83 FR 48569 - Miscellaneous Federal Home Loan Bank Operations and Authorities-Financing Corporation Assessments

FEDERAL HOUSING FINANCE AGENCY

Federal Register Volume 83, Issue 187 (September 26, 2018)

The Federal Housing Finance Agency (FHFA) is proposing to amend its regulations pertaining to the operation of the Financing Corporation (FICO), a vehicle established by one of FHFA's predecessors to issue bonds, the proceeds of which were used to help fund the resolution of failed savings and loan associations during the 1980s. The last of those FICO bonds will mature in September 2019. By statute, FICO obtains the monies to pay the interest on those bonds by assessing depository institutions (FICO assessments) that are insured by the Federal Deposit Insurance Corporation (FDIC). The proposed rule addresses the manner in which FICO would conduct the 2019 FICO assessments, which are expected to be the last of those assessments. Specifically, the proposed rule would provide that all payments made by FDIC-insured depository institutions during 2019 will be final, and that no adjustments to prior FICO assessments would be permitted after March 26, 2019, the projected date as of which the FDIC will finalize the amounts of the final collection for the 2019 FICO assessments.

[Federal Register Volume 83, Number 187 (Wednesday, September 26, 2018)]
[Proposed Rules]
[Pages 48569-48574]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-20975]


=======================================================================
-----------------------------------------------------------------------

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1271

RIN 2590-AA99


Miscellaneous Federal Home Loan Bank Operations and Authorities--
Financing Corporation Assessments

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to 
amend its regulations pertaining to the operation of the Financing 
Corporation (FICO), a vehicle established by one of FHFA's predecessors 
to issue bonds, the proceeds of which were used to help fund the 
resolution of failed savings and loan associations during the 1980s. 
The last of those FICO bonds will mature in September 2019. By statute, 
FICO obtains the monies to pay the interest on those bonds by assessing 
depository institutions (FICO assessments) that are insured by the 
Federal Deposit Insurance Corporation (FDIC). The proposed rule 
addresses the manner in which FICO would conduct the 2019 FICO 
assessments, which are expected to be the last of those assessments. 
Specifically, the proposed rule would provide that all payments made by 
FDIC-insured depository institutions during 2019 will be final, and 
that no adjustments to prior FICO assessments would be permitted after 
March 26, 2019, the projected date as of which the FDIC will finalize 
the amounts of the final collection for the 2019 FICO assessments.

DATES: FHFA must receive written comments on or before October 26, 
2018.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA99 by any of 
the following methods:
     Agency Website: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comments to the Federal eRulemaking Portal, please also send it by 
email to FHFA at [email protected] to ensure timely receipt by the 
agency. Please include ``RIN 2590-AA99'' in the subject line of the 
message.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA99, 
Federal Housing Finance Agency, Constitution Center, (OGC) Eighth 
Floor, 400 Seventh Street SW, Washington, DC 20219. The package should 
be delivered to the Seventh Street entrance Guard Desk, First Floor, on 
business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA99, Federal 
Housing Finance Agency, Constitution Center, (OGC) Eighth Floor, 400 
Seventh Street SW, Washington, DC 20219.

FOR FURTHER INFORMATION CONTACT: Louis M. Scalza, Associate Director, 
Examinations, Office of Safety & Soundness Examinations, 
[email protected], (202) 649-3710; Winston Sale, Assistant General 
Counsel, [email protected], (202) 649-3081; or Neil R. Crowley, 
Deputy General Counsel, [email protected], (202) 649-3055 (these 
are not toll-free numbers), Federal Housing Finance Agency, 400 Seventh 
Street SW, Washington, DC 20219. The telephone number for the 
Telecommunications Device for the Hearing Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comment on all aspects of the proposed rulemaking, 
which FHFA is publishing with a 30-day comment period. After 
considering the comments, FHFA will develop a final regulation. Copies 
of all comments received will be posted without change on the FHFA 
website at http://www.fhfa.gov, and will include any personal 
information you provide, such as your name, address, email address, and 
telephone number.

