FDIC Federal Register Citations

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

[Proposed Rules]

[Page 28804-28809]

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

[DOCID:fr18my06-16]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-ADO7

Dividends

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing to amend 12 CFR 327 to implement the

dividend requirements in the recently enacted Federal Deposit Insurance

Reform Act of 2005 (``Reform Act'') and the Federal Deposit Insurance

Reform Conforming Amendments Act of 2005 (``Amendments Act'') for an

initial two-year period. The proposed rule would sunset on December 31,

2008. If this proposal is adopted, during 2007, the FDIC would plan to

undertake a second notice-and-comment rulemaking beginning with an

Advanced Notice of Proposed Rulemaking to explore alternative methods

for distributing future dividends after this initial two-year period.

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

The Reform Act requires the FDIC to prescribe final regulations,

within 270 days of enactment, to implement the dividend requirements,

including regulations governing the method for the calculation,

declaration, and payment of dividends and administrative appeals of

individual dividend amounts. See sections 2107(a) and 2109(a)(3) of the

Reform Act.\1\

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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.

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 one-time assessment credit, 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 one-assessment credit 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 dividends. Additional rulemakings on the designated

reserve ratio and risk-based assessments are expected to be proposed

in the near future.

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Section 7(e)(2) of the Federal Deposit Insurance Act (``FDI Act''),

as amended by the Reform Act, requires that the FDIC, under most

circumstances, declare dividends from the Deposit Insurance Fund

(``DIF'' or ``fund'') when the reserve ratio at the end of a calendar

year exceeds 1.35 percent, but is no greater than 1.5 percent. In that

event, the FDIC must generally declare one-half of the amount in the

DIF in excess of the amount required to maintain the reserve ratio at

1.35 percent as dividends to be paid to insured depository

institutions. However, the FDIC's Board of Directors (``Board'') may

suspend or limit dividends to be paid, if the Board determines in

writing, after taking a number of statutory factors into account, that:

1. The DIF faces a significant risk of losses over the next year;

and

2. It is likely that such losses will be sufficiently high as to

justify a finding by the Board that the reserve ratio should

temporarily be allowed to grow without requiring dividends when the

reserve ratio is between 1.35 and 1.5 percent or to exceed 1.5

percent.\2\

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\2\ This provision would allow the FDIC's Board to suspend or

limit dividends in circumstances where the reserve ratio has

exceeded 1.5 percent, if the Board made a determination to continue

a suspension or limitation that it had imposed initially when the

reserve ratio was between 1.35 and 1.5 percent.

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In addition, the statute requires that the FDIC, absent certain

limited circumstances (discussed in footnote 2), declare a dividend

from the DIF when the reserve ratio at the end of a calendar year

exceeds 1.5 percent. In that event, the FDIC must declare the amount in

the DIF in excess of the amount required to maintain the reserve ratio

at 1.5 percent

[[Page 28805]]

as dividends to be paid to insured depository institutions.

If the Board decides to suspend or limit dividends, it must submit,

within 270 days of making the determination, a report to the Committee

on Banking, Housing, and Urban Affairs of the Senate and to the

Committee on Financial Services of the House of Representatives. The

report must include a detailed explanation for the determination and a

discussion of the factors required to be considered.\3\

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\3\ See section 5 of the Amendments Act. Public Law 109-173, 119

Stat. 3601, which was signed into law by the President on February

15, 2006.

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The FDI Act directs the FDIC to consider each insured depository

institution's relative contribution to the DIF (or any predecessor

deposit insurance fund) when calculating such institution's share of

any dividend. More specifically, when allocating dividends, the Board

must consider:

1. The ratio of the assessment base of an insured depository

institution (including any predecessor) on December 31, 1996, to the

assessment base of all eligible insured depository institutions on that

date;

2. The total amount of assessments paid on or after January 1,

1997, by an insured depository institution (including any predecessor)

to the DIF (and any predecessor fund); \4\

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\4\ This factor is limited to deposit insurance assessments paid

to the DIF (or previously to the Bank Insurance Fund (``BIF'') or

the Savings Association Insurance Fund (``SAIF'')) and does not

include assessments paid to the Financing Corporation (``FICO'')

used to pay interest on outstanding FICO bonds, although the FDIC

collects those assessments on behalf of FICO. Beginning in 1997, the

FDIC collected separate FICO assessments from both SAIF and BIF

members.

