FDIC adopts final rule imposing special assessment
on insured depository institutions

Special assessment

The final rule imposes a five-basis-point special assessment on each institution’s assets minus its Tier 1 capital as stated on its report of condition as of June 30, 2009.  The special assessment is to be collected September 30, 2009, and will not exceed 10-basis-points times the institution’s assessment base for the second quarter 2009 risk-based assessment.

Further special assessments

The FDIC acknowledges there is uncertainty in its projections for losses and future fund reserve ratios.  The final rule provides if after June 30, 2009, the reserve ratio of the DIF is estimated to fall to a level the board believes would adversely affect public confidence or to a level that is close to or below zero at the end of any calendar quarter, the board may vote to impose additional special assessments of up to five-basis-points as of the end of any such quarter.  Like the special assessment as of June 30, 2009, any additional special assessment will be based on each institution’s assets minus its Tier 1 capital as stated on its report of condition for that calendar quarter and will not exceed 10-basis-points times the institutions assessment base for the corresponding quarter’s risk-based assessment.  Any such additional special assessment would be imposed on the last day of the quarter for the remainder of 2009 (September 30 or December 31) and would be collected approximately three months later at the same time the quarterly risk-based assessments are collected.  The FDIC will make its estimates of quarter-end reserve ratios for the purpose of additional special assessments at the end of each quarter to utilize the most current data available on fund losses and the fund reserve ratio.  The board’s authority to impose any additional special assessments under the final rule terminates January 1, 2010.

The final rule differs in several ways and replaces the interim rule with request for comment adopted by the FDIC on February 27, 2009.

Size of the special assessment

The final rule imposes a five-basis-point special assessment on each institution’s assets minus its Tier 1 capital as stated on its report of condition, while the interim rule initially imposed a 20-basis-point special assessment on each institution’s assessment base for the second quarter 2009 risk-based assessment.  The final rule reduces the maximum size of any such additional assessment to five basis points from the 10 basis points allowed by the interim rule with request for comment.  The FDIC found ways to reduce the size of the special assessment since adopting the interim rule.  The FDIC imposed a surcharge on senior unsecured debt guaranteed under the Temporary Liquidity Guarantee Program.  In addition, on May 20, 2009, Congress increased the FDIC’s borrowing authority with the Treasury  from $30 billion to $100 billion as part of the Helping Families Save Their Homes Act of 2009.  With the concurrence of the Federal Reserve Board and the Secretary of the Treasury in consultation with the president, the FDIC has temporary additional borrowing authority of up to $500 billion until December 31, 2010.  That increase in available funding provides the DIF an additional cushion against unanticipated bank failures and allows a reduction of the special assessment.

Assessment base

As originally set forth in the interim rule (and for purposes of calculating the quarterly risk-based assessment), the assessment base is total gross deposit liabilities as defined in Section 3(l) of the Federal Deposit Insurance (FDI) Act and FDIC regulations less allowable exclusions.  Many comments on the interim rule insisted the special assessment should be based on total assets because assets are a more accurate measurement of risk and it would place less burden on smaller institutions.  Section 7(b)(5) of the FDI Act governing special assessments does not define the assessment base to be used when imposing a special assessment.  The FDIC has the ability to define the assessment base for a special assessment by rulemaking.  Ultimately, the FDIC agreed with those comments and determined an asset-based assessment is appropriate in the current circumstances and “better balances the burden of the special assessment.”  The FDIC has excluded Tier I capital from the special assessment base to ensure no institution will be penalized for holding large amounts of capital.  The FDIC estimated the total amount collected under the asset-based special assessment (not including any potential additional special assessments allowed under the final rule) will approximate 7 1/3 basis points of the industry’s aggregate deposit assessment base for the second quarter 2009.