SUMMARY: The Federal Deposit Insurance Corporation has adopted a final rule regarding
the payment of post-insolvency interest in insured depository institution receiverships
with surplus funds. The final rule
establishes a single uniform interest rate, calculation method, and payment priority for
post-insolvency interest. The final rule provides that where funds remain after the
satisfaction of the principal amount
of all creditor claims, post-insolvency interest will be paid in the order of priority set
forth in section 11(d)(11)(A) of the Federal Deposit Insurance Act; paid at the coupon
equivalent yield of the
average discount rate set on the three-month Treasury bill at the last auction held by the
United States Treasury Department during the preceding calendar quarter; adjusted each
quarter after the
receivership is established; and based on a simple interest method of calculation.
EFFECTIVE DATE: June 13, 2002.
FOR FURTHER INFORMATION CONTACT: Thomas Bolt, (202) 736-0168; or Rodney
Ray, (202) 898-3556.
In December 2000, Congress granted the FDIC express rulemaking authority regarding the
payment of post-insolvency interest in receiverships with surplus funds. The American
Economic Opportunity Act of 2000 added new subparagraph (C) to section 11(d)(10) of the
FDI Act, which reads as follows:
(C) RULEMAKING AUTHORITY OF CORPORATION. The Corporation may prescribe such rules,
including definitions of terms, as it deems appropriate to establish a single uniform
interest rate for or to
make payment of post-insolvency interest to creditors holding proven claims against the
receivership estates of insured Federal or State depository institutions following
satisfaction by the receiver of
the principal amount of all creditor claims.
By virtue of this rulemaking authority, the final rule regarding post-insolvency
interest will preempt any inconsistent state law by providing a single uniform interest
rate and priority of distribution
for post-insolvency interest in receiverships established after the rule becomes
effective. See City of New York v. FCC, 486 U.S. 57, 63 (1988) (regulation promulgated by
federal agency acting within the
scope of its congressionally delegated authority may preempt state law). The final rule
will apply to receiverships established after the effective date of the rule.
Historically, relatively few receiverships
have generated sufficient recoveries to enable post-insolvency interest to be paid.
Consequently, the final rule will probably apply to only a small number of receiverships
in the future.
II. Notice of proposed rulemaking
On December 18, 2001 the FDIC caused to be published in the Federal Register a notice
of proposed rulemaking regarding the payment of post-insolvency interest in receiverships
with surplus funds. See 66 FR 65144 (December 18, 2001). The notice of proposed rulemaking
discussed the features of a proposed rule and solicited comments from the public for a
period of 60 days. The comment period expired on February 19, 2001. The FDIC received one
comment from the Co-operative Central Bank, which insures deposits that exceed FDIC
deposit insurance limits in 75 co-operative banks in Massachusetts. The comment described
the proposed rule as ``a fair and balanced approach to resolving the difficult issue of
payment of post-insolvency interest in receiverships with surplus funds. It is entirely
consistent with the public policy set forth in section 11(d)(11)(A) of the Federal Deposit
Insurance Act, the national
depositor preference statute, and is in the public interest. By providing uniform interest
rate and depositor priority for distributions of post-insolvency interest, the Proposed
Regulation appropriately allocates post-insolvency interest more equitably than at
III. Final rule
The final rule is essentially identical to the proposed rule. The final rule provides
that after the satisfaction of the principal amount of all creditor claims,
post-insolvency interest will be paid in the order of priority set forth in section
11(d)(11)(A) of the Federal Deposit Insurance Act. This is consistent with how the
principal amounts of creditor claims are paid and would be consistent with Congress's
intent that deposit liabilities be preferred over other liabilities. The final rule
further provides for the post-insolvency interest
rate for all FDIC-administered receiverships to be based on the coupon equivalent yield of
the average discount rate set on the 3-month Treasury bill. The 3-month Treasury bill is
widely recognized as a
performance benchmark for cash investment management and its yield has historically
tracked to some degree changes in the rate of inflation. The post-insolvency interest rate
will be adjusted quarterly in order
to mitigate interest-rate risk due to changes in economic conditions during the life of
the receivership. Post-insolvency interest distributions will be calculated using a simple
interest method, which
should provide a reasonable amount of interest to compensate receivership creditors for
the time value of money owed from the time the receivership is established until dividend
payments are received.
