RULES AND REGULATIONS
Title 10—BANKING AND SECURITIES
DEPARTMENT OF BANKING AND SECURITIES
[ 10 PA. CODE CH. 5 ]
Assessments
[44 Pa.B. 5010]
[Saturday, July 26, 2014]The Department of Banking and Securities (Department) adds Chapter 5 (relating to assessments) under the authority of 17 Pa.C.S. § 503(a) (relating to regulation by department) and sections 202(C) and 204(A) of the Department of Banking and Securities Code (71 P. S. §§ 733-202(C) and 733-204(A)).
Purpose
The purpose of this final-form rulemaking is to implement an assessment schedule for State-chartered institutions which provides adequate and sustainable funding for the Department and streamlines reporting and billing requirements on State-chartered institutions through the elimination of examination-based billing for State-chartered credit unions and State-chartered trust companies.
Comments and Responses
Notice of proposed rulemaking was published at 43 Pa.B. 5455 (September 14, 2013) with a 30-day public comment period. The Department received comments from the Pennsylvania Bankers Association (PBA), the Pennsylvania Association of Community Bankers (PACB), the Pennsylvania Credit Union Association (PCUA) and Vanguard Fiduciary Trust Company (VFTC).
Comments from trade associations
The Department received comments from three trade associations representing the interests of State-chartered banking institutions and State-chartered credit unions. Currently, there is not a trade association that solely represents the interests of State-chartered trust companies.
Comments from PBA
PBA represents banking institutions of all sizes within this Commonwealth, including Federally-chartered and State-chartered banks, bank and trust companies, trust companies, savings institutions and their subsidiaries and affiliates. PBA appreciated that the Department discussed the rulemaking with them during the developmental stages. PBA expressed the desire that the General Assembly allow the Banking Fund to remain in place for the Department's use only so that the Department maintains adequate funds to regulate its State-chartered institutions.
During the developmental stages, PBA requested that the Department send written explanatory materials to each State-chartered banking institution affected by the final-form rulemaking. PBA commented that the Department appropriately communicated to those State-chartered banking institutions the cost-reducing steps already taken by the Department since 2011. PBA concluded that although it is unable to comment on the impact of the final-form rulemaking on individual State-chartered banking institution members, it believes that the final-form rulemaking provides the Department with adequate funding for the future.
Comments from PACB
PACB represents community banking institutions within this Commonwealth, including State-chartered and Federally-chartered banking institutions. PACB appreciated the opportunity to comment on the rulemaking. Like the PBA, PACB expressed the desire that the General Assembly allow the Banking Fund to remain in place for the Department's use only so that the Department maintains adequate funds to regulate its State-chartered institutions.
PACB explained its concerns regarding the financial impact of the final-form rulemaking on some smaller State-chartered banking institutions because those institutions already face additional Federal mandates and regulatory burden. However, PACB commented that it appreciated the Department's incorporation of a 3 fiscal year phase-in for State-chartered banking institutions. The 3 fiscal year phase-in makes the possible financial strain on PACB members much more manageable than immediate full implementation. PACB also expressed support for the complete elimination of examination-based billing for State-chartered credit unions and State-chartered trust companies included in the final-form rulemaking.
Response: PACB explained its concerns to the Department during the drafting process. The Department determined that the assessments must increase and the increase does create some fiscal impact. The Department, as the regulator of the State-chartered banking institutions, is aware of the financial condition of its regulated community and took every measure to ensure that the final-form rulemaking will not create a financial impact which cannot be borne by the regulated community. Because of the feedback from PACB and others, the Department attempted to implement the increases in the least burdensome manner to the regulated community by including the 3 fiscal year phase-in and using already-existing Federal reporting requirements.
Comments from PCUA
PCUA represents a majority of the approximately 500 credit unions within this Commonwealth, including State-chartered and Federally-chartered credit unions. PCUA stated its appreciation for the complete elimination of examination-based billing for State-chartered credit unions. PCUA also commented that it understands that the Department needs to obtain sustainable funding to prevent regulatory uncertainty.
PCUA commented that the assessment and factors in the final-form rulemaking are more desirable than the current formula for assessment. However, PCUA expressed concern that some of the larger asset sized State-chartered credit unions might realize an increase from the final-form rulemaking. PCUA suggested that to better accommodate those larger asset sized State-chartered credit unions, the Department consider implementing a 3 fiscal year phase-in for State-chartered credit unions instead of immediate full implementation.
