Risk Categories & Risk-Based Assessment Rates

Key Provisions Pertaining to Risk-Based Assessments

Changes to the Risk-Based Assessment Matrix and Assessment Rates

• Effective January 1, 2007, the previous nine risk classifications (the risk-based assessment matrix) have been consolidated into four risk categories. However, capital ratios and supervisory ratings continue to distinguish risk categories. The following table shows the relationship between the old nine-cell matrix and the new risk categories as well as the initial assessment rates for each new risk category. Supervisory Group A generally include institutions with CAMELS composite ratings of 1 or 2; Supervisory Group B generally includes institutions with a CAMELS composite rating of 3; and Supervisory Group C generally includes institutions with CAMELS composite ratings of 4 or 5.

Capital Group*	Supervisory Group*
	A	B	C
Well Capitalized	I 5-7 bps	II 10 bps	III 28 bps
Adequately Capitalized
Undercapitalized	III 28 bps		IV 43 bps

* See description of Capital Groups and Supervisory Groups for additional information.

• These initial assessment rates became effective on January 1, 2007 and are 3 basis points above the base rate schedule adopted in the final rule. The FDIC may adjust rates up or down by 3 basis points from the base rate schedule without further notice-and-comment rulemaking, provided that any single adjustment from one quarter to the next cannot change rates more than 3 basis points.

  Risk-based Assessments for Risk Category I Institutions that are Small or Do Not Have Debt Ratings (“The Financial Ratio Method”)

• For most institutions in Risk Category I (generally, those institutions with less than $10 billion in assets and those with $10 billion or more in assets that do not have long-term debt issuer ratings), base assessment rates will be based on a combination of financial ratios and CAMELS component ratings (the financial ratio method).

• Under the financial ratio method, each financial ratio and a weighted average of CAMELS component ratings is multiplied by a pricing multiplier. The weights applied to CAMELS components are as follows: 25 percent for Capital and Management; 20 percent for Asset quality; and 10 percent each for Earnings, Liquidity, and Sensitivity to market risk. The CAMELS component weights and pricing multipliers are the same for all institutions subject to the financial ratio method.

• The sum of these products is added to a uniform amount to produce an assessment rate between 2 and 4 basis points, the range of base rates for institutions in Risk Category I. After adding the uniform amount, any amounts less than 2 basis points are increased to 2 basis points and any amounts greater than 4 basis points are decreased to 4 basis points.

• Any increase in rates above the base rate schedule is then added or any decrease is subtracted. An example follows.

Risk Measures	Risk Measure Value		Pricing Multiplier		Contribution to Assessment Rate
Uniform Amount			1.954		1.95
Tier 1 Leverage Ratio (%)	8.570	x	(0.042)	=	(0.36)
Loans Past Due 30-89 Days/Gross Assets (%)	0.600	x	0.372	=	0.22
Nonperforming Assets/Gross Assets (%)	0.400	x	0.719	=	0.29
Net-Loan Charge-Offs/Gross Assets (%)	0.079	x	0.841	=	0.07
Net Income Before Taxes/Risk-Weighted Assets (%)	1.951	x	(0.420)	=	(0.82)
Weighted Average CAMELS Component Ratings	1.450	x	0.534	=	0.77
Sum of Contributions					2.13
Increase/Decrease from Base Rate Schedule					3.00
Assessment Rate					5.13

• Pricing multipliers were derived from a model that relates these risk measures to the historical frequency of CAMELS downgrades to 3 or worse in the succeeding year.

  Risk-based Assessments for Large Institutions with Debt Ratings (“The Debt Rating Method”)

• For large institutions (generally those with $10 billion or more in assets) that have long-term debt issuer ratings, base assessment rates are determined from weighted average CAMELS component ratings (calculated as described above) and long-term debt issuer ratings converted to a 1 to 3-point scale (the debt rating method). Long-term debt issuer ratings are defined as current long-term debt issuer ratings assigned by S&P, Moody’s, or Fitch. If multiple ratings are available, the converted amounts are averaged.

• These risk measures are multiplied by a pricing multiplier and summed and a uniform amount is subtracted to produce a base assessment rate between 2 and 4 basis points. Again, any amounts less than 2 basis points are increased to 2 basis points and any amounts greater than 4 basis points are decreased to 4 basis points.

• Any increase in rates above the base rate schedule is then added or any decrease is subtracted. An example follows.

Risk Measures	Risk Measure Value		Pricing Multiplier		Contribution to Assessment Rate
Uniform Amount			(1.882)		(1.88)
Converted Long-Term Debt Issuer Rating	2.067	x	1.176	=	2.43
Weighted Average CAMELS Component Rating	1.450	x	1.176	=	1.71
Sum of Contributions					2.25
Increase/Decrease from Base Rate Schedule					3.00
Assessment Rate					5.25


Adjustments to Assessment Rates for Large Institutions

• For large Risk Category I institutions, additional risk factors will be considered to determine if the assessment rates should be adjusted. This additional information includes market data, financial performance measures, considerations of the ability of an institution to withstand financial stress, and loss severity indictors. The intent of the adjustments is to preserve a reasonable and consistent rank ordering of risk among large institutions. Any adjustment will be limited to no more than ½ basis point. See Assessment Rate Adjustment Guidelines for additional information.

  Requesting Treatment as a Large Institution

• Institutions with between $5 and $10 billion in assets may request to be treated as a large institution for assessment purposes. A long-term debt issuer rating is not required, and in the absence of a debt issuer rating, financial ratios and supervisory ratings would continue to determine the assessment rate. Banks in this size range that have been approved to be treated as “large” are subject to the same adjustment provisions based on consideration of additional risk factors as those that have $10 billion or more in assets, regardless of whether their rate is based on long-term debt issuer ratings or financial ratios.

  Assessment Rate Calculator

• A calculator illustrates deposit insurance assessment rate computation for institutions in Risk Category I using recent financial data or data supplied by the user.
  

  Treatment of New Institutions

• Currently, assessment rates for all Risk Category I institutions will be determined using the approaches described above. If a well-capitalized new institution has not yet received a CAMELS rating, it will be charged one basis point above the minimum rate applicable to Risk Category I institutions (6 basis points) until it receives CAMELS component ratings.

• For upcoming changes in the treatment of new institutions, see Assessment Rates for 2009.

  Effective Date of CAMELS and Long-Term Debt Issuer Rating Changes

• CAMELS rating changes will be effective for assessment purposes as of the date the institution is notified of its rating change (transmittal date) by its primary federal regulator (PFR) or state authority. However, if the FDIC disagrees with the CAMELS composite rating assigned by an institution’s PFR, and assigns a different composite rating, the supervisory change will be effective for assessment purposes as of the date the FDIC assigns a rating.

• For an institution with a long-term debt issuer rating, a change in a rating will be effective for assessment purposes as of the date the change was announced.