Recordkeeping for Timely Deposit Insurance Determination, 87734-87767 [2016-28396]
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Federal Register / Vol. 81, No. 233 / Monday, December 5, 2016 / Rules and Regulations
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 370
RIN 3064–AE33
Recordkeeping for Timely Deposit
Insurance Determination
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
AGENCY:
The FDIC is adopting a final
rule to facilitate prompt payment of
FDIC-insured deposits when large
insured depository institutions fail. The
final rule requires each insured
depository institution that has two
million or more deposit accounts to (1)
configure its information technology
system to be capable of calculating the
insured and uninsured amount in each
deposit account by ownership right and
capacity, which would be used by the
FDIC to make deposit insurance
determinations in the event of the
institution’s failure, and (2) maintain
complete and accurate information
needed by the FDIC to determine
deposit insurance coverage with respect
to each deposit account, except as
otherwise provided.
DATES: Effective April 1, 2017.
FOR FURTHER INFORMATION CONTACT:
Marc Steckel, Deputy Director, Division
of Resolutions and Receiverships, 571–
858–8224; Teresa J. Franks, Associate
Director, Division of Resolutions and
Receiverships, 571–858–8226; Shane
Kiernan, Counsel, Legal Division, 703–
562–2632; Karen L. Main, Counsel,
Legal Division, 703–562–2079.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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I. Policy Objectives
With this final rule (‘‘final rule’’), the
FDIC adopts regulatory requirements
that will facilitate the FDIC’s prompt
payment of deposit insurance after the
failure of insured depository institutions
(‘‘IDIs’’) with two million or more
deposit accounts. These institutions are
typically large and complex. By law, the
FDIC must pay deposit insurance ‘‘as
soon as possible’’ after an IDI fails while
also resolving the IDI in the manner
least costly to the Deposit Insurance
Fund (‘‘DIF’’).1 The FDIC believes that
prompt payment of deposit insurance is
essential to the FDIC’s mission for
several reasons. First, prompt payment
of deposit insurance maintains public
confidence in the FDIC, the banking
system and overall financial stability.
Second, facilitating prompt access to
1 12
U.S.C. 1821(f)(1); 12 U.S.C. 1823(c)(4).
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insured funds for depositors enables
them to meet their financial needs and
obligations. A delay in the payment of
deposit insurance—especially in the
case of the failure of one of the largest
IDIs—could harm the entire financial
system and national economy. For
example, the failure of such a large IDI
could cause disruptions to check
clearing processes, direct debit
arrangements, or other payment system
functions. Third, prompt payment can
help to avoid a reduction in franchise
value by expanding options for
resolution thereby decreasing potential
losses to the DIF. Fourth, the final rule
seeks to promote long term stability in
the banking system by reducing moral
hazard.
The final rule is expected to
significantly reduce the difficulties the
FDIC would face in making prompt
deposit insurance determinations at the
largest IDIs. While the FDIC is
authorized to rely upon the deposit
account records of a failed IDI to
determine deposit insurance coverage,
the institution’s records can be
voluminous and inconsistent. Moreover,
they may be incomplete for deposit
insurance purposes. Consolidation of
the banking industry has resulted in
larger institutions that have more
complex information technology
systems (‘‘IT systems’’) and data
management challenges. The final rule
generally requires IDIs with two million
or more deposit accounts (‘‘covered
institutions’’) to maintain complete and
accurate depositor information and to
configure their IT systems in a manner
that permits the FDIC to calculate
deposit insurance coverage promptly in
the event of failure.
The final rule will facilitate
consideration of the full range of
resolution options that can be invoked
by the FDIC to resolve a covered
institution in a manner that satisfies the
least-cost resolution requirement. These
resolution methods include: Purchaseand-assumption transactions;
establishment of bridge depository
institutions; and payout and liquidation,
in which the FDIC pays depositors the
insured amount of their deposits and
liquidates the failed IDI’s assets to pay
remaining claims. Expanding the range
of resolution options and including
those that impose losses on uninsured
depositors can also improve market
discipline.
In order to resolve a bank under the
least-cost requirement, the FDIC must be
able to estimate the cost to the DIF of
each possible resolution type. As part of
this estimate, the FDIC must be able to
rapidly identify insured versus
uninsured deposits. Insufficient
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information about a bank’s insured
deposits and the difficulties posed in
identifying relationships between
deposit accounts at the time of closing,
due in part to the large volume of
deposit accounts managed by the
institution, may impede the FDIC’s
ability to meet the least-cost
requirement or to ensure timely access
to insured funds.
Covered institutions often use
multiple deposit systems, which
complicates deposit insurance
determinations. Depending on the
structure of the deposit systems, data
aggregation and account identification
may be burdensome, inefficient, and
time-consuming, all adding to the cost
of resolution. For certain types of
deposit accounts, depositors need daily
access to funds, so prompt payment is
essential to providing confidence and
maintaining financial stability. While
challenges resulting from incomplete
information are present when any bank
fails, obtaining the necessary
information could significantly delay
the availability of funds when
information is incomplete for a large
number of accounts. Such delays could
lead to a decrease in public confidence
in the FDIC’s deposit insurance
program. Ensuring the swift availability
of funds for millions of depositors at a
large institution promotes financial
stability by increasing confidence in
deposit insurance and availability of
funds.
Another of the final rule’s policy
objectives is that depositors at both large
and small failed banks receive the same
prompt access to their deposits with full
recognition of and respect for the
deposit insurance limits, which should
reduce potential disparities that might
undermine market discipline or create
unintended competitive advantages in
the deposit market. Confidence in the
ability of the FDIC to promptly
determine insured amounts and provide
access to insured deposits should help
uninsured depositors realize that they
may face losses in a large bank failure.
This realization should mitigate moral
hazard and help to curtail excessive risk
taking on the part of the largest banks.
II. Background
A. Legal Authority
The FDIC is authorized to prescribe
rules and regulations as it may deem
necessary to carry out the provisions of
the Federal Deposit Insurance Act (‘‘FDI
Act’’).2 Under the FDI Act, the FDIC is
responsible for paying deposit insurance
‘‘as soon as possible’’ following the
2 12 U.S.C. 1819(a) (Tenth), 1820(g),
1821(d)(4)(B)(iv).
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failure of an IDI.3 It must also
implement the resolution of a failed IDI
at the least cost to the DIF.4 To pay
deposit insurance, the FDIC uses a
failed IDI’s records to aggregate the
amounts of all deposits that are
maintained by a depositor in the same
right and capacity and then applies the
standard maximum deposit insurance
amount (‘‘SMDIA’’) of $250,000.5 As
authorized by law, the FDIC generally
relies on the failed institution’s deposit
account records to identify deposit
owners and the right and capacity in
which deposits are maintained.6 The
FDIC has a right and a duty under
section 7(a)(9) of the FDI Act to take
action as necessary to ensure that each
IDI maintains, and the FDIC receives on
a regular basis from such IDI,
information on the total amount of all
insured deposits, preferred deposits,
and uninsured deposits at the
institution.7 Requiring covered
institutions to maintain complete and
accurate records regarding the
ownership and insurability of deposits
and to have an IT system that can be
used to calculate deposit insurance
coverage in the event of failure will
facilitate the FDIC’s prompt payment of
deposit insurance and enhance the
ability to implement the least costly
resolution of these institutions.
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B. Current Regulatory Approach
Although the statutory requirement
that the FDIC pay insurance ‘‘as soon as
possible’’ does not specify a time period
for paying insured depositors, the FDIC
strives to pay depositors promptly in the
event of an IDI’s failure. Indeed, the
FDIC strives to make most insured
deposits available to depositors by the
next business day after a bank fails. For
the reasons set forth earlier, the FDIC
believes that prompt payment of deposit
insurance is essential.
The FDIC took an initial step toward
ensuring that prompt deposit insurance
determinations could be made at large
IDIs through the issuance of § 360.9 of
the FDIC’s regulations.8 Section 360.9
applies to IDIs with at least $2 billion
in domestic deposits and at least
250,000 deposit accounts or $20 billion
in total assets.9 Currently, there are 155
IDIs that meet those criteria. Section
360.9 requires these institutions to be
able to provide the FDIC with standard
deposit account information that can be
3 12
U.S.C. 1821(f)(1).
U.S.C. 1823(c)(4).
5 12 U.S.C. 1821(a)(1)(C), 1821(a)(1)(E).
6 12 U.S.C. 1822(c), 12 CFR 330.5.
7 12 U.S.C. 1817(a)(9).
8 12 CFR 360.9. See 73 FR 41180 (July 17, 2008).
9 12 CFR 360.9(b)(1).
