[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Proposed Rules]
[Pages 30649-30664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10454]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF53
Assessments, Mitigating the Deposit Insurance Assessment Effect
of Participation in the Paycheck Protection Program (PPP), the PPP
Lending Facility, and the Money Market Mutual Fund Liquidity Facility
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Deposit Insurance Corporation is seeking comment
on a proposed rule that would mitigate the deposit insurance assessment
effects of participating in the Paycheck Protection Program (PPP)
established by the Small Business Administration (SBA), and the
Paycheck
[[Page 30650]]
Protection Program Lending Facility (PPPLF) and Money Market Mutual
Fund Liquidity Facility (MMLF) established by the Board of Governors of
the Federal Reserve System. The proposed changes would remove the
effect of participation in the PPP and PPPLF on various risk measures
used to calculate an insured depository institution's assessment rate,
remove the effect of participation in the PPPLF and MMLF programs on
certain adjustments to an IDI's assessment rate, provide an offset to
an insured depository institution's assessment for the increase to its
assessment base attributable to participation in the MMLF and PPPLF,
and remove the effect of participation in the PPPLF and MMLF programs
when classifying insured depository institutions as small, large, or
highly complex for assessment purposes.
DATES: Comments must be received no later than May 27, 2020.
ADDRESSES: You may submit comments on the proposed rule, identified by
RIN 3064-AF53, using any of the following methods:
Agency website: https://www.fdic.gov/regulations/laws/federal. Follow the instructions for submitting comments on the agency
website.
Email: [email protected]. Include RIN 3064-AF53 on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW,
Washington, DC 20429. Include RIN 3064-AF53 in the subject line of the
letter.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street NW, building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Public Inspection: All comments received, including any
personal information provided, will be posted generally without change
to https://www.fdic.gov/regulations/laws/federal.
FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director,
202-898-7041, [email protected]; Ashley Mihalik, Chief, Banking and
Regulatory Policy, 202-898-3793, [email protected]; Nefretete Smith,
Counsel, 202-898-6851, [email protected]; Samuel Lutz, Counsel,
[email protected], 202-898-3773.
SUPPLEMENTARY INFORMATION:
I. Summary
Pursuant to its authority under the Federal Deposit Insurance Act
(FDI Act), the FDIC is issuing this notice of proposed rulemaking to
mitigate the effects of an insured depository institution's
participation in the PPP, MMLF, and PPPLF programs on its deposit
insurance assessments.\1\ Absent a change to the assessment rules, an
IDI that participates in the PPP, PPPLF, or MMLF programs could be
subject to increased deposit insurance assessments. To remove the
effect of these programs on the risk measures used to determine the
deposit insurance assessment rate for each insured depository
institution (IDI), the FDIC is proposing to exclude PPP loans, which
include loans pledged to the PPPLF, from an institution's loan
portfolio; exclude loans pledged to the PPPLF from an institution's
total assets; and exclude amounts borrowed from the Federal Reserve
Banks under the PPPLF from an institution's liabilities. In addition,
because participation in the PPPLF and MMLF programs will have the
effect of expanding an IDI's balance sheet (and, by extension, its
assessment base), the FDIC is proposing to exclude loans pledged to the
PPPLF and assets purchased under the MMLF in the calculation of certain
adjustments to an IDI's assessment rate, and to provide an offset to an
IDI's total assessment amount for the increase to its assessment base
attributable to participation in the MMLF and PPPLF. Finally, in
defining IDIs for assessment purposes, the FDIC would exclude from an
IDI's total assets the amount of loans pledged to the PPPLF and assets
purchased under the MMLF.
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\1\ See 12 U.S.C. 1817, 1819 (Tenth).
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II. Background
Recent events have significantly and adversely impacted the global
economy and financial markets. The spread of the Coronavirus Disease
(COVID-19) has slowed economic activity in many countries, including
the United States. Sudden disruptions in financial markets have put
increasing liquidity pressure on money market mutual funds (MMFs) and
raised the cost of credit for most borrowers. MMFs have faced
redemption requests from clients with immediate cash needs and may need
to sell a significant number of assets to meet these redemption
requests, which could further increase market pressures. Small
businesses also are facing severe liquidity constraints and a collapse
in revenue streams, as millions of Americans have been ordered to stay
home, severely reducing their ability to engage in normal commerce.
Many small businesses have been forced to close temporarily or furlough
employees. Continued access to financing will be crucial for small
businesses to weather economic disruptions caused by COVID-19 and,
ultimately, to help restore economic activity.
In order to prevent the disruption in the money markets from
destabilizing the financial system, on March 18, 2020, the Board of
Governors of the Federal Reserve System (Board of Governors), with
approval of the Secretary of the Treasury, authorized the Federal
Reserve Bank of Boston (FRBB) to establish the MMLF, pursuant to
section 13(3) of the Federal Reserve Act.\2\ Under the MMLF, the FRBB
is extending non-recourse loans to eligible borrowers to purchase
assets from MMFs. Assets purchased from MMFs will be posted as
collateral to the FRBB. Eligible borrowers under the MMLF include IDIs.
Eligible collateral under the MMLF includes U.S. Treasuries and fully
guaranteed agency securities, securities issued by government-sponsored
enterprises, and certain types of commercial paper. The MMLF is
scheduled to terminate on September 30, 2020, unless extended by the
Board of Governors.
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\2\ 12 U.S.C. 343(3).
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As part of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) and in recognition of the exigent circumstances faced by
small businesses, Congress created the PPP.\3\ PPP loans are fully
guaranteed as to principal and accrued interest by the Small Business
Administration (SBA), the amount of each being determined at the time
the guarantee is exercised. As a general matter, SBA guarantees are
backed by the full faith and credit of the U.S. Government. PPP loans
also afford borrowers forgiveness up to the principal amount of the PPP
loan, if the proceeds of the PPP loan are used for certain expenses.
The SBA reimburses PPP lenders for any amount of a PPP loan that is
forgiven. PPP lenders are not held liable for any representations made
by PPP borrowers in connection with a borrower's request for PPP loan
forgiveness.\4\
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\3\ Public Law 116-136 (Mar. 27, 2020).
\4\ Under the PPP, eligible borrowers generally include
businesses with fewer than 500 employees or that are otherwise
considered by the SBA to be small, including individuals operating
sole proprietorships or acting as independent contractors, certain
franchisees, nonprofit corporations, veterans' organizations, and
Tribal businesses. The loan amount under the PPP would be limited to
the lesser of $10 million and 250 percent of a borrower's average
monthly payroll costs. For more information on the Paycheck
Protection Program, see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp.
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In order to provide liquidity to small business lenders and the
broader credit markets, and to help stabilize the financial system, on
April 8, 2020, the
[[Page 30651]]
Board of Governors, with approval of the Secretary of the Treasury,
authorized each of the Federal Reserve Banks to extend credit under the
PPPLF, pursuant to section 13(3) of the Federal Reserve Act.\5\ Under
the PPPLF, Federal Reserve Banks are extending non-recourse loans to
institutions that are eligible to make PPP loans, including IDIs. Under
the PPPLF, only PPP loans that are guaranteed by the SBA with respect
to both principal and interest and that are originated by an eligible
institution may be pledged as collateral to the Federal Reserve Banks
(loans pledged to the PPPLF). The maturity date of the extension of
credit under the PPPLF \6\ equals the maturity date of the PPP loans
pledged to secure the extension of credit.\7\ No new extensions of
credit will be made under the PPPLF after September 30, 2020, unless
extended by the Board of Governors and the Department of the Treasury.
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\5\ 12 U.S.C. 343(3).
\6\ The maturity date of the extension of credit under the PPPLF
will be accelerated if the underlying PPP loan goes into default and
the eligible borrower sells the PPP Loan to the SBA to realize the
SBA guarantee. The maturity date of the extension of credit under
the PPPLF also will be accelerated to the extent of any PPP loan
forgiveness reimbursement received by the eligible borrower from the
SBA.
\7\ Under the SBA's interim final rule, a lender may request
that the SBA purchase the expected forgiveness amount of a PPP loan
or pool of PPP loans at the end of week seven of the covered period.
See Interim Final Rule ``Business Loan Program Temporary Changes;
Paycheck Protection Program,'' 85 FR 20811, 20816 (Apr. 15, 2020).
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To facilitate use of the MMLF and PPPLF, the FDIC, Board of
Governors, and Comptroller of the Currency (together, the agencies)
adopted interim final rules on March 23, 2020, and April 13, 2020,
respectively, to allow banking organizations to neutralize the
regulatory capital effects of purchasing assets through the MMLF
program and loans pledged to the PPPLF.\8\ Consistent with Section 1102
of the CARES Act, the April 2020 interim final rule also required
banking organizations to apply a zero percent risk weight to PPP loans
originated by the banking organization under the PPP for purposes of
the banking organization's risk-based capital requirements.
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\8\ See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13,
2020).
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Deposit Insurance Assessments
Pursuant to Section 7 of the FDI Act, the FDIC has established a
risk-based assessment system through which it charges all IDIs an
assessment amount for deposit insurance.\9\ Under the FDIC's
regulations, an IDI's assessment is equal to its assessment base
multiplied by its risk-based assessment rate.\10\ An IDI's assessment
base and assessment rate are determined each quarter based on
supervisory ratings and information collected on the Consolidated
Reports of Condition and Income (Call Report) or the Report of Assets
and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC
002), as appropriate. Generally, an IDI's assessment base equals its
average consolidated total assets minus its average tangible
equity.\11\ An IDI's assessment rate is calculated using different
methods based on whether the IDI is a small, large, or highly complex
institution.\12\ For assessment purposes, a large bank is generally
defined as an institution with $10 billion or more in total assets, a
small bank is generally defined as an institution with less than $10
billion in total assets, and a highly complex bank is generally defined
as an institution that has $50 billion or more in total assets and is
controlled by a parent holding company that has $500 billion or more in
total assets, or is a processing bank or trust company.\13\
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\9\ See 12 U.S.C. 1817(b).
\10\ See 12 CFR 327.3(b)(1).
\11\ See 12 CFR 327.5.
\12\ See 12 CFR 327.16(a) and (b).
\13\ As used in this proposed rule, the term ``bank'' is
synonymous with the term ``insured depository institution'' as it is
used in section 3(c)(2) of the Federal Deposit Insurance Act (FDI
Act), 12 U.S.C. 1813(c)(2). As used in this proposed rule, the term
``small bank'' is synonymous with the term ``small institution'' and
the term ``large bank'' is synonymous with the term ``large
institution'' or ``highly complex institution,'' as the terms are
defined in 12 CFR 327.8.