Response: The Department considered the concerns and financial status of its State-chartered financial institutions in drafting the final-form rulemaking. The Department acknowledges that, in adopting the assessment schedule best suited for credit unions, an increase will occur for some State-chartered credit unions, including larger-asset ones. However, due to this assessment schedule approach, the Department is unable to provide a phase-in for credit unions.
The Department last changed the assessment rates for State-chartered credit unions over 23 years ago. Even though State-chartered credit unions did not experience change in assessment rates over the last 23 years, the Department still attempted to mitigate the fiscal impact of this final-form rulemaking. To the extent possible from a revenue standpoint, and to maintain the competitiveness of the Pennsylvania State-charter, the Department kept the assessment rates at roughly 95% of the National Credit Union Administration's (NCUA) assessment rates for Federally-chartered credit unions. In addition, the Department completely eliminated examination-based billing to avoid unpredictable costs for the State-chartered credit unions, despite the fact that the elimination of this billing method coupled with the new assessment schedules results initially in a moderate loss of revenue to the Department from credit unions. For example, in Fiscal Year (FY) 2012-2013, the Department received $1,880,788 in revenue from the current assessments and examination-based billing of State-chartered credit unions. In comparison, if the Department applied the assessment rates to be implemented by this final-form rulemaking to the most recent call reports of the State-chartered credit unions, the Department would receive $1.733 million in revenue. Thus, the switch from examination-based billing to the proposed assessment-only approach initially represents a loss of $147,000 in revenue to the Department from credit unions.
Regardless of the size of the credit union, as previously shown, even if the final-form rulemaking took full effect in 2013, the final-form rulemaking actually results in a decrease in revenue to the Department from this institution type overall. At full implementation, the Department expects the revenue for the State-chartered credit unions to increase at least to the level that the assessment rates will result in a revenue-neutral outcome from State-chartered credit unions. Therefore, incremental implementation of the assessment schedule for any size of credit union is impractical because it would cause a further loss of revenue to the Department, since the Department designed the assessment schedules for credit unions to result in a revenue-neutral outcome to maintain assessment competitiveness with the NCUA.
Comments from the regulated community
The Department received one comment from VFTC, which is part of the regulated community. VFTC is a State-chartered trust company that is a wholly owned subsidiary of The Vanguard Group, Inc. VFTC expressed its appreciation for the Department's discussion of the proposed rulemaking during the drafting process. VFTC also stated that without endorsing the content of the rulemaking, it understands that the Department undertook cost-reducing measures. Despite those measures, the outstanding financial need remains the reason for the rulemaking.
VFTC commented that without supporting the assessment rates, it agreed that the complete elimination of examination-based billing and the establishment of assessment rates at a level substantially below the Federal assessment structure are beneficial. VFTC stated it preferred a longer phase-in period, but understood that the 3 fiscal year time period is an acceptable compromise to enable the Department to achieve sustainable funding while attempting to lessen the immediate impact on the budgets of the regulated community. VFTC stated that it acknowledges that the Department needed to increase the assessment rates and agrees with § 5.5(a) and (b) (relating to adjustments to assessments; invoicing). VFTC agreed that the Department should tie its discretion to increase assessment rates to the United States Department of Labor, Bureau of Labor Statistics (USDOL) as an independent benchmark.
Comments from the Independent Regulatory Review Commission
The Department received four comments from the Independent Regulatory Review Commission (IRRC).
Comment: IRRC questioned how the Department determined that the surpluses resulting from the implementation of the final-form rulemaking are appropriate.
Response: The ending balances reflected in Table 3 on the Regulatory Analysis Form (RAF) do appear to show a surplus to the Department. However, those ending balances do not reflect surpluses; rather, the ending balances are a necessary reserve that supports three different needs of the Department.
First, the Conference of State Bank Supervisors (CSBS), which provides National accreditation of the Department's Banking Fund programs, recommends as a best practice maintaining a minimum of 3 months of operating expenses in a regulator's budgetary accounts at all times. CSBS recommends this because, like with any business, it is impossible for the Department to exactly time the receipt and expenditure of funds. Using the criteria set by CSBS and the projected Departmental expenses, the Department should maintain an operating reserve of approximately $6.3 million in the Banking Fund.
Second, the Department must maintain an operational balance higher than the approximately $6.3 million CSBS recommends in case of the loss of one or more of the larger State-chartered financial institutions to a charter conversion or a merger. As explained in the RAF, the assessment schedule uses the assets of each regulated State-chartered financial institution to calculate the amount due to the Department. Therefore, the larger asset State-chartered financial institutions provide a larger portion of the assessments. Although the Department strives to maintain favorable conditions for its State-chartered financial institutions, conversions and mergers still occur. The loss of a larger State-chartered financial institution through conversion to a Federal charter or merger could drastically reduce the Department's revenue and the balance of the Banking Fund.