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3. That portion of assessments paid by an insured depository

institution (including any predecessor) that reflects higher levels of

risk assumed by the institution; and

4. Such other factors as the Board deems appropriate.

The statute does not define the term ``predecessor'' for purposes

of the distribution of dividends to insured depository institutions.

Predecessor deposit insurance funds are the BIF and the SAIF, as

those were the deposit insurance funds in existence after 1996 and

prior to enactment of the Reform Act, and which merged into the DIF.

That merger was effective on March 31, 2006.

The statute expressly requires the FDIC to prescribe by regulation

the method for calculating, declaring, and paying dividends. As with

the one-time assessment credit, the dividend regulation must include

provisions allowing a bank or thrift a reasonable opportunity to

administratively challenge the amount of dividends it is awarded. Any

review by the FDIC pursuant to these administrative procedures is to be

considered final and not subject to judicial review.

Accordingly, the FDIC today is requesting comment on proposed rules

that would implement the dividend requirement added by the Reform Act.

II. Description of the Proposal

As part of this rulemaking, the FDIC must establish the process for

the Board's annual determination of whether a declaration of a dividend

is required and consideration, to the extent appropriate, of whether

circumstances indicate that a dividend should be limited or suspended.

In addition, the FDIC must set forth the procedures for calculating the

aggregate amount of any dividend, allocating that aggregate amount

among insured depository institutions considering the factors provided,

and paying such dividends to individual insured depository

institutions. Furthermore, these regulations must allow an insured

depository institution a reasonable opportunity to challenge the amount

of its dividend.

A. Annual Determination of Whether Dividends Are Required/Declaration

of Dividends

The statute requires the FDIC to determine whether at the end of

each calendar year the reserve ratio of the DIF equals or exceeds 1.35

percent or exceeds 1.5 percent, thereby triggering a dividend

requirement.

If the reserve ratio equals or exceeds 1.35 percent of estimated

insured deposits, then the FDIC generally is required to declare the

amount that is equal to one-half the amount in excess of the amount

required to maintain the reserve ratio at 1.35 percent as dividends to

be paid to insured depository institutions.\5\ As a practical matter,

when the reserve ratio is at or only slightly above 1.35 percent, the

aggregate amount of a potential dividend would be relatively small, and

an individual institution's share would be very small. Nonetheless, the

statute expressly provides that the Board may elect to suspend or limit

such dividends only in certain circumstances, as discussed further

below.

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\5\ The FDIC, thus, would have to determine how much is

necessary to maintain the reserve ratio at 1.35 percent, once the

dividend requirement is triggered by the year-end reserve ratio.

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If the reserve ratio exceeds 1.5 percent of estimated insured

deposits, then the FDIC generally is required to declare the amount in

the DIF in excess of the amount required to maintain the reserve ratio

at 1.5 percent as dividends to be paid to insured depository

institutions.

In order to limit or suspend the payment of dividends when the

reserve ratio is at or above 1.35 percent, the Board must determine in

writing that a significant risk of losses to DIF exists over the next

year and that it is likely that such losses will be high enough to

justify allowing the reserve ratio either--(1) to grow temporarily

without requiring dividends; or (2) to exceed the upper end of the

range for the reserve ratio (that is, 1.5 percent). The statute directs

the Board to consider certain factors in making a determination to

limit or suspend dividends:

(1) National and regional conditions and their effect on insured

depository institutions;

(2) Potential problems affecting institutions or a specific group

or type of institutions;

(3) The degree to which the contingent liability of the FDIC for

anticipated failures adequately addresses funding levels in the DIF;

and

(4) Any other factors the Board deems appropriate.

As noted above, if the Board elects to suspend or limit dividends

pursuant to this authority, it must report to Congress within 270 days

of that decision giving a detailed explanation, including a discussion

of the statutory factors required to be considered.

A determination to limit or suspend dividends will have to be

reviewed annually and must be justified to renew or make a new

determination to limit or suspend dividends. Each year, if the decision

is to continue to limit or suspend dividends, the Board must report to

Congress. If the FDIC does not justify renewal or a new determination,

it is required to provide cash dividends based on the amount of the

reserve ratio.

The FDIC proposes that the Board announce its determination

regarding dividends by May 15th of each year, which will allow for the

Board's consideration of the dividend determination using complete data

for the reserve ratio for the preceding December 31st. Depending on

circumstances, such announcements could include: (1) A determination

that no dividend is required because the reserve ratio is below 1.35

percent as of the end of the preceding calendar year; (2) a declaration

of a dividend; or (3) a determination that a dividend would otherwise

be required, but that circumstances warrant the limitation or

suspension of that dividend, to be followed by the required report to

Congress.

