FIL-54-96 Attachment

[Federal Register: July 3, 1996 (Volume 61, Number 129)]
[Proposed Rules]               
[Page 34751-34767]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 327

RIN 3064-AB59

Assessments

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Proposed Rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing 
to amend its assessment regulations by adopting interpretive rules 
regarding certain provisions therein that pertain to so-called Oakar 
institutions: institutions that belong to one insurance fund (primary 
fund) but hold deposits that are treated as insured by the other 
insurance fund (secondary fund). Recent merger transactions and branch-
sale cases have revealed weaknesses in the FDIC's procedures for 
attributing deposits to the two insurance funds and for computing the 
growth of the amounts so attributed. The interpretive rules would 
repair those weaknesses.
   In addition, the FDIC is proposing to simplify and clarify the 
existing rule by making changes in nomenclature.

DATES: Comments must be received by the FDIC on or before September 3, 
1996.

ADDRESSES: Send comments to the Office of the Executive Secretary, 
Federal Deposit Insurance Corporation, 550 17th Street, N.W., 
Washington, D.C. 20429. Comments may be hand- delivered to Room F-400, 
1776 F Street, N.W., Washington, D.C., on business days between 8:30 
a.m. and 5:00 p.m. (FAX number: 202/898-3838. Internet address: 
comments@fdic.gov). Comments will be available for inspection in the 
FDIC Public Information Center, Room 100, 801 17th Street, N.W., 
Washington, D.C. between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Allan K. Long, Assistant Director, 
Division of Finance, (703) 516-5559; Stephen Ledbetter, Chief, 
Assessments Evaluation Section, Division of Insurance (202) 898-8658; 
Jules Bernard, Counsel, Legal Division, (202) 898-3731, Federal Deposit 
Insurance Corporation, Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: This proposed interpretive regulation would 
alter the method for determining the assessments that Oakar 
institutions pay to the two insurance funds. Accordingly, the proposed 
regulation would directly affect all Oakar institutions. The proposed 
regulation would also indirectly affect non-Oakar institutions, 
however, by altering the business considerations that non-Oakar 
institutions must take into account when they transfer deposits to or 
from an Oakar institution (including an institution that becomes an 
Oakar institution as a result of the transfer).

I. Background

   Section 5(d)(2) of the FDI Act, 12 U.S.C. 1815(d)(2), places a 
moratorium on inter-fund deposit-transfer transactions: mergers, 
acquisitions, and other transactions in which an institution that is a 
member of one insurance fund (primary fund) assumes the obligation to 
pay deposits owed by an institution that is a member of the other 
insurance fund (secondary fund). The moratorium is to remain in place 
until the reserve ratio of the Savings Association Insurance Fund 
(SAIF) reaches the level prescribed by statute. Id. 1815(d)(2)(A)(ii); 
see id. 1817(b)(2)(A)(iv) (setting the target ratio at 1.25 percentum).
   The next paragraph of section 5(d)--section 5(d)(3) of the FDI 
Act--is known as the Oakar Amendment. See Financial Institutions 
Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73 
section 206(a)(7), 103 Stat. 183, 199-201 (Aug. 9, 1989); 12 U.S.C. 
1815(d)(3). The Amendment permits certain deposit-transfer transactions 
that would otherwise be prohibited by section 5(d)(2) (Oakar 
transactions).
   The Oakar Amendment introduces the concept of the ``adjusted 
attributable deposit amount'' (AADA). An AADA is an artificial 
construct: a number, expressed in dollars, that is generated in the 
course of an Oakar transaction, and that pertains to the buyer. The 
initial value of a buyer's AADA is equal to the amount of the 
secondary-fund deposits that the buyer acquires from the seller. The 
Oakar Amendment specifies that the AADA then increases at the same 
underlying rate as the buyer's overall deposit base--that is, at the 
rate of growth due to the buyer's ordinary business operations, not 
counting growth due to the acquisition of deposits from another 
institution (e.g., in a merger or a branch purchase). Id. 
1815(d)(3)(C)(iii). The FDIC has adopted the view that ``growth'' and 
``increases'' can refer to ``negative growth'' under the FDIC's 
interpretation of the Amendment, an AADA decreases when the 
institution's deposit base shrinks.
   An AADA is used for the following purposes:

--Assessments. An Oakar institution pays two assessments to the FDIC--
one for deposit in the institution's secondary fund, and the other for 
deposit in its primary fund. The secondary-fund assessment is based on 
the portion of the institution's assessment base that is equal to its 
AADA. The primary-fund assessment is based on the remaining portion of 
the assessment base.
--Insurance. The AADA measures the volume of deposits that are 
``treated as'' insured by the institution's secondary fund. The 
remaining deposits are insured by the primary fund. If an Oakar 
institution fails, and the failure causes a loss to the FDIC, the two 
insurance funds share the loss in proportion to the amounts of deposits 
that they insure.

   For assessment purposes, the AADA is applied prospectively, as is 
the assessment base. An Oakar institution has an AADA for a current 
semiannual period, which is used to determine the institution's 
assessment for that period.1 The current-period AADA is calculated 
using deposit-growth and other information from the prior period.
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   \1\ Technically, each Oakar transaction generates its own AADA. 
Oakar institutions typically participate in several Oakar 
transactions. Accordingly, and Oakar institution generally has an 
overall or composite AADA that consists of all the individual AADAs 
generated in the various Oakar transactions, plus the growth 
attributable to each individual AADA. The composite AADA can 
generally be treated as a unit as a practical matter, because all 
the constituent AADAs (except initial AADAs) grow at the same rate.
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II. The proposed rule

A. Attribution of transferred deposits

1. The FDIC's Current Interpretation: The ``Rankin'' Rule
   The FDIC has developed a methodology for attributing deposits to 
the Bank Insurance Fund (BIF) on one hand and to the SAIF on the other 
when the seller is an Oakar institution. See FDIC Advisory Op. 90-22, 2 
FED. DEPOSIT INS. CORP., LAW, REGULATIONS, RELATED ACTS 4452 (1990) 
(Rankin letter). The Rankin letter adopts the following rule: an Oakar 
institution transfers its primary-fund deposits first, and only begins 
to

[[Page 34752]]

transfer its secondary-fund deposits after its primary-fund deposits 
have been exhausted.
   The chief virtue of this approach is that of simplicity. Sellers 
rarely transfer all their primary-fund deposits. A seller ordinarily 
has the same AADA after the transaction as before, and a buyer does not 
ordinarily become an Oakar institution. The Rankin letter's approach 
also has the virtue of being a well- established and well-understood 
interpretation.
   Nevertheless, the Rankin letter's approach has certain weaknesses. 
For example, if a seller transfers a large enough volume of deposits, 
the seller becomes insured and assessed entirely by its secondary 
fund--even though it remains a member of its primary fund in name, and 
even though its business has not changed in character.
   The Rankin letter's approach may also lend itself to ``gaming'' by 
Oakar institutions. Oakar banks--and their owners--have an incentive to 
eliminate their AADAs, because the SAIF assessment rates are currently 
much higher than the BIF rates. If an Oakar bank belonged to a holding 
company system, the holding company could purge the AADA from the 
system as a whole by having the Oakar bank transfer all its BIF-insured 
deposits to an affiliate, and then allowing the remnant of the Oakar 
bank to wither away.
2. ``Blended'' deposits
   An alternative approach would be to adopt the view that an Oakar 
institution transfers a blend of deposits to the assuming institution. 
The transferred deposits would be attributed to the two insurance funds 
in the same ratio as the Oakar institution's overall deposits were so 
attributed immediately prior to the transfer. This ``blended deposits'' 
approach would have the virtue of maintaining the relative proportions 
of the seller's primary-fund deposit-base and the secondary-fund 
deposit base, just as they are preserved in the ordinary course of 
business.
   As a general rule, the ratio would be fixed at the start of the 
quarter in which the transfer takes place. If the institution were to 
acquire deposits after the start of the quarter but prior to the 
transfer, the acquired deposits would be added to the institution's 
store of primary-fund and secondary-fund deposits as appropriate, and 
the resulting amounts would be used to determine the ratio.
   This procedure would be designed to exclude intra-quarter growth 
from the calculation of the ratio. The FDIC considers that it would be 
desirable to do so for two main reasons: it would keep the methodology 
simple; and (in the ordinary case) it would make use of numbers that 
are readily available to the parties.
   At the same time, the ``blended deposits'' approach would create a 
new Oakar institution each time a non-Oakar institution acquired 
deposits from an Oakar institution. Accordingly, this approach would 
generally subject buyers to more complex reporting and tracking 
requirements. This approach would also require more disclosure on the 
part of sellers, because buyers would have to be made aware that they 
were acquiring high-cost SAIF deposits. But the ``blended deposits'' 
approach could remove some uncertainty because the buyer would know 
that it was acquiring such deposits whenever the seller was an Oakar 
institution.
   In cases where the seller has acquired deposits prior to the sale 
but during the same semiannual period as the sale, the blended-deposit 
approach could be more complex. The acquisition of deposits would 
change the seller's AADA-to-deposits ratio, which would need to be 
calculated and made available in conjunction with the sale. At first, 
the FDIC considered that this problem could be addressed by using the 
ratio at the beginning of the quarter for all transactions during that 
quarter. But the FDIC later came to the view that this technique could 
open up the blended-deposit approach to gaming strategies that 
institutions could use to decrease their AADAs.
   Finally, under the blended-deposit approach, Oakar banks--which are 
BIF members--could find it difficult (or expensive) to transfer 
deposits to other institutions, due to market uncertainty regarding the 
prospect of a special assessment to capitalize SAIF and the alternative 
prospect of a continued premium differential between BIF and SAIF.
   Any change to a blended-deposit approach would only apply to 
transfers that take place on and after January 1, 1997. Accordingly, 
the change would not affect any assessments that Oakar institutions 
have paid in prior years. Nor would it affect the business aspects of 
transactions that have already occurred, or that may occur during the 
remainder of 1996.