II. Background

    FHFA is an independent agency of the federal government established 
to regulate and oversee the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, the Federal Home Loan Banks 
(Banks), and the Bank System's Office of Finance.\1\ FHFA also is 
responsible for overseeing FICO. The Competitive Equality Banking Act 
of 1987 \2\ amended the Federal Home Loan Bank Act (Bank Act) and 
authorized FHFA's predecessor to establish FICO, and authorizes the 
FHFA Director to select the two Bank presidents that serve on its 
directorate, to prescribe such regulations as are necessary to carry 
out the statutory provisions relating to FICO, and to oversee the 
dissolution of FICO.\3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 4511.
    \2\ Public Law 100-86, 101 Stat. 552.
    \3\ See 12 U.S.C. 1441(a) (establishment of FICO), (b)(1)(B) 
(selection of directors), (i) (dissolution, and authority for FHFA 
to exercise any FICO powers, needed to conclude its affairs), and 
(j) (authority to prescribe regulations).
---------------------------------------------------------------------------

    FICO is a mixed-ownership, tax-exempt government corporation, 
chartered in 1987 by the former Federal Home Loan Bank Board, one of 
FHFA's predecessor agencies, pursuant to the Federal Savings and Loan 
Insurance Corporation (FSLIC) Recapitalization Act of 1987, as amended 
(Recapitalization Act).\4\ The Recapitalization Act's purpose was to 
recapitalize the FSLIC insurance fund, which had been significantly 
depleted by a wave of savings and loan (S&L) failures during the S&L 
crisis of the 1980s. FICO's mission was to provide funding for FSLIC 
(and later for the FSLIC Resolution Fund after FSLIC's insolvency and 
later abolishment by the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (FIRREA)) by selling bonds to the public. 
FICO's operations are managed by a directorate composed of the Director 
of the Office of Finance and two Bank presidents

[[Page 48570]]

who rotate after serving one year terms.\5\ FICO has no permanent staff 
and utilizes Office of Finance staff to execute its day-to-day 
functions.
---------------------------------------------------------------------------

    \4\ See 12 U.S.C. 1441(a).
    \5\ See 12 U.S.C. 1441(b).
---------------------------------------------------------------------------

    FICO was initially capitalized by issuing stock to the Banks in an 
aggregate amount of $680 million, apportioned pro rata among the Banks 
in accordance with a statutory formula.\6\ FICO used the proceeds from 
the stock issuances to purchase U.S. Treasury zero-coupon securities 
(Zeros), which were to be the sole source of repayment of the principal 
of the bonds to be issued by FICO. Between 1987 and 1989 FICO issued 14 
separate series of 30-year bonds (Obligations) in an aggregate 
principal amount of approximately $8.1 billion. FICO conveyed the 
proceeds of the Obligations to FSLIC, to finance its resolution of 
failed S&Ls.\7\ FICO is required by statute to hold the Zeros in a 
segregated account until they are used to pay the principal due on the 
Obligations at their maturity.\8\ The Obligations began to mature in 
2017, and the last Obligation will mature in September 2019.
---------------------------------------------------------------------------

    \6\ See 12 U.S.C. 1441(d)(4). FICO issued the stock in a series 
of transactions between 1987 and 1989, each in anticipation of an 
issuance of a particular series of the FICO bonds.
    \7\ FICO used the net proceeds from the first 13 series of its 
Obligations to purchase nonredeemable capital certificates and 
nonredeemable nonvoting capital stock issued by the FSLIC. After the 
FSLIC was abolished in 1989, FICO used the proceeds from its final 
series of Obligations to purchase nonredeemable capital certificates 
issued by the FSLIC Resolution Fund, the statutory successor to the 
FSLIC. See 12 U.S.C. 1821a (establishment of FSLIC Resolution Fund). 
Those instruments have no value and have been charged to FICO's 
capital.
    \8\ See 12 U.S.C 1441(g)(2).
---------------------------------------------------------------------------

    The Recapitalization Act established a different source for 
providing funds needed to service the semiannual interest payments on 
the FICO Obligations.\9\ The statute authorized FICO to assess FSLIC-
insured depository institutions for the funds needed to pay the 
interest due on the FICO Obligations.\10\ The Deposit Insurance Funds 
Act of 1996 authorized FICO to assess against institutions with 
deposits insured by both the Bank Insurance Fund (BIF) and the Savings 
Association Insurance Fund (SAIF).\11\ Pursuant to the Federal Deposit 
Insurance Reform Act of 2005, effective March 31, 2006, the BIF and 
SAIF were merged into the newly created Deposit Insurance Fund (DIF), 
and thus FICO may assess institutions insured by the DIF.\12\ FICO is 
authorized to assess insured depository institutions only for three 
purposes: For making interest payments on the FICO Obligations; paying 
issuance costs for the FICO Obligations; and paying custodial fees 
associated with the FICO Obligations. The Bank Act, as amended by 
FIRREA, further provides that FICO is to conduct its assessments in the 
same manner that the FDIC uses when assessing its insured depository 
institutions for deposit insurance purposes.\13\ FICO and the FDIC 
entered into a memorandum of understanding in 1997 (Memorandum of 
Understanding), as amended in 1999, pursuant to which the FDIC collects 
FICO's assessments from its insured depository institutions quarterly, 
as agent for FICO.
---------------------------------------------------------------------------