[[Page 28806]]

Absent a Board determination that dividends should be limited or

foregone, the aggregate amount of a dividend must be calculated as set

forth in the statute. If the reserve ratio is between 1.35 percent and

1.5 percent, the FDIC must dividend half of the amount in excess of the

amount required to maintain the reserve ratio at 1.35 percent. If the

reserve ratio exceeds 1.5 percent, the FDI Act requires the FDIC to

dividend the excess of the amount required to maintain the reserve

ratio at 1.5 percent.\6\

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\6\ In most circumstances, if the reserve ratio exceeds 1.5

percent, the FDIC would declare a dividend of the excess, as

determined by the FDIC, above 1.5 percent. At the same time, the

FDIC would generally expect to declare a dividend of half of the

amount necessary to maintain the reserve ratio at 1.35 percent,

unless the Board makes a determination that suspension or limitation

of that dividend is justified under section 7(e)(2)(E) of the FDI

Act. That might happen, for example, if based on its consideration

of the various statutory factors, the Board determines that it is

appropriate to set the designated reserve ratio at 1.5 percent and

set assessments to maintain the reserve ratio at that point.

Sections 2104(a) and 2105(a) of the Reform Act (to be codified at 12

U.S.C. 1817(b)(2) and (3), respectively).

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B. Allocation of Dividends

The FDIC proposes initially adopting a simple system for allocating

future dividends. Under the proposal, this system would remain in place

for two years with a definite sunset date (December 31, 2008). During

the two-year lifespan of the initial dividend regulations, the FDIC

would undertake another rulemaking, beginning with the issuance of an

advance notice of proposed rulemaking, seeking industry comment on more

comprehensive alternatives for allocating future dividends.

Specifically, the FDIC proposes that, initially, any dividends be

awarded simply in proportion to an institution's 1996 assessment base

ratio (including any predecessors' 1996 ratios), discussed more fully

below. The FDI Act requires that the FDIC consider this ratio when

allocating dividends.

The statute also requires that the FDIC consider the total amount

of assessments paid after 1996 and the portion of those assessments

that reflects higher levels of risk. No institution while in the lowest

risk category (sometimes referred to as ``the 1A category'') has paid

any deposit insurance assessments since the end of 1996. All

assessments paid since then have reflected higher levels of risk--that

is, since year-end 1996 when the BIF and SAIF were both fully

capitalized with reserve ratios in excess of the statutory minimum of

1.25 percent, only those insured depository institutions that exhibited

financial, operational, or compliance weaknesses ranging from

moderately severe to unsatisfactory, or that were not well capitalized

(as defined in section 38 of the FDI Act), were required to pay

assessments.

Within the proposed initial two-year period, any assessments that

institutions pay that do not reflect higher levels of risk are likely

to be small in comparison to the assessments that institutions paid

over time to capitalize the deposit insurance funds, for which the 1996

assessment base is intended to act as a proxy. As a result, the FDIC

has concluded that payments since 1996 should not be included in the

proposed temporary allocation method.\7\

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\7\ It is in large part because post-2006 payments may become

material over time that the FDIC proposes adoption of an interim

rule, with the expectation that in 2007 the process of developing a

more comprehensive long-term rule will begin.

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Under the FDI Act, the Board also has discretion to consider such

factors as it deems appropriate when allocating dividends. In the

FDIC's view, other factors support an initially simple allocation based

upon institutions' 1996 ratio. As a practical matter, it appears quite

unlikely that the reserve ratio of the DIF will equal or exceed 1.35

percent in the near future given the combined fund's current reserve

ratio of 1.25 percent \8\ as of December 31, 2005, the continuing trend

of high insured deposit growth rates, and the $4.7 billion one-time

credit, which will constrain net assessment income. The FDIC has

concluded that it is important to obtain and consider carefully public

comment before instituting a more comprehensive allocation scheme that

may not change for many years. Such a small likelihood of a dividend

does not justify adoption of a more complex scheme within the

relatively short timeframe required by the statute.

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\8\ When the funds from the SAIF exit fee escrow account are

included, the combined reserve ratio for December 31, 2005, would be

1.26 percent.

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1. 1996 Assessment Base Ratio

As noted above, the FDI Act sets forth three specific factors for

consideration in distributing dividends. The first factor is the ratio

of the assessment base of an insured depository institution (including

any predecessor) on December 31, 1996, to the assessment base of all

eligible insured depository institutions on that date. This factor

essentially parallels the basis for distribution of the one-time

assessment credit.

