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Financial Institution Letters


[Federal Register: August 10, 1995 (Volume 60, Number 154)]
[Proposed Rules]               
[Page 40776-40782]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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[[Page 40776]]


FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AB65

 
Assessments

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing 
to amend its regulation on assessments in three ways. First, the FDIC 
proposes to delay the collection date for the first quarterly 
assessment payment that insured institutions must make for the first 
semiannual period of each year (first payment). Under the existing 
regulation, the collection date for this payment is December 30 of the 
prior year. The FDIC proposes to change the collection date to the 
first business day following January 1. Second, the FDIC proposes to 
give insured institutions the option of prepaying the first quarterly 
payment during the prior December. Institutions could prepay the amount 
of the first payment or twice that amount (an approximation of the 
entire amount due for the upcoming semiannual period). The FDIC's 
purpose in making these first two changes is to relieve certain 
institutions of the regulatory burden of having to make an extra 
assessment payment in 1995, while at the same time affording 
flexibility to other institutions to make such a payment if they should 
so desire. Third, the FDIC proposes to replace the interest rate to be 
applied to underpayments and overpayments of assessments with a new, 
more sensitive rate derived from the 3-month Treasury bill discount 
rate. The current standard rapidly becomes obsolete in volatile 
interest-rate markets; the proposed standard would be more sensitive to 
current market conditions.

DATES: Written comments must be received by the FDIC on or before 
September 11, 1995.

ADDRESSES: Written comments shall be addressed to Office of the 
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, D.C. 20429. Comments may be hand delivered to 
Room F-402, 1776 F Street NW., Washington, D.C. 20429, on business days 
between 8:30 a.m. and 5:00 p.m. [Fax number: (202)898-3838; Internet 
address: comments@fdic.gov] Comments will be available for inspection 
at the FDIC's Reading Room, Room 7118, 550 17th Street NW., Washington, 
D.C., between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Allan Long, Assistant Director, 
Treasury Branch, Division of Finance (703) 516-5546; Claude A. Rollin, 
Senior Counsel, Legal Division (202) 898-3985; or Jules Bernard, 
Counsel, Legal Division, (202) 898-3731; Federal Deposit Insurance 
Corporation, Washington, D. C. 20429.

SUPPLEMENTARY INFORMATION:

A. Background

1. The Payment Schedule

    On December 20, 1994, the FDIC adopted a new procedure for the 
collection of deposit insurance assessments. See 59 FR 67153 (December 
29, 1994). The new procedure became effective April 1, 1995. It applies 
to the second semiannual assessment period of 1995 (beginning July 1, 
1995) and thereafter.
    The FDIC collects assessment payments on a quarterly basis, by 
means of FDIC-originated direct debits through the Automated Clearing 
House network. The collection dates for the first semiannual period 
(January through June) of any given year are December 30 of the prior 
year and March 30 of the current year. The collection dates for the 
second semiannual period (July through December) are June 30 and 
September 30.
    Thirty days prior to each collection date, the FDIC provides to 
each institution an invoice showing the amount that the institution 
must pay. The FDIC prepares the invoice from data that the institution 
has reported in its report of condition for the previous quarter.
    Under this schedule, the first quarterly payment for the first 
semiannual period of a given year is collected during the prior year. 
The procedure is as follows: The institution determines its deposits on 
September 30 of the prior year, uses the information to prepare its 
report of condition, and files the report of condition by October 30. 
The FDIC uses the report of condition to prepare an invoice for the 
institution, and provides the invoice to the institution by November 
30. The FDIC collects the payment by a direct debit on December 30. If 
December 30 falls on a weekend or holiday, the FDIC collects the 
payment on the previous business day.
    Before adopting the new quarterly-collection procedure, the FDIC 
issued it as a proposed rule, and asked for public comment. 59 FR 29965 
(June 10, 1994). The FDIC received 51 comment letters.
    Two respondents pointed out that the FDIC's payment schedule would 
result in an anomaly in 1995. Institutions would pay their full 
semiannual assessment for the first semiannual period in 1995 in 
January, in accordance with the assessment regulations then in effect. 
Institutions would also pay both quarterly payments for the second 
semiannual period in 1995 (one at the end of June; the other at the end 
of September). Then they would make one further payment in 1995: the 
first payment for 1996. In effect, they would pay assessments for 5 
quarters in 1995.
    These commenters asked the FDIC to move the collection date for the 
first payment for 1996 from December 30, 1995, to January, 1996. In 
response, the FDIC looked into the issue further.
    As a result of its inquiry, the FDIC determined that relatively few 
institutions would be adversely affected, and decided to retain the 
December collection date. The FDIC recognized that a December 1995 
collection date could present a one-time problem for some institutions. 
But the FDIC concluded that this situation was a by-product of the 
shift from a semiannual to a quarterly collection procedure, and would 
not involve an ``extra'' assessment payment. 59 FR 67157. The FDIC 
further observed that this timing issue would adversely affect only 
institutions that use cash-basis accounting. Finally, the FDIC pointed 
out that the commenters' recommended solution--moving the December 
collection date to January--would not cure the problem if adopted only 
for a single year: the problem would recur in 

