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FDIC Federal Register Citations
[Federal Register: October 18, 2006 (Volume 71, Number 201)]
[Rules and Regulations]
[Page 61385-61391]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc06-4]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AD07


Assessment Dividends

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule to implement the dividend
requirements of the Federal Deposit Insurance Reform Act of 2005
(Reform Act) and the Federal Deposit Insurance Reform Conforming
Amendments Act of 2005 (Amendments Act) for an initial two-year period.
The final rule will take effect on January 1, 2007, and sunset on
December 31, 2008. During this period the FDIC expects to initiate a
second, more comprehensive notice-and-comment rulemaking on dividends
beginning with an advanced notice of proposed rulemaking to explore
alternative methods for distributing future dividends after this
initial two-year period.

EFFECTIVE DATE: January 1, 2007.

FOR FURTHER INFORMATION CONTACT: Munsell W. St.Clair, Senior Policy
Analyst, Division of Insurance and Research, (202) 898-8967; Donna M.
Saulnier, Senior Assessment Policy Specialist, Division of Finance,
(703) 562-6167; or Joseph A. DiNuzzo, Counsel, Legal Division, (202)
898-7349.

SUPPLEMENTARY INFORMATION:

I. Background

In May of this year, the FDIC published a proposed rule (the
proposed rule) to implement the dividend requirements of the Reform
Act. 71 FR 28804 (May 18, 2006). The Reform Act requires the FDIC to
prescribe final regulations, within 270 days of enactment, to implement
the assessment dividend requirements, including regulations governing
the method for the calculation, declaration, and payment of dividends
and administrative appeals of individual dividend amounts. See sections
2107(a) and 2109(a)(3) of the Reform Act.\1\
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\1\ The Reform Act was included as Title II, Subtitle B, of the
Deficit Reduction Act of 2005, Public Law 109-171, 120 Stat. 9,
which was signed into law by the President on February 8, 2006.
Section 2109 of the Reform Act also requires the FDIC to prescribe,
within 270 days, rules on the designated reserve ratio, changes to
deposit insurance coverage, the one-time assessment credit, and
assessments. The final rule on deposit insurance coverage was
published on September 12, 2006, 71 FR 53547. The final rule on the
one-time assessment credit is being published on the same day as
this final rule. Final rules on the remaining matters are expected
to be published in the near future.
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Section 7(e)(2) of the Federal Deposit Insurance Act (FDI Act), as
amended by the Reform Act, requires that the FDIC, under most
circumstances, declare dividends from the Deposit Insurance Fund (DIF
or fund) when the reserve ratio at the end of a calendar year exceeds
1.35 percent, but is no greater than 1.5 percent. In that event, the
FDIC must generally declare one-half of the amount in the DIF in excess
of the amount required to maintain the reserve ratio at 1.35 percent as
dividends to be paid to insured depository institutions. However, the
FDIC's Board of Directors (Board) may suspend or limit dividends to be
paid, if the Board determines in writing, after taking a number of
statutory factors into account, that:
1. The DIF faces a significant risk of losses over the next year;
and
2. It is likely that such losses will be sufficiently high as to
justify a finding by the Board that the reserve ratio should
temporarily be allowed to grow without requiring dividends when the
reserve ratio is between 1.35 and 1.5 percent or exceeds 1.5
percent.\2\
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\2\ This provision would allow the FDIC's Board to suspend or
limit dividends in circumstances where the reserve ratio has
exceeded 1.5 percent, if the Board made a determination to continue
a suspension or limitation that it had imposed initially when the
reserve ratio was between 1.35 and 1.5 percent.
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In addition, the statute requires that the FDIC, absent certain
limited circumstances (discussed in footnote 2), declare a dividend
from the DIF when the reserve ratio at the end of a calendar