Third, the Department needs to adequately fund the legislatively-created Institution Resolution Account (IRA). The IRA is a restricted account within the Banking Fund created in 2012 under section 1113-A(g) of the Department of Banking and Securities Code (71 P. S. § 733-1113-A(g)) for use primarily in resolving a failed State-chartered trust company. The failure of a State-chartered trust company impacts the Department in a different manner than the failure of a State-chartered banking institution or a State-chartered credit union because the Department actually bears the financial burden of a trust company failure.
If a State-chartered banking institution or a State-chartered credit union fails, Federal regulators act as receivers for these failed financial institutions and Federal deposit insurance funds resolve the accounts. The Office of the Comptroller of the Currency (OCC) decides whether a Federally-chartered banking institution must be closed. NCUA decides whether a Federally-chartered credit union must be closed. The Department decides whether a State-chartered banking institution or State-chartered credit union must be closed. For banking institutions, either the OCC or the Department appoints the Federal Deposit Insurance Corporation (FDIC) as the receiver of these financial institutions. For credit unions, NCUA and the Department appoint NCUA as the receiver of these financial institutions. The FDIC and NCUA insure depositors in all banks and credit unions, including State-chartered banking institutions and State-chartered credit unions, for up to $250,000 per depositor when a failure occurs.
However, if a State-chartered trust company fails, a Federal regulator does not exist to be appointed receiver of failed State-chartered trust companies and Federal deposit insurance funds do not exist to resolve the fiduciary accounts because the FDIC and NCUA do not regulate trust companies or insure fiduciary accounts. In the event that a State-chartered trust company fails, the Department is the receiver and must resolve the trust company with Department funds generated from the regulated industries. Otherwise, the Department would need to seek an appropriation from General Fund taxpayer moneys to resolve a trust company. The costs to resolve trust companies varies greatly based on the sizes and types of fiduciary accounts, but recent resolutions by other state regulators demonstrate that resolutions take several years with costs consistently reaching above $20 million.
As the receiver of a State-chartered trust company, the Department must run the trust company until a resolution is reached. While running the trust company, the Department must pay ongoing operational and overhead expenses, such as the salaries and benefits of employees, the real estate and utility costs for the offices of the trust company, the data processing/information technology fees and business-related professional expenditures. In addition to the normal costs of running the trust company, the Department will need to hire and pay outside consultants. These outside consultants may include forensic accountants, outside bankruptcy counsel, executive management to replace previous management and investment bankers to market all or portions of the trust company's assets. The resolution of failed State-chartered trust companies creates a significant financial burden on the Department not only because of these costs, but because of the countless hours of personnel resources the Department must commit to the resolution during the years it takes to resolve a failed State-chartered trust company.
To prevent the depletion of the Department's funds through a State-chartered trust company failure, the Department must maintain the IRA to cover the costs associated with the resolution of a trust company and its fiduciary accounts. Prior to the establishment of the IRA, the Department was building an adequate reserve in the Banking Fund to prepare for these costs. However, these funds could be appropriated by the General Assembly for other uses. In FY 2008-2009, the General Assembly appropriated $15 million from the Banking Fund for other uses. As a result of that appropriation, the Department must gradually recoup the funds lost to that appropriation and adequately fund the IRA.
Comment: IRRC requested that the Department explain how it currently collects fees from institutions and how it plans to transition to the assessment schedule in the final-form rulemaking. Included in that question, IRRC asked whether the Department will discontinue its current assessment system and assuming that the rulemaking is adopted, how and when the Department will notify the regulated community of the change in the Department's assessment method.
Response: Currently, the Department assesses State-chartered banking institutions, State-chartered credit unions and State-chartered trust companies according to a similar assessment system based upon assessment schedules set in the 1990s by a series of Secretary's Letters. While the Department bills State-chartered banking institutions on this assessment basis only, it assesses State-chartered credit unions and State-chartered trust companies and additionally separately bills for examination costs. The examination-based billing could vary widely due to the length and complexity of the examination.
The Department collects assessments from State-chartered financial institutions according to these assessment schedules through a billing system based upon the amount of assets reported in the institution's Federal quarterly Report of Condition and Income (Call Report). For State-chartered banking institutions and State-chartered credit unions, the Department issues invoices on December 31 and June 30. The Department calculates the December 31 invoice amount based on the asset information in the September Call Report for each State-chartered financial institution and the June 30 invoice amount based on the asset information in the March Call Report for each State-chartered financial institution. The invoice reflects the amount due to the Department with a payment term of 30 days. For State-chartered trust companies, the Department issues invoices on December 31 based upon the September Call Reports.
