An Investigation of the Federal Deposit Insurance Corporation‟s 2009 Special

Assessment

February 2010

Scott E. Hein, Texas Tech University

Timothy W. Koch, University of South Carolina

Chrislain Nounamo, Texas Tech University

Abstract

In the second quarter of 2009 the FDIC charged banks a special assessment with the intent of
replenishing the deposit insurance fund, which had been depleted by numerous bank failures.
Unlike traditional deposit insurance premiums, the special assessment was applied to a bank‟s
total assets minus Tier 1 capital (net assets), with the maximum that any single institution would
pay „capped‟ at 10 basis points applied to domestic deposits. In this research, we demonstrate
that the move to net assets as the assessment base imposes a substantial cost on large institutions,
but the cap effectively served to subsidize institutions that fund a high percentage of their assets
with non-deposit liabilities. We estimate the magnitude of both the special assessment and the
cap savings for the 19 large financial institutions, which were subjected to the regulatory stress
tests in 2009, and for a sample of smaller bank, and show that the cap favored large banks but
interestingly did not help all 19 large financial institutions. Given the role that “too big to fail”
institutions played in the credit crisis; we argue that the government effectively guarantees all
liabilities of these firms, not just deposits of the bank subsidiaries. We then estimate the
magnitude of the special assessment, without the cap, if it had been applied to bank holding
company assets rather than just the assets of bank subsidiaries for these 19 stress-tested firms.
The results suggest that the FDIC would have raised a substantially greater amount of funds
using this framework. As Congress considers financial reform, it would worthwhile to consider
this change as a more equitable way to replenish the deposit insurance fund.
I. INTRODUCTION

On May 22, 2009, the Board of Directors of the Federal Deposit Insurance Corporation

(FDIC) approved a special assessment on all FDIC-insured banks in order to help replenish the

Deposit Insurance Fund (DIF), which had fallen below its statutory minimum. This special

assessment was in addition to the regular quarterly premium assessment that the FDIC levies on

all insured institutions and was necessary because the DIF had been reduced sharply by bank

failures stemming from the financial crisis. This special assessment was set at five basis points

on each insured-institution‟s total assets minus Tier 1 capital as of June 30, 2009. The

assessments were collected on September 30, 2009 and raised an estimated $5.5 billion.1

In implementing the charge, the FDIC, for the first time, moved toward an asset (less

equity)-based assessment, as opposed to the traditional premium assessment based on insured

domestic deposits. Community bankers have long advocated the use of assets less equity as an

assessment base because it allocates insurance costs more heavily toward the largest institutions

which rely proportionately more on non-deposit funding. It is presumably more equitable given

the explicit federal guarantees granted “Too Big to Fail” institutions that played a significant role

in the recent financial crisis, yet are assured of not failing. If a large institution is not allowed to

fail, then indeed all liability stakeholders are provided protection from failure, not just

depositors.

1
“ee Me o a du to the Boa d of Di e to s, FDIC, o the Special Assessment, Restoration Plan and Proposal for
Mai tai i g Fu d Li uidity, “epte e 2 , 200 f o A thu Mu to . Following this, at the end of the third
quarter the FDIC Board voted to have FDIC-insured institutions prepay 13 quarters of insurance premiums on
December 30, 2009 in order to raise an additional $45 billion.
 The FDIC also chose to limit the potential amount of the special assessment.

Specifically, the FDIC imposed a “cap” on the special assessment for each institution equal to 10

basis points times the institution‟s assessment base (domestic deposits) at the end of June 2009. 2

As such, the “cap” for the special assessment limited the amount paid by select institutions and

for them was not based on total assets less equity capital. Sheila Bair, FDIC Chairman, stated

that “This hybrid approach – using assets minus Tier 1 capital as the assessment base but with a

cap based on domestic deposits – will shift the allocation of the special assessment somewhat

towards banks that rely more on non-deposit funding, which large banks tend to do.”3 The cap on

the special assessment thus continued the disproportionate treatment between large institutions

with relatively small amounts of domestic deposits and community banks that rely more on

domestic deposits as a funding source.

