

As a starting point, the FDIC proposes to use the December 31, 1996

assessment base for each institution, as it appears on the

institution's certified statement or as subsequently amended and as

recorded in AIMS II. Those numbers reflect the bases on which

institutions that existed on December 31, 1996, paid assessments. As of

December 31, 2005, it appears that there were approximately 7,400

active insured depository institutions that may be eligible for the

one-time assessment credit--that is, they were in existence on December

31, 1996, and had paid an assessment prior to that date.

a. Effect of Voluntary Termination or Failure

The FDIC has identified those institutions that have voluntarily

terminated their insurance or failed since December 31, 1996, which

otherwise would have been considered eligible insured depository

institutions for purposes of the one-time credit. The FDIC proposes

that the definition of ``successor'' (discussed more fully below)

govern the determination of whether the one-time credits of an

institution that voluntarily is eligible and its credits transfer to a

successor. Whether an institution that voluntarily terminated would

have a successor would depend on the specific circumstances surrounding

its termination. The FDIC proposes that an insured depository

institution that has failed would not have a successor.

b. De Novo Institutions

The FDIC has identified those institutions newly in existence as of

December 31, 1996 (``de novo institutions'') that did not pay deposit

insurance premiums prior to December 31, 1996. Under the statute, those

institutions could not be eligible insured depository institutions for

purposes of the one-time assessment credit.

The FDIC's records indicate that there were approximately 90

institutions that became newly insured between July 1, 1996 and

December 31, 1996, that did not pay any deposit insurance assessment

and did not acquire through merger or consolidation another institution

that had paid assessments before year-end 1996. These institutions are

not eligible for credits under the terms of the statute.

In addition, the FDIC's records indicate that there are two de novo

institutions, which did not pay assessments directly, but each acquired

by merger an institution that had paid assessments before December 31,

1996. Under traditional general principles of corporate law, the

surviving or resulting institution in a merger or consolidation is

considered to have acquired the rights, privileges, powers, franchises,

and property of the terminating institution, as well as the

liabilities, restrictions, and duties of that institution. The

surviving or resulting institution effectively continues the business

of the terminating institution. 15 William Meade Fletcher et al.,

Fletcher Cyclopedia of the Law of Private Corporations Sec. Sec. 7041-

7100 (perm. ed., rev. vol. 1999). On that basis, the FDIC proposes that

a de novo institution that acquired, through

[[Page 28812]]

merger or consolidation, an existing insured depository institution

that had paid a deposit insurance assessment be considered to have

stepped into the shoes of the existing institution for purposes of

determining eligibility for the one-time assessment credit.

2. Definition of ``Successor''

As noted above, an insured depository institution in existence on

December 31, 1996, that paid insurance premiums is eligible for the

one-time assessment credit. An institution also may be eligible as a

``successor'' to such an institution. In making the preliminary

determinations of eligible insured depository institutions, their

assessment bases as of December 31, 1996, and the combined assessment

base of the BIF and the SAIF as of the same date, the FDIC proposes to

rely on the institution's certified statement (as amended, if

necessary), as recorded in AIMS II.

Many institutions that existed at the end of 1996 no longer exist.

Some have disappeared through merger or consolidation. In fact, it

appears that approximately 3,850 additional institutions that were in

existence on December 31, 1996, have since combined with other

institutions. In addition, 38 institutions have failed and no longer

exist, while the FDIC has to date identified approximately 90 others

that voluntarily relinquished federal deposit insurance coverage or had

their coverage terminated. The FDIC does not maintain complete records

on sales of branches or blocks of deposits, but various sources suggest

that at least 1,400 and possibly over 1,800 branch or deposit

transactions have occurred since 1996.

Section 7(e)(3)(F) of the FDI Act expressly charges the FDIC with

defining ``successor'' by regulation for purposes of the one-time

credit, and it provides the FDIC with broad discretion to do so. The

Board may consider any factors it deems appropriate.

In developing its proposal regarding the definition of

``successor,'' the FDIC viewed the issue in the context of two

fundamental questions: what would be most consistent with the purpose

of the one-time credit and what would be operationally viable. While a

number of definitions of ``successor'' are possible in light of the

discretion accorded the FDIC in defining the term, on balance, the FDIC

concluded that one approach was more consistent with the purpose of the

credit and more operationally viable.

The FDIC considered definitions that would focus on the institution

itself and definitions that linked credits to deposits and considered

the arguments in support of those definitions. Proponents of an

institution-based approach might argue that it is the institution that

paid deposit insurance premiums to capitalize the insurance funds, that

the potential one-time credit would be one of the rights or privileges

of an institution that would be acquired through merger or

consolidation under general principles of corporate law, and that a

different approach could result in institutions that had not paid

premiums to capitalize the funds receiving credits. Proponents of a

``follow-the-deposits'' definition, however, might argue that the one-

time credit should adhere to deposits because the one-time credit is to

be allocated based on deposits and is intended to offset future

assessments to be paid on deposits. The FDIC also considered the

operational viability of these approaches to the definition and found

that the FDIC's existing systems of records could support an

institution-based approach, but a ``follow-the-deposits'' approach

would require collection of information from the industry before it

could be fully implemented.

For the reasons set forth below, the FDIC proposes to define

``successor'' for purposes of the one-time credit as the resulting

institution in a merger or consolidation occurring after December 31,

1996. As proposed, the definition would not include a purchase and

assumption transaction, even if substantially all of the assets and

liabilities of an institution are acquired by the assuming institution.

