Regions Bank 2010 Annual Report Download - page 28

In February 2011, the FDIC adopted a final rule (the “New Assessment Rule”) to revise the deposit
insurance assessment system for large institutions. The New Assessment Rule creates a two scorecard system for
large institutions, one for most large institutions that have more than $10 billion in assets, such as Regions Bank,
and another for “highly complex” institutions that have over $50 billion in assets and are fully owned by a parent
with over $500 billion in assets. Each scorecard will have a performance score and a loss-severity score that will
be combined to produce a total score, which will be translated into an initial assessment rate. In calculating these
scores, the FDIC will continue to utilize the bank’s supervisory (CAMELS) ratings and will introduce certain
new forward-looking financial measures to assess an institution’s ability to withstand asset-related stress and
funding-related stress. The New Assessment Rule also eliminates the use of risk categories and long-term debt
issuer ratings for calculating risk-based assessments for institutions having more than $10 billion in assets. The
FDIC will continue to have the ability under the New Assessment Rule to make discretionary adjustments to the
total score, up or down, based upon significant risk factors that are not adequately captured in the scorecard. The
total score will then translate to an initial base assessment rate on a non-linear, sharply-increasing scale. The New
Assessment Rule preserves the adjustments to an institution’s base assessment rates based on its long-term
unsecured debt and brokered deposits (if greater than 10%) and creates a new adjustment based on the
institution’s holdings of long-term unsecured debt issued by a different insured depository institution. The New
Assessment Rule eliminates the adjustment to an institution’s base assessment rate based on the its secured
liabilities. The final rule will be effective April 1, 2011.
Regions Bank’s deposit insurance assessments are currently based on the total domestic deposits held by
Regions Bank. The Dodd-Frank Act requires the FDIC to amend its regulations to base insurance assessments on
the average consolidated assets less the average tangible equity of the insured depository institution during the
assessment period. Under the New Assessment Rule, which implements these requirements effective April 1,
2011, assessments paid by Regions Bank are expected to increase.
On November 17, 2009, the FDIC implemented a final rule requiring insured institutions, such as Regions
Bank, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of
2010, 2011 and 2012. Such prepaid assessments were paid on December 30, 2009, along with each institution’s
quarterly risk-based deposit insurance assessment for the third quarter of 2009 (assuming 5 percent annual
growth in deposits between the third quarter of 2009 and the end of 2012 and taking into account, for 2011 and
2012, the annualized three basis point increase discussed below).
The FDIA establishes a minimum ratio of deposit insurance reserves to estimated insured deposits, the
designated reserve ratio (the “DRR”), of 1.15 percent prior to September 2020 and 1.35 percent thereafter. On
December 20, 2010, the FDIC issued a final rule setting the DRR at 2 percent. Because the DRR fell below 1.15
percent as of June 30, 2008, and was expected to remain below 1.15 percent the FDIC was required to establish
and implement a Restoration Plan that would restore the reserve ratio to at least 1.15 percent within five years. In
October 2008, the FDIC adopted such a restoration plan (the “Restoration Plan”). In February 2009, in light of
the extraordinary challenges facing the banking industry, the FDIC amended the Restoration Plan to allow seven
years for the reserve ratio to return to 1.15 percent. In May 2009, the FDIC adopted a final rule that imposed a
five basis point special assessment on each institution’s assets minus Tier 1 capital (as of June 30, 2009). Such
special assessment was collected on September 30, 2009. In October 2009, the FDIC passed a final rule
extending the term of the Restoration Plan to eight years. Such final rule also included a provision that
implements a uniform three basis point increase in assessment rates, effective January 1, 2011, to help ensure that
the reserve ratio returns to at least 1.15 percent within the eight year period called for by the Restoration Plan. In
October 2010, the FDIC adopted a new restoration plan to ensure the DRR reaches 1.35 percent by September
2020. As part of the revised plan, the FDIC will forego the uniform three-basis point increase in assessment rates
scheduled to take place in January 2011. The FDIC will, at least semi-annually, update its income and loss
projections for the DIF and, if necessary, propose rules to further increase assessment rates. In addition, on
January 12, 2010, the FDIC announced that it would seek public comment on whether banks with compensation
plans that encourage risky behavior should be charged higher deposit assessment rates than such banks would
otherwise be charged. See also “—Incentive Compensation” below.
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