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Deposit Insurance Assessment Appeals: Guidelines & Decisions

AAC-99-01 (May 5, 1999)

Attachment No. 1 Attachment No. 2 Attachment No. 3

This administrative appeal raises an issue concerning the proper interpretation of subparagraphs (C) and (K) of section 5(d)(3) of the Federal Deposit Insurance Act ("FDI Act") (12 U.S.C. § 1815(d)(3)(C), (K)). At issue is whether the Federal Deposit Insurance Corporation ("FDIC") is required to recalculate the statutorily prescribed 20 percent permanent reduction to a BIF-Oakar1 institution's adjusted attributable deposit amount ("AADA"). "Parent Corporation" 2 contends that the FDIC did not appropriately calculate the 20 percent permanent reduction, resulting in the Banks' AADA being overstated and their Financing Corporation ("FICO" assessment being overpaid.

Background
The Deposit Insurance Funds Act of 1996 ("DIFA") 3 was enacted on September 30, 1996. The primary purpose of the legislation was to capitalize the SAIF by imposing a special assessment on institutions holding deposits subject to assessment by the SAIF ("SAIF-assessable deposits"). In addition to imposing the special assessment, section 2702(h) of the statute provided for a 20 percent reduction in the AADA of certain BIF-Oakar institutions for purposes of computing their special assessment liability. Section 2702(i) of the statute also amended section 5(d)(3) of the FDI Act (the "Oakar Amendment" 4) by amending subparagraph (C) and adding a new subparagraph (K). Subparagraph (K) provided for a 20 percent permanent reduction in the AADAs of certain BIF-Oakar institutions for purposes of calculating their AADA for the payment of any assessment for any semiannual period that began after December 31, 1996.5

On October 8, 1996, the FDIC Board of Directors approved publication of a final rule ("the Rule") implementing the special assessment and various provisions related thereto, which were contained in the DIFA. 6 The Rule also amended the FDIC's assessment regulations, contained in 12 CFR Part 327, to recognize the 20 percent permanent reduction required by subparagraph (K) for assessments due after December 31, 1996. 7

On or about December 11, 1996, the FDIC invoiced the Banks, BIF-Oakar institutions entitled to the 20 percent permanent reduction, for their regular deposit insurance assessment for the first semiannual period of 1997. The FDIC gave the Banks the benefit of the 20 percent permanent reduction in their AADA. The FDIC also provided a form letter to all of the institutions that received the reduction that explained how the reduction was computed. 8 The Banks paid the assessment and have paid all subsequent assessments.

The Banks disagreed with the method used by the FDIC to compute the 20 percent permanent reduction in their AADA and on April 30, 1998;9 requested that the FDIC recompute their assessment for semiannual periods ending June 30, 1998, and later,10 based upon the Banks' alternative interpretation of section 5(d)(3)(C) and (K). The Banks also requested a refund, with interest, of the amount equal to the difference in assessments based on the applicable SAIF and BIF semiannual assessment and FICO rates assessed during these periods on the AADA subject to the revision. According to the Banks "the 20 percent permanent reduction was incorrectly applied to The Banks' composite AADA as of March 31, 1995, rather than the actual amount of deposits the Banks' acquired in Oakar transactions consummated before March 31, 1995." 11

FDIC Staff Determination
DOF denied the Banks' refund request12 stating in pertinent part:

The AADA is the sum of three elements. The first of these is prescribed in section 5(d)(3), [p]aragraph (C)(i): namely, the volume of secondary-fund deposits acquired by the buyer, as determined as of the date of the transaction.   The other two elements are derived from this first element. The second element is prescribed by [p]aragraph (C)(ii): namely, the sum of the growth increments computed in accordance with [p]aragraph (C)(iii), other than the growth increment that is currently being computed under [p]aragraph (C)(iii). It is evident that, if the amounts computed under [p]aragraph (C)(iii) are all derived from the amount computed under [p]aragraph (C)(i), the amount specified in [p]aragraph (C)(ii) must likewise be so derived. The third element of the "growth increment" computed with respect to the semiannual period immediately preceding the one for which the assessment is due. Paragraph (C)(iii) sets forth the method for determining this increment.

Paragraph (C)(iii) expressly links the value of the growth increment to the amount specified in [p]aragraph (C)(i):

(iii) the amount by which the sum of the amounts described in clauses (i) and (ii) would have increased during the preceding semiannual period...