[[Page 61386]]

year exceeds 1.5 percent. In that event, the FDIC must declare the
amount in the DIF in excess of the amount required to maintain the
reserve ratio at 1.5 percent as dividends to be paid to insured
depository institutions.
If the Board decides to suspend or limit dividends, it must submit,
within 270 days of making the determination, a report to the Committee
on Banking, Housing, and Urban Affairs of the Senate and to the
Committee on Financial Services of the House of Representatives. The
report must include a detailed explanation for the determination and a
discussion of the factors required to be considered.\3\
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\3\ See section 5 of the Amendments Act. Public Law 109-173, 119
Stat. 3601, which was signed into law by the President on February
15, 2006.
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The FDI Act directs the FDIC to consider each insured depository
institution's relative contribution to the DIF (or any predecessor
deposit insurance fund) when calculating such institution's share of
any dividend. More specifically, when allocating dividends, the Board
must consider:
1. The ratio of the assessment base of an insured depository
institution (including any predecessor) on December 31, 1996, to the
assessment base of all eligible insured depository institutions on that
date;
2. The total amount of assessments paid on or after January 1,
1997, by an insured depository institution (including any predecessor)
to the DIF (and any predecessor fund); \4\
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\4\ This factor is limited to deposit insurance assessments paid
to the DIF (or previously to the Bank Insurance Fund (BIF) or the
Savings Association Insurance Fund (SAIF)) and does not include
assessments paid to the Financing Corporation (FICO) used to pay
interest on outstanding FICO bonds, although the FDIC collects those
assessments on behalf of FICO. Beginning in 1997, the FDIC collected
separate FICO assessments from both SAIF and BIF members.
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3. That portion of assessments paid by an insured depository
institution (including any predecessor) that reflects higher levels of
risk assumed by the institution; and
4. Such other factors as the Board deems appropriate.
The statute does not define the term ``predecessor'' for purposes
of the distribution of dividends to insured depository institutions.
Predecessor deposit insurance funds are the BIF and the SAIF, as those
were the deposit insurance funds in existence after 1996 and prior to
enactment of the Reform Act, and which merged into the DIF. That merger
was effective on March 31, 2006.
The statute expressly requires the FDIC to prescribe by regulation
the method for calculating, declaring, and paying dividends. As with
the one-time assessment credit, the dividend regulation must include
provisions allowing a bank or thrift a reasonable opportunity to
challenge administratively the amount of dividends it is awarded. Any
review by the FDIC pursuant to these administrative procedures is final
and not subject to judicial review.

II. The Proposed Rule

In May, the FDIC proposed a temporary rule for dividends that would
sunset after two years, which would allow the FDIC to undertake a more
comprehensive rulemaking that would not be subject to the 270-day
deadline. The proposed rule: Described a process for the Board's annual
determination of whether a declaration of a dividend is required and
consideration, to the extent appropriate, of whether circumstances
indicate that a dividend should be limited or suspended; set forth the
procedures for calculating the aggregate amount of any dividend,
allocating that aggregate amount among insured depository institutions
considering the statutory factors provided, and paying such dividends
to individual insured depository institutions; and provided insured
depository institutions with a reasonable opportunity to challenge the
amount of their dividends.
The FDIC proposed that the Board announce its determination
regarding dividends by May 15th of each year, which would allow for the
Board's consideration of the dividend determination using complete data
for the reserve ratio for the preceding December 31st. Absent a Board
determination that dividends should be limited or foregone, the
aggregate amount of a dividend would be calculated as set forth in the
statute.\5\
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\5\ In most circumstances, if the reserve ratio exceeds 1.5
percent, the FDIC would declare a dividend of the amount in excess
of the amount required to maintain the reserve ratio at 1.5 percent,
as determined by the FDIC. At the same time, the FDIC would
generally expect to declare a dividend of one-half of the amount
necessary to maintain the reserve ratio at 1.35 percent, unless the
Board makes a determination that suspension or limitation of that
dividend is justified under section 7(e)(2)(E) of the FDI Act. That
might happen, for example, if based on its consideration of the
various statutory factors, the Board determines that it is
appropriate, in light of foreseen risks cited in the statute, for
the reserve ratio to rise to 1.5 percent and set assessments to
maintain the reserve ratio at that level. Sections 2104(a) and
2105(a) of the Reform Act (to be codified at 12 U.S.C. 1817(b)(2)
and (3), respectively).
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With respect to allocation of the aggregate dividend amount, the
FDIC proposed adopting initially a simple system that would remain in
place for two years with a definite sunset date (December 31, 2008).
During the two-year lifespan of the initial dividend regulations, the
FDIC plans to undertake another rulemaking, beginning with the issuance
of an advance notice of proposed rulemaking, seeking industry comment
on more comprehensive alternatives for allocating future dividends.
Specifically, after considering and weighing all the statutory
factors, including other factors the Board deemed appropriate, the FDIC
proposed that, during the life of this rule, any dividends be awarded
simply in proportion to an institution's 1996 assessment base ratio
(including any predecessors' 1996 ratios). This factor essentially
parallels the basis for distribution of the one-time assessment credit,
and institutions' 1996 assessment base ratios will have been determined
under the final rule for the one-time assessment credit. The ratio will
continue in effect for dividend purposes, subject to subsequent
adjustments for transactions that result in the combination of insured
depository institutions, thereby recognizing ``predecessor''
institutions as time goes by.
As noted above, the statute also requires that the FDIC consider
other factors in allocating dividends--the total amount of assessments
paid after 1996; the portion of those assessments paid that reflects
higher levels of risk; and other factors that the Board may deem
appropriate. Because no institution while in the lowest risk category
(sometimes referred to as ``the 1A category'') has paid any deposit
insurance assessments since the end of 1996, all assessments paid since
then have reflected higher levels of risk. Moreover, within the
proposed initial two-year period, any assessments that institutions pay
that do not reflect higher levels of risk are likely to be small in
comparison to the assessments that institutions paid over time to
capitalize the deposit insurance funds, for which the 1996 assessment
base is intended to act as a proxy. As a result, the FDIC proposed that
payments since 1996 should not be included in the proposed temporary
allocation method.\6\
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\6\ It is in large part because post-2006 payments may become
material over time that the FDIC proposed adoption of a transitional
rule, with the expectation that in 2007 the process of developing a
more comprehensive long-term rule will begin.
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In the FDIC's view, other factors supported an initially simple
allocation based upon institutions' 1996 ratio. As a practical matter,
it appears quite unlikely that the reserve ratio of the DIF