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Assessment rates for established small banks are calculated based
on eight risk measures that are statistically significant in predicting
the probability of an institution's failure over a three-year
horizon.\14\ Large banks are assessed using a scorecard approach that
combines CAMELS ratings and certain forward-looking financial measures
to assess the risk that a large bank poses to the deposit insurance
fund (DIF).\15\ All institutions are subject to adjustments to their
assessment rates for certain liabilities that can increase or reduce
loss to the DIF in the event the bank fails.\16\ In addition, the FDIC
may adjust a large bank's total score, which is used in the calculation
of its assessment rate, based upon significant risk factors not
adequately captured in the appropriate scorecard.\17\
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\14\ See 12 CFR 327.16(a); see also 81 FR 32180 (May 20, 2016).
\15\ See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011)
and 77 FR 66000 (Oct. 31, 2012).
\16\ See 12 CFR 327.16(e).
\17\ See 12 CFR 327.16(b)(3); see also Assessment Rate
Adjustment Guidelines for Large and Highly Complex Institutions, 76
FR 57992 (Sept. 19, 2011).
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Absent a change to the assessment rules, an IDI that participates
in the PPP, PPPLF, or MMLF programs could be subject to increased
deposit insurance assessments. For example, an institution that holds
PPP loans, including loans pledged to the PPPLF, would increase its
total loan portfolio, all else equal, which may increase its assessment
rate. An IDI that receives funding through the PPPLF would increase the
total assets on its balance sheet (equal to the amount of PPP pledged
to the Federal Reserve Banks), and increase its liabilities by the same
amount, which would increase the IDI's assessment base and also may
increase its assessment rate. Similarly, an IDI that participates in
the MMLF would increase its total assets by the amount of assets
purchased from MMFs under the MMLF and increase its liabilities by the
same amount, which in turn would increase its assessment base and may
also increase its assessment rate.
III. The Proposed Rule
A. Summary
The FDIC, under its general rulemaking authority in Section 9 of
the FDI Act, and its specific authority under Section 7 of the FDI Act
to establish a risk-based assessment system and set assessments,\18\ is
proposing to mitigate the deposit insurance assessment effects of
holding PPP loans, pledging loans to the PPPLF, and purchasing assets
under the MMLF. Under the proposal, an IDI generally would not be
subject to a higher deposit insurance assessment rate solely due to its
participation in the PPP, PPPLF, or MMLF. In addition, the FDIC would
provide an offset against an IDI's assessment amount for the increase
to its assessment base attributable to participation in the MMLF and
PPPLF.
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\18\ 12 U.S.C. 1817 and 12 U.S.C. 1819 (Tenth).
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Changes to reporting requirements applicable to the Consolidated
Reports of Condition and Income (Call Report), the Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks, and their
respective instructions, would be required in order to make the
proposed adjustments to the assessment system. These changes are
concurrently being effectuated in coordination with the other member
entities of the Federal Financial Institutions Examination Council.\19\
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\19\ As discussed in greater detail in the section on the
Paperwork Reduction Act, the agencies have submitted requests for
seven additional items on the Call Report (FFIEC 031, FFIEC 041, and
FFIEC 051): (1) The outstanding balance of PPP loans; (2) the
outstanding balance of loans pledged to the PPPLF as of quarter-end;
(3) the quarterly average amount of loans pledged to the PPPLF; (4)
the outstanding balance of borrowings from the Federal Reserve Banks
under the PPPLF with a remaining maturity of one year or less, as of
quarter-end; (5) the outstanding balance of borrowings from the
Federal Reserve Banks under the PPPLF with a remaining maturity of
greater than one year, as of quarter-end; (6) the outstanding amount
of assets purchased from MMFs under the MMLF as of quarter-end; and
(7) the quarterly average amount of assets purchased under the MMLF.
In addition, the agencies have submitted requests for two additional
items on the Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks (FFIEC 002): the quarterly average amount
of loans pledged to the PPPLF and the quarterly average amount of
assets purchased from MMFs under the MMLF. The FDIC is requesting
these items in order to make the proposed adjustments described
below.
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[[Page 30652]]
B. Mitigating the Effects of Loans Pledged to the PPPLF and of PPP
Loans Held by an IDI on an IDI's Assessment Rate
To mitigate the assessment effect of PPP loans, including loans
pledged to the PPPLF, the FDIC is proposing to exclude PPP loans held
by an IDI from its loan portfolio for purposes of calculating the IDI's
deposit insurance assessment rate.\20\ Consistent with the substantial
protections from risk provided by the Federal Reserve, the FDIC is also
proposing to modify various risk measures to exclude loans pledged to
the PPPLF from total assets and to exclude borrowings from the Federal
Reserve Banks under the PPPLF from total liabilities when calculating
an IDI's deposit insurance assessment rate.
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\20\ The FDIC is not proposing to modify its assessment pricing
system with respect to the Tier 1 leverage ratio, which is one of
the measures used to determine the assessment rate for both large
and small IDIs. In accordance with the agencies' April 13, 2020,
interim final rule, banking organizations are required to neutralize
the regulatory capital effects of assets pledged to the PPPLF on
leverage capital ratios. See 85 FR 20387 (April 13, 2020).
Therefore, the effects of participation in the PPPLF will be
automatically incorporated in an IDI's regulatory capital reporting
and the FDIC does not need to make any adjustments to an IDI's
deposit insurance assessment.
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Based on data from the SBA and on the terms of the PPP, the FDIC
expects that most PPP loans will be categorized as Commercial and
Industrial (C&I) Loans.\21\ PPP loans may also be reported in other
loan types, including Agricultural Loans and All Other Loans.\22\ Under
the proposed rule, and to minimize reporting burden, the FDIC would
therefore exclude outstanding PPP loans, which includes loans pledged
to the PPPLF, from an IDI's loan portfolio using assumptions under a
waterfall approach. First, the FDIC would exclude the balance of PPP
loans outstanding, which includes loans pledged to the PPPLF, from the
balance of C&I Loans. In the unlikely event that the outstanding
balance of PPP loans, which includes loans pledged to the PPPLF,
exceeds the balance of C&I Loans, the FDIC would exclude any remaining
balance of these loans from the balance of All Other Loans, up to the
balance of All Other Loans, then exclude any remaining balance of PPP
loans from the balance of Agricultural Loans, up to the total amount of
Agricultural Loans. As described below, the FDIC proposes to apply this
waterfall approach, as appropriate, in the calculation of the Loan Mix
Index (LMI) for small banks, and in the calculation of the growth-
adjusted portfolio concentration measure and loss severity measure for
large or highly complex banks.
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\21\ At least 75 percent of the PPP loan proceeds shall be used
for payroll costs, and collateral is not required to secure the
loans. Therefore, the FDIC expects that PPP loans will not be
included in other loan categories, such as those that are secured by
real estate or consumer loans, in measures used to determine an
IDI's deposit insurance assessment rate. See 85 FR 20811 (Apr. 15,
2020) and Slide 5, Industry by NAICS Subsector, Paycheck Protection
Program (PPP) Report: Approvals through 12 p.m. EST, April 16, 2020,
Small Business Administration, available at: https://home.treasury.gov/system/files/136/SBA%20PPP%20Loan%20Report%20Deck.pdf.
\22\ According to the instruction for the Call Report, All Other
Loans includes loans to finance agricultural production and other
loans to farmers and loans to nondepository financial institutions.
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Question 1: The FDIC invites comment on its proposal to apply a
waterfall approach in excluding PPP loans, which include loans pledged
to the PPPLF, from C&I Loans, All Other Loans, and Agricultural Loans
in the calculation of an IDI's assessment rate. Is the assumption that
all PPP loans are C&I Loans appropriate, or should these loans be
distributed across loan categories in another manner? Should the FDIC
collect additional data on how PPP loans are categorized in order to
more accurately mitigate the deposit insurance assessment effects of
these loans? Alternatively, should institutions report PPP loans as a
separate loan category instead of including them in C&I Loans or other
loan categories, thus providing data that would reduce the need for the
FDIC to rely on certain assumptions, reduce the amount of necessary
changes to specific risk measures and other factors, and potentially
more accurately mitigate the deposit insurance assessment effects of an
IDI's participation in the program? Would this be overly burdensome for
institutions?
1. Established Small Institutions
a. Exclusion of Loans Pledged to the PPPLF in Various Risk Measures
For established small banks, the outstanding balance of loans
pledged to the PPPLF would be excluded from total assets in the
calculation of six risk measures: The net income before taxes to total
assets ratio,\23\ the nonperforming loans and leases to gross assets
ratio, the other real estate owned to gross assets ratio, the brokered
deposit ratio, the one-year asset growth measure, and the LMI.
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\23\ The FDIC expects that IDIs that participate in the PPP,
PPPLF, and MMLF will earn additional income from participation in
these programs. To minimize additional reporting burden, however,
the FDIC is not proposing to exclude income related to participation
in these programs from the net income before taxes to total assets
ratio in the calculation of an IDI's deposit insurance assessment
rate.
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b. Exclusion of PPP Loans and Loans Pledged to the PPPLF in the LMI
The LMI is a measure of the extent to which a bank's total assets
include higher-risk categories of loans. In its calculation of the LMI,
the FDIC is proposing to exclude PPP loans, which include loans pledged
to the PPPLF, from an institution's loan portfolio, based on the
waterfall approach described above. Under the proposed rule, the FDIC
would therefore exclude outstanding PPP loans, which includes loans
pledged to the PPPLF, from the balance of C&I Loans in the calculation
of the LMI. In the unlikely event that the outstanding balance of PPP
loans, which includes loans pledged to the PPPLF, exceeds the balance
of C&I Loans, the FDIC would exclude any remaining balance of these
loans from the balance of Agricultural Loans, up to the total amount of
Agricultural Loans, in the calculation of the LMI.\24\ The FDIC is also
proposing to exclude loans pledged to the PPPLF from total assets in
the calculation of the LMI.
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\24\ All Other Loans are not included in the LMI; therefore, the
FDIC proposes to exclude the outstanding balance of PPP loans, which
include loans pledged to the PPPLF, first from the balance of C&I
Loans, followed by Agricultural Loans. The loan categories used in
the Loan Mix Index are: Construction and Development, Commercial and
Industrial, Leases, Other Consumer, Real Estate Loans Residual,
Multifamily Residential, Nonfarm Nonresidential, 1-4 Family
Residential, Loans to Depository Banks, Agricultural Real Estate,
Agricultural Loans. 12 CFR 327.16(a)(1)(ii)(B).