    \9\ Interest on each FICO Obligation is paid on the anniversary 
of its issuance date, and six months after that date each year.
    \10\ 12 U.S.C. 1441(f)(2). The statute further provides that the 
FICO assessments are subject to the approval of the FDIC board of 
directors. FICO and the FDIC have entered into a memorandum of 
understanding under which FDIC, as agent for FICO, collects the FICO 
assessments on insured depository institutions, as approved by the 
FDIC.
    \11\ Public Law 104-131, 110 Stat. 1213.
    \12\ Public Law 109-171 sec. 2109(a)(2), 120 Stat. 20.
    \13\ 12 U.S.C. 1441(f)(2).
---------------------------------------------------------------------------

    The FDIC conducts its own Deposit Insurance Fund assessments 
quarterly (FDIC assessment), with the amount of the FDIC assessment for 
each insured depository institution being determined based, in part, on 
data that the institution has submitted to the Federal Financial 
Institutions Examination Council (FFIEC) in its Consolidated Reports of 
Condition and Income (call report). If an insured depository 
institution amends a call report on which a previous FDIC assessment 
had been calculated and the amendment to the call report would cause 
the calculation of the prior FDIC assessment to change, the institution 
may receive an adjustment, which generally appears on an upcoming 
invoice.\14\
---------------------------------------------------------------------------

    \14\ See 12 U.S.C. 1817(e)(1) (addressing refunds of 
overpayments of FDIC assessments).
---------------------------------------------------------------------------

    Pursuant to the Memorandum of Understanding, the FDIC collects the 
FICO assessments from the insured depository institutions quarterly, as 
agent for FICO, at the same time as the collection of FDIC assessments. 
Pursuant to the Memorandum of Understanding, FICO assessments are made 
based on an assessment rate formula adopted by FICO, and approved by 
the FDIC Board of Directors. One factor in FICO's formula is the 
deposit insurance assessment base, which (as described above) is 
calculated using an insured depository institution's call report data. 
Under the terms of the Memorandum of Understanding, twice per year, 
FICO notifies the FDIC of the total amounts that would be needed for 
FICO to make its upcoming Obligation interest payments and annually 
informs the FDIC of the interest it has earned. Using that information 
and FICO's assessment rate formula, the FDIC calculates a ``quarterly 
multiplier'' and applies it to information derived from each 
institution's call report to determine the FICO assessment for each 
institution for that calendar quarter. The FDIC then issues an invoice 
to each insured depository institution detailing both its quarterly 
FDIC and FICO assessments.\15\ Insured depository institutions submit 
payment for their FDIC and FICO assessments to the FDIC via ACH. The 
FDIC then transfers the aggregate FICO collections to an account that 
FICO maintains at the Federal Reserve Bank of New York, from which FICO 
pays the interest that is due on the FICO Obligations.
---------------------------------------------------------------------------

    \15\ The FDIC provides to each institution a Quarterly Certified 
Statement Invoice that specifies the total amount of that quarter's 
assessment, including the FDIC assessment and the FICO assessment 
for that calendar quarter.
---------------------------------------------------------------------------

    In the case of an insured depository institution that amends its 
call report for a prior period, FICO assessments are adjusted in the 
same manner as FDIC assessments. Thus, if an amended call report 
results in an institution having overpaid or underpaid a prior 
quarter's FICO assessment an adjustment amount will appear on an 
upcoming invoice, provided that the amendment has been made within 
three years after the date that the associated FICO payment was 
due.\16\ Pursuant to the Memorandum of Understanding, overpayments 
arising from amended call reports are generally credited against the 
next quarter's FICO assessment and underpayments are added to the next 
quarter's FICO assessment.
---------------------------------------------------------------------------

    \16\ See 12 U.S.C. 1817(g)(2) (establishing a three-year statute 
of limitations on actions by insured depository institutions to 
recover overpayments from FDIC, and on actions by FDIC to recover 
underpayments from the insured institutions).
---------------------------------------------------------------------------

