AAC-99-02 (May 5, 1999)
This administrative appeal concerns whether [Bank] (“X or “Bank”) should be permitted to recalculate its adjusted attributable deposit amount (“AADA”) as a result of a 1991 amendment to section 5 of the Federal Deposit Insurance Act (FDI Act”) regarding the computation of an Oakar institutions AADA.1 That amendment2 eliminated the minimum seven percent annual growth rate for computing an Oakar institution’s AADA. X is appealing a decision by the FDIC’s Division of Finance (“DOF”) denying the Bank’s request to adjust its AADA. X contends that it has paid $300,000 in excess assessments because of the Bank’s incorrect initial calculation of the Bank’s AADA.
Background
The FDIC is charged with assessing and collecting deposit insurance premiums for the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“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 the SAIF.
Under the Oakar Amendment3 a BIF-insured institution that acquires deposits from a SAIF-insured institution is an “Oakar” institution. As such, it is treated by statute as a hybrid institution required to pay deposit insurance assessments to both its primary and secondary insurance funds. The “primary fund” is the deposit insurance fund of which the institution is a member.4 The “secondary fund” is the insurance fund that is not the member’s primary fund.5 For example, a “BIF Oakar,” is a member of the BIF but a portion of its assessment base is also 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 the Oakar Amendment. Under the FDI Act, assessments on BIF-insured deposits are paid into the BIF and assessments on SAIF-insured deposits are paid into the SAIF.6 Also, FDIC losses resulting from the failure of an Oakar institution are shared, pro rata, by BIF and SAIF.7 The AADA is the means by which an Oakar institution’s deposits are allocated for assessment and fund loss-allocation purposes.
In 1990 the Oakar Amendment provided, in relevant part, that the AADA consisted of the sum of:
(i) the amount of Oakar deposits acquired;
(ii) the total of amounts for previous semiannual periods required to be included pursuant to calculations stated in (iii) below; and
(iii) the amount by which the sum of the amounts described in clause (i) and (ii) would have increased during the previous semiannual period (other than any semiannual period beginning before the date of the transaction) if such increase occurred at a rate equal to the greater of – (I) an annual rate of 7 percent; or (II) the annual rate of growth of [the institution’s overall deposits].
In FDICIA, Congress modified the Oakar Amendment by eliminating the minimum seven percent annual growth assumption and retained only the method of calculation based on the actual growth of the institution’s overall deposits. The revised statute stated that the third component of an institution’s AADA consists of:
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 before the date of the transaction) if such increase occurred at a rate equal to the annual growth of [the institution’s overall deposits].8
FDICIA specified that this change to the Oakar Amendment “shall apply with respect to semiannual periods beginning after the date of enactment of [FDICIA].”9 FDICIA’s enactment date was December 19, 1991. The first semiannual period beginning after FDICIA’s enactment started on January 1, 1992, the beginning of the January-June 1992 semiannual assessment period.
X is an Oakar bank. It acquired SAIF-insured deposits in September 1990. Under procedures in place at the time, as of September 30, 1991, the Bank completed and submitted the required AADA growth worksheets identifying deposit growth for the annual period, September 30, 1990, through September 30, 1991. Based on this deposit-growth analysis, the Bank reported to the FDIC a composite AADA of approximately $94 million. That total included the pre-FDICIA minimum seven percent annual increase required by the Oakar statute. (The Bank’s actual deposit-growth rate for that period was negative four percent.) More than six years later, in October 1997, X sought to amend the Bank’s September 30, 1991, AADA and all subsequent AADAs that the Bank had reported, so that the revised AADAs would not reflect the minimum seven percent annual growth rate.10
In a letter dated September 15, 1998, the Deputy Director of DOF denied X’s request, concluding that the FDICIA revisions to the Oakar Amendment did not apply to AADA determinations made as of a date prior to the first semiannual period of 1992. The Bank is appealing that decision, asserting that the FDIC incorrectly interpreted and implemented FDICIA’s elimination of the minimum seven percent annual growth rate.11
Discussion
Under the statutory scheme, the assessment process requires that the assessment base in one semiannual period serve as a “proxy” for the assessment base of the next assessment period.12 For example, the assessment for the January-June assessment period of a particular year is based upon deposit data reported by an institution for the July-December period of the prior year. When the Oakar Amendment was enacted in 198913 the FDIC developed a program to administer its provisions and developed a procedure to calculate AADAs. An Oakar institution’s AADA was redetermined on a yearly basis, as of the end of the corresponding calendar quarter in each following year. Pursuant to the Oakar Amendment, the growth rate applied in making that calculation was the Oakar institution’s actual growth rate for the prior twelve-month period. If, however, the actual growth rate was less than seven percent, the statutory minimum rate of seven percent was applied.