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2. Large and Highly Complex Institutions
For IDIs defined as large or highly complex for deposit insurance
assessment purposes, the FDIC is proposing to exclude the outstanding
balance of loans pledged to the PPPLF and borrowings from the Federal
Reserve Banks under the PPPLF from five risk measures used in the
scorecard method: the core earnings ratio, the core deposit ratio, the
balance sheet liquidity ratio, the average short-term funding ratio and
the loss severity measure. For four risk measures--the growth-adjusted
portfolio concentration measure, the
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balance sheet liquidity ratio, the trading asset ratio, and the loss
severity measure--the FDIC is proposing to treat the outstanding
balance of PPP loans, which includes loans pledged to the PPPLF, as
riskless. These measures are described in more detail below.
a. Core Earnings Ratio
For the core earnings ratio, the FDIC divides the four-quarter sum
of merger-adjusted core earnings by the average of five quarter-end
total assets (most recent and four prior quarters).\25\ The FDIC is
proposing to exclude the outstanding balance of loans pledged to the
PPPLF at quarter-end from total assets for the applicable quarter-end
periods prior to averaging.\26\
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\25\ Appendix A to subpart A of 12 CFR part 327.
\26\ The FDIC expects that IDIs that participate in the PPP,
PPPLF, and MMLF will earn additional income from participation in
these programs. To minimize additional reporting burden, the FDIC is
not proposing to exclude earnings related to participation in these
programs from the core earnings ratio in the calculation of an IDI's
deposit insurance assessment rate.
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b. Core Deposit Ratio
The core deposit ratio is defined as total domestic deposits
excluding brokered deposits and uninsured non-brokered time deposits
divided by total liabilities.\27\ For purposes of this calculation, the
FDIC is proposing to exclude from total liabilities borrowings from
Federal Reserve Banks under the PPPLF.
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\27\ Appendix A to subpart A of 12 CFR part 327.
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c. Balance Sheet Liquidity Ratio
The balance sheet liquidity ratio measures the amount of highly
liquid assets needed to cover potential cash outflows in the event of
stress.\28\ In calculating this ratio, the FDIC is proposing to treat
the outstanding balance of PPP loans as of quarter-end that exceed
borrowings from the Federal Reserve Banks under the PPPLF as riskless
and to treat them as highly liquid assets. The FDIC is also proposing
to exclude from the ratio an IDI's reported borrowings from the Federal
Reserve Banks under the PPPLF with a remaining maturity of one year or
less.
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\28\ The balance sheet liquidity ratio is defined as the sum of
cash and balances due from depository institutions, federal funds
sold and securities purchased under agreements to resell, and the
market value of available-for-sale and held-to-maturity agency
securities (excludes agency mortgage-backed securities but includes
all other agency securities issued by the U.S. Treasury, U.S.
government agencies, and U.S. government sponsored enterprises)
divided by the sum of federal funds purchased and repurchase
agreements, other borrowings (including FHLB) with a remaining
maturity of one year or less, 5 percent of insured domestic
deposits, and 10 percent of uninsured domestic and foreign deposits.
Appendix A to subpart A of 12 CFR part 327.
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d. Average Short-Term Funding Ratio
The ratio of average short-term funding to average total assets is
one of the measures used to determine the assessment rate for a highly
complex IDI.\29\ In calculating the average short-term funding ratio,
the FDIC is proposing to reduce the quarterly average of total assets
by the quarterly average amount of loans pledged to the PPPLF.
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\29\ Appendix A to subpart A of 12 CFR part 327 describes the
average short-term funding ratio.
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e. Growth-Adjusted Portfolio Concentrations
The growth-adjusted portfolio concentration measure is one of the
measures used to determine a large IDI's overall concentration
measure.\30\ Under the proposal, the FDIC would apply a waterfall
approach as described above and assume that all outstanding PPP loans,
which include loans pledged to the PPPLF, are categorized as C&I Loans
and would exclude these loans from C&I Loans in the calculation of the
portfolio growth rate calculations for this measure.\31\
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\30\ For large banks, the concentration measure is the higher of
the ratio of higher-risk assets to Tier 1 capital and reserves, and
the growth-adjusted portfolio measure. For highly complex
institutions, the concentration measure is the highest of three
measures: The ratio of higher risk assets to Tier 1 capital and
reserves, the ratio of top 20 counterparty exposure to Tier 1
capital and reserves, and the ratio of the largest counterparty
exposure to Tier 1 capital and reserves. See Appendix A to subpart A
of part 327.
\31\ All Other Loans and Agricultural Loans are not included in
the growth-adjusted portfolio concentration measure; therefore, the
FDIC proposes to exclude the outstanding balance of PPP loans, which
include loans pledged to the PPPLF, from the balance of C&I Loans.
The loan concentration categories used in the growth-adjusted
portfolio concentration measure are: Construction and development,
other commercial real estate, first lien residential mortgages
(including non-agency residential mortgage-backed securities),
closed-end junior liens and home equity lines of credit, commercial
and industrial loans, credit card loans, and other consumer loans.
Appendix C to subpart A of 12 CFR part 327.
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f. Trading Asset Ratio
For highly complex IDIs, the trading asset ratio is used to
determine the relative weights assigned to the credit quality measure
and the market risk measure.\32\ In calculating this ratio, the FDIC is
proposing to reduce the balance of loans by the outstanding balance as
of quarter-end of PPP loans, which includes loans pledged to the
PPPLF.\33\
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\32\ See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).
\33\ To minimize reporting burden, the FDIC would reduce average
loans by the outstanding balance of PPP loans, which includes loans
pledged to the PPPLF, as of quarter-end, rather than requiring
institutions to additionally report the average balance of PPP loans
and the average balance of loans pledged to the PPPLF.
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g. Loss Severity Measure
The loss severity measure estimates the relative magnitude of
potential losses to the DIF in the event of an IDI's failure.\34\ In
calculating the loss severity score, the FDIC is proposing to remove
the total amount of borrowings from the Federal Reserve Banks under the
PPPLF from short- and long-term secured borrowings, as appropriate. The
FDIC also would exclude PPP loans, which include loans pledged to the
PPPLF, using a waterfall approach, described above. Under this
approach, the FDIC would exclude PPP loans, which include loans pledged
to the PPPLF, from an IDI's balance of C&I Loans. In the unlikely event
that the outstanding balance of PPP loans exceeds the balance of C&I
Loans, the FDIC would exclude any remaining balance from All Other
Loans, up to the total amount of All Other Loans, followed by
Agricultural Loans, up to the total amount of Agricultural Loans. To
the extent that an IDI's outstanding PPP loans exceeds its borrowings
under the PPPLF, and consistent with the treatment of these loans as
riskless, the FDIC would then add outstanding PPP loans in excess of
borrowings under the PPPLF to cash.
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\34\ Appendix D to subpart A of 12 CFR 327 describes the
calculation of the loss severity measure.
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Question 2: The FDIC invites comment on its proposal to exclude PPP
loans from C&I Loans, All Other Loans, and Agricultural Loans in the
calculation of an IDI's assessment rate. Is the assumption that all PPP
loans are C&I loans appropriate, or should these loans be distributed
across loan categories in another manner? If so, how and why? Should
the FDIC collect additional data on how PPP loans are categorized?
Question 3: The FDIC invites comment on advantages and
disadvantages of mitigating the effects of participating in the PPP and
PPPLF on deposit insurance assessments. How does the approach in the
proposed rule support or not support the objectives of the Paycheck
Protection Program and the associated liquidity facility?
C. Mitigating the Effects of Loans Pledged to the PPPLF and Assets
Purchased Under the MMLF on Certain Adjustments to an IDI's Assessment
Rate
The FDIC proposes to exclude the quarterly average amount of loans
pledged to the PPPLF and the quarterly
[[Page 30654]]
average amount of assets purchased under the MMLF from the calculation
of the unsecured debt adjustment, depository institution debt
adjustment, and the brokered deposit adjustment. These adjustments
would continue to be applied to an IDI's initial base assessment rate,
as applicable, for purposes of calculating the IDI's total base
assessment rate.\35\
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\35\ For certain IDIs, adjustments include the unsecured debt
adjustment and the depository institution debt adjustment (DIDA).
The unsecured debt adjustment decreases an IDI's total assessment
rate based on the ratio of its long-term unsecured debt to its
assessment base. The DIDA increases an IDI's total assessment rate
if it holds long-term, unsecured debt issued by another IDI. In
addition, large banks that meet certain criteria and new small banks
are subject to the brokered deposit adjustment. The brokered deposit
adjustment increases the total assessment rate of large IDIs that
hold significant concentrations of brokered deposits and that are
less than well capitalized, not CAMELS composite 1- or 2-rated, as
well as new, small IDIs that are not assigned to Risk Category I.
See 12 CFR 327.16(e).
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D. Offset To Deposit Insurance Assessment Due to Increase in the
Assessment Base Attributable to Assets Pledged to the PPPLF and Assets
Purchased Under the MMLF
Under the proposed rule, the FDIC would provide an offset to an
IDI's total assessment amount due for the increase to its assessment
base attributable to participation in the PPPLF and MMLF.\36\ To
determine this offset amount, the FDIC would calculate the total of the
quarterly average amount of assets pledged to the PPPLF and the
quarterly average amount of assets purchased under the MMLF, multiply
that amount by an IDI's total base assessment rate (after excluding the
effect of participation in the MMLF and PPPLF, as proposed), and
subtract the resulting amount from an IDI's total assessment
amount.\37\
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\36\ Under the proposed rule, the offset to the total assessment
amount due for the increase to the assessment base attributable to
participation in the PPPLF and MMLF would apply to all IDIs,
including new small institutions as defined in 12 CFR 327.8(w), and
insured U.S. branches and agencies of foreign banks.
\37\ Currently, an IDI's total assessment amount on its
quarterly certified statement invoice is equal to the product of the
institution's assessment base (calculated in accordance with 12 CFR
327.5) multiplied by the institution's assessment rate (calculated
in accordance with 12 CFR 327.4 and 12 CFR 327.16). See 12 CFR
327.3(b)(1).
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Question 4: The FDIC invites comment on the advantages and
disadvantages of adjusting an IDI's assessment to offset the increase
in its assessment base due to participation in the MMLF and PPPLF. How
does the approach in the proposed rule support or not support the
objectives of the Facilities?
