Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility,…
Summary
The FDIC's final rule of June 26, 2020 (85 FR 38282) changes deposit insurance assessments so that banks taking part in the Paycheck Protection Program, the PPP Liquidity Facility or the Money Market Mutual Fund Liquidity Facility are not charged more for it. It removes the effect of PPP loans and PPPLF borrowings from the risk measures used to set an institution's assessment rate. It also removes the effect of PPP and MMLF participation on certain rate adjustments and provides an offset to an institution's assessment, noting that PPP loans are fully guaranteed by SBA.
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“Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility,….”
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38282 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
FEDERAL DEPOSIT INSURANCE assessments, is finalizing modifications Act) and in recognition of the exigent
CORPORATION to mitigate the deposit insurance circumstances faced by small
assessment effects of participation in the businesses, Congress created the PPP.2
12 CFR Part 327 PPP, PPPLF, and MMLF. For the reasons PPP loans are fully guaranteed as to
RIN 3064–AF53 explained below, an IDI that participates principal and accrued interest by the
in the PPP, PPPLF, or MMLF programs Small Business Administration (SBA),
Assessments, Mitigating the Deposit could be subject to increased deposit the amount of each being determined at
Insurance Assessment Effect of insurance assessments absent a change the time the guarantee is exercised. As
Participation in the Paycheck to the assessment regulations. a general matter, SBA guarantees are
Protection Program (PPP), the PPP backed by the full faith and credit of the
B. Background
Liquidity Facility, and the Money U.S. Government. PPP loans also afford
Market Mutual Fund Liquidity Facility Recent events have significantly and borrowers forgiveness up to the
adversely impacted the global economy principal amount of the PPP loan, if the
AGENCY: Federal Deposit Insurance and financial markets. The spread of the proceeds of the PPP loan are used for
Corporation (FDIC). Coronavirus Disease (COVID–19) certain expenses. The SBA reimburses
ACTION: Final rule. slowed economic activity in many PPP lenders for any amount of a PPP
countries, including the United States. loan that is forgiven. PPP lenders are not
SUMMARY: The Federal Deposit Sudden disruptions in financial markets held liable for any representations made
Insurance Corporation is adopting a placed increasing liquidity pressure on by PPP borrowers in connection with a
final rule that mitigates the deposit money market mutual funds (MMFs) borrower’s request for PPP loan
insurance assessment effects of and raised the cost of credit for most forgiveness.3 On June 5, 2020, the
participating in the Paycheck Protection borrowers. MMFs faced redemption Paycheck Protection Program Flexibility
Program (PPP) established by the Small requests from clients with immediate Act of 2020 (PPP Flexibility Act) was
Business Administration (SBA), and the cash needs and may need to sell a signed into law, amending key
Paycheck Protection Program Liquidity significant number of assets to meet provisions of the CARES Act, including
Facility (PPPLF) and Money Market these redemption requests, which could provisions related to loan maturity,
Mutual Fund Liquidity Facility (MMLF) further increase market pressures. deferral of loan payments, and loan
established by the Board of Governors of In order to prevent the disruption in forgiveness.4 Among other changes, the
the Federal Reserve System. The final the money markets from destabilizing amendments increase from two to five
rule removes the effect of participation the financial system, on March 18, 2020, years the maturity of PPP loans that are
in the PPP and borrowings under the the Board of Governors of the Federal approved by the SBA on or after June 5,
PPPLF on various risk measures used to Reserve System (Board of Governors), 2020, and provide greater flexibility for
calculate an insured depository with approval of the Secretary of the borrowers to qualify for loan
institution’s assessment rate, removes Treasury, authorized the Federal forgiveness.
the effect of participation in the PPP and Reserve Bank of Boston (FRBB) to In order to provide liquidity to small
MMLF program on certain adjustments establish the MMLF, pursuant to section business lenders and the broader credit
to an insured depository institution’s 13(3) of the Federal Reserve Act.1 Under markets, and to help stabilize the
assessment rate; provides an offset to an the MMLF, the FRBB is extending non- financial system, on April 8, 2020, the
insured depository institution’s recourse loans to eligible borrowers to Board of Governors, with approval of
assessment for the increase to its purchase assets from MMFs. Assets the Secretary of the Treasury,
assessment base attributable to purchased from MMFs are posted as authorized each of the Federal Reserve
participation in the PPP and MMLF; and collateral to the FRBB. Eligible Banks to extend credit under the PPPLF,
removes the effect of participation in the borrowers under the MMLF include pursuant to section 13(3) of the Federal
PPP and MMLF when classifying IDIs. Eligible collateral under the MMLF Reserve Act.5 Under the PPPLF, Federal
insured depository institutions as small, includes U.S. Treasuries and fully
large, or highly complex for assessment guaranteed agency securities, securities 2 Public Law 116–136 (Mar. 27, 2020).
purposes. issued by government-sponsored 3 Under the PPP, eligible borrowers generally
enterprises, and certain types of include businesses with fewer than 500 employees
DATES: The final rule is effective June
or that are otherwise considered by the SBA to be
26, 2020, and will apply as of April 1, commercial paper. The MMLF is small, including individuals operating sole
2020. scheduled to terminate on September proprietorships or acting as independent
FOR FURTHER INFORMATION CONTACT: 30, 2020, unless extended by the Board contractors, certain franchisees, nonprofit
of Governors. corporations, veterans’ organizations, and Tribal
Michael Spencer, Associate Director, businesses. The loan amount under the PPP would
202–898–7041, michspencer@fdic.gov; Small businesses also are facing
be limited to the lesser of $10 million and 250
Ashley Mihalik, Chief, Banking and severe liquidity constraints and a percent of a borrower’s average monthly payroll
Regulatory Policy, 202–898–3793, collapse in revenue streams, as millions costs. For more information on the Paycheck
amihalik@fdic.gov; Nefretete Smith, of Americans were ordered to stay Protection Program, see https://www.sba.gov/
home, severely reducing their ability to funding-programs/loans/coronavirus-relief-options/
Counsel, 202–898–6851, nefsmith@ paycheck-protection-program-ppp.
fdic.gov; Samuel Lutz, Counsel, 202– engage in normal commerce. Many 4 Public Law 116–142 (June 5, 2020). The SBA
898–3773, salutz@fdic.gov. small businesses were forced to close subsequently issued an interim final rule revising
temporarily or furlough employees. the SBA’s interim final rule implementing sections
SUPPLEMENTARY INFORMATION: 1102 and 1106 of the CARES Act temporarily
Continued access to financing will be
adding the Paycheck Protection Program to the
I. Introduction crucial for small businesses to weather SBA’s 7(a) Loan Program published on April 15,
economic disruptions caused by 2020. See 85 FR 20811 (Apr. 15, 2020) and 85 FR
A. Legal Authority
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COVID–19 and, ultimately, to help 36308 (June 16, 2020).
The FDIC, under its general restore economic activity. 5 12 U.S.C. 343(3). On April 30, 2020, the facility
rulemaking authority in Section 9 of the As part of the Coronavirus Aid, Relief, was renamed the Paycheck Protection Program
Liquidity Facility, from Paycheck Protection
FDI Act, and its specific authority under and Economic Security Act (CARES Program Lending Facility. See Periodic Report:
Section 7 of the FDI Act to establish a Update on Outstanding Lending Facilities
risk-based assessment system and set 1 12 U.S.C. 343(3). Authorized by the Board under Section 13(3) of the
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38283
Reserve Banks are extending non- assessment rate.10 An IDI’s assessment Absent a change to the assessment
recourse loans to institutions that are base and assessment rate are determined rules, an IDI that participates in the PPP,
eligible to make PPP loans, including each quarter based on supervisory PPPLF, or MMLF programs could be
insured depository institutions (IDIs). ratings and information collected on the subject to increased deposit insurance
Under the PPPLF, only PPP loans that Consolidated Reports of Condition and assessments. For example, an institution
are guaranteed by the SBA with respect Income (Call Report) or the Report of that holds PPP loans, including loans
to both principal and interest and that Assets and Liabilities of U.S. Branches pledged to the PPPLF, would increase
are originated by an eligible institution and Agencies of Foreign Banks (FFIEC its total loan portfolio, all else equal,
may be pledged as collateral to the 002), as appropriate. Generally, an IDI’s which may increase its assessment rate.
Federal Reserve Banks (loans pledged to assessment base equals its average An IDI that receives funding under the
the PPPLF). The maturity date of the consolidated total assets minus its PPPLF would increase the total assets
extension of credit under the PPPLF 6 average tangible equity.11 An IDI’s on its balance sheet (equal to the
equals the maturity date of the PPP assessment rate is calculated using amount of PPP loans pledged to the
loans pledged to secure the extension of different methods based on whether the Federal Reserve Banks), and increase its
credit.7 No new extensions of credit will IDI is a small, large, or highly complex total liabilities by the same amount,
be made under the PPPLF after institution.12 For assessment purposes, which would increase the IDI’s
September 30, 2020, unless extended by a small bank is generally defined as an assessment base and also may increase
the Board of Governors and the institution with less than $10 billion in its assessment rate. An IDI that obtains
Department of the Treasury. total assets, a large bank is generally additional funding, such as additional
To facilitate use of the MMLF and defined as an institution with $10 deposits or secured borrowings, to make
PPPLF, the FDIC, Board of Governors, billion or more in total assets, and a PPP loans would increase its total
and Comptroller of the Currency highly complex bank is generally liabilities and total assets by that
(together, the agencies) adopted interim defined as an institution that has $50 amount of funding, which would
final rules on March 23, 2020, and April billion or more in total assets and is increase its assessment base and also
13, 2020, respectively, to allow banking controlled by a parent holding company may increase its assessment rate. An IDI
organizations to neutralize the that has $500 billion or more in total that relies on existing funding,
regulatory capital effects of purchasing assets, or is a processing bank or trust including deposits already at the
assets under the MMLF program and company.13 institution, to make PPP loans would
loans pledged to the PPPLF.8 Consistent not increase its total liabilities or total
Assessment rates for established small assets, which would not increase its
with Section 1102 of the CARES Act, banks are calculated based on eight risk
the April 2020 interim final rule also assessment base.
measures that are statistically significant Similarly, an IDI that participates in
required banking organizations to apply in predicting the probability of an the MMLF would increase its total
a zero percent risk weight to PPP loans institution’s failure over a three-year assets by the amount of assets
originated by the banking organization horizon.14 Large banks are assessed purchased from MMFs under the MMLF
under the PPP for purposes of the using a scorecard approach that and increase its liabilities by the same
banking organization’s risk-based combines CAMELS ratings and certain amount, which in turn would increase
capital requirements. forward-looking financial measures to its assessment base and may also
C. Deposit Insurance Assessments assess the risk that a large bank poses to increase its assessment rate.
the deposit insurance fund (DIF).15 All
Pursuant to Section 7 of the FDI Act, institutions are subject to adjustments to C. The Proposed Rule
the FDIC has established a risk-based their assessment rates for certain On May 20, 2020, the FDIC published
assessment system through which it liabilities that can increase or reduce in the Federal Register a notice of
charges all IDIs an assessment amount loss to the DIF in the event the bank proposed rulemaking (the proposed
for deposit insurance.9 fails.16 In addition, the FDIC may adjust rule, or proposal) 18 that would mitigate
Under the FDIC’s regulations, an IDI’s a large bank’s total score, which is used the deposit insurance assessment effects
assessment is equal to its assessment in the calculation of its assessment rate, of an IDI’s participation in the PPP,
base multiplied by its risk-based based upon significant risk factors not PPPLF, and MMLF programs.19 To
adequately captured in the appropriate remove the effect of these programs on
Federal Reserve Act May 15, 2020, Board of scorecard.17 the risk measures used to determine the
Governors of the Federal Reserve System, available deposit insurance assessment rate for
at: https://www.federalreserve.gov/publications/
files/mlf-msnlf-mself-and-ppplf-5-15-20.pdf.