[[Page 40777]]
1996. A permanent change in the collection date would be required. Id. 
    Shortly after the new system was adopted, however, the FDIC began 
to receive information suggesting that more institutions would be 
adversely affected by the December collection date than was initially 
thought. Moreover, the Independent Bankers Association of America 
(IBAA) issued a letter to the FDIC requesting the FDIC to reconsider 
the issue in light of the December collection date's effect on cash-
basis institutions. The FDIC's Board of Directors considers that it is 
appropriate to regard the IBAA's request as a ``petition for the 
amendment of a regulation'' within the meaning of the FDIC's policy 
statement ``Development and Review of FDIC Rules and Regulations,'' 2 
FED. DEPOSIT INS. CORP. LAWS, REGULATIONS, RELATED ACTS 5057 (1984).
    Accordingly, FDIC has decided to propose, for public comment, 
certain changes in the quarterly collection schedule. The proposed 
changes would take effect upon publication in the Federal Register.

2. Interest on Underpaid and Overpaid Assessments

    The FDIC pays interest on amounts that insured institutions overpay 
on their assessments, and charges interest on amounts by which insured 
institutions underpay their assessments. The interest rate is the same 
in either case: namely, the United States Treasury Department's current 
value of funds rate which is issued under the Treasury Fiscal 
Requirements Manual (TFRM rate) and published in the Federal Register. 
See 12 CFR 327.7(b).
    The TFRM rate is based on aged data, and quickly becomes obsolete 
in volatile interest-rate markets. For example, the rate set for 
January through June, 1995, was based on the average rate data from 
October, 1993, through September, 1994. The practical consequence was 
that the TFRM rate for the January-to-June period in 1995 was 3% per 
annum, when the actual market rate at that time was over 5% per annum.
    The FDIC is proposing to replace the TFRM rate with a rate keyed to 
the 3-month Treasury bill discount rate. The new rate would take effect 
on January 1, 1996.