Paragraph (K) states that, in certain circumstances, a 20 percent reduction is applied to "the amount determined under paragraph (C)(i)." The growth increments are computed using whatever value is prescribed pursuant to [paragraph] (C)(i), and the value so prescribed may be determined in light of the instruction provided in [p]aragraph (K). Accordingly, if the "amount determined under paragraph (C)(i)" is reduced by 20 percent, it follows that the growth increments determined under [p]aragraph (C)(iii) are each likewise reduced by 20 percent; and further that the sum of the three elements (the AADA itself is likewise reduced by 20 percent.

The statute states that the AADA consists of all three components in Paragraph (C). If one of the components, (C)(i), is reduced by 20 percent, all of the components (C)(ii) and (C)(iii), must be reduced by 20 percent.... 13

Thus, for purposes of computing deposit insurance and FICO assessments after December 31, 1996, pursuant to section 5(d)(3)(C) and (K) of the FDI Act, the FDIC reduced by 20 percent the composite AADA each qualifying Oakar institution reported on March 31, 1995, and applied the applicable growth adjustment for 1995. By reducing the composite AADA, the FDIC achieved the mathematical equivalent of reducing each portion of the (C)(i) component (which is the sum of the secondary fund deposits acquired in all Oakar transactions that an institution participates in over time) from the time those portions were generated in an Oakar transaction and applying the second and third statutory components ("the (C)(ii) component" and "the (C)(iii) component") to the reduced (C)(i) component. This is because the calculation of the (C)(iii) component is derived by reference to the (C)(i) and (C)(ii) components and the (C)(ii) component, in turn, is derived by reference to the (C)(iii) component. Once the 20 percent permanent reduction was computed, that amount was deducted from each institution's composite AADA as reported on September 30, 1996. 14

On appeal, the Banks contend that the 20 percent permanent reduction should only have been based upon a 20 percent reduction of the Banks' (C)(i) component on March 31, 1995, rather than the Banks' composite AADA on that date. The amount of the 20 percent reduction should then have been deducted from the Banks' composite AADA, as reported on September 30, 1996. 15 The Banks content that subparagraphs (C)(i) and (K), the FDIC's own regulations, and the FDIC's statements in the preamble to the Rule all support its position that only the (C)(i) component should have been reduced. 16

Analysis
The FDIC is responsible for the assessment and collection of deposit insurance premiums of the BIF and SAIF. This process is fairly straightforward for insured depository institutions that hold only deposits insured by one insurance fund. The process becomes significantly more complicated, however, when the institution is one of the more than 800 existing Oakar institutions, which have deposits insured by both the BIF and SAIF.

Under the Oakar Amendment a BIF-insured institution that acquires deposits from a SAIF-insured institution is an "Oakar" institution. Such an institution is treated, by statute, as a hybrid institution and is statutorily required to pay deposit insurance assessments to both its primary and secondary fund based upon the volume of the deposits treated as being insured by the respective fund. 17 For example, a BIF-Oakar, is a member of the BIF but a portion of its assessment base also is allocated to the SAIF. The deposits attributed to the institution's secondary fund are based upon the institution's AADA, which is computed and adjusted over time pursuant to the statutory formula contained in section 5(d)(3)(C). In the event of a loss arising out of such institution, the loss is allocated ratably between the two deposit insurance funds based upon the amount of deposits that are insured or treated as insured by the respective funds.18

In addition, since the amendment of section 21(f) of the Federal Home Loan Bank Act (12 U.S.C. § 1441(f)) BIF-assessable deposits of an institution have been subject to assessment for FICO payments at a rate that is 1/5th of the rate paid by the institution on SAIF-assessable deposits. 19The amount of an institution's FICO assessment depends upon the institution's primary and secondary fund balance, which is determined by the amount of the institution's AADA for the appropriate assessment period. The FDIC collects the FICO assessments for the Financing Corporation, in addition to any deposit insurance assessments owed to the FDIC.

This appeal demonstrates the interrelationship of the various statutory provisions relating to Oakar institutions and the impact that a change in one of the statutory components may have on others.

Here the resolution of the dispute depends upon the proper interpretation of section 5(d)(3)(C) and (K). Section 5(d)(3)(C) establishes a formula for determining an Oakar institution's AADA. Subparagraph (C) reads:

(C) Determination of adjusted attributable deposit amount

Except as provided in subparagraph (K), the adjusted attributable deposit amount which shall be taken into account for purposes of determining the amount of the assessment under subparagraph (B) for any seminannual period by an acquiring, assuming, or resulting depository institution in connection with a transaction under subparagraph (A) is the amount which is equal to the sum of -- 

(i) the amount of any deposits acquired by the institution in connection with the transaction (as determined at the time of such transaction):

(ii) The total of the amounts determined under clause (iii) for semiannual periods preceding the semiannual period for which the determination is being made under this subparagraph; and

(iii) the amount by which the sum of the amounts described in clauses (i) and (ii) would have increased during the preceding semiannual period (other than any semiannual period beginning before the date of such transaction) if such increase occurred at a rate equal to the annual rate of growth of deposits of the acquiring, assuming, or resulting depository institution minus the amount of any deposits acquired through the acquisition, in whole or in part, of another insured depository institution.