10 See 12 CFR 327.3(b)(1). each IDI, the FDIC proposed to exclude
6 The maturity date of the extension of credit
11 See 12 CFR 327.5. PPP loans, which include loans pledged
under the PPPLF will be accelerated if the
12 See 12 CFR 327.16(a) and (b).
to the PPPLF, from an institution’s loan
13 As used in this final rule, the term ‘‘bank’’ is
underlying PPP loan goes into default and the portfolio; exclude loans pledged to the
eligible borrower sells the PPP Loan to the SBA to synonymous with the term ‘‘insured depository
institution’’ as it is used in section 3(c)(2) of the
PPPLF from an institution’s total assets;
realize the SBA guarantee. The maturity date of the
extension of credit under the PPPLF also will be Federal Deposit Insurance Act (FDI Act), 12 U.S.C. and, for institutions subject to the large
accelerated to the extent of any PPP loan 1813(c)(2). As used in this final rule, the term or highly complex bank scorecard,
forgiveness reimbursement received by the eligible ‘‘small bank’’ is synonymous with the term ‘‘small exclude amounts borrowed from the
borrower from the SBA. institution’’ and the term ‘‘large bank’’ is
synonymous with the term ‘‘large institution’’ or
Federal Reserve Banks under the PPPLF
7 Under the SBA’s interim final rule, a lender may
request that the SBA purchase the expected ‘‘highly complex institution,’’ as the terms are from an institution’s liabilities. In
forgiveness amount of a PPP loan or pool of PPP defined in 12 CFR 327.8. addition, because participation in the
loans at the end of the covered period. See Interim 14 See 12 CFR 327.16(a); see also 81 FR 32180
PPPLF and MMLF programs will have
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Final Rule ‘‘Business Loan Program Temporary (May 20, 2016). the effect of expanding an IDI’s balance
Changes; Paycheck Protection Program,’’ 85 FR 15 See 12 CFR 327.16(b); see also 76 FR 10672
20811, 20816 (Apr. 15, 2020) and 85 FR 36308 (June (Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
sheet (and, by extension, its assessment
16, 2020). 16 See 12 CFR 327.16(e). base), the FDIC proposed to exclude
8 See 85 FR 16232 (Mar. 23, 2020) and 85 FR 17 See 12 CFR 327.16(b)(3); see also Assessment
20387 (Apr. 13, 2020). 18 85 FR 30649 (May 20, 2020).
Rate Adjustment Guidelines for Large and Highly
9 See 12 U.S.C. 1817(b). Complex Institutions, 76 FR 57992 (Sept. 19, 2011). 19 See 12 U.S.C. 1817, 1819 (Tenth).
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38284 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
loans pledged to the PPPLF and assets below, the final rule includes certain businesses and helping to stabilize the
purchased under the MMLF in the additional mitigation steps beyond broader economy in the midst of the
calculation of certain adjustments to an those in the proposed rule that will economic disruption caused by COVID–
IDI’s assessment rate, and to provide an more fully mitigate the assessment effect 19, as well as in recognition that some
offset to an IDI’s total assessment of participation in the aforementioned banks have funded PPP loans through
amount for the increase to its programs for more institutions, but may additional liabilities other than
assessment base attributable to in certain cases result in over-mitigation borrowings under the PPPLF, under the
participation in the PPPLF and MMLF. for some institutions. At the same time, final rule the FDIC will exclude the
Finally, in classifying IDIs as small, the FDIC declined to make certain quarter-end outstanding balance of all
large, or highly complex for assessment adjustments requested by commenters, PPP loans from an IDI’s total assets in
purposes, the FDIC proposed to exclude in part because such additional calculating an IDI’s assessment rate and
from an IDI’s total assets the amount of adjustments, when combined with the the offset to an IDI’s assessment amount
loans pledged to the PPPLF and assets other provisions of the final rule, would due to the inclusion of PPP loans in its
purchased under the MMLF. likely have resulted, in the FDIC’s assessment base. The FDIC expects that
In response to the proposal, the FDIC estimation, in more over-mitigation than this exclusion will result in a more
received 41 comment letters from would be acceptable. complete mitigation of the assessment
depository institutions, depository effects of participation in PPP lending.
institution holding companies, trade 1. Exclusion of All PPP Loans As described below, the FDIC will
associations, and other interested Most of the comments the FDIC exclude the quarter-end outstanding
parties.20 As further detailed below, received in response to the proposed balance of all PPP loans from an IDI’s
commenters generally supported the rule stated that the proposed total assets in the applicable risk
FDIC’s efforts to mitigate the deposit modifications would not completely measures used to determine an IDI’s
insurance effects of an IDI’s offset the impact of PPP lending on assessment rate. In addition, because
participation in the PPP, PPPLF, and assessments. Many of these commenters participation in the MMLF program will
MMLF programs, but expressed requested that the FDIC exclude all PPP have the effect of expanding an IDI’s
concerns with certain aspects of the loans, whether funded under the PPPLF balance sheet and because PPP lending
proposal. The FDIC considered all or through other sources of liquidity, funded by additional liabilities could
comments received and is making some including deposits or Federal Home have the effect of expanding an IDI’s
changes in the final rule, while Loan Bank (FHLB) advances, from the balance sheet (and, by extension, its
clarifying other aspects of the rule that calculation of an IDI’s assessment rate, assessment base), the FDIC will provide
remain unchanged from the proposed assessment base, or both, so that the an offset to an IDI’s total assessment
rule. bank’s assessment would be mitigated amount for the increase to its
accordingly, rather than excluding only assessment base attributable to PPP
II. The Final Rule loans pledged to the PPPLF. lending and participation in the MMLF.
A. Summary A bank that funded its PPP loans with Under the final rule, the FDIC will
existing balance sheet liquidity would calculate the offset to an IDI’s total
Under the final rule, the FDIC will
not have increased its total assets or assessment amount based on its quarter-
remove the effect of participation in the
total liabilities, and including these end outstanding balance of PPP loans
PPP and borrowings under the PPPLF
loans in the offset to its assessment and the quarterly average amount of
on various risk measures used to
would not be necessary because its assets purchased under the MMLF. The
calculate an IDI’s assessment rate,
assessment base would not have FDIC also will exclude the outstanding
remove the effect of participation in the
increased. Similarly, removing PPP balance of PPP loans and assets
PPP and MMLF program on certain
loans from total assets in calculating an purchased under the MMLF in the
adjustments to an insured depository
IDI’s assessment rate would not be calculation of certain adjustments to an
institution’s assessment rate; provide an
necessary if such loans did not increase IDI’s assessment rate.
offset to an insured depository
the bank’s total assets. For these Moreover, in classifying IDIs as small,
institution’s assessment for the increase
reasons, the proposal would have large, or highly complex for assessment
to its assessment base attributable to
removed only PPP loans pledged to the purposes, the FDIC also will exclude
participation in the PPP and MMLF; and
PPPLF from an IDI’s total assets in from an IDI’s total assets the outstanding
remove the effect of participation in the
calculating its deposit insurance balance of PPP loans and assets
PPP and MMLF when classifying
assessment rate and certain other purchased under the MMLF.
insured depository institutions as small,
measures, and in calculating the offset Because it is not possible for the FDIC
large, or highly complex for assessment
due to the increase in its assessment to quantify how much of an IDI’s total
purposes.
In the final rule, the FDIC tried to base due to participation in the PPPLF. assets may have increased due to PPP
balance its policy objective of The FDIC understands that some banks loans relative to other balance sheet
mitigating, to the fullest extent possible, have funded PPP loans through changes, including increased cash or
the deposit insurance assessment effect additional liabilities other than other loans made either in response to
of participation in the PPP, PPPLF, and borrowings under the PPPLF, which the economic disruption caused by
MMLF, while minimizing the extent to would result in an increase to a bank’s COVID–19 or that would have otherwise
total assets and total liabilities. For been made in the normal course of
which the final rule would result in an
banks that funded PPP loans by business, the final rule excludes all PPP
IDI paying less than it would have paid
obtaining additional liabilities other loans from an IDI’s total assets in
if it did not participate in the PPP,
than borrowings under the PPPLF, the calculating its deposit insurance
PPPLF, or MMLF. In response to
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proposal would not have fully mitigated assessment, rather than providing
comments and based on updated
the deposit insurance assessment effects incomplete assessment mitigation for
assumptions, as described further
of participation in the PPP. banks that funded PPP loans through
20 See comments on the proposal, available at After considering comments received, additional liabilities other than
https://www.fdic.gov/regulations/laws/federal/ and in recognition of the important role borrowings under the PPPLF. To the
2020/2020-assessments-ppp-3064-af53.html. IDIs play in providing liquidity to small extent that an institution did not
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38285
increase its total assets as a result of PPP 2. Tier 1 Leverage Ratio for the reporting period ending on June
participation, the final rule could Some commenters also suggested that 30, 2020 becomes available.23
provide an assessment reduction that the leverage ratio, as applied in the
exceeds the actual increase in B. Mitigating the Effects of PPP Loans on
calculation of an IDI’s assessment rate, an IDI’s Assessment Rate
assessments that an institution would should be reduced by the quarter-end
have experienced due to participation in outstanding balances of all PPP loans. In Under the final rule, to mitigate the
the PPP. accordance with the agencies’ April 13,
Some commenters requested that the assessment effect of PPP loans, the FDIC
2020, regulatory capital interim final will exclude the outstanding amount of
FDIC specifically exclude the quarter- rule, banking organizations are required
end balance of outstanding PPP loans PPP loans held by an IDI and
to neutralize the regulatory capital borrowings under the PPPLF, from
when calculating an IDI’s assessment, as effects of assets pledged to the PPPLF on
opposed to the quarterly average of such various risk measures used in the
leverage capital ratios.22 This calculation of an IDI’s deposit insurance
loans. Under the NPR, the FDIC requirement is due to the non-recourse
proposed to exclude the quarter-end assessment rate, as described in more
nature of the Federal Reserve’s
balance of outstanding loans pledged to detail below.
extension of credit to the banking
the PPPLF from an IDI’s total assets in organization, a protection that does not 1. Established Small Institutions
those risk measures used to determine exist if the banking organization funds
the deposit insurance assessment rate PPP loans using other sources of a. Exclusion of PPP Loans From Total
that are based on quarter-end liquidity. Assets in Various Risk Measures
outstanding amounts. For measures To remain consistent with the
reported on an average basis, the FDIC The final rule excludes the
regulatory capital interim final rule, and
proposed to exclude the quarterly outstanding balance of all PPP loans
consistent with the proposed rule for
average of loans pledged to the PPPLF. mitigating assessment effects of from total assets in risk measures used
For example, an IDI’s assessment base is participation in the PPP, the FDIC will to determine an established small
determined by subtracting its average not modify its deposit insurance institution’s assessment rate: the net
tangible equity from average assessment pricing system with respect income before taxes to total assets
consolidated total assets. In calculating to the Tier 1 leverage ratio, which is one ratio,24 the nonperforming loans and
the offset to an IDI’s total assessment of the measures used to determine the leases to gross assets ratio, the other real
amount for the increase due to assessment rate for small, large, and estate owned to gross assets ratio, the
participation in the PPPLF and MMLF, highly complex IDIs. Therefore, the brokered deposit ratio, the one-year
the FDIC proposed to exclude quarterly neutralization of effects of participation asset growth measure, and the loan mix
average loans pledged to the PPPLF and in the PPPLF will be automatically index (LMI).
quarterly average assets purchased reflected in an IDI’s assessment because Under the proposal, for established
under the MMLF. Commenters asserted the FDIC’s risk-based assessment system small banks, the FDIC would have
that the assessment relief provided incorporates an IDI’s regulatory capital excluded the outstanding balance of
under the proposal would be limited reporting of its Tier 1 leverage ratio. loans pledged to the PPPLF from total
because an IDI’s average PPPLF
3. Assessment Calculators assets in the calculation of these risk
participation over a quarter can be
considerably less than its quarter-end Three commenters asked that the measures. As discussed above, some
PPP loan balance. FDIC post revised assessment commenters recommended that the
After considering comments received, calculators as soon as possible. The FDIC exclude all PPP loans from
and to minimize additional reporting FDIC will post on its public website specific measures utilized throughout
burden, under the final rule the FDIC assessment calculators that reflect the the assessment rate calculation for
will exclude the quarter-end revisions under the final rule once data established small banks, including from
outstanding balance of PPP loans in the net income before taxes to total
mitigating the effect of PPP participation implement revisions to the Call Report and FFIEC assets ratio, the nonperforming loans
on an IDI’s deposit insurance 002 that will take effect for the June 30, 2020, and leases to gross assets ratio, the other
reporting period. Starting with the June 30, 2020,
assessment, both for risk measures that report date, the agencies will collect seven
real estate owned to gross assets ratio,
are calculated using amounts reported additional items on the Call Report (FFIEC 031, the brokered deposit ratio, and the one-
as of quarter-end and for calculations FFIEC 041, and FFIEC 051) that the FDIC will use year asset growth measure. For the
that use amounts reported on an average to make the adjustments described in the final rule. reasons described above, under the final
The additional items are: (1) The quarter-end
basis. outstanding balance of PPP loans; (2) the rule, the FDIC will exclude the quarter-
Changes to reporting requirements outstanding balance of loans pledged to the PPPLF end outstanding amount of PPP loans,
applicable to the Consolidated Reports as of quarter-end; (3) the quarterly average amount whether or not they have been pledged
of Condition and Income (Call Report), of loans pledged to the PPPLF; (4) the outstanding
balance of borrowings from the Federal Reserve
to the PPPLF, from total assets in risk
the Report of Assets and Liabilities of Banks under the PPPLF with a remaining maturity measures used to determine an
U.S. Branches and Agencies of Foreign of one year or less, as of quarter-end; (5) the established small institution’s
Banks, and their respective instructions, outstanding balance of borrowings from the Federal assessment rate.
have been implemented in order to Reserve Banks under the PPPLF with a remaining
maturity of greater than one year, as of quarter-end;
make the adjustments to the assessment (6) the outstanding amount of assets purchased 23 https://www.fdic.gov/deposit/insurance/
system under the final rule. These from MMFs under the MMLF as of quarter-end; and calculator.html.
changes were effectuated in (7) the quarterly average amount of assets 24 The FDIC expects that IDIs that participate in
coordination with the other member purchased under the MMLF. In addition, the the PPP, PPPLF, and MMLF will earn additional
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agencies will collect two additional items on the income from participation in these programs. To
entities of the Federal Financial Report of Assets and Liabilities of U.S. Branches minimize additional reporting burden, and as
Institutions Examination Council.21 and Agencies of Foreign Banks (FFIEC 002): the proposed in the NPR, the FDIC is not excluding
quarterly average amount of loans pledged to the income related to participation in these programs
21 The agencies requested and received PPPLF and the quarterly average amount of assets from the net income before taxes to total assets ratio
emergency approvals on May 27, 2020, from the purchased from MMFs under the MMLF. in the calculation of an IDI’s deposit insurance
Office of Management and Budget (OMB) to 22 See 85 FR 20387 (April 13, 2020). assessment rate.
