Consideration of the Special Assessment When Analyzing and Rating Financial Institutions
FIL-24-2009 May 22, 2009
The recent FDIC Board action imposing a special assessment on insured institutions is not expected to affect the supervisory component or composite ratings that FDIC examiners assign to institutions.
When analyzing the institutions earnings posture, capital adequacy, and liquidity, examiners will consider the nonrecurring nature of the special assessment.
Examiners will not downgrade an institutions CAMELS component or composite ratings because of the negative effect of the special assessment.
Banks will be expected to comply with regulatory capital minimums and prompt corrective action (PCA) standards; however, supervisors will factor into their overall analysis of capital adequacy the nonrecurring nature of the special assessment.
Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226.
Financial Institution Letters
March 2, 2009
Consideration of The Special Assessment When Analyzing and Rating Financial Institutions
On May 22, 2009, the FDIC Board of Directors adopted a final rule establishing a 5 basis point special assessment on each insured depository institutions assets minus Tier 1 capital as of June 30, 2009. The amount of the special assessment for any institution, however, will not exceed 10 basis points times the institutions assessment base for the second quarter 2009 risk-based assessment. The special assessment is necessary to strengthen the Deposit Insurance Fund and promote confidence in the deposit insurance system.
When assessing an institutions earnings, capital, and liquidity, examiners will take into account the expectation that the special assessment is a nonrecurring item. For example, when assessing earnings, examiners develop an understanding of the banks core business activities and consider how nonrecurring events, such as the special assessment, affect the institutions earnings performance by adjusting earnings on a tax-equivalent basis. Important factors examiners consider when assigning composite ratings include the composition and quality of assets, current earnings and trends, liquidity and funds management, deposit structure, quality of management, strength of the parent company, and the risks facing the institution as a result of local economic conditions.
Banks will be expected to comply with regulatory capital minimums and prompt corrective action (PCA) standards. An institutions CAMELS component or composite ratings will not be downgraded because of the negative effect of the special assessment. Examiners will consider the extraordinary circumstances that necessitated the special assessment when determining the component and composite ratings.
Sandra L. Thompson
Division of Supervision and Consumer Protection