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Deposit Insurance Assessment Appeals: Guidelines & Decisions
AAC-99-02 (May 5, 1999)
This administrative appeal concerns whether [Bank] (“X or “Bank”) should be permitted to recalculate its adjusted attributable deposit amount (“AADA”) as a result of a 1991 amendment to section 5 of the Federal Deposit Insurance Act (FDI Act”) regarding the computation of an Oakar institutions AADA.1 That amendment 2 eliminated the minimum seven percent annual growth rate for computing an Oakar institution’s AADA. X is appealing a decision by the FDIC’s Division of Finance (“DOF”) denying the Bank’s request to adjust its AADA. X contends that it has paid $300,000 in excess assessments because of the Bank’s incorrect initial calculation of the Bank’s AADA.
Under the Oakar Amendment3 a BIF-insured institution that acquires deposits from a SAIF-insured institution is an “Oakar” institution. As such, it is treated by statute as a hybrid institution required to pay deposit insurance assessments to both its primary and secondary insurance funds. The “primary fund” is the deposit insurance fund of which the institution is a member.4 The “secondary fund” is the insurance fund that is not the member’s primary fund.5 For example, a “BIF Oakar,” is a member of the BIF but a portion of its assessment base is also allocated to the SAIF. The deposits attributed to the institution’s secondary fund are based upon the institution’s AADA, which is computed and adjusted over time pursuant to the statutory formula contained in the Oakar Amendment. Under the FDI Act, assessments on BIF-insured deposits are paid into the BIF and assessments on SAIF-insured deposits are paid into the SAIF.6 Also, FDIC losses resulting from the failure of an Oakar institution are shared, pro rata, by BIF and SAIF.7 The AADA is the means by which an Oakar institution’s deposits are allocated for assessment and fund loss-allocation purposes.
In 1990 the Oakar Amendment provided, in relevant part, that the AADA consisted of the sum of:
In FDICIA, Congress modified the Oakar Amendment by eliminating the minimum seven percent annual growth assumption and retained only the method of calculation based on the actual growth of the institution’s overall deposits. The revised statute stated that the third component of an institution’s AADA consists of:
FDICIA specified that this change to the Oakar Amendment “shall apply with respect to semiannual periods beginning after the date of enactment of [FDICIA].” 9 FDICIA’s enactment date was December 19, 1991. The first semiannual period beginning after FDICIA’s enactment started on January 1, 1992, the beginning of the January-June 1992 semiannual assessment period.
X is an Oakar bank. It acquired SAIF-insured deposits in September 1990. Under procedures in place at the time, as of September 30, 1991, the Bank completed and submitted the required AADA growth worksheets identifying deposit growth for the annual period, September 30, 1990, through September 30, 1991. Based on this deposit-growth analysis, the Bank reported to the FDIC a composite AADA of approximately $94 million. That total included the pre-FDICIA minimum seven percent annual increase required by the Oakar statute. (The Bank’s actual deposit-growth rate for that period was negative four percent.) More than six years later, in October 1997, X sought to amend the Bank’s September 30, 1991, AADA and all subsequent AADAs that the Bank had reported, so that the revised AADAs would not reflect the minimum seven percent annual growth rate.10
In a letter dated September 15, 1998, the Deputy Director of DOF denied X’s request, concluding that the FDICIA revisions to the Oakar Amendment did not apply to AADA determinations made as of a date prior to the first semiannual period of 1992. The Bank is appealing that decision, asserting that the FDIC incorrectly interpreted and implemented FDICIA’s elimination of the minimum seven percent annual growth rate.11
X participated in an Oakar transactions during September 1990. According to the procedures explained above, the Bank’s AADA was established as of September 30, 1990, based on the dollar amounts of the SAIF-insured deposits so acquired. That AADA was used for the purpose of determining the Bank’s BIF and SAIF assessments payable for the periods beginning in January 1991 and July 1991 – the two subsequent semiannual periods. That AADA also provided the means of allocating X’s deposits between BIF and SAIF for loss-allocation purposes. X’s first AADA adjustment was made as of September 30, 1991.
That redetermination occurred as of a date prior to the beginning of the first semiannual period of 1992. Thus, the adjustment was based on the minimum seven percent annual growth rate then in effect. The AADA determined as of September 30, 1991, was used for computing the Bank’s BIF and SAIF assessments for the Janauary 1992 and July 1992 semiannual periods and for allocating X’s deposits between BIF and SAIF for loss-allocation purposes. The second adjustment of X’s AADA was made the following year. This second adjustment, and all subsequent adjustments, reflected the Bank’s actual growth rate, in accordance with the post-FDICIA Oakar Amendment.