4 12
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used in the event of the institution’s
failure. The appendices to 12 CFR part
360 prescribe the form and content of
the data files that those institutions
must provide to the FDIC. Section 360.9
also requires these institutions to
maintain the technological capability to
automatically place (and later release)
provisional holds on deposit accounts if
an insurance determination could not be
made by the FDIC by the next business
day after failure. Additionally, large
volumes of deposit account data must
be transferred from the IDI to the FDIC
pursuant to § 360.9, which could cause
further delay.
While § 360.9 would assist the FDIC
in fulfilling its legal mandates regarding
the resolution of a failed institution that
is subject to that rule, the FDIC believes
that if the largest of depository
institutions were to fail with little prior
warning, additional measures would be
needed to ensure the prompt and
accurate payment of deposit insurance
to all depositors.
C. Need for Further Rulemaking
The FDIC is authorized to rely upon
the deposit account records of a failed
IDI to determine the amount of deposit
insurance available on each account.
However, in the FDIC’s experience, it is
not unusual for a failed bank’s records
to be ambiguous or incomplete. For
example, an account may be titled as a
joint account but may not qualify to be
insured as a joint account because
signature cards are missing or have not
been signed by all joint account holders.
A further complication is that bank
records on trust accounts are often in
paper form or electronically scanned
images that require a time-consuming
manual review.
In addition to problems with
ambiguity or incompleteness of an
institution’s records, it is also possible
that an institution simply is not
required to maintain record of the
beneficial owners of deposits with
respect to certain types of deposit
accounts under the existing regulatory
framework. For example, under part
330, a deposit may be insured even if
record of beneficial ownership is
maintained outside of the IDI by an
agent or third party that has been
designated to maintain such record.
Under each of these circumstances, in
order to ensure the accurate payment of
deposit insurance without imposing risk
of overpayment by the DIF, the FDIC
would need to delay the payment of
deposit insurance while it manually
reviews files and obtains additional
information. Such delays in the
insurance determination process could
increase the likelihood of disruptions to
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an assuming institution’s or an FDICmanaged bridge depository institution’s
payment processing functions, such as
clearing checks and authorizing direct
debits.
While these challenges to accurately
determining and promptly paying
deposit insurance may be present at any
size of failed institution, they become
increasingly formidable as the size and
complexity of the institution increases.
Larger institutions are generally more
complex, have more deposit accounts,
greater geographic dispersion, multiple
deposit systems, and more issues with
data accuracy and completeness. The
largest IDIs which grew through
acquisition have inherited the legacy
recordkeeping and deposit account
systems of the acquired banks. Those
systems might have inaccurate or
incomplete deposit account records.
Additionally, acquired records might
not be automated or compatible with the
acquiring institution’s deposit systems,
resulting in use of multiple deposit
platforms.
Although some of the largest
institutions are able to conduct their
banking operations without integrating
these inherited systems or updating the
acquired deposit account records, the
state of their deposit systems would
complicate and prolong the deposit
insurance determination process in the
event of failure. Because of the potential
problems posed by delays in
determination and payment of deposit
insurance, improved strategies must be
implemented to ensure that deposit
insurance can be paid promptly.
The FDIC’s experiences during the
most recent financial crisis, which
peaked in the months following the
promulgation of § 360.9, indicated that
failures can often happen with very
little notice and time for the FDIC to
prepare. Since 2009, the FDIC was
called upon to resolve 47 institutions
with 30 days or less to plan the
resolution (which includes review of
deposit account records). While these 47
institutions were smaller, the financial
condition of two banks with a very large
number of deposit accounts—
Washington Mutual Bank and
Wachovia—deteriorated very quickly,
also leaving the FDIC little time to
prepare.10 If a large bank were to fail
because of liquidity problems rather
than capital deterioration, for example,
the FDIC would anticipate having less
lead time to prepare to make deposit
insurance determinations, which could
result in the need for more time post10 In their final Call Reports (2Q–08) Washington
Mutual reported 42 million deposit accounts and
Wachovia reported 29 million deposit accounts.
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failure and less prompt payment of
deposit insurance.
The FDIC has worked with
institutions covered by § 360.9 for
several years to confirm their ability to
comply with that rule’s requirements.
This implementation process has led the
FDIC to conclude that the standard data
sets and other requirements of § 360.9
are not sufficient to mitigate the
complexities presented in the failure of
the largest institutions. Based on its
experience reviewing deposit data (and
often finding inaccurate or incomplete
data), deposit recordkeeping systems,
and capabilities for imposing
provisional holds in the course of its
§ 360.9 compliance visits, the FDIC
believes that § 360.9 has not been as
effective as intended in enhancing the
capacity of the FDIC to make prompt
deposit insurance determinations
necessary for the largest IDIs.
Specifically, the continued growth in
the number of deposit accounts at larger
IDIs and the number and complexity of
deposit systems used by many of these
institutions since the promulgation of
§ 360.9 would exacerbate the difficulties
present in making prompt deposit
insurance determinations. Additionally,
the institutions covered by § 360.9 are
permitted discretion when populating
the data fields that often results in
missing information.
A failed IDI that has multiple deposit
systems would further complicate the
aggregation of deposits by depositor in
a particular right and capacity, causing
additional delay. Additionally, deposit
taking practices have evolved, and
innovative products and services have
proliferated throughout the financial
services markets. Customer use of
deposit accounts has changed. Accounts
that may have been used in the past as
traditional savings vehicles are now
used more frequently for transactional
purposes. For example, checking
accounts held in connection with a
formal revocable trust are used to pay
for everyday living expenses. Brokered
deposits are sometimes held in money
market deposit accounts (‘‘MMDAs’’).
Using the FDIC’s IT system to make
deposit insurance determinations at a
failed institution with a large number of
deposit accounts would require the
transmission of massive amounts of
deposit data from the IDI’s IT system to
the FDIC’s IT system. The transfer of
such a large volume of data would be
very time consuming and the time
required for processing that data would
present a significant impediment to
making deposit insurance
determinations in the timely manner
that the public has come to expect. The
38 institutions currently covered by the
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final rule each have between 2 million
and 87 million deposit accounts as of
June 30, 2016. Requiring these covered
institutions to enhance their deposit
account data and upgrade their IT
systems so that the FDIC can promptly
determine deposit insurance available
on most deposit accounts using the
covered institutions’ IT systems would
help to resolve the timing issues
presented when transferring and
processing such a large volume of
deposit data.
Advance Notice of Proposed
Rulemaking
On April 28, 2015, the FDIC
published in the Federal Register an
Advance Notice of Proposed
Rulemaking (‘‘ANPR’’) seeking comment
on whether certain IDIs such as those
that have two million or more deposit
accounts should be required to take
steps to ensure that depositors would
have access to their FDIC-insured funds
in a timely manner (usually within one
business day of failure) if one of these
institutions were to fail.11 Specifically,
the FDIC sought comment on whether
these IDIs should be required to
enhance their recordkeeping to maintain
and be able to provide substantially
more accurate and complete data on
each depositor’s ownership interest by
right and capacity for all or a large
subset of the institution’s deposit
accounts. The FDIC sought comment on
whether these IDIs’ IT systems should
have the capability to calculate the
insured and uninsured amounts for each
depositor by deposit insurance right and
capacity for all or a substantial subset of
deposit accounts at the end of any
business day. The FDIC also sought
comment on the potential costs and
benefits associated with instituting such
requirements. The comment period
ended on July 27, 2015. The FDIC
received 10 comment letters. The FDIC
also had six meetings or conference
calls with banks, trade groups, and
software providers.
Notice of Proposed Rulemaking
Following the ANPR, the FDIC
developed and then published in the
Federal Register a notice of proposed
rulemaking entitled ‘‘Recordkeeping for
Timely Deposit Insurance
Determination’’ soliciting public
comment on its proposal to require each
IDI with two million or more deposit
accounts to maintain complete and
accurate information needed to allow
the FDIC to determine promptly the
deposit insurance coverage for each
deposit account, and to have an IT
11 80
PO 00000
FR 23478 (April 28, 2015).
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system that is capable of calculating the
insured and uninsured amounts for all
deposit accounts in accordance with the
FDIC’s deposit insurance rules set forth
in 12 CFR part 330 (the ‘‘NPR’’ for the
‘‘proposed rule’’).12 Under the proposed
rule, each covered institution’s IT
system would facilitate the FDIC’s
deposit insurance determination by
being able to calculate deposit insurance
coverage for each deposit account and
adjust account balances to the insured
amount within 24 hours after the
appointment of the FDIC as receiver
should the covered institution fail.
Relief from the proposed rule’s
requirements would have come in the
form of: An extension of the
implementation deadlines; an exception
from the information collection
requirements for certain deposit
accounts or types of deposit accounts if
conditions for exception could be met;
exemption from all of the proposed
rule’s requirements if all the deposits a
covered institution takes are fully
insured; or release from all of the
proposed rule’s requirements when a
covered institution no longer meets the
definition of a covered institution. Each
covered institution would need to
certify compliance with the proposed
rule annually, with enforcement
measures to be taken in accordance with
§ 8 of the FDI Act, if necessary.