[[Page 61387]]

will equal or exceed 1.35 percent in the near future.
The FDI Act does not define the term ``predecessor'' for purposes
of the distribution of dividends to individual insured depository
institutions. In addition, unlike the term ``successor'' used in the
context of the one-time assessment credit, the FDI Act does not
expressly charge the FDIC with defining ``predecessor.'' Nonetheless,
in order to implement the dividend requirements, the FDIC must define
``predecessor'' for these purposes when it is used in connection with
an insured depository institution and the distribution of dividends.
The FDIC proposed a definition of ``predecessor'' that is
consistent with general principles of corporate law and the proposed
definition of ``successor'' in the one-time assessment credit proposed
rulemaking. Therefore, a ``predecessor'' would be defined as an
institution that combined with another institution through merger or
consolidation and did not survive as an entity.
The FDIC proposed that the FDIC advise each institution of its
dividend amount as soon as practicable after the Board's declaration of
a dividend on or before May 15th. Depending on circumstances,
notification would take place through a special notice of dividend or,
at the latest, with the institution's next assessment invoice. To allow
time for requests for review of dividend amounts, the FDIC proposed
that the individual dividend amounts be paid to insured depository
institutions at the time of the assessment collection for the second
calendar quarter beginning after the declaration of the dividend and
offset each institution's assessment amount. Under the proposed rule,
the settlement would be handled through the Automated Clearing House
consistent with existing procedures for underpayment or overpayment of
assessments. Thus, in the event that the institution owes assessments
in excess of the dividend amount, there would be a net debit (resulting
in payment to the FDIC). Conversely, if the FDIC owes an additional
dividend amount in excess of the assessment to the institution, there
would be a net credit (resulting in payment from the FDIC).
As it does for the regulations governing the one-time assessment
credit, the FDI Act requires the FDIC to include in its dividend
regulations provisions allowing an insured depository institution a
reasonable opportunity to challenge administratively the amount of its
dividend. The FDIC's determination under such procedures is to be final
and not subject to judicial review.
The proposed rule largely paralleled the procedures for requesting
revision of computation of a quarterly assessment payment as shown on
the quarterly invoice. Requests for review of dividend amounts would be
considered by the Director of the Division of Finance, and appeals of
those decisions would be made to the FDIC's Assessment Appeals
Committee. As with the one-time credit notice of proposed rulemaking,
the FDIC proposed shorter timeframes in the dividend appeals process so
that requests for review could be resolved by the time payment of
dividends is due, to the extent possible. The FDIC further proposed to
freeze temporarily the distribution of the dividend amount in dispute
for the institutions involved in a request for review or appeal until
the request for review or appeal is resolved. If an institution
prevails on its request for review or appeal, then any additional
amount of dividend would be remitted to the institution, with interest
for the period of time between the payment of dividends that were not
in dispute and the resolution of the dispute.
The comment period for this proposed rule was extended to August
16, 2006, to allow all interested parties to consider the proposed rule
while proposed rules on the designated reserve ratio and risk-based
assessments were pending.