X participated in an Oakar transactions during September 1990. According to the procedures explained above, the Bank’s AADA was established as of September 30, 1990, based on the dollar amounts of the SAIF-insured deposits so acquired. That AADA was used for the purpose of determining the Bank’s BIF and SAIF assessments payable for the periods beginning in January 1991 and July 1991 – the two subsequent semiannual periods. That AADA also provided the means of allocating X’s deposits between BIF and SAIF for loss-allocation purposes. X’s first AADA adjustment was made as of September 30, 1991.
That redetermination occurred as of a date prior to the beginning of the first semiannual period of 1992. Thus, the adjustment was based on the minimum seven percent annual growth rate then in effect. The AADA determined as of September 30, 1991, was used for computing the Bank’s BIF and SAIF assessments for the Janauary 1992 and July 1992 semiannual periods and for allocating X’s deposits between BIF and SAIF for loss-allocation purposes. The second adjustment of X’s AADA was made the following year. This second adjustment, and all subsequent adjustments, reflected the Bank’s actual growth rate, in accordance with the post-FDICIA Oakar Amendment.
X contends that the FDIC misapplied the plain language of FDICIA’s effective date provision and inaccurately described the effect of X’s refund request on the allocation of insurance risk. On the first contention, X argues that “the AADA in question was calculated after FDICIA’s effective date, covered a period after FDICIA’s effective date, and was used for purposes of a semiannual assessment that was payable after FDICIA’s effective date. Accordingly, … X’s AADA for the first half of 1992 should have been computed under the [FDICIA amendment.]”
As noted above, FDICIA stated that the amendment to the AADA statute was to apply “with respect to semiannual periods beginning after the date of the enactment of [FDICIA],” December 19, 1991. The FDIC interpreted this effective date provision to mean that the FDICIA revision would apply to all AADA growth calculations for periods during and after the first semiannual period of 1992.14 It did not interpret the FDICIA revisions as requiring the FDIC to change AADA growth determinations, under the pre-FDICIA rules, for periods before 1992. To do otherwise would have required the FDIC to apply the FDICIA revisions retroactively.
The AADA used to allocate X’s deposits between BIF and SAIF for both assessment and deposit insurance loss allocation purposes was based on the growth (in X’s overall deposits) that occurred between September 1990 and September 1991. X’s assessment growth cycle ended on September 30, 1991. As of that date, X’s AADA was adjusted by the statutorily required minimum seven percent annual growth rate.
In April 1992, the FDIC Legal Division concluded in an advisory opinion that the FDICIA changes to the Oakar Amendment were not intended to be retroactive. The opinion noted that the “effective date” provision was intended, in part, to prevent the midstream disruption of the calculation of AADAs by institutions that participated in Oakar transactions prior to FDICIA. The opinion concluded that the FDICIA effective date provision allowed the FDIC and Oakar institutions to make a smooth transition from the pre-FDICIA requirements to the post-FDICIA requirements pertaining to the AADA.15
The FDIC implemented FDICIA’s elimination of the AADA minimum seven percent annual growth rate and effective date provision in a manner consistent with the FDIC’s assessment procedures. It integrated the required change to the mathematical formula for calculating AADAs with those established and accepted administrative procedures. Nothing in either FDICIA or its legislative history suggested that Congress intended to change or contravene the FDIC’s administrative procedures. X’s AADA for the first semiannual period of 1992 was established as of September 30, 1991 – i.e., before 1992 – based on deposit data for the year September 1990 through September 1991. Thus, the AADA was computed using the statutory minimum rate. The FDICIA revisions came into play when the FDIC made its next computation of the Bank’s AADA.