E. Classification of IDIs as Small, Large, or Highly Complex for
Assessment Purposes
In defining IDIs for assessment purposes, the FDIC would exclude
from an IDI's total assets the amount of loans pledged to the PPPLF and
assets purchased under the MMLF. As a result, the FDIC would not
reclassify a small institution as large or a large institution as a
highly complex institution solely due to participation in the PPPLF and
MMLF programs, which would otherwise have the effect of expanding an
IDI's balance sheet. In addition, an institution with total assets
between $5 billion and $10 billion, excluding the amount of loans
pledged to the PPPLF and assets purchased under the MMLF, may request
that the FDIC determine its assessment rate as a large institution.
F. Other Conforming Amendments to the Assessment Regulations
The FDIC is proposing to make conforming amendments to the FDIC's
assessment regulations to effectuate the modifications described above.
These conforming amendments would ensure that the proposed
modifications to an IDI's assessment rate and the proposed offset to an
IDI's assessment payment are properly incorporated into the assessment
regulation provisions governing the calculation of an IDI's quarterly
deposit insurance assessment.
G. Expected Effects
To facilitate participation in the PPP and use of PPPLF and MMLF,
the FDIC is proposing to mitigate the deposit insurance assessment
effects of PPP loans, loans pledged to the PPPLF, and assets purchased
under the MMLF. Because IDIs are not yet reporting the necessary data,
the FDIC does not have sufficient data on the distribution of loans
among IDIs and other non-bank financial institutions made under the
PPP, loans pledged to the PPPLF, and dollar volume of assets purchased
under the MMLF by IDIs, nor on the loan categories of PPP loans held.
Therefore, the FDIC has estimated the potential effects of these
programs on deposit insurance assessments based on certain assumptions.
Although this estimate is subject to considerable uncertainty, the FDIC
estimates that absent the proposed rule, PPP loans, loans pledged to
the PPPLF, and assets purchased under the MMLF could increase quarterly
assessment revenue from IDIs by approximately $90 million, based on the
assumptions described below.
The FDIC anticipates that PPP loans will be held by both IDIs and
non-IDIs, and that some IDIs will hold PPP loans without pledging them
to the PPPLF, although the rate of IDI participation in the PPP and
PPPLF is uncertain. Based on Call Report data as of December 31, 2019,
and assuming that (1) $600 billion of PPP loans are held by IDIs, (2)
the PPP loans that are held by IDIs are evenly distributed across all
IDIs that have C&I loans, which results in a 27 percent increase in
those loans, (3) 25 percent of PPP loans held by IDIs are pledged to
the PPPLF, (4) 100 percent of loans pledged to the PPPLF are matched by
borrowings from the Federal Reserve Banks with maturities greater than
one year, and (5) large and highly complex banks hold approximately $50
billion in assets pledged under the MMLF,\38\ the FDIC estimates that
quarterly deposit insurance assessments would increase by approximately
$90 million.
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\38\ These assumptions reflect current participation in the PPP
and PPPLF and an expectation of increased participation in the PPPLF
over time, based on data published by the SBA and Federal Reserve
Board. These assumptions use SBA data to estimate the participation
in the PPP program of nonbank lenders including CDFI funds, CDCs,
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck
Protection Program (PPP) Report: Second Round, Approvals from 4/27/
2020 through 05/01/2020, Small Business Administration, available
at: https://www.sba.gov/sites/default/files/2020-05/PPP2%20Data%2005012020.pdf; Factors Affecting Reserve Balances,
Federal Reserve statistical release H.4.1, as of May 7, 2020,
available at: https://www.federalreserve.gov/releases/h41/current/,
and Board of Governors of the Federal Reserve System as of April 1,
2020, available at https://fred.stlouisfed.org/series/H41RESPPALDBNWW.
---------------------------------------------------------------------------
The actual effect of these programs on deposit insurance
assessments will vary depending on participation in the programs by
IDIs and non-IDIs, the maturity of borrowings from the Federal Reserve
Banks under these programs, and the types of loans held under the PPP,
as described above.
H. Alternatives Considered
The FDIC considered the reasonable and possible alternatives
described below. On balance, the FDIC believes the current proposal
would mitigate the deposit insurance assessments effects of an IDI's
participation in the PPP, PPPLF, and MMLF in the most appropriate and
straightforward manner.
One alternative would be to leave in place the current assessment
regulations. As a result, participation in the PPP, PPPLF, and MMLF
could have the effect of increasing an IDI's quarterly deposit
insurance assessment. This option, however, would not accomplish the
policy objective of mitigating the assessment effects of holding PPP
loans, pledging loans to the PPPLF, and purchasing assets under the
MMLF and would potentially lead to sharp increases in assessments for
an
[[Page 30655]]
individual IDI solely due to its participation in programs intended to
provide liquidity to small businesses and stabilize the financial
system.
As described above, a second alternative is that the FDIC could
require that institutions report PPP loans as a separate loan category
instead of including them in C&I Loans or other loan categories, as
appropriate, depending on the nature of the loan. Under the current
proposal, the FDIC would exclude PPP loans from C&I Loans, Agricultural
Loans, and All Other Loans using a waterfall approach in the
calculation of an IDI's assessment rate, and would have to apply
certain assumptions to do so. Under this approach, the FDIC would
assume that all PPP loans are C&I Loans, and to the extent that balance
of PPP loans exceed the balance of C&I Loans, any excess loan amounts
are assumed to be categorized as either All Other Loans or Agricultural
Loans, as applicable for a given measure. Under the alternative
considered, institutions would report PPP loans as a separate loan
category, thus providing data that would reduce the need for the FDIC
to rely on certain assumptions, reduce the amount of necessary changes
to specific risk measures and other factors, and potentially more
accurately mitigate the deposit insurance assessment effects of an
IDI's participation in the program. The FDIC did not propose this
alternative due to concerns that it may shift additional reporting
burden onto IDIs in comparison to the current proposal, which would
achieve a similar result with less burden. However, as mentioned below,
the FDIC is interested in feedback on this alternative.
The FDIC also considered excluding the effects of participation in
the MMLF from measures used to determine an IDI's deposit insurance
assessment rate. For example, an IDI that participates in the MMLF
could increase its total assets by the amount of assets that are
eligible collateral pledged to the FRBB, and increase its liabilities
by the amount of borrowings received from the FRBB through the MMLF.
With respect to the MMLF, the FDIC expects a limited number of IDIs to
participate in the program, and that all of these IDIs are priced as
large or highly complex institutions. Furthermore, the FDIC expects
that participation in the MMLF will have minimal to no effect on an
IDI's deposit insurance assessment rate. The MMLF is scheduled to cease
on September 30, 2020, and eligible collateral includes a variety of
assets, including U.S. Treasuries and fully guaranteed agency
securities, Certificates of Deposit, securities issued by government-
sponsored enterprises, and certain types of commercial paper. Given the
minimal expected effect of participation in the MMLF on an IDI's
assessment rate and the short duration of the program, and to minimize
the additional reporting burden associated with the variety of
potential assets in the program, the FDIC decided not to propose this
alternative. Under the proposal, the FDIC would exclude loans pledged
to the PPPLF and assets purchased from the MMLF from the calculation of
certain adjustments to an IDI's assessment rate, and would provide an
offset to an IDI's assessment for the increase to its assessment base
attributable to participation in the MMLF and PPPLF. In addition, an
IDI that is priced as large or highly complex may request an adjustment
to its total score, used in determining an institution's assessment
rate, based on supporting data reflecting its participation in the
MMLF.\39\
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\39\ See Assessment Rate Adjustment Guidelines for Large and
Highly Complex Institutions, 76 FR 57992 (Sept. 19, 2011).
---------------------------------------------------------------------------
Question 5: The FDIC invites comment on the reasonable and possible
alternatives described in this proposed rule. Should the FDIC consider
other reasonable and possible alternatives?
I. Comment Period, Proposed Effective Date and Application Date
The FDIC is issuing this proposal with a 7-day comment period, in
order to allow sufficient time for the FDIC to consider comments and
ensure publication of a final rule before June 30, 2020 (the end of the
second quarterly assessment period).
As stated above, in response to recent events which have
significantly and adversely impacted global financial markets along
with the spread of COVID-19, which has slowed economic activity in many
countries, including the United States, the agencies moved quickly due
to exigent circumstances and issued two interim final rules to allow
banking organizations to neutralize the regulatory capital effects of
purchasing assets through the MMLF program and loans pledged to the
PPPL Facility. Since the implementation of the PPP, PPPLF, and MMLF,
the FDIC has observed uncertainty from the public and the banking
industry and wants to provide clarity on how, if at all, these programs
would affect the assessments of IDIs which participate in these
programs. Because PPP loans must be issued by June 30, 2020, the full
assessment impact of these programs will first occur in the second
quarterly assessment period. Congress has also given indications that
implementation of these programs is an urgent policy matter,
instructing the SBA to issue regulations for the PPP within 15 days of
the CARES Act's enactment.\40\ The FDIC has therefore concluded that
rapid administrative action is critical and warrants an abbreviated
comment period.
---------------------------------------------------------------------------
\40\ See CARES Act, Sec. 1114.
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The 7-day comment period will afford the public and affected
institutions with an opportunity to review and comment on the proposal,
and will allow the FDIC sufficient time to consider and respond to
comments received. In addition, a proposed effective date by June 30,
2020 and a proposed application date of April 1, 2020 will enable the
FDIC to provide the relief contemplated in this rulemaking as soon as
practicable, starting with the second quarter of 2020, and provide
certainty to IDIs regarding the assessment effects of participating in
the PPP, PPPLF, or MMLF for the second quarter of 2020, which is the
first assessment quarter in which the assessments will be affected.
IV. Request for Comment
The FDIC is requesting comment on all aspects of the notice of
proposed rulemaking, in addition to the specific requests for comment
above.
V. Administrative Law Matters
A. Administrative Procedure Act
Under the Administrative Procedure Act (APA),\41\ ``[t]he required
publication or service of a substantive rule shall be made not less
than 30 days before its effective date, except as otherwise provided by
the agency for good cause found and published with the rule.'' \42\
Under this proposal, the amendments to the FDIC's deposit insurance
assessment regulations would be effective upon publication of a final
rule in the Federal Register. It is anticipated that the FDIC would
find good cause that the publication of a final rule implementing the
proposal can be less than 30 days before its effective date in order to
fully effectuate the intent of ensuring that IDIs benefit from the
mitigation effects to their deposit insurance assessments as soon as
practicable, and to provide banks with certainty regarding the
assessment effects of participating in the PPP, PPPLF, or MMLF for the
second quarter of 2020, which is the first assessment quarter in which
the assessments will be affected.
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\41\ 5 U.S.C. 553.