The Department will implement the assessment schedule in the final-form rulemaking in the same manner, with one exception. In keeping with the billing format of the State-chartered banking institutions and State-chartered credit unions, the Department will also bill the State-chartered trust companies on December 31 based upon the asset information in the September Call Reports and June 30 based on the asset information in the March Call Reports. The assessment schedule invoices will be the only invoices issued to a State-chartered financial institution because the final-form rulemaking eliminates the examination-based billing for State-chartered credit unions and State-chartered trust companies.
The adoption of this final-form rulemaking will automatically replace the current assessment schedules and eliminate separate examination-based billing for State-chartered credit unions and State-chartered trust companies. Upon adoption of this final-form rulemaking, the Department will send a letter from the Secretary of Banking and Securities (Secretary) to each affected State-chartered financial institution explaining the final-form rulemaking and how it will be implemented. The letter will also reference the estimated assessment calculator located on the Department's web site, which was established prior to the public comment period to allow institutions to generate their estimated assessment as a result of the final-form rulemaking. The estimated assessment calculator will remain on the Department's web site following the promulgation of the final-form rulemaking and will allow each State-chartered financial institution to obtain assessment information specific to that institution prior to receiving the Department's invoice. The Department does not anticipate confusion regarding the implementation of the assessment schedule in the final-form rulemaking because the Secretary and the Department communicated extensively with the regulated community on this topic.
Comment: IRRC posed questions to the Department regarding § 5.5(a) and (b). Regarding subsection (a), IRRC asked five groups of questions regarding the inflation index and asked that the Department respond to the questions and adjust the final-form rulemaking as it deems appropriate.
(1) What safeguards are in place to ensure that the need for additional funding is based on inflation? Do the General Assembly and the budgetary process have any input or oversight on whether an adjustment is needed?
Response: The safeguards that exist to ensure the Department will only use § 5.5 to adjust the assessment based upon inflation are the budget review processes of the Governor's Budget Office and the General Assembly. The Governor's Budget Office and the General Assembly have input and oversight into whether an adjustment is needed because both approve the Department's budget each fiscal year. Therefore, the normal budget process ensures that the Governor's Budget Office and the General Assembly are able to review the appropriateness of the Department's revenue streams and expenditures overall, including whether an adjustment is needed.
As reflected in the public comments, the Department strives to oversee its State-chartered financial institutions in a cooperative manner. If the Department attempted to use this provision without a true need, the regulated community would, and should, bring the Department's actions to the attention of the General Assembly. In addition, the regulated community is familiar with optional inflation adjustments based upon changes in pricing because the Federal regulator of National banks and National trust companies, the OCC, also includes one in its assessment schedules. See, for example, 12 CFR 8.2(a)(4) (relating to semiannual assessment), regarding the use of ''Gross Domestic Product Implicit Price Deflator'' as index for optional inflation adjustment.
(2) Will the Department notify the regulated community in advance about the imposition of the inflation adjustment? How and when would the regulated community be notified of the inflation adjustment?
Response: The Department will notify the regulated community in advance about the imposition of the inflation adjustment. If the Department determines during the budget review process that an inflation adjustment is necessary, the Department will send a general letter in July after the budget process is complete to the regulated community notifying them that the Department will be instituting an inflation adjustment in the upcoming fiscal year assessments (that is, the December 31 and June 30 invoices). The Department will note the actual amount of adjustment on the invoices issued to each State-chartered financial institution.
(3) How often are the cited inflation indices updated? Do the inflation indices correlate to the semiannual assessment notices of this final-form rulemaking?
Response: The USDOL adjusts the Consumer Price Index (CPI) each month. The Department will use the inflation rate announced in June during the budgetary process to correlate the adjustment to the semiannual assessment fiscal year schedule. If needed, the Department will then apply the June inflation rate to the December 31 and June 30 invoices.
(4) How did the Department determine that the cited inflation indices are most appropriate for Pennsylvania State-chartered institutions?
Response: The Department determined that the inflation index cited in § 5.5 is the most appropriate because the Department uses the CPI in conjunction with other statutes it oversees. For example, the CPI is already used by the Department to annually calculate the inflation adjustment to the ''base figure'' under the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. §§ 101—605), known as the Loan Interest and Protection Law (LIPL). The LIPL applies to every entity that engages in mortgage lending in this Commonwealth, including the State-chartered banking institutions and State-chartered credit unions subject to this final-form rulemaking. State-chartered trust companies are not authorized to engage in mortgage lending. The Department has been using the CPI in conjunction with the LIPL since 2009 and determined that the CPI is a reliable basis for inflation adjustment.