X also disputes the conclusion reached in the DOF response letter of September 15, 1998, that recalculating X’s AADAs would result in a retroactive reallocation of risk to the deposit insurance funds. As indicated above, an institution’s AADA serves an insurance loss-allocation purpose as well as an assessment purpose. This loss allocation is based on the failed institution’s AADA as of the assessment growth period immediately prior to the date of failure. Contrary to X’s assertion, if X had failed on October 1, 1991, for instance, (i.e., a date after the date as of which its AADA was redetermined) the FDIC would have allocated the losses attributed to X’s failure to BIF and SAIF based on its AADA determined as of September 30, 1991. The FDIC does not look to the completion of a form to establish the effective date of an institution”s AADA. The effective date of an AADA is the end of the assessment growth period.
Moreover, FDIC programs, policies, reports and other substantive and procedural matters are affected by the relative risks presented to the insurance funds based on the dollar amount and risk involved in deposits insured by the BIF and SAIF, respectively. The FDIC interpreted the FDICIA provisions in issue as not requiring the FDIC to retroactively reallocate the relative risks to the deposit insurance funds posed by Oakar institutions.
Congress has established and the FDIC has been charged with administering a complex deposit insurance assessment scheme. When Congress amended the scheme in FDICIA and changed the formula for calculating the AADA, the FDIC interpreted the changes in harmony with the FDIC’s established assessment procedures. The FDIC implemented the FDICIA changes uniformly. Nothing in either FDICIA or its legislative history indicates that Congress intended to alter or invalidate the FDIC’s assessment procedures.16 The staff’s approach was reasonable and is supported by the contemporaneous opinion issued by the FDIC’s Legal Division.
* * *
For the reasons discussed herein, under authority delegated by the Board of Directors of the Federal Deposit Insurance Corporation, the Committee denies X’s appeal.
- 1
- 2
FDIC Improvement Act of 1991 (“FDICIA”), Pub. L. No. 102-242, 105 Stat. 2236 (1991).
- 3
12 U.S.C. 1815(d)(3)(C). The “Oakar Amendment” was named after Congresswoman Mary Rose Oakar, the primary sponsor of the amendment.
- 4
- 5
Id At 327.8(k).
- 6
- 7
Id.
- 8
12 U.S.C. 1815(d)(3)(C)(iii)
- 9
12 U.S.C. 1815 note.
- 10
The first document of record X has submitted in support of its appeal is a letter dated October 24, 1997, from *** to William V. Farrell. Other earlier correspondence from X did not seek the same relief requested in the October 1997 letter.
The Committee notes that X filed its request with the FDIC to amend its September 30, 1991, AADA over six years after that date. Such an amendment would appear to be foreclosed by 12 U.S.C. 1817(g). Although the Committee considered the substantive merits of X’s argument today, the Committee notes that those claims may be barred by the FDI Act. In addition, granting X’s appeal would undermine certainty in the assessment area that institutions have come to rely on since 1991.
Adopting X’s new interpretation of FDICIA’s elimination of the minimum seven percent annual AADA growth rate would affect approximately 75 other institutions. Implementing X’s interpretation would be especially difficult because it has been over seven years since FDICIA was enacted and many affected Oakar institutions have been acquired by institutions that have themselves been acquired. - 11
The FDIC Board of Directors has delegated to the Assessment Appeals Committee the authority to consider and decide deposit insurance assessment appeals.
- 12
- 13
The Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub. L. 101-73, 103 Stat. 183 (1989).
- 14
The FDIC did not apply the minimum seven percent annual growth requirement to any institutions having established growth periods ending after the FDICIA January 1, 1992, effective date, even if the growth period began prior to the effective date.
- 15
FDIC Advisory Op. 92-19, 2 FDIC Law, Regulations, Related Acts 4619 (April 6, 1992).
- 16
In a recent decision, a federal court of appeals confirmed the deference due to the FDIC in matters involving the assessment process, particularly with regard to interpretations of ambiguous assessment-related statutes. Branch Banking & Trust Co. v. FDIC,No. 98-1558 (4th Cir. 1999).