The NPR’s comment period expired
on June 27, 2016. The FDIC received 14
comment letters in total from IDIs,
industry trade associations, financial
intermediaries, mortgage servicing
companies, technology firms, an
industry consultant, and an individual.
In addition, FDIC staff participated in
meetings or conference calls with
industry representatives. The FDIC
considered all of the comments it
received when developing the final rule,
and the comments and the FDIC’s
responses are discussed in VI.
Discussion of Comments.
III. Description of the Final Rule
A. Summary
The scope of the final rule is
unchanged from the NPR. It applies to
any IDI that has two million or more
deposit accounts, defined as a ‘‘covered
institution.’’ As contemplated by the
proposed rule, under the final rule, each
covered institution must configure its IT
system to be capable of accurately
calculating the deposit insurance
available for each deposit account in
accordance with the FDIC’s deposit
insurance rules set forth in 12 CFR part
330 should the covered institution fail.
12 81
E:\FR\FM\05DER3.SGM
FR 10026 (February 26, 2016).
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The FDIC would use the covered
institution’s IT system to facilitate the
deposit insurance determinations in the
event of the covered institution’s failure.
In order for the FDIC to effectively use
the covered institution’s IT system to
calculate deposit insurance, the covered
institution’s deposit account records
must contain certain information
concerning the identity of the owner of
the funds on deposit and details about
the right and capacity in which the
deposit is held for deposit insurance
purposes. The proposed rule would
have required covered institutions to
maintain this information in their
deposit account records for all accounts
unless the FDIC granted the covered
institution an exception from this
requirement. In light of comments
received in response to the NPR, the
final rule modifies this approach.
Recognizing that insured depository
institutions do not maintain all
information needed for deposit
insurance determination in their deposit
account records for every account, along
with the significant challenges
associated with collecting that
information, the FDIC has bifurcated the
recordkeeping requirement.
Under the final rule’s general
recordkeeping requirements, a covered
institution will need to ensure that its
deposit account records contain the
information needed for its IT system to
be able to calculate deposit insurance
coverage for those deposit accounts for
which it already maintains the
necessary information. A covered
institution should, in the normal course
of business, already maintain in its
deposit account records the information
necessary to do this for: Single
ownership accounts; joint ownership
accounts; accounts held by a
corporation, partnership, or
unincorporated association for
themselves; informal revocable trust
(i.e., ‘‘payable-on-death’’ or ‘‘in-trustfor’’) accounts; and any account of an
irrevocable trust for which the covered
institution itself is the trustee.
The final rule recognizes that, under
the FDIC’s deposit insurance rules set
forth in 12 CFR part 330, the amount of
deposit insurance available may not be
determinable without reference to
information that an IDI does not, and is
not otherwise required to, maintain in
its deposit account records under the
existing regulatory framework. After an
IDI fails, this information must be
provided to the FDIC so that the FDIC
can determine the full amount of
deposit insurance available.
Accordingly, under the final rule, a
covered institution does not need to
meet the general recordkeeping
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requirements described in this section,
but may instead meet alternative
recordkeeping requirements with
respect to certain types of deposit
accounts for which it is not required
under 12 CFR part 330 to maintain in
its deposit account records the
information that would be needed for
the FDIC to determine the full amount
of deposit insurance coverage. Certain
additional provisions apply to deposit
accounts with transactional features.
To meet the alternative recordkeeping
requirements, the covered institution
must maintain in its deposit account
records certain information that will
facilitate the FDIC’s prompt collection
of the information needed to determine
deposit insurance with respect to those
deposit accounts after its failure. These
alternative recordkeeping requirements
apply to deposit accounts that would be
insured on a ‘‘pass-through’’ basis (such
as brokered deposits) because beneficial
owner information is not maintained by
the covered institution, and to deposit
accounts for which the amount of
insurance is dependent on additional
facts (such as deposit accounts held in
connection with a trust). The FDIC also
recognizes that it may not always be
feasible for a covered institution to
maintain information in its deposit
account records needed to calculate the
deposit insurance with respect to
official items prior to presentment and,
therefore, if the information needed for
deposit insurance calculation is not
available, the covered institution will
need to maintain in its deposit account
records certain information that will
facilitate the FDIC’s deposit insurance
determination after the failure of a
covered institution.
For deposit accounts with
‘‘transactional features’’ for which the
covered institution maintains its deposit
account records in accordance with the
alternative recordkeeping requirements
set forth in § 370.4(b)(1), a covered
institution must certify that the
information needed to calculate deposit
insurance coverage will be submitted to
the FDIC so that deposit insurance can
be determined within 24 hours after the
appointment of the FDIC as receiver.
The FDIC has been concerned about
timely deposit insurance determinations
for accounts with transactional features
since the inception of this rulemaking
process. One of the options presented in
the ANPR was that ‘‘[f]or a large subset
of deposits (‘‘closing night deposits’’),
including those where depositors have
the greatest need for immediate access
to funds (such as transaction accounts
and money market deposit accounts
(‘‘MMDAs’’), deposit insurance
determinations would be made on
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87737
closing night.’’ 13 The FDIC
acknowledged that the concept of
‘‘closing night deposits’’ served as a
proxy for those deposit accounts for
which depositors would expect
immediate access to their funds on the
next business day. The ANPR explained
that in order to make deposit insurance
determinations on closing night, the
covered institutions would be required
to: ‘‘Obtain and maintain data on all
closing night deposits . . . at the end of
any business day (since failure can
occur on any business day).’’ 14 The
ANPR solicited comment from the
banking industry regarding what types
of deposits should be considered as
‘‘closing night deposits.’’
After reviewing the comments
received on the ANPR, the FDIC
concluded that there really was no
consensus among the potentially
covered institutions regarding what
types of deposits could be designated as
‘‘closing night deposits.’’ As a result, the
FDIC adopted the approach in the
proposed rule that, generally, covered
institutions would need to collect and
maintain the necessary depositor
information for all deposit accounts
unless the conditions for exception
could be satisfied. Then, the FDIC
would have all the depositor
information necessary to begin the
deposit insurance determinations
immediately upon the covered
institution’s failure. However, in
response to the commenters’ objections
to the proposed rule’s approach, the
FDIC developed the bifurcated approach
set forth in the final rule. In this way,
the final rule is consistent with the
recordkeeping standards established in
§§ 330.5 and 330.7; i.e., the deposit
records for certain types of deposit
accounts may be maintained off-site and
with third parties rather than at the
covered institution. Nevertheless, the
requisite beneficial ownership
information for those accounts must be
made available to the FDIC so that the
deposit insurance determination can be
completed during the closing night
process. The FDIC believes that
requiring covered institutions to certify
that the information needed to calculate
deposit insurance coverage for certain
deposit accounts with transactional
features will be submitted to the FDIC
by the respective account holder in time
for the calculation to be performed
within 24 hours after the appointment
of the FDIC as receiver is important to
ensure that the FDIC can make deposit
insurance determinations expeditiously
13 80
FR 23478, 23480 (April 28, 2015).
14 Id.
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after failure of a covered institution to
avoid delays in payment processing.
The proposed rule would have
provided a two-year timeframe for
implementation of IT system and
recordkeeping requirements. Under the
final rule, a covered institution has
three years after the effective date for
implementation and can apply to the
FDIC for extension of that timeframe.
B. Section-by-Section Description of the
Final Rule
1. Section 370.1
Purpose and Scope
The purpose of the final rule is to
help the FDIC overcome the challenges
it faces when fulfilling its statutory
mandate to pay deposit insurance as
soon as possible after the failure of an
IDI with millions of deposit accounts at
the least cost to the DIF. These
challenges become more pronounced as
the number of deposit accounts at an IDI
rises above two million. Moreover, the
number of deposit accounts is highly
correlated with other attributes that
contribute to this challenge, such as the
complexity of account relationships and
the use of multiple deposit systems by
these institutions. Accordingly, the final
rule requires IDIs with two million or
more deposit accounts to configure their
IT systems to be capable of calculating
the amount of deposit insurance
coverage available for each deposit
account in the event of failure.
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2. Section 370.2
Definitions
This section provides definitions of
terms that are used in the final rule. A
covered institution is an IDI which,
based on its Reports of Condition and
Income (‘‘Call Reports’’) filed with the
appropriate Federal banking agency, has
two million or more deposit accounts
during the two consecutive quarters
preceding the effective date of the final
rule or thereafter.
For purposes of the final rule, account
holder is defined as the person who has
opened a deposit account with a
covered institution and with whom the
covered institution has a direct legal
and contractual relationship with
respect to the deposit. An account
holder is often, but not always, the
person who actually owns deposits in a
deposit account, and to whom deposit
insurance inures under the FDIC’s
deposit insurance rules set forth in 12
CFR part 330. The person who actually
owns the deposits is commonly referred
to as the ‘‘beneficial owner’’ of a deposit
or as the ‘‘principal.’’ When the account
holder does not have ownership rights
to deposits, it is typically acting as an
agent, custodian, or fiduciary on behalf
of the beneficial owner of the deposit.
