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Deposit Insurance Assessment Appeals: Guidelines & Decisions AAC-99-03 (June 2, 1999)
Decision
Background
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, FDIC 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; In FDICIA, 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) FDICIA specified that this change to the Oakar Amendment “shall apply
with respect to semiannual periods beginning after the date of enactment of
[FDICIA].” 10
FDICIA’s enactment date was December 19, 1991. The first
semiannual period beginning after FDICIA’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
FDIC a composite AADA of approximately $2.4 billion. That total included the
pre-FDICIA 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 FDICIA 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 FDIC incorrectly interpreted and implemented FDICIA’s elimination
of the minimum seven percent annual growth rate.12
Discussion
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-FDICIA Oakar Amendment. X contends that the FDIC misapplied the plain language of FDICIA’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 FDICIA’s effective
date, covered a period after FDICIA’s effective date, and was used for
purposes of a semiannual assessment that was payable after FDICIA’s
effective date. Accordingly, … X’s AADA for the first half of 1992 should
have been computed under the [FDICIA amendment.]” As noted above, FDICIA stated that the amendment to the AADA statute was
to apply “with respect to semiannual periods beginning after the date of the
enactment of [FDICIA],” December 19, 1991. The FDIC interpreted this
effective date provision to mean that the FDICIA 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 FDICIA revisions as requiring the
FDIC to change AADA growth determinations, under the pre-FDICIA rules, for
periods before 1992. To do otherwise would have required the FDIC to apply
the FDICIA 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 FDIC Legal Division concluded in an advisory opinion
that the FDICIA 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
FDICIA. The opinion concluded that the FDICIA effective date provision
allowed the FDIC and Oakar institutions to make a smooth transition from the
pre-FDICIA requirements to the post-FDICIA requirements pertaining to the
AADA.16
The FDIC implemented FDICIA’s elimination of the AADA minimum seven
percent annual growth rate and effective date provision in a manner
consistent with the FDIC’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 FDICIA
or its legislative history suggested that Congress intended to change or
contravene the FDIC’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 FDICIA revisions came into play when the FDIC 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 FDIC 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 FDIC 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, FDIC 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 FDIC interpreted the FDICIA
provisions in issue as not requiring the FDIC to retroactively reallocate
the relative risks to the deposit insurance funds posed by Oakar
institutions. Congress has established and the FDIC has been charged with administering
a complex deposit insurance assessment scheme. When Congress amended the
scheme in FDICIA and changed the formula for calculating the AADA, the FDIC
interpreted the changes in harmony with the FDIC’s established assessment
procedures. The FDIC implemented the FDICIA changes uniformly. Nothing in
either FDICIA or its legislative history indicates that Congress intended to
alter or invalidate the FDIC’s assessment procedures.
17 The staff’s approach
was reasonable and is supported by the contemporaneous opinion issued by the
FDIC’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. |
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Last Updated 06/30/2005 | Legal@fdic.gov |
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