    With respect to all such refunds for overpayments of prior period 
FICO assessments once all FICO obligations are paid, however, FICO has 
no legal obligation to use its own assets (other than those funds 
obtained from the FICO assessments) to provide monies to any insured 
depository institutions to make those refunds and does not do so. 
Indeed, FICO has no legal authority to assess insured depository 
institutions for the sole purpose of obtaining monies to provide 
refunds to other insured depository institutions or to spend its own 
non-assessment assets for that purpose. As a practical matter, because 
these refunds are processed as credits against the next FICO 
assessment, they do not require any cash outlay from FICO and all 
refunds are effectively paid

[[Page 48571]]

from the assessments on the other insured depository institutions 
collectively. The principal effect of such refunds is that they 
modestly reduce the amount of monies actually collected by the FDIC, as 
agent for FICO, as part of a particular quarter's FICO assessment. 
Those refund credits, however, may be offset by the additional amounts 
that the FDIC collects, as an agent for FICO, from other institutions 
that had previously underpaid a prior FICO assessment.\17\ To the 
extent overpayment credits exceed underpayment collections, such 
shortfall is made up the following quarter by increasing the total 
collection amount accordingly. Moreover, because the determination of 
the quarterly multiplier for setting the FICO assessment involves 
rounding, any quarterly collection of the FICO assessment may yield 
slightly more money than the initially projected assessment amount. 
Pursuant to the Memorandum of Understanding with the FDIC, FICO also 
maintains a cash reserve that is available to make up modest shortfalls 
that might arise during a quarterly collection. FICO has never needed 
to use the cash reserve, because it has always collected sufficient 
funds to make all required interest payments when due. FHFA anticipates 
that FICO will draw down the monies in its cash reserve to fund a 
portion of the remaining interest payments on its Obligations as they 
come due, which also would reduce the amount needed to be assessed and 
collected from insured depository institutions during 2019.
---------------------------------------------------------------------------

    \17\ The number of call report amendments submitted during a 
particular calendar quarter that will affect a FICO assessment will 
vary, but is small in comparison to the number of insured depository 
institutions filing call reports with FDIC. Generally speaking, the 
dollar amounts of the gross FICO refunds and FICO additional 
collections for any calendar quarter are also small, and the net 
amounts of such adjustments during a particular quarter often are 
less than $100,000.
---------------------------------------------------------------------------

    As is evident from the above description, the current practice for 
adjusting individual FICO assessments--to account for either refunds or 
additional collections--depends on the existence of a subsequent FICO 
collection that could serve as the source of funds and the means by 
which any such adjustments may be processed. The last of the FICO bonds 
will mature during 2019 and FICO is scheduled to make five different 
interest payments during 2019.\18\ FHFA anticipates that the FDIC, as 
agent for FICO, will collect one FICO assessment during 2019 and that 
the amounts received by FICO from the March 2019 collections will be 
sufficient (when combined with any other available funds that FICO will 
have on hand) to make all remaining interest payments due during 2019. 
Accordingly, once the final FICO assessment has been collected, there 
will be no subsequent billing cycle through which an insured depository 
institution could have a prior FICO assessment adjusted, i.e., the 
FDIC, which will cease to be collection agent for FICO, will no longer 
invoice institutions for FICO assessments that could be adjusted to 
reflect increases or decreases attributable to amendments to their 
prior period call reports. Because FICO assessments are collected in 
the same manner as FDIC assessments, the FDIC's billing practices, as 
agent for FICO, have long included the above-described adjustment 
provision for the FICO assessments. Thus, FHFA has determined that it 
would be appropriate, as FICO's regulator, to adopt a rule to make 
clear that such adjustments must cease after FICO has collected its 
final assessment from the insured depository institutions, and that 
FICO has no obligation to make any adjustments to prior FICO 
assessments.
---------------------------------------------------------------------------

    \18\ Two interest payments, in the approximate amount of $28 
million each, are due during March 2019, and FICO will collect 
monies needed to make those payments during the December 2018 
collection. The remaining three interest payments, in the 
approximate amounts of $25 million each, are due during April, June, 
and September 2019, and FICO will collect monies needed to make 
those payments during the March 2019 collection.
---------------------------------------------------------------------------

    This rulemaking pertains only to the FICO assessments, which the 
FDIC collects on behalf of FICO. It does not affect the deposit 
insurance assessments that the FDIC collects from insured depository 
institutions, which will continue in their normal manner. The sections 
below describe the content of the proposed rule.