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In these situations, deposit insurance
coverage can ‘‘pass through’’ the
account holder to the beneficial owner
of the deposit, and the deposit would be
insured to the beneficial owner based on
the deposit insurance right and capacity
in which those deposits are owned.
Because the account holder is the party
with whom a covered institution has a
deposit account relationship, it is the
account holder who will need to
provide the information needed for
purposes of calculating deposit
insurance. For that reason, the final
rule’s recordkeeping requirements with
respect to certain deposit accounts are
framed around the relationship between
the covered institution and the account
holder.
Several terms are defined by reference
to their statutory or regulatory
definitions. Specifically, brokered
deposit has the same meaning as
provided in 12 CFR 337.6(a)(2); deposit
has the same meaning as provided
under section 3(l) of FDI Act (12 U.S.C.
1813(l)); deposit account records has the
same meaning as provided in 12 CFR
330.1(e); and standard maximum
deposit insurance amount (or ‘‘SMDIA’’)
has the same meaning as provided
pursuant to section 11(a)(1)(E) of the
FDI Act (12 U.S.C. 1821(a)(1)(E)) and 12
CFR 330.1(o). Ownership rights and
capacities are set forth in 12 CFR part
330.
Compliance date means the date that
is three years after the later of the
effective date of this part or the date on
which an IDI becomes a covered
institution. In response to the NPR,
commenters had suggested that a fouryear implementation period be
provided. In light of the bifurcated
approach to recordkeeping taken in the
final rule, the FDIC believes that a threeyear implementation period will be
sufficient.
Payment instrument means a check,
draft, warrant, money order, traveler’s
check, electronic instrument, or other
instrument, payment of funds, or
monetary value (other than currency).
This definition is consistent with
§ 1002(18) of the Consumer Financial
Protection Act of 2010 (12 U.S.C.
5481(18)) and common banking usage.
Transactional features, with respect
to a deposit account, means that the
depositor or account holder can make
transfers or withdrawals from the
deposit account to make payments or
transfers to third persons or others
(including another account of the
depositor or account holder at the same
institution or at a different institution)
by means of a negotiable or transferable
instrument, payment order of
withdrawal, check, draft, prepaid
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account access device, debit card, or
other similar order made by the
depositor and payable to third parties,
or by means of a telephonic (including
data transmission) agreement, order or
instruction, or by means of an
instruction made at an automated teller
machine or similar terminal or unit. For
purposes of this definition, ‘‘telephonic
(including data transmission)
agreement, order or instruction’’
includes orders and instructions made
by means of facsimile, computer,
internet, handheld device, or other
similar means. When interpreting this
definition, the FDIC will consider the
frequency with which a depositor or
account holder may make transfers or
withdrawals with respect to a deposit
account, in addition to other account
features. For example, an account
comprised of time deposits will not be
deemed to have transactional features
solely because it allows a depositor or
account holder who is not the beneficial
owner to redeem or withdraw the time
deposit and transfer the proceeds on a
one-time basis to the beneficial owner.
Unique identifier means an alphanumeric code associated with an
individual or entity that is used by a
covered institution to monitor its
relationship with only that individual or
entity. The unique identifier may be, but
is not required to be, a governmentissued identification number such as a
social security number or tax
identification number. It could also be
a customer identification number
already in use by the covered institution
for other operational or regulatory
purposes.
3. Section 370.3 Information
Technology System Requirements
As was proposed in the NPR, each
covered institution is required to
configure its IT system to be capable of
accurately calculating the deposit
insurance available to each beneficial
owner of funds on deposit in
accordance with the FDIC’s deposit
insurance rules set forth in 12 CFR part
330. Additionally, the IT system must
be able to adjust account balances
within 24 hours after the appointment
of the FDIC as receiver. Each covered
institution’s IT system would need to be
capable of grouping each beneficial
owner’s deposits within the applicable
ownership right and capacity because
deposit insurance is available up to the
SMDIA for each ownership right and
capacity in which the deposits are held.
To do this, a covered institution must
maintain in its deposit account records
certain information, as described in
§ 370.4. The covered institution’s IT
system would also need to be able to
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generate a record that reflects the
deposit insurance calculation. This
record would contain, at a minimum,
the name and unique identifier of the
account holder or beneficial owner of a
deposit if the account holder is not the
beneficial owner, the balance of each
beneficial owner’s deposits in each
deposit account grouped by ownership
right and capacity, the aggregated
balance of each beneficial owner’s
deposits within each applicable
ownership right and capacity, the
amount of the aggregated balance within
each ownership right and capacity that
is insured, and the amount of the
aggregated balance within each
ownership right and capacity that is
uninsured. Appendix B to the final rule
specifies the data format for the records
that the covered institution’s IT system
would need to produce.
If a covered institution were to fail, its
depositors’ access to their funds would
need to be restricted while the FDIC
makes deposit insurance determinations
in order to avoid overpayment. Each
covered institution’s IT system would
need to be capable of restricting access
to some or all of the funds in each
deposit account until the FDIC has
determined the deposit insurance
coverage for that account using the
covered institution’s IT system.
The deposit insurance determinations
for most deposit accounts would be
made within 24 hours after failure and
holds on those accounts would be
removed. Holds would remain in place
on deposit accounts for which a deposit
insurance determination has not been
made within that time frame and would
be removed after the determination has
been made.
The covered institution’s IT system
would need to adjust the balance in
each deposit account, if necessary, after
the deposit insurance determination has
been completed so that only insured
deposits are made available.
Specifically, if any of a beneficial
owner’s deposits within a particular
ownership right and capacity were not
insured, then the covered institution’s
IT system would need to debit the
respective deposit accounts for the
uninsured amount associated with each
account. To the extent that a beneficial
owner of deposits is uninsured, it will
have a claim against the receivership for
the failed covered institution that would
be paid out of the assets of the
receivership on equal footing with all
other deposit claims, including the
FDIC’s subrogated claim for insured
deposits.
A covered institution’s IT system
would need to be capable of performing
these functions for most deposit
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accounts within 24 hours after the
FDIC’s appointment as receiver should
the covered institution fail, and within
24 hours after the FDIC receives from
the remaining account holders the
additional information needed to
determine deposit insurance coverage.
The FDIC’s regulations and resources
concerning deposit insurance that are
available to the public on the FDIC’s
Web site are useful tools that covered
institutions can use to develop the
capabilities of their IT systems to meet
the final rule’s requirements.15 The
FDIC also intends to offer guidance and
outreach to facilitate covered
institutions’ efforts to meet this
requirement.
4. Section 370.4
Requirements
Recordkeeping
In response to commenters’
recommendations, the final rule’s
recordkeeping requirements have been
modified from those set forth in the
proposed rule. While the proposed rule
would have required covered
institutions to collect and maintain
significantly more information on
deposit relationships than is currently
contemplated under part 330, the final
rule recognizes that such information
may continue to reside in records
maintained outside the covered
institution by either the account holder
or a party designated by the account
holder, as set forth in part 330. The final
rule contemplates, however, that in
many instances, a covered institution
will already maintain in its deposit
account records the necessary
information for its IT system to calculate
deposit insurance coverage and
therefore the institution will be capable
of fulfilling the general recordkeeping
requirement to maintain in its deposit
account records for each account the
unique identifier for the appropriate
parties and the applicable ownership
right and capacity code. Accordingly,
§ 370.4(a) imposes a general
recordkeeping requirement whereby the
covered institution must assign a unique
identifier to each account holder,
beneficial owner, grantor, and
beneficiary, as appropriate, and assign
the applicable ownership right and
capacity code listed in Appendix A. A
covered institution should, in the
normal course of business, already have
in its deposit account records the
necessary information to do this for,
among others, deposit accounts that
would be insured as: single ownership
15 See FDIC’s Financial Institution Employee’s
Guide to Deposit Insurance, 2016 Ed., available at
https://www.fdic.gov/deposit/DIGuideBankers/
index.html.
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accounts; joint ownership accounts;
accounts owned by a corporation,
partnership, or unincorporated
association; informal revocable trust
(i.e., ‘‘payable-on-death’’ or ‘‘in-trustfor’’) accounts; and any account held in
connection with an irrevocable trust for
which the covered institution itself is
the trustee.