However, the FDIC further requests comment on whether to include in

this definition a regulatory definition of a de facto merger to

recognize that the results of some transactions, which are not

technically mergers or consolidations, largely mirror the results of a

merger or consolidation.

a. Merger or Consolidation Rule

Defining ``successor'' as the resulting institution in a merger or

consolidation is consistent with the clear purpose of the one-time

assessment credit--that is, to recognize the contributions that some

insured depository institutions made to capitalize the deposit

insurance funds and conversely to recognize the fact that many newer

institutions have never paid assessments because they were chartered

after the reserve ratios of BIF and SAIF reached 1.25 percent and most

institutions were charged nothing.\6\ In addition, the FDIC believes

that this definition is consistent with the general expectations of the

industry, because it reflects the common legal meaning of the word

``successor'' and the principle that the resulting corporation in a

merger or consolidation generally receives the rights, privileges,

interests, and liabilities of the merging or consolidating

corporations. 15 William Meade Fletcher et al., Fletcher Cyclopedia of

the Law of Private Corporations Sec. Sec. 7041-7100 (perm. ed., rev.

vol. 1999). Institutions that acquired other institutions by way of

merger or consolidation will have believed that they were acquiring all

of the rights and privileges of the acquired institution, known or

unknown.

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\6\ Prior to the effective date of changes to the FDIC's

assessment authority by the Reform Act, the FDIC is required to set

assessments when necessary and only to the extent necessary to

maintain the reserve ratio at 1.25 percent of estimated insured

deposits, except for those institutions that exhibit financial,

operational, or compliance weaknesses ranging from moderately severe

to unsatisfactory, or are not well capitalized. 12 U.S.C.

1817(b)(2)(A) (2005).

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While it is possible that some state banking laws may differ, this

definition is consistent with the National Bank Consolidation and

Merger Act. 12 U.S.C. 215, 216. The FDIC has significant discretion in

defining the term ``successor'' for these purposes, and a single

federal standard is essential to allow the FDIC to implement and

administer the one-time credit requirement in a timely and efficient

manner.

Mergers and consolidations require regulatory approval under

section 18(c) of the FDI Act, and the FDIC maintains records on true

mergers and consolidations. Only if the FDIC's records are incomplete

or in error will institutions have to provide information to the FDIC.

Because the ``merger or consolidation rule'' relies principally on

existing data, it is operationally viable. In addition, a merger or

consolidation rule would not advantage or disadvantage parties simply

on the basis of whether they kept records on transactions for which the

statute of limitations has expired.\7\

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\7\ Section 7(b)(5) of the FDI Act currently requires

institutions to maintain assessment-related records for five years,

and section 7(g) provides a five-year statute of limitations for

assessment actions. The Reform Act includes amendments to those

provisions, prospectively shortening both to three years, effective

on the date that new assessment regulations take effect. See

sections 2104(b), (d) and 2109(a)(5) of the Reform Act.

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b. De Facto Merger Alternative

Some transactions may be viewed as effectively paralleling the

results of a merger or consolidation. The FDIC looked to traditional

principles of corporate law for guidance on this issue and found a

useful analogy. Traditional corporate law principles provide for

[[Page 28813]]

certain exceptions to the general rule that liabilities do not transfer

with the sale of assets, including an exception for a transaction that

amounts to a de facto merger or consolidation (``de facto merger'').

The FDIC recognizes, however, that a de facto merger exception

could be viewed as a departure to some extent from the clear, bright

line that a strictly applied merger or consolidation rule would

provide. The FDIC, therefore, seeks comment on whether to include de

facto mergers in the definition of ``merger'' for purposes of the one-

time assessment credit and to provide a regulatory definition of de

facto merger. A de facto merger for these purposes could be defined,

for example, as an eligible institution conveying all of its deposit

liabilities and substantially all of its assets to a single acquiring

institution, so long as the conveying institution subsequently

terminated its deposit insurance. This type of transaction might have

arisen, for example, as part of a voluntary liquidation. Even under

this alternative, unless an eligible institution actually merged or

consolidated with another institution, it would not have a successor if

it conveyed its assets and deposit liabilities to more than one

acquiring institution.

2. Alternative Approaches to Definition of Successor That Would

``Follow the Deposits''

The FDIC also explored alternative definitions of successor that

allowed credits to follow deposits (regardless of the means by which

deposits were transferred, including merger, consolidation, branch

sale, or other deposit transfer). These alternative definitions might

be based on a view that credits should adhere to deposits, as described

above. Under these alternative definitions, credits could be

transferred on a pro rata basis with the deposits transferred or they

could be split between the parties to the deposit transfer transaction.

Splitting the credits associated with a deposit transfer between the

buyer and seller would be a compromise solution and would recognize

that, as a practical matter, it is unlikely the parties to most of

these deposit transfers took into account the potential for assessment

credits at the time of the transactions.

After considering the arguments, the FDIC concluded that a

``follow-the-deposits'' approach seemed less consistent with the

purpose of the one-time credit and did not reflect the reasonable

expectations of parties to transactions based on general corporate law

principles. In addition, the FDIC was concerned about the viability of

a ``follow-the-deposits'' approach because of: An absence of reliable

existing data; the number of interrelated transactions that would have

to be resolved due to the passage of time and consolidation in the

industry; and the potential inequities and litigation risks inherent in

mechanisms (such as thresholds or other choices) that might be used to

reduce the number of potential claims to a more manageable level.

Potential inequities also arise in connection with the data issue

because institutions that engaged in very similar transactions could be

treated differently solely because some institutions retained records

long past the expiration of the statute of limitations and others did

not.

The FDIC does not routinely maintain the detailed data on all

deposit transfer transactions that would be necessary to implement a

``follow-the-deposits'' rule. Thus, most, if not all, of the necessary

information would have to be collected from the industry and disputes

between institutions resolved before a deposit transfer approach to

allocating the one-time credit could be fully implemented. As

previously noted, available data suggests that, in addition to roughly

3,850 mergers and consolidations, at least 1,400 and perhaps over 1,800

branch or deposit transactions may have occurred since 1996.

Because of the possibility of a chain of mergers, consolidations,

and deposit transfers, resolving one institution's claim to one-time

credits first might require examining claims from many transactions in

the chain. In most cases, the FDIC would have to review and rely on the

records of the institutions involved in the deposit transfer. Appeals

of credit determinations could become lengthy fact finding exercises

involving the comparison of the available evidence from all of the

institutions involved.