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38286 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
b. Exclusion of PPP Loans From the loan category rather than as a measure for purposes of determining a
Loan Portfolio in the LMI memoranda item as operationally large or highly complex bank’s
The LMI is a measure of the extent to burdensome. Two commenters assessment rate. Some commenters
which an IDI’s total assets include supported reducing unnecessary data specified that, in making these
higher-risk categories of loans. collection and categorization and modifications, the FDIC should exclude
Consistent with the proposed rule, reporting of PPP loans as C&I Loans. the quarter-end balance of outstanding
under the final rule, the FDIC will The FDIC has considered these PPP loans, as opposed to the quarterly
exclude PPP loans, which include loans comments and is adopting the waterfall average.
pledged to the PPPLF, from an approach as proposed. The FDIC views For the reasons described above,
institution’s loan portfolio in calculating the waterfall approach as the approach under the final rule the FDIC will
the LMI, based on a waterfall that most effectively balances the goal of exclude the quarter-end outstanding
approach.25 Under the final rule, the minimizing reporting burden while amount of PPP loans, whether or not
FDIC will first exclude the outstanding providing reasonably accurate they have been pledged to the PPPLF,
balance of PPP loans from the balance mitigation for most institutions of the from total assets in the core earnings
of C&I Loans in the calculation of the assessment effect of PPP loans. ratio 27 and the short-term funding
LMI. In the unlikely event that the Accordingly, the FDIC is adopting the measure 28 used to determine a large or
outstanding balance of PPP loans proposed waterfall approach as final highly complex institution’s assessment
exceeds the balance of C&I Loans, the and will apply it, as appropriate, in the rate.
FDIC will exclude any remaining calculation of the LMI for small banks
b. Exclusion of PPP Loans From the
balance of these loans from the balance (and in the calculation of the growth-
Loan Portfolio in Various Risk Measures
of Agricultural Loans, up to the total adjusted portfolio concentration
measure and loss severity measure for As proposed, the FDIC will exclude
amount of Agricultural Loans, in the PPP loans from an IDI’s loan portfolio in
calculation of the LMI.26 large or highly complex banks, as
discussed below). risk measures used to determine a large
While some commenters supported
Two commenters requested that all or highly complex IDI’s assessment rate.
the assumptions applied under the
PPP loans be excluded from total assets In calculating the growth-adjusted
waterfall approach described in the
in the calculation of the LMI while portfolio concentration measure,29
NPR, others viewed the approach as
others expressed support for the which is applicable to large IDIs, the
unnecessarily complex. Several
proposed modifications to the LMI. FDIC will exclude the quarter-end
commenters confirmed that PPP loans
Under the final rule and as described outstanding balance of PPP loans from
will be reported as C&I Loans,
above, the FDIC will exclude the C&I Loans.30 In calculating the trading
Agricultural Loans, or in All Other
quarter-end outstanding balance of PPP asset ratio,31 which is applicable to
Loans. Two commenters suggested
loans from an IDI’s loan portfolio (the highly complex IDIs, the FDIC will
reporting PPP loans as a separate loan
numerator) and its total assets (the reduce the balance of loans by the
category on Schedule RC–C rather than
denominator) in the calculation of the quarter-end outstanding balance of PPP
in the form of additional memoranda
LMI. loans.32 The FDIC also will exclude the
items, while another two commenters
supported the reporting revisions 2. Large or Highly Complex Institutions 27 For the core earnings ratio, the FDIC divides
recently implemented to make the the four-quarter sum of merger-adjusted core
Under the final rule, the FDIC will
adjustments to the assessment system, earnings by the average of five quarter-end total
remove the outstanding balance of PPP
noting that many institutions have assets (most recent and four prior quarters). See
loans from a large or highly complex Appendix A to subpart A of 12 CFR part 327.
already established processes to report
bank’s loan portfolio and its total assets 28 For highly complex IDIs, the short-term
these loans in existing categories on funding ratio is calculated by dividing average
Schedule RC–C and would therefore in calculating its assessment rate. As
short-term funding by average total assets. See
view reporting PPP loans in a separate proposed, under the final rule the FDIC Appendix A to subpart A of 12 CFR part 327.
will also exclude amounts borrowed 29 For large banks, the concentration measure is
25 Based on data from the SBA and on the terms from the Federal Reserve Banks under the higher of the ratio of higher-risk assets to Tier
of the PPP, the FDIC expects that most PPP loans the PPPLF from a large or highly 1 capital and reserves, and the growth-adjusted
will be categorized as Commercial and Industrial complex bank’s liabilities in calculating portfolio measure. For highly complex institutions,
(C&I) Loans. Collateral is not required to secure the the concentration measure is the highest of three
its assessment rate. measures: the ratio of higher risk assets to Tier 1
loans. Therefore, the FDIC expects that PPP loans
will not be included in other loan categories, such capital and reserves, the ratio of top 20 counterparty
a. Exclusion of PPP Loans From Total exposure to Tier 1 capital and reserves, and the
as those that are secured by real estate or consumer
loans, in measures used to determine an IDI’s
Assets in the Core Earnings Ratio and ratio of the largest counterparty exposure to Tier 1
deposit insurance assessment rate. See Public Law the Short-Term Funding Measure capital and reserves. See Appendix A to subpart A
116–136 (Mar. 27, 2020), Public Law 116–142 (June of part 327.
As described above, the FDIC received 30 All Other Loans and Agricultural Loans are not
5, 2020), 85 FR 20811 (Apr. 15, 2020), 85 FR 36308
(June 16, 2020), and Slide 8, Industry by NAICS numerous comments stating that the included in the growth-adjusted portfolio
Subsector, Paycheck Protection Program (PPP) proposed modifications would not concentration measure; therefore, consistent with
Report: Approvals through 06/06/2020, Small completely offset the impact of PPP the proposal, the FDIC will exclude the outstanding
Business Administration, available at: https:// balance of PPP loans from the balance of C&I Loans
lending on assessment rates, and many under the final rule. The loan concentration
www.sba.gov/sites/default/files/2020-06/PPP_
Report_Public_200606%20FINAL_-508.pdf. of these commenters recommended that categories used in the growth-adjusted portfolio
26 All Other Loans are not included in the LMI; the FDIC exclude the outstanding concentration measure are: construction and
therefore, the FDIC will exclude the outstanding balance of PPP loans when calculating development, other commercial real estate, first lien
balance of PPP loans, which include loans pledged residential mortgages (including non-agency
a large or highly complex bank’s residential mortgage-backed securities), closed-end
to the PPPLF, first from the balance of C&I Loans,
followed by Agricultural Loans. The loan categories
assessment, rather than excluding only junior liens and home equity lines of credit,
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used in the Loan Mix Index are: Construction and the loans pledged to the PPPLF. commercial and industrial loans, credit card loans,
Development, Commercial and Industrial, Leases, Specifically, several commenters and other consumer loans. Appendix C to subpart
Other Consumer, Real Estate Loans Residual, A of 12 CFR part 327.
recommended that the FDIC exclude all 31 See 12 CFR 327.16(b)(2)(ii)(A)(2)(vii).
Multifamily Residential, Nonfarm Nonresidential,
1–4 Family Residential, Loans to Depository Banks,
PPP loans from total assets in the 32 To minimize reporting burden, the FDIC will
Agricultural Real Estate, Agricultural Loans. 12 CFR calculation of the core earnings ratio reduce average loans in the trading asset ratio by
327.16(a)(1)(ii)(B). and the average short-term funding the outstanding balance of PPP loans, as of quarter-
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38287
quarter-end balance of outstanding PPP calculating the balance sheet liquidity FDIC will exclude any remaining
loans from a large or highly complex ratio, the FDIC will treat the quarter-end balance from All Other Loans, up to the
IDI’s loan portfolio in calculating the outstanding balance of PPP loans that total amount of All Other Loans,
loss severity measure, as described exceed borrowings from the Federal followed by Agricultural Loans, up to
below. Reserve Banks under the PPPLF as the total amount of Agricultural Loans.
A few commenters suggested that PPP highly liquid assets, as proposed. To the extent that an IDI’s outstanding
loans should not be classified as ‘‘higher Because PPP loans are riskless and PPP loans are not pledged to the PPPLF,
risk assets’’ in calculating the banks with PPP loans in excess of such loans may be funded by a variety
concentration measures for large or PPPLF borrowings can access additional of liabilities, such as deposits and
highly complex institutions. In response liquidity by pledging such loans to secured borrowings. While IDIs will
to these comments the FDIC is clarifying PPPLF, the FDIC will treat these PPP report borrowings under the PPPLF that
that government guaranteed loans are loans as highly liquid assets. To the are secured by PPP loans, the FDIC will
not considered ‘‘higher-risk assets’’ for extent that a PPP loan represents not have sufficient data to determine
assessment purposes. Because PPP loans collateral for borrowings other than other sources of funding for an IDI’s PPP
are guaranteed by the SBA, they are under the PPPLF—such as an FHLB loans. Obtaining such data would
already excluded from ‘‘higher-risk advance—treating the loan as highly require additional reporting burden on
assets’’ in calculating the concentration liquid will provide an assessment IDIs. Because the FDIC will not have
measures for large or highly complex benefit for IDIs that may not be able to sufficient data to remove each type of
institutions and no additional readily access additional liquidity. PPP non-PPPLF funding used to make PPP
modification is necessary.33 loans can no longer be pledged as loans, under the final rule the FDIC will
collateral to the PPPLF after September remove PPP loans in excess of its PPPLF
c. Exclusion of Borrowings Under the 30, 2020, the date after which no new borrowings from a large or highly
PPPLF From Total Liabilities in Various extensions of credit will be made under complex IDI’s loan portfolio based on
Risk Measures the PPPLF, unless extended by the the waterfall approach described above
As proposed, under the final rule the Board of Governors and the Department and reallocate the same amount to cash.
FDIC will exclude borrowings from the of Treasury. Therefore, under the final Such treatment of PPP loans is
Federal Reserve Banks under the PPPLF rule, the quarter-end outstanding consistent with the proposal to treat PPP
from an institution’s liabilities in the balance of PPP loans that exceed loans in excess of PPPLF borrowings as
calculation of the core deposit ratio, the borrowings from the Federal Reserve riskless for purposes of calculating a
balance sheet liquidity ratio, and the Banks under the PPPLF will be treated large or highly complex IDI’s loss
loss severity measure used to determine as highly liquid assets until September severity score.
a large or highly complex IDI’s 30, 2020, unless the Board of Governors To match the removal of PPP loans
assessment rate. The final rule clarifies and the Department of Treasury extend funded through borrowings under the
that the exclusion of amounts borrowed the deadline to apply for new PPPLF from an IDI’s loan portfolio, the
from the Federal Reserve Banks under extensions of credit under the PPPLF. FDIC will remove the total amount of
the PPPLF from an institution’s total d. Treatment of PPP Loans and outstanding borrowings from the
liabilities will only affect risk measures Borrowings Under the PPPLF in Federal Reserve Banks under the PPPLF
used to determine the assessment rate Calculating the Loss Severity Measure from short- and long-term secured
for a large or highly complex IDI borrowings, as appropriate.
because secured liabilities are not The loss severity measure estimates
factored into the risk measures for the relative magnitude of potential C. Mitigating the Effects of PPP Loans
determining the rate for an established losses to the DIF in the event of a large and Assets Purchased Under the MMLF
small IDI. or highly complex IDI’s failure.36 Under on Certain Adjustments to an IDI’s
Under the final rule, in calculating the the final rule, the FDIC will remove the Assessment Rate
core deposit ratio 34 for large or highly effect of participation in the PPP and The FDIC proposed to exclude the
complex IDI, the FDIC will exclude from PPPLF, as proposed. In calculating the quarterly average amount of loans
total liabilities borrowings from Federal loss severity score under the final rule, pledged to the PPPLF and the quarterly
Reserve Banks under the PPPLF. the FDIC will remove the effect of PPP average amount of assets purchased
Also as proposed, under the final rule loans in an IDI’s loan portfolio using a under the MMLF from the calculation of
the FDIC will exclude an IDI’s reported waterfall approach, as proposed. Under the unsecured debt adjustment,
borrowings from the Federal Reserve this approach, the FDIC will exclude depository institution debt adjustment,
Banks under the PPPLF with a PPP loans from an IDI’s balance of C&I and the brokered deposit adjustment.