The final rule recognizes, however,
that under the FDIC’s deposit insurance
rules, where an IDI’s deposit account
records disclose the existence of a
relationship that might provide a basis
for additional insurance, the details of
the relationship must be ascertainable
from either the IDI’s deposit account
records or from records maintained by
the depositor or by a third party that has
undertaken to maintain such records for
the depositor. (See 12 CFR 330.5
concerning recognition of deposit
ownership and fiduciary relationships;
12 CFR 330.7 concerning accounts held
by an agent, nominee, guardian,
custodian, or conservator; 12 CFR
330.10 concerning revocable trust
accounts; and 12 CFR 330.13 concerning
irrevocable trust accounts.) Accordingly,
under § 370.4(b), a covered institution
may meet alternative recordkeeping
requirements with respect to those types
of accounts. Under the alternative
recordkeeping requirements, the
covered institution must maintain in its
deposit account records for each deposit
account where the basis for additional
deposit insurance is contained in
records maintained by the account
holder, or a party designated by the
account holder, the unique identifier for
only the account holder. It must also
maintain in its deposit account records
information sufficient to populate the
‘‘pending reason’’ field of the pending
file set forth in Appendix B, which is to
be generated by the covered institution’s
IT system pursuant to § 370.3(b) of the
final rule. For deposit accounts held in
connection with formal trusts for which
the covered institution is not trustee, the
covered institution will need to
maintain in its deposit account records
the unique identifier of the account
holder, and the unique identifier of the
grantor (if the grantor is not the account
holder) if the account has transactional
features. The unique identifier of the
grantor is needed in order to begin
calculating how much deposit insurance
would be available, at a minimum, on
deposit accounts held in connection
with a formal trust. The covered
institution will also need to maintain in
its deposit account records information
sufficient to populate the ‘‘pending
reason’’ field of the pending file set
forth in Appendix B, which is to be
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generated by the covered institution’s IT
system pursuant to § 370.3(b) of the
final rule.
Additionally, a covered institution
will need to maintain in its deposit
account records the information needed
for its IT system to calculate deposit
insurance coverage with respect to
payment instruments drawn on an
account of the covered institution
(commonly referred to as ‘‘official
items’’), such as a cashier’s check,
teller’s check, certified check, personal
money order, or foreign draft. The FDIC
recognizes that it may not always be
feasible to identify the beneficial owner
of such instruments and, therefore, if
the necessary information is not
available, the covered institution will
need to maintain in its deposit account
records for those accounts only the
‘‘pending reason’’ code to indicate that
more information is needed before
deposit insurance can be calculated.
This will be used to populate the
‘‘pending reason’’ field of the pending
file set forth in Appendix B, which is to
be generated by the covered institution’s
IT system pursuant to § 370.3(b) of the
final rule.
To the extent that a covered
institution does not meet the
recordkeeping requirements set forth in
§ 370.4(a) and instead meets the
alternative recordkeeping requirements
set forth in § 370.4(b), it must take the
additional action set forth in § 370.5
with respect to those deposit accounts
that have transactional features.
5. Section 370.5 Actions Required for
Certain Deposit Accounts With
Transactional Features
The FDIC is concerned that many
deposit accounts held in the name of
someone other than the beneficial
owner of the deposit (such as an agent,
nominee, custodian, fiduciary, or other
third party) are relied upon for
transactions. In the case of a failure of
a covered institution, with its millions
of deposit accounts, any material delay
in the payment of deposit insurance
could undermine public confidence in
the financial system and be extremely
disruptive not only for individual
depositors but also for the community
or region as a whole. Widespread or
extended delay could even result in
systemic consequences. Therefore,
§ 370.5(a) imposes the requirement that,
with respect to deposit accounts with
transactional features that are held in
the name of a third party for the benefit
of others, the covered institution certify
that all information needed to calculate
deposit insurance coverage can and will
be submitted to the FDIC upon failure
of the covered institution to minimize
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any delay in the FDIC’s efforts to
calculate deposit insurance within 24
hours after appointment as receiver
using the covered institution’s IT
system. The timeframe within which
this information must be received will
likely need to be less than 24 hours
because the covered institution’s IT
system will need time to process the
information once received. This
requirement applies not only to
traditional demand and checking
accounts, but also to savings deposit
accounts that have transactional
features, such as MMDAs, and to
prepaid accounts that are entitled to
deposit insurance coverage. The final
rule provides, however, that this
certification requirement does not apply
with respect to mortgage servicing
accounts, lawyers trust accounts, real
estate trust accounts, or accounts held
by employee benefits plans. A covered
institution that is unable to provide this
certification must apply to the FDIC for
an exception from the certification
requirement. In addition, the final rule
makes clear that a covered institution’s
failure to provide the certification shall
be deemed not to constitute a violation
of this part if the FDIC has granted the
covered institution relief from the
certification requirement.
6. Section 370.6 Implementation
This section provides that a covered
institution must comply with the final
rule no later than the compliance date,
which is three years after the later of the
effective date of the final rule or the date
on which the institution becomes a
covered institution by reaching the
threshold of two million deposit
accounts. Under § 370.6(b), a covered
institution may request that the FDIC
extend the implementation time period.
The request must state the amount of
additional time needed and the reasons
therefor. It must also report the total
number of, and dollar amount in,
accounts for which the covered
institution’s IT system could not
calculate deposit insurance coverage if
the covered institution were to fail as of
the date of the request.
7. Section 370.7 Accelerated
Implementation
The final rule provides for accelerated
implementation on a case-by-case basis
and after notice from the FDIC to a
covered institution in three scenarios.
The first would be when a covered
institution has received a composite
rating of 3, 4, or 5 under the Uniform
Financial Institution’s Rating System
(CAMELS rating) in its most recently
completed Report of Examination. The
second scenario would be when a
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covered institution has become
undercapitalized, as defined in the
prompt corrective action provisions of
12 CFR part 325. The third would be
when the appropriate Federal banking
agency or the FDIC, in consultation with
the appropriate Federal banking agency,
has determined that a covered
institution is experiencing a significant
deterioration of capital or significant
funding difficulties or liquidity stress,
notwithstanding the composite rating of
the covered institution by its
appropriate Federal banking agency in
its most recent Report of Examination.
While the FDIC recognizes concerns
about the imposition of an accelerated
implementation deadline during
economic distress, including the
concern that a covered institution’s
attention might be diverted to solving
critical problems that threaten its
financial condition, providing
depositors with immediate access to
funds and preserving systemic stability
is also critical. The ability to accelerate
the implementation deadline must be
balanced against any hardship an
accelerated implementation period
might impose on a covered institution.
Before accelerating the implementation
time period, the FDIC would consult
with the covered institution’s
appropriate Federal banking agency.
The FDIC would also evaluate the
complexity of the covered institution’s
deposit systems and operations, the
extent of the covered institution’s asset
quality difficulties, the volatility of the
covered institution’s funding sources,
the expected near-term changes in the
covered institution’s capital levels, and
other relevant factors appropriate for the
FDIC’s consideration as deposit insurer.
8. Section 370.8 Relief
Under § 370.8(a) of the final rule, a
covered institution may submit a
request to the FDIC for an exemption if
it demonstrates that it has not and will
not take deposits which, when
aggregated, would exceed the SMDIA
(currently $250,000) for any beneficial
owner of the funds on deposit. In other
words, if each owner of deposits were
to have an amount equal to or less than
the SMDIA on deposit at a covered
institution, then all deposits would be
fully insured. Deposit insurance
determinations at failed covered
institutions that meet this condition
should not be complicated and,
therefore, the FDIC does not believe that
requiring such covered institutions to
develop the capability to calculate
deposit insurance coverage would be
necessary.
Recognizing that circumstances may
currently exist, or emerge in the future,
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for which a covered institution is unable
to comply with the recordkeeping
requirements set forth in § 370.4 or
some particular provision therein with
respect to an identified deposit account
or class of deposit accounts, § 370.8(b)
allows a covered institution to request
an exception for those accounts. In its
request letter, the covered institution
must demonstrate the need for an
exception, describe the impact of an
exception on the ability to accurately
calculate deposit insurance for the
related deposit accounts, and state the
number of, and the dollar value of
deposits in, those deposit accounts.
When reviewing the request, the FDIC
would consider the implications that a
delayed deposit insurance
determination would have for a
particular account holder or the
beneficial owners of deposits, the nature
of the deposit relationship, and the
ability of the covered institution to
obtain the information needed for an
accurate calculation of deposit
insurance.
A covered institution that no longer
meets the criteria for being a covered
institution may submit a request for
release from the final rule’s
requirements. Section 370.8(c) provides
that if the number of deposit accounts
at a covered institution drops below the
two million deposit account threshold
for three consecutive quarters based on
Schedule RC–O in the Report of
Condition and Income, the institution
may request release. Like any other IDI,
an institution released under this
paragraph would become a covered
institution again if it were to have two
million or more deposit accounts for
two consecutive quarters.
The objectives of the final rule
supersede the objectives of 12 CFR
360.9. Accordingly, if a covered
institution reaches full compliance with
the final rule, the results intended under
§ 360.9 will be largely accomplished.