The FDIC explored developing a type of de minimis rule under which,

for example, only deposit transfers (or a series of transfers) from one

institution to another that, in total, exceeded some percentage

threshold, such as 15 percent of the transferor's total domestic

deposits or 30 percent of the transferee's deposits as determined at

the time of the transfer, might be considered. The FDIC was concerned,

however, that thresholds or other choices to limit the number of

institutions covered by a rule by their nature may result in disparate

treatment of otherwise similarly situated institutions.

Because the statute of limitations will have expired with respect

to many deposit transfer transactions from the late 1990s, institutions

may not have retained records of these transactions. Institutions that

saved their records would have a significant advantage over those that

did not, potentially leading to results based solely on the

availability of records.

The FDIC is seeking comment on the proposed definition of

``successor,'' as well as alternative ``follow-the-deposits''

approaches, for purposes of the one-time assessment credit. The FDIC

requests that commenters address the purpose of the one-time credit and

the extent to which the various possible definitions of ``successor''

are viewed as consistent with that purpose. In addition, the FDIC

requests that commenters consider whether a ``follow-the-deposits''

approach might be made more operationally viable, including how the

data issues might be addressed.

3. No Successor Identified

If there is no successor to an institution that would have been

eligible for the one-time assessment credit before the effective date

of the final rule, because an otherwise eligible institution ceased to

be an insured depository institution before that date, then the FDIC

proposes that that portion of the aggregate one-time credit amount be

redistributed among the eligible institutions. For example, if an

otherwise eligible insured depository institution failed after December

31, 1996, but before the issuance of the final rule implementing the

one-time credit, and had no successor, that institution would be

excluded from the calculation. As a result, the remaining eligible

institutions would receive a proportionate share of that failed

institution's share of the one-time credit.

On the other hand, if there is no successor to an eligible insured

depository institution that ceases to exist after the Board issues the

final rule and allocates the one-time assessment credit among eligible

insured depository institutions, it is proposed that that institution's

credits expire unused. One example would be the failure of an eligible

institution after it has received its one-time credit amount. Under

those circumstances, any remaining one-time credit amount would simply

expire.

D. Notification of 1996 Assessment Base Ratio and Credit Amount

The FDIC intends to make available a searchable database provided

through the FDIC's public Web site (http://www.fdic.gov) that shows

each currently existing institution and its predecessors by merger or

consolidation from January 1, 1997, onward, based on information

[[Page 28814]]

contained in certified statements, AIMS II, and the Structure

Information Management System (``SIMS'').\8\ The database would include

corresponding December 31, 1996 assessment base amounts for each

institution and its predecessors and preliminary estimates of the

amount of one-time credit that the existing institution would receive

based on the proposed definition of successor.

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\8\ SIMS maintains current and historical non-financial data for

all institutions that is retrieved by AIMS II to identify the

current assessable universe for each quarterly assessment invoice

cycle. SIMS offers institution-specific demographic data, including

a complete set of information on merger or consolidation

transactions. SIMS, however, does not contain complete information

about deposit or branch sales.

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The database will also allow searching by institution name or

insurance certificate number to ascertain which current institution (if

any) would be considered a successor to an institution that no longer

exists. Institutions would have the opportunity to review this

information, which could significantly reduce the time needed to

determine successors even if one of the ``follow-the-deposits''

alternatives for defining ``successor'' is adopted in the final rule.

Institutions should be aware that this preliminary estimate could

change, for example, because of a change in the definition of

``successor'' adopted in the final rule or because of a change to the

information available to the FDIC for determining successorship.

As soon as practicable after the Board approves the final rule, the

FDIC proposes to notify each insured depository institution of its 1996

assessment base ratio and share of the one-time assessment credit,

based on the information developed through the FDIC's searchable

database. The notice would take the form of a Statement of One-time

Credit (or ``Statement''): Informing every institution of its 1996

assessment base ratio; itemizing the 1996 assessment bases to which the

institution may now have claims pursuant to the successor rule based on

existing successor information in the database; providing the amount of

the institution's one-time credit based on that 1996 assessment base

ratio as applied to the aggregate amount of the credit; and providing

the explanation as to how ratios and resulting amounts were calculated

generally. The FDIC proposes to provide the Statement of One-time

Credit through FDICconnect and by mail in accordance with existing

practices for assessment invoices.

Under the proposal, if an institution has any question as to the

calculation of its 1996 assessment base ratio or its credit amount, the

institution would be advised to contact the Division of Finance. The

FDIC encourages institutions to discuss and attempt to resolve

perceived discrepancies due to an omission of a merger or

consolidation, or due to disagreement about the size of an

institution's 1996 assessment base while the notice of proposed

rulemaking is out for comment.\9\ As described below, each institution

would have the opportunity to challenge formally the amount of its one-

time credit, regardless of whether the institution sought an informal

resolution during the rulemaking. Depending upon the definition of

``successor'' ultimately adopted, some challenges may not be resolved

prior to the collection of assessments after the effective date of the

final rule. However, the FDIC proposes to make available any credit

amounts that are not in controversy. For example, if an eligible

institution argues that it may be entitled to a larger share of the

one-time credit as a successor, the amount of its original 1996 base

ratio and share will be available (assuming they are not in dispute),

and any potential additional credit amounts would be frozen until

resolution of the challenge.

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\9\ Staff believes that the information developed through the

searchable database would be useful even if the final rule defines

``successor'' in a way that follows deposits, because a ``follow-

the-deposit'' definition would include recognition of the deposits

actually transferred as part of a merger or consolidation.

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E. Requests for Review of Credit Amounts

Section 7(e)(4) of the FDI Act requires the FDIC's credit

regulations to include provisions allowing an institution a reasonable

opportunity to challenge administratively the amount of its one-time

credit. The FDIC's determination of the amount following any such

challenge is to be final and not subject to judicial review. The

proposed administrative procedures are intended generally to parallel

the process for requesting revision of computation of quarterly

assessment payments. Deadlines, however, would be shorter because of

the need to resolve credit appeals quickly so institutions can use the

credits to offset assessments.