An interesting question is: What was the purpose of the cap? To our knowledge the FDIC

Board has not offered an explanation beyond Chairman Bair‟s reference to a shift in allocation

„somewhat‟ to large banks. Apparently, the FDIC felt that some institutions would be assessed too

much if they based the assessment on total assets less capital, so a ceiling was needed to protect

them. It is not clear, however, which specific institutions were deemed to need this help. The

purpose of this paper is to investigate the five basis point special assessment and the significance

of the “cap” that the FDIC imposed. We initially demonstrate that the cap favored institutions that

had substantial non-deposit liability sources, which in the U.S. are generally the larger financial

institutions. We then estimate the impact of the cap in limiting the assessment for each of the 19

2
See Eisenbeis and Wall (2002) for an overview of FDIC premiums and the role of DIF in changing premiums.
3
FDIC Adopts Fi al Rule I posi g a “pe ial Assess e t o I su ed Deposito y I stitutio s, P ess elease, May
22, 2009, www.fdic.gov/news/news/press/2009/pr09074.html.
large financial institutions that were “stress-tested” early in 2009. Not surprisingly, these results

show that significant “savings” resulted from the cap for many of the large financial institutions.

Interestingly, the cap did not help all 19 stressed-tested banks. For comparison purposes, we also

estimate the impact of the cap on the average FDIC-insured bank of smaller asset sizes, showing

for a random sample of small banks that the cap did absolutely nothing for them. Finally, we

examine the value of insurance premiums that would have been raised if the special assessment

was applied to all holding company assets less equity capital, rather than just the net assets of

insured bank subsidiaries. While the FDIC cannot make this change unilaterally, requiring a bank

holding company to pay the assessment against all liabilities other than domestic deposits of just

bank subsidiaries is consistent with charging a fee for the guarantee underlying “too big to fail”

firms.

II. A SIMPLE EXAMPLE OF DIFFERENTIAL TREATMENT

Recall that the special assessment for each insured institution was set at 5 basis points

(.0005) of an insured-bank‟s total assets less Tier 1 capital. The assessment for each bank can

thus be represented as:

(1) SA = (0.0005)*(TA-T1),

where SA is the bank‟s special assessment, and TA and T1 are the bank‟s total assets and Tier 1

capital, respectively, as of June 30, 2009. If we designate total liabilities (TL) as TA – T1, we

can restate (1) as:

(1‟) SA = (0.0005)*(TL).
 Consider next the cap (CAP) that the FDIC Board also implemented in the second quarter

of 2009, which limited the amount of the special assessment to 10 basis points times the

institution‟s insured domestic deposits (ID). In this case, we can write CAP as:

(2) CAP = (0.0010)*(ID).

The CAP will be meaningless and non-binding for institutions that rely substantially on domestic

insured deposits. On the other hand, the CAP would be binding for institutions which rely largely

on other forms of debt financing, such as interbank borrowings, repurchase agreements, Federal

Home Loan advances, commercial paper issuance, etc. Setting the special assessment equal to

the CAP, we can identify the minimum amount of insured deposits relative to total liabilities at

which the CAP is non-binding (ID/TL)min ,

(3) (0.0005)*(TL) = (0.0010)*(ID).

(3‟) (ID/TL)min = (0.0005) / (0.0010) = ½.

Thus, any institution that funded 50 % or more of its total liabilities with insured deposits found

the cap to be non-binding and paid the full amount of the special assessment. For such

institutions the cap was irrelevant. In contrast, any institution with insured deposits less than 50%

of TL was subject to a binding cap such that the special assessment was lower than it otherwise

would have been. One can argue that institutions subject to a binding cap received a subsidy

from the FDIC relative to other insured institutions. Moreover, it would appear that the cap was

capricious in the sense that an institution that had insured deposits equal to 51% of its total

liabilities would be treated very different from an institution with insured deposits equal to 49%

of its total liabilities. The former institution would receive no benefit from the CAP, while the
latter would receive some benefit, although admittedly the savings from the CAP would be small

for the latter institution.

III. INSTITUTIONAL BENEFITS FROM THE SPECIAL ASSESSMENT CAP

The analysis in the previous section demonstrates that any institution that funded over

one-half of its non-equity funded assets with something other than insured domestic deposits

would have benefited from the cap. These other liabilities could include non-insured deposits,

such as foreign deposits and balances in excess of insured amounts, as well as borrowings from

the Federal Reserve, federal funds purchased, commercial paper issuance, FHLB advances and

other longer-term debt obligations previously mentioned. Generally, none of these “non-core”

liabilities represent a large source of funds for most traditional commercial banks, such as most

community banks. They are, however, much more important funding sources at the larger

financial institutions.