\42\ 5 U.S.C. 553(d).
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[[Page 30656]]
As explained in the Supplementary Information section, the FDIC
expects that an IDI that participates in either the PPP, the PPPLF, or
the MMLF program could be subject to increased deposit insurance
assessments, beginning with the second quarter of 2020. The FDIC
invoices for quarterly deposit insurance assessments in arrears. As a
result, invoices for the second quarterly assessment period of 2020
(i.e., April 1-June 30) would be made available to IDIs in September
2020, with a payment due date of September 30, 2020.
While it is anticipated that the FDIC would find good cause to
issue the final rule with an immediate effective date, the FDIC is
interested in the views of the public and requests comment on all
aspects of the proposal.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires an agency, in connection with a proposed rule, to
prepare and make available for public comment an initial regulatory
flexibility analysis that describes the impact of a proposed rule on
small entities.\43\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $600 million.\44\ Generally, the FDIC considers a significant
effect to be a quantified effect in excess of 5 percent of total annual
salaries and benefits per institution, or 2.5 percent of total non-
interest expenses. The FDIC believes that effects in excess of these
thresholds typically represent significant effects for FDIC-insured
institutions. Certain types of rules, such as rules of particular
applicability relating to rates or corporate or financial structures,
or practices relating to such rates or structures, are expressly
excluded from the definition of ``rule'' for purposes of the RFA.\45\
The proposed rule relates directly to the rates imposed on IDIs for
deposit insurance and to the deposit insurance assessment system that
measures risk and determines each established small bank's assessment
rate and is, therefore, not subject to the RFA. Nonetheless, the FDIC
is voluntarily presenting information in this RFA section.
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\43\ 5 U.S.C. 601 et seq.
\44\ The SBA defines a small banking organization as having $600
million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended, effective August 19, 2019). In its determination, the
SBA ``counts the receipts, employees, or other measure of size of
the concern whose size is at issue and all of its domestic and
foreign affiliates.'' 13 CFR 121.103. Following these regulations,
the FDIC uses a covered entity's affiliated and acquired assets,
averaged over the preceding four quarters, to determine whether the
covered entity is ``small'' for the purposes of RFA.
\45\ 5 U.S.C. 601.
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Based on quarterly regulatory report data as of December 31, 2019,
the FDIC insures 5,186 depository institutions, of which 3,841 are
defined as small entities by the terms of the RFA.\46\ The proposed
rule applies to all FDIC-insured institutions, but is expected to
affect only those institutions that participate in the PPP, PPPLF, and
MMLF. The FDIC does not presently have access to information that would
enable it to identify which institutions are participating in these
programs and lending facilities.
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\46\ FDIC Call Report data, as of December 31, 2019.
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As previously discussed in this Notice, to facilitate participation
in the PPP and use of PPPLF and MMLF, the FDIC is proposing to mitigate
the deposit insurance assessment effects of PPP loans, loans pledged to
the PPPLF, and assets purchased under the MMLF. Therefore, the FDIC
estimated the potential effects of these programs on deposit insurance
assessments based on certain assumptions. Based on Call Report data as
of December 31, 2019, assuming that (1) $600 billion of PPP loans are
held by IDIs, (2) the PPP loans that are held by IDIs are evenly
distributed across all IDIs that have C&I loans, which results in a 27
percent increase in those loans, (3) 25 percent of PPP loans held by
IDIs are pledged to the PPPLF, and (4) 100 percent of loans pledged to
the PPPLF are matched by borrowings from the Federal Reserve Banks with
maturities greater than one year,\47\ the FDIC estimates that the
proposal would save small IDIs approximately $5 million in quarterly
deposit insurance assessments.
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\47\ These assumptions reflect current participation in the PPP
and PPPLF and an expectation of increased participation in the PPPLF
over time, based on data published by the SBA and Federal Reserve
Board. These assumptions use SBA data to estimate the participation
in the PPP program of nonbank lenders including CDFI funds, CDCs,
Microlenders, Farm Credit Lenders, and FinTechs. See Paycheck
Protection Program (PPP) Report: Second Round, Approvals from 4/27/
2020 through 05/01/2020, Small Business Administration, available
at: https://www.sba.gov/sites/default/files/2020-05/PPP2%20Data%2005012020.pdf; Factors Affecting Reserve Balances,
Federal Reserve statistical release H.4.1, as of May 7, 2020,
available at: https://www.federalreserve.gov/releases/h41/current/,
and Board of Governors of the Federal Reserve System as of April 1,
2020, available at https://fred.stlouisfed.org/series/H41RESPPALDBNWW.
---------------------------------------------------------------------------
The actual effect of these programs on deposit insurance
assessments will vary depending on IDI's participation in the PPP and
Federal Reserve Facilities, the maturity of borrowings from the Federal
Reserve Banks under these programs, and the types of loans held under
the PPP.
The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. In particular, would this
proposed rule have any significant effects on small entities that the
FDIC has not identified?
C. Riegle Community Development and Regulatory Improvement Act
Section 302 of the Riegle Community Development and Regulatory
Improvement Act (RCDRIA) requires that the Federal banking agencies,
including the FDIC, in determining the effective date and
administrative compliance requirements of new regulations that impose
additional reporting, disclosure, or other requirements on IDIs,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on IDIs
generally to take effect on the first day of a calendar quarter that
begins on or after the date on which the regulations are published in
final form, with certain exceptions, including for good cause.\48\ The
FDIC invites comments that will further inform its consideration of
RCDRIA.
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\48\ 5 U.S.C. 553(b)(B).
\48\ 5 U.S.C. 553(d).
\48\ 5 U.S.C. 601 et seq.
\48\ 5 U.S.C. 801 et seq.
\48\ 5 U.S.C. 801(a)(3).
\48\ 5 U.S.C. 804(2).
\48\ 5 U.S.C. 808(2).
\48\ 12 U.S.C. 4802(a).
\48\ 12 U.S.C. 4802(b).
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D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) states that no agency may
conduct or sponsor, nor is the respondent required to respond to, an
information collection unless it displays a currently valid OMB control
number.\49\ The proposed rule affects the agencies' current information
collections for the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051).
The
[[Page 30657]]
agencies' OMB control numbers for the Call Reports are: Comptroller of
the Currency OMB No. 1557-0081; Board of Governors OMB No. 7100-0036;
and FDIC OMB No. 3064-0052. The proposed rule also affects the Report
of Assets and Liabilities of U.S. Branches and Agencies of Foreign
Banks (FFIEC 002), which the Federal Reserve System collects and
processes on behalf of the three agencies (Board of Governors OMB No.
7100-0032). Submissions will be made by the agencies to OMB for their
respective information collections. The changes to the Call Report, the
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks, and their respective instructions, will be addressed in
a separate Federal Register notice or notices.
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\49\ 4 U.S.C. 3501-3521.
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E. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \50\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
The FDIC invites your comments on how to make this proposed rule easier
to understand. For example:
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\50\ 12 U.S.C. 4809.
---------------------------------------------------------------------------
Has the FDIC organized the material to suit your needs? If
not, how could the material be better organized?
Are the requirements in the proposed rule clearly stated?
If not, how could the proposed rule be stated more clearly?
Does the proposed rule contain language or jargon that is
unclear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the proposed rule easier to
understand?
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
Authority and Issuance
For the reasons stated above, the Federal Deposit Insurance
Corporation proposes to amend 12 CFR part 327 as follows:
PART 327--ASSESSMENTS
0
1. The authority citation for part 327 is revised to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
0
2. Amend Sec. 327.3 by revising paragraph (b)(1) to read as follows:
Sec. 327.3 Payment of assessments.
* * * * *
(b) * * *
(1) Quarterly certified statement invoice. Starting with the first
assessment period of 2007, no later than 15 days prior to the payment
date specified in paragraph (b)(2) of this section, the Corporation
will provide to each insured depository institution a quarterly
certified statement invoice showing the amount of the assessment
payment due from the institution for the prior quarter (net of credits
or dividends, if any), and the computation of that amount. Subject to
paragraph (e) of this section and Sec. 327.17, the invoiced amount on
the quarterly certified statement invoice shall be the product of the
following: The assessment base of the institution for the prior quarter
computed in accordance with Sec. 327.5 multiplied by the institution's
rate for that prior quarter as assigned to the institution pursuant to
Sec. Sec. 327.4(a) and 327.16.
* * * * *
0
3. Amend Sec. 327.16 by adding introductory text to read as follows:
Sec. 327.16 Assessment pricing methods--beginning the first
assessment period after June 30, 2016, where the reserve ratio of the
DIF as of the end of the prior assessment period has reached or
exceeded 1.15 percent.
Subject to the modifications described in Sec. 327.17, the
following pricing methods shall apply beginning in the first assessment
period after June 30, 2016, where the reserve ratio of the DIF as of
the end of the prior assessment period has reached or exceeded 1.15
percent, and for all subsequent assessment periods.
* * * * *
0
4. Add Sec. 327.17 to read as follows:
Sec. 327.17 Mitigating the Deposit Insurance Assessment Effect of
participation in the Money Market Mutual Fund Liquidity Facility, the
Paycheck Protection Program Lending Facility, and the Paycheck
Protection Program.
(a) Mitigating the assessment effects of Paycheck Protection
Program loans for established small institutions. Effective as of April
1, 2020, the FDIC will take the following actions when calculating the
assessment rate for established small institutions under Sec. 327.16:
(1) Exclusion from net income before taxes ratio, nonperforming
loans and leases ratio, other real estate owned ratio, brokered deposit
ratio, and one-year asset growth measure. Notwithstanding any other
section of this part, and as described in Appendix E to this subpart,
the FDIC will exclude the outstanding balance of loans that are pledged
as collateral to the Paycheck Protection Program Lending Facility, as
reported on the Consolidated Report of Condition and Income, from the
total assets in the calculation of the following risk measures: Net
income before taxes ratio, the nonperforming loans and leases ratio,
the other real estate owned ratio, the brokered deposit ratio, and the
one-year asset growth measure, which are described in Sec.
327.16(a)(1)(ii)(A).
(2) Exclusion from Loan Mix Index. Notwithstanding any other
section of this part, and as described in appendix E to this subpart A,
when calculating the loan mix index described in Sec.