Paragraph (d) permits a covered
institution to request a release from the
requirements set forth in § 360.9 upon
submission of its first certification of
compliance with the final rule’s
requirements.
This section further provides that the
FDIC will consider all requests made
under relevant provisions of the final
rule on a case-by-case basis in light of
the final rule’s objectives, and that the
FDIC’s grant of a covered institution’s
request may be conditional or timelimited.
9. Section 370.9 Communication With
the FDIC
This section requires that within ten
business days after either the effective
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date of the final rule or becoming a
covered institution, whichever is later, a
covered institution notify the FDIC of
the person(s) responsible for
implementing the recordkeeping or IT
system requirements set forth in this
part. Point-of-contact information,
reports and requests are to be submitted
in writing to: Office of the Director,
Division of Resolutions and
Receiverships, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429–0002.
10. Section 370.10 Compliance
The final rule sets forth a two-part
approach for compliance. First,
beginning on or before the compliance
date and annually thereafter, a covered
institution must certify that it has
implemented and successfully tested its
IT system for compliance with the final
rule’s requirements during the
preceding calendar year. The
certification must be signed by the
covered institution’s chief executive
officer or chief operating officer. Along
with its certification of compliance, the
covered institution must also submit a
summary deposit insurance coverage
report to the FDIC. The summary
deposit insurance coverage report
would list key metrics for evaluating
deposit insurance risk to the DIF and
coverage available to a covered
institution’s depositors. Those metrics
are: The number of account holders, the
number of deposit accounts, and the
dollar amount of deposits by ownership
right and capacity; the total number of
fully-insured deposit accounts and the
dollar amount of deposits in those
accounts; the total number of deposit
accounts with uninsured amounts and
the total dollar amount of insured and
uninsured amounts in those accounts;
the total number of deposit accounts
and the dollar amount of deposits in
accounts, broken out by account type,
for which the covered institution’s IT
system cannot calculate deposit
insurance coverage because it is
permitted to maintain alternative
recordkeeping requirements as set forth
in § 370.4(b); and a description of any
substantive change to the covered
institution’s IT system or deposit taking
operations since the prior annual
certification.
Second, the FDIC will conduct
periodic on-site inspections and tests of
each covered institution’s IT system’s
capability to accurately calculate
deposit insurance coverage in the event
of failure. Testing will begin no sooner
than the last day of the first calendar
quarter following the compliance date,
and will occur no more frequently than
on a three-year cycle thereafter, unless
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there is a material change to the covered
institution’s IT system, deposit-taking
operations, or financial condition. The
FDIC will provide data integrity and IT
system testing instructions to covered
institutions through the issuance of
procedures or guidelines prior to the
final rule’s effective date and before
initiating its compliance testing
program, and will provide outreach to
covered institutions to facilitate their
implementation efforts. The final rule
also requires covered institutions to
assist the FDIC in resolving any issues
that arise upon the FDIC’s on-site
inspection and testing of the IT system’s
capabilities.
The final rule provides that a covered
institution will not be in violation of
any requirements of the rule for which
the institution has submitted a request
for relief pursuant to § 370.6(b) or
§ 370.8(a)–(c) while awaiting the FDIC’s
response to the request.
IV. Expected Effects
Using current data, the FDIC estimates
that the rule will apply to 38
institutions, each with two million or
more deposit accounts.16 Together,
these institutions hold more than $10
trillion in total assets and manage over
400 million deposit accounts.
The FDIC has evaluated the estimated
cost to implement this rule, as well as
the benefits to the FDIC’s resolution
process and to the millions of account
holders who would need immediate
access to their funds in the event of
failure of a covered institution. The
main determinants of the estimated cost
to institutions covered by the final rule
are the number of deposit accounts they
hold and the number of deposit IT
systems they manage. Benefits of the
rule include: Ensuring prompt and
efficient deposit insurance
determinations by the FDIC and thus the
liquidity of deposit funds; enabling the
FDIC to readily resolve a failed IDI;
reducing the costs of failure of a covered
institution by increasing the FDIC’s
resolution options; and promoting long
term stability in the banking system by
reducing moral hazard.
These benefits are expected to accrue
to the public at large. However, because
there is no market in which the value of
these expected benefits can be
determined, it is not possible to quantify
these benefits with precision. As the
public benefits cannot be quantified, the
FDIC presents an analytical framework
that describes the qualitative effects of
the proposed rule and the quantitative
effects where possible, consistent with
16 All data in this section is calculated using FDIC
Call Report Data as of June 30, 2016.
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Expected Costs
The FDIC’s initial estimate of the cost
of this rule, as described in the NPR,
was approximately $328 million. The
FDIC has updated its cost estimate to
$478 million, based in part upon
comments the FDIC received in
response to the NPR. The updated
estimated cost to covered institutions
represents $386 million of this total,
with the remaining estimated costs
accruing to depositors and the FDIC.
Even with these updates, the estimated
costs to covered institutions remain
small relative to their revenues and
expenses.
In estimating the costs of this rule, the
FDIC engaged the services of an
independent consulting firm. Working
with the FDIC, the consultant used its
extensive knowledge and experience
with IT systems at financial institutions
to develop a model to provide cost
estimates for the following activities:
• Implementing the deposit insurance
calculation
• Legacy data clean-up
• Data extraction
• Data aggregation
• Data standardization
• Data quality control and compliance
• Data reporting
• Ongoing operations
Cost estimates for these activities
were derived from a projection of the
types of workers needed for each task,
an estimate of the amount of labor hours
required, an estimate of the industry
average labor cost (including benefits)
for each worker needed, and an estimate
of worker productivity. The analysis
assumed that manual data clean-up
would be needed for 5 percent of
deposit accounts, 10 accounts per hour
would be resolved, and internal labor
would be used for 60 percent of the
clean-up. This analysis also projected
higher costs for institutions based on the
following factors:
Table 1 shows that almost half of the
rule’s estimated total costs are
attributable to legacy data clean-up.
These legacy data clean-up cost
estimates are sensitive to both the
number of deposit accounts and the
number of deposit IT systems. More
than 90 percent of the legacy data cleanup costs are associated with manually
collecting account information from
customers and entering it into the
covered institution’s systems. Data
aggregation, which is sensitive to the
number of deposit IT systems, makes up
about 13 percent of the rule’s estimated
costs.
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• Higher number of deposit accounts
• Higher number of distinct core
servicing platforms
• Higher number of depository legal
entities or separate organizational
units
• Broader geographic dispersal of
accounts and customers
• Use of sweep accounts
• Greater degree of complexity in
business lines, accounts, and
operations
Illustration 1 provides a diagram of
the cost model.
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the FDIC Statement of Policy on the
Development and Review of FDIC
Regulations and Policies.
Federal Register / Vol. 81, No. 233 / Monday, December 5, 2016 / Rules and Regulations
87743
TABLE 1—ESTIMATED IMPLEMENTATION * COSTS BY COMPONENT
Components
Component cost
Percent of total
Legacy Data Cleanup ......................................................................................................................................
Data Aggregation .............................................................................................................................................
Ongoing Operations ** .....................................................................................................................................
Data Standardization .......................................................................................................................................
FDIC Costs ** ...................................................................................................................................................
Data Extraction ................................................................................................................................................
Quality Control and Compliance ......................................................................................................................
Insurance Calculation ......................................................................................................................................
Reporting .........................................................................................................................................................
$226,482,333
64,015,373
55,175,451
36,573,894
36,001,520
25,397,761
18,403,006
9,500,400
5,971,800
47.43%
13.41%
11.55%
7.66%
7.54%
5.32%
3.85%
1.99%
1.25%
Total Cost .................................................................................................................................................
477,521,538
100%
* Estimates of bank implementation costs include both initial and ongoing costs associated with this final rule.
** Present value of annual costs using a 3.5 percent discount rate over a 30-year time horizon. For example, this discount rate is used in OMB
Circular No. A–4 and A–94, Appendix C (revised November 2015 for calendar year 2016).
TABLE 2—COMPARISON OF BANK IMPLEMENTATION * COSTS TO EXPENSES
[Amounts in thousands]
[Estimated cost to covered institutions: $385,517]
2015 Expenses
for covered
institutions
Expense item
Noninterest Expense .......................................................................................................................................
Personnel Expense ..........................................................................................................................................
Tax Expense ....................................................................................................................................................
Interest Expense ..............................................................................................................................................
Fixed Expense: Premises ................................................................................................................................
$260,857,965
119,069,416
49,262,660
26,761,300
28,446,163
Implementation *
cost as percent
of expense
0.15%
0.32%
0.78%
1.44%
1.36%
Cost as Percent
of Income
Pre-Tax Net Income, 2015 ..............................................................................................................................
$157,197,668
0.25%
Cost per Deposit
Account
Number of Deposit Accounts, 2Q 2016 ..........................................................................................................