B. FDIC Computation of the AADA; Reporting Requirements

   The FDIC currently requires all institutions that assume secondary-
fund deposits in an Oakar transaction to submit an Oakar transaction 
worksheet for the transaction. The FDIC provides the worksheet. The 
FDIC provides the name of the buyer and the seller, and the 
consummation date of the transaction. The buyer provides the total 
deposits acquired, and the value of the AADA thereby generated. In 
addition, Oakar institutions must complete a growth adjustment 
worksheet to re-calculate their AADA as of December 31 of each year. 
Finally, Oakar banks report the value of their AADA, on a quarterly 
basis, in their quarterly reports of condition (call reports).
   To implement the proposal to adjust AADAs on a quarterly basis, and 
to ensure compliance with the statutory requirement that an AADA does 
not grow during the semiannual period in which it is acquired, see 12 
U.S.C. 1815(d)(3)(C)(iii), the FDIC initially considered replacing the 
current annual growth adjustment worksheet with a slightly more 
detailed quarterly worksheet. The FDIC was concerned that this approach 
might impose a burden on Oakar institutions, however. The FDIC was 
further concerned that this approach could result in an increase in the 
frequency of errors associated with these calculations. Accordingly, 
the FDIC now believes it might be more appropriate to relieve Oakar 
institutions of this burden by assuming the responsibility for 
calculating each Oakar institution's AADA, and eliminating the growth 
adjustment worksheet entirely. The FDIC would calculate the AADA as 
part of the current quarterly payment process. The calculation, with 
supporting documentation, would accompany each institution's quarterly 
assessment invoice.
   If the FDIC assumes the responsibility for calculating the AADA, 
Oakar institutions would no longer have to report their AADAs in their 
call reports. But they would have to report three items on a quarterly 
basis. Oakar institutions already report two of the items as part of 
their annual growth adjustment worksheets: total deposits acquired in 
the quarter, and secondary-fund deposits acquired in the quarter. Oakar 
institutions would therefore have to supply one other item: total 
deposits sold in the quarter.
   These items will be zero in most quarters. Even in quarters in 
which some transactions have occurred, the FDIC considers that the 
items should be readily available and easy to calculate.
   While for operational purposes, the FDIC would prefer to add these 
three items to the call report, an alternative approach would be simply 
to replace the current growth adjustment worksheet with a very simple 
quarterly worksheet essentially consisting only of these items. The 
FDIC expects this specific issue to be addressed in a Request for 
Comment on Call Report

[[Page 34753]]

Revisions for 1997 currently expected to be issued jointly by the three 
banking agencies in July.
   In addition, if the FDIC adopts the blended-deposit approach for 
attributing transferred deposits, the FDIC would need an additional 
quarterly worksheet from Oakar institutions in order to calculate AADAs 
accurately. The additional worksheet would report the date and amount 
of deposits involved in each transaction in which the Oakar institution 
transferred deposits to another institution during the quarter. This 
information is not currently collected.

C. Treatment of AADAs on a Quarterly Basis

   The FDIC is proposing to adopt the view that--under its existing 
regulation--an AADA for a semiannual period may be considered to have 
two quarterly components. The increment by which an AADA grows during a 
semiannual period may be considered to be the result of the growth of 
each quarterly component.
1. Quarterly Components
   a. Propriety of quarterly components. The FDIC's assessment 
regulation speaks of an institution's AADA ``for any semiannual 
period''. 12 CFR 327.32(a)(3). The FDIC currently interprets this 
phrase to mean that an AADA has a constant value throughout a 
semiannual period. The FDIC has taken this view largely for historical 
reasons. Recent changes in the Oakar Amendment give the FDIC room to 
alter its view.
   The FDIC's ``constant value'' view derives from the 1989 version of 
the Oakar Amendment. See 12 U.S.C. 1815(d)(3) (Supp. I 1989). That 
version of the Amendment said that an Oakar bank's AADA measured the 
``portion of the average assessment base'' that the SAIF could assess. 
Id. 1815(d)(3)(B). The FDI Act (as then in effect) defined the 
``average assessment base'' as the average of the institution's 
assessment bases on the two dates for which the institution was 
required to file a call report. Id. 1817(b)(3). As a result, an AADA--
even a newly created one, and even one that was generated in a 
transaction during the latter quarter of the prior semiannual period--
served to allocate an Oakar bank's entire assessment base for the 
entire current semiannual period. The FDIC issued rules in keeping with 
this view. 54 FR 51372 (Dec. 15, 1989).
   Congress decoupled the AADA from the assessment base at the 
beginning of 1994, as part of the FDIC's changeover to a risk-based 
assessment system. See Federal Deposit Insurance Corporation 
Improvement Act of 1991 (FDICIA), Pub. L. 102-242, section 302(e) & 
(g), 105 Stat. 2236, 2349 (Dec. 19, 1991); see also Defense Production 
Act Amendments of 1992, Pub L. 102-558, section 303(b)(6)(B), 106 Stat. 
4198, 4225 (Oct. 28, 1992) (amending the FDICIA in relevant part); cf. 
58 FR 34357 (June 23, 1993). The Oakar Amendment no longer links the 
AADA directly to the assessment base. The Amendment merely declares, 
``[T]hat portion of the deposits of [an Oakar institution] for any 
semiannual period which is equal to [the Oakar institution's AADA] * * 
* shall be treated as deposits which are insured by [the Oakar 
institution's secondary fund]''.  See 12 U.S.C. 1815(d)(3).
   The FDIC has not changed its rules for assessing Oakar 
institutions, and has continued to interpret the rules in the same 
manner as before. Accordingly, the ``constant value'' concept of the 
AADA has continued to be the view of the FDIC.
   But the FDIC is no longer compelled to retain this view. 
Furthermore, as discussed below, the FDIC has found that this approach 
has certain disadvantages. The FDIC is therefore proposing to re-
interpret the phrase ``for any semiannual period'' as it appears in 
Sec. 327.32(a)(3) in the light of the FDIC's quarterly assessment 
program. The FDIC would take the position that an Oakar institution's 
AADA for a semiannual period may be determined on a quarter-by-quarter 
basis--just as the assessment base for a semiannual period is so 
determined--and may be used to measure the portion of each quarterly 
assessment base that is to be assessed by the institution's secondary 
fund. The FDIC would also take the view that, if an AADA is generated 
in a transaction that takes place during the second calendar quarter of 
a semiannual period, the first quarterly component of the AADA for the 
current (following) semiannual period is zero; only the second 
quarterly component is equal to the volume of the secondary-fund 
deposits that the buyer so acquired.
   The FDIC considers that this view of the phrase ``for any 
semiannual period'' is appropriate because the phrase is the 
counterpart of, and is meant to interpret, the following language in 
the Oakar Amendment:

   (C) DETERMINATION OF ADJUSTED ATTRIBUTABLE DEPOSIT AMOUNT.--The 
adjusted attributable deposit amount which shall be taken into 
account for purposes of determining the amount of the assessment 
under subparagraph (B) for any semiannual period * * *

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

   This passage speaks of the assessment--not the AADA--``for any 
semiannual period''. Insofar as the AADA is concerned, the statutory 
language merely specifies the semiannual period for which the AADA is 
to be computed: the period for which the assessment is due. The FDIC 
believes that the phrase ``for a semiannual period'' may properly be 
read to have the same meaning.
   Moreover, while the Amendment says the AADA must ``be taken into 
account'' in determining a semiannual assessment, the Amendment does 
not prescribe any particular method for doing so. The FDIC considers 
that this language provides enough latitude for the FDIC to apply the 
AADA in a manner that is appropriate to the quarterly payment program.
   The FDIC's existing regulation is compatible with this 
interpretation. The regulation speaks of an assessment base for each 
quarter, not of an average of such bases. The regulation further says 
that an Oakar institution's AADA fixes a portion of its ``assessment 
base''. See 12 CFR 327.32(a)(2) (i) & (ii). Accordingly, the FDIC is 
not proposing to modify the text that specifies the method for 
computing AADAs.
   b. Need for the re-interpretation. Under certain conditions, the 
FDIC's ``constant value'' view of the AADA appears to be tantamount to 
double-counting transferred deposits for a calendar quarter.
   The appearance of ``double-counting'' occurs when an Oakar 
institution acquires secondary-fund deposits in the latter half of a 
semiannual period--i.e., in the second or fourth calendar quarter. The 
seller has the deposits at the end of the first (or third) quarter; its 
first payment for the upcoming semiannual period is based on them. At 
the same time, the buyer's secondary-fund assessment is approximately 
equal to an assessment on the transferred deposits for both quarters in 
the semiannual period.2
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   \2\ The correlation is not so close as it first appears. Various 
factors distort the relation between an Oakar institution's deposit 
base on one hand and its primary-fund and secondary-fund assessment 
bases on the other.
   The chief factor is the so-called float deduction, which is 
equal to the sum of one-sixth of an institution's demand deposits 
plus one percentum of its time and savings deposits. See 12 CFR 
327.5(a)(2). An Oakar institution's secondary-fund assessment base 
is equal to the full value of its AADA, however. See id. 
327.32(a)(2). The impact of the float deduction falls entirely on 
the primary-fund assessment base.
   Accordingly, neither the primary-fund assessment base nor the 
secondary-fund assessment base is directly proportional to the 
institutional's total deposits. Nor does the split between the 
institutions two assessment base match the split between the 
institution's primary-fund and secondary-fund deposits.