327.16(a)(1)(ii)(B), the FDIC will exclude:
(i) The outstanding balance of loans that are pledged as collateral
to the Paycheck Protection Program Lending Facility, as reported on the
Consolidated Report of Condition and Income, from the total assets; and
(ii) The amount of outstanding loans provided as part of the
Paycheck Protection Program, including loans pledged to the Paycheck
Protection Program Lending Facility, as reported on the Consolidated
Report of Condition and Income, from an established small institution's
balance of commercial and industrial loans. To the extent that the
outstanding balance of loans provided as part of the Paycheck
Protection Program, including loans pledged to the Paycheck Protection
Program Lending Facility, exceeds an established small institution's
balance of commercial and industrial loans, the FDIC will exclude any
remaining balance of these loans from the balance of agricultural
loans, up to the amount of agricultural loans, in the calculation of
the loan mix index.
(b) Mitigating the assessment effects of Paycheck Protection
Program loans for large or highly complex institutions. Effective as of
April 1, 2020, the FDIC will take the following actions when
calculating the assessment rate for large institutions and highly
complex institutions under Sec. 327.16:
(1) Exclusion from average short-term funding ratio.
Notwithstanding any other section of this part, and as described in
appendix E of this subpart, the FDIC will exclude the quarterly average
amount of loans that are pledged as collateral to the Paycheck
Protection Program Lending Facility, as reported on the Consolidated
Report of Condition and Income, from the calculation of the average
short-term funding ratio, which is described in appendix E to this
subpart.
(2) Exclusion from core earnings ratio. Notwithstanding any other
section of this part, and as described in appendix E of this subpart,
the FDIC will exclude the outstanding balance of loans that are pledged
as collateral to the Paycheck
[[Page 30658]]
Protection Program Lending Facility as of quarter-end, as reported on
the Consolidated Report of Condition and Income, from the calculation
of the core earnings ratio, which is described in appendix E to this
subpart.
(3) Exclusion from core deposit ratio. Notwithstanding any other
section of this part, and as described in appendix E of this subpart,
the FDIC will exclude the amount of borrowings from the Federal Reserve
Banks under the Paycheck Protection Program Lending Facility, as
reported on the Consolidated Report of Condition and Income, from the
calculation of the core deposit ratio, which is described in appendix E
to this subpart.
(4) Exclusion from growth-adjusted portfolio concentration measure
and trading asset ratio. Notwithstanding any other section of this
part, and as described in appendix E to this subpart, the FDIC will
exclude, as applicable, the outstanding balance of loans provided under
the Paycheck Protection Program, including loans pledged to the
Paycheck Protection Program Lending Facility, as reported on the
Consolidated Report of Condition and Income, from the calculation of
the growth-adjusted portfolio concentration measure and the trading
asset ratio, which are described in appendix E to this subpart.
(5) Balance sheet liquidity ratio. Notwithstanding any other
section of this part, and as described in appendix E to this subpart,
when calculating the balance sheet liquidity measure described under
appendix A to this subpart, the FDIC will include the outstanding
balance of loans provided under the Paycheck Protection Program that
exceed total borrowings from the Federal Reserve Banks under the
Paycheck Protection Program Lending Facility, as reported on the
Consolidated Report of Condition and Income in highly liquid assets,
and exclude the amount of borrowings from the Federal Reserve Banks
under the Paycheck Protection Program Lending Facility with a remaining
maturity of one year or less, as reported on the Consolidated Report of
Condition and Income from other borrowings with a remaining maturity of
one year or less.
(6) Exclusion from loss severity measure. Notwithstanding any other
section of this part, and as described in appendix E to this subpart,
when calculating the loss severity measure described under appendix A
to this subpart, the FDIC will exclude the total amount of borrowings
from the Federal Reserve Banks under the Paycheck Protection Program
Lending Facility from short- and long-term secured borrowings, as
appropriate. The FDIC will exclude the total amount of outstanding
loans provided as part of the Paycheck Protection Program, as reported
on the Consolidated Report of Condition and Income, from an
institution's balance of commercial and industrial loans. To the extent
that the outstanding balance of loans provided as part of the Paycheck
Protection Program exceeds an institution's balance of commercial and
industrial loans, the FDIC will exclude any remaining balance from all
other loans, up to the total amount of all other loans, followed by
agricultural loans, up to the total amount of agricultural loans. To
the extent that an institution's outstanding loans under the Paycheck
Protection Program exceeds its borrowings under the Paycheck Protection
Program Loan Facility, the FDIC will add outstanding loans under the
Paycheck Protection Program in excess of borrowings under the Paycheck
Protection Program Loan Facility to cash and interest-bearing balances.
(c) Mitigating the effects of loans pledged to the PPPLF and assets
purchased under the MMLF on the unsecured adjustment, depository
institution debt adjustment, and the brokered deposit adjustment to an
IDI's assessment rate. Notwithstanding any other section of this part,
and as described in appendix E to this subpart, when calculating an
insured depository institution's unsecured debt adjustment, depository
institution debt adjustment, or the brokered deposit adjustment
described in Sec. 327.16(e), as applicable, the FDIC will exclude the
quarterly average amount of loans pledged to the Paycheck Protection
Program Lending Facility and the quarterly average amount of assets
purchased under the Money Market Mutual Fund Liquidity Facility, as
reported on the Consolidated Report of Condition and Income.
(d) Mitigating the effects on the assessment base attributable to
the Paycheck Protection Program Lending Facility and the Money Market
Mutual Fund Liquidity Facility. Notwithstanding any other section of
this part, and as described in appendix E to this subpart, when
calculating an insured depository institution's quarterly deposit
insurance assessment payment due under this part, the FDIC will provide
an offset to an institution's assessment for the increase to its
assessment base attributable to participation in the Money Market
Mutual Fund Liquidity Facility and the Paycheck Protection Program
Lending Facility.
(1) Calculation of offset amount. To determine the offset amount,
the FDIC will take the sum of the quarterly average amount of loans
pledged to the Paycheck Protection Program Lending Facility and the
quarterly average amount of assets purchased under the Money Market
Mutual Fund Liquidity Facility, and multiply the sum by an
institution's total base assessment rate, as calculated under Sec.
327.16, including any adjustments under Sec. 327.16(e).
(2) Calculation of assessment amount due. Notwithstanding any other
section of this part, the FDIC will subtract the offset amount
described in Sec. 327.17(d)(1) from an insured depository
institution's total assessment amount.
(e) Definitions. For the purposes of this section:
(1) Paycheck Protection Program. The term ``Paycheck Protection
Program'' means the program that was created in section 1102 of the
Coronavirus Aid, Relief, and Economic Security Act.
(2) Paycheck Protection Program Liquidity Facility. The term
``Paycheck Protection Program Liquidity Facility'' means the program of
that name that was announced by the Board of Governors of the Federal
Reserve System on April 9, 2020.
(3) Money Market Mutual Fund Liquidity Facility. The term ``Money
Market Mutual Fund Liquidity Facility'' means the program of that name
announced by the Board of Governors of the Federal Reserve System on
March 18, 2020.
0
5. Add Appendix E to subpart A of part 327 to read as follows:
Appendix E to Subpart A of Part 327--Mitigating the Deposit Insurance
Assessment Effect of Participation in the Money Market Mutual Fund
Liquidity Facility, the Paycheck Protection Program Lending Facility,
and the Paycheck Protection Program
I. Mitigating the Assessment Effects of Paycheck Protection Program
Loans for Established Small Institutions
[[Page 30659]]
Table E.1--Exclusions From Certain Risk Measures Used To Calculate the
Assessment Rate for Established Small Institutions
------------------------------------------------------------------------
Variables Description Exclusions
------------------------------------------------------------------------
Leverage Ratio (%)............ Tier 1 capital divided No Exclusion.
by adjusted average
assets. (Numerator
and denominator are
both based on the
definition for prompt
corrective action.).
Net Income before Taxes/Total Income (before Exclude from
Assets (%). applicable income total assets
taxes and the balance of
discontinued loans pledged
operations) for the to the PPPLF
most recent twelve outstanding at
months divided by end of quarter.
total assets 1.
Nonperforming Loans and Leases/ Sum of total loans and Exclude from
Gross Assets (%). lease financing total assets
receivables past due the balance of
90 or more days and loans pledged
still accruing to the PPPLF
interest and total outstanding at
nonaccrual loans and end of quarter.
lease financing
receivables
(excluding, in both
cases, the maximum
amount recoverable
from the U.S.
Government, its
agencies or
government-sponsored
enterprises, under
guarantee or
insurance provisions)
divided by gross
assets 2.
Other Real Estate Owned/Gross Other real estate Exclude from
Assets (%). owned divided by total assets
gross assets 2. the balance of
loans pledged
to the PPPLF
outstanding at
end of quarter.
Brokered Deposit Ratio........ The ratio of the Exclude from
difference between total assets
brokered deposits and (in both
10 percent of total numerator and
assets to total denominator)
assets. For the balance of
institutions that are loans pledged
well capitalized and to the PPPLF
have a CAMELS outstanding at
composite rating of 1 end of quarter.
or 2, brokered
reciprocal deposits
as defined in Sec.
327.8(q) are deducted
from brokered
deposits. If the
ratio is less than
zero, the value is
set to zero.
Weighted Average of C, A, M, The weighted sum of No Exclusion.
E, L, and S Component Ratings. the ``C,'' ``A,''
``M,'' ``E'', ``L'',
and ``S'' CAMELS
components, with
weights of 25 percent
each for the ``C''
and ``M'' components,
20 percent for the
``A'' component, and
10 percent each for
the ``E'', ``L'' and
``S'' components.
Loan Mix Index................ A measure of credit Exclusions are
risk described described in
paragraph (A) of this paragraph (A)
section. of this
section..
One-Year Asset Growth (%)..... Growth in assets Exclude from
(adjusted for mergers total assets
3) over the previous (in both
year in excess of 10 numerator and
percent.4 If growth denominator)
is less than 10 the balance of
percent, the value is loans pledged
set to zero. to the PPPLF
outstanding at
end of quarter.
------------------------------------------------------------------------
1 The ratio of Net Income before Taxes to Total Assets is bounded below
by (and cannot be less than) -25 percent and is bounded above by (and
cannot exceed) 3 percent.
2 Gross assets are total assets plus the allowance for loan and lease
financing receivable losses (ALLL) or allowance for credit losses, as
applicable.
3 Growth in assets is also adjusted for acquisitions of failed banks.
4 The maximum value of the Asset Growth measure is 230 percent; that is,
asset growth (merger adjusted) over the previous year in excess of 240
percent (230 percentage points in excess of the 10 percent threshold)
will not further increase a bank's assessment rate.
(A) Definition of Loan Mix Index. The Loan Mix Index assigns
loans in an institution's loan portfolio to the categories of loans
described in the following table. Exclude from the balance of
commercial and industrial loans the balance of PPP loans, which
includes loans pledged to the PPPLF, outstanding at end of quarter.