(5) What criteria will the Department use when deciding which inflation index to use?
Response: The Department intends to only use the CPI. Although the Department does not anticipate using a different index than the CPI, the final-form rulemaking includes the option to use an additional USDOL index should the CPI be discontinued by the USDOL for any reason. If the CPI is discontinued, the Department will likely use the USDOL index that the OCC uses, the ''Gross Domestic Product Implicit Price Deflator'' in 12 CFR 8.2(a)(4).
IRRC posed several questions regarding the optional adjustment that the Department intends to apply to specific institutions based upon their Uniform Financial Institutions Rating System or Uniform Interagency Rating System composite rating in subsection (b). IRRC asked five groups of questions regarding optional adjustment.
(1) What is the need for the optional adjustment?
Response: The Department needs the optional adjustment to enable the Department to cover the increased costs of heightened supervision that arise when a State-chartered financial institution is in less-than-satisfactory condition. An institution such as this requires: more frequent examinations, which occur every 6 months instead of every 12 to 18 months; thorough reviews of the paperwork associated with increased reporting requirements; close monitoring of compliance with the requirements of enforcement actions; and other Departmental efforts to assist problem institutions which result in increased costs. In conjunction with this increased supervision, the Department may also need to hire outside specialists, such as forensic accountants.
(2) Why does the Department believe the surcharge is the most reasonable approach to assessing certain institutions?
Response: The Department determined that using an assessment surcharge, rather than billing for unpredictable special examination costs, provides a more transparent way for State-chartered financial institutions to calculate the regulatory costs of being in less-than-satisfactory condition.
(3) How did the Department determine that a 30% surcharge is appropriate for an institution with a composite rating of 4 and that a 50% surcharge is appropriate for an institution with a composite rating of 5?
Response: The Department determined that the surcharges were appropriate by using the OCC surcharge rates as a starting point and then reviewing the regulatory costs the Department incurred in the past related to State-chartered institutions in less-than-satisfactory condition. For example, the OCC assesses a 50% surcharge to an institution with a composite rating of three and a 100% surcharge to an institution with a composite rating of either a 4 or a 5. See 12 CFR 8.2(d). However, based on the Department's review of its regulatory costs, the Department ruled out the need for a surcharge on an institution with a composite rating of three. The Department also determined that a 30% surcharge on an institution with a composite rating of 4 and a 50% surcharge on an institution with a composite rating of 5 sufficiently covered the increased supervision costs to the Department.
(4) What criteria will guide the Department in its determination that this surcharge is appropriate?
Response: The initial criteria to guide the Department are set forth clearly within the composite rating. If a State-chartered financial institution has a composite rating of 4 or 5, the Department will monitor the cost of the resources it expends to supervise that institution. The Department will assess the surcharge once the cost begins to draw on the resources that would otherwise be devoted to the normal supervision of other State-chartered financial institutions or if the Department expends funds to hire outside specialists.
(5) Will the surcharge be imposed to close a budgetary gap or will it be imposed to encourage institutions to improve their composite ratings?
Response: The Department will not use an assessment surcharge to close a budgetary gap because funds received through the surcharge will be extremely minor in relation to all other assessments combined. Instead, the reserve in the Banking Fund, previously addressed in the response to IRRC's first comment, is intended to cover budgetary gaps.
The Department does intend that if a State-chartered financial institution is subject to the surcharge, that the surcharge would provide more encouragement to the institution to work its way out of the less-than-satisfactory condition.
Comment: IRRC requested that the Department consider the public comment that it received wherein the commentator requested that the Department include a phase-in of the implementation of the assessment schedule for not only the State-chartered banking institutions and State-chartered trust companies, but also for the larger State-chartered credit unions affected by the final-form rulemaking to lessen the immediate fiscal impact on those larger State-chartered credit unions.
Response: As previously addressed in response to PCUA's public comment, the Department considered the concerns and financial status of State-chartered financial institutions in drafting the final-form rulemaking. The Department acknowledges that, in adopting the assessment schedule best suited for credit unions, an increase will occur for some State-chartered credit unions, including larger-asset ones. However, due to this assessment schedule approach, the Department is unable to provide a phase-in for credit unions.