III. The Proposed Rule

    Content of the Proposed Rule. The proposed rule would do four 
things. First, it would provide that all FICO assessments collected 
during 2019 will be final, meaning that there will be no possibility of 
any subsequent adjustments to those assessment amounts. Second, it 
would provide that after the collection of the final FICO assessment 
(which is expected to occur on March 29, 2019) no insured depository 
institution would be entitled to any adjustment of any prior FICO 
assessment that arises as a result of an amendment to the call report 
on which the prior assessment had been based. This recognizes the fact 
that adjustments to prior FICO assessments can only be made as part of 
the process of collecting a subsequent FICO assessment. Third, it would 
preserve the existing adjustment practice through the final FICO 
assessment collection, i.e., it would allow the FDIC, as agent for 
FICO, to adjust the March 2019 FICO assessment for any institution to 
reflect amendments that the institution has made to its call reports 
for any calendar quarters prior to and including the fourth quarter of 
2018. This provision is phrased in terms of setting March 26, 2019--the 
projected date as of which the FDIC will finalize the amounts due for 
the March 2019 FICO assessment--as the last date for any such call 
report amendments to affect the institution's FICO assessments.\19\ 
Fourth, the proposal includes a provision that is intended to address 
the possibility, which FHFA believes to be small, that FICO may need to 
conduct another assessment in June 2019, which would occur only if the 
March collection did not yield sufficient monies to make the remaining 
interest payments on the FICO bonds. This provision has been drafted to 
preserve the current practice of allowing an insured depository 
institution to amend the call report on which its June FICO assessments 
will be based up until the date on which the FDIC finalizes the amounts 
due from each institution for that quarter. This paragraph provides 
that any amendments to the call reports for the calendar quarter ending 
on March 31, 2019 that are submitted after June 25, 2019, the 
anticipated date on which the FDIC would finalize payments for the 
collection, will not affect the institution's FICO assessment. Any 
amended call reports for the first quarter of 2019 submitted prior to 
that date will be used to calculate the June assessments. This is 
consistent with current practice for FICO assessments, under which 
payment amounts for FICO assessments are finalized three days prior to 
the date of collection.
---------------------------------------------------------------------------

    \19\ For example, an insured depository institution that amends 
a prior period call report on or before March 26, 2019 will receive 
an appropriate adjustment to the assessment amount anticipated to be 
collected on March 29, 2019. An institution that amends a prior 
period call report after that date will not receive any adjustment 
to its prior FICO assessment because there is not expected to be 
another FICO assessment after that date.
---------------------------------------------------------------------------

    Analysis. In the absence of an ongoing FICO assessment process 
there is no funding mechanism for FICO to provide an insured depository 
institution a credit for any overpayment of a prior FICO assessment or 
to bill it for any underpayment of a prior assessment. FHFA has 
therefore determined to provide clarity and finality by affirmatively 
declaring the FICO assessment adjustment practices terminated, 
effective with the collection

[[Page 48572]]

