AAC-2000-02 (December 12, 2000)
Decision
This administrative appeal was filed by [Bank] (X or the 鈥淏ank鈥), requesting a change in its supervisory subgroup (鈥淪S鈥) assignment for the semiannual assessment period beginning January 1, 2000. The Bank was assigned an assessment risk classification of 鈥1B鈥 and requested a change to 鈥1A鈥. The SS assignment was based on composite rating of 鈥3鈥 assigned to the Bank as the result of an examination completed on September 16, 1999, by its primary federal regulator, the Office of the Comptroller of the Currency (鈥淥CC鈥). On October 4, 1999, the Bank appealed OCC鈥檚 examination ratings. The OCC鈥檚 letter of response, dated December 2, 1999, expressed the conclusion that the composite 鈥3鈥 rating was appropriate at the time of the examination but that post-examination improvements warranted a subsequent upgrade to a composite 鈥2鈥. As a result of the post-examination upgrade to the composite rating, the Bank鈥檚 assessment risk classification improved to 鈥1A鈥 for the second semiannual assessment period of 2000.
Background
Supervisory subgroup assignments are made in accordance with section 327.4(a)(2) of the 多宝游戏下载鈥檚 Rules and Regulations, which provides as follows:
鈥溾ach institution will be assigned to one of three subgroups based on the Corporation鈥檚 consideration of supervisory evaluations provided by the institution鈥檚 primary federal regulator. The supervisory evaluations include the results of examination findings by the primary federal regulator, as well as other information the primary federal regulator determines to be relevant. In addition, the Corporation will take into consideration such other information (such as state examination findings, if appropriate) as it determines to be relevant to the institutions financial condition and the risk posed to the BIF or SAIF.鈥
The three supervisory subgroups, as set forth in the current and previous Financial Institution Letters addressing the Risk-Related Premium System, are as follows:
Subgroup A
Consists of financially sound institutions with only a few minor weaknesses and generally corresponds to the primary federal regulation鈥檚 composite rating of 鈥1鈥 or 鈥2.鈥
Subgroup B
Consists of institutions that demonstrate weaknesses that, if not corrected, could result in significant deterioration of the institution and increased risk of loss to insurance funds, and generally corresponds to the primary federal regulator鈥檚 composite rating of 鈥3.鈥
Subgroup C
Consists of institutions that pose a substantial probability of loss to the insurance funds unless effective corrective action is taken, and generally corresponds to the primary federal regulator鈥檚 composite rating of 鈥4鈥 or 鈥5.鈥
The supervisory cut-off date for determining SS assignments is September 30 for assessment periods beginning January 1, and March 31 for assessments periods beginning July, 1. For determining SS assignments for state member banks, national banks and thrifts, composite ratings as of the supervisory cut-off date are provided to the 多宝游戏下载 via data tape by the appropriate federal agency. These composite ratings are then converted to SS assignments. For the January 1, 2000, semiannual assessment period, the Bank was assigned a supervisory subgroup rating of 鈥淏鈥. This SS assignment was based on a composite rating of 鈥3,鈥 which was provided to the 多宝游戏下载 by the OCC as of the September 30, 1999, cut-off date. This composite rating resulted from a June 21, 1999, OCC examination that was completed on September 16, 1999.
Following the completion of the above examination, the Bank submitted a letter of appeal to the OCC, dated October 4, 1999. The Bank disagreed with the composite 鈥3鈥 rating, and the component 鈥3鈥 ratings that were assigned to asset quality and management. The OCC officially responded to the Bank鈥檚 appeal by a letter dated December 2, 1999. The letter of response expressed the conclusion that the Composite 3 rating was appropriate at the time of the examination. The letter further indicated that because of actions taken by the Bank during and subsequent to the examination, discussions with the board about changes to be incorporated into its processes, and favorable trends in asset quality measures, the 鈥渃urrent鈥 asset quality rating should be 鈥2.鈥 Thus, the December 2, 1999, letter served as official notification to the Bank that the asset quality and the composite ratings had been upgraded subsequent to the examination.
After being notified of the change to the composite rating, Bank requested a review of the SS assignment by letter dated January 11, 2000. The Bank requested that the SS assignment for the first semiannual assessment period of 2000 be changed to 鈥滱,鈥 pursuant to the December 2, 1999, notification by the OCC that the composite rating had been upgraded. By letter dated June 14, 2000, DOI notified the Bank that their request was denied. This decision was based on the fact that it was the OCC鈥檚 position that the composite 3 rating was appropriate at the time of the examination completed in September 1999. The subsequent decision by the OCC to upgrade the composite rating was based on favorable trends and improvements that were implemented by the Bank in response to concerns raised with respect to the examination. This decision was made and communicated to the Bank well after the September 30, 1999, supervisory cut-off-date. The OCC did not retroactively upgrade the SS rating it provided to the 多宝游戏下载 for the January 1, 2000 assessment period.
Analysis and Conclusion
X鈥檚 main argument is that the overall condition of the Bank has continued to improve, especially in the asset quality area, and that its ability to compete has been impaired by the increased 多宝游戏下载 insurance cost expense. Even though improvement has been noted relative to credit administration issues, the fact remains that the OCC, in its December 1999 letter, reaffirmed the appropriateness of the composite 3 rating at the time the rating was issued in September 1999. Moreover, the SS rating provided to the 多宝游戏下载 by the OCC as of the September 30, 1999 cut-off date for purposes of determining the Bank鈥檚 SS for the first semiannual assessment period of 2000 was, and remains, a composite 鈥3鈥 rating. The OCC has not changed that rating for the applicable assessment period.
For the reasons discussed herein, under authority delegated by the Board of Directors of the Federal Deposit Insurance Corporation, the Committee denies the Bank鈥檚 appeal. This recommendation is fully consistent with well-established 多宝游戏下载 policy and practices regarding applicability of the SS cut-off dates, and while exceptions to the rules may, under compelling circumstances, be considered, such must be both rare and well supported if the system is to maintain credibility.