B. The Proposed Amendment

1. The Payment Schedule

a. Delaying the Collection Date for First Payments
    The proposed rule would change the collection date for the first 
quarterly payment for the first semiannual period of each year (first 
payment). Under the present regulation, the collection date is December 
30 of the prior year. The proposed rule would delay the collection date 
to the first business day following January 1. Accordingly, every 
institution would ordinarily make its first payment on that date.
    No other aspect of the collection procedure would be altered: there 
would be no change in the amount of the assessment due, and there would 
be no change in the other collection dates.
    The proposal is designed to protect cash-basis institutions against 
the adverse consequences of having to make an extra assessment payment 
during 1995. The remedy is necessarily a continuing one. Accordingly, 
the FDIC considers that it is appropriate to make the change in the 
collection date permanent.
    The FDIC believes that the delay in the collection date confers a 
financial benefit to institutions, because they may earn additional 
interest on the funds they retain for the additional time. The FDIC 
does not consider that it is appropriate to give a benefit of this kind 
to some institutions but not others, however. Accordingly, the FDIC 
proposes to delay the collection date for all institutions, not just 
for cash-basis institutions.
    The FDIC further believes that most institutions have already 
prepared to comply with the direct-debit procedures, and would suffer 
no procedural disadvantage from the proposed delay in the collection 
date. The FDIC would collect the January 1 payment in the same manner 
as under the existing regulation.
b. Prepaying First Payments
    The FDIC recognizes, however, that some institutions may prefer the 
existing payment schedule, notwithstanding the fact that they would be 
making five payments during 1995. The proposed rule accommodates these 
institutions. Under the proposed rule, an institution would be able to 
elect to prepay its first payment for any year.
    The FDIC would collect prepayments by electronically debiting 
prepaying institutions' accounts, just as the FDIC collects other 
quarterly assessment payments. The collection date for the prepayments 
would be December 30 of the prior year (or, if December 30 is not a 
business day, the preceding business day).
    An institution could prepay either the amount of the first payment 
or twice that amount. The doubled amount represents an approximation of 
the entire amount due for the first semiannual period. The 
approximation is not intended to be exact. Growing institutions would 
ordinarily owe an additional amount on the next quarterly collection 
date; shrinking institutions would ordinarily receive a credit for the 
overpayment.
    In order to elect to prepay the first payment for a given year, an 
institution would have to file a certification to that effect by the 
preceding November 1. The prepayment election would be effective with 
respect to the first payment for the upcoming year and for all years 
thereafter.
    The institution would have to complete a pre-printed form supplied 
by the FDIC to make the certification. The FDIC's Division of Finance 
would make pre-printed forms available for this purpose. The 
institution's chief financial officer, or an officer designated by the 
institution's board of directors, would have to sign the form.
    An institution would certify that it would pay its first assessment 
in accordance with the prepayment procedure. The institution would also 
specify whether it would prepay the invoiced amount or double that 
amount.
    An institution could terminate its election of the prepayment 
option in the same way as it made the election: by certifying that it 
was terminating the election for an upcoming year. As in the case of 
the original election, the institution would have to use a pre-printed 
form supplied by the FDIC to make the certification, and would have to 
file the form by November 1 of the prior year. The institution would 
then revert to the regular payment schedule for the upcoming year and 
for all future years.
    An institution that terminated an election could make a new 
election. An institution could even terminate one election and make a 
new election for the same semiannual period--e.g., for the purpose of 
changing the amount of a prepayment--if the institution filed both 
certifications by the November 1 deadline.
    The proposed rule does not contemplate that the FDIC would pay 
interest on prepaid assessments.
    The FDIC believes that it is appropriate to allow the prepayment 
option for two reasons. The FDIC recognizes that institutions that keep 
their books on an accrual basis are not materially harmed by having to 
pay five quarters' worth of assessments in 1995. (By the same token, 
these institutions are not materially harmed by delaying the collection 
date from December to January.)
    Some of these institutions may prefer to prepay some or all of 
their first 

[[Page 40778]]
semiannual assessments for their own business reasons. The FDIC further 
recognizes that institutions may have arranged their affairs in the 
expectation that the first payment for 1996 will be due in 1995. The 
FDIC is providing the prepayment option in order to enable these 
institutions to avoid unnecessary disruption and financial 
disadvantage.

2. Interest on Underpaid and Overpaid Assessments

    The FDIC is proposing to replace the interest rate that is applied 
to underpaid assessments and overpaid assessments. The current rate is 
the TFRM rate (which is now 5.00% per annum), which is compounded 
annually. The FDIC would replace this rate with a more market-sensitive 
rate: the coupon equivalent rate set on the 3-month Treasury bill at 
the last auction held by the U.S. Treasury Department before the start 
of the quarter. Interest would be compounded as of the first day of 
each subsequent quarter. Currently, this rate is 5.51% per annum (see 
below).
    Under the current regulation, interest begins to run on the day 
after collection date and continues to run through the day on which the 
debt is paid. If the new collection schedule were adopted, the 
collection date for the first quarterly payment for 1996 would be 
January 2. Interest on any overpayments or underpayments due on that 
date would begin to run on January 3.1

    \1\  Even in the case of prepaying institutions, the amounts to 
be collected from the institutions would not be due until the 
regular collection date. Accordingly, interest on overpayments and 
underpayments would begin to run from the regular collection date, 
not the prepayment date.
    Furthermore, as noted above, the proposed rule does not 
contemplate that the FDIC would pay interest on prepaid assessments. 
In particular, if an institution elected to prepay double the amount 
of a first payment, the doubled amount would not be regarded as an 
``overpayment,'' and the FDIC would not pay interest on the extra 
amount so paid.
---------------------------------------------------------------------------