A. The Bank Accountability and Risk Assessment Act of 2009

In June 2009, Representative Luis Gutierrez from Illinois introduced the Bank Accountability

and Risk Assessment Act of 2009 which directed the FDIC to change the assessment base for

regular deposit insurance premiums to total assets minus tangible capital.4 Such a move would be

very similar to the second quarter special assessment, but without the cap. The Independent

4
H.R. 2897 also directed the FDIC to impose a systemic risk premium on institutions deemed to be systemically
important depository institutions and effectively allowed an insured depository institution to be barred from being
designated as one of the lowest-risk category due to its size.
Community Bankers Association (ICBA) analyzed the impact on the nation‟s 8,200 banks and

determined that only 132 banks would pay higher premiums under the Act‟s provisions.5

Not surprisingly, it appears that the Act pits the nation‟s largest institutions against

smaller institutions. While the ICBA, which represents institutions that are generally smaller

community banks, strongly supports “asset-based” premiums, the American Bankers Association

(ABA), which represents many institutions but receives the bulk of its membership dues from the

largest institutions, systematically lobbied against changing the assessment base. Clearly, the

decline in DIF funding is associated with the large number of failed banks. Except for the failure

of IndyMac in 2008, most of the failures are mid-size and smaller banks. Of course, the nation‟s

largest institutions were deemed „Too Big to Fail‟ such that many large problem institutions

(WAMU, Wachovia and Merrill Lynch) were merged into more healthy ones. The U.S. Treasury

further injected capital into many of these large firms under the Troubled Asset Relief Program

(TARP), thereby assisting their viability.

B. Impact of the Special Assessment on Insurance Payments

Based on the above analysis, our attention turns to examining the special assessment of a

few specially selected financial institutions. In particular, we first estimate the impact of the

special assessment on the nineteen largest U.S. bank holding companies which the Treasury

selected to put through special “stress tests” under the Supervisory Capital Assessment Program

(SCAP). The original purpose of the stress tests was to determine whether these firms had

sufficient capital to withstand potential losses in adverse economic environments. Under SCAP

5
“ee The Ba k A ou ta ility a d Risk Assess e t A t of 200 H.R. 2 , F e ue tly Asked Questio s, at
www.icba.org/files/ICBASites/PDFs/HR2897FAQ.pdf. This analysis, however, ignores the FDIC cap on insurance
premiums under the special assessment terms.
regulators forced some institutions to raise additional external capital and/or change the mix of

capital, emphasizing Tier 1 components.

For each of these nineteen large financial institutions we first estimate the special

assessment based on total assets less Tier 1 capital (TL) for each banking subsidiary using

publically available “call report” information (TFRs in the case of thrifts). We then estimate the

CAP for the same institution, using the same data source, to see if the CAP was binding and thus

limited the actual special assessment paid. If the cap is binding, we quantify that “savings” which

we designate as a subsidy from institutions paying the full special assessment. We recognize that

we do not have data on the actual special assessments, or the CAP, for the separate bank

subsidiaries, but rather derive our estimates based on publically available data. Appendix 1 lists

the nineteen bank holding companies for which the special stress test was applied during the first

five months of 2009, as well as each of their separate banking “financial institution” subsidiaries.

Two critical structural features of banks and bank holding companies dramatically

influence the empirical results. In turn, these structural features introduce fundamental questions

regarding the fairness of the special assessment. First, FDIC deposit insurance premiums and

assessments are levied at the bank level, not the holding company level. But, most large bank

holding companies have both bank and non-bank subsidiaries with the non-bank subsidiaries

engaged in businesses not involving insured deposit funding. The special assessment is applied

only to the bank subsidiaries and thus only against each subsidiary bank‟s total assets minus Tier

1 capital. If these 19 holding company firms, however, are truly „too big to fail,‟ the federal

government guarantees the viability of the whole bank holding company and not just the

subsidiary banks. Even if a bank holding company‟s bank subsidiaries do not find the special

assessment cap to be binding, its total operations are still being subsidized by institutions paying
full FDIC-insurance premiums. Why is it reasonable or fair to base an insurance premium only

against the banks and not include the non-bank subsidiaries in the assessment? Second, as noted,

bank subsidiaries finance their operations in very different ways, which can greatly influence the

deposit insurance premiums and the special assessment CAP. Too big to fail banks which rely

heavily on FHLB advances or foreign deposits, for example, pay proportionately lower deposit

insurance premiums, but receive the same protection from the FDIC as banks funded primarily

by insured deposits. Again, if the special assessment cap is binding, banks paying the full FDIC

insurance can be viewed as subsidizing banks financed heavily by non-insured deposits.

1. Application to JPMorgan Chase & Co.

We use data for JPMorgan Chase & Co. to demonstrate the calculation of our estimate of

the FDIC special assessment fee at the bank holding company level. As of June 30, 2009,

JPMorgan Chase & Co., the bank holding company, had the following five subsidiaries with

insured deposits, thus labeled bank subsidiaries. While the holding company controlled over $2

trillion in assets, these bank subsidiaries controlled under $1.77 billion in assets or 87% of the

holding company total.