remaining maturity of one year or less Loans. In the unlikely event that the These adjustments would continue to be
from liabilities included in the outstanding balance of PPP loans applied to an IDI’s initial base
denominator of the balance sheet exceeds the balance of C&I Loans, the assessment rate, as applicable, for
liquidity ratio.35 Additionally, in purposes of calculating the IDI’s total
purchased under agreements to resell, and the
market value of available-for-sale and held-to- base assessment rate.37
end, rather than requiring institutions to maturity agency securities (excludes agency
additionally report the average balance of PPP mortgage-backed securities but includes all other 37 For certain IDIs, adjustments include the
loans. agency securities issued by the U.S. Treasury, U.S. unsecured debt adjustment and the depository
33 Appendix C to subpart A of part 327 describes
government agencies, and U.S. government institution debt adjustment (DIDA). The unsecured
the concentration measures, including the ratio of sponsored enterprises) divided by the sum of debt adjustment decreases an IDI’s total assessment
higher-risk assets to tier 1 capital and reserves. federal funds purchased and repurchase rate based on the ratio of its long-term unsecured
34 The core deposit ratio is defined as total
agreements, other borrowings (including FHLB) debt to its assessment base. The DIDA increases an
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domestic deposits excluding brokered deposits and with a remaining maturity of one year or less, 5 IDI’s total assessment rate if it holds long-term,
uninsured non-brokered time deposits divided by percent of insured domestic deposits, and 10 unsecured debt issued by another IDI. In addition,
total liabilities. See Appendix A to subpart A of 12 percent of uninsured domestic and foreign deposits. large IDIs that meet certain criteria and new small
CFR part 327. Appendix A to subpart A of 12 CFR part 327. IDIs are subject to the brokered deposit adjustment.
35 The balance sheet liquidity ratio is defined as 36 Appendix D to subpart A of 12 CFR 327 The brokered deposit adjustment increases the total
the sum of cash and balances due from depository describes the calculation of the loss severity assessment rate of large IDIs that hold significant
institutions, federal funds sold and securities measure. Continued
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38288 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
As previously described, many the increase to its assessment base or its assessment base. To the extent an
commenters requested that the FDIC attributable to participation in the IDI relies on existing balance sheet
provide relief throughout the PPPLF and MMLF.39 To determine this liquidity, including cash and securities
assessment calculations for all PPP offset amount, the FDIC proposed to to fund PPP loans, the IDI would not
lending, whether funded under the calculate the total of the quarterly increase its total assets and would
PPPLF or through other sources of average amount of assets pledged to the therefore not experience an increase to
liquidity, including deposits. A few PPPLF and the quarterly average the assessment base as a result of its
commenters expressed support for the amount of assets purchased under the participation in the PPP. An IDI that
proposed modifications to these MMLF, multiply that amount by an IDI’s obtains additional funding to make PPP
adjustments. total base assessment rate (after loans, however, would increase its total
After considering comments received, excluding the effect of participation in liabilities by the amount of additional
and in recognition of the important role the MMLF and PPPLF, as proposed), funding and increase its total assets by
IDIs play in providing liquidity to small and subtract the resulting amount from the amount of PPP loans made with
businesses and helping to stabilize the an IDI’s total assessment amount.40 such funding, resulting in an increase in
broader economy in the midst of the The FDIC received numerous its assessment base.
economic disruption caused by COVID– comments stating that the proposed In recognition of the extraordinary
19, as well as in recognition that some modifications would not completely steps taken by IDIs to provide liquidity
banks have funded PPP loans through offset the impact of PPP lending on the to small businesses and help stabilize
liabilities other than borrowings under assessment base. Some commenters the broader economy in the midst of the
the PPPLF, under the final rule, the requested that the FDIC exclude the economic disruption caused by COVID–
FDIC will exclude the quarter-end quarter-end balance of outstanding PPP 19, and to more fully mitigate the
outstanding amount of PPP loans and loans from the assessment base. deposit insurance assessment effect of
the quarterly average amount of assets After considering the comments participation in the PPP, the final rule
purchased under the MMLF from the received, and recognizing that some will provide an offset to an IDI’s
calculation of the unsecured debt banks have funded PPP loans by assessment amount that is calculated
adjustment, depository institution debt obtaining additional funding, such as using the total outstanding balance of
adjustment, and the brokered deposit deposits or borrowings other than under PPP loans at quarter end and the
adjustment. the PPPLF, and therefore increased their quarterly average balance of assets
While the deposit insurance total assets and total liabilities, under purchased under the MMLF. Including
assessment calculations typically adjust the final rule the FDIC will use the total PPP loans in the calculation of the
quarter-end amounts by quarter-end quarter-end outstanding amount of PPP offset ensures that the final rule will
amounts and average amounts by loans rather than the quarterly average more fully mitigate the assessment
average amounts, in the interest of amount of assets pledged to the PPPLF effects of participation in PPP lending.
minimizing reporting burden, the in calculating the offset to an IDI’s total To the extent that an institution did not
agencies are collecting only the quarter- assessment amount. To determine this increase its total assets as a result of PPP
end outstanding balance of PPP loans offset amount, the FDIC will sum the participation, the final rule may, for
and not the average amount. total of the quarter-end outstanding some institutions, result in an
Accordingly, there are a few balance of PPP loans and the quarterly assessment reduction that exceeds the
modifications under this final rule for average amount of assets purchased actual increase in assessments that an
which an average amount is adjusted by under the MMLF, multiply that amount institution would have experienced due
the quarter-end outstanding balance of by an IDI’s total base assessment rate to participation in the PPP.
PPP loans, as is the case with these three (after excluding the effects of As discussed above, in the interest of
adjustments to an IDI’s assessment rate. participation in the PPP, MMLF, and minimizing reporting burden, there are
PPPLF, consistent with the final rule), a few modifications under this final rule
D. Offset to Deposit Insurance for which an average amount is adjusted
Assessment Due To Increase in the and subtract the resulting amount from
an IDI’s total assessment amount. by the quarter-end outstanding balance
Assessment Base Attributable to PPP of PPP loans, as is the case with the
Loans and Assets Purchased Under the While IDIs will report loans pledged
to the PPPLF and borrowings under the calculation of the offset to the
MMLF assessment base.
PPPLF starting with the June 30, 2020,
Under the final rule, the FDIC will Call Report, it will not be possible for Because the FDIC proposed to
provide an offset to an IDI’s total the FDIC to differentiate between an IDI calculate the offset as the sum of the
assessment amount due for the increase that increased its total assets solely due quarterly average amount of loans
to its assessment base attributable to the to PPP funded by additional liabilities, pledged to the PPPLF and the quarterly
quarter-end outstanding balance of PPP and an IDI that used existing balance average of assets purchased under the
loans and participation in the MMLF.38 sheet liquidity to fund PPP loans and MMLF, the Board of Governors is
Under the proposed rule, the FDIC therefore did not increase its total assets requiring that insured branches of
would have provided an offset to an foreign banks report only these two
IDI’s total assessment amount due for 39 Under the proposed rule, the offset to the total additional items on the FFIEC 002
assessment amount due for the increase to the starting with the report filed as of June
concentrations of brokered deposits and that are assessment base attributable to participation in the 30, 2020. Adjustments to the calculation
less than well capitalized, not CAMELS composite PPPLF and MMLF would have applied to all IDIs,
1- or 2-rated, as well as new, small IDIs that are not including new small institutions as defined in 12
of the assessment rate of an insured
assigned to Risk Category I. See 12 CFR 327.16(e). CFR 327.8(w), and insured U.S. branches and branch of foreign banks to mitigate the
38 Under the final rule, the offset to the total agencies of foreign banks. effect of participation in the PPP,
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assessment amount due for the increase to the 40 Currently, an IDI’s total assessment amount on
PPPLF, and MMLF are not necessary.41
assessment base attributable to the quarter-end its quarterly certified statement invoice is equal to Under the final rule, the FDIC will
outstanding balance of PPP loans and participation the product of the institution’s assessment base
in the MMLF will apply to all IDIs, including new (calculated in accordance with 12 CFR 327.5) provide an offset to the assessment of an
small institutions as defined in 12 CFR 327.8(w), multiplied by the institution’s assessment rate
and insured U.S. branches and agencies of foreign (calculated in accordance with 12 CFR 327.4 and 41 Insured branches are assessed for deposit
banks. 12 CFR 327.16). See 12 CFR 327.3(b)(1). insurance in accordance with 12 CFR 327.16(c).
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38289
insured branch of a foreign bank that is IDI’s assessment amount under the final (2) the PPP loans that are held by IDIs
calculated by summing the quarterly rule are properly incorporated into the are evenly distributed across all IDIs
average amount of assets purchased assessment regulation provisions that have C&I loans, which results in a
under the MMLF with either the governing the calculation of an IDI’s 33 percent increase in those loans,
quarterly average amount of loans quarterly deposit insurance assessment. except where IDI-specific data are
pledged to the PPPLF or the amount of available, (3) 5.9 percent of PPP loans
III. Expected Effects held by IDIs are pledged to the PPPLF,
outstanding PPP loans at the end of the
quarter, based on available data.42 To facilitate participation in the PPP except where IDI-specific data are
and use of the PPPLF and MMLF, under available from the Federal Reserve
E. Classification of IDIs as Small, Large, the final rule the FDIC will mitigate the Board, (4) 100 percent of loans pledged
or Highly Complex for Assessment deposit insurance assessment effects of to the PPPLF are matched by borrowings
Purposes PPP loans, amounts borrowed under the from the Federal Reserve Banks with
In defining IDIs for assessment PPPLF, and assets purchased under the maturities greater than one year, (5) IDIs
purposes under the proposed rule, the MMLF. Estimating the dollar amount of fund the remaining 94.1 percent of PPP
FDIC would have excluded from an assessment mitigation resulting from the loans with additional funding,
IDI’s total assets the amount of loans rule is difficult. Because IDIs are not yet including deposits or secured
pledged to the PPPLF and assets reporting the necessary data, the FDIC borrowings, and (6) large and highly
purchased under the MMLF. Several does not have sufficient data on the complex IDIs hold approximately $30
commenters specifically requested that distribution of loans among IDIs and billion in assets pledged under the
the FDIC provide full credit for the other non-bank financial institutions MMLF,45 the FDIC estimates that (1)
outstanding balance of PPP loans made under the PPP, the loan categories quarterly deposit insurance assessments
throughout the assessment calculations, of PPP loans held, the types of liabilities would increase for some institutions
including in the classification of an IDI used to fund PPP lending, the extent to absent the final rule and (2) the final
as small, large, or highly complex for which PPP participation resulted in an rule could provide quarterly assessment
deposit insurance assessment purposes. increase to an IDI’s total assets and total relief of approximately $150 million.
After considering these comments and liabilities, nor on the dollar volume of The actual effect of these programs on
for the reasons described above, the assets purchased under the MMLF by deposit insurance assessments will vary
FDIC will exclude the quarter-end IDIs. Therefore, the FDIC has estimated depending on participation in the
outstanding balance of all PPP loans, the potential effects of these programs programs by IDIs and non-IDIs, the
rather than only those PPP loans on deposit insurance assessments based maturity of borrowings from the Federal
pledged to the PPPLF, in the on certain assumptions. Although this Reserve Banks under these programs,
classification of an IDI as small, large, or estimate is subject to considerable the extent of reliance on existing
highly complex for assessment uncertainty, the FDIC estimates that sources of funding for PPP lending, and
purposes. As a result, the FDIC will not application of the final rule could the types of loans held under the PPP,
reclassify a small institution as large or provide quarterly assessment relief to as described above. While items on the
a large institution as a highly complex IDIs participating in these programs Call Report will enable the FDIC to
institution solely due to participation in totaling approximately $150 million, quantify funding from the PPPLF, it is
the PPPLF and MMLF programs, which based on the assumptions described not possible for the FDIC to quantify
would otherwise have the effect of below which improve upon the how much an IDI’s total assets grew due
expanding an IDI’s balance sheet. In assumptions applied in the proposal to PPP loans relative to other balance
addition, an institution with total assets given information provided by sheet changes, including increased cash
between $5 billion and $10 billion, commenters and FDIC analysis of or other loans made either in response
excluding the amount of PPP loans and updated data published by the SBA on to the economic disruption caused by
assets purchased under the MMLF, may the PPP and Federal Reserve Board on COVID–19 or that would have otherwise
request that the FDIC determine its the PPPLF and MMLF. Because PPP
assessment rate as a large institution.43 loans must be issued by June 30, 2020, Paycheck Protection Program. The FDIC assumes all
and because the FDIC expects that the authorized funds will be distributed and
F. Other Conforming Amendments to roughly 90 percent will be held by IDIs.
the Assessment Regulations eligible IDIs will begin receiving PPP 45 These assumptions reflect current participation
loan forgiveness reimbursement from in the PPP and PPPLF and that all authorized funds
Under the final rule, the FDIC will the SBA, the FDIC expects that the under the PPP will be distributed, based on data
make conforming amendments to the amount of assessment relief provided published by the SBA and Federal Reserve Board.