The 1996 assessment base ratio for each insured depository

institution will have been determined under the one-time assessment

credit regulations and will continue in effect for dividend purposes,

subject to subsequent adjustments for transactions that result in the

combination of insured depository institutions, thereby recognizing

``predecessor'' institutions as time goes by.

2. Predecessor Insured Depository Institutions

The FDI Act does not define the term ``predecessor'' for purposes

of the distribution of dividends to individual insured depository

institutions. In addition, unlike the term ``successor'' used in the

context of the one-time assessment credit, the FDI Act does not

expressly charge the FDIC with defining ``predecessor.'' Nonetheless,

in order to implement the dividend requirements, the FDIC must define

``predecessor'' for these purposes when it is used in connection with

an insured depository institution and the distribution of dividends.

The FDIC proposes to adopt a definition of ``predecessor,'' that is

consistent with general principles of corporate law and the proposed

definition of ``successor'' in the one-time assessment credit notice of

proposed rulemaking. Therefore, a ``predecessor'' would be defined as

an institution that combined with another institution through merger or

consolidation and did not survive as an entity. As with the definition

of ``successor'' in the one-time assessment credit notice of proposed

rulemaking, the FDIC is seeking comment on whether the definition of

``predecessor'' should include an institution that combined with

another institution through a de facto merger. In addition, if the FDIC

were to adopt an alternative definition of ``successor'' for purposes

of the one-time assessment credit rule, such as a definition that takes

into account deposit or branch sales, the FDIC seeks comment on whether

that alternative should similarly be applied to the definition of

``predecessor'' for purposes of dividends.

C. Notification and Payment of Dividends

The FDIC proposes that the FDIC advise each institution of its

dividend amount as soon as practicable after the Board's declaration of

a dividend on or before May 15th. Depending on circumstances,

notification would take place through a special notice of dividend or,

at the latest, with the institution's next assessment invoice. To allow

time for requests for review of dividend amounts, the FDIC proposes

that the individual dividend amounts be paid to insured depository

institutions

[[Page 28807]]

at the time of the assessment collection for the second calendar

quarter beginning after the declaration of the dividend and offset each

institution's assessment amount. Under the proposed rule, the

settlement would be handled through the Automated Clearing House

consistent with existing procedures for underpayment or overpayment of

assessments. Thus, in the event that the institution owes assessments

in excess of the dividend amount, there will be a net debit (resulting

in payment to the FDIC). Conversely, if the FDIC owes an additional

dividend amount in excess of the assessment to the institution, there

will be a net credit (resulting in payment from the FDIC).

If an institution requests review of the amount of its dividend (as

discussed below), and that request is not finally resolved at the time

of the collection of the assessment, the FDIC proposes to credit the

institution with the dividend amount on the notice or invoice. To the

extent that a dividend amount is in dispute between institutions, the

FDIC proposes to freeze the availability of the amount in dispute. If

the institution prevails on its request for review, then any additional

amount of dividend will be remitted to the institution, with interest.

D. Requests for Review of Dividend Amounts

Like the regulations governing the one-time assessment credit, the

FDI Act requires the FDIC to include in its dividend regulations

provisions allowing an insured depository institution a reasonable

opportunity to challenge administratively the amount of its dividend.

The FDIC's determination under such procedures is to be final and not

subject to judicial review.

It is proposed that the proposed rule largely parallel the

procedures for requesting revision of computation of a quarterly

assessment payment as shown on the quarterly invoice. As with the one-

time credit notice of proposed rulemaking, the FDIC proposes shorter

timeframes in the dividend appeals process so that requests for review

may be resolved by the time payment of dividends is due, to the extent

possible. An institution would have 30 days from the date of the notice

or invoice advising each institution of its dividend amount to request

review of the dividend determination. Under the proposed rule, an

institution could request review if (1) it disagrees with the

computation of the dividend as stated on the notice or invoice, or (2)

it believes that the notice or 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

of an eligible insured depository institution. 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

dividend amount.

The proposed rule would require that a request for review be

submitted to Division of Finance and include documentation sufficient

to support the change sought by the institution. 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, supporting

documentation, and the FDIC's procedures for these requests for review.