- JPMorgan Chase Bank, Dearborn

- Custodial Trust Company

- JPMorgan Bank and Trust Company, N.A.

- Chase Bank USA, N.A.

- JPMorgan Chase Bank, N.A.

We select the subsidiary, Chase Bank USA, for the purpose of demonstrating the calculations.

For this bank, we initially identified the amounts for total assets, Tier 1 capital, and its related
adjustments as of June 30, 2009.6 As demonstrated in Table 1, we then calculate the special

assessment base and the special assessment payment amount without special cap assessment:

Table 1: Calculation of Special Assessment Payment Ignoring the CAP

for Chase Bank USA, N.A.
1 Total Assets $ 92,705,149,000
2 Tier 1 Capital $ 11,106,968,000
3 Tier 1 capital adjustments $0
4 Special Assessment Base (Line 1 - Line 2 + Line 3. Line 4 $ 81,598,181,000
cannot exceed Line 1)
5 Special Assessment multiplier (5 basis points) 0.0005
6 Estimated Special Assessment Payment (Line 4 x Line 5) $ 40,799,091

As explained above, the estimated $40.8 million payment would be the amount paid only

if the CAP on the special assessment was not binding. To determine whether the cap was

binding, we calculated the CAP for Chase Bank using the framework in relationship (2). Table 2

provides the detail on the CAP for Chase Bank using bank level data for total deposit liabilities

and the allowable exclusions.7 As noted, the cap on the special assessment payment amounted to

$21.5 million. Thus the CAP for Chase Bank saved it approximately $19.3 million over what it

would have had to pay based on total assets less Tier 1 capital.

6
According to FDIC regulation, the Tier 1 capital adjustment represents one-half of the bank's
aggregate outstanding equity investment in financial subsidiaries as of the report date. If a
financial subsidiary is not consolidated into the bank for purposes of these reports, one-half of
the bank's aggregate outstanding equity investment in the subsidiary is one-half of the amounts
of the bank's ownership interest accounted for under the equity method of accounting. In the case
of Chase bank, National Association, there were no Tier 1 capital adjustments.
7
According to FDIC regulation, the total allowable exclusions represent the estimated amount of
uninsured deposits (in domestic offices) of the bank plus foreign deposits, including interest
accrued and unpaid.
 Table 2: Calculation of Special Assessment Payment CAP
For Chase Bank USA, N.A.
1 Total Deposit Liabilities $ 22,822,112,000
2 Total Allowable Exclusions $ 1,318,796,000
3 Quarterly Deposit Insurance Assessment base $ 21,503,316,000
(Line 1- Line 2)
4 Special Assessment Multiplier (10 basis points) 0.001
5 Special Assessment payment: CAP (Line 3 x Line 4) $ 21,503,316

Finally to determine the required payment for JPMorgan Chase, as a holding company,

we did similar calculations for each of its other separate four banking subsidiaries, with summary

figures presented in Table 3.

Table 3: Calculation of Special Assessment Payment

for All JPMorgan Chase Subsidiaries

Special CAP Amount Paid

Financial institution Name Assessment
1 JPMorgan Chase Bank, Dearborn $ 5,844 $ 514 $ 514
2 Custodial Trust Company $ 69,854 $ 127,802 $ 69,854
3 JPMorgan Bank and Trust
Company, N.A. $ 5,019,416 $ 508 $ 508
4 Chase Bank USA, N.A. $ 40,799,091 $ 21,503,316 $ 21,503,316
5 JPMorgan Chase Bank, N.A. $ 781,200,000 $ 646,124,000 $ 646,124,000
6 Total $ 827,094,204 $ 667,698,192

The results in Table 3 show that the CAP was binding for each of the financial

subsidiaries for JP Morgan Chase, other than Custodial Trust Company. The previous analysis

suggests that FDIC-insured deposits made up more than one half of non-capital funding only at

this one subsidiary, Custodial Trust Company. We can infer that other non-insured liabilities

were more important than insured deposits to the four other subsidiaries, and as a result the CAP

produced savings compared to the special assessment without a CAP. Based on our estimates,
 JPMorgan Chase & Co. paid roughly $668 million when it would have owed over $827 million

if the FDIC had chosen not to cap the special assessment. In other words, we estimate that the

JPMorgan Chase holding company saved around $159 million by having the cap in place, which

represents a subsidy from insured institutions that paid the full assessment.

2. Estimated CAP Savings for the Nineteen Stress-Tested Holding Companies

We now replicate the analysis for the other eighteen bank holding companies that were

stressed tested in early 2009, again looking first at the individual financial subsidiaries, and then

aggregating to the holding company level. Table 4 summarizes these estimates with the final

column presenting the aggregate savings.