III. Comments on the Proposed Rule

We received ten comment letters, six from insured depository
institutions, one from a coalition of seven institutions, and three
from banking industry trade associations. Commenters focused on the
proposed temporary allocation method, the definition of
``predecessor,'' and the timing for dividend declaration and payment.
Three institutions and three trade groups supported the proposed
temporary allocation method for dividends during the life of the rule;
whereas, four letters from institutions opposed it, instead supporting
an allocation method that immediately takes into account payments made
under the new assessments system. One trade association recommended
that, if a dividend becomes likely in the next two years, the FDIC
accelerate the adoption of the planned, more comprehensive rule.
Three institutions and one trade association supported the proposed
definition of predecessor, which relied on whether the resulting
institution acquired another institution through merger or
consolidation. One trade association favored a ``follow-the-deposits''
approach to the definition. A number of commenters indicated that the
definition of ``predecessor'' essentially should parallel the
definition of ``successor'' for purposes of the one-time assessment
credit rule.
One institution suggested that the declaration of dividends could
be moved earlier to March 31st. A trade association commented that the
FDIC should provide for the payment of dividends prior to the time of
the assessment collection for the second calendar quarter beginning
after the declaration of the dividend. It further commented that
requests for review should not delay the payment of dividends.
All of the comment letters have been considered and are available
on the FDIC's Web site, http://www.fdic.gov/regulations/laws/federal/propose.html
.

IV. The Final Rule

Upon considering the comments, the FDIC has adopted a final rule
similar to the proposed rule with changes to the provisions for the
payment of dividends, the definition of predecessor and the time period
for appealing an FDIC decision on a request to review a dividend
determination, as well as minor technical changes. Consistent with the
proposal, this rule is temporary; it will take effect on January 1,
2007, and will sunset on December 31, 2008.
As proposed, the FDIC will determine annually whether the reserve
ratio at the end of the prior year equals or exceeds 1.35 percent of
estimated insured deposits or exceeds 1.5 percent, thereby triggering a
dividend requirement. At the same time, if a dividend is triggered, the
FDIC will determine whether it should limit or suspend the payment of
dividends based on the statutory factors. Any determination to limit or
suspend dividends would be reviewed annually and would have to be
justified to renew or make a new determination to limit or suspend
dividends. Each decision to limit or suspend dividends must be reported
to Congress. Any declaration with respect to dividends will be made on
or before May 15th for the preceding calendar year. This timing allows
for the Board's consideration of final data for the end of the
preceding year regarding the reserve ratio of the DIF, as well as
analysis of what amount is necessary to maintain the fund at the
required level and whether circumstances warrant limiting or suspending
the payment of dividends.
If the FDIC does not limit or suspend the payment of dividends or
does not renew such a determination, then the

[[Page 61388]]