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[[Page 34754]]

   The source of this apparent effect is that, under the FDIC's 
current interpretation of its rule, an AADA--even a newly generated 
one--applies to an Oakar institution's entire assessment base for the 
entire semiannual period. The following example illustrates the point. 
The example focuses on the average assessment base, in order to show 
the relationship between the AADA and the assessment base up to the 
time the FDIC adopted the quarterly-payment procedure:

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                                           Seller                                                              
                                           (SAIF)             Buyer (BIF)                 Industry total       
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Before the transaction:                                                                                         
 Starting assessment bases (ignoring                                                                           
  float, &c.):                                                                                                 
       SAIF...........................         $200  $0                            $200.                       
       BIF............................            0  100                           100.                        
                                                                                                               
                                       ------------------------------------------------------------------------
                                                200  100                           300.                        
The transaction:                                                                                                
March call report......................          200  100                           300.                        
Deposits sold..........................        (100)  +100 (AADA)                   Neutral.                    
June call report.......................          100  200                           300.                        
After the transaction:                                                                                          
 Ending assessment bases (ignoring                                                                             
  float, &c.):                                                                                                 
       SAIF...........................          100  100  (AADA)                   200.                        
       BIF............................            0  100                           100.                        
                                                                                                               
                                       ------------------------------------------------------------------------
                                                100  200                           300.                        
Average assessment bases:                                                                                       
 (Ignoring float, &c.):                                                                                        
       SAIF...........................          150  100  (AADA)                   250.                        
       BIF............................            0  50                            50.                         
                                                                                                               
                                       ------------------------------------------------------------------------
                                                150  150                           300.                        
----------------------------------------------------------------------------------------------------------------

   The SAIF-assessable portion of the buyer's average assessment base 
is $100. If the SAIF-assessable portion were based directly on the 
average of the buyer's SAIF-insured deposits for the prior two 
quarters--rather than on the buyer's AADA--that portion would only be 
$50. The difference is equivalent to attributing the transferred $100 
to the buyer for an extra one-half of the semiannual period: by 
implication, for the first (or third) quarter as well as for the second 
(or fourth) quarter.
   The anomaly is most apparent from the standpoint of the industry as 
a whole. The aggregate amount of the SAIF-assessable deposits 
temporarily balloons to $250, while the aggregate amount of the BIF-
assessable deposits shrinks to $50. The anomaly only lasts for one 
semiannual period, however. In the following period, the seller's 
assessment base is $100 for both quarters, making its average 
assessment base $100. The buyer's AADA remains $100. Accordingly, the 
aggregate amount of SAIF-assessable deposits retreats to $200 once 
more; and the aggregate amount of BIF-assessable deposits is back to 
the full $100.
   Broadening the focus to include both funds also brings out a more 
subtle point: the anomaly is not tantamount to double-counting the 
transferred deposits for a quarter, but rather to re-allocating the 
buyer's assessment base from the BIF to the SAIF. The BIF-assessable 
portion of the buyer's average assessment base is $50, not $100. The 
difference is equivalent to cutting the buyer's BIF assessment base by 
$100 for half the semiannual period.
   The FDIC's quarterly-payment procedure has brought attention to 
these anomalous effects. The quarterly-payment schedule is merely a new 
collections schedule, not a new method for determining the amount due. 
See 59 FR 67153 (Dec. 29, 1994). Accordingly, under current procedures, 
the buyer and the seller in the illustration would pay the amounts 
specified therein even under the quarterly-payment schedule.
   When an Oakar transaction occurs in the latter half of a semiannual 
period, however, the buyer's call report for the prior quarter does not 
show an AADA. The buyer's first payment for the current semiannual 
period is therefore based on its assessment base for that quarter, not 
on its AADA. Moreover, the entire payment is computed using the 
assessment rate for the institution's primary fund. The FDIC therefore 
adjusts (and usually increases) the amount to be collected in the 
second quarterly payment in order to correct these defects.
   Interpreting the semiannual AADA to consist of two quarterly 
components would eliminate this anomaly.
2. Quarterly Growth
   The Oakar Amendment says that the growth rate for an AADA during a 
semiannual period is equal to the ``annual rate of growth of deposits'' 
of the Oakar institution. The FDIC currently interprets the phrase 
``annual rate'' to mean a rate determined over the interval of a full 
year. An Oakar institution computes its ``annual rate of growth'' at 
the end of each calendar year, and uses this figure to calculate the 
AADA for use during the following year.
   This procedure has a weakness. An Oakar institution's AADA tends to 
drift out of alignment with the deposit base, because the AADA remains 
constant while the deposit base changes. At the end of the year, when 
the institution computes its AADA for the next year, the AADA 
suddenly--but only temporarily--snaps back into its proper proportion.
   The FDIC does not believe that Congress intended to cause such a 
fluctuation in the relation between an institution's AADA and its 
deposit base.

[[Page 34755]]

Moreover, from the FDIC's standpoint as insurer, it would be 
appropriate to maintain a relatively steady correlation between the 
AADA and the total deposit base. The FDIC is therefore proposing to 
revise its view, and take the position that--after the end of the 
semiannual period in which an institution's AADA has been established--
the AADA grows and shrinks at the same basic rate as the institution's 
domestic deposit base (that is, excluding acquisitions and deposit 
sales), measured contemporaneously on a quarter-by-quarter basis. Over 
a full semiannual period, any increase or decrease in the AADA would 
automatically occur at a rate equal to the ``rate of growth of 
deposits'' during the semiannual period, thereby satisfying the 
statutory requirement.
   The FDIC considers that the statutory reference to an ``annual 
rate'' does not foreclose this approach. In ordinary usage, ``annual 
rate'' can refer to a rate that is expressed as an annual rate, even 
though the interval during which the rate applies, and over which it is 
determined, is a shorter interval such as a semiannual period (e.g., in 
the case of six-month time deposits). For example, until recently, the 
FDIC's rules regarding the payment of interest on deposits spoke of 
``the annual rate of simple interest''--a phrase that pertained to 
rates payable on time deposits having maturities as short as seven 
days. See 12 CFR 329.3 (1993).

Comparison of Annual and Quarterly AADA Growth Adjustment Methods

   Consider an Oakar institution that has total deposits of $15 as of 
12/31/93, with an AADA of $6.5. Further assume that the institution's 
total deposits grow by $1 every quarter, and that it does not 
participate in any additional acquisitions or deposit sales. The 
following graphs show the effects of making growth adjustments to its 
AADA on an annual basis versus a quarterly basis.
BILLING CODE 6714-01-P

[[Page 34756]]

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[GRAPHIC] [TIFF OMITTED] TP03JY96.005

   Since an AADA remains constant until a growth adjustment is 
applied, any change in total deposits is reflected in the institution's 
primary-fund deposits in the annual-adjustment method, while primary-
fund deposits and the AADA vary together with total deposits in the 
quarterly-adjustment method.
   The following graphs express this difference in terms of percents 
of total deposits.

[[Page 34757]]

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[GRAPHIC] [TIFF OMITTED] TP03JY96.007

   In the annual-adjustment method, the AADA becomes a smaller percent 
of total deposits as the total grows. In the quarterly-adjustment 
method, the AADA and the primary-fund deposits remain constant percents 
of total deposits.
   The FDIC considered an alternative approach: using the rate of 
growth in the institution's deposit base for the prior four quarters, 
measured from the current quarter. This technique would be as 
consistent with the letter of the statute as the current method. But 
the four-prior-quarters method would preserve the lag between the AADA 
and the deposit base.

Comparison of Quarterly AADA Adjustments Using Different Growth Rate 
Bases

   Consider the same Oakar institution with beginning total deposits 
of $15 and constant growth of $1 per quarter. The following graphs 
illustrate the effects on deposits of using total-deposit growth rates 
on two different bases: rolling one-year growth rates, and quarter-to-
quarter growth rates.

[[Page 34758]]

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[GRAPHIC] [TIFF OMITTED] TP03JY96.009

   In both cases, the primary-fund deposits and the AADA appear to 
vary together with total deposits, but it is difficult to discern their 
precise relationship. Graphs of the same effects in terms of percents 
of total deposits are more illustrative:

[[Page 34759]]

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[GRAPHIC] [TIFF OMITTED] TP03JY96.011

BILLING CODE 6714-01-C

[[Page 34760]]

   In the percent-of-deposits graphs, the AADA and the primary-fund 
deposits are shown to converge when the AADA growth adjustment is based 
on rolling one-year growth rates. In this particular example, the 
effect occurs because the institution's constant growth of $1 per 
quarter results in a steadily decreasing rate of growth of total 
deposits. Therefore, a rolling one-year growth rate of those total 
deposits at any point in time will be more than the actual rate of 
growth over the quarter to which the rolling rate is being applied. 
While different growth characteristics for total deposits would yield 
different relationships between the AADA and the primary fund over 
time, the general point is that the relationships of the AADA and the 
primary-fund deposits can vary when the AADA is adjusted, unless the 
total-deposit rate of growth used for the adjustment is drawn from the 
same period for which the rate is applied to the AADA.
   As shown in the right-hand graph, applying the actual quarterly 
growth rate for total deposits to the AADA results in stable percents 
of total deposits for the AADA and primary fund deposits.
   In sum, the FDIC considers that the quarterly approach is 
permissible under the statute, and is preferable to any approach that 
relies on a yearly interval to determine growth in the AADA.

