By letters dated May 7, 2003, forwarded to the Federal
Deposit Insurance Corporation’s (“FDIC”) Division of Insurance and Research
(“DIR”), [Bank] (the “Bank”), requested an adjustment of payments made by
the Bank for the January 1, 2003 semiannual assessment period. DIR denied
these requests on June 10, 2003. On July 9, 2003, the Bank filed an appeal
with the FDIC’s Assessment Appeals Committee (“Committee”) challenging DIR’s
In its submissions, the Bank bases its request on the
FDIC’s rules and regulations, specifically,
12 C.F.R. §
327.3(g) and § 327.3(h)(1)(i) and (iii). The Bank emphasizes that it
does not seek review of its assessment risk classification, but rather seeks
review of its March 14, 2003 invoice. The Bank contends that the March
invoice is flawed because it did not take into account the results of a
February 2, 2003 examination that resulted in a “CAMELS” composite rating
improvement to “3.” The Bank had been assigned a “1C” risk classification
for the January 1, 2003 semiannual period, the result of a CAMELS composite
rating of “4” assigned at an April 15, 2002 examination. For the January 1,
2003 semiannual period, the Bank was assessed at the “1C” rate. The Bank
argues that this was in error because its de facto status at the time was “1B.”
The Committee finds that the Bank’s arguments are not supported by the
applicable regulations. Assessment payments are computed based on a product
of the “assessment rate” and the “assessment base.”
See 12 C.F.R.
§ 327.3. The assessment base includes specified deposits of the
institution. See 12 C.F.R.
§ 327.5. Under
See 12 C.F.R.
§ 327.4, the annual assessment rate for an insured depository
institution is determined by assignment of a risk classification prior
to the beginning of the assessment period. Notice of the risk classification
applicable to a particular semiannual period is provided to an institution
with the first quarterly invoice provided for that period. The risk
classification is composed of a capital group and a supervisory subgroup
SS assignments are made in accordance with the FDIC’s
12 C.F.R. §
327.4(a)(2). That section requires the FDIC to consider supervisory
evaluations provided by an institution’s primary federal regulator and
other relevant information in making these assignments. Under guidelines set
out in Financial
Institution Letter (“FIL”) No. 30-2000, the FDIC assigns an SS to each
institution for each semiannual assessment period based on a variety of
factors, including FDIC review of the last examination finalized and
transmitted to the institution by the primary federal regulator on or before
the cut-off date. Under the FIL, the cut-off date for the January 1
assessment period is the preceding September 30.
To ensure greater fairness in applying cut-off dates, and
to allow consideration of unusual circumstances, the FDIC continues to look
at the information referred to in FIL-30-2000 for a period of about six
weeks after the cut-off date, in what is known as the reconcilement
period. Institutions whose risk profile might have changed since their last
examination can be upgraded or downgraded, as more recent examination
information may reflect, during the reconcilement period. Based upon certain
factors, institutions may be flagged for review during the reconcilement
period, although flagging is not a prerequisite for changing an
institution’s rating during that period.
Thus, under the guidelines set out in the FIL, the FDIC
looks to see whether examination results were transmitted in writing to the
institution prior to the cut-off date, unless an institution is reviewed
during the reconcilement period or there is evidence of a change that is
confirmed by an ongoing examination during that period.
The Bank was assigned an SS of “C” for the January 1, 2003
semiannual assessment period based on the results of an April 15, 2002 FDIC
examination which assigned a CAMELS composite rating of “4.” That
examination was transmitted to the Bank in August of 2002 and was the last
examination transmitted prior to the September 30, 2002 cut-off date. The
Bank was flagged for review during the October 11 – November 15, 2002
reconcilement period, and the FDIC confirmed that the Bank’s condition
warranted an SS of “C.” The Joint FDIC and State examination that
subsequently upgraded the Bank to a “3” was not begun until February
of 2003, well after the supervisory cut-off date and after the reconcilement
period. Accordingly, the Bank was correctly assessed at the “1C” rate for
the January 1, 2003 semiannual period.
