On November 9, 2010, the FDIC adopted the attached Notice of Proposed Rulemaking (NPR), which would revise the risk-based assessment system for all large insured depository institutions (IDIs), generally, those institutions with at least $10 billion in total assets. The proposed changes would be effective April 1, 2011. Comments on the NPR are due 45 days following publication of the NPR in the Federal Register.
In April 2010 the FDIC issued a proposal that would revise the deposit insurance assessment system for large institutions. In light of the Dodd-Frank Wall Street Reform and Consumer Protection Act's amendments to the definition of an institution's deposit insurance assessment base, the FDIC is again soliciting comment before adopting a final rule on a new assessment system for large institutions.
Risk categories and the use of long-term debt issuer ratings would be eliminated when calculating the initial base assessment rates for large IDIs.
The proposed assessment system for large IDIs would combine CAMELS ratings and certain financial measures into two scorecards—one for most large IDIs and another for the remaining very large IDIs that are structurally and operationally complex or that pose unique challenges and risks in case of failure (highly complex IDIs).
Both scorecards would use quantitative measures that are readily available and useful in predicting an IDI's long-term performance.
Similar to the current system, the FDIC would retain the limited ability to adjust the total score of large IDIs based upon quantitative or qualitative measures not adequately captured in the scorecards.
Lisa Ryu, Chief, Large Bank Pricing Section, Division of Insurance and Research, (202) 898-3538; Christine Bradley, Senior Policy Analyst, Division of Insurance and Research, (202) 898-8951; Christopher Bellotto, Counsel, Legal Division, (202) 898-3801; Sheikha Kapoor, Senior Attorney, Legal Division, (202) 898-3960; Robert Burns, Chief, Exam Support and Analysis, Division of Supervision and Consumer Protection, (704) 333-3132 extension 4215.
Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).
Financial Institution Letters
November 10, 2010
Notice of Proposed Rulemaking: Risk-Based Assessment System for Large Insured Depository Institutions
The FDIC would eliminate risk categories and the use of long-term debt issuer ratings for large IDIs and large IDIs that are structurally and operationally complex or that pose unique challenges and risk in the case of failure (highly complex IDIs). A large IDI would continue to be defined as it currently is (generally, an IDI with at least $10 billion in total assets). In general, a highly complex IDI would be an IDI (other than a credit card bank) with more than $50 billion in total assets that is controlled by a parent or intermediate parent company with more than $500 billion in total assets or a processing bank or trust company with at least $10 billion in total assets.
The FDIC would combine CAMELS ratings and certain
financial measures into two scorecards—one for most large IDIs and another
for the remaining very large, highly complex IDIs.
Each scorecard assesses certain risk measures to
produce two scores—a performance score and a loss severity score—that would
ultimately be combined and converted to an initial assessment rate.
Performance Score. The performance score measures an IDI's financial performance and its ability to withstand stress.
Loss Severity Score. The loss severity score quantifies the relative magnitude of potential losses to the FDIC in the event of the IDI's failure.
The scorecards that would be used for large IDIs
and highly complex IDIs are shown below.
Once the performance
and loss severity scores were calculated, these scores would be converted
to a total score, which could not be less than 30 or more than 90.
Large Bank Adjustment
The FDIC would have the ability to adjust a large IDI's (or highly complex IDI's) total score by a maximum of 15 points, up or down, based upon significant risk factors that are not captured in the scorecard. The FDIC would use a process similar to the current large bank adjustment to determine the amount of any adjustments.1
The FDIC plans to seek comment on updated guidelines on the large bank adjustment process. The FDIC would not adjust assessment rates until the updated guidelines are approved by the FDIC Board of Directors.
Initial Base Assessment Rate?
A large IDI (or highly complex IDI) with a total score of 30 would pay the minimum base assessment rate, and an IDI with a total score of 90 would pay the maximum initial base assessment rate. For total scores between 30 and 90, initial base assessment rates would rise at an increasing rate as the total score increased.2
The initial base assessment rate could be adjusted as discussed in the Assessment Base NPR.
The scorecard method would be used to calculate assessment rates for large and highly complex IDIs beginning with the second quarter assessment period of 2011.