Banking and Finance Law Daily FDIC finalizes rule mitigating deposit insurance assessment effects of participation in federal programs
Tuesday, June 23, 2020

FDIC finalizes rule mitigating deposit insurance assessment effects of participation in federal programs

By Thomas G. Wolfe, J.D.

The final rule, which addresses participation in the SBA’s Paycheck Protection Program as well as the Fed’s PPPLF and MMLF programs concerning the financial impact of COVID-19, applies retroactively to April 1.

The Federal Deposit Insurance Corporation has promulgated a final rule aiming to mitigate the deposit insurance assessment effects of participating in the Paycheck Protection Program (PPP) established by the Small Business Administration and the Paycheck Protection Program Liquidity Facility (PPPLF) and Money Market Mutual Fund Liquidity Facility (MMLF) established by the Federal Reserve Board to combat the economic fallout from the coronavirus pandemic. To ensure that the changes are applied to deposit insurance assessments starting in the second quarter of 2020, the final rule amending 12 CFR Part 327 (Assessments) takes effect immediately upon publication in the Federal Register—with an application date of April 1, 2020.

In May 2020, the FDIC Board approved a notice of proposed rulemaking to mitigate the impact of PPP lending on banks’ deposit insurance premiums (see Banking and Finance Law Daily, May 13, 2020), and has now finalized the rule.

McWilliams statement. In her June 22, 2020, statement, FDIC Chair Jelena McWilliams remarked that the agency’s approval of the final rule "substantially mitigates the impact of PPP lending on banks’ assessments, including generally removing PPP loans from the assessment rate and providing an offset for increases in the assessment base attributable to PPP lending." Due to the complexities of the FDIC’s assessment formulas and a desire to minimize added reporting burden, "fully neutralizing the impact of PPP lending on assessments is not possible," McWilliams explained. "Mitigating the impact requires the FDIC to make certain assumptions, including which loan categories PPP loans fall under and how they are funded. Ensuring every institution that has made PPP loans does not see any increase in assessments as a consequence of PPP lending would likely have resulted in many institutions seeing a substantial decrease in assessments, which would not be appropriate."

Commending FDIC-supervised banks for having "served as a source of strength throughout this recent period of economic turmoil," McWilliams stated that the FDIC "continues to fine-tune its rules and policies to enable them to do so."

FDIC letter. In its June 22, 2020, letter (FIL-63-2020) to all supervised financial institutions, the FDIC points out that:

  • "absent a change to the assessment rules, an insured depository institution (IDI) that participates in the PPP, PPPLF, or MMLF programs could be subject to increased deposit insurance assessments";
  • the FDIC’s final rule "removes the effect of participation in the PPP and borrowings under the PPPLF on various risk measures used to calculate an IDI’s assessment rate," and removes the effect of participation in the PPP and MMLF "on certain adjustments to an IDI’s assessment rate";
  • the final rule provides "an offset to an IDI’s assessment for the increase to its assessment base attributable to participation in the PPP and MMLF," and removes the effect of participation in the PPP and MMLF "when classifying IDIs as small, large, or highly complex for assessment purposes"; and
  • the FDIC will apply the modifications under the final rule in calculating a supervised institution’s deposit insurance assessment, based on items IDIs will report on the Consolidated Report of Condition and Income or the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, as applicable, beginning as of June 30, 2020."

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