aggregate amount of the dividend will be determined as provided by the
statute. When the reserve ratio equals or exceeds 1.35 percent, then
the FDIC generally is required to declare the amount that is equal to
one-half the amount in excess of the amount required to maintain the
reserve ratio at 1.35 as the aggregate amount of dividends to be paid
to the insured depository institutions. When the reserve ratio exceeds
1.5 percent, the FDIC generally is required to declare the amount in
the DIF in excess of the amount required to maintain the reserve ratio
at 1.5 percent as dividends to be paid to institutions.
Consistent with the proposal, the FDIC is adopting a simple system
for allocating any dividends that might be declared during this two-
year period. Any dividends awarded before January 1, 2009, will be
distributed simply in proportion to an institution's 1996 assessment
base ratio, as determined pursuant to the one-time assessment credit
rule. (See 12 CFR part 327, subpart B.) By cross referencing the
determination under the credit rule, the FDIC will be able to recognize
subsequent changes to an institutions 1996 ratio due to acquisitions by
merger or consolidation with another eligible insured depository
institution or transfers.
Four commenters suggest that this approach does not consider all
the statutory factors. The FDIC disagrees. As reflected in the proposed
rule, the FDIC considered all the statutory factors for distribution,
including payments made since year-end 1996. Because of statutory
constraints, deposit insurance assessment payments since that date
reflect higher levels of risk. In addition, payments to be made under
the new risk-based assessments system during the limited life of this
rule are likely to be small when compared to the payments made by the
industry before 1997. Also, the FDIC does not believe that it is likely
that the reserve ratio of the DIF will trigger a dividend over the next
two years. However, the FDIC expects to consider again all payments
made, including payments under the new system from its inception, as
part of the more comprehensive rulemaking to be undertaken next year.
As indicated by the comments, another significant issue for this
rulemaking was the definition of ``predecessor.'' The FDIC is adopting
a definition of ``predecessor'' that simply cross references the
definition of ``successor'' for purposes of the one-time assessment
credit rule. In effect, a predecessor is the mirror image of successor.
As noted above, a number of commenters agreed that the definitions of
``predecessor'' and ``successor'' raise the same issues and should be
parallel. The FDIC is simultaneously issuing a final rule on one-time
credits. An analysis of the ``successor'' issue is contained in that
final rule. Notably, the definition of successor in the one-time credit
final rule expressly includes a de facto rule, defined as any
transaction in which an insured depository institution assumes
substantially all of the deposit liabilities and acquires substantially
all of the assets of any other insured depository institution.
As proposed, the FDIC would advise each institution of its dividend
amount as soon as practicable after the Board's declaration of a
dividend on or before May 15th. That is the earliest practical time for
the declaration of dividends given the data availability and the
statutory analysis required. We agree, however, that earlier payment of
dividends than in the proposed rule should be workable. To allow time
for requests for review of dividend amounts, the FDIC had proposed that
the individual dividend amounts be paid to institutions at the time of
the assessment collection for the second calendar quarter beginning
after the declaration of the dividend. In contrast, under the final
rule, the individual dividend amounts generally will be paid to
institutions no later than 45 days after the issuance of the special
notice, which will allow the FDIC to freeze payment of an individual
institution's dividend amount, if that amount is in dispute.
Depending on the timing of the Board's declaration, which could
occur prior to May 15th, and the expiration of the 30-day period for
requesting review, it is possible that dividends could be paid at the
same time as the collection of the quarterly assessment and would
offset those payments. Dividends will be paid through the Automated
Clearing House (ACH). Although it is expected in most instances that
dividends will be paid after the first quarter assessment payment, if
they are paid at the time of assessment payments, offsets will be made.
If the institution owes assessments in excess of the dividend amount,
there will be a net debit (resulting in payment to the FDIC).
Conversely, if the FDIC owes an additional dividend amount in excess of
the assessment to the institution, there will be a net credit
(resulting in payment from the FDIC). The FDIC will notify institutions
whether dividends will offset the next assessment payments with the
next invoice.
Under the final rule, the FDIC shall freeze the payment of the
disputed portion of dividend amounts involved in requests for review.
In the absence of such action, institutions will receive the amount
indicated on the notice. Any adjustment to an individual institution's
dividend amount resulting from its request for review will be handled
through ACH in the same manner as existing procedures for underpayment
or overpayment of assessments.
As set forth in the proposed rule, an institution may request
review of its dividend amount by submitting documentation sufficient to
support the change sought to the Division of Finance within 30 days
from the date of the notice or invoice advising each institution of its
dividend amount. Review may be requested if (1) an institution
disagrees with the computation of the dividend as stated on the
invoice, or (2) it believes that the notice or invoice does not fully
or accurately reflect appropriate adjustments to the institution's 1996
assessment base ratio, such as for the acquisition of another
institution through merger. If an institution does not submit a timely
request for review, it will be barred from subsequently requesting
review of that dividend amount.
At the time of the request for review, the requesting institution
also must notify all other institutions of which it knew or had reason
to believe would be directly and materially affected by granting the
request for review and provide those institutions with copies of the
request for review, supporting documentation, and the FDIC's procedures
for these requests for review.
In addition, the FDIC will make reasonable efforts, based on its
official systems of records, to determine that such institutions have
been identified and notified. These institutions will then have 30 days
to submit a response and any supporting documentation to the FDIC's
Division of Finance, copying the institution making the original
request for review. If an institution was identified and notified
through this process and does not submit a timely response, that
institution will be foreclosed from subsequently disputing the
information submitted by any other institution on the transaction(s) at
issue in the review process.
The FDIC may request additional information as part of its review,
and the institution from which such information is requested will be
required to supply that information within 21 days of the date of the
FDIC's request.
The final rule requires a written response from the FDIC's Director
of the Division of Finance (Director), or his or her designee, which
notifies the

