On September 29, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) adopted a Notice of Proposed Rulemaking that would require all insured banks (including thrifts) to prepay, on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC estimates that the total prepaid assessments collected would be approximately $45 billion. The FDIC Board also voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, and to extend the restoration period from seven to eight years. For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate would be based on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect for the institution on September 30, 2009, had been in effect for the entire third quarter of 2009. The prepaid assessment rate for 2011 and 2012 would be equal to that institution’s modified third quarter 2009 total base assessment rate plus three basis points. Each institution’s prepaid assessment base would be calculated using its third quarter 2009 assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012.

Each institution would record the entire amount of its prepaid assessment as a prepaid expense (asset) as of December 30, 2009. As of that date, and each quarter thereafter, each institution would record an expense (charge to earnings) for its regular quarterly assessment for the quarter and an offsetting credit to the prepaid assessment until the asset is exhausted. The FDIC would exercise its discretion as supervisor and insurer to exempt an institution from the repayment requirement if the FDIC determines that the prepayment would adversely affect the safety and soundness of the institution or for other unspecified reasons.

In announcing the prepayment assessment and the assessment increase, it seems unlikely at this time that the FDIC will seek a loan from the U.S. Treasury Department to bolster FDIC reserves, an option that has been discussed publicly. Reaffirming that insured deposits are safe, FDIC Chairman Sheila Bair said, “The decision today is really about how and when the industry fulfills its obligation to the insurance fund. It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem... In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer.”

Comments regarding the Proposed Rulemaking must be received on or before October 28.

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