The FDIC has interpreted the statute to mean that an Oakar institution's AADA for each Oakar transaction is the sum of the three components. The first statutory component, the (C)(i) component, is the volume of secondary-fund deposits that the institution originally acquired in the Oakar transaction. The second statutory component, the (C)(ii) component, is the aggregate of the growth increments computed with respect to the semiannual periods prior to the one with respect to which the third component is being determined. The third statutory component, the (C)(iii) component, is the growth increment with respect to the period just prior to the current period.20 The third component is computed on a base that equals the sum of the first and second components.21

Subparagraph (K), which was added by the DIFA, reads:

(K)Adjustment of adjusted attributable deposit amount

The amount determined under subparagraph (C)(i) for deposits acquired by March 31, 1995, shall be reduced by 20 percent for purposes of computing the adjusted attributable deposit amount for the payment of any assessment for any semiannual period that begins after September 30, 1996 (other than the special assessment imposed under section 2702(a) of such Act), for a Bank Insurance Fund member bank that, as of June 30, 1995 —

(i) had an adjusted attributable deposit amount that was less than 50 percent of the total deposits of that member bank; or

(ii)(I) had an adjusted attributable deposit amount equal to less than 75 percent of the total assessable deposits of that member bank;

(II) had total assessable deposits greater than $5,000,000,000; and

(III) was owned or controlled by a bank holding company that owned or controlled insured depository institutions having an aggregate amount of deposits insured or treated as insured by the Bank Insurance Fund greater than the aggregate amount of deposits insured or treated as insured by the Savings Association Insurance Fund.

As indicated above, subparagraph (K) provides that, in certain circumstances, a 20 percent reduction is applied to the "amount determined under subparagraph (C)(i)." The most obvious reading of the statute is that the growth increments are computed using whatever value is prescribed pursuant to subparagraph (C)(i), and that the value so prescribed may be determined in light of the instruction provided by subparagraph (K). Accordingly, if the "amount determined under paragraph (C)(i)" is reduced by 20 percent, it follows from the statutory formula that the growth increments determined under subparagraph (C)(iii) are each likewise reduced by 20 percent; and further that the sum of the three elements — the AADA itself — is likewise reduced by 20 percent. The FDIC's computation methodology accomplished this result.

The Banks contend that the FDIC's methodology for computing the 20 percent permanent AADA reduction ignored the plain language of the statute and the FDIC's own regulation. According to the Banks the statutory language "The amount determined under subparagraph (C)(i) for deposits acquired by March 31, 1995, shall be reduced by 20 percent..." contained in subparagraph (K), and "the amount of any deposits acquired by the institution in connection with the transaction (as determined at the time of such transaction)," contained in subparagraph (C)(i), as well as the FDIC's published regulation, 12 CFR § 327.32(c), do not provide for the other two statutory components of the AADA calculation to be subject to the same 20 percent reduction.

Their argument, however, ignores the fact that the plain language of the statute also indicates that the (C)(i) component is an element of the other two statutory components of the institution's AADA calculation because the (C)(iii) component is derived from "the amount by which the sum of the amounts described in clauses (i) and (ii) would have increased..." and that the (C)(ii) component is "the total of the amounts determined under clause (iii)...." This same relationship also is clearly recognized in the FDIC's regulations. See, 12 CFR § 327.32(a)(3). Not only are the three statutory components added together to derive the institution's AADA, two of the components are derived from the very same component that Congress directed be reduced in subparagraph (K).

In addition, the Banks argue that the FDIC's interpretation of the statute is tantamount to a retroactive recalculation of the prior growth increments using the reduced (C)(i) component although the statute is prospective only (i.e., the statute provides that the reduction applies only to semiannual period's beginning after the date of enactment) and that the revision of the (C)(ii) and (C)(iii) calculations each year contradicts the FDIC's position that those numbers are fixed or "frozen" thereafter. With regard to the these arguments, while the statute provides for the reduction to be applied prospectively to semiannual periods after the enactment of the DIFA once the permanent reduction has been determined, the reduction required by subparagraph (K) is based upon the (C)(i) amount of deposits "acquired by March 31, 1995" and the (C)(i) component is the amount of deposits acquired by an institution in an Oakar transaction "as determined at the time of the transaction." The lack of precision in the statutory language used in subparagraph (K) supports the FDIC's view that Congress intended the reduction to be applied to the (C)(i) component as of the date each portion of the (C)(i) component was initially generated. Once the portions of the (C)(i) component from prior years were reduced, it flowed, by operation of the formula established in subparagraph (C), that the other two statutory components of the institutions' AADA also should be reduced. 22 Therefore, the Banks "retroactive recomputation" and "freezing" the (C)(ii) and (C)(iii) arguments appear to run contrary to the statute and are not persuasive.