of the final FICO assessment. FHFA is mindful of the statutory 
requirement that FICO should assess the depository institutions for its 
costs in the same manner as the FDIC assesses those institutions for 
deposit insurance purposes. FHFA also understands, however, that the 
FDIC has an established practice of allowing insured depository 
institutions to have adjustments made to their prior FDIC assessments 
if they later amend the call report data on which those assessments 
were based, provided it occurs within the three-year statutory period, 
a practice that will not be available when the FICO assessments cease.
    A key difference between the FICO assessments and the FDIC 
assessments is that the FDIC assessments are continual, with no 
predetermined termination date. The FICO assessment authority, however, 
is required by statute to cease after FICO has collected sufficient 
monies to pay the interest and related costs on its Obligations. In 
light of that difference, FHFA believes that the statutory language 
requiring FICO to conduct its assessments in the same manner as the 
FDIC assessments is best read as requiring FICO to follow the FDIC 
practice for prior period adjustments only for so long as FICO actually 
is collecting assessments from the insured depository institutions. 
FHFA has drafted the proposed regulation in that manner, i.e., the 
proposed rule would preserve the existing FDIC adjustment process 
through and including what is expected to be the final collection of 
the FICO assessment in March 2019. Until that final collection has been 
completed, all insured depository institutions that are eligible to be 
credited a refund for any prior overpayment of their FICO assessment or 
to be billed for any prior underpayment of their FICO assessment will 
be able to continue to have the appropriate adjustment included in the 
calculation of the amount they are to pay.
    For the foregoing reasons, FHFA does not believe that the ``in the 
same manner'' language of the Bank Act can reasonably be construed to 
require FICO to provide refunds to, or to collect monies from, insured 
depository institutions that amend a prior period call report after 
FICO has ceased its assessments. As noted above, there will be no 
practical way to process such adjustments because there will be no 
invoiced amount against which a credit could be applied or to which a 
surcharge could be added. Moreover, there is no source of funds from 
which FICO could pay cash refunds because FICO will have used all 
monies received from its prior assessments to pay the interest and 
other costs due on its Obligations. FICO also could not assess insured 
depository institutions to obtain funds to provide refunds to other 
institutions because its authority is limited to assessing the 
institutions only for monies needed for interest payments, issuance 
costs, and custodial fees. Finally, Congress has mandated that FHFA 
dissolve FICO as soon as practicable after it has repaid the last of 
its Obligations, which evidences an intent that FICO may not undertake 
any new activities, such as facilitating collections from and payments 
to insured institutions, after FICO has repaid its Obligations.
    FHFA believes that the most appropriate reading of the Bank Act in 
these circumstances is that it allows insured depository institutions 
to continue to receive refunds for prior overpayments (and to continue 
to be billed for prior underpayments) in the same manner as FDIC 
assessments through and including the final FICO assessment. That 
approach gives appropriate effect to the ``in the same manner'' 
language of the statute without creating any conflict with the 
provision requiring the prompt dissolution of FICO, and without 
imposing on FICO any obligations that are not expressly mandated by the 
Bank Act.
    FHFA also does not believe that the proposed rule would have a 
significant effect on FDIC-insured institutions. As an initial matter, 
the number of insured depository institutions amending call reports in 
any calendar quarter that affect their prior FICO assessments typically 
is small. For example, the number of such amended call reports for the 
fourth quarter of 2017 was 91, out of approximately 5,600 FDIC-insured 
depository institutions filing call reports. Moreover, the dollar 
amount of FICO assessment adjustments also is generally small. For that 
same period, the gross amount of refunds of prior FICO assessments 
related to those amended call reports was approximately $24,000, while 
the gross amount of collections of prior FICO underpayments was 
approximately $170,000, resulting in a net surplus of collections over 
refunds of approximately $146,000, i.e., the insured depository 
institutions generally owe more for underpayments than they are 
entitled to receive in refunds. From mid-2011 through the last 2017 
assessment period, the average net quarterly adjustment of prior FICO 
assessments resulting from all institutions' amendments to their prior 
call reports was approximately $95,000 of additional collections of 
prior FICO underpayments. As noted previously, and notwithstanding the 
typically modest numbers involved, the proposed rule has been drafted 
so as to preserve, through the date of the final FICO collection, the 
current practice of allowing all insured depository institutions to 
have their FICO assessments adjusted to reflect amendments to their 
prior call reports up until the date that FDIC finalizes the amount of 
each institution's final FICO assessment in March 2019.

IV. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501 et seq.) requires that 
regulations involving the collection of information receive clearance 
from the Office of Management and Budget (OMB). This rule contains no 
such collection of information requiring OMB approval under the 
Paperwork Reduction Act. Consequently, no information has been 
submitted to OMB for review.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of proposed rulemaking, an agency prepare and 
make available for public comment an initial regulatory flexibility 
analysis describing the impact of the proposed rule on small 
entities.\20\ A regulatory flexibility analysis is not required, 
however, if the agency certifies that the rule will not have a 
significant economic effect on a substantial number of small entities. 
The SBA has defined ``small entities'' to include banking organizations 
with total assets less than or equal to $550 million.\21\ As discussed 
further below, the FHFA certifies that this proposed rule would not 
have a significant impact on a substantial number of FDIC-insured small 
entities.
---------------------------------------------------------------------------

    \20\ 5 U.S.C. 601 et seq.
    \21\ 13 CFR 121.201 (as amended, effective December 2, 2014).
---------------------------------------------------------------------------

Description of Need and Policy Objectives

    By statute, FHFA must dissolve FICO as soon as practicable after it 
has made the final payments of principal and interest due on its 
Obligations, the last of which matures in September 2019. To facilitate 
FICO's prompt and orderly dissolution, and for the other reasons 
described in Section III, above, FHFA is proposing to make all 2019 
FICO assessments final and to terminate FICO assessment adjustments as 
of March 26, 2019.

[[Page 48573]]

Description of the Proposal

    A description of the proposal is presented in Section III: Contents 
of the Proposed Rule. Please refer to it for further information.