The Bank, however, contends that its appeal should not be
characterized as a request for assessment risk classification review.
Instead, it urges the FDIC to evaluate its request in light of
12 C.F.R. §
327.3, not 327.4. The Bank invokes section 327.3(g) to assert that a
revised assessment computation is required. Section 327.3(g) permits payment
adjustments in succeeding quarters once a risk classification or assessment
computation has been revised. Section 327.3(g) and these adjustments do not
address the process for identifying and correcting errors in the first
instance, however. Instead, other regulatory provisions provide the
processes for identifying and correcting errors, namely section 327.4(d) for
revising risk classifications, and section 327.3(h) for revising assessment
computations. Each of these provisions is governed by time limits and each
is exclusive. By contrast, section 327.3(g) deals with “the manner in which
assessments are adjusted once an error has been identified and corrected.”
59 Fed. Reg. 67153, 67157 (Dec. 29, 1994) (emphasis added). The section
provides a rolling correction process in which necessary adjustments in the
assessment amount are made on a quarterly basis. Id. Accordingly, since
section 327.3(g) does not govern the process of determining whether
an error has been made, it does not provide a basis for the relief the bank
The Bank also relies on 12 C.F.R. § 327.3(h). Section
327.3(h), however, applies to requests for revision of quarterly assessment
payment computations, in which institutions may challenge the computation of
assessments as reflected on an invoice. Section 327.3(h)(2) expressly
excludes requests for review of an institution’s assessment risk
classification under paragraph (h). Section 327.3(h)(1)(i), invoked by the
Bank, applies to disputes regarding assessment base computations; section
327.3(h)(1)(iii), also invoked by the Bank, applies to disputes where the
institution believes that the invoice does not fully or accurately reflect
the adjustments provided in section 327.3(g). Since the Bank is not entitled
to any adjustment in section 327.3(g), and since no issue regarding
assessment base calculation is raised, paragraph (h) provides no basis for
the result the Bank seeks.
Despite the Bank’s position that it is not requesting a
change in its risk classification, such a change would be required to permit
the payment adjustment sought. The timeframe for submitting a request for
review of risk classification – set forth at
12 C.F.R. §
327.4(d) – expired on March 14, 2003, almost two months prior to the
Bank’s May 7, 2003 letters.
In summary, the regulatory provisions cited by the Bank – 12 C.F.R. §
327.3(g), (h)(1)(i) and (iii) – do not provide a basis for the relief sought
by the Bank. The Bank’s risk classification for the January 1, 2003
semiannual assessment period was assigned in accordance with section 327.4
and corresponding guidelines. The FDIC did not have evidence that an upgrade
in the Bank’s condition was appropriate anytime prior to the September 30,
2002 cut-off date or the end of the reconcilement period. The first formal
regulatory action recognizing the Bank’s improved condition did not occur
until March of 2003 when the joint FDIC and State examination was completed.
By then, both the September 30, 2002 cut-off date and reconcilement period
had passed. Indeed, the semiannual period for which the risk assessments
were assigned was already in its third month.
To grant the Bank the relief it requests would require, in
effect, an extension of the cut-off date and reconcilement period to March
of 2003. If the Committee did so, it would depart from years of established
and consistent FDIC practice and would so weaken the cut-off date as to
render it barely discernible and largely ineffective.
As a final note, the cut-off date provides certainty for
the industry as well as the FDIC. It also sometimes results in a benefit for
institutions that are downgraded after the cut-off date as, for example,
happened to the Bank in the second semiannual period of 2002.
Before deciding the appeal, the Committee considered the
Bank’s request to make an oral presentation before the Committee in of
support its appeal. The Committee concluded that an oral presentation would
not be helpful and therefore denied the Bank’s request.
Accordingly, for the reasons set forth above, the Bank’s
appeal is denied.
By direction of the Assessment Appeals Committee, dated
September 29, 2003.