    The next collection date is March 29 (March 30 being a Saturday). 
The FDIC would ordinarily collect or repay the full amount of the 
overpayment or underpayment (plus interest) on that date by adjusting 
the payment then due. Accordingly, interest on the overpayment or 
underpayment would run through March 29.
    The initial interest rate would be the rate for the quarter for 
which (but not generally in which) the payment would be made. The 
collection date for the first quarter would be January 2, which falls 
within that quarter. But the collection dates for the second, third, 
and fourth calendar quarters are March 30, June 30, and September 30, 
respectively; if the regularly scheduled collection date falls on a 
weekend or holiday, the collection date is the preceding business day. 
Each of these collection dates falls in the quarter preceding the 
quarter for which the payment is due. Nevertheless, the initial 
interest rates on any underpayments or overpayments of payments due on 
these dates would be the rates for the second, third, and fourth 
quarters, respectively.
    This initial interest rate on an overpayment or underpayment would 
apply to the amount in question for the entire interval running from 
the day after the collection date through the end of the quarter, or 
until the overpayment or underpayment were discharged, whichever came 
first. The FDIC would redetermine the rate at the beginning of each 
quarter. If any portion of the overpayment or underpayment (including 
interest) remained outstanding at that time, the FDIC would apply the 
new quarter's rate to the outstanding amount, beginning on the first 
day of the new quarter.
    If the proposed rate had been in effect for the third quarter in 
1995, the FDIC would have computed interest on an overpayment or 
underpayment of an amount due for that quarter as follows:

    The FDIC would have based the rate on the average rate for the 
3-month Treasury bill set at the June 26, 1995, auction (settling on 
June 29, 1995). On a bank discount rate basis (360-day year with no 
compounding), the auction resulted in a 5.35% average rate. This 
converts to a coupon equivalent rate of 5.51% according to the 
United States Treasury Department.
    June 30 is the collection date. On the following day (July 1) 
the FDIC would have begun to apply the 5.51% rate to overpayments or 
underpayments collected on June 30. The outstanding amount would 
ordinarily be repaid on the next collection day, which falls on 
September 29 (September 30 being a Saturday).
    A $1 million overpayment collected on June 30 and refunded on 
September 29 would have generated 91 days of interest: (91/366)  x  
.0551  x  $1,000,000 = $13,699.73.2

    \2\ The third calendar quarter in 1995 falls within the leapyear 
cycle that begins on March 1, 1995, and ends on February 29, 1996.
---------------------------------------------------------------------------

    The FDIC is proposing to adopt the new rate because the new rate 
more closely approximates the opportunity cost of money both for the 
institution and for the FDIC. If an institution were to overpay its 
assessment, the FDIC would return to the institution the benefit that 
the institution would have been able to obtain by investing the excess 
amount. Conversely, if an institution were to underpay its assessment, 
the institution would have to restore to its fund--the Bank Insurance 
Fund (BIF) or the Savings Association Insurance Fund (SAIF)--the 
economic value of the interest that the fund would otherwise have 
earned.
    The FDIC would apply the new rate (and the quarterly compounding) 
prospectively, not retroactively. The FDIC would apply the new rate to 
payments due for the first quarter of 1996 and thereafter, and to any 
outstanding amounts owed to or by the FDIC on and after January 1, 
1996. For amounts owed to or by the FDIC during intervals prior to 
January 1, 1996, the FDIC would continue to apply the then-current TFRM 
rate (and the annual compounding) for those intervals.

C. Effect on the Insurance Funds

1. The Payment Schedule

    The proposed shift in the collection date is not expected to have 
any substantial adverse impact on the insurance funds.
    In the case of the BIF, the maximum amount of the interest foregone 
as a result of delaying the collection is not expected to exceed 
$600,000. The actual amount of the foregone interest is likely to be 
considerably less, as many BIF members can be expected to take 
advantage of the prepayment election. Accordingly, the FDIC considers 
that the BIF would not suffer any material harm by the loss of this 
revenue.
    In the case of the SAIF, the foregone interest is not expected to 
exceed $108,000. Here again, the actual amount is likely to be 
considerably less. While this sum is not insubstantial, the FDIC 
believes that its loss would not materially harm the SAIF under current 
conditions, and would not impede the SAIF's progress toward 
recapitalization.
2. Interest on Underpaid and Overpaid Assessments

    The change from the TFRM rate to the new rate is not expected to 
have any material impact on either the BIF or the SAIF. The net yearly 
amount routinely subject to the interest rate--that is, the net of the 
amounts that institutions routinely overpay, minus the amounts they 
routinely underpay--is approximately $2,000,000 per year in the 
aggregate for both funds. This amount represents a net overpayment. It 
is outstanding for 60 days on average; accordingly, at the current TFRM 
rate, the FDIC ordinarily pays out a net annual amount of approximately 
$16,000 in interest. Under the proposed new rate, the FDIC would pay 
out approximately $18,000 yearly--for a net change to the funds of just 
$2,000. 