D. Negative Growth of the AADA

   One element of an Oakar institution's AADA for a current semiannual 
period is ``the amount by which [the AADA for the preceding semiannual 
period] 3 would have increased during the preceding semiannual 
period if such increase occurred at a rate equal to the annual rate of 
growth of [the Oakar institution's] deposits''. 12 U.S.C. 
1815(d)(3)(C)(iii). The FDIC is proposing to codify its view that the 
terms ``growth'' and ``increase'' encompass negative growth 
(shrinkage). But the FDIC is proposing to change its interpretation by 
excluding shrinkage due to deposit sales.
---------------------------------------------------------------------------

   \3\ Theoretically, the growth rate is not applied directly to 
the prior AADA, but rather to an amount that is computed afresh each 
time--which amount is the sum of the various elements of the prior 
AADA.
---------------------------------------------------------------------------

1. Negative Growth in General
   The 1989 version of the Oakar Amendment focused on an Oakar bank's 
underlying rate of growth for the purpose of determining the Oakar 
bank's AADA. The 1989 version of the Amendment set a minimum growth 
rate for an AADA of 7 percent. The Amendment then specified that, if an 
Oakar bank's deposit base grew at a higher rate, the AADA would grow at 
the higher rate too. But the Amendment excluded growth attributable to 
mergers, branch purchases, and other acquisitions of deposits from 
other BIF members: the deposits so acquired were to be subtracted from 
the Oakar bank's total deposits for the purpose of determining the 
growth in the Oakar bank's deposit base (and therefore the rate of 
growth of the AADA). See 12 U.S.C. 1813(d)(3)(C)(3)(iii) (Supp. I 
1989).
   The 1989 version of the Oakar Amendment spoke only of ``growth'' 
and ``increases'' in the AADA. Id. The statute was internally 
consistent in this regard, because AADAs could never decrease.
   Congress eliminated the minimum growth rate as of the start of 
1992. FDICIA section 501 (a) & (b), 105 Stat. 2389 & 2391. As a result, 
the Oakar Amendment now specifies that an Oakar institution's AADA 
grows at the same rate as its domestic deposits (excluding mergers, 
branch acquisitions, and other acquisitions of deposits). 12 U.S.C. 
1813(d)(3)(C).
   The modern version of the Oakar Amendment continues to speak only 
of ``growth'' and ``increases,'' however. Congress has not--at least 
not explicitly--modified it to address the case of an institution that 
has a shrinking deposit base. Nor has Congress addressed the case of an 
institution that transfers deposits in bulk to another insured 
institution.
   The FDIC regards this omission as a gap in the statute that 
requires interpretation. The FDIC does so because, if the statute were 
read to allow only increases in AADAs, the statute would generate a 
continuing shift in the relative insurance burden toward the SAIF. Most 
Oakar institutions--and nearly all large Oakar institutions--are BIF-
member Oakar banks. If an Oakar bank's deposit base were to shrink 
through ordinary business operations, but its AADA could not decline in 
proportion to that shrinkage, the SAIF's share of the risk presented by 
the Oakar bank would increase. But the reverse would not be true: if an 
Oakar bank's deposit base increased, its AADA would rise as well, and 
the SAIF would continue to bear the same share of the risk. The result 
would be a tendency to displace the insurance burden from the BIF to 
the SAIF.4
---------------------------------------------------------------------------

   \4\ A shrinking Oakar thrift would have the opposite effect: The 
BIF's exposure would increase, and the SAIF's exposure would 
decrease. The Oakar thrifts are comparatively rare, however. The net 
bias would run against the SAIF.
---------------------------------------------------------------------------

   The FDIC further considers that the main themes of the changes that 
Congress made to the Oakar Amendment in 1991 are those of 
simplification, liberalization, and symmetry. Congress allowed savings 
associations to acquire banks, as well as the other way around. 
Congress allowed institutions to deal with one another directly, 
eliminating the requirement that the institutions must belong to the 
same holding company (and the need for approval by an extra federal 
supervisor). Congress established a mirror-image set of rules for 
assessing Oakar banks and Oakar thrifts. As noted above, Congress 
repealed the 7 percentum floor on AADA growth, thereby eliminating the 
most prominent cause of divergence between an Oakar institution's 
assessment base and its deposit base. Congress expanded the scope of 
the Oakar Amendment and made it congruent with the relevant provisions 
of section 5(d)(2). See FDICIA section 501(a), 105 Stat. 2388-91 (Dec. 
19, 1991).
   In keeping with this view of the 1991 amendments, the FDIC 
interprets the growth provisions of the Oakar Amendment symmetrically: 
that is, to encompass negative growth rates as well as positive ones. 
The FDIC takes the position that an Oakar institution's AADA grows and 
shrinks at the same underlying rate of growth as the institution's 
domestic deposits.
   The FDIC considers that this interpretation is appropriate because 
it accords with customary usage in the banking industry, and because it 
is consistent with the purposes and the structure of the statute. Under 
the FDIC's interpretation, each fund continues to bear a constant share 
of the risk posed by the institution, and continues to draw assessments 
from a constant proportion of the institution's deposit base.
   Moreover, the FDIC's interpretation encourages banks to make the 
investment that Congress wished to promote. If ``negative increases'' 
were disallowed, Oakar banks would see their SAIF assessments (which 
currently carry a much higher rate) grow disproportionately when their 
deposits shrank through ordinary business operations.
   Finally, the interpretation is designed to avoid--and has generally 
avoided--the anomaly of an institution having an AADA that is larger 
than its total deposit base.
2. Negative Growth Due to Deposit-Transfers
   As noted above, for the purpose of analyzing deposit sales, the 
FDIC

[[Page 34761]]

follows the deposit-attribution principles set forth in the Rankin 
letter: the Oakar institution transfers its primary-fund deposits until 
they have been exhausted, and only then transfers its secondary-fund 
deposits. The FDIC further considers that--consistent with the 
moratorium imposed by section 5(d)(2)--the deposits continue to have 
the same status for insurance purposes after the deposit sale as 
before. The industry-wide stock of BIF-insured and SAIF-insured 
deposits should remain the same.
   The FDIC's procedure for calculating the growth of the AADA upsets 
that balance, however. The deposit sale reduces the Oakar bank's total 
deposit base by a certain percentage: accordingly, the Oakar bank's 
AADA--and therefore its volume of SAIF-insured deposits--is reduced by 
the same percentage. Its BIF-insured deposits increase correspondingly. 
In effect, SAIF deposits are converted into BIF deposits, in violation 
of the moratorium.
   This effect occurs without regard for whether the transferred 
deposits are primary-fund or secondary-fund deposits. Even when a BIF-
member Oakar bank transfers deposits to another BIF-member bank--a 
transfer that, under the Rankin letter, would only involve BIF-insured 
deposits--the deposit sale serves to shrink the transferring bank's 
AADA.
   The FDIC is proposing to cure this defect by excluding deposit 
sales from the growth computation. The FDIC continues to believe that 
the terms ``growth'' and ``increase'' as used in the statute are broad 
enough to refer to a negative rate as well as a positive one. But the 
FDIC does not consider that it is required to extend these terms beyond 
reasonable limits. In particular, the FDIC does not believe that it 
must necessarily interpret these terms to include a decrease that is 
attributable to a bulk transfer of deposits. The statute itself 
excludes the effect of an acquisition or other deposit-assumption from 
the computation of growth. The FDIC considers that it has ample 
authority to make an equivalent exclusion for deposit sales.
   The FDIC believes its proposed interpretation is sound because 
deposit sales do not--in and of themselves--represent any change in the 
industry-wide deposit base of each fund. It is inappropriate for the 
FDIC to generate such a change on its own as a collateral effect of its 
assessment procedures. Moreover, the proposed interpretation is in 
accord with the tenor of the amendments made by the FDICIA, because it 
treats deposit sales symmetrically with deposit-acquisitions.