Other Federal Rules

    FHFA has exclusive regulatory authority over FICO and has sole 
responsibility for interpreting and applying the provisions of the Bank 
Act that govern FICO's operations. For the reasons described in Section 
III, above, FHFA has determined that the most appropriate way to 
interpret the provisions of the Bank Act that refer to the manner in 
which the FDIC conducts its own assessments is to read them as applying 
only while FICO is conducting its assessments. FHFA has not identified 
any likely duplication, overlap, and/or potential conflict between the 
proposed rule and any other federal rule.

Economic Impacts on Small Entities

    The proposed rule would apply to FICO and the manner in which it 
conducts its assessments, and could indirectly affect any FDIC-insured 
depository institutions that have been assessed to pay interest on the 
FICO's obligations. As of March 2018, the FDIC insured 5,606 depository 
institutions, of which 4,492 are defined as small banking entities for 
purposes of the RFA.\22\ Each insured depository institution's share of 
the FICO assessment is based on the insured depository institution's 
self-reported call report data, which the depository institution may 
amend after their initial filing with the FFIEC. Because decisions to 
amend previously filed call reports are solely within the control of 
the insured depository institution, it is not possible to predict how 
many depository institutions may amend a prior period call report 
during any calendar quarter, how many of those institutions amending a 
prior call report would be small entities for RFA purposes, whether the 
call report amendments would affect the calculation of an individual 
institution's prior FICO assessment, the dollar amount by which a prior 
FICO assessment had changed as a result of an amended call report, or 
the net amount of all such changes for all insured depository 
institutions, i.e., whether the dollar amount of all refunds for prior 
overpayments was greater or less than the dollar amount of all billings 
for prior underpayments. Based on historical FFIEC data relating to 
call report amendments that affected individual institution FICO 
assessments, however, it appears that the proposed rule would not 
affect a substantial number of small entities, and that the economic 
effect on those small entities that may be affected by the proposed 
rule would not be significant. Indeed, the potential net economic 
effect on those small entities would most likely be positive, meaning 
that more of them would receive a financial benefit--being relieved of 
the obligation to pay for any prior underpayment of a FICO assessment--
than would experience the negative effect of losing refunds for prior 
overpayment of FICO assessments.
---------------------------------------------------------------------------

    \22\ Call Report data as of March 31, 2018.
---------------------------------------------------------------------------

    Between March 2012 and December 2017, there has been an average of 
approximately 205 FICO assessments amended per calendar quarter, split 
evenly between refunds and additional collections. Based on the 
proportion of small entities to the total number of FDIC-insured 
depository institutions, FHFA has deemed approximately 80 percent of 
those amendments to have been attributable to small entities. The 
actual number of small entities amending call reports that affect their 
FICO assessments is apt to be lower, however, because each institution 
may amend multiple quarters' call reports at one time. For example, an 
institution amending a call report from a particular calendar quarter 
two years ago may also amend some or all of the subsequent call 
reports. Of the 164 FICO assessment amendments attributable to small 
banking entities per quarter, if each entity submits an average of two 
amendments per quarter, approximately 82, or slightly less than two 
percent, of FDIC-insured small banking entities would be affected per 
quarter by the proposed rule.
    During the same period, the average gross FICO refunds to 
institutions due to their overpayments of prior FICO assessments was 
approximately $139,000 per quarter, or an average of about $1,350 per 
amendment. The average gross additional FICO collection for 
underpayment of prior FICO assessments was $243,000 per quarter, or 
$2,370 per amendment. Based on those numbers, and assuming the largest 
possible estimated refunds, i.e., where an institution amended call 
reports for each of the twelve calendar quarters in the three year 
period and was entitled to an overpayment credit for each quarter of 
$1,350 each, the potential cost to that institution would be $16,200. 
In a similar fashion, assuming the largest possible estimated billings, 
i.e., where the institution amended its twelve most recent call reports 
and had underpaid each of the FICO assessments for those periods, the 
potential savings to that institution would be $28,440. These figures 
indicate that the proposed rule would likely not have a significant 
economic effect on even the smallest banking entities. When viewed in 
the aggregate, it appears that the most likely net effect on all FDIC 
insured institutions, including small entities, will be positive 
because the available data indicates that most adjustments to prior 
FICO assessments result in the depository institution paying additional 
amounts to make up for prior underpayments of its prior period FICO 
assessments, and that the amounts of such billings are greater than the 
amounts of any refunds.
    The proposed rule would pose no regulatory costs for FDIC insured 
small entities, as their FDIC assessment process would remain in place 
as currently implemented. Overall assessment costs will be permanently 
reduced to the extent each entity's FICO assessment is no longer 
collected. Further, FDIC assessment adjustments would be unaffected by 
the proposed rule, which typically represent 90 percent of an insured 
institution's total potential adjustment value. For these reasons and 
based on the figures cited above, FHFA finds that the proposed rule 
would not have a significant economic impact on a substantial number of 
small entities.