Finally, the Banks content that Congress' reference to subparagraph (C)(i) for purposes of calculating the permanent reduction, rather than the reference to "section 5(d)(3)(C)" used in section 2702(h)(2) of the DIFA, regarding the 20 percent reduction in certain BIF-Oakar institution's AADAs for purposes of calculating the special assessment, indicates that Congress intended the two sections to have separate and distinct meanings. This argument relies solely upon a presumption of congressional intent, without additional support. Although these were different statutory provisions, the use of different statutory language can still lead to the same result. The Banks have offered no additional support to corroborate their argument that Congress intended BIF-Oakar institutions to be provided different treatment for purposes of calculating the 20 percent reduction in their AADAs for purposes of calculating their special assessment payment and their regular assessment payments. 23

The Committee believes the Banks' interpretation of the relevant statutory provisions, while based upon a simple analysis that avoids the intricate details of an otherwise complex statutory provision, suffers from the analytical deficiency of reading subparagraphs (C)(i) and (K) in a vacuum, rather than in context with the other provisions of the Oakar Amendment. While the thrust of their argument presents a plausible approach to interpreting subparagraph (K), the Committee believes that it is at odds with fundamental rules of statutory construction and is not willing to sanction such a reading. See, Davis v. Michigan Department of Treasury, 489 U.S. 803, 808 (1989) ("It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme."); United States v. Morton. 467 U.S. 822, 828 (1984) ("We do not, however, construe statutory phrases in isolation; we read statutes as a whole"); 2A Sutherland Statutory Construction § 46.06 (5th ed. 1992 & Supp. 1994) ("It is an elementary rule of construction that effect must be given, if possible, to every word, clause, and sentence of a statute.") The FDIC's interpretation, on the other hand, represents a reasonable approach to harmonizing the requirements of subparagraph (K) with the statutory AADA calculation methodology established by subparagraph (C) by providing meaning to all of the relevant parts of both of the subparagraphs. It not only followed the statutory direction that the (C)(i) component be reduced by 20 percent, but also followed the statutory direction that the (C)(iii) and (C)(ii) components be, at least partially, derived from the (C)(i) component (which was being reduced).

At best, the Banks' arguments indicate that there may be ambiguity in the manner Congress directed that the 20 percent permanent reduction be computed. In this regard, it must be remembered that Congress charged the FDIC with the administration of a complex and highly regulated scheme for the collection of deposit insurance assessments. To the extent questions arise regarding the FDI Act the FDIC must implement and harmonize the provisions and make decisions that are consistent with its statutory mandate. As the Fourth Circuit recently observed  in litigation involving the FDIC’s interpretation of the Oakar Amendment, deference is given to an agency’s permissible construction of a statute where the statute is silent or ambiguous in expressing Congress’ intent. Branch Banking & Trust Co. v. FDIC, --F.3d --, 1999 WL 183839 (4th Cir. April 5, 1999).  In addition, the Committee notes that the interpretation at issue in this appeal represents a contemporaneous construction of the statutory provision that has been consistently applied to the industry as a whole for purposes of collecting regular deposit insurance assessments and FICO assessments since the DIFA was enacted.

Finally, from a policy perspective, the FDIC's approach had the effect of applying the 20 percent permanent reduction to each affected institution in the same way, taking into consideration positive or negative growth adjustments over time. The Banks' approach, on the other hand, would result in additional advantages and disadvantages to particular institutions based upon their own unique circumstances that, in some circumstances, could completely eliminate the institution's AADA.24 Such a reversal of approach, at this time, may also necessitate recalculation of the AADAs for approximately 600 BIF-Oakar institutions, resulting in approximately 414 institutions owing additional assessments, 172 institutions receiving refunds, and no impact on the remaining institutions.

With all of these considerations in mind, the Committee is not satisfied by the Banks' presentation that the FDIC is required to recompute their AADAs. Therefore, the Committee DENIES the Banks' recomputation request25 and AFFIRMS the decision of the Division of Finance.

________________________________

1 A BIF-Oakar is a member of the Bank Insurance Fund ("BIF") but a portion of its assessment base also is allocated to the Savings Association Insurance Fund ("SAIF").