FDIC’s assessment regulations to These assumptions use transaction-level data
under this final rule will decline in published by the Federal Reserve Board, SBA data
effectuate the modifications described subsequent quarters. to estimate the participation in the PPP program of
above and consistent with the proposed The FDIC anticipates that PPP loans nonbank lenders including CDFI funds, CDCs,
rule. These conforming amendments will be held by both IDIs and non-IDIs, Microlenders, Farm Credit Lenders, and FinTechs.
will ensure that the modifications to an See Paycheck Protection Program (PPP) Report:
and that IDIs will fund PPP loans Approvals through 06/06/2020, Small Business
IDI’s assessment rate and the offset to an through growth in liabilities, including Administration, available at: https://www.sba.gov/
through additional deposits, borrowings sites/default/files/2020-06/PPP_Report_Public_
42 Through the Board of Governors, the FDIC
from Federal Reserve Banks under the 200606%20FINAL_-508.pdf; Factors Affecting
anticipates revising the reporting of the quarterly Reserve Balances, Federal Reserve statistical release
average amount of loans pledged to the PPPLF and PPPLF, and other secured borrowings, H.4.1, as of June 11, 2020, available at: https://
instead requiring insured branches of foreign banks although the rate of IDI participation in www.federalreserve.gov/releases/h41/current/;
to report the outstanding balance of PPP loans at the PPP and PPPLF is uncertain. Board of Governors of the Federal Reserve System,
quarter-end, beginning as of September 30, 2020. Based on Call Report data as of March Money Market Mutual Fund Liquidity Facility, as
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For purposes of determining the deposit insurance of June 10, 2020, available at: https://
assessment amount for an insured branch of a
31, 2020, and assuming that (1) $600
fred.stlouisfed.org/series/H41RESPPALDBNWW;
foreign bank as of June 30, 2020, an insured branch billion of PPP loans are held by IDIs,44 and Board of Governors of the Federal Reserve
additionally may provide to the FDIC certified System, PPPLF Transaction-specific Disclosures as
information on the amount of outstanding PPP 44 Section 101(a)(1) of the Paycheck Protection of May 15, 2020, available at: https://
loans at the end of the quarter. Program and Health Care Enhancement Act, Public www.federalreserve.gov/publications/files/PPPLF-
43 See 12 CFR 327.16(f). Law 116–139, authorizes $659 billion for the transaction-specific-disclosures-5-15-20.xlsx.
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38290 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
been made in the normal course of An immediate effective date and an 2020, with a payment due date of
business. For example, to the extent an application date of April 1, 2020, will September 30, 2020.
IDI relies on existing balance sheet enable the FDIC to provide the relief
B. Regulatory Flexibility Act
liquidity including cash and securities contemplated in this rulemaking as soon
to fund PPP lending, the IDI would not as practicable, starting with the second The Regulatory Flexibility Act (RFA),
experience an increase in liabilities and quarter of 2020, and provide certainty to 5 U.S.C. 601 et seq., generally requires
would therefore not experience an IDIs regarding the assessment effects of an agency, in connection with a final
increase to the assessment base as a participating in the PPP, PPPLF, or rule, to prepare and make available for
result of its participation in PPP MMLF for the second quarter of 2020, public comment a final regulatory
lending. Accordingly, the assumption which is the first assessment quarter in flexibility analysis that describes the
that IDIs will rely entirely on additional which the assessments will be affected. impact of a final rule on small entities.50
funding for PPP lending could reduce However, a regulatory flexibility
V. Administrative Law Matters analysis is not required if the agency
quarterly assessments by more than they
will increase due to participation in PPP A. Administrative Procedure Act certifies that the rule will not have a
lending, as some IDIs may rely on significant economic impact on a
existing balance sheet liquidity to fund Under the Administrative Procedure substantial number of small entities.
PPP lending. Act (APA),48 ‘‘[t]he required publication The Small Business Administration
or service of a substantive rule shall be (SBA) has defined ‘‘small entities’’ to
IV. Effective Date of the Final Rule made not less than 30 days before its include banking organizations with total
As stated above, in response to recent effective date, except as otherwise assets of less than or equal to $600
events which have significantly and provided by the agency for good cause million.51 Generally, the FDIC considers
adversely impacted global financial found and published with the rule.’’ 49 a significant effect to be a quantified
markets along with the spread of Under this rulemaking, the amendments effect in excess of 5 percent of total
COVID–19, which has slowed economic to the FDIC’s deposit insurance annual salaries and benefits per
activity in many countries, including assessment regulations would be institution, or 2.5 percent of total non-
the United States, the agencies moved effective upon publication of the final interest expenses. The FDIC believes
quickly due to exigent circumstances rule in the Federal Register. The FDIC that effects in excess of these thresholds
and issued two interim final rules to finds good cause that the publication of typically represent significant effects for
allow banking organizations to this final rule can be effective FDIC-insured institutions. Certain types
neutralize the regulatory capital effects immediately in order to fully effectuate of rules, such as rules of particular
of purchasing assets under the MMLF the intent of ensuring that IDIs benefit applicability relating to rates or
and loans pledged to the PPPLF. Since from the mitigation effects to their corporate or financial structures, or
the implementation of the PPP, PPPLF, deposit insurance assessments as soon practices relating to such rates or
and MMLF, the FDIC has observed as practicable, and to provide IDIs with structures, are expressly excluded from
uncertainty from the public and the certainty regarding the assessment the definition of ‘‘rule’’ for purposes of
banking industry and wants to provide effects of participating in the PPP, the RFA.52 The final rule relates directly
clarity on how, if at all, these programs PPPLF, or MMLF for the second quarter to the rates imposed on IDIs for deposit
would affect the assessments of IDIs of 2020, which is the first assessment insurance and to the deposit insurance
which participate in these programs. quarter in which the assessments will be assessment system that measures risk
Because PPP loans must be issued by affected. and determines each established small
June 30, 2020, the full assessment bank’s assessment rate and is, therefore,
As explained in the Supplementary not subject to the RFA. Nonetheless, the
impact of these programs will first occur Information section and in the proposed
in the second quarterly assessment FDIC is voluntarily presenting
rule, the FDIC expects that an IDI that information in this RFA section.
period. Congress has also given participates in either the PPP, the Based on quarterly regulatory report
indications that implementation of these PPPLF, or the MMLF program could be data as of March 31, 2020, the FDIC
programs is an urgent policy matter, subject to increased deposit insurance insures 5,125 depository institutions,53
instructing the SBA to issue regulations assessments, beginning with the second of which 3,771 are defined as small
for the PPP within 15 days of the quarter of 2020. The FDIC invoices for entities by the terms of the RFA.54 The
CARES Act’s enactment.46 quarterly deposit insurance assessments final rule applies to all FDIC-insured
The final rule will take effect in arrears. As a result, invoices for the
immediately upon publication in the second quarterly assessment period of 50 5 U.S.C. 601 et seq.
Federal Register with an application 2020 (i.e., April 1—June 30) would be 51 The SBA defines a small banking organization
date of April 1, 2020, and changes made made available to IDIs in September as having $600 million or less in assets, where an
as a result of this rule will be reflected organization’s ‘‘assets are determined by averaging
in the invoices for deposit insurance the assets reported on its four quarterly financial
of 2020 (i.e., April 1–June 30) will be calculated on statements for the preceding year.’’ See 13 CFR
assessments due September 30, 2020.47 the basis of Call Report data as of June 30, 2020, 121.201 (as amended, effective August 19, 2019). In
with a payment due date of September 30, 2020. its determination, the SBA ‘‘counts the receipts,
46 See CARES Act, § 1114. Public Law 116–142 Furthermore, even if the effects of the final rule employees, or other measure of size of the concern
(June 05, 2020). The SBA subsequently issued an were retroactive, a rule is impermissibly retroactive whose size is at issue and all of its domestic and
interim final rule implementing sections 1102 and only when it ‘‘takes away or impairs vested rights foreign affiliates.’’ 13 CFR 121.103. Following these
1106 of the CARES Act. See 85 FR 20811 (April 15, acquired under existing law, or creates a new regulations, the FDIC uses a covered entity’s
2020). On June 5, 2020, the PPP Flexibility Act was obligation, imposes a new duty, or attaches a new affiliated and acquired assets, averaged over the
signed into law, amending key provisions of the disability in respect to transactions or preceding four quarters, to determine whether the
CARES Act. The SBA issued an interim final rule considerations already past.’’ See Nat’l Mining covered entity is ‘‘small’’ for the purposes of RFA.
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implementing these provisions. See 85 FR 36308 Ass’n v. Dep’t of Labor, 292 F.3d 849, 859 (D.C. Cir. 52 5 U.S.C. 601.
(June 16, 2020). 2002) (quoting Nat’l Mining Ass’n v. Dep’t of 53 FDIC Call Report data, as of March 31, 2020.
47 The application date of April 1, 2020, is Interior, 177 F.3d 1, 8 (D.C. Cir. 1999)) (internal 54 The FDIC does not have data to identify small
permissible because the effects of the final rule will quotations omitted). This final rule does none of entities as of March 2020. This count includes small
occur after its publication. The assessment amount those things. entities as of December 31, 2019, as well as small
48 5 U.S.C. 553.
owed on an IDI’s quarterly certified statement entities that opened between December 2019 and
invoice for the second quarterly assessment period 49 5 U.S.C. 553(d). March 2020.
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38291
institutions, but is expected to affect depending on IDIs’ participation in the Currency OMB No. 1557–0081; Board of
only those institutions that participate PPP and Federal Reserve Facilities, the Governors OMB No. 7100–0036; and
in the PPP, PPPLF, and MMLF. The maturity of borrowings from the Federal FDIC OMB No. 3064–0052. The final
FDIC does not presently have access to Reserve Banks under these programs, rule also affects the Report of Assets and
information that would enable it to the extent of reliance on existing Liabilities of U.S. Branches and
identify which institutions are sources of funding for PPP lending, and Agencies of Foreign Banks (FFIEC 002),
participating in these programs and the types of loans held under the PPP. which the Federal Reserve System
lending facilities. collects and processes on behalf of the
As previously discussed, to facilitate C. Riegle Community Development and
Regulatory Improvement Act three agencies (Board of Governors OMB
participation in the PPP and use of the No. 7100–0032). Submissions were
PPPLF and MMLF, the final rule Section 302 of the Riegle Community made by the agencies to OMB for their
mitigates the deposit insurance Development and Regulatory respective information collections. The
assessment effects of PPP loans, Improvement Act (RCDRIA) requires changes to the Call Report, the Report of
borrowings under the PPPLF, and assets that the Federal banking agencies, Assets and Liabilities of U.S. Branches
purchased under the MMLF. Therefore, including the FDIC, in determining the and Agencies of Foreign Banks, and
the FDIC estimated the potential effects effective date and administrative their respective instructions, have been
of these programs on deposit insurance compliance requirements of new addressed in a separate Federal Register
assessments based on certain regulations that impose additional notice or notices.
assumptions. Based on Call Report data reporting, disclosure, or other
as of March 31, 2020, assuming that (1) requirements on IDIs, consider, E. Plain Language
$600 billion of PPP loans are held by consistent with principles of safety and
soundness and the public interest, any Section 722 of the Gramm-Leach-
IDIs,55 (2) the PPP loans that are held by
administrative burdens that such Bliley Act 59 requires the Federal
IDIs are evenly distributed across all
regulations would place on depository banking agencies to use plain language
IDIs that have C&I loans, which results
institutions, including small depository in all proposed and final rulemakings
in a 33 percent increase in those loans,
institutions, and customers of published in the Federal Register after
except where IDI-specific data are
depository institutions, as well as the January 1, 2000. The FDIC invited
available, (3) 5.9 percent of PPP loans
benefits of such regulations. In addition, comment regarding the use of plain
held by IDIs are pledged to the PPPLF,
section 302(b) of RCDRIA requires new language, but did not receive any
except where IDI-specific data are
available, (4) 100 percent of loans regulations and amendments to comments on this topic.
