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AAC-2000-01 (December 12, 2000) 

Decision

This Administrative appeal was filed by [Bank X] (X Bank or the “Bank”) requesting a change in its capital group (“CG”) classification for the semiannual assessment period beginning July 1, 1998, and a change in the CG classification for [Bank Y] ("Georgia bank") for the semiannual period beginning January 1, 1997, Bank is successor to the Georgia bank due to a merger transaction on June 1, 1997. The assessment risk classification is “2A” for each bank of the respective assessment periods and a change to “1A” is requested.

In December of 1998, the Parent Corporation discovered reporting errors that affected the calculation of risk-based capital ratios. Call Report amendments for the subject banks were filed to correct the miscalculations and, as a result, capital ratios fell below the well-capitalized criteria thereby changing the CG classifications from “Well Capitalized” to “Adequately Capitalized” for the subject banks.1 Consequently, the assessment invoice for X Bank for the second quarterly payment of the first semiannual assessment period of 2000 included prior period adjustments with interest totaling $6,462,075.49 (this amount included $5,750,089 for X Bank and $711,985.65 for the Georgia Bank).

The Bank claimed that capital ratios are “managed ratios” and had management been aware of reporting errors associated with the calculation of the risk-based capital ratios, sufficient capital was available for pushdown from the parent company to cover the assessment periods in question. The Bank further claimed that more than four times the necessary capital was available to remedy the deficiency for X Bank and more than five times the necessary capital for the Georgia bank. The Bank also indicated that it is the holding company’s policy to manage its subsidiary banks so that “they meet well capitalized risk-based capital standards at all times” and requested that the �౦��Ϸ���� waive the assessment adjustments derived from the assessment risk classification changes.

In a letter dated June 14, 2000, the Associate Director of the Federal Deposit Insurance Corporation’s (“�౦��Ϸ����”) Division of Insurance (“DOI”) denied the Bank’s request to change the CG classifications for the subject banks. X Bank is appealing that decision.

Background

CG assignments are made in accordance with section 327.4(a)(1) of the �౦��Ϸ����’s Rules and Regulations, using the method agreed upon by the Federal Financial Institutions Examination Council (“FFIEC”) Surveillance Task Force for calculating capital ratios. The method utilizes data reported in an institution’s Report of Income and Condition (Call Report) or Thrift Financial Report as of the applicable cut-off date. The June 30, 1996 Call Report was used for the assessment period beginning July 1, 1997, and the December 31, 1997 Call Report was used for the assessment period beginning July 1, 1998. Generally, changes to the CG assignment can only be made by amending the applicable Call Report.

X Bank initially requested a review of the CG assignments by letter dated May 10, 2000 to the �౦��Ϸ����. The materials submitted by X Bank were reviewed and the circumstances were found to be either unique nor the application of the regulation to have been inequitable.

Analysis and Conclusion

In its June 14, 2000 letter of appeal to the Assessment Appeals Committee, X Bank provided no new facts to bolster its assertion that the situation and circumstances are unique and deserve special treatment by the Assessment Appeals Committee. The Bank indicates that sufficient capital was available for pushdown from the parent company to cover the shortfalls. However, the �౦��Ϸ���� evaluates each institution’s capital position and potential risk to the deposit insurance fund on an individual basis. In determining the capital position of a bank that is a member of a bank holding company, the �౦��Ϸ���� evaluates capital according to that which would be required for the bank on its own merit, regardless of its subsidiary position within the holding company. Thus, as a matter of policy, the �౦��Ϸ���� cannot consider capital held at the holding company level as part of a subsidiary bank’s capital base if the capital is not in the bank at the time the institution is being evaluated for deposit insurance assessment purposes. To effectively administer a system such as the risk-related premium system, which covers over 10,000 institutions, consistent application of reasonable rules is extremely important. It is a general belief that 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.

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

• 1

  Based on the amended data, Georgia Bank reports a Total RBC ratio of 9.73 percent and X Bank reports a Total RBC ratio 9.52 percent periods for the subject assessment periods.