[[Page 40779]]


D. Assessment of the Reporting or Recordkeeping Requirements

1. The Payment Schedule

    The FDIC considers that the proposed rule's reporting or 
recordkeeping requirements would be minimal. The proposed rule does not 
compel any institution to create or maintain new records. It merely 
delays the collection date for the first payment of each year, without 
changing the procedures that institutions must follow in order to make 
that payment.
    Some institutions may take a different view, however. They may 
consider that they have already taken all the steps necessary to make a 
December payment, and yet must now do something more--namely, file the 
certification--in order to make that payment.
    The FDIC believes, however, that the burden of the one-time filing 
would be so small as to be immaterial. The proposed rule would not 
require the institution to retain the form, or to file a new 
certification each year, or to keep any other new records.

2. Interest on Underpaid and Overpaid Assessments

    The changes in the interest rate would have no effect on the 
reporting or recordkeeping requirements of insured institutions.

E. Effect on Competition

    The proposed regulation is not expected to have any effect on 
competition among insured depository institutions.

F. Relationship of the Proposed Regulation to Other Government 
Regulations

    The proposed regulation is not expected to have any impact on other 
government regulations.

G. Cost-Benefit Analysis

1. The Payment Schedule

    The FDIC believes that the proposed regulation would not impose any 
new costs on non-electing institutions. On the contrary, it would 
benefit them by allowing them to retain the use of their funds for an 
extra interval. The proposal would provide a special benefit to cash-
basis institutions by eliminating an expense they would otherwise have 
sustained in 1995.
    In the case of electing institutions, the proposed regulation would 
also provide significant benefits. The FDIC believes that institutions 
will elect to prepay their first payments only if doing so is 
advantageous to them. The proposed rule would allow all institutions to 
earn extra interest: Accordingly, at a minimum, an institution would 
have to expect to derive an even greater benefit from electing the 
prepayment option. On the other hand, the only costs incurred by 
electing institutions are the costs of signing and submitting the 
certification. The FDIC considers that those costs are not likely to be 
significant.

2. Interest on Underpaid and Overpaid Assessments

    The change from the TFRM rate to the proposed new rate would 
likewise impose minimal costs on institutions. The net amount at issue 
would not be material in the aggregate. For any particular institution, 
the net effect of the change would be impossible to predict, because 
the relationship between the TFRM rate and the proposed rate varies 
from one interval to another.
    Accordingly, the FDIC believes that the benefits of the proposed 
rule would likely outweigh any costs it might impose.

H. Other Approaches Considered

1. Retaining the Status Quo

a. The Payment Schedule
    In developing the proposal, the FDIC has considered whether it 
would be advisable to retain the current schedule without change.
    As noted above, however, the FDIC recognizes that it is responsible 
for establishing the December 1995 collection date. The FDIC further 
recognizes that requiring institutions to make a payment on that date 
could adversely affect institutions that keep their financial records 
and make their financial reports on a cash basis. The FDIC believes 
that, if it can mitigate harm of this kind by modifying its 
regulations, it should make every effort to do so.
b. Interest on Underpaid and Overpaid Assessments
    The FDIC also considered whether it would be desirable to retain 
the TFRM rate without change. The FDIC believed, however, that the 
rigidities and delays inherent in the TFRM rate militated against 
retaining this interest-rate standard.

2. Alternative Proposal

a. The Payment Schedule
    The FDIC has also considered an alternative proposal: retaining the 
current payment schedule, while giving cash-basis institutions the 
option of electing to defer their first payment until January.
    The alternative proposal would have focused narrowly on the one-
time disadvantage that cash-basis institutions would suffer in 1995, 
and would have aimed at protecting those institutions against that 
disadvantage. Accordingly, the FDIC would not have offered the 
deferred-payment option to non-cash-basis institutions, and would not 
have offered the option to cash-basis institutions after 1995.
    Institutions that exercised the option by November 1, 1995, would 
have made their first payment for 1996 on the first business day 
following January 1, 1996, and would have continued thereafter to make 
the first payment on the first business day of the year. Institutions 
that failed to exercise the option by November 1, 1995, would have had 
to make all their payments according to the regular payment schedule.
    After an institution had made the election, the institution could 
have terminated the election--thereby reverting to the regular payment 
schedule--by so certifying to the FDIC in writing. For the termination 
to be effective for a given year, the institution would have had to 
provide the certification to that effect to the FDIC no later than 
November 1 of the prior year. The termination would have been 
permanent. The FDIC would not have charged interest on the delayed 
payments.
    The FDIC has chosen to issue the proposed rule, rather than the 
alternative proposal, for two reasons. First, the FDIC expects that the 
approach set forth in the proposed rule would be more evenhanded: all 
institutions would have the benefit of the later collection date, and 
all would have an equal opportunity to earn additional interest on 
their funds. Second, the proposed rule would provide greater 
flexibility to all institutions to plan the timing of their expenses.
b. Interest on Underpaid and Overpaid Assessments
    The FDIC also considered proposing to replace the single TFRM rate 
with a pair of rates: namely, the composite yield at market of the BIF 
and SAIF portfolios, respectively. These rates would have been 
determined retrospectively, because they are generated by looking at 
the interest that the portfolios actually earned. For the second 
quarter of 1995, the rates would have been 5.70% for the BIF and 5.61% 
for the SAIF.
    The FDIC would have proposed the ``composite yield at market'' rate 
on the theory that such a rate would represent the FDIC's actual 
benefits (or costs) from 