In the event that the balance of outstanding PPP loans, which
includes loans pledged to the PPPLF, exceeds the balance of
commercial and industrial loans, exclude the remaining balance from
the balance of agricultural loans, up to the total amount of
agricultural loans. The Loan Mix Index is calculated by multiplying
the ratio of an institution's amount of loans in a particular loan
category to its total assets, excluding the balance of loans pledged
to the PPPLF outstanding at end of quarter by the associated
weighted average charge-off rate for that loan category, and summing
the products for all loan categories. The table gives the weighted
average charge-off rate for each category of loan. The Loan Mix
Index excludes credit card loans.
Loan Mix Index Categories and Weighted Charge-Off Rate Percentages
------------------------------------------------------------------------
Weighted
charge-off
rate
percent
------------------------------------------------------------------------
Construction & Development.................................. 4.4965840
Commercial & Industrial..................................... 1.5984506
Leases...................................................... 1.4974551
Other Consumer.............................................. 1.4559717
Real Estate Loans Residual.................................. 1.0169338
Multifamily Residential..................................... 0.8847597
Nonfarm Nonresidential...................................... 0.7289274
I-4 Family Residential...................................... 0.6973778
Loans to Depository banks................................... 0.5760532
Agricultural Real Estate.................................... 0.2376712
Agriculture................................................. 0.2432737
------------------------------------------------------------------------
II. Mitigating the Assessment Effects of Paycheck Protection Program
Loans for Large or Highly Complex Institutions
[[Page 30660]]
Table E.2--Exclusions From Certain Risk Measures Used To Calculate the
Assessment Rate for Large or Highly Complex Institutions
------------------------------------------------------------------------
Scorecard measures 1 Description Exclusions
------------------------------------------------------------------------
Leverage Ratio................ Tier 1 capital for No Exclusion.
Prompt Corrective
Action (PCA) divided
by adjusted average
assets based on the
definition for prompt
corrective action.
Concentration Measure for The concentration ................
Large Insured depository score for large
institutions (excluding institutions is the
Highly Complex Institutions). higher of the
following two scores:.
(1) Higher-Risk Assets/Tier 1 Sum of construction No Exclusion.
Capital and Reserves. and land development
(C&D) loans (funded
and unfunded), higher-
risk commercial and
industrial (C&I)
loans (funded and
unfunded),
nontraditional
mortgages, higher-
risk consumer loans,
and higher-risk
securitizations
divided by Tier 1
capital and reserves.
See Appendix C for
the detailed
description of the
ratio.
(2) Growth-Adjusted Portfolio The measure is ................
Concentrations. calculated in the
following steps:.
(1) Concentration ................
levels (as a ratio to
Tier 1 capital and
reserves) are
calculated for each
broad portfolio
category:.
Constructions ................
and land development
(C&D).
Other ................
commercial real
estate loans.
First lien ................
residential mortgages
(including non-agency
residential mortgage-
backed securities).
Closed-end ................
junior liens and home
equity lines of
credit (HELOCs).
Commercial ................
and industrial loans
(C&I).
Credit card ................
loans, and.
Other ................
consumer loans.
(2) Risk weights are ................
assigned to each loan
category based on
historical loss rates.
(3) Concentration ................
levels are multiplied
by risk weights and
squared to produce a
risk-adjusted
concentration ratio
for each portfolio.
(4) Three-year merger- Exclude from C&I
adjusted portfolio loan growth
growth rates are then rate the amount
scaled to a growth of PPP loans,
factor of 1 to 1.2 which includes
where a 3-year loans pledged
cumulative growth to the PPPLF,
rate of 20 percent or outstanding at
less equals a factor end of quarter.
of 1 and a growth
rate of 80 percent or
greater equals a
factor of 1.2. If
three years of data
are not available, a
growth factor of 1
will be assigned.
(5) The risk-adjusted ................
concentration ratio
for each portfolio is
multiplied by the
growth factor and
resulting values are
summed.
See Appendix C for the ................
detailed description
of the measure.
Concentration Measure for Concentration score ................
Highly Complex Institutions. for highly complex
institutions is the
highest of the
following three
scores:.
(1) Higher-Risk Assets/Tier 1 Sum of C&D loans No Exclusion.
Capital and Reserves. (funded and
unfunded), higher-
risk C&I loans
(funded and
unfunded),
nontraditional
mortgages, higher-
risk consumer loans,
and higher-risk
securitizations
divided by Tier 1
capital and reserves.
See Appendix C for
the detailed
description of the
measure.
(2) Top 20 Counterparty Sum of the 20 largest No Exclusion.
Exposure/Tier 1 Capital and total exposure
Reserves. amounts to
counterparties
divided by Tier 1
capital and reserves.
The total exposure
amount is equal to
the sum of the
institution's
exposure amounts to
one counterparty (or
borrower) for
derivatives,
securities financing
transactions (SFTs),
and cleared
transactions, and its
gross lending
exposure (including
all unfunded
commitments) to that
counterparty (or
borrower). A
counterparty includes
an entity's own
affiliates. Exposures
to entities that are
affiliates of each
other are treated as
exposures to one
counterparty (or
borrower).
Counterparty exposure
excludes all
counterparty exposure
to the U.S.
Government and
departments or
agencies of the U.S.
Government that is
unconditionally
guaranteed by the
full faith and credit
of the United States.
The exposure amount
for derivatives,
including OTC
derivatives, cleared
transactions that are
derivative contracts,
and netting sets of
derivative contracts,
must be calculated
using the methodology
set forth in 12 CFR
324.34(b), but
without any reduction
for collateral other
than cash collateral
that is all or part
of variation margin
and that satisfies
the requirements of
12 CFR
324.10(c)(4)(ii)(C)(1
)(ii) and (iii) and
324.10(c)(4)(ii)(C)(3
) through (7). The
exposure amount
associated with SFTs,
including cleared
transactions that are
SFTs, must be
calculated using the
standardized approach
set forth in 12 CFR
324.37(b) or (c). For
both derivatives and
SFT exposures, the
exposure amount to
central
counterparties must
also include the
default fund
contribution.
[[Page 30661]]
(3) Largest Counterparty The largest total No Exclusion.
Exposure/Tier 1 Capital and exposure amount to
Reserves. one counterparty
divided by Tier 1
capital and reserves.
The total exposure
amount is equal to
the sum of the
institution's
exposure amounts to
one counterparty (or
borrower) for
derivatives, SFTs,
and cleared
transactions, and its
gross lending
exposure (including
all unfunded
commitments) to that
counterparty (or
borrower). A
counterparty includes
an entity's own
affiliates. Exposures
to entities that are
affiliates of each
other are treated as
exposures to one
counterparty (or
borrower).
Counterparty exposure
excludes all
counterparty exposure
to the U.S.
Government and
departments or
agencies of the U.S.
Government that is
unconditionally
guaranteed by the
full faith and credit
of the United States.
The exposure amount
for derivatives,
including OTC
derivatives, cleared
transactions that are
derivative contracts,
and netting sets of
derivative contracts,
must be calculated
using the methodology
set forth in 12 CFR
324.34(b), but
without any reduction
for collateral other
than cash collateral
that is all or part
of variation margin
and that satisfies
the requirements of
12 CFR
324.10(c)(4)(ii)(C)(1
)(ii) and (iii) and
324.10(c)(4)(ii)(C)(3
) through (7). The
exposure amount
associated with SFTs,
including cleared
transactions that are
SFTs, must be
calculated using the
standardized approach
set forth in 12 CFR
324.37(b) or (c). For
both derivatives and
SFT exposures, the
exposure amount to
central
counterparties must
also include the
default fund
contribution.
Core Earnings/Average Quarter- Core earnings are Prior to
End Total Assets. defined as net income averaging,
less extraordinary exclude from
items and tax- total assets
adjusted realized for the
gains and losses on applicable
available-for-sale quarter-end
(AFS) and held-to- periods the
maturity (HTM) balance of
securities, adjusted loans pledged
for mergers. The to the PPPLF
ratio takes a four- outstanding at
quarter sum of merger- end of quarter.
adjusted core
earnings and divides
it by an average of
five quarter-end
total assets (most
recent and four prior
quarters). If four
quarters of data on
core earnings are not
available, data for
quarters that are
available will be
added and annualized.
If five quarters of
data on total assets
are not available,
data for quarters
that are available
will be averaged.
Credit Quality Measure 1...... The credit quality ................
score is the higher
of the following two
scores:.
(1) Criticized and Classified Sum of criticized and No Exclusion.
Items/Tier 1 Capital and classified items
Reserves. divided by the sum of
Tier 1 capital and
reserves. Criticized
and classified items
include items an
institution or its
primary federal
regulator have graded
``Special Mention''
or worse and include
retail items under
Uniform Retail
Classification
Guidelines,
securities, funded
and unfunded loans,
other real estate
owned (ORE), other
assets, and marked-to-
market counterparty
positions, less
credit valuation
adjustments.
Criticized and
classified items
exclude loans and
securities in trading
books, and the amount
recoverable from the
U.S. government, its
agencies, or
government-sponsored
enterprises, under
guarantee or
insurance provisions.
(2) Underperforming Assets/ Sum of loans that are No Exclusion.
Tier 1 Capital and Reserves. 30 days or more past
due and still
accruing interest,
nonaccrual loans,
restructured loans
(including
restructured 1--4
family loans), and
ORE, excluding the
maximum amount
recoverable from the
U.S. government, its
agencies, or
government-sponsored
enterprises, under
guarantee or
insurance provisions,
divided by a sum of
Tier 1 capital and
reserves.
Core Deposits/Total Total domestic Exclude from
Liabilities. deposits excluding total
brokered deposits and liabilities
uninsured non- borrowings from
brokered time Federal Reserve
deposits divided by Banks under the
total liabilities. PPPLF with a
maturity of one
year or less
and borrowings
from the
Federal Reserve
Banks under the
PPPLF with a
maturity of
greater than
one year,
outstanding at
end of quarter.
[[Page 30662]]
Balance Sheet Liquidity Ratio. Sum of cash and Include in
balances due from highly liquid
depository assets the
institutions, federal outstanding
funds sold and balance of PPP
securities purchased loans that
under agreements to exceed
resell, and the borrowings from
market value of the Federal
available for sale Reserve Banks
and held to maturity under the PPPLF
agency securities at end of
(excludes agency quarter.
mortgage-backed Exclude from
securities but other
includes all other borrowings with
agency securities a remaining
issued by the U.S. maturity of one
Treasury, U.S. year or less
government agencies, the balance of
and U.S. government borrowings from
sponsored the Federal
enterprises) divided Reserve Banks
by the sum of federal under the PPPLF
funds purchased and with a
repurchase remaining
agreements, other maturity of one
borrowings (including year or less
FHLB) with a outstanding at
remaining maturity of end of quarter.
one year or less, 5
percent of insured
domestic deposits,
and 10 percent of
uninsured domestic
and foreign deposits.