E. Value of an Initial AADA

   The Oakar Amendment says that an Oakar institution's initial AADA 
is equal to ``the amount of any deposits acquired by the institution in 
connection with the transaction (as determined at the time of such 
transaction)''. Id. 1815(d)(3)(C). The FDIC has by regulation 
interpreted the phrase ``deposits acquired by the institution''. 12 CFR 
327.32(a)(4). The regulation distinguishes between cases in which a 
buyer assumes deposits from a healthy seller (healthy-seller cases), 
and cases in which the FDIC is serving as conservator or receiver for 
the seller at the time of the transaction (troubled-seller 
cases).5
---------------------------------------------------------------------------

   \5\ The regulation also refers to the Resolution Trust 
Corporation (RTC). The reference is obsolete, as the RTC no longer 
exists.
---------------------------------------------------------------------------

   The FDIC proposes to retain but refine its interpretation with 
respect to healthy-seller cases. The FDIC also proposes to codify its 
``conduit'' rule for certain deposits that a buyer promptly retransfers 
to a third party. The FDIC proposes to eliminate the special provisions 
for troubled-seller cases.
1. The ``Nominal Amount'' Rule
   The general rule is that a buyer's initial AADA equals the full 
nominal amount of the assumed deposits. 12 CFR 327.32(a)(3)(4).
   The FDIC is proposing to retain the substance of this provision. 
The proposed rule would continue to emphasize the point that the amount 
of the transferred deposits is to be measured by focusing on the volume 
divested by the seller. The purpose of the rule is to make it clear 
that post-transaction events--such as deposit run-off--have no bearing 
on the calculation of the buyer's AADA.
   The FDIC considers that the nominal-value rule is appropriate for 
two chief reasons. Most importantly, it reflects the manifest intent of 
the statute, which says that the volume of the acquired deposits are to 
be ``determined at the time'' of the transaction. Second, the nominal-
value rule has the virtues of clarity and precision. A buyer and a 
seller will both know precisely the value of an AADA that is generated 
in an Oakar transaction. The buyer's expected secondary-fund 
assessments can be an important cost for the parties to consider when 
deciding on an acceptable price. The FDIC considers that the nominal-
value rule reduces uncertainty on this point.
   The proposed rule would update this aspect of the regulation in two 
minor ways. The existing rule is somewhat obsolete: it presumes that 
the buyer assumes all the seller's deposits, and that all such deposits 
are insured by the buyer's secondary fund. The reason for these 
presumptions is purely historical. At the time the regulation was 
adopted, the Oakar Amendment only spoke of cases in which the seller 
merged into or consolidated with the buyer, or in which the buyer 
acquired all the seller's assets and liabilities. See 12 U.S.C. 
1815(d)(3)(A) (Supp. I 1989). The Amendment did not allow for less 
comprehensive Oakar transactions (e.g., branch sales). Nor did it 
contemplate a transaction in which the seller was an Oakar institution 
in its own right.
   The proposed rule would make it clear that the nominal-amount rule 
applies to all Oakar transactions. The proposed rule would also specify 
that the AADA is only equal to the nominal amount of the transferred 
deposits that are insured by the secondary fund of the buyer, not 
necessarily all the transferred deposits. Both these points represent 
the current view of the FDIC.
2. Deposits Acquired From Troubled Institutions
   The FDIC's current regulation provides various discounts that serve 
to reduce the buyer's AADA when the seller is in conservatorship or 
receivership at the time of the sale. See 12 CFR 327.32(a)(3)(4). The 
FDIC is proposing to eliminate the discounts, on the ground that they 
are no longer needed.
   In adopting the rule, the FDIC observed that the deposits that a 
buyer assumes from a troubled seller are quite volatile: the buyer 
generally loses a certain percentage of the deposits almost 
immediately. The FDIC characterized the lost deposits as ``phantom 
deposits'', and said it would make no sense to require the bank to 
continue to pay assessments on them. The FDIC further said that such a 
requirement would impair its ability to transfer the business of such 
thrifts to healthy enterprises, to the detriment of the communities the 
thrifts were serving. See 54 FR at 51373. The FDIC accordingly adopted 
an interpretive rule stating that the nominal amount of the deposits 
transferred in such cases were to be discounted for the purpose of 
computing the AADA generated in the transaction, as follows:

--Brokered deposits: All brokered deposits are subtracted from the 
nominal volume of the transferred deposits.
--The ``80/80'' rule: Each remaining deposit is capped at $80,000. The

[[Page 34762]]

AADA is equal to 80% of the aggregate of the deposits as so capped.

   The FDIC explained that these discounts reflected its actual 
experience--that is, its experience with arranging purchase-and-
assumption transactions for institutions in receivership. Id. But the 
discounts were not intended to represent the actual run-off that an 
individual Oakar institution would sustain in a particular case. 
Rather, they were an approximation or estimate of the run-off that 
Oakar institutions ordinarily sustain in troubled-seller cases.
   As an historical matter, the FDIC determined that it was 
appropriate to provide the discounts because the funding decisions for 
troubled thrift institutions were subject to constraints and 
considerations that fell outside the normal range of factors 
influencing such decisions in the market place for healthy thrifts. The 
sellers had often been held in conservatorship for some time. In order 
to maintain the assets in such institutions, it often was necessary for 
the conservator to obtain large and other high-yielding deposits for 
funding purposes. Both the size of the discounts, and the fact that the 
discounts were restricted to troubled-seller cases, were known publicly 
in 1989 and were relevant to every potential buyer's decision to 
acquire and price a thrift institution.
   Although healthy sellers in unassisted transactions also sometimes 
relied upon volatile deposits for funding, these funding decisions were 
part of a strategy to maximize the profits of a going concern, and the 
management of the purchasing institutions were accountable to 
shareholders. The comparable decisions for troubled sellers in assisted 
transactions were made by managers of government conservatorships that 
were subject to funding constraints, relatively inflexible operating 
rules (necessary to control a massive government effort to sell failed 
thrifts), and other considerations outside the scope of the typical 
private transaction.
   While the FDIC recognized that it was incumbent upon any would-be 
buyer to evaluate and price all aspects of a transaction, the FDIC 
determined that it would be counterproductive to require bidders to 
price the contingencies related to volatile deposits in assisted 
transactions, given that these deposits primarily were artifacts of 
government conservatorships. Considering the objective of attracting 
private capital in order to avoid additional costs to the taxpayer, the 
FDIC sought to avoid the potential deterrent effect of including these 
artificial elements in the pricing equation. In order to reflect the 
volatile deposits acquired in assisted transactions, the FDIC 
determined to provide the above-described discounts.
   The FDIC adopted this interpretive rule at a time when troubled and 
failed thrifts were prevalent, and the stress on the safety net for 
such institutions was relatively severe. The stress has been 
considerably relieved, however. The FDIC considers that, under current 
conditions, there is no longer any need to maintain a special set of 
rules for troubled-seller cases.
   Moreover, the discounts are, at bottom, simply another factor that 
helps to determine the price that a buyer will pay for a troubled 
institution. The FDIC ordinarily must contribute its own resources to 
induce buyers to acquire such institutions. Any reduction in future 
assessments that the FDIC offers as an incentive merely reduces the 
amount of money the FDIC must contribute at the time of the 
transaction. The simpler and more straightforward approach is to 
reflect all such considerations in the net price that buyers pay for 
such institutions at the time of the transaction.

3. Conduit Deposits

   The FDIC staff has taken the position that, under certain 
circumstances, when an Oakar institution re-transfers some of the 
secondary-fund deposits it has assumed in the course of an Oakar 
transaction, the re-transferred deposits will not be counted as 
``acquired'' deposits for purposes of computing the Oakar institution's 
AADA. The Oakar institution is regarded as a mere conduit for the re-
transferred deposits. The deposits themselves retain their original 
status as BIF-insured or SAIF-insured after the re-transfer: whatever 
their status in the hands of the original transferor, the deposits have 
that status in the hands of the ultimate transferee.
   The FDIC has applied its ``conduit'' principle only in very narrow 
circumstances. The FDIC has done so only when the Oakar institution has 
been required to commit to re-transfer specified branches as a 
condition of approval of the acquisition of the seller; the commitment 
has been enforceable; and the re-transfer has been required to occur 
within six months after consummation of the initial Oakar transaction. 
See, e.g., FDIC Advisory Op. 94-48, 2 FED. DEPOSIT INS. CORP., LAW, 
REGULATIONS, RELATED ACTS 4901-02 (1994).
   The FDIC is proposing to codify and refine this view. As codified, 
secondary-fund deposits would have the status of ``conduit'' deposits 
in the hands of an Oakar institution only if a Federal banking 
supervisory agency or the United States Department of Justice 
explicitly ordered the Oakar institution to re-transfer the deposits 
within six months, if the institution's obligation to make the re-
transfer was enforceable, and if the re-transfer had to be completed in 
the six-month grace period.
   Conduit deposits would be included in the Oakar institution's AADA 
only on a temporary basis: for one semiannual period, or in some cases 
two periods, but no more. The deposits would be counted in the ``amount 
of deposits acquired'' by the Oakar institution--and therefore in its 
AADA--during the semiannual period in which the transaction occurs. The 
AADA so computed would be used to determine the assessment due for the 
following semiannual period. In addition, if the Oakar institution 
retained the deposits during part of that following period, the 
deposits would again be included in the ``amount of deposits 
acquired''--and would again be part of the institution's AADA--for the 
purpose of computing the assessment for the semiannual period after 
that. But thereafter the deposits would be excluded from the ``amount 
of deposits acquired'' by the Oakar institution.
   If the conditions were not satisfied, the conduit principle would 
not come into play, and the deposits would be regarded as having been 
assumed by the Oakar institution at the time of the original Oakar 
transaction. Any subsequent transfer of the deposits would be treated 
as a separate transaction, and analyzed independently of the Oakar 
transaction.
   The FDIC is currently considering alternative methodologies for 
attributing any deposits that an Oakar institution might transfer to 
another institution. The conduit principle's economic impact is 
somewhat greater in the context of one such methodology than in that of 
the other.
   The FDIC currently takes the view that, when an Oakar institution 
transfers deposits to another institution, the seller transfers its 
primary-fund deposits until they have been exhausted, and only then 
transfers its secondary-fund deposits. A BIF-member Oakar bank has a 
comparatively strong incentive to invoke the conduit principle under 
this methodology. If an Oakar bank can succeed in characterizing re-
transferred deposits as conduit deposits, the bank will escape the full 
impact of the SAIF assessment on those deposits, which is comparatively 
high at the present time.
   The FDIC is also considering a ``blended'' approach, however. Under

[[Page 34763]]

this methodology, whenever an Oakar institution transferred any 
deposits to another institution, the transferred deposits would be 
regarded as consisting of a blend of primary-fund and secondary-fund 
deposits. The ratio of the blend would be the same as that of the 
institution as a whole. This methodology would reduce the incentive for 
Oakar banks to invoke the conduit principle to some extent, 
particularly in the case of Oakar banks having large AADAs. An Oakar 
bank's AADA would shrink as a result of any transfer of deposits, even 
one that did not involve conduit deposits. The comparative benefit of 
invoking the conduit rule would be correspondingly reduced.

