I. INTRODUCTION
The FDIC Board approved a final rule requiring banks to prepay their estimated quarterly assessments for the fourth quarter of 2009, as well as all of 2010, 2011, and 2012 on Dec. 30, 2009.
The assessment rate to be used for the entire period is a bank’s base assessment rate (that is, the risk-based premium rate without adjustments for secured liabilities, brokered deposits, or higher levels of capital) in effect as of Sept. 30, 2009. The rate will be increased by 3 basis points for all of 2011 and 2012 based on the FDIC’s expectation that industry earnings will be stronger.
The payment will be based on a bank’s regular assessment base (total domestic deposits) on Sept. 30, 2009. An institution’s deposit base will be increased quarterly by an estimated 5 percent annual growth rate through the end of 2012.
Changes to data underlying an institution’s Sept. 30, 2009, assessment rate or assessment base received by the FDIC after Dec. 24, 2009, would not affect an institution’s prepayment amount. The FDIC will collect the prepaid assessment for the prepayment on Dec. 30, 2009, along with the institution’s regular quarterly deposit insurance assessments for the third quarter of 2009.
FDIC’s online assessment rate calculator includes a prepayment tab to help banks estimate their payments. Download FDIC’s calculator at https://www.fdic.gov/deposit/insurance/calculator.html. The FDIC also has provided additional information in the form of Frequently Asked Questions which may be viewed at http://www.fdic.gov/deposit/insurance/Final_Rule_QandA.pdf.
Banks will book the prepaid expense as a non-earning asset. Each quarter, FDIC will bill banks for the actual risk-based premium for that quarter. Such amounts will reduce the prepaid asset. Once the asset is exhausted, banks will resume paying and accounting for quarterly deposit insurance assessments as they currently do. If the prepayment is not exhausted by June 30, 2013, any remaining amount will be returned to the bank.
II. ACCOUNTING AND RISK WEIGHT FOR PREPAID ASSESSMENTS
Under the final rule, each institution should record the entire amount of its prepaid assessment as a prepaid expense (asset) as of Dec. 30, 2009. Notwithstanding the prepaid assessment, each institution should record the estimated expense for its regular risk-based assessment each calendar quarter.
As of Dec. 31, 2009, each institution should record (1) an expense (a charge to earnings) for its estimated regular quarterly risk-based assessment for the fourth quarter of 2009, and (2) an offsetting credit to the prepaid assessment asset because the fourth quarter assessment of 2009 would have been prepaid.
Each quarter thereafter, an institution should record an expense (a charge to earnings) for its regular quarterly risk-based assessment for that quarter and an offsetting credit to the prepaid assessment asset until this asset is exhausted. Once the asset is exhausted, the institution should record an expense and an accrued expense payable each quarter for its regular assessment payment, which would be paid, in cash, in arrears at the end of the following quarter.
Risk Weighting of Prepaid Assessments
The federal banking agencies’ risk-based capital rules permit an institution to apply a zero percent risk weight to claims on U.S. government agencies. The FDIC believes the prepaid assessment imposed under this rule qualifies for a zero percent risk weight.
III. RESTRICTIONS ON USE OF PREPAID ASSESSMENTS
Under the final rule, prepaid assessments may only be used to offset regular quarterly risk-based deposit insurance assessments. Prepaid assessments could not be used, for example, to offset FICO assessments; to offset any future special assessments; to offset any future systemic risk assessments; to offset Temporary Liquidity Guarantee Program assessments; or to pay assessments for quarters prior to the fourth quarter of 2009.
IV. TRANSFER OF PREPAID ASSESSMENTS
An insured depository institution will be permitted to transfer any portion of its prepaid assessment to another insured depository institution, provided that the institution meets certain requirements as set forth in the final rule.
Prepaid assessments may not be transferred to any entity that is not an insured depository institution. The prepayment assessment may not be pledged to either an insured depository institution or an entity that is not an insured depository institution.
In the event that an insured depository institution merges with, or is consolidated into, another insured depository institution, the surviving or resulting institution would be entitled to any unused portion of the disappearing institution’s prepaid assessment not otherwise transferred.