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Laws and Regulations

Deposit Insurance Assessment Appeals: Guidelines & Decisions

AAC-99-02 (May 5, 1999)

This administrative appeal concerns whether [Bank] (鈥淴 or 鈥淏ank鈥) should be permitted to recalculate its adjusted attributable deposit amount (鈥淎ADA鈥) as a result of a 1991 amendment to section 5 of the Federal Deposit Insurance Act (FDI Act鈥) regarding the computation of an Oakar institutions AADA.1 That amendment2 eliminated the minimum seven percent annual growth rate for computing an Oakar institution鈥檚 AADA. X is appealing a decision by the 多宝游戏下载鈥檚 Division of Finance (鈥淒OF鈥) denying the Bank鈥檚 request to adjust its AADA. X contends that it has paid $300,000 in excess assessments because of the Bank鈥檚 incorrect initial calculation of the Bank鈥檚 AADA.

Background

The 多宝游戏下载 is charged with assessing and collecting deposit insurance premiums for the Bank Insurance Fund (鈥淏IF鈥) and the Savings Association Insurance Fund (鈥淪AIF鈥). 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 Amendment3 a BIF-insured institution that acquires deposits from a SAIF-insured institution is an 鈥淥akar鈥 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 鈥減rimary fund鈥 is the deposit insurance fund of which the institution is a member.4 The 鈥渟econdary fund鈥 is the insurance fund that is not the member鈥檚 primary fund.5 For example, a 鈥淏IF Oakar,鈥 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鈥檚 secondary fund are based upon the institution鈥檚 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.6 Also, 多宝游戏下载 losses resulting from the failure of an Oakar institution are shared, pro rata, by BIF and SAIF.7 The AADA is the means by which an Oakar institution鈥檚 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 鈥 (I) an annual rate of 7 percent; or (II) the annual rate of growth of [the institution鈥檚 overall deposits].

In 多宝游戏下载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鈥檚 overall deposits. The revised statute stated that the third component of an institution鈥檚 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鈥檚 overall deposits].8

多宝游戏下载IA specified that this change to the Oakar Amendment 鈥shall apply with respect to semiannual periods beginning after the date of enactment of [多宝游戏下载IA].鈥9 多宝游戏下载IA鈥檚 enactment date was December 19, 1991. The first semiannual period beginning after 多宝游戏下载IA鈥檚 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 in September 1990. Under procedures in place at the time, as of September 30, 1991, the Bank completed and submitted the required AADA growth worksheets identifying deposit growth for the annual period, September 30, 1990, through September 30, 1991. Based on this deposit-growth analysis, the Bank reported to the 多宝游戏下载 a composite AADA of approximately $94 million. That total included the pre-多宝游戏下载IA minimum seven percent annual increase required by the Oakar statute. (The Bank鈥檚 actual deposit-growth rate for that period was negative four percent.) More than six years later, in October 1997, X sought to amend the Bank鈥檚 September 30, 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.10

In a letter dated September 15, 1998, the Deputy Director of DOF denied X鈥檚 request, concluding that the 多宝游戏下载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 多宝游戏下载 incorrectly interpreted and implemented 多宝游戏下载IA鈥檚 elimination of the minimum seven percent annual growth rate.11

Discussion

Under the statutory scheme, the assessment process requires that the assessment base in one semiannual period serve as a 鈥減roxy鈥 for the assessment base of the next assessment period.12 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 198913 the 多宝游戏下载 developed a program to administer its provisions and developed a procedure to calculate AADAs. An Oakar institution鈥檚 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鈥檚 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 transactions during September 1990. According to the procedures explained above, the Bank鈥檚 AADA was established as of September 30, 1990, based on the dollar amounts of the SAIF-insured deposits so acquired. That AADA was used for the purpose of determining the Bank鈥檚 BIF and SAIF assessments payable for the periods beginning in January 1991 and July 1991 鈥 the two subsequent semiannual periods. That AADA also provided the means of allocating X鈥檚 deposits between BIF and SAIF for loss-allocation purposes. X鈥檚 first AADA adjustment was made as of September 30, 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 September 30, 1991, was used for computing the Bank鈥檚 BIF and SAIF assessments for the Janauary 1992 and July 1992 semiannual periods and for allocating X鈥檚 deposits between BIF and SAIF for loss-allocation purposes. The second adjustment of X鈥檚 AADA was made the following year. This second adjustment, and all subsequent adjustments, reflected the Bank鈥檚 actual growth rate, in accordance with the post-多宝游戏下载IA Oakar Amendment.

X contends that the 多宝游戏下载 misapplied the plain language of 多宝游戏下载IA鈥檚 effective date provision and inaccurately described the effect of X鈥檚 refund request on the allocation of insurance risk. On the first contention, X argues that 鈥渢he AADA in question was calculated after 多宝游戏下载IA鈥檚 effective date, covered a period after 多宝游戏下载IA鈥檚 effective date, and was used for purposes of a semiannual assessment that was payable after 多宝游戏下载IA鈥檚 effective date. Accordingly, 鈥 X鈥檚 AADA for the first half of 1992 should have been computed under the [多宝游戏下载IA amendment.]鈥

As noted above, 多宝游戏下载IA stated that the amendment to the AADA statute was to apply 鈥渨ith respect to semiannual periods beginning after the date of the enactment of [多宝游戏下载IA],鈥 December 19, 1991. The 多宝游戏下载 interpreted this effective date provision to mean that the 多宝游戏下载IA revision would apply to all AADA growth calculations for periods during and after the first semiannual period of 1992.14 It did not interpret the 多宝游戏下载IA revisions as requiring the 多宝游戏下载 to change AADA growth determinations, under the pre-多宝游戏下载IA rules, for periods before 1992. To do otherwise would have required the 多宝游戏下载 to apply the 多宝游戏下载IA revisions retroactively.