Table 4: Savings from the CAP on the FDIC‟s

Special Assessment for the 19 Stress-Tested Bank Holding Companies

Based on June 30, 2009 Values

Special Assessment Based on Savings From

Name of Bank Total Assets less Tier 1 Capital Estimated CAP the CAP

JPMorgan Chase $827,094,204 $667,698,192 $159,396,012

Citigroup $583,337,122 $343,114,535 $240,222,587

Bank of America $814,095,112 $724,944,058 $89,151054

Wells Fargo $575,977,147 $543,965,639 $32,011,508

Goldman Sachs $52,244,500 $35,670,000 $16,574,500

Morgan Stanley $29,604,500 $29,604,500 0

MetLife $6,916,635 $6,916,635 0

PNC Financial
Services $133,030,702 $133,030,702 0
U.S. Bancorp $124,692,096 $122,527,972 $2,164,124

Bank of New York

Mellon $80,138,278 $62,308,853 $17,829,425

GMAC $18,349,348 $18,349,348 0

SunTrust $78,867,937 $78,867,937 0

State Street $70,410,803 $21,083,648 $49,327,155

Capital One Financial

Corp. $81,128,264 $81,128,264 0

BB&T $68,359,171 $68,359,171 0

Regions Financial
Corp. $66,764,617 $66,764,617 0

American Express $22,266,311 $20,063,951 $2,202,360

Fifth Third Bancorp $55,219,176 $55,219,176 0

KeyCorp $43,584,444 $43,584,444 0

Interestingly, the estimates indicate that the special assessment CAP did not benefit all of

the nineteen stress-tested institutions. Indeed, ten holding companies saw no realized savings

attributable to the CAP, suggesting that each of these bank holding companies uses FDIC-

insured deposits as its majority funding source. These ten include Morgan Stanley, MetLife,

PNC Financial Corp., GMAC, SunTrust, Capital One Financial Corp., BB&T, Regions Financial

Corp., Fifth Third Bank Corp., and Key Corp., all of which received no financial benefit from the

CAP according to our estimates.

 The remaining nine holding companies, however, saved a combined $609 million from

the CAP on the special assessment. Citigroup had the largest estimated savings, exceeding $204

million, while the CAP savings at U.S. Bancorp and American Express amounted to around $2.2

million each. Interestingly, each of the nine holding companies that realized CAP “savings” had

five or more financial subsidiaries with insured deposits, as reported in the appendix.

3. Estimated CAP Savings For Smaller FDIC-Insured Institutions

For comparison purposes, we estimate the special assessment payments and CAP savings

for different-sized banks representing the population of FDIC-insured institutions. Specifically,

we selected eight different asset-size categories, starting with banks having less than $50 million

in assets and ranging to banks with assets exceeding $10 billion. For each size category, we

randomly selected a single bank from all banks in that size category. While far from a

comprehensive analysis, the results are consistent with the earlier conjectures. The specific banks

selected and the various asset size categories are as follows:

Total Asset Range Random Selected Bank Name

PG1: TA < $50 million
PG2: $50 million < TA < $100Million
PG3 : $100 Million < TA < $500 Million
PG4 : $500 Million < TA < $1 Billion
PG5 : $1 Billion < TA < $3 Billion
PG6 : $3 Billion < TA < $5 Billion
PG7 : $5 Billion < TA < $10 Billion
PG8 : $10Billion < TA
Ekhart State Bank (Ekhart, TX)
Friendly Hills Bank (Whittier, CA)
The First National Bank in Green Forest
(Green Forest, AR)
First National Bank and Trust Company of
Newtown (PA)
Fairfield County Bank (Ridgefield, CT)
United Bank (Fairfax, VA)
EverBank (Jacksonville, FL), FSB
American Express Centurion Bank (Salt
Lake City, UT)
 For each of these randomly-selected banks, we estimated both the special assessment for

that bank and the CAP, using the same approach illustrated for Chase Bank in Tables 1 and 2.

The results of this analysis are reported in Table 5 with findings that are consistent with the

belief that the CAP was binding and therefore meaningful only for the largest of banks. Because

smaller commercial banks in the U.S. generally fund the bulk of their assets with domestic

deposits, the CAP would normally exceed the special assessment such that these smaller banks

would see no savings from the CAP. On the hand, larger banks that fund more of their assets

from non-deposit sources would be more likely to have a binding CAP, thus saving on the

amount paid the FDIC. Table 5 documents that only American Express Centurion Bank, the

largest bank in the group, had a CAP below the special assessment which generated over

$600,000 in savings.

