FDIC Special Assessment Ruling Issued - OCC's John Dugan not Happy

The FDIC announced on May 22nd it's final ruling on the special assessment to bolster funds used to protect depositors. The final rule establishes a special assessment of five basis points on each FDIC-insured depository institution's assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment will be assessed against assets minus Tier 1 capital rather than domestic deposits, but the assessment will be capped at 10 basis points of an institution's domestic deposits so that no institution would pay an amount higher than they would have paid under the interim rule. The special assessment will be collected September 30, 2009.

Comptroller of the Currency John C. Dugan is not too pleased with the final ruling. According to his press release shortly after the FDIC issuance, he expressed concern that the FDIC has in effect opened the door for a total of three special assessments. He indicated that “The revised special assessment in today’s final rule uses an asset-based assessment base, but if translated into the normal assessment base of domestic deposits, it results in the following totals: 7 1/3 basis points for the second quarter, and up to an additional 7 1/3 basis points each for the end of the third quarter and the end of the fourth quarter. Thus, instead of voting on a one-time special assessment today of 20 basis points, we’re voting on the ability to impose three special assessments before the end of the year totaling 22 basis points. While the second two assessments would require separate Board votes, they would not require additional public comment, and I don’t think that’s appropriate”.

He also indicated in the release that he felt that the assessment unfairly penalized larger banks and could have very negative economic consequences since it is very procyclical.