�౦��Ϸ����

AAC-99-03 (June 2, 1999)

Decision

This administrative appeal concerns whether [Bank] (X) or (“Bank”)1 should be permitted to recalculate its adjusted attributable deposit amount (“AADA”) as a result of a 1991 amendment to section 5 of the Federal Deposit Insurance Act regarding the computation of an Oakar institution's AADA.2 That amendment3 eliminated the minimum seven percent annual growth rate for computing an Oakar institution’s AADA. X is appealing a decision by the �౦��Ϸ����’s Division of Finance (“DOF”) denying the Bank’s request to adjust its AADA. X contends that it has paid over $2.5 million in excess assessments because of the Bank’s incorrect calculation of the Bank’s AADA.

Background

The �౦��Ϸ���� is charged with assessing and collecting deposit insurance premiums for the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”). This process is fairly straightforward for insured depository institutions that hold only deposits insured by one insurance fund. The process becomes significantly more complicated, however, when the institution is one of the more than 800 existing Oakar institutions, which have deposits insured by both the BIF and the SAIF.

Under the Oakar Amendment4 a BIF-insured institution that acquires deposits from a SAIF-insured institution is an “Oakar” institution. As such, it is treated by statute as a hybrid institution required to pay deposit insurance assessments to both its primary and secondary insurance funds. The “primary fund” is the deposit insurance fund of which the institution is a member.5 The “secondary fund” is the insurance fund that is not the member’s primary fund.6 For example, a “BIF Oakar,” is a member of the BIF but a portion of its assessment base is also allocated to the SAIF. The deposits attributed to the institution’s secondary fund are based upon the institution’s AADA, which is computed and adjusted over time pursuant to the statutory formula contained in the Oakar Amendment. Under the FDI Act, assessments on BIF-insured deposits are paid into the BIF and assessments on SAIF-insured deposits are paid into the SAIF.7 Also, �౦��Ϸ���� losses resulting from the failure of an Oakar institution are shared, pro rata, by BIF and SAIF.8 The AADA is the means by which an Oakar institution’s deposits are allocated for assessment and fund loss-allocation purposes.

In 1990 the Oakar Amendment provided, in relevant part, that the AADA consisted of the sum of:

(i) the amount of Oakar deposits acquired;
(ii) the total of amounts for previous semiannual periods required 
to be included pursuant to calculations stated in (iii) below; and
(iii) the amount by which the sum of the amounts described in
clause (i) and (ii) would have increased during the previous
semiannual period (other than any semiannual period beginning
before the date of the transaction) if such increase occurred at a 
rate equal to the greater of – (I) an annual rate of 7 percent; or
(II) the annual rate of growth of [the institution’s overall deposits].

In �౦��Ϸ����IA, Congress modified the Oakar Amendment by eliminating the minimum seven percent annual growth assumption and retained only the method of calculation based on the actual growth of the institution’s overall deposits. The revised statute stated that the third component of an institution’s AADA consists of:

The amount by which the sum of the amounts described in clauses (i)
and (ii) would have increased during the preceding semiannual period
(other than any semiannual period before the date of the transaction) if
such increase occurred at a rate equal to the annual growth of [the
institution’s overall deposits].9

�౦��Ϸ����IA specified that this change to the Oakar Amendment “shall apply with respect to semiannual periods beginning after the date of enactment of [�౦��Ϸ����IA].”10 �౦��Ϸ����IA’s enactment date was December 19, 1991. The first semiannual period beginning after �౦��Ϸ����IA’s enactment started on January 1, 1992, the beginning of the January-June 1992 semiannual assessment period.

X is an Oakar bank. It acquired SAIF-insured deposits on December 14, 1990. Under procedures in place at the time, as of December 31, 1991, the Bank completed and submitted the required AADA growth worksheets identifying deposit growth for the annual period, December 31, 1990, through December 31, 1991. Based on this deposit-growth analysis, the Bank reported to the �౦��Ϸ���� a composite AADA of approximately $2.4 billion. That total included the pre-�౦��Ϸ����IA minimum seven percent annual increase required by the Oakar statute. (The Bank asserts that its actual deposit-growth rate for that period was negative seven percent.) More than seven years later, in May 1998, X sought to amend the Bank’s December 31, 1991, AADA and all subsequent AADAs that the Bank had reported, so that the revised AADAs would not reflect the minimum seven percent annual growth rate.11

In a letter dated September 17, 1998, the Deputy Director of DOF denied X’s request, concluding that the �౦��Ϸ����IA revisions to the Oakar Amendment did not apply to AADA determinations made as of a date prior to the first semiannual period of 1992. The Bank is appealing that decision, asserting that the �౦��Ϸ���� incorrectly interpreted and implemented �౦��Ϸ����IA’s elimination of the minimum seven percent annual growth rate.12

Discussion

Under the statutory scheme, the assessment process requires that the assessment base in one semiannual period serve as a “proxy” for the assessment base of the next assessment period.13 For example, the assessment for the January-June assessment period of a particular year is based upon deposit data reported by an institution for the July-December period of the prior year. When the Oakar Amendment was enacted in 198914 the �౦��Ϸ���� developed a program to administer its provisions and developed a procedure to calculate AADAs. An Oakar institution’s AADA was redetermined on a yearly basis, as of the end of the corresponding calendar quarter in each following year. Pursuant to the Oakar Amendment, the growth rate applied in making that calculation was the Oakar institution’s actual growth rate for the prior twelve-month period. If, however, the actual growth rate was less than seven percent, the statutory minimum rate of seven percent was applied.