The Department last changed the assessment rates for State-chartered credit unions over 23 years ago. Even though State-chartered credit unions did not experience change in assessment rates over the last 23 years, the Department still attempted to mitigate the fiscal impact of this final-form rulemaking. To the extent possible from a revenue standpoint, and to maintain the competitiveness of the Pennsylvania State-charter, the Department kept the assessment rates at roughly 95% of the NCUA's assessment rates for Federally-chartered credit unions. In addition, the Department completely eliminated examination-based billing to avoid unpredictable costs for the State-chartered credit unions, despite the fact that the elimination of this billing method coupled with the new assessment schedules results initially in a moderate loss of revenue to the Department from credit unions. For example, in FY 2012-2013, the Department received $1,880,788 in revenue from the current assessments and examination-based billing of State-chartered credit unions. In comparison, if the Department applied the assessment rates to be implemented by this final-form rulemaking to the most recent call reports of the State-chartered credit unions, the Department would receive $1.733 million in revenue. Thus, the switch from examination-based billing to the proposed assessment-only approach initially represents a loss of $147,000 in revenue to the Department from credit unions.
Regardless of the size of the credit union, as previously shown, even if the final-form rulemaking took full effect in 2013, the final-form rulemaking actually results in a decrease in revenue to the Department from this institution type overall. At full implementation, the Department expects the revenue for the State-chartered credit unions to increase at least to the level that the assessment rates will result in a revenue-neutral outcome from State-chartered credit unions. Therefore, incremental implementation of the assessment schedule for any size of credit union is impractical because it would cause a further loss of revenue to the Department, since the Department designed the assessment schedules for credit unions to result in a revenue-neutral outcome to maintain assessment competitiveness with NCUA.
Fiscal Impact
State government
The final-form rulemaking provides appropriate and sustainable funding for the Department.
Regulated community
The final-form rulemaking increases the assessments paid by the regulated community to the Department for the first time since the 1990s. Upon full implementation, the assessments paid by nearly all State-chartered institutions will still be significantly lower than current assessments paid by similar Federally-chartered institutions operating in this Commonwealth.
Paperwork
The final-form rulemaking eliminates the paperwork associated with examination-based billing for the Department, State-chartered credit unions and State-chartered trust companies. The final-form rulemaking does not impose additional paperwork on the Department, State-chartered banking institutions, credit unions or trust companies.
Effectiveness Date and Sunset Date
Chapter 5 will be effective upon final-form publication in the Pennsylvania Bulletin. The first payments due under the final-form rulemaking will be billed in December 2014, based upon the September 30, 2014 Call Reports. The final-form rulemaking does not have a sunset date because the Department will periodically review the effectiveness of the regulations.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 22, 2013, the Department submitted a copy of the notice of proposed rulemaking, published at 43 Pa.B. 5455, to IRRC and the Chairpersons of the House Commerce Committee and the Senate Banking and Insurance Committee for review and comment.
Under section 5(c) of the Regulatory Review Act, IRRC and the House and Senate Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing the final-form rulemaking, the Department has considered all comments from IRRC, the House and Senate Committees and the public.
Under section 5.1(j.2) of the Regulatory Review Act (71 P. S. § 745.5a(j.2)), on February 26, 2014, the final-form rulemaking was deemed approved by the Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on February 27, 2014, and disapproved the final-form rulemaking.
As directed by section 5.1(j.4) of the Regulatory Review Act, IRRC, the House and Senate Committees and the Department proceeded in accordance with section 6 of the Regulatory Review Act (71 P. S. § 745.6) following disapproval. Under section 6(a) of the Regulatory Review Act, the Department reviewed IRRC's order, responded to IRRC's concerns and submitted the final-form rulemaking with revisions consistent with section 7(a)(2) of the Regulatory Review Act (71 P. S. § 745.7(a)(2)). On March 21, 2014, the Department submitted a revised final-form rulemaking and the required report to IRRC and to the Chairpersons of the House and Senate Committees in accordance with section 7(c) of the Regulatory Review Act.
Under section 5.1(j.2) of the Regulatory Review Act on April 24, 2014, this final-form rulemaking was deemed approved by the Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on April 10, 2014, and approved the final-form rulemaking.
Findings
The Department finds that:
(1) Public notice of the proposed rulemaking was given under section 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations promulgated thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) A public comment period was provided as required by law and all comments received during the public comment period were considered.
(3) The final-form rulemaking does not enlarge the purpose of the proposed rulemaking published at 43 Pa.B. 5455.
(4) The final-form rulemaking is necessary and appropriate for the administration and enforcement of 17 Pa.C.S. (relating to Credit Union Code) and the Department of Banking and Securities Code.
Order
The Department, acting under the authorizing statutes, orders that:
(a) The regulations of the Department, 10 Pa. Code, are amended by adding §§ 5.1—5.6 to read as set forth in Annex A.