Table 5: Savings from the CAP on the FDIC‟s

Special Assessment for a Randomly Selected Bank in Each Asset-sized Peer Group
Peer Group (PG): Special Assessment Based on Savings From
Average Assets Total Assets less Tier 1 Capital Estimated CAP the CAP

PG1: $ 14,337 $ 27,904 0

PG2: $ 28,121 $ 55,595 0

PG3: $ 153,387 $ 284,383 0

PG4: $ 298,150 $ 578,704 0

PG5: $ 736,501 $ 1,296,114 0

PG6: $ 1,841,209 $ 2,890,393 0

PG7: $ 3,464,253 $ 5,801,849 0

PG8: $ 9,737,401 $ 9,135,781 $ 601,620

IV. SPECIAL ASSESSMENT BASED ON HOLDING COMPANY ASSETS
The previous analysis examines the FDIC‟s special assessment as applied only to bank

holding company subsidiaries with insured deposits, and completely ignores non-bank

subsidiaries. It can be argued that such treatment provides an unfair subsidy to the very large

financial institutions that are deemed “too big to fail.” Large institutions with bank subsidiaries

that constitute a small portion of overall firm‟s business benefit from the fact that the special

assessment ignores operations in all non-bank subsidiaries. If the federal government guarantees

that these institutions will not fail, it is protecting the assets of the entire holding company and

not just the bank subsidiaries. As such, it seems reasonable that the special assessment should

have been applied to the total assets less Tier 1 capital for the entire bank holding company.

We thus replicate the previous analysis with two substantive differences to examine the

quantitative significance of this issue. First, instead of using balance sheet data for just the bank

subsidiaries, we use aggregate holding company data, including the non-bank subsidiaries.

Second, we ignore the CAP. We then compare the size of the special assessment assuming it is

based on total bank holding company assets with the estimated special assessment from Table 4

(without the CAP). Table 6 presents estimates of the savings for the 19 stress-tested bank holding

companies from basing the special assessment on just bank subsidiary data. 8

8
Appendix 2 provides the information for the second quarter 2009 total assets of each of the nineteen holding
companies and the total assets of the aggregation of banking subsidiary assets.
 Table 6: Savings From Using Balance Sheet Data for Bank Subsidiaries Versus Bank
Holding Companies for the 19 Stress-Tested Bank Holding Companies When Determining
the FDIC‟s Special Deposit Insurance Assessment
Special Assessment Savings From
Special Assessment Based on Based on Total Assets Using Only Bank
Total Assets less Tier 1 Capital less Tier 1 Capital for Subsidiaries
Name of Bank for Bank Holding Company Bank Subsidiaries

JPMorgan Chase $952,234,000 $827,094,204 $125,139,796

Citigroup $860,877,500 $583,337,122 $277,540,378

Bank of America $1,032,577,384 $814,095,112 $218,482,272

Wells Fargo $590,727,500 $575,977,147 $14,750,353

Goldman Sachs $416,797,000 $52,244,500 $364,552,500

Morgan Stanley $316,570,000 $29,604,500 $286,965,500

MetLife $240,022,816 $6,916,635 $233,106,181

PNC Financial
Services $127,447,708 $133,030,702 ($5,582,993)

U.S. Bancorp $121,925,000 $124,692,096 ($2,767,096)

Bank of New York

Mellon $94,101,500 $80,138,278 $13,963,222

GMAC $78,118,000 $18,349,348 $59,768,652

SunTrust $79,138,135 $78,867,937 $270,198

 State Street $71,090,522 $70,410,803 $679,719

Capital One Financial

Corp. $79,699,784 $81,128,264 ($1,428,480)

BB&T $70,133,035 $68,359,171 $1,773,864

Regions Financial
Corp. $64,691,297 $66,764,617 ($2,073,319)

American Express $52,487,214 $22,266,311 $30,220,903

Fifth Third Bancorp $51,120,755 $55,219,176 ($4,098,420)

KeyCorp $43,158,735 $43,584,444 ($425,708)

The findings in Table 6 are quite revealing. First, levying premiums on total holding

company assets, and not just banking subsidiary assets, would have resulted in much larger

assessments for 13 of the 19 holding companies. Goldman Sachs provides a prime example of a

firm that benefited from the assessment being limited to banking subsidiary assets. Because its

banking subsidiary makes up a very small part of the holding company, an assessment against

Goldman‟s holding company total assets would have been more than eight times larger, or $364

million more, than the actual special assessment. Morgan Stanley and MetLife similarly „saved‟