Potential Losses/Total Potential losses to Exclusions are
Domestic Deposits (Loss the DIF in the event described in
Severity Measure). of failure divided by paragraph (A)
total domestic of this
deposits. Paragraph section.
[A] of this section
describes the
calculation of the
loss severity measure
in detail.
Market Risk Measure for Highly The market risk score ................
Complex Institutions. is a weighted average
of the following
three scores:.
(1) Trading Revenue Volatility/ Trailing 4-quarter No Exclusion.
Tier 1 Capital. standard deviation of
quarterly trading
revenue (merger-
adjusted) divided by
Tier 1 capital.
(2) Market Risk Capital/Tier 1 Market risk capital No Exclusion.
Capital. divided by Tier 1
capital.
(3) Level 3 Trading Assets/ Level 3 trading assets No Exclusion.
Tier 1 Capital. divided by Tier 1
capital.
Average Short-term Funding/ Quarterly average of Exclude from the
Average Total Assets. federal funds quarterly
purchased and average of
repurchase agreements total assets
divided by the the quarterly
quarterly average of average amount
total assets as of loans
reported on Schedule pledged to the
RC-K of the Call PPPLF.
Reports.
------------------------------------------------------------------------
1 The credit quality score is the greater of the criticized and
classified items to Tier 1 capital and reserves score or the
underperforming assets to Tier 1 capital and reserves score. The
market risk score is the weighted average of three scores--the trading
revenue volatility to Tier 1 capital score, the market risk capital to
Tier 1 capital score, and the level 3 trading assets to Tier 1 capital
score. All of these ratios are described in appendix A of this subpart
and the method of calculating the scores is described in appendix B of
this subpart. Each score is multiplied by its respective weight, and
the resulting weighted score is summed to compute the score for the
market risk measure. An overall weight of 35 percent is allocated
between the scores for the credit quality measure and market risk
measure. The allocation depends on the ratio of average trading assets
to the sum of average securities, loans and trading assets (trading
asset ratio) as follows: (1) Weight for credit quality score = 35
percent * (1-trading asset ratio); and, (2) Weight for market risk
score = 35 percent * trading asset ratio. In calculating the trading
asset ratio, exclude from the balance of loans the balance of PPP
loans, which includes loans pledged to the PPPLF, outstanding as of
quarter-end.
(A) Description of the loss severity measure. The loss severity
measure applies a standardized set of assumptions to an
institution's balance sheet to measure possible losses to the FDIC
in the event of an institution's failure. To determine an
institution's loss severity rate, the FDIC first applies assumptions
about uninsured deposit and other unsecured liability runoff, and
growth in insured deposits, to adjust the size and composition of
the institution's liabilities. Exclude from liabilities total
borrowings from Federal Reserve Banks under the PPPLF from short-and
long-term secured borrowings outstanding at end of quarter, as
appropriate. Assets are then reduced to match any reduction in
liabilities Exclude from commercial and industrial loans included in
assets PPP loans, which include loans pledged to the PPPLF,
outstanding at end of quarter. In the event that the outstanding
balance of PPP loans exceeds the balance of C&I loans, exclude any
remaining balance first from the balance of all other loans, up to
the total amount of all other loans, followed by the balance of
agricultural loans, up to the total amount of agricultural loans.
Increase cash and interest-bearing balances by outstanding PPP loans
exceeding total borrowings under the PPPLF, if any. The
institution's asset values are then further reduced so that the
Leverage ratio reaches 2 percent. In both cases, assets are adjusted
pro rata to preserve the institution's asset composition.
Assumptions regarding loss rates at failure for a given asset
category and the extent of secured liabilities are then applied to
estimated assets and liabilities at failure to determine whether the
institution has enough unencumbered assets to cover domestic
deposits. Any projected shortfall is divided by current domestic
deposits to obtain an end-of-period loss severity ratio. The loss
severity measure is an average loss severity ratio for the three
most recent quarters of data available.
Runoff and Capital Adjustment Assumptions
Table E.3 contains run-off assumptions.
Table E.3--Runoff Rate Assumptions
------------------------------------------------------------------------
Runoff rate *
Liability type (percent)
------------------------------------------------------------------------
Insured Deposits..................................... (10)
Uninsured Deposits................................... 58
Foreign Deposits..................................... 80
Federal Funds Purchased.............................. 100
Repurchase Agreements................................ 75
Trading Liabilities.................................. 50
Unsecured Borrowings < = 1 Year...................... 75
Secured Borrowings < = 1 Year, excluding outstanding 25
borrowings from the Federal Reserve Banks under the
PPPLF < = 1 Year....................................
[[Page 30663]]
Subordinated Debt and Limited Liability Preferred 15
Stock...............................................
------------------------------------------------------------------------
* A negative rate implies growth.
Given the resulting total liabilities after runoff, assets are
then reduced pro rata to preserve the relative amount of assets in
each of the following asset categories and to achieve a Leverage
ratio of 2 percent:
Cash and Interest Bearing Balances, including
outstanding PPP loans in excess of borrowings under the PPPLF;
Trading Account Assets;
Federal Funds Sold and Repurchase Agreements;
Treasury and Agency Securities;
Municipal Securities;
Other Securities;
Construction and Development Loans;
Nonresidential Real Estate Loans;
Multifamily Real Estate Loans;
1--4 Family Closed-End First Liens;
1--4 Family Closed-End Junior Liens;
Revolving Home Equity Loans; and
Agricultural Real Estate Loans.
Recovery Value of Assets at Failure
Table E.4 shows loss rates applied to each of the asset
categories as adjusted above.
Table E.4--Asset Loss Rate Assumptions
------------------------------------------------------------------------
Loss rate
Asset category (percent)
------------------------------------------------------------------------
Cash and Interest Bearing Balances, including 0.0
outstanding PPP loans in excess of borrowings under
the PPPLF...........................................
Trading Account Assets............................... 0.0
Federal Funds Sold and Repurchase Agreements......... 0.0
Treasury and Agency Securities....................... 0.0
Municipal Securities................................. 10.0
Other Securities..................................... 15.0
Construction and Development Loans................... 38.2
Nonresidential Real Estate Loans..................... 17.6
Multifamily Real Estate Loans........................ 10.8
1--4 Family Closed-End First Liens................... 19.4
1--4 Family Closed-End Junior Liens.................. 41.0
Revolving Home Equity Loans.......................... 41.0
Agricultural Real Estate Loans....................... 19.7
Agricultural Loans, excluding outstanding PPP loans, 11.8
which include loans pledged to the PPPLF, as
applicable..........................................
Commercial and Industrial Loans, excluding 21.5
outstanding PPP loans, which include loans pledged
to the PPPLF, as applicable.........................
Credit Card Loans.................................... 18.3
Other Consumer Loans................................. 18.3
All Other Loans, excluding outstanding PPP loans, 51.0
which include loans pledged to the PPPLF, as
applicable..........................................
Other Assets......................................... 75.0
------------------------------------------------------------------------
Secured Liabilities at Failure
Federal home loan bank advances, secured federal funds purchased
and repurchase agreements are assumed to be fully secured. Foreign
deposits are treated as fully secured because of the potential for
ring fencing.
Exclude outstanding borrowings from the Federal Reserve Banks
under the PPPLF.
Loss Severity Ratio Calculation
The FDIC's loss given failure (LGD) is calculated as:
[GRAPHIC] [TIFF OMITTED] TP20MY20.000
An end-of-quarter loss severity ratio is LGD divided by total
domestic deposits at quarter-end and the loss severity measure for
the scorecard is an average of end-of-period loss severity ratios
for three most recent quarters.
III. Mitigating the Effects of Loans Pledged to the PPPLF and Assets
Purchased under the MMLF on the Unsecured Adjustment, Depository
Institution Debt Adjustment, and the Brokered Deposit Adjustment to an
IDI's Assessment Rate.
[[Page 30664]]
Table E.5--Exclusions From Adjustments to the Initial Base Assessment
Rate
------------------------------------------------------------------------
Adjustment Calculation Exclusion
------------------------------------------------------------------------
Unsecured debt adjustment....... The unsecured debt Exclude the
adjustment shall quarterly average
be determined as amount of assets
the sum of the purchased under
initial base MMLF and
assessment rate quarterly average
plus 40 basis amount of loans
points; that sum pledged to the
shall be PPPLF.
multiplied by the
ratio of an
insured
depository
institution's
long-term
unsecured debt to
its assessment
base. The amount
of the reduction
in the assessment
rate due to the
adjustment is
equal to the
dollar amount of
the adjustment
divided by the
amount of the
assessment base.
Depository institution debt An insured Exclude the
adjustment. depository quarterly average
institution shall amount of assets
pay a 50 basis purchased under
point adjustment MMLF and
on the amount of quarterly average
unsecured debt it amount of loans
holds that was pledged to the
issued by another PPPLF
insured outstanding.
depository
institution to
the extent that
such debt exceeds
3 percent of the
institution's
Tier 1 capital.
This amount is
divided by the
institution's
assessment base.
The amount of
long-term
unsecured debt
issued by another
insured
depository
institution shall
be calculated
using the same
valuation
methodology used
to calculate the
amount of such
debt for
reporting on the
asset side of the
balance sheets.
Brokered deposit adjustment..... The brokered Exclude the
deposit quarterly average
adjustment shall amount of assets
be determined by purchased under
multiplying 25 MMLF and
basis points by quarterly average
the ratio of the amount of loans
difference pledged to the
between an PPPLF
insured outstanding.
depository
institution's
brokered deposits
and 10 percent of
its domestic
deposits to its
assessment base.
------------------------------------------------------------------------
IV. Mitigating the Effects on the Assessment Base Attributable
to the Paycheck Protection Program Lending Facility and the Money
Market Mutual Fund Liquidity Facility.
Total Assessment Amount Due = Total Assessment Amount LESS: (SUM
(Quarterly average amount of assets pledged to the PPPLF and
quarterly average amount of assets purchased under the MMLF) * Total
Base Assessment Rate)
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on May 12, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-10454 Filed 5-18-20; 2:30 pm]
BILLING CODE 6714-01-P