As noted above, the FDIC expects to notify each institution of its

one-time credit share as soon as practicable after the issuance of the

one-time assessment credit final rule through FDICconnect and by mail.

The Statement of One-time Credit would include: The 1996 assessment

base ratio for the institution; the amount of the assessment credit to

be awarded to the institution based on the 1996 ratio; and a discussion

of the basis for these calculations, based on the FDIC's definition of

``successor'' and any other relevant factors.

After this initial notification, it is proposed that an updated

notice of the remaining amount of one-time credit, as well as any

appropriate adjustment to an institution's 1996 assessment base ratio

due to a subsequent merger or consolidation, would be included with

each quarterly assessment invoice until an institution's credits have

been exhausted. The initial Statement and any subsequent assessment

invoices advising of the remaining credit amount or an adjustment to

the assessment base ratio would also advise institutions of their right

to challenge the calculation and the procedures to follow.

The FDIC proposes that an institution could request review if (1)

It disagrees with the FDIC's determination of eligibility or

ineligibility for the credit; (2) it disagrees with the computation of

the credit amount on the initial Statement or any subsequent invoice,

or (3) it believes that the Statement or a subsequently updated invoice

does not fully or accurately reflect appropriate adjustments to the

institution's 1996 assessment base ratio. For example, the institution

may believe that its 1996 assessment base ratio has not been adjusted

to reflect its acquisition through merger of an eligible institution.

The FDIC also proposes that an institution that disagrees with the

FDIC's determination have 30 days from the date the FDIC made available

its Statement of One-time Credit or adjusted invoice to file a request

for review with the Division of Finance. The request would have to be

accompanied by any documentation supporting the institution's claim.

The FDIC proposes that, if an institution does not submit a timely

request for review, the institution be barred from subsequently

requesting review of its one-time assessment credit amount.

In addition, the requesting institution would have to identify all

other institutions of which it knew or had reason to believe would be

directly and materially affected by granting the request for review and

provide those institutions with copies of the request for review and

supporting documentation, as well as the FDIC's procedures for these

requests for review. The FDIC would make reasonable efforts, based on

its official systems of records, to determine that such institutions

have been identified and notified. These institutions would then have

30 days to submit a response and any supporting documentation to the

FDIC's Division of Finance, copying the institution making the original

request

[[Page 28815]]

for review. If an institution identified and notified through this

process does not submit a timely response, the FDIC proposes that the

institution would be: (1) Foreclosed from subsequently disputing the

information submitted by any other institution on the transaction(s) at

issue in the review process; and (2) foreclosed from any appeal of the

decision by the Director of the Division of Finance (discussed below).

Under the proposal, the FDIC also would be able to request

additional information as part of its review and require the

institution to supply that information within 21 days of the date of

the FDIC's request for additional information.

The FDIC proposes to freeze temporarily the amount of the proposed

credit in controversy for the institutions involved in the request for

review until the request is resolved.

The proposed rule would require a written response from the FDIC's

Director of the Division of Finance (``Director''): (1) Within 60 days

of receipt by the FDIC of the request for revision; (2) if additional

institutions have been notified by the FDIC, within 60 days of the last

response; or (3) if additional information has been requested by the

FDIC, within 60 days of receipt of any additional information due to

such request, whichever is later. Whenever feasible, the response would

notify the requesting institution and any materially affected

institutions of the determination of the Director as to whether the

requested change is warranted. In all instances in which a timely

request for review is submitted, the Director will make a determination

on the request as promptly as possible and notify the requesting

institution and any other materially affected institutions in writing

of the determination. Notice of the procedures applicable to reviews

will be included with the initial Statement and any subsequent

assessment invoice providing notification of the amount of credit and

any change to the institution's 1996 assessment base ratio.

Under the proposed rule, the requesting institution, or an

institution materially affected by the Director's decision, that

disagrees with that decision may appeal its credit determination to the

AAC. An appeal would have to be filed within 15 calendar days from the

date of the Director's written determination. Notice of the procedures

applicable to appeals will be included with that written determination.

The AAC's determination would be final and not subject to judicial

review.

A number of challenges may arise in connection with the

distribution of the one-time credit, in large part because many

transactions occurred after 1996 and before the Reform Act provided for

a one-time credit, and because this will be the first time that an

institution's 1996 assessment base ratio is calculated. Once those

challenges are resolved, and each institution's 1996 assessment base

ratio for purposes of its one-time credit share is established,

unforeseen circumstances or issues may lead to other challenges of

credit share, and administrative procedures will remain in place to

address those challenges.

Once the Director or the AAC has made the final determination, as

appropriate, the FDIC would adjust the affected institutions' 1996

assessment base ratios consistent with that determination and

correspondingly update each affected institution's share of the one-

time credit.

F. Using Credits

The FDIC proposes that the FDIC track each institution's one-time

credit amount and automatically apply an institution's credits to its

assessment to the maximum extent allowed by law. For fiscal year 2007

assessment periods, for most institutions, credits generally can offset

100 percent of an institution's assessment. For assessments that become

due for assessment periods beginning in fiscal years 2008, 2009, and

2010, the FDI Act provides that credits may not be applied to more than

90 percent of an institution's assessment. Thus, under the proposal,

credits would automatically apply to 90 percent of an institution's

assessment, assuming the institution has sufficient credits, subject to

the two other statutory limitations on usage. The statute does not

define a ``fiscal year'' for these purposes. The FDIC, therefore, may

define that term and proposes to define it as the calendar year.

One of the other limitations is that, for an institution that

exhibits financial, operational or compliance weaknesses ranging from

moderately severe to unsatisfactory, or is not adequately capitalized

at the beginning of an assessment period, the amount of any credit that

may be applied against the institution's assessment for the period may

not exceed the amount the institution would have been assessed had it

been assessed at the average rate for all institutions for the period.