[[Page 40780]]
the overcollection (or undercollection) of assessments. If an 
institution were to overpay its assessment, the FDIC would return to 
the institution every bit of the benefit that the FDIC had received 
from the overpayment. Conversely, if an institution were to underpay 
its assessment, it would be obliged to restore to its fund the economic 
value of the interest the fund would otherwise have earned, and the 
fund would be made whole.
    The FDIC has chosen to propose the new rate, rather than the 
``composite yield at market'' rate, for two reasons. First, the new 
rate is based on a published rate, not on proprietary information, and 
accordingly is easier for people in the private sector to determine. 
Second, the new rate is intended to approximate the market value of the 
funds--that is, the interest that an institution earned or could have 
earned by investing the funds--rather than the vagaries of the 
investment portfolios of the BIF and the SAIF.

I. Effective Date

1. The Payment Schedule

    The FDIC proposes to make the revisions to the payment schedule 
effective upon adoption by the Board of Directors. The FDIC considers 
that the new payment schedule would ``relieve a restriction'' within 
the meaning of 5 U.S.C. 553(d)(1), because it would delay the date on 
which the FDIC would regularly collect the first payments, and would 
thereby allow institutions to retain their funds for an extra interval. 
More to the point, the FDIC believes that there would be ``good cause'' 
to make this aspect of the final rule effective upon adoption because 
institutions should have as much time as possible to adjust to the new 
collection schedule and to decide whether to take advantage of the 
election option provided by the rule. Accordingly, the FDIC proposes to 
make the revisions to the payment schedule effective at once, rather 
than delay the effective date for 30 days, see 5 U.S.C. 553(d), or wait 
until the first day of the following calendar quarter, see 12 U.S.C. 
4802(b).

2. Interest on Underpaid and Overpaid Assessments

    The FDIC proposes to make the revision of the interest rate 
effective 30 days after publication of the final rule in the Federal 
Register. Ordinarily, the proposed effective date of the final rule 
would be October 1, 1995, the first day of the calendar quarter that 
begins on or after the expected date of publication of the final rule. 
Id. But the Administrative Procedure Act requires a 30-day waiting 
period between the publication of a final rule and its effective date. 
5 U.S.C. 553(d). Accordingly, the proposed effective date of the final 
rule must be deferred to the end of the waiting period. See 12 U.S.C. 
4802(b)(1)(C).

J. Paperwork Reduction Act

    The proposed rule provides that, if institutions wish to elect the 
option of prepaying their first payments, they must file a written 
certification to that effect with the FDIC in advance, and do so on a 
form provided by the FDIC. Institutions would certify that they 
intended to take advantage of the prepayment procedure, and also report 
whether they wished to prepay the amount due for the first payment or 
double that amount.
    By requiring institutions to provide information regarding the 
amount to be prepaid, the FDIC is engaging in a new ``collection of 
information.'' The collection has been submitted to the Office of 
Management and Budget for review and approval pursuant to the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3501 et seq.). Comments regarding the 
accuracy of the burden estimate, and suggestions for reducing the 
burden, should be addressed to the Office of Management and Budget, 
Paperwork Reduction Project (3064-0057), Washington, D.C. 20503, with 
copies of such comments sent to Steven F. Hanft, Assistant Executive 
Secretary (Administration), Federal Deposit Insurance Corporation, Room 
F-400, 550 17th St., N.W., Washington, D.C. 20429.
    Institutions that wish to terminate the election must so certify to 
the FDIC in writing in advance, using a form provided by the FDIC. 
Certifications of this kind do not constitute ``information'' within 
the meaning of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et 
seq.), however, as they merely identify the institutions.
    The FDIC estimates that approximately 500 institutions are likely 
to elect the prepayment option in 1995, the initial year that it is 
offered. Thereafter, the same number of institutions are likely to 
elect the prepayment option and/or terminate the election.
    The estimated annual reporting burden for the collection of 
information requirement in this proposed rule is summarized as follows:

Approximate Number of Respondents: 500.
Number of Responses per Respondent: 1.
Total Approximate Annual Responses: 500.
Average Time per Response: 15 minutes.
Total Average Annual Burden Hours: 125.