416,149.383
$0.93
Cost as Percent
of Assets
Total Assets, 2Q 2016 ..............................................................................................................................
$10,558,645,376
0.004%
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* Estimates of bank implementation costs include both initial and ongoing costs associated with this final rule.
These estimates of initial and ongoing
costs of implementation are higher than
those provided in the NPR. The increase
in total estimated implementation costs
is the result of updating the data,
reviewing the cost methodology, and
incorporating comments received on the
NPR. Even with the revisions, however,
the updated cost estimate does not alter
the FDIC’s overall assessment of the
expected effects of the final rule.
The estimated total cost of the final
rule remains relatively small for covered
institutions. The estimated costs amount
to an average of 93 cents per deposit
account and one-quarter of one percent
of pre-tax net income, as shown in Table
2. Banks with more serious deficiencies
in their current systems or with greater
complexity in their business lines,
accounts, and operations are expected to
incur above-average compliance costs.
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These estimates may overstate the costs
of the final rule because some covered
institutions are already undertaking
efforts to improve their data quality to
address their own operational concerns
and to comply with other statutes and
regulations.
Expected Benefits
The recent financial crisis has
demonstrated that large financial
institutions can fail very rapidly. The
failure of a covered institution would
likely involve millions of deposit
insurance claims. An orderly resolution
requires ready access to complete and
accurate information about the
insurance status of depositors. The final
rule ensures that the FDIC can conduct
an orderly resolution of covered
institutions despite the informational
challenges they pose.
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Financial crises are, by their very
nature, unpredictable, and unique and
the likelihood, duration and magnitude
of any such crisis cannot be predicted
with mathematical precision. There are
over $9 trillion in deposits in United
States banks and the FDIC insures each
qualifying account up to a maximum of
$250,000, regardless of the events that
unfold during any particular crisis.
During the recent financial crisis, the
federal government provided trillions of
dollars of government support to large
financial institutions.17 Some of the
17 See, e.g., David Luttrell, Tyler Atkinson, &
Harvey Rosenblum, Assessing the Costs and
Consequences of the 2007–09 Financial Crisis and
Its Aftermath, Federal Reserve Bank of Dallas
Economic Letter (Sept. 2013), available at https://
www.dallasfed.org/assets/documents/research/
eclett/2013/el1307.pdf; Richard G. Anderson &
Charles S. Gascon, A Closer Look, Assistance
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institutions covered by this rule
received government support that far
exceeds the anticipated costs of this
rule.
The FDIC expects that the benefits of
the final rule will accrue broadly to the
public at large, to bank customers, to
IDIs not covered by the rule, and to the
covered institutions themselves. As
discussed earlier, the FDIC expects the
final rule to provide significant benefits,
including ensuring prompt and efficient
deposit insurance determinations by the
FDIC and thus the liquidity of deposit
funds; enabling the FDIC to more
readily resolve a failed IDI; reducing the
costs of failure of a covered institution
by increasing the FDIC’s resolution
options; and promoting long term
stability in the banking system by
reducing moral hazard.
The public at large will be the
primary beneficiaries of the final rule.
An effective failed bank resolution
maintains liquidity in the economy by
providing timely access to insured
funds, promotes financial stability by
ensuring an orderly, least costly
resolution, and reduces moral hazard by
recognizing deposit insurance limits
(since uninsured depositors could be
subject to losses even at the largest
banks). Making accurate deposit
insurance determinations for all insured
institutions is a key component in
carrying out the FDIC’s mission of
maintaining confidence in the banking
system and minimizing costs to the DIF.
Broadly, the final rule facilitates the
consideration of resolution methods that
might otherwise be unavailable,
enabling the FDIC to resolve a failing
covered institution in the least costly
manner. With more resolution options,
the FDIC may be less likely to resolve
a failing large institution by having
another large institution absorb it;
absorption by another large institution
would further increase concentration
among the largest banks and raise
concerns about longer term financial
stability. This final rule reduces the
likelihood of invoking a systemic risk
exception, the cost of assistance
provided as the result of a failure and
receivership for which the systemic risk
exception has been invoked, and the
associated long-term risk of increased
moral hazard and damaged market
discipline.18
Bank customers will also benefit from
the final rule. Timely deposit insurance
determinations will give bank customers
expeditious access to insured funds to
meet their transaction needs and
financial obligations. Moreover, any
current deficiencies in IT systems and
data gathering that prevent covered
institutions from identifying
relationships between deposit accounts
are likely to also prevent them from
having the ability to quickly inform
customers whether or not their deposits
are insured, if asked.
IDIs not covered by the final rule will
benefit because the prompt payment of
deposit insurance at the largest IDIs
should promote public confidence in
the banking system as a whole. The
provisions of the final rule will help to
level the competitive playing field
between large banks with two million or
more deposit accounts and community
banks, which typically maintain far
fewer deposit accounts. The
requirements of the final rule will
reduce the perception that uninsured
depositors at large banks are less likely
to incur losses in the event of failure
than their counterparts at smaller
institutions.
The enhancements to data accuracy
and completeness supported by the final
rule should benefit covered institutions
as well. Improvements to data on
depositors and information systems as a
result of adopting the final rule may
lead to efficiencies in managing
customer data. Accordingly, the
upgrades in depositor information
required under this rule are likely to
benefit covered institutions by
improving their ability to serve their
customers and increasing their
depositors’ confidence that deposit
insurance can be paid promptly by the
FDIC in the event of failure. Moreover,
the processing of daily bank
transactions may be less prone to data
errors.
Programs in the Wake of Crisis, The Regional
Economist, Federal Reserve Bank of St. Louis (Jan.
2011), available at https://www.stlouisfed.org/∼/
media/Files/PDFs/publications/pub_assets/pdf/re/
2011/a/bailouts.pdf; U.S. Gov’t Accountability
Office, GAO–10–100, Regulators’ Use of Systemic
Risk Exception Raises Moral Hazard Concerns and
Opportunities Exist to Clarify the Provision (2010),
available at https://www.gao.gov/assets/310/
303248.pdf.
18 As mandated by the Dodd-Frank Act, future
payments pursuant to the systemic risk exception
can only be made with respect to an institution in
receivership, removing the possibility of open bank
assistance. See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203,
1106, 124 Stat. 1376 (2010). This change increases
the likelihood that the failure of a covered
institution will involve millions of deposit
insurance claims.
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V. Alternatives Considered
A number of alternatives were
considered in developing the final rule.
The major alternatives include (1)
adjusting thresholds above or below the
proposed two million accounts, (2)
imposing recordkeeping requirements
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on all account types, (3) maintaining the
FDIC’s current approach to deposit
insurance determinations (status quo),
(4) developing an internal IT system and
transfer processes within the FDIC
capable of subsuming the deposit
system of any large covered IDI in order
to perform deposit insurance
determinations, and (5) simplifying
deposit insurance coverage rules. The
FDIC considers the final rule to be the
most effective approach among the
alternatives in terms of cost to the
industry, the speed and accuracy of
deposit insurance determinations,
access to funds, and reduction of
systemic and information security risks.
Development of the final rule was based
on a careful evaluation of expected
effects, public comments, and the
FDIC’s experience in resolving failed
banks.
In deciding which institutions would
be subject to the final rule, the FDIC
considered thresholds above and below
two million deposit accounts. Raising
the threshold would decrease the costs
of the final rule to the industry because
fewer institutions would be covered, but
would also increase the risk that the
FDIC would be unable to make timely
and accurate deposit insurance
determinations for large institutions and
limit the FDIC’s resolution options,
thereby potentially increasing the costs
of resolution.
Making a correct and timely deposit
insurance determination requires that
the FDIC have access to accurate data on
deposit accounts as well as on any
relationships among those accounts.
The FDIC has learned from prior
experience that it is possible to manage
data quality problems at small
institutions without delaying or
materially altering the outcome of the
deposit insurance determination.
However, the ability of the FDIC to
promptly manage data quality problems
at large institutions declines rapidly
with the number and complexity of
deposit accounts. Therefore, resolving
data quality problems at institutions
with the largest number of accounts and
most complex deposit account systems
prior to failure, as required by this final
rule, should substantially lower the risk
of inaccuracy or delay in making
determinations.
As described in IV. Expected Effects,
the FDIC estimates that the costs
associated with the two million account
threshold for these large IDIs will be
relatively modest compared to their net
income and other costs of doing
business. Decreasing the threshold
below two million accounts would
impose higher costs on the industry as
a whole, and the marginal benefits of
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the rule would decline since smaller
institutions present less risk to prompt
deposit insurance determinations.
In determining the scope of the final
rule, the FDIC considered requiring
covered institutions to maintain
complete and accurate records for all
accounts as originally proposed.