The FDIC proposes to interpret the phrase ``average assessment rate''

to mean the aggregate assessment charged all institutions in a period

divided by the aggregate assessment base for that period. The FDI Act

does not define ``average assessment rate'' for these purposes, leaving

that to the discretion of the FDIC. On balance, the FDIC views the

proposed approach as preferable to an average calculated by the sum of

all assessment rates divided by the number of institutions, because the

proposed approach more accurately reflects the average rate actually

charged all insured institutions.

Section 7(e)(3)(E) of the FDI Act, as added by the Reform Act, also

gives the FDIC the discretion to limit the application of the one-time

credit, when the FDIC establishes a restoration plan to restore the

reserve ratio of the DIF to the range established for it.\10\ That

discretion, however, is restricted by the statute. During the time that

a restoration plan is in effect, the FDIC shall apply one-time credit

amounts against any assessment imposed on an institution for any

assessment period in an amount equal to the lesser of (1) the amount of

the assessment, or (2) the amount equal to three basis points of the

institution's assessment base.

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\10\ Section 2105 of the Reform Act, amending section 7(b)(3) of

the FDI Act to establish a range for the reserve ratio of the DIF,

will take effect on the date that final regulations implementing the

legislation with respect to the designated reserve ratio become

effective. Those regulations are required to be prescribed within

270 days of enactment. Section 2109(a)(1) of the Reform Act.

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Credit amounts may not be used to pay FICO assessments pursuant to

section 21(f) of the Federal Home Loan Bank Act, 12 U.S.C. 1441(f). The

Reform Act does not affect the authority of FICO to impose and collect,

with the approval of the FDIC's Board, assessments for anticipated

interest payments, issuance costs, and custodial fees on obligations

issued by FICO.

G. Transferring Credits

The FDI Act provides for transferring one-time credits through

successors to eligible insured depository institutions. A successor

institution, as defined by regulation, would succeed to the predecessor

institution's credits and to its 1996 assessment base ratio for

purposes of any future dividends.

The FDIC is further proposing to allow transfer of credits and

adjustments to 1996 assessment base ratios by express agreement between

insured depository institutions prior to the FDIC's final determination

of an eligible insured depository institution's 1996 assessment base

ratio and one-time credit amount pursuant to these regulations. It is

possible that such agreements might already be part of deposit transfer

contracts drafted in anticipation of deposit insurance reform

legislative changes. Alternatively,

[[Page 28816]]

institutions involved in a dispute over successorship, their 1996

assessment base ratio, and their shares of the one-time credit might

reach a settlement over the disposition of the one-time credit. In

either case, under the proposal, the FDIC would require the

institutions to submit a written agreement signed by legal

representatives of the involved institutions. Upon the FDIC's receipt

of the agreement, appropriate adjustments would be made to the

institutions' affected one-time credit amounts and 1996 assessment base

ratios. Adjustments to each institution's credit amount and 1996

assessment base ratio would then be reflected with the next quarterly

assessment invoice, so long as the institutions submit the written

agreement, at least 10 business days prior to the FDIC's issuance of

invoices for the next assessment period. If the FDIC does not receive

the written agreement at least 10 days before the next assessment

invoice, the FDIC shall retroactively adjust the invoice or invoices in

later assessment periods.

Similarly, after an institution's credit share has been finally

determined and no request for review is pending with respect to that

credit amount, the FDIC proposes to recognize an agreement between

insured depository institutions to transfer any portion of the one-time

credit from the eligible institution to another institution.

Adjustments to each institution's credit amount would then be reflected

with the next quarterly assessment invoice, so long as the institutions

notify the FDIC of such agreement, through a written agreement signed

by legal representatives of the institutions, at least 10 business days

prior to the FDIC's issuance of invoices for the next assessment

period. If the FDIC does not receive the written agreement at least 10

days before the next assessment invoice, the FDIC shall retroactively

adjust the invoice or invoices in later assessment periods.

With respect to these transactions, occurring after the

determination of each eligible institution's 1996 assessment base ratio

and share of the one-time credit as of the effective date of these

regulations, the FDIC proposes not to adjust the transferring

institution's 1996 assessment base ratio. Adjustments to the 1996

ratios would be made only to reflect mergers or consolidations

occurring after the effective date of these regulations. There would

seem to be less likelihood of disputes over successorship because

institutions would be aware of the definition of ``successor'' and

could take that into account when entering future contracts as the

parties deem appropriate. Thus, there seems little need to allow the

sale of an institution's 1996 assessment base ratio, which the FDIC

would be required to track on an ongoing basis for dividend purposes.

III. Regulatory Analysis and Procedure

A. Solicitation of Comments on Use of Plain Language

Section 722 of the Gramm-Leach-Bliley Act, Pub. Law 106-102, 113

Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies

to use plain language in all proposed and final rules published after

January 1, 2000. We invite your comments on how to make this proposal

easier to understand. For example:

Have we organized the material to suit your needs? If not,

how could this material be better organized?

Are the requirements in the proposed regulation clearly

stated? If not, how could the regulation be more clearly stated?

Does the proposed regulation contain language or jargon

that is not clear? If so, which language requires clarification?

Would a different format (grouping and order of sections,

use of headings, paragraphing) make the regulation easier to

understand? If so, what changes to the format would make the regulation

easier to understand?

What else could we do to make the regulation easier to

understand?

B. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (RFA) requires that each federal

agency either certify that a proposed rule would not, if adopted in

final form, have a significant economic impact on a substantial number

of small entities or prepare an initial regulatory flexibility analysis

of the proposal and publish the analysis for comment. See 5 U.S.C. 603,

604, 605. 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. 5

U.S.C. 601. The proposed one-time assessment credit rule relates

directly to the rates imposed on insured depository institutions for

deposit insurance, as they will offset future deposit insurance

assessments. Nonetheless, the FDIC is voluntarily undertaking an

initial regulatory flexibility analysis of the proposal and seeking

comment on it.

