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FIL-57-95 Attachment

[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.


 

========================================================================





 

[[Page 40776]]



 

FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Part 327


 

RIN 3064-AB65


 

 

Assessments


 

AGENCY: Federal Deposit Insurance Corporation.


 

ACTION: Notice of proposed rulemaking.


 

-----------------------------------------------------------------------


 

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: March 24, 2024