The final rule contains a revision to paragraph (c)(3) of the proposed rule to clarify
that post-insolvency interest will be calculated, not ``distributed,'' on proven claims
from the date the receivership is established. Revised paragraph (c)(3) also provides that
post-insolvency interest on a contingent claim will be calculated from the date that the
claim becomes proven. A contingent claim is a claim that has not accrued as of the date of
the appointment of the receiver, but is dependent on some future event. A contingent claim
may become proven if the event triggering payment occurs in time for the
claim to be paid by the receiver. In such case, post-insolvency interest will be
calculated from the date the claim becomes proven, not from the date the receivership is
IV. Paperwork Reduction Act
The proposed rule will not involve any collection of information under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.). Consequently, no information has been submitted to
the Office of Management and Budget for review.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) the
FDIC has certified that the final rule will not have a significant economic impact on a
substantial number of small
entities. The final rule will only apply to FDIC-administered receiverships established
after the effective date of the rule, and it does not impose new reporting, recordkeeping
or other compliance
requirements on receivership creditors. The final rule continues the FDIC's existing
practice of making post-insolvency interest distributions to creditors holding proven
claims in surplus receiverships prior to making distributions to equityholders, based on
their equity interests, in a failed insured depository institution. In addition, the final
rule will provide interested parties, including small entities, with greater certainty in
future FDIC-administered receiverships by establishing a single uniform interest rate and
method for making post-insolvency interest distributions. Accordingly, the Act's
requirements relating to an initial regulatory flexibility analysis are not applicable.
VI. 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
VII. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (Pub. L.
104-121) provides generally for agencies to report rules to Congress for review. The
reporting requirement is triggered
when the FDIC issues a final rule as defined by the Administrative Procedure Act (APA) at
5 U.S.C. 551. Because the FDIC is issuing a final rule as defined by the APA, the FDIC
will file the reports
required by SBREFA. The Office of Management and Budget has determined that this final
rule does not constitute a ``major rule'' as defined by SBREFA.
List of Subjects in 12 CFR Part 360
Banks, banking, Savings associations.
For the reasons set forth in the preamble, the FDIC Board of Directors amends 12 CFR
part 360 as follows:
PART 360--RESOLUTION AND RECEIVERSHIP RULES
1. The authority for part 360 is revised to read as follows:
2. Section 360.7 is added to part 360 to read as follows:
Sec. 360.7 Post-insolvency interest.
(a) Purpose and scope. This section establishes rules governing the calculation and
distribution of post-insolvency interest to creditors with proven claims in all
FDIC-administered receiverships established
after June 13, 2002.
(b) Definitions. (1) Equityholder. The owner of an equity interest in a failed depository
institution, whether such ownership is represented by stock, membership in a mutual
association, or otherwise.
(2) Post-insolvency interest. Interest calculated from the date the receivership is
established on proven creditor claims in receiverships with surplus funds.
(3) Post-insolvency interest rate. For any calendar quarter, the coupon equivalent yield
of the average discount rate set on the three-month Treasury bill at the last auction held
by the United States
Treasury Department during the preceding calendar quarter, and adjusted each quarter
(4) Principal amount. The proven claim amount and any interest accrued thereon as of the
date the receivership is established.
(5) Proven claim. A claim that is allowed by a receiver or upon which a final
non-appealable judgment has been entered in favor of a claimant against a receivership by
a court with jurisdiction to adjudicate the claim.
(c) Post-insolvency interest distributions. (1) Post-insolvency interest shall only be
distributed following satisfaction by the receiver of the principal amount of all creditor
(2) The receiver shall distribute post-insolvency interest at the post-insolvency interest
rate prior to making any distribution to equityholders. Post-insolvency interest
distributions shall be made in
the order of priority set forth in section 11(d)(11)(A) of the Federal Deposit Insurance
Act, 12 U.S.C. 1821(d)(11)(A).
(3) Post-insolvency interest distributions shall be made at such time as the receiver
determines that such distributions are appropriate and only to the extent of funds
available in the receivership estate.
Post-insolvency interest shall be calculated on the outstanding balance of a proven claim,
as reduced from time to time by any interim dividend distributions, from the date the
receivership is established until the principal amount of a proven claim has been fully
distributed but not thereafter. Post-insolvency interest shall be calculated on a
contingent claim from the date such claim becomes proven.
(4) Post-insolvency interest shall be determined using a simple interest method of
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, this 7th day of May, 2002.
Robert E. Feldman,
[FR Doc. 02-11947 Filed 5-13-02; 8:45 am]
BILLING CODE 6714-01-P