As discussed in detail in the SUPPLEMENTARY INFORMATION section,

the proposed rule is required by statute to implement the one-time

assessment credit added to the FDI Act by the Reform Act, and if it is

adopted in final form, would not have a significant impact on a

substantial number of small entities within the meaning of those terms

as used in the RFA. Section 7(e)(3) of the FDI Act provides for the

allocation of the one-time credit among eligible insured depository

institutions and their successors, based on each institution's

assessment base as of December 31, 1996, as compared to the combined

assessment bases of all eligible institutions. The statute defines

``eligible insured depository institution'' and requires the FDIC to

define ``successor'' for these purposes. These credits will be used to

offset deposit insurance assessments collected after the effective date

of the final rule.

All insured depository institutions that are eligible, regardless

of size, would be affected by this rule. Of the approximately 8,845

insured depository institutions as of December 31, 2005, approximately

5,360 institutions fell within the definition of ``small entity'' in

the RFA--that is, having total assets of no more than $165 million.

Approximately 4,390 small institutions appear to be eligible for the

one-time credit under the FDI Act definition of ``eligible insured

depository institution.'' These institutions would have approximately

$241 million in one-time credits out of a total of approximately $4.7

billion in one-time credits, given the FDI Act definition of ``eligible

insured depository institution'' and the definition of ``successor''

proposed in this rulemaking.\11\ These one-time credits represent

approximately 8 basis points of the combined assessment base of small

institutions as of December 31, 2005. Assuming, for purposes of

illustration, that small institutions were charged an average annual

assessment rate of 2 basis points, these one-time credits would last,

on average, approximately 4 years. In sum, most small, eligible

institutions would benefit if the proposed rule were made final.

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\11\ The present value of these one-time credits depends upon

when they are used, which in turn depends on the assessment rates

charged. The one-time credits do not earn interest; therefore, the

higher the assessment rate charged--and the faster credits are

used--the greater their present value. The FDIC has proposed making

one-time credits transferable, which could increase their present

value.

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The proposed rule relies primarily on information already available

to the FDIC and requires little new reporting or recordkeeping. If an

eligible institution, regardless of size, disagrees with the FDIC's

determination of its credit amount, it may request review of

[[Page 28817]]

that determination. The review procedures are required by the statute

and largely parallel existing procedures for similar requests for

review. Moreover, the FDIC proposes to recognize settlements between

institutions if there is a disagreement as to an institution's

eligibility or the amount of its credit. The FDIC would merely require

the institutions' to demonstrate their agreement with the submission of

a signed document. Neither the request for review nor the submission of

agreement is required generally, but rather is aimed at responding to

questions raised by individual institutions based on their particular

circumstances. Thus, the FDIC does not view the proposed rule as

imposing a significant burden on small institutions.

Based on these findings, particularly the ability to offset future

assessments for some period of time, the FDIC has concluded that the

economic impact of the one-time credit rule would be largely positive

and could be ``significant'' for some small, eligible institutions. One

potentially negative economic impact could be felt by a small number of

institutions that would not be eligible under the proposed definition

of ``successor,'' but might be eligible if an alternative definition

were adopted to recognize acquisitions of deposit or branches. As

discussed more fully in the SUPPLEMENTARY INFORMATION section, the FDIC

concluded that the proposed definition of successor is more consistent

with the purpose of the one-time credit and more operationally viable.

It is particularly noted, for RFA purposes, that the proposed

definition, for the most part, relies on existing data in the FDIC's

official systems of records, while the alternatives considered would

require collection of information from the industry. (The alternative

definitions of ``successor'' also would not affect a substantial number

of small institutions.\12\)

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\12\ Preliminary analysis suggests that the eligibility or

credit amounts of some small institutions could be affected if the

alternative definition of a ``successor'' as the acquirer of

deposits, regardless of whether acquired through a merger or

consolidation, were adopted. Compared to the proposed definition of

``successor,'' at least 330 small institutions could gain or lose

credits. However, the value of the gain or loss is not known because

the FDIC does not maintain comprehensive records of deposit

transfers.

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The FDIC has been unable to identify any other relevant federal

rules that may duplicate or conflict with this proposed rule, although

the FDIC's Notice of Proposed Rulemaking to implement the dividend

requirements added by the Reform Act overlaps with this proposed rule

because both statutory provisions rely to some extent on an

institution's assessment base as of December 31, 1996. Commenters are

invited to provide the FDIC with any information they may have about

the likely quantitative effects of the proposal.

C. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et

seq.) the FDIC may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a

currently valid Office of Management and Budget (OMB) control number.

The collection of information contained in this proposed rule has been

submitted to OMB for review.

ADDRESSES: Interested parties are invited to submit written comments to

the FDIC concerning the Paperwork Reduction Act implications of this

proposal. Such comments should refer to ``Notification of Credit

Transfers, 3064-AD08.'' Comments may be submitted by any of the

following methods:

http://www.FDIC.gov/regulations/laws/federal/propose.html..

E-mail: comments@fdic.gov. Include ``Notification of

Credit Transfers, 3064-AD08'' in the subject line of the message.

Mail: Steve Hanft (202-898-3907), Federal Deposit

Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

Hand Delivery: Comments may be hand-delivered to the guard

station at the rear of the 17th Street Building (located on F Street),

on business days between 7 a.m. and 5 p.m.

A copy of the comments may also be submitted to the OMB

desk officer for the FDIC, Office of Information and Regulatory

Affairs, Office of Management and Budget, New Executive Office

Building, Washington, DC 20503.

Comment is solicited on:

(1) Whether the proposed collection of information is necessary for

the proper performance of the functions of the agency, including

whether the information will have practical utility;

(2) The accuracy of the agency's estimate of the burden of the

proposed collection of information, including the validity of the

methodology and assumptions used;

(3) The quality, utility, and clarity of the information to be

collected;

(4) Ways to minimize the burden of the collection of information on

those who are to respond, including through the use of appropriate

automated, electronic, mechanical, or other technological collection

techniques or other forms of information technology; e.g., permitting

electronic submission of responses; and

(5) Estimates of capital or start-up costs and costs of operation,

maintenance, and purchases of services to provide information.