2 Parent Corporation ("Parent") is the common parent of [Bank A] ("A") and [Bank] ("B") (collectively, "the Banks") and is pursuing this appeal on behalf of the Banks. See, Letter from * * * to Robert Russell, Deputy to the Vice-Chairman, FDIC, dated April 9, 1999. Although the initial assessment protests for the Banks were submitted separately and the actual calculations relating to the two institutions vary significantly, the essence of the Banks' argument is the same for both institutions. Therefore, this decision will address the issue with regard to both institutions, referencing the individual institutions where the Assessment Appeals Committee ("Committee") believes such reference is appropriate.

3 Pub.L. No. 104-208, 110 Stat. 3009 et seq. (1996)(12 U.S.C. § 1811 note).

4 The "Oakar Amendment" was named after Congresswoman Mary Rose Oakar, the primary sponsor of the amendment.

5 For the text of the statutory provisions see infra at pp. 9-11.

6 61Fed. Reg. 53834 (October 16, 1996).

7 12 CFR § 327.32(c).

8 In the letter Assistant Director Allan K. Long of the FDIC's Division of Finance ("DOF") advised each institution that met the statutory criteria, that they were entitled to the 20 percent permanent reduction in their AADA. The letter indicated that the FDIC determined the 20 percent reduction by subtracting 20 percent from the AADA that the institutions reported for March 31, 1995, with an adjustment for 1995 growth, to arrive at the institution's total reduction. The total reduction was then subtracted from the AADA that the institution reported for September 30, 1996 to arrive at the institution's revised AADA for purposes of determining the institution's regular SAIF insurance assessment and the SAIF portion of its FICO funding liability.

9 The Committee notes that the Banks' April 30, 1998 assessment protest did not present a timely request for a revision of the computation of quarterly assessment payments because it was not submitted "within 60 days of the date of the quarterly assessment invoice for which revision is requested." See 12 CFR § 327.3(h)(3). This issue was not raised below and, therefore, is not ripe for consideration in this decision. Insured depository institutions must, however, be diligent in complying with this regulatory requirement. As this case demonstrates, it is important for such issues to be brought to the FDIC's attention as soon as possible so that they can be reviewed and so that any appropriate accounting adjustments, to the extent required, can be made. This should avoid carrying accounting errors forward into subsequent assessment periods and potentially affecting the assessments of other insured depository institutions.

10 The Banks have stated the relief being requested in differing ways in their submission to DOF and the Committee. Compare, Letters from * * * Vice President and Treasurer, A Bank, to William V. Farrell, Chief, Assessment Management Section, FDIC, dated April 30, 1998, at page 1 ("... Parent requests the Federal Deposit Insurance Corporation ("FDIC") recompute its assessment for semiannual periods ending June 30, 1997 and later..."); Memorandum to FDIC Assessment Appeals Committee Submitted on Behalf of A and B April 9, 1999, at p.13 (".. Parent requests that the FDIC recompute its assessments for all semiannual periods ending after December 31, 1996..."). (Emphasis added). Both references have the same effect, i.e., they request recomputations for the first semiannual period of 1997 and thereafter. Additionally, the financial information utilized by the FDIC to compute the assessments for the first semiannual period of 1997 was supplied by insured depository institutions, as of September 30, 1996 and December 31, 1996, therefore, references to adjusting the Banks' composite AADA on September 30, 1996 also mean that the reduction was being made to reduce the assessment base for the payment of assessments which came due after December 31, 1996. To avoid the potential for confusing interested parties, in this decision, the Committee will, to the extent possible, refer to semiannual periods in dispute as those ending after December 31, 1996.

11 Letters from * * * Vice President and Treasurer, * * * to William V. Farrell, Chief, Assessment Management Section, FDIC, dated April 30, 1998, at page 1.

At this point, the Committee notes that the relief being requested by the Banks in this appeal may differ from the relief initially requested from the Division of Finance in the Banks' assessment protest. Compare, Letter from * * * Vice President and Treasurer, * * * to Andrew C. Hove, Jr., Vice Chairman, FDIC, dated April 9, 1999, at page 1 ([The Banks are] "requesting a refund of assessment overpayments made since June, 1995 as a result of an incorrectly calculated AADA.") (Emphasis added); Memorandum to FDIC Assessment Appeals Committee Submitted On Behalf of the Banks and April 9, 1999, at p.13 ("..the Parent requests that the FDIC recompute its assessments for all semiannual periods ending after December 31, 1996...") (emphasis added) and Letters from * * * Vice President and Treasurer, Farrell, Chief, Assessment Management Section, FDIC, dated April 30, 1998, at page 1 ("the Banks) requests the Federal Deposit Insurance Corporation ("FDIC") recompute its assessment for semiannual periods ending June 30, 1997 and later to reflect properly the "permanent" 20 percent reduction in the Banks' Adjusted Attributable Deposit Amount ("AADA") provided by section 2702(i) of the Deposit Insurance Funds Act (the "Funds Act"). (Emphasis added). Therefore, the Banks' letter to the Committee, which is at odds with the relief requested in its contemporaneously filed memorandum and its original protest letter, for the first time, appears to be requesting a refund for alleged assessment overpayments made since June 1995.