F. Transitional Considerations

1. Freezing Prior AADAs
   In theory, an Oakar institution's AADA is computed anew for each 
semiannual period. An AADA for a current semiannual period is equal to 
the sum of three elements:

--Element 1: The volume of secondary-fund deposits that the institution 
originally acquired in the Oakar transaction;
--Element 2: The aggregate of the growth increments for all semiannual 
periods prior to the one for which Element 3 is being determined; and
--Element 3: The growth increment for the period just prior to the 
current period (i.e., just prior to the one for which the assessment is 
due). Element 3 is calculated on a base that equals the sum of elements 
1 and 2.

   The FDIC has consistently interpreted its existing rules to mean 
that, when a growth increment has already been determined for an AADA 
for a semiannual period, the growth increment continues to have the 
same value thereafter. See, e.g., FDIC Advisory Op. 92- 19, 2 FED. 
DEPOSIT INS. CORP., LAW, REGULATIONS, RELATED ACTS 4619, 4620-21 
(1992). The net effect has been to ``freeze'' AADAs-- and their 
elements--for prior semiannual periods. The proposed rule would codify 
this principle.
   Accordingly, the new interpretations set forth in the proposed rule 
would apply on a purely prospective basis. They would come into play 
only for the purpose of computing future elements of future AADAs. The 
new interpretations would not affect AADAs already computed for prior 
semiannual periods (or the assessments that Oakar institutions have 
already paid on them). Nor would they affect the prior-period elements 
of AADAs that are to be determined for future semiannual periods. In 
short, the proposed rule would ``leave prior AADAs alone''.
2. 1st-Half 1997 Assessments: Excluding Deposit Sales From the Growth 
Calculation
   The FDIC proposes to follow its existing procedures in computing 
AADAs for the first semiannual period of 1997, with one exception. In 
particular, an institution's AADA for the first semiannual period of 
1997 would be based on the growth of the institution's deposits as 
measured over the entire calendar year 1996. The AADA so determined 
would be used to compute both quarterly payments for the first 
semiannual period of 1997.
   The exception is that, when computing the growth rate for deposits 
during the second semiannual period of 1996, the FDIC would apply its 
new interpretation of ``negative'' growth, and would decline to 
consider shrinkage attributable to transactions that occurred during 
July-December 1996.
   The FDIC acknowledges that its proposed new interpretation would 
make a significant break with the past. The FDIC further recognizes 
that the new interpretation could affect the business considerations 
that the parties must evaluate when they enter into deposit-transfer 
transactions. The FDIC considers that the industry has ample notice of 
the proposed exclusion, however, and that the parties to any such 
transaction can factor in any costs that the exclusion might produce.
   At the same time, the FDIC agrees that it would be inappropriate to 
apply its new interpretation retroactively to transactions that have 
been completed earlier in 1996. The parties to these transactions did 
not have notice of the FDIC's proposal. The FDIC would therefore 
include shrinkage attributable to deposit sales that occurred during 
the first semiannual period of 1996 when determining the annual growth 
rate to be used in computing Oakar institutions' AADAs for the first 
semiannual period of 1997.
3. 2nd-Half 1997 Assessments: Use of Quarterly AADAs
   The FDIC proposes to begin measuring AADAs on a quarterly basis 
during the first semiannual period of 1997. The first payment that 
would be computed using a quarterly component of an AADA would be the 
initial payment for the next semiannual period--the payment due at the 
end of June.
   The first time the FDIC would identify and measure a quarterly 
component of a semiannual AADA would be as of March 31, 1997. The 
quarterly component with respect to that date would reflect the basic 
rate of growth of the institution's deposits during the first calendar 
quarter of 1997 (January-March). The quarterly AADA component so 
measured would be used to determine the institution's first quarterly 
payment for the second semiannual period in 1997 (the June payment).
   The second quarterly AADA component would reflect the basic rate of 
growth of the institution's deposits during the second calendar quarter 
of 1997 (April-June). The quarterly AADA component so measured would be 
used to determine the institution's second quarterly payment for the 
second semiannual period in 1997 (the September payment).

G. Simplification and Clarification of the Regulation

   In some respects, the proposed rule would simplify and clarify the 
current regulation without changing its meaning. The FDIC is doing so 
in response to two initiatives. Section 303 of the Riegle Community 
Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, 
108 Stat. 2160 (Sept. 23, 1994), requires federal agencies to 
streamline and modify their regulations. In addition, the FDIC has 
voluntarily committed itself to review its regulations on a 5-year 
cycle. See Development and Review of FDIC Rules and Regulations, 2 FED. 
DEPOSIT INS. CORP., LAW, REGULATIONS, RELATED ACTS 5057 (1984). The 
FDIC considers that subpart B of part 327 is a fit candidate for review 
under each of these initiatives.
   The proposed rule would clarify subpart B by defining and using the 
terms ``primary fund'' and ``secondary fund''. An Oakar institution's 
primary fund would be the fund to which it belongs; it would be the 
other insurance fund. Using these terms, the FDIC is proposing to 
simplify paragraphs (1) and (2) of Sec. 327.32(a) by eliminating 
redundant language; the changes would not alter the meaning of these 
provisions.
   In addition, the FDIC would clarify Sec. 327.6(a) by changing the 
nomenclature used therein. ``Deposit-transfer transaction'' would be 
replaced by ``terminating transaction;'' ``acquiring institution'' 
would be replaced by ``surviving institution;'' and ``transferring 
institution'' would be replaced by ``terminating institution''. The 
terms now found in Sec. 327.6(a) are also used in other provisions of 
part 327, where they have different and less specialized meaning. The 
change in nomenclature in Sec. 327.6(a) is intended

[[Page 34764]]

to avoid any confusion that the current terminology might cause.

III. Proposed Effective Date

   Section 302(b) of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160, 2214-15 
(1994), requires that new and amended regulations imposing additional 
reporting, disclosure, or other new requirements on insured depository 
institutions must generally take effect on the first day of a calendar 
quarter. In keeping with this requirement, the FDIC is proposing that 
the rule, if adopted, would take effect on January 1, 1997.

IV. Request for Public Comment

   The FDIC hereby solicits comment on all aspects of the proposed 
rule. In particular, the FDIC solicits comment on the following points: 
attributing deposits that an Oakar institution transfers to another 
institution according to principles articulated in the Rankin letter, 
or treating the transferred deposits as a blend of deposits insured by 
both funds; having the FDIC, rather than individual institutions, 
compute AADAs using information provided by the institutions; 
interpreting AADAs as consisting of quarterly components, and computing 
the growth of AADAs on a quarterly cycle rather than an annual one; 
retaining the concept of negative growth for the purpose of computing 
AADAs; excluding deposit sales from the computation of growth; applying 
the nominal-amount principle for determining initial AADAs in all 
cases, including troubled-seller cases; and preserving the conduit-
deposit concept.
   In addition, in accordance with section 3506(c)(2)(B) of the 
Paperwork Reduction Act, 44 U.S.C. 3506(c)(2)(B), the FDIC solicits 
comment for the following purposes on the collection of information 
proposed herein:

--to evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the FDIC, 
including whether the information has practical utility;
--to evaluate the accuracy of the FDIC's estimate of the burden of the 
proposed collection of information;
--to enhance the quality, utility, and clarity of the information to be 
collected; and
--to minimize the burden of the collection of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology.

   The FDIC also solicits comment on all other points raised or 
options described herein, and on their merits relative to the proposed 
rule.