pledged to the PPPLF are matched by regulations that impose additional F. The Congressional Review Act
borrowings from the Federal Reserve reporting, disclosures, or other new
Banks with maturities greater than one requirements on IDIs generally to take For purposes of Congressional Review
year,56 and (5) IDIs fund the remaining effect on the first day of a calendar Act, the OMB makes a determination as
94.1 percent of PPP loans with quarter that begins on or after the date to whether a final rule constitutes a
additional funding, including deposits on which the regulations are published ‘‘major’’ rule.60 The OMB has
or secured borrowings, the FDIC in final form, with certain exceptions, determined that the final rule is a major
estimates that the final rule will save including for good cause.57 rule for purposes of the Congressional
small IDIs approximately $10 million in The amendments to the FDIC’s Review Act. If a rule is deemed a ‘‘major
quarterly deposit insurance deposit insurance assessment rule’’ by the OMB, the Congressional
assessments. regulations under this final rule do not Review Act generally provides that the
The actual effect of these programs on impose additional reporting, rule may not take effect until at least 60
deposit insurance assessments will vary disclosures, or other new requirements. days following its publication.61 The
Nonetheless, the FDIC considered the Congressional Review Act defines a
55 Section 101(a)(1) of the Paycheck Protection requirements of RCDRIA when ‘‘major rule’’ as any rule that the
Program and Health Care Enhancement Act, Pub. L. finalizing this rule with an immediate Administrator of the Office of
116–139, authorizes $659 billion for the Paycheck effective date. The FDIC invited
Protection Program. The FDIC assumes that all the
Information and Regulatory Affairs of
authorized funds will be distributed and roughly 90 comments regarding the application of the OMB finds has resulted in or is
percent will be held by IDIs. RCDRIA to the final rule, but did not likely to result in—(A) an annual effect
56 These assumptions reflect current participation
receive comments on this topic. on the economy of $100,000,000 or
in the PPP and PPPLF and that all the authorized
funds under the PPP will be distributed, based on D. Paperwork Reduction Act more; (B) a major increase in costs or
data published by the SBA and Federal Reserve prices for consumers, individual
Board. These assumptions use SBA data to estimate The Paperwork Reduction Act of 1995 industries, Federal, State, or Local
the participation in the PPP program of nonbank (PRA) states that no agency may government agencies or geographic
lenders including CDFI funds, CDCs, Microlenders, conduct or sponsor, nor is the regions, or (C) significant adverse effects
Farm Credit Lenders, and FinTechs. See Paycheck respondent required to respond to, an
Protection Program (PPP) Report: Approvals from on competition, employment,
through 06/06/2020, Small Business information collection unless it displays investment, productivity, innovation, or
Administration, available at: https://www.sba.gov/ a currently valid OMB control on the ability of United States-based
sites/default/files/2020-06/PPP_Report_Public_ number.58 The final rule affects the enterprises to compete with foreign-
200606%20FINAL_-508.pdf; Factors Affecting agencies’ current information
Reserve Balances, Federal Reserve statistical release based enterprises in domestic and
H.4.1, as of June 11, 2020, available at: https:// collections for the Call Report (FFIEC export markets.62 As required by the
www.federalreserve.gov/releases/h41/current/, and 031, FFIEC 041, and FFIEC 051). The Congressional Review Act, the FDIC
Board of Governors of the Federal Reserve System, agencies’ OMB control numbers for the will submit the final rule and other
Money Market Mutual Fund Liquidity Facility, as Call Reports are: Comptroller of the
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of June 10, 2020, available at: https:// appropriate reports to Congress and the
fred.stlouisfed.org/series/H41RESPPALDBNWW;
57 5 U.S.C. 553(b)(B), 5 U.S.C. 553(d), 5 U.S.C. 601
Board of Governors of the Federal Reserve System, 59 12 U.S.C. 4809.
PPPLF Transaction-specific Disclosures as of May et seq., 5 U.S.C. 801 et seq., 5 U.S.C. 801(a)(3), 5
60 5 U.S.C. 801 et seq.
15, 2020, available at: https:// U.S.C. 804(2), 5 U.S.C. 808(2), 12 U.S.C. 4802(a), 12
U.S.C. 4802(b). 61 5 U.S.C. 801(a)(3).
www.federalreserve.gov/publications/files/PPPLF-
transaction-specific-disclosures-5-15-20.xlsx. 58 4 U.S.C. 3501–3521. 62 5 U.S.C. 804(2).
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38292 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
Government Accountability Office for (b) * * * institution. If, after December 31, 2006,
review. (1) Quarterly certified statement an institution classified as small under
Section 808 of the Congressional invoice. Starting with the first paragraph (e) of this section reports
Review Act provides that any rule as to assessment period of 2007, no later than assets of $10 billion or more in its
which an agency for good cause finds 15 days prior to the payment date quarterly reports of condition for four
(and incorporates the finding and a brief specified in paragraph (b)(2) of this consecutive quarters, excluding assets
statement of reasons therefor in the rule section, the Corporation will provide to as described in § 327.17(e), the FDIC
issued) that notice and public procedure each insured depository institution a will reclassify the institution as large
thereon are impracticable, unnecessary, quarterly certified statement invoice beginning the following quarter.
or contrary to the public interest, shall showing the amount of the assessment (g) * * *
take effect at such time as the Federal payment due from the institution for the (1) A highly complex institution is:
agency promulgating the rule prior quarter (net of credits or (i) An insured depository institution
determines.63 Although OMB has dividends, if any), and the computation (excluding a credit card bank) that has
determined that this is a major rule for of that amount. Subject to paragraph (e) had $50 billion or more in total assets
purposes of the Congressional review of this section and § 327.17, the for at least four consecutive quarters,
Act, and hence would ordinarily be invoiced amount on the quarterly excluding assets as described in
subject to a 60-day delayed effective certified statement invoice shall be the § 327.17(e), that is controlled by a U.S.
date, the FDIC believes there is good product of the following: The parent holding company that has had
cause for an immediate effective date. In assessment base of the institution for the $500 billion or more in total assets for
this case, the FDIC provided notice and prior quarter computed in accordance four consecutive quarters, or controlled
accepted comment, as required by with § 327.5 multiplied by the by one or more intermediate U.S. parent
section 7 of the FDI Act, but further institution’s rate for that prior quarter as holding companies that are controlled
public procedure and the attendant assigned to the institution pursuant to by a U.S. holding company that has had
delay would be contrary to the public §§ 327.4(a) and 327.16. $500 billion or more in assets for four
interest.64 * * * * * consecutive quarters; or
The FDIC believes that, under section ■ 3. Amend § 327.8 by revising (ii) A processing bank or trust
808 of the Congressional Review Act, paragraphs (e), (f), and (g)(1) to read as company.
good cause exists for the final rule to follows: * * * * *
become effective without further public ■ 4. Amend § 327.16 by adding
§ 327.8 Definitions.
procedure and immediately upon its introductory text and revising paragraph
filing for publication, as delaying the * * * * * (f)(1) to read as follows:
effective date would be contrary to the (e) Small institution. (1) An insured
public interest. In particular, by depository institution with assets of less § 327.16 Assessment pricing methods—
providing for an immediate effective than $10 billion, excluding assets as beginning the first assessment period after
described in § 327.17(e), as of December June 30, 2016, where the reserve ratio of the
date for the final rule, the intent of DIF as of the end of the prior assessment
ensuring that IDIs benefit from the 31, 2006, and an insured branch of a
foreign institution shall be classified as period has reached or exceeded 1.15
mitigation effects to their deposit percent.
insurance assessments starting with the a small institution.
(2) Except as provided in paragraph Subject to the modifications described
second quarter of 2020, which is the in § 327.17, the following pricing
(e)(3) of this section and § 327.17(e), if,
first assessment quarter in which the methods shall apply beginning in the
after December 31, 2006, an institution
assessments will be affected, and will first assessment period after June 30,
classified as large under paragraph (f) of
thereby provide IDIs with certainty 2016, where the reserve ratio of the DIF
this section (other than an institution
regarding the assessment effects of as of the end of the prior assessment
classified as large for purposes of
participating in the PPP, PPPLF, or period has reached or exceeded 1.15
§§ 327.9(e) and 327.16(f)) reports assets
MMLF. percent, and for all subsequent
of less than $10 billion in its quarterly
List of Subjects in 12 CFR Part 327 reports of condition for four consecutive assessment periods.
Bank deposit insurance, Banks, quarters, excluding assets as described * * * * *
banking, Savings associations. in § 327.17(e), the FDIC will reclassify (f) * * *
the institution as small beginning the (1) Procedure. Any small institution
Authority and Issuance following quarter. with assets of between $5 billion and
For the reasons stated above, the (3) An insured depository institution $10 billion, excluding assets as
Federal Deposit Insurance Corporation that elects to use the community bank described in § 327.17(e), may request
amends 12 CFR part 327 as follows: leverage ratio framework under 12 CFR that the FDIC determine its assessment
3.12(a)(3), 12 CFR 217.12(a)(3), or 12 rate as a large institution. The FDIC will
PART 327—ASSESSMENTS CFR 324.12(a)(3), shall be classified as consider such a request provided that it
a small institution, even if that has sufficient information to do so. Any
■ 1. The authority citation for part 327 institution otherwise would be such request must be made to the FDIC’s
is revised to read as follows: classified as a large institution under Division of Insurance and Research.
Authority: 12 U.S.C. 1813, 1815, 1817–19, paragraph (f) of this section. Any approved change will become
1821. (f) Large institution. An institution effective within one year from the date
■ 2. Amend § 327.3 by revising
classified as large for purposes of of the request. If an institution whose
paragraph (b)(1) to read as follows: §§ 327.9(e) and 327.16(f) or an insured request has been granted subsequently
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depository institution with assets of $10 reports assets of less than $5 billion in
§ 327.3 Payment of assessments. billion or more, excluding assets as its report of condition for four
* * * * * described in § 327.17(e), as of December consecutive quarters, excluding assets
31, 2006 (other than an insured branch as described in § 327.17(e), the
63 5 U.S.C. 808(2). of a foreign bank or a highly complex institution shall be deemed a small
64 See 12 U.S.C. 1817(b)(1)(F). institution) shall be classified as a large institution for assessment purposes.
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38293
■ 5. Add § 327.17 to read as follows: beginning April 1, 2020, the FDIC will subpart, when calculating the loss
take the following actions when severity measure described under
§ 327.17 Mitigating the Deposit Insurance calculating the assessment rate for large appendix A to this subpart, the FDIC
Assessment Effect of Participation in the
Money Market Mutual Fund Liquidity
institutions and highly complex will exclude:
Facility, the Paycheck Protection Program institutions under § 327.16: (i) The total outstanding balance of
Liquidity Facility, and the Paycheck (1) Exclusion of Paycheck Protection borrowings from the Federal Reserve
Protection Program. Program loans from average short-term Banks under the Paycheck Protection
(a) Mitigating the assessment effects of funding ratio, core earnings ratio, Program Liquidity Facility, as reported
loans provided under the Paycheck growth-adjusted portfolio concentration on the Consolidated Report of Condition
Protection Program for established small measure, and trading asset ratio. As and Income, from short- and long-term
described in appendix E of this subpart, secured borrowings, as appropriate; and
institutions. Applicable beginning April
the FDIC will exclude the outstanding (ii) The outstanding balance of loans
1, 2020, the FDIC will take the following
balance of loans provided under the provided under the Paycheck Protection
actions when calculating the assessment Program, as reported on the
Paycheck Protection Program, as
rate for established small institutions Consolidated Report of Condition and
reported on the Consolidated Report of
under § 327.16: Income, from an institution’s balance of
Condition and Income, from the
(1) Exclusion of loans provided under commercial and industrial loans. To the
calculation of the average short-term
the Paycheck Protection Program from extent that the outstanding balance of
funding ratio, the core earnings ratio,
net income before taxes ratio, loans provided under the Paycheck
the growth-adjusted portfolio
nonperforming loans and leases ratio, Protection Program exceeds an
concentration measure, and the trading
other real estate owned ratio, brokered institution’s balance of commercial and
asset ratio.
deposit ratio, and one-year asset growth (2) Exclusion of Paycheck Protection industrial loans, the FDIC will exclude
measure. As described in appendix E to Program Liquidity Facility borrowings any remaining balance from all other
this subpart, the FDIC will exclude the from core deposit ratio. As described in loans, up to the total amount of all other
outstanding balance of loans provided appendix E of this subpart, the FDIC loans, followed by agricultural loans, up
under the Paycheck Protection Program, will exclude the total outstanding to the total amount of agricultural loans,
as reported on the Consolidated Report balance of borrowings from the Federal as reported on the Consolidated Report
of Condition and Income, from the total Reserve Banks under the Paycheck of Condition and Income. To the extent
assets in the calculation of the following Protection Program Liquidity Facility, as that an institution’s outstanding balance
risk measures: Net income before taxes reported on the Consolidated Report of of loans provided under the Paycheck
ratio, the nonperforming loans and Condition and Income, from the Protection Program exceeds its
leases ratio, the other real estate owned calculation of the core deposit ratio. borrowings from the Federal Reserve
ratio, the brokered deposit ratio, and the (3) Exclusion of Paycheck Protection Banks under the Paycheck Protection
one-year asset growth measure, which Program Liquidity Facility borrowings Program Liquidity Facility, the FDIC
are described in § 327.16(a)(1)(ii)(A). from balance sheet liquidity ratio. As will add the amount of outstanding
(2) Exclusion of loans provided under described in appendix E to this subpart, loans provided under the Paycheck
the Paycheck Protection Program from when calculating the balance sheet Protection Program in excess of
Loan Mix Index. As described in liquidity measure described under borrowings under the Paycheck
appendix E to this subpart A, when appendix A to this subpart, the FDIC Protection Program Liquidity Facility to
calculating the loan mix index will: cash.