Under the proposal, the FDIC shall 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 for review. The FDIC proposes that, if an institution is

identified and notified through this process and does not submit a

timely response, the institution be foreclosed from subsequently

disputing the information submitted by any other institution on the

transaction(s) at issue in the review process. The FDIC may request

additional information as part of its review, and the proposed rule

would require the institution to supply that information within 21 days

of the date of the FDIC's request for additional information.

As previously noted, the FDIC further proposes to freeze

temporarily the distribution of the dividend amount in dispute for the

institutions involved in the challenge until the challenge is resolved.

The proposed rule requires 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 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 latest. Whenever feasible, the response is to 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 notice or invoice providing

notification of the dividend.

Under the proposed rule, an institution that disagrees with the

determination of the Director may appeal its dividend determination to

the FDIC's Assessment Appeals Committee (``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.

III. Regulatory Analysis and Procedure

A. Solicitation of Comments on Use of Plain Language

Section 722 of the Gramm-Leach-Bliley Act, Public 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

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 impact on a substantial number of small

entities or prepare an initial regulatory flexibility analysis of the

proposal and publish the

[[Page 28808]]

analysis for comment. See 5 U.S.C. 603, 605. This proposed rule, if

adopted in final form, would provide the procedures for the FDIC's

declaration, distribution, and payment of dividends to insured

depository institutions under the circumstances set forth in the FDI

Act. While each insured depository institution would have the

opportunity to request review of the amount of its dividend each time a

dividend is declared, the proposed rule would rely on information

already collected and maintained by the FDIC in the regular course of

business. For the limited duration of the proposed rule, it appears

unlikely that a dividend would be required. On this basis, the FDIC

certifies that this proposal, 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. 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

No collections of information pursuant to the Paperwork Reduction

Act (44 U.S.C. Ch. 3501 et seq.) are contained in the proposed rule.

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

(Pub. L. 105-277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 327

Bank deposit insurance, Banks, Banking, Savings associations.

12 CFR Chapter III

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:

PART 327--ASSESSMENTS

1. Add subpart C, consisting of Sec. 327.50 through 327.55, to

read as follows:

Subpart C--Implementation of Dividend Requirements

Sec.

327.50 Purpose and scope.

327.51 Definitions.

327.52 Annual dividend determination.

327.53 Allocation and payment of dividends.

327.54 Requests for review of dividend amount.

327.55 Sunset date.

Subpart C--Implementation of Dividend Requirements

Authority: 12 U.S.C. 1817(e)(2), (4).

Sec. 327.50 Purpose and scope.

(a) Scope. This subpart C of part 327 implements the dividend

provisions of section 7(e)(2) of the Federal Deposit Insurance Act, 12

U.S.C. 1817(e)(2), and applies to insured depository institutions.

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

(1) The FDIC's annual determination of whether to declare a

dividend and the aggregate amount of any dividend;

(2) The FDIC's determination of the amount of each insured

depository institution's share of any declared dividend;

(3) The time and manner for the FDIC's payment of dividends; and

(4) An institution's appeal of the FDIC's determination of its

dividend amount.

Sec. 327.51 Definitions.

For purposes of this subpart:

(a) Board has the same meaning as under subpart B of this part.

(b) DIF means the Deposit Insurance Fund.

(c) An insured depository institution's 1996 assessment base ratio

means the share of an insured depository institution in the one-time

assessment credit under subpart B of this part, adjusted as necessary

after the effective date of subpart B of this part to reflect mergers

in which the institution succeeds to another institution's share of the

one-time assessment credit.

(d) Merger has the same meaning as under subpart B of this part.

(e) Predecessor, when used in the context of insured depository

institutions, refers to the institution merged with or into a resulting

institution.

(f) Resulting institution has the same meaning as under subpart B

of this part.

(g) Successor, when used in the context of insured depository

institutions, has the same meaning as under subpart B of this part.

Sec. 327.52 Annual dividend determination.

(a) Before May 15th of each calendar year, beginning in 2007, the

Board shall determine whether to declare a dividend based upon the

reserve ratio of the DIF as of December 31st of the preceding year, and

the amount of the dividend, if any.

(b) Except as provided in paragraph (d) of this section, if the

reserve ratio of the DIF equals or exceeds 1.35 percent of estimated

insured deposits and does not exceed 1.5 percent, the Board shall

declare the amount that is equal to one-half of the amount in excess of

the amount required to maintain the reserve ratio at 1.35 percent as

the aggregate dividend to be paid to insured depository institutions.

