FDIC Proposes a Revised Assessment System for Large Institutions
On November 9, 2010, the FDIC approved a re-proposal of changes to the deposit insurance assessment regulations applicable to large insured depository institutions (“IDIs”), which are insured depository institutions with at least $10 billion in assets. The proposed rule would re-propose changes for the deposit insurance assessment system for IDIs given Dodd-Frank’s changes to the assessment base. The FDIC stated that the purpose of the proposed rule is to better differentiate IDIs from other institutions, to take a more forward-looking view of risk, to better take into account the losses that the FDIC may incur if an IDI fails, and to make technical and other changes to the rules governing the risk-based assessment system.
Currently, as reflected in the assessment rules as amended in 2009, the Federal Deposit Insurance Act requires that the deposit insurance assessment system be risk-based and allows the FDIC to define a risk-based system as one based on an IDI’s probability of causing a loss to the Deposit Insurance Fund due to factors such as the composition and concentration of the IDI’s assets and liabilities, the likely amount of any such loss, and the revenue needs of the Deposit Insurance Fund. The proposed rule would eliminate risk categories and the use of long-term debt issuer ratings in calculating risk-based assessment for large IDIs. The rule proposes the use of a “scorecard” method to calculate assessment rates for all large IDIs. The scorecard method would combine CAMELS ratings, which are part of a private assessment system that consists of examination of capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk, with certain forward-looking financial measures that are readily available and useful in predicting a large IDI’s long-term performance. The FDIC believes that since the risk measures used in the scorecards focus on long-term risk, their use should mitigate the cyclicality of the current system and significantly improve the proper rank ordering of risk for large IDIs.
The FDIC has proposed that the rule change would be effective as of April 1, 2011. There is a 45-day public comment period commencing upon publication of the proposal in the Federal Register.