described in § 327.16(a)(1)(ii)(B), the (i) Include the outstanding balance of (c) Mitigating the effects of loans
FDIC will exclude: loans provided under the Paycheck provided under the Paycheck Protection
(i) The outstanding balance of loans Protection Program that exceed total Program and assets purchased under
provided under the Paycheck Protection borrowings from the Federal Reserve the Money Market Mutual Fund
Program, as reported on the Banks under the Paycheck Protection Liquidity Facility on the unsecured
Consolidated Report of Condition and Program Liquidity Facility, as reported adjustment, depository institution debt
Income, from the total assets; and on the Consolidated Report of Condition adjustment, and the brokered deposit
(ii) The outstanding balance loans and Income, in the amount of highly adjustment to an insured depository
provided under the Paycheck Protection liquid assets until September 30, 2020, institution’s assessment rate. As
Program, as reported on the or, if the Board of Governors of the described in appendix E to this subpart,
Consolidated Report of Condition and Federal Reserve System and the when calculating an insured depository
Income, from an established small Secretary of the Treasury determine to institution’s unsecured debt adjustment,
institution’s balance of commercial and extend the Paycheck Protection Program depository institution debt adjustment,
industrial loans. To the extent that the Liquidity Facility, until such date of or the brokered deposit adjustment
outstanding balance of loans provided extension; and described in § 327.16(e), as applicable,
under the Paycheck Protection Program (ii) Exclude the outstanding balance the FDIC will exclude the outstanding
exceeds an established small of borrowings from the Federal Reserve balance of loans provided under the
institution’s balance of commercial and Banks under the Paycheck Protection Paycheck Protection Program and the
industrial loans, as reported on the Program Liquidity Facility with a quarterly average amount of assets
Consolidated Report of Condition and remaining maturity of one year or less purchased under the Money Market
Income, the FDIC will exclude any from other borrowings with a remaining Mutual Fund Liquidity Facility, both as
remaining balance of these loans from maturity of one year or less, both as reported on the Consolidated Report of
the balance of agricultural loans, up to reported on the Consolidated Report of Condition and Income.
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the amount of agricultural loans, in the Condition and Income. (4) Exclusion of (d) Mitigating the effects on the
calculation of the loan mix index. loans provided under the Paycheck assessment base attributable to loans
(b) Mitigating the assessment effects Protection Program and Paycheck provided under the Paycheck Protection
of loans provided under the Paycheck Protection Program Liquidity Facility Program and participation in the Money
Protection Program for large or highly borrowings from loss severity measure. Market Mutual Fund Liquidity Facility.
complex institutions. Applicable As described in appendix E to this As described in appendix E to this
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38294 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
subpart, when calculating an insured FDIC, and the quarterly average amount of Condition and Income, may request
depository institution’s quarterly of assets purchased under the Money that the FDIC determine its assessment
deposit insurance assessment payment Market Mutual Fund Liquidity Facility, rate as a large institution under
due under this part, the FDIC will as reported in the Report of Assets and § 327.16(f).
provide an offset to an institution’s Liabilities of U.S. Branches and (f) Definitions. For the purposes of
assessment for the increase to its Agencies of Foreign Banks, and this section:
assessment base attributable to multiply the sum by an institution’s (1) Paycheck Protection Program. The
participation in the Money Market total base assessment rate, as calculated term ‘‘Paycheck Protection Program’’
Mutual Fund Liquidity Facility and under § 327.16. means the program of that name that
loans provided under the Paycheck (2) Calculation of assessment amount
was created in section 1102 of the
Protection Program. due. The FDIC will subtract the offset
Coronavirus Aid, Relief, and Economic
(1) Calculation of offset amount. (i) To amount described in § 327.17(d)(1) from
Security Act.
determine the offset amount, the FDIC an insured depository institution’s total
will take the sum of the outstanding assessment amount, consistent with (2) Paycheck Protection Program
balance of loans provided under the § 327.3(b)(1). Liquidity Facility. The term ‘‘Paycheck
Paycheck Protection Program and the (e) Mitigating the effects of loans Protection Program Liquidity Facility’’
quarterly average amount of assets provided under the Paycheck Protection means the program of that name that
purchased under the Money Market Program and assets purchased under was announced by the Board of
Mutual Fund Liquidity Facility, both as the Money Market Mutual Fund Governors of the Federal Reserve
reported on the Consolidated Report of Liquidity Facility on the classification of System on April 9, 2020, and renamed
Condition and Income, and multiply the insured depository institutions as small, as such on April 30, 2020.
sum by an institution’s total base large, or highly complex for deposit (3) Money Market Mutual Fund
assessment rate, as calculated under insurance purposes. When classifying Liquidity Facility. The term ‘‘Money
§ 327.16, including any adjustments an insured depository institution as Market Mutual Fund Liquidity Facility’’
under § 327.16(e). small, large, or complex for assessment means the program of that name
(ii) To the extent that an institution purposes under § 327.8, the FDIC will announced by the Board of Governors of
does not report the outstanding balance exclude from an institution’s total assets the Federal Reserve System on March
of loans provided under the Paycheck the outstanding balance of loans 18, 2020.
Protection Program, such as in an provided under the Paycheck Protection ■ 6. Add appendix E to subpart A of
insured branch’s Report of Assets and Program and the balance of assets part 327 to read as follows:
Liabilities of U.S. Branches and purchased under the Money Market
Agencies of Foreign Banks, the FDIC Mutual Fund Liquidity Facility Appendix E to Subpart A of Part 327—
will take the sum of either the quarterly outstanding, both as reported on the Mitigating the Deposit Insurance
average amount of loans pledged to the Consolidated Report of Condition and Assessment Effect of Participation in
Paycheck Protection Program Liquidity Income. Any institution with assets of the Money Market Mutual Fund
Facility as reported in the Report of between $5 billion and $10 billion, Liquidity Facility, the Paycheck
Assets and Liabilities of U.S. Branches excluding the outstanding balance of Protection Program Liquidity Facility,
and Agencies of Foreign Banks, or the loans provided under the Paycheck and the Paycheck Protection Program
outstanding balance of loans provided Protection Program and the balance of I. Mitigating the Assessment Effects of
under the Paycheck Protection Program, assets purchased under the MMLF, both Paycheck Protection Program Loans for
as such certified data is provided to the as reported on the Consolidated Report Established Small Institutions
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 by adjusted average assets. (Numerator and de- No Exclusion.
nominator are both based on the definition for prompt corrective ac-
tion.)
Net Income before Taxes/Total As- Income (before applicable income taxes and discontinued operations) Exclude from total assets the outstanding balance of
sets (%). for the most recent twelve months divided by total assets 1. loans provided under the Paycheck Protection Pro-
gram.
Nonperforming Loans and Leases/ Sum of total loans and lease financing receivables past due 90 or Exclude from gross assets the outstanding balance
Gross Assets (%). more days and still accruing interest and total nonaccrual loans and of loans provided under the Paycheck Protection
lease financing receivables (excluding, in both cases, the maximum Program.
amount recoverable from the U.S. Government, its agencies or gov-
ernment-sponsored enterprises, under guarantee or insurance provi-
sions) divided by gross assets 2.
Other Real Estate Owned/Gross Other real estate owned divided by gross assets 2 ................................. Exclude from gross assets the outstanding balance
Assets (%). of loans provided under the Paycheck Protection
Program.
Brokered Deposit Ratio ................... The ratio of the difference between brokered deposits and 10 percent Exclude from total assets (in both numerator and de-
of total assets to total assets. For institutions that are well capitalized nominator) the outstanding balance of loans pro-
and have a CAMELS composite rating of 1 or 2, brokered reciprocal vided under the Paycheck Protection Program.
deposits as defined in § 327.8(q) are deducted from brokered depos-
its. If the ratio is less than zero, the value is set to zero.
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Weighted Average of C, A, M, E, L, The weighted sum of the ‘‘C,’’ ‘‘A,’’ ‘‘M,’’ ‘‘E‘‘, ‘‘L‘‘, and ‘‘S’’ CAMELS No Exclusion.
and S Component Ratings. 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 risk described paragraph (A) of this section ........... Exclusions are described in paragraph (A) of this
section.
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38295
TABLE E.1—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR
ESTABLISHED SMALL INSTITUTIONS—Continued
Variables Description Exclusions
One-Year Asset Growth (%) ............ Growth in assets (adjusted for mergers 3) over the previous year in ex- Exclude from total assets (in both numerator and de-
cess of 10 percent.4 If growth is less than 10 percent, the value is nominator) the outstanding balance of loans pro-
set to zero. vided under the Paycheck Protection Program.
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 the Paycheck Protection Program exceeds the provided under the Paycheck Protection
Mix Index assigns loans in an institution’s balance of commercial and industrial loans, Program by the associated weighted average
loan portfolio to the categories of loans exclude the remaining balance from the charge-off rate for that loan category, and
described in the following table. Exclude balance of agricultural loans, up to the total summing the products for all loan categories.
from the balance of commercial and amount of agricultural loans. The Loan Mix The table gives the weighted average charge-
industrial loans the outstanding balance of Index is calculated by multiplying the ratio
loans provided under the Paycheck of an institution’s amount of loans in a off rate for each category of loan. The Loan
Protection Program. In the event that the particular loan category to its total assets, Mix Index excludes credit card loans.
outstanding balance of loans provided under excluding the outstanding balance of loans (b) [Reserved]
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
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS
Scorecard Measures1 Description Exclusions
Leverage Ratio .................................................... Tier 1 capital for Prompt Corrective Action (PCA) divided by ad- No Exclusion.
justed average assets based on the definition for prompt cor-
rective action.
Concentration Measure for Large Insured de- The concentration score for large institutions is the higher of the
pository institutions (excluding Highly Com- following two scores:
plex Institutions).
(1) Higher-Risk Assets/Tier 1 Capital and Sum of construction and land development (C&D) loans (funded No Exclusion.
Reserves. and unfunded), higher-risk commercial and industrial (C&I)
loans (funded and unfunded), nontraditional mortgages, high-
er-risk consumer loans, and higher-risk securitizations divided
by Tier 1 capital and reserves. See Appendix C for the de-
tailed description of the ratio.
(2) Growth-Adjusted Portfolio Concentra- The measure is calculated in the following steps:
tions. (1) Concentration levels (as a ratio to Tier 1 capital and re-
serves) 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),.
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• 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.
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38296 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard Measures1 Description Exclusions
(3) Concentration levels are multiplied by risk weights and
squared to produce a risk-adjusted concentration ratio for
each portfolio.
(4) Three-year merger-adjusted portfolio growth rates are then Exclude from C&I loan growth rate the out-
scaled to a growth factor of 1 to 1.2 where a 3-year cumu- standing amount of loans provided under the
lative growth rate of 20 percent or less equals a factor of 1 Paycheck Protection Program.
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 Highly Complex In- Concentration score for highly complex institutions is the highest
stitutions. of the following three scores:
(1) Higher-Risk Assets/Tier 1 Capital and Sum of C&D loans (funded and unfunded), higher-risk C&I loans No Exclusion.
Reserves. (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 Exposure/Tier 1 Sum of the 20 largest total exposure amounts to counterparties No Exclusion.
Capital and Reserves. 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, se-
curities financing transactions (SFTs), and cleared trans-
actions, and its gross lending exposure (including all un-
funded 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 expo-
sures to one counterparty (or borrower). Counterparty expo-
sure excludes all counterparty exposure to the U.S. Govern-
ment 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, in-
cluding OTC derivatives, cleared transactions that are deriva-
tive 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 ap-
proach set forth in 12 CFR 324.37(b) or (c). For both deriva-
tives and SFT exposures, the exposure amount to central
counterparties must also include the default fund contribution.
(3) Largest Counterparty Exposure/Tier 1 The largest total exposure amount to one counterparty divided No Exclusion.
Capital and Reserves. 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 un-
funded 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 expo-
sures to one counterparty (or borrower). Counterparty expo-
sure excludes all counterparty exposure to the U.S. Govern-
ment 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, in-
cluding OTC derivatives, cleared transactions that are deriva-
tive 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 ap-
proach set forth in 12 CFR 324.37(b) or (c). For both deriva-
tives and SFT exposures, the exposure amount to central
counterparties must also include the default fund contribution.