(c) If the reserve ratio of the DIF exceeds 1.5 percent of

estimated insured deposits, except as provided in paragraph (d) of this

section, the Board shall declare the amount in excess of the amount

required to maintain the reserve ratio at 1.5 percent as the aggregate

dividend to be paid to insured depository institutions and shall

declare a dividend under paragraph (b) of this section.

(d)(1) The Board may suspend or limit a dividend otherwise required

to be paid if the Board determines that:

(i) A significant risk of losses to the DIF exists over the next

one-year period; and

(ii) It is likely that such losses will be sufficiently high as to

justify the Board concluding that the reserve ratio should be allowed:

(A) To grow temporarily without requiring dividends when the

reserve ratio is between 1.35 and 1.5 percent; or

(B) To exceed 1.5 percent.

(2) In making a determination under this paragraph, the Board shall

consider:

(i) National and regional conditions and their impact on insured

depository institutions;

(ii) Potential problems affecting insured depository institutions

or a specific group or type of depository institution;

(iii) The degree to which the contingent liability of the FDIC for

anticipated failures of insured institutions adequately addresses

concerns over funding levels in the DIF; and

(iv) Any other factors that the Board may deem appropriate.

(3) Within 270 days of making a determination under this paragraph,

the Board shall submit a report to the Committee on Financial Services

and the Committee on Banking, Housing, and Urban Affairs, providing a

detailed explanation of its determination, including a discussion of

the factors considered.

(e) The Board shall annually review any determination to suspend or

limit dividend payments and must either:

(1) Make a new finding justifying the renewal of the suspension or

limitation

[[Page 28809]]

under paragraph (d) of this section, and submit a report as required

under paragraph (d)(3) of this section; or

(2) Reinstate the payment of dividends as required by paragraph (b)

or (c) of this section.

Sec. 327.53 Allocation and payment of dividends.

(a) For any dividend declared before January 1, 2009, allocation of

such dividend among insured depository institutions shall be based

solely on an insured depository institution's 1996 assessment base

ratio.

(b) The FDIC shall notify each insured depository institution of

the amount of such institution's dividend payment based on its share as

determined pursuant to paragraph (a) of this section. Notice shall be

given as soon as practicable after the Board's declaration of a

dividend through a special notice of dividend or, at the latest, with

the institution's next assessment invoice.

(c) The FDIC shall pay individual dividend amounts to insured

depository institutions at the time of the collection by the FDIC of

the assessments for the second calendar quarter beginning after the

declaration of the dividend. An institution's dividend amount shall be

remitted with that institution's assessment. Any excess dividend amount

will be a net credit of the FDIC and will be deposited into the deposit

account designated by the institution for assessment payment purposes

pursuant to subpart A. If the dividend amount is less than the amount

of assessment due, then the institution's account will be directly

debited to the FDIC to reflect the net amount owed to the FDIC as an

assessment.

(d) If an insured depository institution requests review of its

dividend amount under Sec. 327.54, and that request is not finally

resolved prior to the dividend payment date, the FDIC shall credit the

institution with the dividend amount provided on the invoice. If the

institution prevails on its request for review, then any additional

amount of dividend will be remitted to the institution, with interest,

with the institution's assessment in the next calendar quarter after

the final determination has been made.

Sec. 327.54 Requests for review of dividend amount.

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

review of the FDIC's determination of the institution's dividend amount

as shown on the special notice of dividend or assessment invoice, as

appropriate. Such review may be requested if:

(1) The institution disagrees with the calculation of the dividend

as stated on the special notice of dividend or invoice; or

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

attributed to the institution does not fully or accurately reflect

appropriate adjustments for predecessors resulting from transactions

involving the institution after the FDIC's final determination of the

1996 assessment base ratio under subpart B of this part.

(b) Any such request for review must be submitted within 30 days of

the date of the special notice of dividend or invoice for which a

change is requested. 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. If an institution does

not submit a timely request for review, that institution may not

subsequently request review of its dividend amount, subject to

paragraph (d) of this section. 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.

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

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

institution.

(d) 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 (b) of this section does not submit a response to the request

for review, that institution may not subsequently:

(1) Dispute the information submitted by any other institution on

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

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

(e) 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.

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

receive 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 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 special notice of dividend or assessment invoice

providing notification of the dividend.

(g) An insured depository institution may appeal the determination

of the Director 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.

Sec. 327.55 Sunset date.

Subpart C shall cease to be effective on December 31, 2008.

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

By order of the Board of Directors.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. E6-7585 Filed 5-17-06; 8:45 am]

BILLING CODE 6714-01-P