[[Page 61389]]

requesting institution and any materially affected institutions of the
determination of the Director as to whether the requested change is
warranted, whenever feasible: (1) Within 60 days of receipt by the FDIC
of the request for revision; (2) if additional institutions are
notified by the requesting institution or the FDIC, within 60 days of
the date of the last response to the notification; or (3) if the FDIC
has requested additional information, within 60 days of its receipt of
the additional information, whichever is latest.
If a requesting institution disagrees with the determination of the
Director, that institution may appeal its dividend determination to the
FDIC's Assessments Appeals Committee (AAC). The final rule extends the
time for filing an appeal; an appeal to the AAC must be filed within 30
calendar days of the date of the Director's written determination.
Notice of the procedures applicable to appeals of the Director's
determination to the AAC will be included with the written response.
The AAC's determination is final and not subject to judicial review.

V. Regulatory Analysis and Procedure

Regulatory Flexibility Act

Under section 605(b) of the Regulatory Flexibility Act (RFA), 5
U.S.C. 605(b), the FDIC certifies that the final rule will not have a
significant economic impact on a substantial number of small entities,
within the meaning of those terms as used in the RFA. The final rule
implementing the dividend requirements of the Reform Act relies on
information already collected and maintained by the FDIC in the regular
course of business. The rule imposes no new reporting, recordkeeping,
or other compliance requirements. For the two-year duration of this
rule, it also appears unlikely that a dividend would be required.
Accordingly, the RFA's requirements relating to an initial and final
regulatory flexibility analysis are not applicable. No comments on the
RFA were received.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR 1320 Appendix A.1), the FDIC reviewed the final rule.
No collections of information pursuant to the Paperwork Reduction Act
are contained in the final rule.

Plain Language

Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113
Stat. 1338, 1471 (Nov. 12, 1999) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. No commenters suggested that the proposed rule was
unclear, and the final rule is substantively similar to the proposed
rule.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

The FDIC has determined that the final rule will not affect family
wellbeing 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 Stat. 2681).

Small Business Regulatory Enforcement Fairness Act

The Office of Management and Budget has determined that the final
rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC
will file the appropriate reports with Congress and the Government
Accountability Office so that the final rule may be reviewed.

List of Subjects in 12 CFR Part 327

Bank deposit insurance, Banks, Banking, Savings associations.

12 CFR Chapter III

Authority and Issuance

0
For the reasons set forth in the preamble, chapter III of title 12 of
the Code of Federal Regulations is amended as follows:

PART 327--ASSESSMENTS

0
1. Add subpart C, consisting of Sec. Sec. 327.50 through 327.55, to
read as follows:

Subpart C--Implementation of Dividend Requirements

Sec.
327.50 Purpose and scope.
327.51 Definitions.
327.52 Annual dividend determination.
327.53 Allocation and payment of dividends.
327.54 Requests for review of dividend amount.
327.55 Sunset date.

Authority: 12 U.S.C. 1817(e)(2), (4).

Sec. 327.50 Purpose and scope.

(a) Scope. This subpart C of part 327 implements the dividend
provisions of section 7(e)(2) of the Federal Deposit Insurance Act, 12
U.S.C. 1817(e)(2), and applies to insured depository institutions.
(b) Purpose. This subpart C of part 327 sets forth the rules for:
(1) The FDIC's annual determination of whether to declare a
dividend and the aggregate amount of any dividend;
(2) The FDIC's determination of the amount of each insured
depository institution's share of any declared dividend;
(3) The time and manner for the FDIC's payments of dividends; and
(4) An institution's appeal of the FDIC's determination of its
dividend amount.