Summary of the collection: The information collection occurs when

an institution participates in a transaction that results in the

transfer of one-time credits or an institution's 1996 assessment base,

as permitted under the proposed rule, and seeks the FDIC's recognition

of that transfer. It is expected that most transactions will occur

during the first year.

Need and Use of the Information: Institutions are required to

notify the FDIC of these transactions so that the FDIC can accurately

track the transfer of credits, apply available credits appropriately

against institutions' deposit insurance assessments, and determine an

institution's 1996 assessment base if the transaction involved both the

base and the credit amount. The need for credit transfer information

will expire when the credit pool has been exhausted.

Respondents: Insured depository institutions.

Frequency of response: Occasional.

Annual Burden Estimate:

Number of responses: 200-500 during the first year with fewer than

10 per year thereafter.

Average number of hours to prepare a response: 2 hours.

Total annual burden: 400-1,000 hours the first year, and fewer than

100 hours thereafter.

D. The Treasury and General Government Appropriations Act, 1999--

Assessment of Federal Regulations and Policies on Families

The FDIC has determined that the proposed rule will not affect

family well-being within the meaning of section 654 of the Treasury and

General Government Appropriations Act, enacted as part of the Omnibus

Consolidated and Emergency Supplemental Appropriations Act of 1999

(Public Law 105-277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 327

Bank deposit insurance, Banks, Banking, Savings associations.

Authority and Issuance

For the reasons set forth in the preamble, the FDIC proposes to

amend chapter III of title 12 of the Code of Federal Regulations as

follows:

[[Page 28818]]

PART 327--ASSESSMENTS

1. Revise subpart B, consisting of Sec. 327.30 through 327.36, to

read as follows:

Subpart B--Implementation of One-time Assessment Credit

Sec.

327.30 Purpose and scope.

327.31 Definitions.

327.32 Determination of aggregate credit amount.

327.33 Determination of eligible institution's credit amount.

327.34 Transferability of credits.

327.35 Application of credits.

327.36 Requests for review of credit amount.

Subpart B--Implementation of One-time Assessment Credit

Authority: 12 U.S.C. 1817(e)(3).

Sec. 327.30 Purpose and scope.

(a) Scope. This subpart B of part 327 implements the one-time

assessment credit required by section 7(e)(3) of the Federal Deposit

Insurance Act, 12 U.S.C. 1817(e)(3) and applies to insured depository

institutions.

(b) Purpose. This subpart B of part 327 sets forth the rules for:

(1) Determination of the aggregate amount of the one-time credit;

(2) Identification of eligible insured depository institutions;

(3) Determination of the amount of each eligible institution's

December 31, 1996 assessment base ratio and one-time credit;

(4) Transferability of credit amounts among insured depository

institutions;

(5) Application of such credit amounts against assessments; and

(6) An institution's request for review of the FDIC's determination

of a credit amount.

Sec. 327.31 Definitions.

For purposes of this subpart and subpart C of this part:

(a) The average assessment rate for any assessment period means the

aggregate assessment charged all insured depository institutions for

that period divided by the aggregate assessment base for that period.

(b) Board means the Board of Directors of the FDIC.

(c) An eligible insured depository institution means an insured

depository institution that:

(1) Was in existence on December 31, 1996, and paid a deposit

insurance assessment before December 31, 1996; or

(2) Is a successor to an insured depository institution referred to

in paragraph (c)(1) of this section. The term shall not include an

institution if its insured status has terminated.

(d) Merger means any transaction in which an insured depository

institution merges or consolidates with any other insured depository

institution. Notwithstanding part 303, subpart D, for purposes of this

subpart B and subpart C of this part, merger does not include all

transactions in which an insured depository institution either directly

or indirectly acquires the assets of, or assumes liability to pay any

deposits made in, any other insured depository institution.

(e) Resulting institution refers to the acquiring, assuming, or

resulting institution in a merger.

(f) Successor means a resulting institution.

Sec. 327.32 Determination of aggregate credit amount.

The aggregate amount of the one-time credit shall equal the product

of:

(a) The combined assessment base of BIF and SAIF as of December 31,

2001, as reflected in the FDIC's official system of record for

determination of assessment bases and assessments due; and

(b) 10.5 basis points.

Sec. 327.33 Determination of eligible institution's credit amount.

(a) Allocation of the one-time credit shall be based on each

eligible insured depository institution's 1996 assessment base ratio.

(b) An institution's 1996 assessment base ratio shall consist of:

(1) Its assessment base as of December 31, 1996 (adjusted as

appropriate to reflect the assessment base of December 31, 1996, of all

eligible institutions for which it is the successor), as the numerator;

and

(2) The combined aggregate assessment bases of all eligible insured

depository institutions, including any successor institutions, as of

December 31, 1996, as the denominator.

Sec. 327.34 Transferability of credits

(a) Any remaining amount of the one-time assessment credit and the

associated 1996 assessment base ratio shall transfer to a successor of

an eligible insured depository institution.

(b) Prior to the final determination of its 1996 assessment base

and one-time assessment credit amount, an eligible insured depository

institution may enter into an agreement to transfer any portion of such

institution's one-time credit amount and 1996 assessment base ratio to

another insured depository institution. The parties to the agreement

shall submit to the FDIC's Division of Finance a written agreement,

signed by legal representatives of both institutions. The adjustment to

credit amount and the associated 1996 assessment base ratio shall be

made in the next assessment invoice that is sent at least 10 days after

the FDIC's receipt of the written agreement. If the FDIC does not

receive the written agreement at least 10 days before the next

assessment invoice, the FDIC shall retroactively adjust the invoice or

invoices in later assessment periods.

