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FDIC approves 13-quarter DIF prepayment plan

FDIC Board Approves Rule Requiring Banks to Prepay Three+ Years of Premiums 

The FDIC Board today approved a final rule requiring banks to prepay their estimated quarterly assessments for the fourth quarter of 2009, as well as all of 2010, 2011 and 2012 on Dec. 30. The prepayments -- which the agency opted for at ABA's urging instead of imposing another special assessment -- will raise about $45 billion in cash that FDIC says it needs to resolve expected bank failures.

The assessment rate to be used for the entire period is a bank's base assessment rate (that is, the risk-based premium rate without adjustments for secured liabilities, brokered deposits or higher levels of capital) in effect as of Sept. 30, 2009. The rate will be increased by 3 basis points for all of 2011 and 2012 based on the FDIC's expectation that industry earnings will be stronger.

The payment will be based on a bank's regular assessment base (total domestic deposits) on Sept. 30, 2009. An institution's deposit base will be increased quarterly by an estimated 5 percent annual growth rate through the end of 2012. The FDIC board stated that the rule was not intended to address any changes to the assessment base.

FDIC's online assessment rate calculator includes a prepayment tab to help banks estimate their payments.
Download FDIC's calculator

Banks will book the prepaid expense as a non-earning asset. Each quarter, FDIC will bill banks for the actual risk-based premium for that quarter. Such amounts will reduce the prepaid asset. Once the asset is exhausted, banks will resume paying and accounting for quarterly deposit insurance assessments as they currently do.

ABA strongly suggested that any remaining balances be promptly returned to banks. In response, the FDIC decided that if the prepayment is not exhausted by June 30, 2013 – 18 months earlier than proposed – any remaining amount will be returned to the bank.

The rule also authorizes FDIC to exempt institutions if agency staff believe the prepayment would harm the bank's safety and soundness. Banks also can apply for an exemption if the prepayment would significantly impair an institution's liquidity or pose extraordinary hardship. 

Though ABA recommended that FDIC follow a special invoicing and collection process to allow tax deductions relating to the prepayments to be more closely aligned with the premium expense, FDIC decided to bill for all 3 years payable on Dec. 30. ABA will continue to push for invoicing that distinguishes the years for which the prepayment applies.

ABA worked with the FDIC for several months prior to its proposal to suggest realistic alternatives to another special assessment, which FDIC agreed would put too much burden on bank earnings. FDIC also agreed prepayment was preferable to tapping the agency's Treasury line of credit, which would pose public relations issues since many would cast it as a taxpayer bailout.

Read an ABA summary of the ruleRead the rule.

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