Originally published September 10, 2009

Keywords: Federal Deposit Insurance Corporation , FDIC, Technical Amendments, FDIC Rules, Uninsured US Branches, Non-US Banks, deposit insurance regulation

The Federal Deposit Insurance Corporation (FDIC) has approved a package of amendments designed, among other things, to conform its deposit insurance regulation (Part 330) to recent temporary statutory increases in the basic deposit insurance coverage limit from $100,000 to $250,000. Included in the package are "technical, conforming" amendments to the FDIC's international banking regulation (Part 347) which have the effect of raising the threshold for "wholesale" deposits that can be accepted by state-licensed uninsured branches of foreign banks from $100,000 to $250,000. The FDIC amendments affect only state-licensed branches, since the parallel provisions for federally-licensed branches under the Office of the Comptroller of the Currency's (OCC) Part 28 remain unchanged.

Unless revised, the practical impact of the FDIC changes on many uninsured branches will be significant, particularly since the amendments will take effect 30 days following publication in the Federal Register (expected shortly) and the amendments do not "grandfather" existing accounts. For example, uninsured branches would have to (i) review their records to identify any individual and small business deposit relationships in which the customer's initial deposit was between $100,000 and $250,000, and then (ii) either (A) determine that the deposit qualified for another "wholesale" exemption under the FDIC's regulations (e.g., for foreign source deposits or the 1 percent "de minimis" exemption) or (B) close the account.

Based on preliminary conversations with FDIC staff, we believe that the potential adverse impact of these changes on uninsured branches was unintended. We also believe that the FDIC has ample authority to retain the longstanding $100,000 trigger for wholesale deposits. First, despite recent changes in the relevant statutory language creating a superficial link between the deposit-taking powers of uninsured branches and the new $250,000 insurance limit, the FDIC and the OCC retain their independent statutory authority to define the range of deposits that can be accepted without a branch being deemed to be "engaged in domestic retail deposit activities requiring deposit insurance protection." Second, the International Banking Act of 1978 first established the $100,000 trigger for wholesale deposits at a time when the FDIC insurance limit was only $40,000, thus making clear that the trigger for wholesale deposits was not inextricably linked to the deposit insurance limits. Finally, the FDIC retains its broad authority under Section 347.215(b) of its regulations to permit state branches that accept initial deposits of less than the FDIC insurance limit (now $250,000) to remain uninsured.

A draft copy of the FDIC final rule as approved by the FDIC board at its September 9, 2009 meeting is available at http://www.fdic.gov/news/board/NoticeSept9no2.pdf. The relevant provisions are discussed at pp. 22, 35-37.

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