The Banks' most recent letter also does not indicate that the Banks are pursuing a claim for a refund of their FICO assessment payments in this appeal. Compare, Letters from * * * Vice President and Treasurer * * * to Andrew C. Hove, Jr., Vice Chairman, FDIC, dated April 9, 1999, but see, Memorandum to FDIC Assessment Appeals Committee Submitted On Behalf of the Banks', April 9, 1999, at p.13 ("...and that all overpayments of assessments resulting from this incorrect application be refunded to the Banks'); Letter from *** Vice President and Treasurer, * * * William V. Farrell, Chief, Assessment Management Section, FDIC, dated April 30, 1998, at page 3 ("Further, we understand that the refund, with interest, of the amount equal to the difference in assessments based on the applicable SAIF and BIF semiannual assessment and Financing Corporation rates assessed during these periods on the amount of AADA subject to revision will occur automatically.")

At this juncture, especially considering the communications that have taken place between the Banks and DOF over a significant period of time, it is inappropriate to place the Committee in the position of having to guess what relief the Banks are requesting. Generally, issues that have not been presented and decided previously by DOF will not be considered for the first time before the Committee. Also, the Committee will not consider issues that have been presented and decided previously by DOF but are not raised on appeal. The Committee recognizes, however, that this is the first appeal presented to this Committee for a decision, therefore, in the exercise of its discretion for purposes of this appeal, the Committee will decide this appeal based upon the request presented to and denied by DOF.

12 Except for protests based upon an institution's assessment risk classification assigned pursuant to 12 CFR Part 327, DOF is responsible for the administration of FDIC's regulations governing the payment of assessments by insured depository institutions. Therefore, insured depository institutions protesting deposit insurance assessments that are not related to their assessment risk classification should initially present their protests to DOF for resolution. The matter will be considered by this Committee, based upon the written record presented below, only after a final DOF determination.

13 Letter from Steve W. Black, Deputy Director, Division of Finance, FDIC, to * * * Vice President and Assistant Treasurer, * * *, dated October 13, 1998.

14 Attachment 1 illustrates how the FDIC computed the permanent AADA reduction for the Banks'.

15 Attachment 2 illustrates how the Parent believes the FDIC should have computed the permanent AADA reduction for the Banks'.

16 The Committee notes that the Banks filed and referred to an "Exhibit 1" in their submission to the Committee. See Memorandum to FDIC Assessment Appeals Committee Submitted On Behalf of the Banks', April 9, 1999, at p.5, n.15; Exhibit 1, Bank A Computation of Permanent Reduction. The Exhibit purports to be a representation of the computation result pursuant to the statutory formula for Bank A and pursuant to the FDIC method, with an additional calculation of the amount by which Bank A AADA was overstated. Bank A has failed, however, to explain the basis for the calculations contained in the Exhibit or why they vary significantly from the calculation the bank previously submitted to DOF in connection with the Bank A assessment protest. The Banks' submission also fails to explain why a similar submission was not made on behalf of Bank B.

17 The "primary fund" is the deposit insurance fund to which the institution is a member. 12 CFR § 327.8(j). The "secondary fund" is the insurance fund that is not the primary fund of the member. 12 CFR § 327.8(k).

18 Section 5(d)(3)(G) of the FDI Act.

19 The FICO rate differential will remain in effect until December 31, 1999, after which time the BIF-assessable and SAIF-assessable deposits will be subject to assessment by the Financing Corporation at the same rate.

20 There is no growth in the period in which the AADA was created. The determination of overall growth of the institution excludes the effect of deposit acquisitions. The FDIC's assessment regulations recognize that the "growth" can be negative (i.e., a decrease in the AADA), as well as positive. 12 CFR § 327.36(b).

21 In addition, the FDIC has recognized that Oakar institutions typically participate in several Oakar transactions. When this occurs, the FDIC treats the institution as having an overall or composite AADA consisting of all the individual AADAs generated in the various Oakar transactions, plus the growth attributable to each individual AADA. The composite AADA generally can be treated as a unit, however, because all of the constituent AADAs (except initial AADAs) grow at the same rate.

