On September 26, the Federal Deposit Insurance Corporation issued an Advanced Notice of Proposed Rulemaking (ANPRM) requesting comments on alternative methods for allocating dividends from the Deposit Insurance Fund (DIF) when the DIF’s reserve ratio at the end of a calendar year exceeds certain statutory threshholds. Such dividends are now required by the Federal Deposit Insurance Reform Act of 2005. The existing FDIC regulations on assessment dividends, established as a temporary rule in 2006, will expire on December 31, 2008.

The ANPRM sets forth two general approaches to allocating dividends: the fund balance method and the payments method. According to the FDIC in its commentary included in the ANPRM, “the allocation methods potentially differ most significantly in the way they balance two of the statutory factors that the FDIC must consider when allocating dividends – institutions’ relative 1996 assessment bases and assessments paid after 1996 – and, thus, in the way each method treats older versus newer institutions.” The FDIC believes that the “fund balance method implicitly balances the two factors” while the payments method “requires explicit decision making.”

Pursuant to the ANPRM, the larger an institution’s 1996 assessment base, the “older” it is. An institution that was chartered before 1996 and that has grown significantly since then would be deemed a “newer” institution as would an institution chartered after 1996 that had no 1996 assessment base.

Comments are due by November 19.