Alternatives Considered

    As discussed previously, FHFA is issuing the proposed rule to 
provide clarity and finality to an issue--the status of future 
adjustments to prior FICO assessments--that is not otherwise addressed 
by the statute. FHFA has considered three other approaches to 
addressing this issue. First, FHFA considered taking no action. That 
approach likely would have resulted in insured depository institutions 
being in the same situation as will be the case under the proposed 
rule--without any mechanism to process adjustments to their prior FICO 
assessments--but neither they nor FICO would have had any guidance as 
to the status of their prior FICO assessments. By providing that all 
FICO assessments become final and nonrefundable when FICO completes its 
2019 assessments, the proposed rule provides certainty to those 
institutions that they would not have otherwise, and without placing 
them in any different situation than would be the case if FHFA took no 
action.
    Second, FHFA considered whether, once all FICO obligations are 
paid, FICO could assess all FDIC-insured institutions or use its own 
assets to obtain the monies needed to pay refunds to any insured 
depository

[[Page 48574]]

institutions whose FICO assessments had changed due to amendments to 
their call reports. FHFA concluded that further assessments are not 
legally permissible because Congress has authorized FICO to assess 
FDIC-insured institutions only for three specific purposes--to pay 
interest on the FICO Obligations, issuance costs, and custodian fees--
which means that FICO's assessment authority does not extend to 
obtaining monies for paying refunds of prior FICO assessments. FICO 
also could not use its own assets to provide such monies because, as 
described previously, FICO has no legal obligation under any statute to 
reimburse insured institutions for their prior overpayments of FICO 
assessments, and has no authority to spend its assets for any purposes 
beyond those authorized by statute.
    Third, FHFA considered whether FICO could direct the FDIC, as 
collection agent, to could continue to process adjustments to prior 
FICO assessments on its own, but deemed that approach not to be legally 
permissible. The FDIC acts as FICO's agent when collecting the FICO 
assessments, and as such FDIC's authority derives from, and can be no 
greater than, FICO's own assessment authority.

Solicitation of Comments

    FHFA invites comments on all aspects of the supporting information 
provided in this RFA section.

 List of Subjects in 12 CFR Part 1271

    Accounting, Community development, Credit, Federal home loan banks, 
Government securities, Housing, Miscellaneous federal home loan bank 
operations and authorities, Reporting and recordkeeping requirements.

Authority and Issuance

    Accordingly, for reasons stated in the Supplementary Information 
and under the authority of 12 U.S.C. 1431(a), 1432(a), 4511(b), 4513, 
4526(a), FHFA proposes to amend part 1271 of subchapter D of chapter 
XII of title 12 of the Code of Federal Regulations as follows:

PART 1271--MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
AUTHORITIES

0
1. The authority citation for part 1271 continues to read as follows:

    Authority: 12 U.S.C. 1430, 1431, 1432, 1441(b)(8), (c), (j), 
1442, 4511(b), 4513(a), 4526.

0
2. Amend Sec.  1271.37 by adding paragraph (d) to read as follows:


Sec.  1271.37   Non-administrative expenses; assessments.

* * * * *
    (d)(1) Final Assessments. All Financing Corporation assessments 
collected during 2019 shall be final. Subsequent to March 29, 2019, no 
insured depository institution shall have any right to receive refunds 
for any overpayment of any prior Financing Corporation assessments nor 
shall it be billed for any underpayment of any prior Financing 
Corporation assessments that arise as a result of an amendment to any 
Consolidated Reports of Condition and Income on which the prior 
Financing Corporation assessment had been based.
    (2) Amendments to call reports. Amendments to an institution's 
Consolidated Reports of Condition and Income for quarters prior to and 
including the fourth quarter of 2018 shall not affect an institution's 
Financing Corporation assessments after March 26, 2019.
    (3) June 2019 Assessment. In the event Financing Corporation 
assessments are collected in June 2019, amendments to an institution's 
first quarter 2019 Consolidated Reports of Condition and Income that 
are submitted after June 25, 2019 shall not affect the institution's 
Financing Corporation assessment.

    Dated: September 20, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-20975 Filed 9-25-18; 8:45 am]
BILLING CODE 8070-01-P