$286 million and $233 million, respectively, because the comparable holding company

assessments would have been almost 11 times and 36 times (respectively) larger than the actual

assessments. Second, the savings from limiting the assessment to bank subsidiaries are much

smaller for holding companies with multiple bank subsidiaries. Citigroup, Bank America, Wells
Fargo, BB&T and SunTrust, for example, would have paid just slightly more with holding

company net assets as the base. Of these, Citigroup would have paid 48% more with SunTrust

effectively paying the same amount under each system. The proportionate increase in amounts

due for the others is somewhere in between these figures. Third, some bank holding companies

would have been better off with the holding company assessment because the special assessment

would have been lower if applied to holding company net assets. PNC, U.S. Bancorp, Capital

One Financial Corp., Regions, Fifth Third and KeyCorp fall in this category as each firm actually

would have paid a smaller assessment if the assessment was levied on holding company net

assets.9 Finally, banking organizations that emphasize businesses other than traditional lending

and deposit-gathering would have paid proportionately more than traditional banks, but far less

than traditional investment banks and insurance firms. Bank of NY Mellon and State Street are in

this category. In the aggregate the special assessment for the 19 stress test banks at the holding

company level would have been over $1.6 billion more than that raised by the smaller bank

subsidiary asset base. Alternatively, the FDIC could have raised a like some of money, ignoring

the CAP, if it levied only a 3.5 basis point charge on holding company assets less Tier 1 capital.

V. CONCLUSIONS

During 2009 the FDIC imposed a special deposit insurance assessment equal to five basis

points times an insured institutions‟ total assets minus Tier 1 equity. This was the first time the

FDIC changed the assessment base from domestic deposits to a net assets figure. While such a

change has little impact on most community banks because they fund most of their assets with

9
Total subsidiary assets exceed total holding company assets in rare cases when intra-company transactions between
subsidiaries are large. Also the holding company assessment can be smaller when the components of Tier 1 capital
are much higher at the holding company level compared with the combined bank subsidiaries. The latter is the case
with Capital One.
insured deposits, it could have potentially increased the amount paid by institutions that fund

themselves proportionately more with non-deposit liabilities. Without fanfare, the FDIC actually

capped the amount any single firm would pay under the special assessment by setting the

maximum payment due at 10 basis points times the firm‟s domestic deposit base. Such a cap

limited the amount that firms with a certain level of non-deposit funding would pay and

essentially represented a subsidy from banks paying the full special assessment to those with a

binding cap.

In this paper we estimate the impact of the special insurance assessment on a sample of

different-size banks ranging. We find evidence consistent with the conjecture that smaller banks

which rely more on core deposit funding likely received no benefit from the cap. In contrast, the

change to using total assets less Tier 1 capital with a cap on how much the assessment would

equal was quantitatively quite meaningful for larger financial institutions, which use non-deposit

funds as a significant funding vehicle. We pay particular attention to the impact of the special

assessment and cap on the nineteen banks subjected to the regulatory stress tests in mid-2009. Of

these nineteen firms, our estimates indicate that ten received no benefit from the cap, but the

other nine saved approximately $609 million combined. Interestingly, over one-third of these

savings went to Citigroup.

The special assessment was intended to replenish the deposit insurance fund which has

been depleted with the large number of bank failures. Traditionally, the FDIC bases its insurance

assessments solely against banks with insured deposits. Given the role that Too Big to Fail

institutions played in the financial crisis, we extend the analysis from just banks to bank holding

companies. Specifically, if large institutions are not allowed to fail, both depositors and non-

depositor creditors are effectively insured. As such, it seems reasonable to levy insurance
premiums against total holding company assets (less Tier 1 capital), as opposed to limiting the

premiums to banking subsidiary assets (less Tier 1 capital). We estimate that a move to charges

against total holding company assets would have resulted in substantial increased assessments

for thirteen of the nineteen stress-tested banks, with would have raised about $1.6 billion more

for the deposit insurance fund. This confirms that the issue of assessing deposit insurance

premiums at the holding company level, as opposed to the bank subsidiary level, is quantitatively

significant, deserving Congressional consideration as financial reforms are being debated.

 References

Eisenbeis, Robert A. and Larry D. Wall, “Reforming Deposit Insurance and FDICIA,” Federal
Reserve Bank of Atlanta, Economic Review, First Quarter 2002.

“FDIC Adopts Final Rule Imposing a Special Assessment on Insured Depository Institutions,”
Press release, May 22, 2009, www.fdic.gov/news/news/press/2009/pr09074.html.

Murton, Arthur, “Memorandum to the Board of Directors on the subject of Special Assessment,
Restoration Plan and Proposal for Maintaining Fund Liquidity”, FDIC, September 28, 2009.