22 By reducing the composite AADA, as of March 31, 1995, the FDIC accomplished the same result that would have been accomplished by recomputing the required growth calculations from the date each Oakar transaction engaged in took place and bringing them forward to March 31, 1995. Attachment 3 illustrates the mathematical equivalence of reducing the composite AADA, compared to a 20 percent reduction of the amount of the (C)(i) component and application of the relevant growth adjustments to that component as reduced.

23 The Committee also notes that the title to subparagraph (K), which reads "ADJUSTMENT TO ADJUSTED ATTRIBUTIBLE DEPOSIT AMOUNT" (emphasis added), was part of the legislative text enacted by Congress and, as such, detracts from the impact of the Banks' argument on this point. See. Hardin v. City Title & Escrow Co., 797 F.2d 1037, 1039 (D.C.Cir.1986) (stating that subtitle "Jurisdiction of Courts," which was part of the statute as enacted by Congress, indicated "Congress's intention that the time limitation [expressed in a particular section within the subtitle] be jurisdictional"); see also, Railway Labor Execs. Ass'n v. Consolidated Rail Corp.,666 F.Supp. 1573, 1581 n.5 (Regional Rail Reorg.Ct.1987) ("Where a subtitle descriptive of legislation is part of the act, rather than having been added by a compiler or publisher, it is to be taken as an expression of Congressional intent in creating the legislation and may be looked to in interpreting the statute.").

24 The Committee believes that such a result is clearly at odds with Congress' statutory direction in section 2703(c) of the DIFA (12 U.S.C. § 1441 note) that the FDIC take appropriate actions to prevent insured depository institutions and their holding companies from shifting SAIF-assessable deposits to BIF-assessable deposits for purposes of evading assessments imposed with respect to the SAIF and FICO.

25 Because the Committee is denying the Banks' recomputation request, the Banks' request for a refund of their FICO assessments, which are based upon the AADA calculations at issue, are moot.


Attachment No. 1

FDIC's Implementation

        Bank A:
AADA reported 9/30/1996 empty cell

512,619,000

AADA reported for 3/31/1995

492,902,000  
            20 percent of 3/31/1995 AADA 98,580,400  
            4 percent 1995 growth adjustment 3,943,216  
Total Deduction   102,524,000
Revised AADA reported for 9/30/1996   410,095,000

        Bank B:
AADA reported 9/30/1996 empty cell

106,286,000

AADA reported for 3/31/1995

380,954,800  
            20 percent of 3/31/1995 AADA 76,190,800  
            -72 percent 1995 growth adjustment (54,857,376)  
Total Deduction   21,333,000
Revised AADA reported for 9/30/1996   84,953,000


Attachment No. 2

Parent's Interpretation 

        Bank A:
(C) (i) Component - empty cell

$ 446,147,00026

empty cell empty cell cell    738,408,000  empty cell
empty cell

   Acquired Institutions cell

       7,855,000
     84,740,000
empty cell TOTAL cell $1,277,150,00027
20% Permanent Reduction empty cell $106,286,000
empty cell empty cell empty cell
Composite AADA as of 9/30/1996 empty cell $512,619,000
Less; 20% Permanent Reduction empty cell  (255,430,000)
Reduced AADA as of 9/30/1996 empty cell $257,189,000


        Bank B:
(C) (i) Component - Acquired Institution

$ 336,302,000

empty cell empty cell cell    empty cell
20% Permanent Reduction empty cell cell $   73,260,400
empty cell empty cell empty cell
Composite AADA as of 9/30/1996 empty cell $106,286,000
Less: 20% Permanent Reduction empty cell (   73,260,000)
Reduced AADA as of 9/30/1996 empty cell $   33,026,000

_________________________

26 The (C) (i) component used by Parent that was attributable to the acquisition of another institution was $57,249,000 larger than the (C) (i) component recognized by the FDIC for purposes of computing the institution’s permanent reduction.  The difference is the result of attributing to Bank A, a portion of the secondary fund balance from another institution acquired by an affiliated institution.  The attribution of the acquired institution’s secondary fund balance to Bank A is a matter that is currently being reviewed by the FDIC and is not subject to resolution in this administrative appeal.

27 In Parents latest submission dated April 9, 1999, a revised computation of the permanent reduction was included for Bank A.  The revised computation uses different amounts that do not tie to any computations previously submitted by Bank A.  Therefore, the amounts submitted in the bank’s original request are being used for this demonstration as those numbers, aside from the difference noted above, represent amounts that were previously agreed upon between Parent and the FDIC.