K. Regulatory Flexibility Act

    The Board hereby certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) The proposal would mitigate a cost incurred by certain smaller 
entities--namely, cash-basis depository institutions--that arises from 
the one-time shift from the semiannual assessment process to the new 
quarterly assessment schedule. The proposal further confers a benefit 
on all institutions (including smaller institutions) by allowing them 
to earn interest on their funds for an additional interval.
    To the extent that an institution might incur a cost in connection 
with preparing and submitting the paperwork necessary to make the 
election, the FDIC believes that the cost would be minimal, and would 
be far outweighed by the resulting benefit. In any case, each 
institution's decision to make the election would be purely voluntary: 
the proposed rule would not compel an institution to accept any cost of 
this kind.

L. Request for Comment

    The FDIC requests comments on all aspects of the proposal. In 
particular, the FDIC asks for comment on the following matters: the 
extent to which institutions expect to avail themselves of the 
prepayment option; the amounts they regularly expect to prepay; the 
magnitude of the burden that would be imposed by the FDIC's proposed 
procedures for electing the prepayment option; whether it would be more 
appropriate to require institutions to re-elect the pre-payment option 
each year; the likelihood that prepaying institutions will seek to 
revert to the regular collection schedule; the advisability of 
replacing the TFRM rate with the new rate, and the appropriateness of 
the new rate; and the relative desirability of the status quo and of 
the alternative proposal.
    The FDIC's Board of Directors has determined that it is appropriate 
to receive comments for a period of 30 days rather than 60 days. The 
Board considers that the shorter comment period is necessary in order 
to implement the proposal within the available time-frame.

List of Subjects in 12 CFR Part 327

    Bank deposit insurance, Banks, banking, Freedom of information, 
Reporting and recordkeeping requirements, Savings associations.
    For the reasons stated in the preamble, the Board of Directors of 
the 

[[Page 40781]]
FDIC proposes to amend 12 CFR Part 327 as follows:

PART 327--ASSESSMENTS

    1. The authority citation for part 327 continues to read as 
follows:

    Authority: 12 U.S.C. 1441, 1441b, 1817-1819.

    2. Section 327.3 is amended by revising paragraphs (c)(2), (e), and 
(f) and by adding paragraph (c)(3) to read as follows:


Sec. 327.3  Payment of semiannual assessments.

