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October 12, 2010

FDIC proposes 'scorecard' for assessments

The FDIC Board last week proposed changes to its own rules on deposit insurance assessments that replace risk categories and long-term debt ratings with a new "scorecard" using more forward-looking measures, the agency said.

Actually, there would be two scorecards for FDIC-insured banks, one for larger instiutitons and another for highly complex institutions. FDIC defines a highly complex instiution as one with more than $50 billion in assets and which is fully owned by a parent company with more than $500 billion in total assets. It would also apply to a processing bank and trust company with more than $10 billion in total assets.

Each scorecard created would factor in a performance score (CAMEL rating) and loss severity score; the two would be combined for a total score, which in turn would be used to set an initial assessment rate. FDIC would continue to be able to raise assessment rates up to 3 basis points above or below base assessment rates without additional rulemaking.

FDIC is hoping to eliminate pressures on the Deposit Insurance Fund that are driven by increases in bank risk that are not reflected in the current assessment model. "Over the long term, institutions that pose higher long-term risk will pay higher assessments when they assume these risks - usually during economic expansions - rather than facing large assessment increases when conditions deteriorate," staff said in a memorandum to the board.

FDIC plans to accept comments from the public for 60 days following the proposed rule's publication in the Federal Register.

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