Attachment No. 3

Analysis of 20 Percent Permanent Reduction Comparison

Bank A
(revised calculation following amendments received from bank)

        Oakar Transactions
Date Institution Acquired (C) (i) Component

3/27/1992

*** $738,408,000
3/27/1992 *** $388,898,000
6/1/1993 ***     $7,855,000
5/1/1994

***

   $84,740,000
empty cell

TOTAL

$1,219,901,000

 Original 3/31/1995 AADA = $492,902,000
 Revised 3/31/1995 AADA = $456,675,000 (revised by bank to correct prior reporting errors)
 

        Annual Growth Rate Percentages
Year Annual Growth Rate

1992

-17%
1993 -6%
1994 -53%
1995

4%

FDIC Method for Calculation of 20 Percent Permanent Reduction (Original Calculation):

Step 1
 
  492,902,00        x    20%   =
  3/31/1995 AADA
98,580,400
Reduction amount
prior to adjustment
for 1995 growth
 
Step 2
 
 98,580,400          x    4%    =
                                 1995 growth
3,943,216
Adjustment for
1995 growth
Step 3
 
 98,580,400          +   3,943,216  =
 Reduction amount     Adjustment for 1995 growth
102,523,616
Amount of Permanent
Reduction


FDIC Method for Calculation of 20 Percent Permanent Reduction (Revised Calculation)
 

Step 1
 
456,675,000         x  20%   =
3/31/1995 AADA 
  
91,335,000
Reduction amount
prior to adjustment
for 1995 growth
Step 2
 
91,335,000           x   4%   =
                                1995 growth
3,653,400
Adjustment for
1995 growth
Step 3
 
91,335,000           +   3,653,400     =
Reduction amount     Adjustment for 1995 growth 
94,988,400
Amount of Permanent
Reduction

Actual Permanent Reduction Applied = $94,988,000
  (rounded to thousands)

Permanent Reduction of (C) (i) Component with Growth Applied through all Periods:
                                                                                                          
                                                                                                           
Cumulative Reduction Amount

738,408,000
(C)(i) component
x 20%  
Acquired Institution
= 147,681,600
Reduction amount
---> 147,681,600
388,898,000
(C)(i) component
x 20%   
Acquired Institution
= 77,779,600
Reduction amount
---> 225,461,200
225,461,200 x -17%
1992 growth
= (38,328,404)
1992 growth adjustment
---> 187,132,796
7,855,000
(C)(i) component
 
x 20%
Acquired Institution
= 1,571,000
Reduction amount
----> 188,703,796
188,703,796 x -6%
1993 growth
= (11,322,228)
1993 growth adjustment
----> 177,381,568
84,740,000
(C)(i) component
 
x 20%  
Acquired Institution
= 16,948,000
Reduction amount
----> 194,329,568
194,329,568 x -53%
1994 growth
= (102,994,671)
1994 growth adjustment
----> 91,334,897
91,334,897 x 4%
1995 growth
= 3,653,396
1995 growth adjustment
----> 94,988,293

Amount of Permanent Reduction = $94,988,000
(rounded to thousands)

Comparison:

 FDIC Method                  $94,988,000
 Original Amount Method  $94,988,000
 Difference                              0

Analysis of 20 Percent Permanent Reduction Comparison

Bank B
 

        Oakar Transaction
Date Institution Acquired (C) (i) Component

3/1/1993

*** $366,302,000

3/31/1995 AADA = $380,954,000

 

        Annual Growth Rate Percentages
Year Annual Growth Rate
1993 No growth permitted
1994

4%

1995

-72%


FDIC Method for Calculation of 20 Percent Permanent Reduction:


Step 1
 
380,954,000             x  20%   =
3/31/1995 AADA 
  
76,190,800
Reduction amount
prior to adjustment
for 1995 growth
Step 2
 
76,190,800             x   -72%   =
                                1995 growth
(54,857,376)
Adjustment for
1995 growth
Step 3
 
76,190,800            +  (54,857,376)     =
Reduction amount     Adjustment for 1995 growth
21,333,424
Amount of Permanent
Reduction

Actual Permanent Reduction Applied  =  $21,333,000
(rounded to thousands)

Permanent Reduction of (C) (i) Component with Growth Applied through all Periods:

 

Cumulative Reduction
Amount

366,302,000
(C)(i) component
x  20%  
 
= 73,260,400
Reduction amount
----> 73,260,400
73,260,400
 
x   4%   
1994 growth
= 2,930,416
1994 growth adjustment
----> 76,190,816
76,190,816 x -72%
1995 growth
= (54,857,388)
1995 growth adjustment
----> 21,333,428

Amount of Permanent Reduction = $21,333,000
(rounded to thousands)

Comparison:

  FDIC Method                  $21,333,000
  Original Amount Method  $21,333,000
  Difference                              0

 

Last Updated 06/30/2005 Legal@fdic.gov