* * * * *
    (c) * * *
    (1) * * *
    (2) Payment date and manner. The Corporation will cause the amount 
stated in the applicable invoice to be directly debited on the 
following dates from the deposit account designated by the insured 
depository institution for that purpose:
    (i) In the case of the first quarterly assessment payment for a 
semiannual period that begins on January 1, on the first business day 
of the semiannual period, except as provided in paragraph (c)(3) of 
this section; and
    (ii) In the case of the first quarterly assessment payment for a se 
(3)semiannual period that begins on July 1, on the preceding June 30.
    (3) Prepayments. (i) An insured depository institution may elect to 
prepay the first quarterly payment for a semiannual period that begins 
on January 1. An institution may elect to prepay either the amount of 
the first quarterly payment due for a semiannual period that begins on 
January 1, or twice that amount.
    (ii) In order to elect the prepayment option with respect to a 
current semiannual period, an institution must so certify in writing to 
the Corporation no later than November 1 of the prior year. The 
prepayment certification shall be made on a pre-printed form provided 
by the Corporation. The form shall be signed by the institution's chief 
financial officer or such other officer as the institution's board of 
directors may designate for that purpose. The form shall be sent to the 
attention of the Chief of the Assessment Operations Section of the 
Corporation's Division of Finance. An institution may obtain the form 
from the Corporation's Division of Finance. The prepayment 
certification shall indicate whether the institution will prepay the 
first quarterly payment for the current semiannual period or twice that 
amount. The election shall be effective with respect to the current 
semiannual period and thereafter, until terminated.
    (iii) An insured depository institution may terminate its election 
of the prepayment option, and revert to the regular payment schedule. 
In order to terminate the election with respect to a current semiannual 
period, an institution must so certify in writing to the Corporation no 
later than November 1 of the prior year. The termination certification 
shall be made on a pre-printed form provided by the Corporation. The 
form shall be signed by the institution's chief financial officer or 
such other officer as the institution's board of directors may 
designate for that purpose. The form shall be sent to the attention of 
the Chief of the Assessment Operations Section of the Corporation's 
Division of Finance. An institution may obtain the form from the 
Corporation's Division of Finance. The termination shall be permanent, 
except that an institution that has terminated an election may make a 
new election.
    (iv) If an insured depository institution elects the prepayment 
option, the Corporation will cause the amount indicated in the 
prepayment certification to be directly debited on December 30 of the 
year prior to the current semiannual period from the deposit account 
designated by the insured depository institution for that purpose.
* * * * *
    (e) Necessary action, sufficient funding by institution. Each 
insured depository institution shall take all actions necessary to 
allow the Corporation to debit assessments from the insured depository 
institution's designated deposit account and, prior to each payment 
date indicated in paragraphs (c)(2), (c)(3)(iv), and (d)(2) of this 
section, shall ensure that funds in an amount at least equal to the 
invoiced amount or, in the case of a prepayment pursuant to paragraph 
(c)(3)(iv) of this section, the amount indicated in the prepayment 
certification are available in the designated account for direct debit 
by the Corporation. Failure to take any such action or to provide such 
funding of the account shall be deemed to constitute nonpayment of the 
assessment.
    (f) Business days. If a payment date specified in paragraph 
(c)(2)(ii), (c)(3)(iv), or (d)(2) of this section falls on a date that 
is not a business day, the applicable date shall be the previous 
business day.
* * * * *
    3. Section 327.7 is amended by revising paragraphs (a)(2), (a)(3), 
and (b) and adding paragraph (c) to read as follows:


Sec. 327.7   Payment of interest on assessment underpayments and 
overpayments.

    (a) * * *
    (2) Payment by Corporation. (i) The Corporation will pay interest 
on any overpayment by the institution of its assessment.
    (ii) An amount that an institution prepays on its assessment, 
whether in accordance with Sec. 327.3(c) or otherwise, shall not be 
regarded as an overpayment of an assessment.
    (3) Accrual of interest. Interest shall accrue under this section 
from the day following the regular collection date, as provided for in 
Sec. 327.3 (c)(2) and (d)(2), of the quarterly assessment amount that 
was overpaid or underpaid, through the payment date applicable to the 
quarterly assessment invoice on which adjustment is made by the 
Corporation for the underpayment or overpayment, provided, however, 
that interest shall not begin to accrue on any overpayment until the 
day following the date such overpayment was received by the 
Corporation.
    (b) Rates after December 31, 1995. On and after January 1, 1996--
    (1) The interest rate for any calendar quarter will be the coupon 
equivalent yield of the average discount rate set on the 3-month 
Treasury bill at the last auction held by the United States Treasury 
Department prior to the commencement of the calendar quarter;
    (2) The initial interest rate to be applied to an overpayment or 
underpayment of an amount due on a regularly scheduled collection date 
(whether or not prepaid) will be the interest rate for the calendar 
quarter following the last auction held by the United States Treasury 
Department immediately prior to that collection date; and
    (3) The interest rate to be applied during any subsequent calendar 
quarter to the outstanding balance (including interest thereon) owed to 
or by the insured depository institution for assessments will be the 
interest rate for such calendar quarter and will begin on the first day 
of such calendar quarter.
    (c) Rates prior to January 1, 1996. Through December 31, 1995--
    (1) The interest rate will be the United States Treasury 
Department's current value of funds rate which is issued under the 
Treasury Fiscal Requirements Manual (TFRM rate) and published in the 
Federal Register;
    (2) The interest will be calculated based on the rate issued under 
the TFRM for each applicable period and compounded annually; 

[[Page 40782]]

    (3) For the initial year, the rate will be applied to the gross 
amount of the underpayment or overpayment; and
    (4) For each additional year or portion thereof, the rate will be 
applied to the net amount of the underpayment or overpayment after that 
amount has been reduced by the assessment credit, if any, for the year.

    By order of the Board of Directors.

    Dated at Washington, D.C. this 3d day of August, 1995.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 95-19696 Filed 8-9-95; 8:45 am]
BILLING CODE 6714-01-P
Last Updated 07/17/1999 communications@fdic.gov