(b) The Secretary of Banking and Securities shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of Banking and Securities shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
GLENN E. MOYER,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 44 Pa.B. 2592 (April 26, 2014).)
Fiscal Note: 3-51. Revenue lost by eliminating examination-based billings will be offset by the updated assessment schedule. The final-form rulemaking is necessary in providing adequate and sustainable funding to the Department. (8) recommends adoption.
Annex A
TITLE 10. BANKING AND SECURITIES
PART I. GENERAL PROVISIONS
CHAPTER 5. ASSESSMENTS Sec.
5.1. Definitions. 5.2. Semiannual assessment for banks, bank and trust companies, savings banks and savings associations. 5.3. Semiannual assessment for trust companies. 5.4. Semiannual assessment for credit unions. 5.5. Adjustments to assessments; invoicing. 5.6. Implementation schedule. § 5.1. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
Bank—The term as defined in section 102(f) of the Banking Code (7 P. S. § 102(f)).
Bank and trust company—The term as defined in section 102(g) of the Banking Code.
Consolidated total assets—The total assets as reflected in the FFIEC Call Report's ''Schedule RC—Balance Sheet of the Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only—FFIEC 041'' or ''Schedule RC—Balance Sheet of the Consolidated Report of Condition and Income for a Bank with Domestic and Foreign Offices—FFIEC 031,'' as applicable.
Credit union—The term as defined in 17 Pa.C.S. § 102 (relating to application of title).
FFIEC Call Report—A report promulgated by the Federal Financial Institutions Examinations Council that sets forth consolidated total assets and fiduciary assets.
Fiduciary assets—The sum of the total fiduciary assets in the FFIEC Call Report's ''Schedule RC—T Fiduciary and Related Services of the Consolidated Report of Condition and Income for a Bank with Domestic Offices Only—FFIEC 041.''
Fiscal year—The term as defined in section 617(a) of The Administrative Code of 1929 (71 P. S. § 237(a)).
NCUA Call Report—A report promulgated by the National Credit Union Administration that sets forth total assets.
Savings association—The term as defined in section 102(3) of the Savings Association Code of 1967 (7 P. S. § 6020-2(3)) (repealed).
Savings bank—The term as defined in section 102(x) of the Banking Code.
Total assets—The total assets as reflected on the ''Statement of Financial Condition'' in the NCUA Call Report.
Trust company—The term as defined in section 102(dd) of the Banking Code.
UFIRS—The Uniform Financial Institutions Rating System.
UITRS—The Uniform Interagency Trust Rating System.
§ 5.2. Semiannual assessment for banks, bank and trust companies, savings banks and savings associations.
(a) Banks, bank and trust companies, savings banks and savings associations shall pay a semiannual assessment to the Department.
(b) The semiannual assessment on banks, bank and trust companies, savings banks and savings associations will be calculated as follows:
If the amount of the consolidated total
assets is:
The semiannual assessment will be:
Over: But not over: Base
amount:The excess over: Times (x): 0 $20,000,000 $6,070 + 0 0 $20,000,000 $100,000,000 $6,070 + $20,000,000 0.000112059 $100,000,000 $200,000,000 $15,035 + $100,000,000 0.000072836 $200,000,000 $1,000,000,000 $22,319 + $200,000,000 0.000061631 $1,000,000,000 $2,000,000,000 $71,623 + $1,000,000,000 0.000050425 $2,000,000,000 $6,000,000,000 $122,048 + $2,000,000,000 0.000044822 $6,000,000,000 $20,000,000,000 $301,338 + $6,000,000,000 0.000038139 $20,000,000,000 $835,284 + $20,000,000,000 0.000019409 (c) Banks, bank and trust companies, savings banks and savings associations will be billed semiannually in December and June based upon the consolidated total assets reported in the immediately preceding FFIEC Call Report.
§ 5.3. Semiannual assessment for trust companies.
(a) Trust companies shall pay a semiannual assessment to the Department.