(c) An eligible insured depository institution may enter into an

agreement after the final determination of its 1996 assessment base

ratio and one-time credit amount to transfer any portion of such

institution's one-time credit amount to another insured depository

institution. The parties to the agreement shall submit to the FDIC's

Division of Finance a written agreement, signed by legal

representatives of both institutions. The adjustment to the credit

amount shall be made in the next assessment invoice that is sent at

least 10 days after the FDIC's receipt of the written agreement. If the

FDIC does not receive the written agreement at least 10 days before the

next assessment invoice, the FDIC shall retroactively adjust the

invoice or invoices in later assessment periods.

Sec. 327.35 Application of credits.

(a) Subject to the limitations in paragraph (b) of this section,

the amount of an institution's one-time credit shall be applied to the

maximum extent allowable by law against that institution's quarterly

assessment payment under subpart A of this part, until the

institution's credit is exhausted.

(b) The following limitations shall apply to the application of the

credit against assessment payments.

(1) For assessments that become due for assessment periods

beginning in calendar years 2008, 2009, and 2010, the credit may not be

applied to more than 90 percent of the quarterly assessment.

(2) For an insured depository institution that exhibits financial,

operational, or compliance weaknesses ranging from moderately severe to

unsatisfactory, or is not at least adequately capitalized (as defined

pursuant to section 38 of the Federal Deposit Insurance Act) at the

beginning of an assessment period, the amount of the credit that may be

applied against the institution's quarterly assessment for that period

shall not exceed the amount that the institution would have been

assessed if it had been assessed at the average assessment rate for all

insured institutions for that period.

[[Page 28819]]

(3) If the FDIC has established a restoration plan pursuant to

section 7(b)(3)(E) of the Federal Deposit Insurance Act, the FDIC may

elect to restrict the application of credit amounts, in any assessment

period, to the lesser of:

(i) The amount of an insured depository institution's assessment

for that period; or

(ii) The amount equal to 3 basis points of the institution's

assessment base.

Sec. 327.36 Requests for review of credit amount.

(a)(1) An insured depository institution may submit a request for

review of the FDIC's final determination of the institution's credit

amount as shown on the Statement of One-time Credit (``Statement'')

within 30 days of the date the FDIC makes the Statement available. Such

review may be requested if:

(i) The institution disagrees with a determination as to

eligibility for the credit that relates to that institution's credit

amount;

(ii) The institution disagrees with the calculation of the credit

as stated on the Statement; or

(iii) The institution believes that the 1996 assessment base ratio

attributed to the institution on the Statement does not fully or

accurately reflect its own 1996 assessment base or appropriate

adjustments for successors.

(2) If an institution does not submit a timely request for review,

that institution may not subsequently request review of its credit

amount, subject to paragraph (e) of this section.

(b)(1) An insured depository institution may submit a request for

review of the FDIC's adjustment to the credit amount in a quarterly

invoice within 30 days of the date on which the FDIC provides the

invoice. Such review may be requested if:

(i) The institution disagrees with the calculation of the credit as

stated on the invoice; or

(ii) The institution believes that the 1996 assessment base ratio

attributed to the institution due to the adjustment to the invoice does

not fully or accurately reflect appropriate adjustments for successors

since the last quarterly invoice.

(2) If an institution does not submit a timely request for review,

that institution may not subsequently request review of its credit

amount, subject to paragraph (e) of this section.

(c) The request for review shall be submitted to the Division of

Finance and shall provide documentation sufficient to support the

change sought by the institution. At the time of filing with the FDIC,

the requesting institution shall notify, to the extent practicable, any

other insured depository institution that would be directly and

materially affected by granting the request for review and provide such

institution with copies of the request for review, the supporting

documentation, and the FDIC's procedures for requests under this

subpart. The FDIC shall make reasonable efforts, based on its official

systems of records, to determine that such institutions have been

identified and notified.

(d) During the FDIC's consideration of the request for review, the

amount of credit in dispute shall not be available for use by any

institution.

(e) Within 30 days of the filing of the request for review, those

institutions identified as potentially affected by the request for

review may submit a response to such request, along with any supporting

documentation, to the Division of Finance, and shall provide copies to

the requesting institution. If an institution that was notified under

paragraph (c) of this section does not submit a response to the request

for review, that institution may not:

(1) Subsequently dispute the information submitted by other

institutions on the transaction(s) at issue in the review process; or

(2) Appeal the decision by the Director of the Division of Finance.

(f) If additional information is requested of the requesting or

affected institutions by the FDIC, such information shall be provided

by the institution within 21 days of the date of the FDIC's request for

additional information.

(g) Any institution submitting a timely request for review will

receive a written response from the FDIC's Director of the Division of

Finance:

(1) Within 60 days of receipt by the FDIC of the request for

revision;

(2) If additional institutions have been notified by the requesting

institution or the FDIC, within 60 days of the date of the last

response to the notification; or

(3) If additional information has been requested by the FDIC,

within 60 days of receipt of the additional information,whichever is

later. Whenever feasible, the response will notify the institution of

the determination of the Director as to whether the requested change is

warranted. In all instances in which a timely request for review is

submitted, the Director will make a determination on the request as

promptly as possible and notify the institution in writing of the

determination. Notice of the procedures applicable to reviews will be

included with the Statement and assessment invoices.

(h) Subject to paragraph (e) of this section, the insured

depository institution that requested review under this section, or an

insured depository institution materially affected by the Director's

determination, that disagrees with that determination may appeal to the

FDIC's Assessment Appeals Committee on the same grounds as set forth

under paragraph (a) of this section. Any such appeal must be submitted

within 15 calendar days from the date of the Director's written

determination. Notice of the procedures applicable to appeals under

this section will be included with the Director's written

determination. The decision of the Assessment Appeals Committee shall

be the final determination of the FDIC.

By order of the Board of Directors.

Dated at Washington, DC, this 9th day of May, 2006.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. E6-7583 Filed 5-17-06; 8:45 am]

BILLING CODE 6714-01-P