“FDIC Proposes Banks Prepay Deposit Fees Through 2012,” www.bloomberg.com, by Alison
Vekshin, September 29, 2009.

A User‟s Guide for the Uniform Bank Performance Report, Federal Financial Institutions
Examination Council, Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, December 2009.

Special Assessment Final Rule, Financial Institution Letter, FIL-23-2009, FDIC, May 22, 2009
APPENDIX 1: The 19 U.S “Stress Test” Bank Holding Companies and Their Financial Institution
Subsidiaries

1- JPMorgan Chase

- JPMorgan Chase Bank, Dearborn

- Custodial Trust Company

- JPMorgan Bank and Trust Company, National Association

- Chase Bank USA, National Association

- JPMorgan Chase Bank, National Association

2- Citigroup

- Department Stores National Bank

- Citibank (Banamex USA)

- Citicorp Trust Bank, FSB*

- Citibank (South Dakota), N.A.

- Citibank, National Association

3- Bank of America

- Bank of America Oregon, National Association

- Bank of America California, National Association

- Bank of America, Rhode Island, National Association

- Merrill Lynch Bank & Trust Co., FSB*

- Merrill Lynch Bank USA

- FIA Card Services, National Association

- Bank of America, National Association

4- Wells Fargo
 - Wells Fargo Central Bank

- Wells Fargo Bank, Ltd.

- Wells Fargo HSBC Trade Bank, National Association

- Wells Fargo Financial National Bank

- Wachovia Card Services, National Association

- Wachovia Bank of Delaware, National Association

- Wells Fargo Bank Northwest, National Association

- Wachovia Bank, FSB*

- Wells Fargo Bank South Central, National Association

- Wachovia Mortgage, FSB*

- Wells Fargo Bank, National Association

- Wachovia Bank, National Association

5- Goldman Sachs

- Goldman Sachs Bank USA

6- Morgan Stanley

- Morgan Stanley Bank, National Association

7- MetLife

- Metlife Bank, National Association

8- PNC Financial Services

- PNC Bank, Delaware

- PNC Bank, National Association

- National City Bank

9- U.S. Bancorp

- U.S. Bank National Association ND

 - U.S. Bank National Association

10- Bank of New York Mellon

- BNY Mellon Trust of Delaware

- The Bank of New York Mellon Trust Company, National Association

- Mellon United National Bank

- BNY Mellon, National Association

- The Bank of New York Mellon

11- GMAC

- Ally Bank

12- SunTrust

- SunTrust Bank

13- State Street

- State Street Bank and Trust Company

14- Capital One Financial Corp.

- Chevy Chase Bank, F.S.B*

- Capital One Bank (USA), National Association

- Capital One, National Association

15- BB&T

- BB&T Financial, FSB*

- Branch Banking and Trust Company

16- Regions Financial Corp.

- Regions Bank
17- American Express

- American Express Centurion Bank

- American Express Bank, FSB.*

18-Fifth Third Bancorp

- Fifth Third Bank, National Association

- Fifth Third Bank- Grand Rapids

- Fifth Third Bank- Cincinnati

19- KeyCorp

- Keybank National Association

Appendix 2: II/2009 Total Assets of the nineteen stress-test banks versus the total assets of
the bank subsidiaries of the same holding companies

Name of Bank Total Assets of Bank Total assets of FDIC

Holding Company (BHC) insured Bank
subsidiaries of BHC

JPMorgan Chase $2,026,642,000,000 $1,768,411,582,000

Citigroup $1,848,533,000,000 $1,282,012,293,000

Bank of America (1) $2,256,059,674,000 $1,767,147,842,000

Wells Fargo $1,284,176,000,000 $1,240,732,906,000

Goldman Sachs $890,137,000,000 $119,678,000,000

Morgan Stanley $676,957,000,000 $65,328,000,000

MetLife $509,457,014,000 $14,639,670,000

PNC Financial Services $279,788,303,000 $281,271,551,000

U.S. Bancorp $265,560,000,000 $265,542,035,000

Bank of New York

Mellon
$203,246,000,000 $173,939,220,000

GMAC $181,250,000,000 $ 42,460,256,000

SunTrust $176,854,034,000 $170,139,951,000

State Street $152,921,189,000 $150,464,685,000

Capital One Financial

Corp.
$171,911,307,000 $176,964,855,000

BB&T $152,398,410,000 $149,663,952,000

Regions Financial
Corp.
$142,824,610,000 $135,430,305,000

American Express $115,975,155,000 $53,007,054,000

Fifth Third Bancorp $115,983,653,000 $122,355,751,000

KeyCorp $98,389,472,000 $95,248,904,000