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38297
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard Measures1 Description Exclusions
Core Earnings/Average Quarter-End Total As- Core earnings are defined as net income less extraordinary Prior to averaging, exclude from total assets for
sets. items and tax-adjusted realized gains and losses on available- the applicable quarter-end periods the out-
for-sale (AFS) and held-to-maturity (HTM) securities, adjusted standing balance of loans provided under the
for mergers. The ratio takes a four-quarter sum of merger-ad- Paycheck Protection Program.
justed core earnings and divides it by an average of five quar-
ter-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 Items/Tier 1 Sum of criticized and classified items divided by the sum of Tier No Exclusion.
Capital and Reserves. 1 capital and reserves. Criticized and classified items include
items an institution or its primary federal regulator have grad-
ed ‘‘Special Mention’’ or worse and include retail items under
Uniform Retail Classification Guidelines, securities, funded
and unfunded loans, other real estate owned (ORE), other as-
sets, and marked-to-market counterparty positions, less credit
valuation adjustments. Criticized and classified items exclude
loans and securities in trading books, and the amount recov-
erable from the U.S. government, its agencies, or govern-
ment-sponsored enterprises, under guarantee or insurance
provisions.
(2) Underperforming Assets/Tier 1 Capital Sum of loans that are 30 days or more past due and still accru- No Exclusion.
and Reserves. ing interest, nonaccrual loans, restructured loans (including
restructured 1–4 family loans), and ORE, excluding the max-
imum amount recoverable from the U.S. government, its
agencies, or government-sponsored enterprises, under guar-
antee or insurance provisions, divided by a sum of Tier 1 cap-
ital and reserves.
Core Deposits/Total Liabilities ...................... Total domestic deposits excluding brokered deposits and unin- Exclude from total liabilities outstanding bor-
sured non-brokered time deposits divided by total liabilities. rowings from Federal Reserve Banks under
the Paycheck Protection Program Liquidity
Facility with a maturity of one year or less
and outstanding borrowings from the Federal
Reserve Banks under the Paycheck Protec-
tion Program Liquidity Facility with a maturity
of greater than one year.
Balance Sheet Liquidity Ratio ...................... Sum of cash and balances due from depository institutions, fed- Include in highly liquid assets the outstanding
eral funds sold and securities purchased under agreements to balance of PPP loans that exceed borrowings
resell, and the market value of available for sale and held to from the Federal Reserve Banks under the
maturity agency securities (excludes agency mortgage- PPPLF, until September 30, 2020, or if ex-
backed securities but includes all other agency securities tended by the Board of Governors of the Fed-
issued by the U.S. Treasury, U.S. government agencies, and eral Reserve System and the Secretary of the
U.S. government sponsored enterprises) divided by the sum Treasury, until such date of extension.
of federal funds purchased and repurchase agreements, other Exclude from other borrowings with a remaining
borrowings (including FHLB) with a remaining maturity of one maturity of one year or less the balance of
year or less, 5 percent of insured domestic deposits, and 10 outstanding borrowings from the Federal Re-
percent of uninsured domestic and foreign deposits. serve Banks under the Paycheck Protection
Program Liquidity Facility with a remaining
maturity of one year or less.
Potential Losses/Total Domestic Deposits (Loss Potential losses to the DIF in the event of failure divided by total Exclusions are described in paragraph (A) of
Severity Measure). domestic deposits. Paragraph [A] of this section describes the this section.
calculation of the loss severity measure in detail.
Market Risk Measure for Highly Complex Institu- The market risk score is a weighted average of the following
tions. three scores:
(1) Trading Revenue Volatility/Tier 1 Capital Trailing 4-quarter standard deviation of quarterly trading revenue No Exclusion.
(merger-adjusted) divided by Tier 1 capital.
(2) Market Risk Capital/Tier 1 Capital .......... Market risk capital divided by Tier 1 capital ................................. No Exclusion.
(3) Level 3 Trading Assets/Tier 1 Capital .... Level 3 trading assets divided by Tier 1 capital ........................... No Exclusion.
Average Short-term Funding/Average Total As- Quarterly average of federal funds purchased and repurchase Exclude from the quarterly average of total as-
sets. agreements divided by the quarterly average of total assets sets the outstanding balance of loans pro-
as reported on Schedule RC–K of the Call Reports. vided under the Paycheck Protection Pro-
gram.
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 outstanding balance of loans provided under the Paycheck Protection Program.
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(a) Description of the loss severity measure. institution’s failure. To determine an composition of the institution’s liabilities.
The loss severity measure applies a institution’s loss severity rate, the FDIC first Exclude total outstanding borrowings from
standardized set of assumptions to an applies assumptions about uninsured deposit Federal Reserve Banks under the Paycheck
institution’s balance sheet to measure and other liability runoff, and growth in Protection Program Liquidity Facility from
possible losses to the FDIC in the event of an insured deposits, to adjust the size and short-and long-term secured borrowings, as
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38298 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
appropriate. Assets are then reduced to loans, up to the total amount of agricultural applied to estimated assets and liabilities at
match any reduction in liabilities. Exclude loans. Increase cash balances by outstanding failure to determine whether the institution
from an institution’s balance of commercial loans provided under the Paycheck has enough unencumbered assets to cover
and industrial loans the outstanding balance Protection Program that exceed total domestic deposits. Any projected shortfall is
of loans provided under the Paycheck outstanding borrowings from Federal Reserve divided by current domestic deposits to
Protection Program. In the event that the Banks under the Paycheck Protection
obtain an end-of-period loss severity ratio.
outstanding balance of loans provided under Program Liquidity Facility, if any. The
the Paycheck Protection Program exceeds the institution’s asset values are then further The loss severity measure is an average loss
balance of commercial and industrial loans, reduced so that the Leverage Ratio reaches 2 severity ratio for the three most recent
exclude any remaining balance of loans percent. In both cases, assets are adjusted pro quarters of data available.
provided under the Paycheck Protection rata to preserve the institution’s asset
Runoff and Capital Adjustment Assumptions
Program first from the balance of all other composition. Assumptions regarding loss
loans, up to the total amount of all other rates at failure for a given asset category and Table E.3 contains run-off assumptions.
loans, followed by the balance of agricultural the extent of secured liabilities are then
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 borrowings from the Federal Reserve Banks under the PPPLF < = 1
Year .............................................................................................................................................................................................. 25
Subordinated Debt and Limited Liability Preferred Stock ............................................................................................................... 15
* A negative rate implies growth.
Given the resulting total liabilities after under the Paycheck Protection Program • Multifamily Real Estate Loans;
runoff, assets are then reduced pro rata to Liquidity Facility; • 1—4 Family Closed-End First Liens;
preserve the relative amount of assets in each • Trading Account Assets; • 1—4 Family Closed-End Junior Liens;
of the following asset categories and to • Federal Funds Sold and Repurchase • Revolving Home Equity Loans; and
Agreements; • Agricultural Real Estate Loans
achieve a Leverage Ratio of 2 percent:
• Treasury and Agency Securities;
• Cash and Interest Bearing Balances, • Municipal Securities; Recovery Value of Assets at Failure
including outstanding loans provided under • Other Securities;
the Paycheck Protection Program in excess of • Construction and Development Loans Table E.4—shows loss rates applied to each
borrowings from Federal Reserve Banks • Nonresidential Real Estate Loans; 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 outstanding loans provided under the Paycheck Protection Program in excess
of borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility ................................... 0.0
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 loans under the Paycheck Protection Program, as described in § 327.17 and this
appendix ....................................................................................................................................................................................... 11.8
Commercial and Industrial Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17
and this appendix ......................................................................................................................................................................... 21.5
Credit Card Loans ........................................................................................................................................................................... 18.3
Other Consumer Loans ................................................................................................................................................................... 18.3
All Other Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17 and this appen-
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dix ................................................................................................................................................................................................. 51.0
Other Assets .................................................................................................................................................................................... 75.0
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations 38299
Secured Liabilities at Failure fully secured because of the potential for ring Loss Severity Ratio Calculation
fencing. The FDIC’s loss given failure (LGD) is
Federal Home Loan Bank advances,
Exclude total outstanding borrowings from
secured federal funds purchased and the Federal Reserve Banks under the calculated as:
repurchase agreements are assumed to be Paycheck Protection Program Liquidity
fully secured. Foreign deposits are treated as Facility.
An end-of-quarter loss severity ratio is LGD III. Mitigating the Effects of Loans Provided
divided by total domestic deposits at quarter- Under the Paycheck Protection Program and
end and the loss severity measure for the Assets Purchased Under the Money Market
scorecard is an average of end-of-period loss Mutual Fund Liquidity Facility on the
severity ratios for three most recent quarters. Unsecured Adjustment, Depository
Institution Debt Adjustment, and the
(b) [Reserved]
Brokered Deposit Adjustment to an IDI’s
Assessment Rate
TABLE E.5—EXCLUSIONS FROM ADJUSTMENTS TO THE INITIAL BASE ASSESSMENT RATE
Adjustment Calculation Exclusion
Unsecured debt adjustment ............. The unsecured debt adjustment shall be determined as the sum of the Exclude from the assessment base the outstanding
initial base assessment rate plus 40 basis points; that sum shall be balance of loans provided under the Paycheck Pro-
multiplied by the ratio of an insured depository institution’s long-term tection Program and the quarterly average amount
unsecured debt to its assessment base. The amount of the reduction of assets purchased under the Money Market Mu-
in the assessment rate due to the adjustment is equal to the dollar tual Fund Liquidity Facility.
amount of the adjustment divided by the amount of the assessment
base.
Depository institution debt adjust- An insured depository institution shall pay a 50 basis point adjustment Exclude from the assessment base the outstanding
ment. on the amount of unsecured debt it holds that was issued by another balance of loans provided under the Paycheck Pro-
insured depository institution to the extent that such debt exceeds 3 tection Program and the quarterly average amount
percent of the institution’s Tier 1 capital. This amount is divided by of assets purchased under the Money Market Mu-
the institution’s assessment base. The amount of long-term unse- tual Fund Liquidity Facility.
cured 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 bal-
ance sheets.
Brokered deposit adjustment ........... The brokered deposit adjustment shall be determined by multiplying 25 Exclude from the assessment base the outstanding
basis points by the ratio of the difference between an insured depos- balance of loans provided under the Paycheck Pro-
itory institution’s brokered deposits and 10 percent of its domestic tection Program and the quarterly average amount
deposits to its assessment base. of assets purchased under the Money Market Mu-
tual Fund Liquidity Facility.
IV. Mitigating the Effects on the Assessment BUREAU OF CONSUMER FINANCIAL mortgages. Regulation Z states that an
Base Attributable to Loans Provided Under PROTECTION area is ‘‘underserved’’ during a calendar
the Paycheck Protection Program and year if, according to Home Mortgage
Participation in the Money Market Mutual 12 CFR Part 1026 Disclosure Act (HMDA) data for the
Fund Liquidity Facility
preceding calendar year, it is a county
Total Assessment Amount Due = Total Truth in Lending (Regulation Z);
in which no more than two creditors
Assessment Amount LESS: (SUM Determining ‘‘Underserved’’ Areas
extended covered transactions, as
(Outstanding balance of loans provided Using Home Mortgage Disclosure Act
Data defined in Regulation Z, secured by first
under the Paycheck Protection Program and
liens on properties in the county five or
quarterly average amount of assets purchased
AGENCY: Bureau of Consumer Financial more times. The official commentary
under the Money Market Mutual Fund
Liquidity Facility) * Total Base Assessment Protection. provides an interpretation relating to
Rate) ACTION: Interpretive rule. this standard that refers to certain data
elements from the previous version of
Federal Deposit Insurance Corporation. the Bureau’s Regulation C, which
SUMMARY: This interpretive rule
By order of the Board of Directors. construes the Bureau of Consumer implements HMDA, that were modified
Dated at Washington, DC, on June 22, 2020. Financial Protection’s (Bureau’s) or eliminated in the 2015 amendments
James P. Sheesley, Regulation Z, which implements the to Regulation C. The Bureau is issuing
Acting Assistant Executive Secretary. Truth in Lending Act (TILA). The this interpretive rule to supersede that
[FR Doc. 2020–13751 Filed 6–24–20; 2:30 pm]
Bureau produces annually a list of rural now outdated interpretation,
and underserved counties and areas that specifically by describing below the
BILLING CODE 6714–01–P
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is used in applying various Regulation HMDA data that will instead be used in
Z provisions, such as the exemption determining that an area is
from the requirement to establish an ‘‘underserved.’’
escrow account for a higher-priced
mortgage loan and the ability to DATES: This interpretive rule is effective
originate balloon-payment qualified on June 26, 2020.
ER26JN20.300</GPH>
VerDate Sep<11>2014 16:24 Jun 25, 2020 Jkt 250001 PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 E:\FR\FM\26JNR1.SGM 26JNR1
File and source
- File
- FR-2020-06-26_2020-13751.pdf
- Size
- 347,135 bytes
- SHA-256
- 9b50ee2dc2a16da8ea5a438baeddfb39ca38e781bef9f442d3c7b8e9ad106eeb
- Our copy
- FR-2020-06-26_2020-13751.pdf
- Original
- www.govinfo.gov