X participated in an Oakar transaction during December 1990. According to the procedures explained above, the Bank’s AADA was established as of December 31, 1990, based on the dollar amounts of the SAIF-insured deposits so acquired. That AADA was used for the purpose of determining the Bank’s BIF and SAIF assessments payable for the periods beginning in January 1991 and July 1991 – the two subsequent semiannual periods. That AADA also provided the means of allocating X’s deposits between BIF and SAIF for loss-allocation purposes. X’s first AADA adjustment was made as of December 31, 1991.

That redetermination occurred as of a date prior to the beginning of the first semiannual period of 1992. Thus, the adjustment was based on the minimum seven percent annual growth rate then in effect. The AADA determined as of December 31, 1991, was used for computing the Bank’s BIF and SAIF assessments for the January 1992 and July 1992 semiannual periods and for allocating the Bank’s deposits between BIF and SAIF for loss-allocation purposes. The second adjustment of X’s AADA was made the following year. This second adjustment, and all subsequent adjustments, reflected the Bank’s actual growth rate, in accordance with the post-�౦��Ϸ����IA Oakar Amendment.

X contends that the �౦��Ϸ���� misapplied the plain language of �౦��Ϸ����IA’s effective date provision and inaccurately described the effect of the Bank’s refund request on the allocation of insurance risk. On the first contention, X argues that “the AADA in question was calculated after �౦��Ϸ����IA’s effective date, covered a period after �౦��Ϸ����IA’s effective date, and was used for purposes of a semiannual assessment that was payable after �౦��Ϸ����IA’s effective date. Accordingly, … X’s AADA for the first half of 1992 should have been computed under the [�౦��Ϸ����IA amendment.]”

As noted above, �౦��Ϸ����IA stated that the amendment to the AADA statute was to apply “with respect to semiannual periods beginning after the date of the enactment of [�౦��Ϸ����IA],” December 19, 1991. The �౦��Ϸ���� interpreted this effective date provision to mean that the �౦��Ϸ����IA revision would apply to all AADA growth calculations for periods during and after the first semiannual period of 1992.15 It did not interpret the �౦��Ϸ����IA revisions as requiring the �౦��Ϸ���� to change AADA growth determinations, under the pre-�౦��Ϸ����IA rules, for periods before 1992. To do otherwise would have required the �౦��Ϸ���� to apply the �౦��Ϸ����IA revisions retroactively.

The AADA used to allocate X’s deposits between BIF and SAIF for both assessment and deposit insurance loss allocation purposes was based on the growth (in X’s overall deposits) that occurred between December 1990 and December 1991. X’s assessment growth cycle ended on December 31, 1991. As of that date, the Bank’s AADA was adjusted by the statutorily required minimum seven percent annual growth rate.

In April 1992, the �౦��Ϸ���� Legal Division concluded in an advisory opinion that the �౦��Ϸ����IA changes to the Oakar Amendment were not intended to be retroactive. The opinion noted that the “effective date” provision was intended, in part, to prevent the midstream disruption of the calculation of AADAs by institutions that participated in Oakar transactions prior to �౦��Ϸ����IA. The opinion concluded that the �౦��Ϸ����IA effective date provision allowed the �౦��Ϸ���� and Oakar institutions to make a smooth transition from the pre-�౦��Ϸ����IA requirements to the post-�౦��Ϸ����IA requirements pertaining to the AADA.16

The �౦��Ϸ���� implemented �౦��Ϸ����IA’s elimination of the AADA minimum seven percent annual growth rate and effective date provision in a manner consistent with the �౦��Ϸ����’s assessment procedures. It integrated the required change to the mathematical formula for calculating AADAs with those established and accepted administrative procedures. Nothing in either �౦��Ϸ����IA or its legislative history suggested that Congress intended to change or contravene the �౦��Ϸ����’s administrative procedures. X’s AADA for the first semiannual period of 1992 was established as of December 31, 1991 – i.e., before 1992 – based on deposit data for the year December 1990 through December 1991. Thus, the AADA was computed using the statutory minimum rate. The �౦��Ϸ����IA revisions came into play when the �౦��Ϸ���� made its next computation of the Bank’s AADA.