The AADA used to allocate X鈥檚 deposits between BIF and SAIF for both assessment and deposit insurance loss allocation purposes was based on the growth (in X鈥檚 overall deposits) that occurred between September 1990 and September 1991. X鈥檚 assessment growth cycle ended on September 30, 1991. As of that date, X鈥檚 AADA was adjusted by the statutorily required minimum seven percent annual growth rate.

In April 1992, the 多宝游戏下载 Legal Division concluded in an advisory opinion that the 多宝游戏下载IA changes to the Oakar Amendment were not intended to be retroactive. The opinion noted that the 鈥渆ffective date鈥 provision was intended, in part, to prevent the midstream disruption of the calculation of AADAs by institutions that participated in Oakar transactions prior to 多宝游戏下载IA. The opinion concluded that the 多宝游戏下载IA effective date provision allowed the 多宝游戏下载 and Oakar institutions to make a smooth transition from the pre-多宝游戏下载IA requirements to the post-多宝游戏下载IA requirements pertaining to the AADA.15

The 多宝游戏下载 implemented 多宝游戏下载IA鈥檚 elimination of the AADA minimum seven percent annual growth rate and effective date provision in a manner consistent with the 多宝游戏下载鈥檚 assessment procedures. It integrated the required change to the mathematical formula for calculating AADAs with those established and accepted administrative procedures. Nothing in either 多宝游戏下载IA or its legislative history suggested that Congress intended to change or contravene the 多宝游戏下载鈥檚 administrative procedures. X鈥檚 AADA for the first semiannual period of 1992 was established as of September 30, 1991 鈥 i.e., before 1992 鈥 based on deposit data for the year September 1990 through September 1991. Thus, the AADA was computed using the statutory minimum rate. The 多宝游戏下载IA revisions came into play when the 多宝游戏下载 made its next computation of the Bank鈥檚 AADA.

X also disputes the conclusion reached in the DOF response letter of September 15, 1998, that recalculating X鈥檚 AADAs would result in a retroactive reallocation of risk to the deposit insurance funds. As indicated above, an institution鈥檚 AADA serves an insurance loss-allocation purpose as well as an assessment purpose. This loss allocation is based on the failed institution鈥檚 AADA as of the assessment growth period immediately prior to the date of failure. Contrary to X鈥檚 assertion, if X had failed on October 1, 1991, for instance, (i.e., a date after the date as of which its AADA was redetermined) the 多宝游戏下载 would have allocated the losses attributed to X鈥檚 failure to BIF and SAIF based on its AADA determined as of September 30, 1991. The 多宝游戏下载 does not look to the completion of a form to establish the effective date of an institution鈥漵 AADA. The effective date of an AADA is the end of the assessment growth period.

Moreover, 多宝游戏下载 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 多宝游戏下载 interpreted the 多宝游戏下载IA provisions in issue as not requiring the 多宝游戏下载 to retroactively reallocate the relative risks to the deposit insurance funds posed by Oakar institutions.

Congress has established and the 多宝游戏下载 has been charged with administering a complex deposit insurance assessment scheme. When Congress amended the scheme in 多宝游戏下载IA and changed the formula for calculating the AADA, the 多宝游戏下载 interpreted the changes in harmony with the 多宝游戏下载鈥檚 established assessment procedures. The 多宝游戏下载 implemented the 多宝游戏下载IA changes uniformly. Nothing in either 多宝游戏下载IA or its legislative history indicates that Congress intended to alter or invalidate the 多宝游戏下载鈥檚 assessment procedures.16 The staff鈥檚 approach was reasonable and is supported by the contemporaneous opinion issued by the 多宝游戏下载鈥檚 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鈥檚 appeal.

  • 1

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

  • 2

    多宝游戏下载 Improvement Act of 1991 (鈥湺啾τ蜗废略豂A鈥), Pub. L. No. 102-242, 105 Stat. 2236 (1991).

  • 3

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

  • 4

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

  • 5

    Id At 327.8(k).

  • 6

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

  • 7

    Id.

  • 8

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

  • 9

    12 U.S.C. 1815 note.

  • 10

    The first document of record  X has submitted in support of its appeal is a letter dated October 24, 1997, from *** to William V. Farrell.  Other earlier correspondence from X did not seek the same relief requested in the October 1997 letter. 
    The Committee notes that X filed its request with the 多宝游戏下载 to amend its September 30, 1991, AADA over six 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鈥檚 argument today, the Committee notes that those claims may be barred by the FDI Act. In addition, granting X鈥檚 appeal would undermine certainty in the assessment area that institutions have come to rely on since 1991.  
    Adopting X鈥檚 new interpretation of 多宝游戏下载IA鈥檚 elimination of the minimum seven percent annual AADA growth rate would affect approximately 75 other institutions.  Implementing X鈥檚 interpretation would be especially difficult because it has been over seven years since 多宝游戏下载IA was enacted and many affected Oakar institutions have been acquired by institutions that have themselves been acquired.

  • 11

    The 多宝游戏下载 Board of Directors has delegated to the Assessment Appeals Committee the authority to consider and decide deposit insurance assessment appeals.

  • 12

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

  • 13

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

  • 14

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

  • 15

    多宝游戏下载 Advisory Op. 92-19, 2 多宝游戏下载 Law, Regulations, Related Acts 4619 (April 6, 1992).

  • 16

    In a recent decision, a federal court of appeals confirmed the deference due to the 多宝游戏下载 in matters involving the assessment process, particularly with regard to interpretations of ambiguous assessment-related statutes. Branch Banking & Trust Co. v. 多宝游戏下载,No. 98-1558 (4th Cir. 1999).

Last Updated: June 30, 2005