This administrative appeal was filed by [Bank] (X or the Bank),
requesting a change in its supervisory subgroup (SS) assignment for the
semiannual assessment period beginning January 1, 2000. The Bank was
assigned an assessment risk classification of 1B and requested a change to
1A. The SS assignment was based on composite rating of 3 assigned to the
Bank as the result of an examination completed on September 16, 1999, by its
primary federal regulator, the Office of the Comptroller of the Currency (OCC).
On October 4, 1999, the Bank appealed OCCs examination ratings. The OCCs
letter of response, dated December 2, 1999, expressed the conclusion that
the composite 3 rating was appropriate at the time of the examination but
that post-examination improvements warranted a subsequent upgrade to a
composite 2. As a result of the post-examination upgrade to the composite
rating, the Banks assessment risk classification improved to 1A for the
second semiannual assessment period of 2000.
Supervisory subgroup assignments are made in accordance with section
327.4(a)(2) of the FDICs Rules and Regulations, which provides as follows:
each institution will be assigned to one of three subgroups based on
the Corporations consideration of supervisory evaluations provided by the
institutions primary federal regulator. The supervisory evaluations include
the results of examination findings by the primary federal regulator, as
well as other
information the primary federal regulator determines to be relevant. In
addition, the Corporation will take into consideration such other
information (such as state examination findings, if appropriate) as it
determines to be relevant to the institutions financial condition and the
risk posed to the BIF or SAIF.
The three supervisory subgroups, as set forth in the current and previous
Financial Institution Letters addressing the Risk-Related Premium System,
are as follows:
Consists of financially sound institutions with only a few
minor weaknesses and generally corresponds to the primary federal
regulations composite rating of 1 or 2.
Consists of institutions that demonstrate weaknesses that, if
not corrected, could result in significant deterioration of the institution
and increased risk of loss to insurance funds, and generally corresponds to
the primary federal regulators composite rating of 3.
Consists of institutions that pose a substantial probability
of loss to the insurance funds unless effective corrective action is taken,
and generally corresponds to the primary federal regulators composite
rating of 4 or 5.
The supervisory cut-off date for determining SS assignments is September
30 for assessment periods beginning January 1, and March 31 for assessments
periods beginning July, 1. For determining SS assignments for state member
banks, national banks and thrifts, composite ratings as of the supervisory
cut-off date are provided to the FDIC via data tape by the appropriate
federal agency. These composite ratings are then converted to SS
assignments. For the January 1, 2000, semiannual assessment period, the Bank
was assigned a supervisory subgroup rating of B. This SS assignment was
based on a composite rating of 3, which was provided to the FDIC by the
OCC as of the September 30, 1999, cut-off date. This composite rating
resulted from a June 21, 1999, OCC examination that was completed on
September 16, 1999.
Following the completion of the above examination, the Bank submitted a
letter of appeal to the OCC, dated October 4, 1999. The Bank disagreed with
the composite 3 rating, and the component 3 ratings that were assigned
to asset quality and management. The OCC officially responded to the Banks
appeal by a letter dated December 2, 1999. The letter of response expressed
the conclusion that the Composite 3 rating was appropriate at the time of
the examination. The letter further indicated that because of actions taken
by the Bank during and subsequent to the examination, discussions with the
board about changes to be incorporated into its processes, and favorable
trends in asset quality measures, the current asset quality rating should
be 2. Thus, the December 2, 1999, letter served as official notification
to the Bank that the asset quality and the composite ratings had been
upgraded subsequent to the examination.
After being notified of the change to the composite rating, Bank
requested a review of the SS assignment by letter dated January 11, 2000.
The Bank requested that the SS assignment for the first semiannual
assessment period of 2000 be changed to A, pursuant to the December 2,
1999, notification by the OCC that the composite rating had been upgraded.
By letter dated June 14, 2000, DOI notified the Bank that their request was
denied. This decision was based on the fact that it was the OCCs position
that the composite 3 rating was appropriate at the time of the examination
completed in September 1999. The subsequent decision by the OCC to upgrade
the composite rating was based on favorable trends and improvements that
were implemented by the Bank in response to concerns raised with respect to
the examination. This decision was made and communicated to the Bank well
after the September 30, 1999, supervisory cut-off-date. The OCC did not
retroactively upgrade the SS rating it provided to the FDIC for the January
1, 2000 assessment period.
Analysis and Conclusion
Xs main argument is that the overall condition of the Bank has continued
to improve, especially in the asset quality area, and that its ability to
compete has been impaired by the increased FDIC insurance cost expense. Even
though improvement has been noted relative to credit administration issues,
the fact remains that the OCC, in its December 1999 letter, reaffirmed the
appropriateness of the composite 3 rating at the time the rating was issued
in September 1999. Moreover, the SS rating provided to the FDIC by the OCC
as of the September 30, 1999 cut-off date for purposes of determining the
Banks SS for the first semiannual assessment period of 2000 was, and
remains, a composite 3 rating. The OCC has not changed that rating for the
applicable assessment period.
For the reasons discussed herein, under authority delegated by the Board
of Directors of the Federal Deposit Insurance Corporation, the Committee
denies the Banks appeal. This recommendation is fully consistent with
well-established FDIC policy and practices regarding applicability of the SS
cut-off dates, and while exceptions to the rules may, under compelling
circumstances, be considered, such must be both rare and well supported if
the system is to maintain credibility.