Sec. 327.51 Definitions.

For purposes of this subpart:
(a) Board has the same meaning as under subpart B of this part.
(b) DIF means the Deposit Insurance Fund.
(c) An insured depository institution's 1996 assessment base ratio
means an institution's 1996 assessment base ratio as determined
pursuant to Sec. 327.33 of subpart B of this part, adjusted as
necessary after the effective date of subpart B of this part to reflect
subsequent transactions in which the institution succeeds to another
institution's assessment base ratio, or a transfer of the assessment
base ratio pursuant to Sec. 327.34.
(d) Predecessor, when used in the context of insured depository
institutions, refers to the institution merged with or into a resulting
institution, consistent with the definition of ``successor'' in Sec.
327.31.

Sec. 327.52 Annual dividend determination.

(a) On or before May 15th of each calendar year, beginning in 2007,
the Board shall determine whether to declare a dividend based upon the
reserve ratio of the DIF as of December 31st of the preceding year, and
the amount of the dividend, if any.
(b) Except as provided in paragraph (d) of this section, if the
reserve ratio of the DIF equals or exceeds 1.35 percent of estimated
insured deposits and does not exceed 1.5 percent, the Board shall
declare the amount that is equal to one-half of the amount in excess of
the amount required to maintain the reserve ratio at 1.35 percent as
the aggregate dividend to be paid to insured depository institutions.
(c) If the reserve ratio of the DIF exceeds 1.5 percent of
estimated insured deposits, except as provided in paragraph (d) of this
section, the Board shall declare the amount in excess of the amount
required to maintain the reserve

[[Page 61390]]

ratio at 1.5 percent as the aggregate dividend to be paid to insured
depository institutions and shall declare a dividend under paragraph
(b) of this section.
(d)(1) The Board may suspend or limit a dividend otherwise required
to be paid if the Board determines that:
(i) A significant risk of losses to the DIF exists over the next
one-year period; and
(ii) It is likely that such losses will be sufficiently high as to
justify the Board concluding that the reserve ratio should be allowed:
(A) To grow temporarily without requiring dividends when the
reserve ratio is between 1.35 and 1.5 percent; or
(B) To exceed 1.5 percent.
(2) In making a determination under this paragraph, the Board shall
consider:
(i) National and regional conditions and their impact on insured
depository institutions;
(ii) Potential problems affecting insured depository institutions
or a specific group or type of depository institution;
(iii) The degree to which the contingent liability of the FDIC for
anticipated failures of insured institutions adequately addresses
concerns over funding levels in the DIF; and
(iv) Any other factors that the Board may deem appropriate.
(3) Within 270 days of making a determination under this paragraph,
the Board shall submit a report to the Committee on Financial Services
and the Committee on Banking, Housing, and Urban Affairs, providing a
detailed explanation of its determination, including a discussion of
the factors considered.
(e) The Board shall annually review any determination to suspend or
limit dividend payments and must either:
(1) Make a new finding justifying the renewal of the suspension or
limitation under paragraph (d) of this section, and submit a report as
required under paragraph (d)(3) of this section; or
(2) Reinstate the payment of dividends as required by paragraph (b)
or (c) of this section.

Sec. 327.53 Allocation and payment of dividends.

(a) For any dividend declared before January 1, 2009, allocation of
such dividend among insured depository institutions shall be based
solely on an insured depository institution's 1996 assessment base
ratio, as determined pursuant to paragraph 327.51(c) of this subpart,
as of December 31st of the year for which dividends are declared.
(b) The FDIC shall notify each insured depository institution of
the amount of such institution's dividend payment based on its share as
determined pursuant to paragraph (a) of this section. Notice shall be
given as soon as practicable after the Board's declaration of a
dividend through a special notice of dividend.
(c) The FDIC shall pay individual dividend amounts, which are not
subject to request for review under section 327.54 of this subpart, to
insured depository institutions no later than 45 days after the
issuance of the special notices of dividend. The FDIC shall notify
institutions whether dividends will offset the next collection of
assessments at the time of the invoice. An institution's dividend
amount may be remitted with that institution's assessment or paid
separately. If remitted with the institution's assessment, any excess
dividend amount will be a net credit to the institution and will be
deposited into the deposit account designated by the institution for
assessment payment purposes pursuant to subpart A of this part. If
remitted with the institution's assessment and the dividend amount is
less than the amount of assessment due, then the institution's account
will be directly debited to the FDIC to reflect the net amount owed to
the FDIC as an assessment.
(d) If an insured depository institution's dividend amount is
subject to review under Sec. 327.54, and that request is not finally
resolved prior to the dividend payment date, the FDIC may credit the
institution with the dividend amount provided on the invoice or freeze
the amount in dispute. Adjustments to an individual institution's
dividend amount based on the final determination of a request for
review will be handled in the same manner as assessment underpayments
and overpayments.