X also disputes the conclusion reached in the DOF response letter of September 17, 1998, that recalculating the Bank’s AADAs would result in a retroactive reallocation of risk to the deposit insurance funds. As indicated above, an institution’s AADA serves an insurance loss-allocation purpose as well as an assessment purpose. This loss allocation is based on the failed institution’s AADA as of the assessment growth period immediately prior to the date of failure. Contrary to the Bank’s assertion, if X had failed on January 5, 1992, for instance, (i.e., a date after the date as of which its AADA was redetermined but before X submitted the Growth Sheet showing the Bank’s recalculated AADA) the �౦��Ϸ���� would have allocated the losses attributed to X’s failure to BIF and SAIF based on its AADA determined as of December 31, 1991. The �౦��Ϸ���� does not look to the completion of a form to establish the effective date of an institution”s AADA. The effective date of an AADA is the end of the assessment growth period.

Moreover, �౦��Ϸ���� programs, policies, reports and other substantive and procedural matters are affected by the relative risks presented to the insurance funds based on the dollar amount and risk involved in deposits insured by the BIF and SAIF, respectively. The �౦��Ϸ���� interpreted the �౦��Ϸ����IA provisions in issue as not requiring the �౦��Ϸ���� to retroactively reallocate the relative risks to the deposit insurance funds posed by Oakar institutions.

Congress has established and the �౦��Ϸ���� has been charged with administering a complex deposit insurance assessment scheme. When Congress amended the scheme in �౦��Ϸ����IA and changed the formula for calculating the AADA, the �౦��Ϸ���� interpreted the changes in harmony with the �౦��Ϸ����’s established assessment procedures. The �౦��Ϸ���� implemented the �౦��Ϸ����IA changes uniformly. Nothing in either �౦��Ϸ����IA or its legislative history indicates that Congress intended to alter or invalidate the �౦��Ϸ����’s assessment procedures.17 The staff’s approach was reasonable and is supported by the contemporaneous opinion issued by the �౦��Ϸ����’s Legal Division.

*           *           *

For the reasons discussed herein, under authority delegated by the Board of Directors of the Federal Deposit Insurance Corporation, the Committee denies X’s appeal.

• 1

  X is a subsidiary of Bank Y, who filed this appeal with the Committee. Earlier correspondence on this matter was received directly from X.

• 2

  12 U.S.C. 1815(d)(3)(C).

• 3

  �౦��Ϸ���� Improvement Act of 1991 (“�౦��Ϸ����IA”), Pub. L. No. 102-242, 105 Stat. 2236 (1991).

• 4

  12 U.S.C. 1815(d)(3)(C). The “Oakar Amendment” was named after Congresswoman Mary Rose Oakar, the primary sponsor of the amendment.

• 5

  12 C.F.R. 327.8(j).

• 6

  Id. At 327.8(k).

• 7

  12 U.S.C. 1821(a)(5)&(6)

• 8

  Id.

• 9

  12 U.S.C. 1815(d)(3)(C)(iii)

• 10

  12 U.S.C. 1815 note.

• 11

  The Committee notes that X filed its request with the �౦��Ϸ���� to amend its December 31, 1991, AADA over seven years after that date. Such an amendment would appear to be foreclosed by 12 U.S.C. 1817(g). Although the Committee considered the substantive merits of X’s argument today, the Committee notes that those claims may be barred by the FDI Act. 
  In addition, granting X’s appeal would undermine certainty in the assessment area that institutions have come to rely on since 1991. Adopting X’s new interpretation of �౦��Ϸ����IA’s elimination of the minimum seven percent annual AADA growth rate would affect approximately 75 other institutions. Implementing the Bank’s interpretation would be especially difficult because it has been over seven years since �౦��Ϸ����IA was enacted and many affected Oakar institutions have been acquired by institutions that have themselves been acquired.

• 12

  The �౦��Ϸ���� Board of Directors has delegated to the Assessment Appeals Committee the authority to consider and decide deposit insurance assessment appeals.

• 13

  12 U.S.C. 1817(a).

• 14

  The Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub. L. 101-73, 103 Stat. 183 (1989).

• 15

  The �౦��Ϸ���� did not apply the minimum seven percent annual growth requirement to any institutions having established growth periods ending after the �౦��Ϸ����IA January 1, 1992, effective date, even if the growth period began prior to the effective date.

• 16

  �౦��Ϸ���� Advisory Op. 92-19, 2 �౦��Ϸ���� Law, Regulations, Related Acts 4619 (April 6, 1992).

• 17

  In a recent decision, a federal court of appeals confirmed the deference due to the �౦��Ϸ���� in matters involving the assessment process, particularly with regard to interpretations of ambiguous assessment-related statutes. Branch Banking & Trust Co. v. �౦��Ϸ����, No. 98.1558 (4th Cir. 1999)