V. Paperwork Reduction Act

   Under the FDIC's existing procedures, each Oakar institution must 
compute its AADA at the end of each year, using a worksheet provided by 
the FDIC (annual growth worksheet). The annual growth worksheet shows 
the computation of the institution's AADA for the first semiannual 
period of the current year--that is, the AADA that is used to compute 
the assessment due for the first semiannual period of the current 
year--which is based on the institution's growth during the prior year. 
The institution must provide the annual growth worksheet to the FDIC as 
a part of the institution's certified statement.
   In addition, whenever an institution is the buyer in an Oakar 
transaction, it must submit a transaction worksheet showing the total 
deposits acquired on the transaction date. If the seller is an Oakar 
institution, and if the buyer acquires the entire institution, the 
buyer must also report the seller's last AADA (as shown in the seller's 
last call report). The buyer must then subtract this number from the 
total deposits acquired in order to determine its new AADA.
   The proposed rule would change this procedure for the annual growth 
worksheets for the first semiannual period of 1997 (i.e., for the 
worksheets that show the growth of deposits during 1996). The change 
would only affect Oakar institutions that transferred deposits to other 
institutions during 1996. Such an institution would have to report the 
total amount of deposits that it transferred in transactions from July 
1-December 31, 1996.
   Thereafter the FDIC would compute the AADAs for all Oakar 
institutions, using information taken from their quarterly call 
reports. Institutions would not have to report additional information 
in most cases. An Oakar institution that neither acquired nor 
transferred deposits in the prior quarter would not have to provide any 
additional information at all. An Oakar institution that acquired 
deposits would have to provide the same information at the end of the 
quarter that it now provides at the end of the year; there would be a 
change in the timing, but no change in burden.
   Only an Oakar institution that transferred deposits would have to 
provide additional information. The items of information needed, and 
the number of institutions affected, would depend on the deposit-
attribution methodology chosen by the FDIC. Under the Rankin letter's 
approach, the FDIC presently anticipates that approximately 100 
institutions per year would report deposit sales. Sellers would have to 
report the volume of deposits they transferred in the transaction. 
Under the ``blended deposits'' approach, the FDIC estimates that 
approximately 250 Oakar institutions per year would report deposit 
sales. Sellers would have to report both the volume of deposits 
transferred, and the date of the transaction. In either case, the 
information would be readily available: the extra reporting burden 
would be small.
   The FDIC expects that the net effect would be to reduce the overall 
reporting burden on Oakar institutions. The burden of submitting extra 
information in deposit-sale cases would be more than offset by the 
elimination of the growth worksheet and by the FDIC's assumption of the 
burden of computing AADAs.
   Accordingly, the FDIC is proposing to revise an existing collection 
of information. The revision has been submitted to the Office of 
Management and Budget for review and approval pursuant to the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3501 et seq.). Comments on the 
accuracy of the burden estimate, and suggestions for reducing the 
burden, should be addressed to the Office of Management and Budget, 
Paperwork Reduction Project (3064-0057), Washington, D.C. 20503, with 
copies of such comments sent to Steven F. Hanft, Assistant Executive 
Secretary (Administration), Federal Deposit Insurance Corporation, Room 
F-400, 550 17th St., N.W., Washington, D.C. 20429. The impact of this 
proposal on paperwork burden would be to require a one-time de minimis 
report from approximately 100 Oakar institutions for the first 
semiannual period in 1997, and thereafter to eliminate the annual 
growth worksheet for all 900 Oakar institutions, which takes an 
estimated two hours to prepare. The FDIC would then compute each Oakar 
institution's AADA from the deposit data in the institution's quarterly 
call report. The effect of this proposal on the estimated annual 
reporting burden for this collection of information is a reduction of 
1,800 hours:
   Approximate Number of Respondents: 900.
   Number of Responses per Respondent: -1.
   Total Annual Responses: 900.
   Average Time per Response: 2 hours.
   Total Average Annual Burden Hours: -1800 hours.

[[Page 34765]]

   The FDIC expects the Federal Financial Institutions Examination 
Council to require (as needed) the information in the quarterly call 
reports, starting with the report for March 31, 1997. If the Council 
does recommend these changes, they will be submitted to the Office of 
Management and Budget for review and approval as part of the call 
report submission.

VI. Regulatory Flexibility Analysis

   The Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply to 
the proposed rule. Although the FDIC has chosen to publish general 
notice of the proposed rule, and to ask for public comment on it, the 
FDIC is not obliged to do so, as the proposed rule is interpretive in 
nature. See id. 553(b) and 603(a).
   Moreover, the FDIC considers that the proposed rule would amount to 
a net reduction in burden for all Oakar institutions, as they would no 
longer have to prepare or file regular annual growth worksheets after 
the worksheet with respect to 1996. Instead, a limited number of Oakar 
institutions would have to submit one new piece of information, and 
would have to do so only for quarters in which they transferred 
deposits.
   In addition, although the Regulatory Flexibility Act requires a 
regulatory flexibility analysis when an agency publishes a rule, the 
term ``rule'' (as defined in the Regulatory Flexibility Act) excludes 
``a rule of particular applicability relating to rates''. Id. 601(2). 
The proposed rule relates to the rates that Oakar institutions must 
pay, because it addresses various aspects of the method for determining 
the base on which assessments are computed. The Regulatory Flexibility 
Act is therefore inapplicable to this aspect of the proposed rule.
   Finally, the legislative history of the Regulatory Flexibility Act 
indicates that its requirements are inappropriate to this aspect of the 
proposed rule. The Regulatory Flexibility Act is intended to assure 
that agencies' rules do not impose disproportionate burdens on small 
businesses:

   Uniform regulations applicable to all entities without regard to 
size or capability of compliance have often had a disproportionate 
adverse effect on small concerns. The bill, therefore, is designed 
to encourage agencies to tailor their rules to the size and nature 
of those to be regulated whenever this is consistent with the 
underlying statute authorizing the rule.

126 Cong. Rec. 21453 (1980) (``Description of Major Issues and 
Section-by-Section Analysis of Substitute for S. 299'').

   The proposed rule would not impose a uniform cost or requirement on 
all Oakar institutions regardless of size: to the extent that it 
imposes any costs at all, the costs have to do with the effects that 
the proposed rule would have on Oakar institutions' assessments. 
Assessments are proportional to an institution's size. Moreover, while 
the FDIC has authority to establish a separate risk-based assessment 
system for large and small members of each insurance fund, see 12 
U.S.C. 1817(b)(1)(D), the FDIC has not done so. Within the current 
assessment scheme, the FDIC cannot ``tailor'' assessment rates to 
reflect the ``size and nature'' of institutions.

List of Subjects in 12 CFR Part 327

   Assessments, Bank deposit insurance, Banks, banking, Financing 
Corporation, Reporting and recordkeeping requirements, Savings 
associations.

   For the reasons set forth in the preamble, the Board of Directors 
of the Federal Deposit Insurance Corporation proposes to amend 12 CFR 
part 327 as follows:

PART 327--ASSESSMENTS

   1-2. The authority citation for part 327 is revised to read as 
follows:

   Authority: 12 U.S.C. 1441, 1441b, 1815, 1817-1819.

   3. In Sec. 327.6 the section heading and paragraph (a) are revised 
to read as follows:

Sec. 327.6  Terminating transfers; other terminations of insurance.

   (a) Terminating transfer--(1) Assessment base computation. If a 
terminating transfer occurs at any time in the second half of a 
semiannual period, each surviving institution's assessment base (as 
computed pursuant to Sec. 327.5) for the first half of that semiannual 
period shall be increased by an amount equal to such institution's pro 
rata share of the terminating institution's assessment base for such 
first half.
   (2) Pro rata share. For purposes of paragraph (a)(1) of this 
section, the phrase ``pro rata share'' means a fraction the numerator 
of which is the deposits assumed by the surviving institution from the 
terminating institution during the second half of the semiannual period 
during which the terminating transfer occurs, and the denominator of 
which is the total deposits of the terminating institution as required 
to be reported in the quarterly report of condition for the first half 
of that semiannual period.
   (3) Other assessment-base adjustments. The Corporation may in its 
discretion make such adjustments to the assessment base of an 
institution participating in a terminating transfer, or in a related 
transaction, as may be necessary properly to reflect the likely amount 
of the loss presented by the institution to its insurance fund.
   (4) Limitation on aggregate adjustments. The total amount by which 
the Corporation may increase the assessment bases of surviving or other 
institutions under this paragraph (a) shall not exceed, in the 
aggregate, the terminating institution's assessment base as reported in 
its quarterly report of condition for the first half of the semiannual 
period during which the terminating transfer occurs.
* * * * *
   4. Section 327.8 is amended by revising paragraph (h) and adding 
paragraphs (j) and (k) to read as follows:

Sec. 327.8  Definitions.

* * * * *
   (h) As used in Sec. 327.6(a), the following terms are given the 
following meanings:
   (1) Surviving institution. The term surviving institution means an 
insured depository institution that assumes some or all of the deposits 
of another insured depository institution in a terminating transfer.
   (2) Terminating institution. The term terminating institution means 
an insured depository institution some or all of the deposits of which 
are assumed by another insured depository institution in a terminating 
transfer.
   (3) Terminating transfer. The term terminating transfer means the 
assumption by one insured depository institution of another insured 
depository institution's liability for deposits, whether by way of 
merger, consolidation, or other statutory assumption, or pursuant to 
contract, when the terminating institution goes out of business or 
transfers all or substantially all its assets and liabilities to other 
institutions or otherwise ceases to be obliged to pay subsequent 
assessments by or at the end of the semiannual period during which such 
assumption of liability for deposits occurs. The term terminating 
transfer does not refer to the assumption of liability for deposits 
from the estate of a failed institution, or to a transaction in which 
the FDIC contributes its own resources in order to induce a surviving 
institution to assume liabilities of a terminating institution.
* * * * *
   (j) Primary fund. The primary fund of an insured depository 
institution is the

[[Page 34766]]

insurance fund of which the institution is a member.
   (k) Secondary fund. The secondary fund of an insured depository 
institution is the insurance fund that is not the primary fund of the 
institution.
   5. In Sec. 327.32, paragraph (a) is amended by revising paragraphs 
(a)(1) and (a)(2), and by removing paragraphs (a)(4) and (a)(5), to 
read as follows:

Sec. 327.32  Computation and payment of assessment.

   (a) Rate of assessment--(1) BIF and SAIF member rates. (i) Except 
as provided in paragraph (a)(2) of this section, and consistent with 
the provisions of Sec. 327.4, the assessment to be paid by an 
institution that is subject to this subpart B shall be computed at the 
rate applicable to institutions that are members of the primary fund of 
such institution.
   (ii) Such applicable rate shall be applied to the institution's 
assessment base less that portion of the assessment base which is equal 
to the institution's adjusted attributable deposit amount.
   (2) Rate applicable to the adjusted attributable deposit amount. 
Notwithstanding paragraph (a)(1)(i) of this section, that portion of 
the assessment base of any acquiring, assuming, or resulting 
institution which is equal to the adjusted attributable deposit amount 
of such institution shall:
   (i) Be subject to assessment at the assessment rate applicable to 
members of the secondary fund of such institution pursuant to subpart A 
of this part; and
   (ii) Not be taken into account in computing the amount of any 
assessment to be allocated to the primary fund of such institution.
* * * * *
   6. New Secs. 327.33 through 327.36 are added to read as follows:

Sec. 327.33  ``Acquired'' deposits.