Sec. 327.54 Requests for review of dividend amount.

(a) An insured depository institution may submit a request for
review of the FDIC's determination of the institution's dividend amount
as shown on the special notice of dividend or assessment invoice, as
appropriate. Such review may be requested if:
(1) The institution disagrees with the calculation of the dividend
as stated on the special notice of dividend or invoice; or
(2) The institution believes that the 1996 assessment base ratio
attributed to the institution has not been adjusted to include the 1996
assessment base ratio of an institution acquired by merger or transfer
pursuant to Sec. Sec. 327.33 and 327.34 of subpart B and the
institution has not had an opportunity (whether or not that opportunity
was utilized) to appeal that same determination under subpart B.
(b) Any such request for review must be submitted within 30 days of
the date of the special notice of dividend or invoice for which a
change is requested. The request for review shall be submitted to the
Division of Finance and shall provide documentation sufficient to
support the change sought by the institution. If an institution does
not submit a timely request for review, that institution may not
subsequently request review of its dividend amount, subject to
paragraph (d) of this section. At the time of filing with the FDIC, the
requesting institution shall notify, to the extent practicable, any
other insured depository institution that would be directly and
materially affected by granting the request for review and provide such
institution with copies of the request for review, the supporting
documentation, and the FDIC's procedures for requests under this
subpart. The FDIC shall make reasonable efforts, based on its official
systems of records, to determine that such institutions have been
identified and notified.
(c) During the FDIC's consideration of the request for review, the
amount of dividend in dispute may not be available for use by any
institution.
(d) Within 30 days of receiving notice of the request for review,
those institutions identified as potentially affected by the request
for review may submit a response to such request, along with any
supporting documentation, to the Division of Finance, and shall provide
copies to the requesting institution. If an institution that was
notified under paragraph (b) of this section does not submit a response
to the request for review, that institution may not subsequently:
(1) Dispute the information submitted by any other institution on
the transaction(s) at issue in that review process; or
(2) Appeal the decision by the Director of the Division of Finance.
(e) If additional information is requested of the requesting or
affected institutions by the FDIC, such information shall be provided
by the institution within 21 days of the date of the FDIC's request for
additional information.
(f) Any institution submitting a timely request for review will
receive a written response from the FDIC's Director of the Division of
Finance (``Director''), or his or her designee, notifying the affected
institutions of the determination of the

[[Page 61391]]

Director as to whether the requested change is warranted, whenever
feasible:
(1) Within 60 days of receipt by the FDIC of the request for
revision;
(2) If additional institutions have been notified by the requesting
institution or the FDIC, within 60 days of the date of the last
response to the notification; or
(3) If additional information has been requested by the FDIC,
within 60 days of receipt of the additional information, whichever is
later. Notice of the procedures applicable to appeals under paragraph
(g) of this section will be included with the Director's written
determination.
(g) An insured depository institution may appeal the determination
of the Director to the FDIC's Assessment Appeals Committee on the same
grounds as set forth under paragraph (a) of this section. Any such
appeal must be submitted within 30 calendar days from the date of the
Director's written determination. The decision of the Assessment
Appeals Committee shall be the final determination of the FDIC.

Sec. 327.55 Sunset date.

Subpart C shall cease to be effective on December 31, 2008.

Dated at Washington, DC, this 10th day of October, 2006.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E6-17304 Filed 10-17-06; 8:45 am]

BILLING CODE 6714-01-P


    

    

Last Updated 10/18/2006 Regs@fdic.gov