On November 12, 2009, the FDIC adopted its final rule regarding prepaid assessments. The final rule is largely unchanged from the FDIC’s initial proposal; the most significant change is that the FDIC will now refund any unused assessments after collection of the amount due on June 30, 2013, as opposed to December 30, 2014.
As noted by the FDIC, the prepayment of FDIC assessments primarily impacts liquidity – both of the FDIC Deposit Insurance Fund and the banks. As the prepaid assessments merely represent the prepayment of future expense, they do not affect a Bank’s capital (the prepaid asset will have a risk-weighting of 0%) or tax obligations.
Given the higher FDIC assessments generally, and the elevated assessment rates for troubled banks, the prepayment of FDIC assessments could represent a significant cash outlay. The FDIC’s online assessment rate calculator includes a prepayment tab to help banks estimate their payments
The final rule provides that the FDIC, after consultation with the institution’s primary federal regulator, may exempt any institution from the prepayment requirement if it determines, in its sole discretion, that the prepayment “would adversely affect the safety and soundness of the institution.” The FDIC is required to provide notice to such institutions by Monday, November 23, 2009 if it has exempted the institution. We are aware that the FDIC started mailing exemption letters on November 12th.
The FDIC has not indicated the standards it will apply for exemptions. Based on the exemptions we’ve seen so far, it appears that all institutions subject to a formal enforcement action may be exempted.