(b) The semiannual assessment on trust companies will be calculated on consolidated total assets plus fiduciary assets as follows:
If the amount of the consolidated total
assets is:
The semiannual assessment will be:
Over: But not over: Base
amount:The excess over: Times (x): 0 $20,000,000 $6,070 + 0 0 $20,000,000 $100,000,000 $6,070 + $20,000,000 0.000112059 $100,000,000 $200,000,000 $15,035 + $100,000,000 0.000072836 $200,000,000 $1,000,000,000 $22,319 + $200,000,000 0.000061631 $1,000,000,000 $2,000,000,000 $71,623 + $1,000,000,000 0.000050425 $2,000,000,000 $6,000,000,000 $122,048 + $2,000,000,000 0.000044822 $6,000,000,000 $20,000,000,000 $301,338 + $6,000,000,000 0.000038139 $20,000,000,000 $835,284 + $20,000,000,000 0.000019409 plus
If the amount of the fiduciary assets is:
The semiannual assessment will be:
Over: But not over: Base
amount:The excess over: Times (x): 0 $500,000,000 $6,746 + $0 0 $500,000,000 $1,000,000,000 $13,492 + $500,000,000 0 $1,000,000,000 $10,000,000,000 $13,492 + $1,000,000,000 0.000002689 $10,000,000,000 $100,000,000,000 $37,689 + $10,000,000,000 0.000000449 $100,000,000,000 $78,081 + $100,000,000,000 0.0000001425 (c) Trust companies will be billed in December and June based upon the consolidated total assets and fiduciary assets reported in the immediately preceding FFIEC Call Report.
§ 5.4. Semiannual assessment for credit unions.
(a) Credit unions shall pay a semiannual assessment to the Department.
(b) The semiannual assessment on credit unions will be calculated as follows:
If the amount of the total assets is:
The semiannual assessment will be: Over: But not over: This
amount:The excess over: Times (x): 0 $24,503,168 $2,500 + $0 0 $24,503,168 $1,115,871,488 $2,500 + $24,503,168 0.00010739750 $1,115,871,488 $3,376,610,357 $119,842 + $1,115,871,488 0.00003130250 $3,376,610,357 $190,609 + $3,376,610,357 0.00001045000 (c) Credit unions will be billed in December and June based upon the total assets reported in the immediately preceding NCUA Call Report.
§ 5.5. Adjustments to assessments; invoicing.
(a) Adjustments.
(1) Adjustment to assessments. The Department may increase the amount of assessments generated by the calculations in §§ 5.2—5.4 (relating to semiannual assessment for banks, bank and trust companies, savings banks and savings associations; semiannual assessment for trust companies; and semiannual assessment for credit unions) if the projected assessments are insufficient to provide for the Department's budget due to increased costs of operation.
(2) Amount of adjustment. The increase permitted by paragraph (1) may not exceed the percentage increase in the Consumer Price Index over the fiscal year immediately preceding the fiscal year in which the Department submits its proposed budget to the General Assembly, as indicated by the ''Consumer Price Index—All Urban Consumers: U.S. All Items 1982-84=100''published by the United States Department of Labor, Bureau of Labor Statistics, or other similar index published by the United States Department of Labor, Bureau of Labor Statistics.
(b) Surcharge based on condition. The Department may increase the amount of a specific assessment generated by the calculations in §§ 5.2—5.4 by:
(1) Thirty percent for a bank, bank and trust company, savings bank, savings association, trust company or credit union with a UFIRS or UITRS composite rating of 4.
(2) Fifty percent for a bank, bank and trust company, savings bank, savings association, trust company or credit union with a UFIRS or UITRS composite rating of 5.
(c) Notice of adjustment or surcharge. The Department will provide notice to institutions of an increase in assessments according to subsections (a) and (b) by:
(1) A general notice within 30 days of the enactment of the Department's budget by the General Assembly if an increase is generated by subsection (a).
(2) A note on each semiannual assessment invoice issued to an institution subject to an increase generated by subsection (b).
(d) Assessment invoicing. The Department will round the assessments calculated under this chapter to the nearest dollar on the semiannual assessment invoice issued to each assessed entity.
§ 5.6. Implementation schedule.
(a) General rule. The Department will provide an implementation schedule for banks, bank and trust companies, savings banks, savings associations and trust companies to adjust to the assessments generated by this chapter.
(b) Implementation schedule. Banks, bank and trust companies, savings banks, savings associations and trust companies shall pay assessments according to the following implementation schedule:
(1) Seventy percent of the total assessment calculated by §§ 5.2, 5.3 and 5.5 (relating to semiannual assessment for banks, bank and trust companies, savings banks and savings associations; semiannual assessment for trust companies; and adjustments to assessments; invoicing) for the first 12 months after July 1, 2014.
(2) Eighty-five percent of the total assessment calculated by §§ 5.2, 5.3 and 5.5 for the second 12 months after July 1, 2015.
(3) One hundred percent of the total assessment calculated by §§ 5.2, 5.3 and 5.5 for the third 12 months after July 1, 2016.
[Pa.B. Doc. No. 14-1564. Filed for public inspection July 25, 2014, 9:00 a.m.]
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