   This section interprets the phrase ``deposits acquired by the 
institution'' as used in Sec. 327.32(a)(3)(i).
   (a) In general. (1) Secondary-fund deposits. The phrase ``deposits 
acquired by the institution'' refers to deposits that are insured by 
the secondary fund of the acquiring institution, and does not include 
deposits that are insured by the acquiring institution's primary fund.
   (2) Nominal dollar amount. Except as provided in paragraph (b) of 
this section, an acquiring institution is deemed to acquire the entire 
nominal dollar amount of any deposits that the transferring institution 
holds on the date of the transaction and transfers to the acquiring 
institution.
   (b) Conduit deposits--(1) Defined. As used in this paragraph (b), 
the term ``conduit deposits'' refers to deposits that an acquiring 
institution has assumed from another institution in the course of a 
transaction described in Sec. 327.31(a), and that are treated as 
insured by the secondary fund of the acquiring institution, but which 
the acquiring institution has been explicitly and specifically ordered 
by the Corporation, or by the appropriate federal banking agency for 
the institution, or by the Department of Justice to commit to re-
transfer to another insured depository institution as a condition of 
approval of the transaction. The commitment must be enforceable, and 
the divestiture must be required to occur and must occur within 6 
months after the date of the initial transaction.
   (2) Exclusion from AADA computation. Conduit deposits are not 
considered to be acquired by the acquiring institution within the 
meaning of Sec. 327.32(a)(3)(i) for the purpose of computing the 
acquiring institution's adjusted attributable deposit amount for a 
current semiannual period that begins after the end of the semiannual 
period following the semiannual period in which the acquiring 
institution re-transfers the deposits.

Sec. 327.34  Application of AADAs.

   This section interprets the meaning of the phrase ``an insured 
depository institution's `adjusted attributable deposit amount' for any 
semiannual period'' as used in the opening clause of Sec. 327.32(a)(3).
   (a) In general. The phrase ``for any semiannual period'' refers to 
the current semiannual period: that is, the period for which the 
assessment is due, and for which an institution's adjusted attributable 
deposit amount (AADA) is computed.
   (b) Quarterly components of AADAs. An AADA for a current semiannual 
period consists of two quarterly AADA components. The first quarterly 
AADA component for the current period is determined with respect to the 
first quarter of the prior semiannual period, and the second quarterly 
AADA component for the current period is determined with respect to the 
second quarter of the prior period.
   (c) Application of AADAs. The value of an AADA that is to be 
applied to a quarterly assessment base in accordance with 
Sec. 327.32(a)(2) is the value of the quarterly AADA component for the 
corresponding quarter.
   (d) Initial AADAs. If an AADA for a current semiannual period has 
been generated in a transaction that has occurred in the second 
calendar quarter of the prior semiannual period, the first quarterly 
AADA component for the current period is deemed to have a value of 
zero.
   (e) Transition rule. Paragraphs (b), (c) and (d) of this section 
shall apply to any AADA for any semiannual period beginning on or after 
July 1, 1997.

Sec. 327.35  Grandfathered AADA elements.

   This section explains the meaning of the phrase ``total of the 
amounts determined under paragraph (a)(3)(iii)'' in 
Sec. 327.32(a)(3)(ii). The phrase ``total of the amounts determined 
under paragraph (a)(3)(iii)'' refers to the aggregate of the increments 
of growth determined in accordance with Sec. 327.32(a)(3)(iii). Each 
such increment is deemed to be computed in accordance with the 
contemporaneous provisions and interpretations of such section. 
Accordingly, any increment of growth that is computed with respect to a 
semiannual period has the value appropriate to the proper calculation 
of the institution's assessment for the semiannual period immediately 
following such semiannual period.

Sec. 327.36  Growth computation.

   This section interprets various phrases used in the computation of 
growth as prescribed in Sec. 327.32(a)(3)(iii).
   (a) Annual rate. The annual rate of growth of deposits refers to 
the rate, which may be expressed as an annual percentage rate, of 
growth of an institution's deposits over any relevant interval. A 
relevant interval may be less than a year.
   (b) Growth; increase; increases. Except as provided in paragraph 
(c) of this section, references to ``growth,'' ``increase,'' and 
``increases'' may generally include negative values as well as positive 
ones.
   (c) Growth of deposits. ``Growth of deposits'' does not include any 
decrease in an institution's deposits representing deposits transferred 
to another insured depository institution, if the transfer occurs on or 
after July 1, 1996.
   (d) Quarterly determination of growth. For the purpose of computing 
assessments for semiannual periods beginning on July 1, 1997, and 
thereafter, the rate of growth of deposits for a semiannual period, and 
the amount by which the sum of the amounts specified in 
Sec. 327.32(a)(3) (i) and (ii) would have grown during a semiannual 
period, is to be determined by computing such rate of growth and such 
sum of amounts for each calendar quarter within the semiannual period.
   7. Section 327.37 is added to read as follows:

[[Page 34767]]

ALTERNATIVE ONE

Sec. 327.37  Attribution of transferred deposits.

   This section explains the attribution of deposits to the BIF and 
the SAIF when one insured depository institution (acquiring 
institution) acquires deposits from another insured depository 
institution (transferring institution). For the purpose of determining 
whether the assumption of deposits (assumption transaction) constitutes 
a transaction undertaken pursuant to section 5(d)(3) of the Federal 
Deposit Insurance Act, and for the purpose of computing the adjusted 
attributable deposit amounts, if any, of the acquiring and the 
transferring institutions after the transaction:
   (a) Transferring institution--(1) Transfer of primary-fund 
deposits. To the extent that the aggregate volume of deposits that is 
transferred by a transferring institution in a transaction, or in a 
related series of transactions, does not exceed the volume of deposits 
that is insured by its primary fund (primary-fund deposits) immediately 
prior to the transaction (or, in the case of a related series of 
transactions, immediately prior to the initial transaction in the 
series), the transferred deposits shall be deemed to be insured by the 
institution's primary fund. The primary institution's volume of 
primary-fund deposits shall be reduced by the aggregate amount so 
transferred.
   (2) Transfer of secondary-fund deposits. To the extent that the 
aggregate volume of deposits that is transferred by the transferring 
institution in a transaction, or in a related series of transactions, 
exceeds the volume of deposits that is insured by its primary fund 
immediately prior to the transaction (or, in the case of a related 
series of transactions, immediately prior to the initial transaction in 
the series), the following volume of the deposits so transferred shall 
be deemed to be insured by the institution's secondary fund (secondary-
fund deposits): the aggregate amount of the transferred deposits minus 
that portion thereof that is equal to the institution's primary-fund 
deposits. The transferring institution's volume of secondary-fund 
deposits shall be reduced by the volume of the secondary-fund deposits 
so transferred.
   (b) Acquiring institution. The deposits shall be deemed, upon 
assumption by the acquiring institution, to be insured by the same fund 
or funds in the same amount or amounts as the deposits were so insured 
immediately prior to the transaction.

ALTERNATIVE TWO

Sec. 327.37  Attribution of transferred deposits.

   This section explains the attribution of deposits to the BIF and 
the SAIF when one insured depository institution (acquiring 
institution) assumes the deposits from another insured depository 
institution (transferring institution). On and after January 1, 1997, 
for the purpose of determining whether the assumption of deposits 
constitutes a transaction undertaken pursuant to section 5(d)(3) of the 
Federal Deposit Insurance Act, and for the purpose of computing the 
adjusted attributable deposit amounts, if any, of the acquiring and the 
transferring institutions after the transaction:
   (a) Attribution of the deposits as to the transferring institution. 
The deposits shall be attributed to the primary and secondary funds of 
the transferring institution in the same ratio as the transferring 
institution's total deposits were so attributed immediately prior to 
the deposit-transfer transaction. The transferring institution's stock 
of BIF-insured deposits and of SAIF-insured deposits shall each be 
reduced in the appropriate amounts.
   (b) Attribution of deposits as to the acquiring institution. Upon 
assumption by the acquiring institution, the deposits shall be 
attributed to the same insurance funds in the same amounts as the 
deposits were so attributed immediately prior to the transaction. The 
acquiring institution's stock of BIF-insured deposits and of SAIF-
insured deposits shall each be increased in the appropriate amounts.
   (c) Ratio fixed at start of quarter. For the purpose of determining 
the ratio specified in paragraph (a) of this paragraph for any 
transaction:
   (1) In general. The ratio shall be determined at the beginning of 
the quarter in which the transaction occurs. Except as provided in 
paragraph (c)(2) of this section, the ratio shall not be affected by 
changes in the transferring institution's deposit base.
   (2) Prior acquisitions by a transferring institution. If the 
transferring institution acquires deposits after the start of the 
quarter but prior to the transaction, the deposits so acquired shall be 
added to the transferring institution's deposit base, and shall be 
attributed to the transferring institution's primary and secondary 
funds in accordance with this section.

   By order of the Board of Directors.
   Dated at Washington, DC, this 17th day of June 1996.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 96-16349 Filed 7-2-96; 8:45 am]
BILLING CODE 6714-01-P