X contends that the FDIC misapplied the plain language of FDICIA’s effective date provision and inaccurately described the effect of X’s refund request on the allocation of insurance risk. On the first contention, X argues that “the AADA in question was calculated after FDICIA’s effective date, covered a period after FDICIA’s effective date, and was used for purposes of a semiannual assessment that was payable after FDICIA’s effective date. Accordingly, … X’s AADA for the first half of 1992 should have been computed under the [FDICIA amendment.]”
As noted above, FDICIA stated that the amendment to the AADA statute was to apply “with respect to semiannual periods beginning after the date of the enactment of [FDICIA],” December 19, 1991. The FDIC interpreted this effective date provision to mean that the FDICIA revision would apply to all AADA growth calculations for periods during and after the first semiannual period of 1992.14 It did not interpret the FDICIA revisions as requiring the FDIC to change AADA growth determinations, under the pre-FDICIA rules, for periods before 1992. To do otherwise would have required the FDIC to apply the FDICIA revisions retroactively.
The AADA used to allocate X’s deposits between BIF and SAIF for both assessment and deposit insurance loss allocation purposes was based on the growth (in X’s overall deposits) that occurred between September 1990 and September 1991. X’s assessment growth cycle ended on September 30, 1991. As of that date, X’s AADA was adjusted by the statutorily required minimum seven percent annual growth rate.
In April 1992, the FDIC Legal Division concluded in an advisory opinion that the FDICIA changes to the Oakar Amendment were not intended to be retroactive. The opinion noted that the “effective date” provision was intended, in part, to prevent the midstream disruption of the calculation of AADAs by institutions that participated in Oakar transactions prior to FDICIA. The opinion concluded that the FDICIA effective date provision allowed the FDIC and Oakar institutions to make a smooth transition from the pre-FDICIA requirements to the post-FDICIA requirements pertaining to the AADA.15
The FDIC implemented FDICIA’s elimination of the AADA minimum seven percent annual growth rate and effective date provision in a manner consistent with the FDIC’s assessment procedures. It integrated the required change to the mathematical formula for calculating AADAs with those established and accepted administrative procedures. Nothing in either FDICIA or its legislative history suggested that Congress intended to change or contravene the FDIC’s administrative procedures. X’s AADA for the first semiannual period of 1992 was established as of September 30, 1991 – i.e., before 1992 – based on deposit data for the year September 1990 through September 1991. Thus, the AADA was computed using the statutory minimum rate. The FDICIA revisions came into play when the FDIC made its next computation of the Bank’s AADA.
X also disputes the conclusion reached in the DOF response letter of September 15, 1998, that recalculating X’s AADAs would result in a retroactive reallocation of risk to the deposit insurance funds. As indicated above, an institution’s AADA serves an insurance loss-allocation purpose as well as an assessment purpose. This loss allocation is based on the failed institution’s AADA as of the assessment growth period immediately prior to the date of failure. Contrary to X’s assertion, if X had failed on October 1, 1991, for instance, (i.e., a date after the date as of which its AADA was redetermined) the FDIC would have allocated the losses attributed to X’s failure to BIF and SAIF based on its AADA determined as of September 30, 1991. The FDIC does not look to the completion of a form to establish the effective date of an institution”s AADA. The effective date of an AADA is the end of the assessment growth period.
Moreover, FDIC programs, policies, reports and other substantive and procedural matters are affected by the relative risks presented to the insurance funds based on the dollar amount and risk involved in deposits insured by the BIF and SAIF, respectively. The FDIC interpreted the FDICIA provisions in issue as not requiring the FDIC to retroactively reallocate the relative risks to the deposit insurance funds posed by Oakar institutions.
Congress has established and the FDIC has been charged with administering a complex deposit insurance assessment scheme. When Congress amended the scheme in FDICIA and changed the formula for calculating the AADA, the FDIC interpreted the changes in harmony with the FDIC’s established assessment procedures. The FDIC implemented the FDICIA changes uniformly. Nothing in either FDICIA or its legislative history indicates that Congress intended to alter or invalidate the FDIC’s assessment procedures.16 The staff’s approach was reasonable and is supported by the contemporaneous opinion issued by the FDIC’s Legal Division.
* * *
For the reasons discussed herein, under authority
delegated by the Board of Directors of the Federal Deposit Insurance
Corporation, the Committee denies X’s appeal.
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