However, the FDIC recognizes that
covered institutions may not maintain
in their deposit account records, and
may not be able to obtain, for all
accounts the information needed for
deposit insurance purposes. The FDIC’s
regulation that sets forth the standards
for deposit insurance coverage, 12 CFR
part 330, permits records to reside
outside of an IDI with respect to certain
types of deposit accounts, as long as
certain requirements are satisfied,
without adverse consequences for the
insurability of deposits. Similarly, the
final rule recognizes that covered
institutions will not have and therefore
do not need to keep complete records
for deposit insurance purposes for those
types of deposit accounts.
Additionally, costs associated with
developing the ability to collect data,
produce key account holder information
in a timely manner, and perform a
deposit insurance calculation are
estimated to be relatively high for some
account types. For example, for covered
institutions the costs associated with
collecting key information regarding
beneficial ownership of deposits held by
a prepaid account program manager on
behalf of program participants is likely
to be higher than for other account types
for which beneficial ownership can be
readily determined. For trust accounts,
the identity and number of beneficiaries
can often change, making the costs
associated with collecting key
information from the account holder,
trustee, or other interested parties
relatively high.
Another alternative is to maintain the
status quo established by 12 CFR 360.9.
However, that rule does not adequately
address an important problem that
arises in the resolution of the largest and
most complex institutions. Deposit
insurance determinations under § 360.9
necessitate a secure bulk download of
depositor data that introduces
additional delays in making
determinations. The FDIC’s experience
in resolving large institutions shows
that the amount of time for data to
download can vary widely based on the
file size, complexity of the data, and the
number of deposit systems, among other
things. Given the limited time available
to the FDIC to make determinations,
these delays pose the risk of creating
financial hardships for depositors and
disrupting financial markets.
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Another alternative considered was to
establish a system to rapidly transmit all
deposit data from a failed IDI’s IT
system to the FDIC for processing in
order to calculate and make deposit
insurance determinations. Although this
alternative utilizes a common deposit
insurance calculation IT system,
absorbing the deposit system or systems
of a large, complex institution quickly
enough to make a prompt insurance
determination is infeasible as a practical
matter. Unlike typical small and midsized IDIs, covered institutions have
large amounts of data and often use
multiple deposit account IT systems
which are programmed to meet
institution-specific needs. FDIC staff,
working with staff from each large
institution, would have to develop an
individualized solution for each
institution tailored to its IT systems and
third-party applications. Extensive
initial and ongoing testing would be
required to establish that the data
transmission would allow a prompt and
accurate insurance determination.
Additionally, covered institutions
would still bear the cost of legacy data
cleanup and data aggregation, which are
the two largest cost components in the
cost model.
The alternative of the FDIC
establishing an IT system to rapidly
transfer all deposit data from a failed IDI
would also likely impose large ongoing
costs for covered institutions because
any significant change to the deposit
system of a large IDI would necessitate
further testing and validation. Further,
the large IT development, testing, and
recertification costs borne by the FDIC
under this alternative would ultimately
be paid by insured depository
institutions through ongoing deposit
insurance assessments. In contrast, the
final rule requires that a covered
institution’s IT system have the ability
to calculate deposit insurance coverage
for all deposit accounts in the event of
a failure. It would use the data that the
covered institution has on hand at the
time of failure as well as data collected
by the FDIC from depositors shortly
after failure. Under the final rule, IT
costs would be absorbed by covered
institutions rather than by the entire
banking industry.
Another alternative the FDIC
considered was to simplify deposit
insurance coverage rules. Currently,
deposit insurance is provided under
different ownership rights and
capacities, some of which involve
complex types of deposit accounts.
Reducing the number of rights and
capacities or simplifying the coverage
rules would reduce the costs associated
with covered institutions’ development
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87745
of the capability to calculate deposit
insurance coverage. However, efforts to
simplify the deposit insurance coverage
rules could effectively reduce coverage
to depositors at all FDIC insured
institutions, an approach that would
impose a cost on a wider range of
institutions and bank customers.
Further, these complex account types
present problems when the FDIC must
analyze a significant number of these
accounts at the same time. The FDIC’s
established methods for dealing with
these more complex accounts in smaller
and mid-sized resolutions include
manual processing, an approach that
could take too long in a larger resolution
involving a significant number of these
accounts. Consequently, the FDIC is not
pursuing simplification of the deposit
insurance coverage rules.
VI. Discussion of Comments
Generally, the issues raised by the
commenters may be categorized under
the following topics: The need for
regulation, expected effects of the
proposed rule, possible alternatives to
the proposed rule, problems with the
proposed rule’s requirements, and
possible adverse consequences.
A. Comments Concerning the Need for
Regulation
The commenters generally agree that
it is important for depositors to have
prompt access to their insured deposits
in the event of the failure of a large and
complex IDI. However, some
commenters contended that the
proposed rule is unnecessary because
covered institutions are unlikely to fail.
One commenter remarked that the
likelihood of failure is ‘‘essentially
zero.’’ This commenter maintained that
it is more likely that market forces and
the FDIC’s enforcement powers and
supervisory authority would solve the
problems of a large institution before
failure. This commenter also asserted
that, even if failure did occur, a
transaction in which all deposits are
assumed by another institution would
be the least costly resolution, thereby
avoiding the need for a deposit
insurance determination. The payment
of all uninsured deposits would
preserve the failed bank’s franchise
value, this commenter argued, while
adherence to deposit insurance limits
could cause runs at other financial
institutions and be systemically
disruptive. Another commenter
suggested that it would be ‘‘unlikely’’
that the FDIC would use a straight
deposit payoff, an insured deposit
transfer, or a deposit insurance national
bank to resolve a large bank. Similarly,
other commenters posited that, if a
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covered institution were to fail, then an
all-deposit purchase and assumption
transaction would be the least costly
resolution, thereby avoiding the need
for a deposit insurance determination.
While the likelihood of any particular
covered institution’s failure may be low
at a given point in time, history suggests
that the financial condition of
institutions that are perceived to be in
good health can deteriorate quickly and
with little notice. In 2008 and 2009,
several large insured depository
institutions failed, including IndyMac
Bank and Washington Mutual Bank. In
general, very large IDIs rely on creditsensitive funding more than smaller IDIs
do, which makes them more likely to
suffer a rapid liquidity-induced failure.
The contention that warning signs
will give the FDIC sufficient notice to
plan for resolution of a covered
institution and the related argument by
another commenter that the ‘‘FDIC has
provided absolutely no evidence that a
large bank . . . has ever failed with
little prior warning’’ are also
controverted by the events of the recent
banking and financial crisis. The
financial condition of several large and
complex financial institutions
deteriorated very rapidly in 2008.
Numerous academic studies, articles,
reports to Congress, other government
reports, and Congressional testimony
(including testimony from FDIC
officials) have documented that short
term funding challenges rapidly caused
distress at banks during the last
financial crisis (resulting in either bank
failure or government intervention to
prevent failure, as in the case of
Wachovia Bank and Citibank).19 This
dynamic, present in the failure of
Washington Mutual, for example,
increases the risk that the FDIC will
have little lead time to prepare for the
failure of a covered institution.
19 See, e.g., Testimony of Scott G. Alvarez,
General Counsel, Board of Governors of the Federal
Reserve System, The Acquisition of Wachovia
Corporation by Wells Fargo & Company Before the
Financial Crisis Inquiry Commission, Before the
Financial Crisis Inquiry Commission (Sept. 1,
2010); Testimony of Sheila C. Bair, Chairwoman of
the FDIC, Causes and Current State of the Financial
Crisis Before the Financial Crisis Inquiry
Commission, Before the Financial Crisis Inquiry
Commission (Jan. 14, 2010); Financial Crisis Inquiry
Commission, ‘‘The Financial Crisis Inquiry Report:
Final Report of the National Commission on the
Causes of the Financial and Economic Crisis in the
United States’’ (U.S. Government Printing Office,
2011); Philip Strahan, Liquidity Risk and Credit in
the Financial Crisis, Federal Reserve Bank of San
Francisco Economic Letter (May 14, 2012); U.S.
Gov’t Accountability Office, GAO–10–100, Federal
Deposit Insurance Act: Regulators Use of Systemic
Risk Exception Raises Moral Hazard Concerns and
Opportunities Exist to Clarify the Provision (April
2010).
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While certain post-crisis reforms have
resulted in a more resilient banking
system with stronger liquidity and
capital, the effect of these reforms has
not been tested in a crisis. These postcrisis reforms mitigate but do not
eliminate the risk of failure. Other postcrisis reforms have limited the FDIC’s
authorities. For example, during the
most recent crisis the FDIC was able to
provide debt guarantees through the
Temporary Liquidity Guarantee Program
under then-existing statutory authority
to bolster liquidity in the financial
system. Under current law, such a
program would require Congressional
approval.
The contentions that, even if a large
bank did fail, a transaction in which all
deposits are assumed by another
institution or in which all assets are
purchased and deposit liabilities
assumed would be the least costly
resolution (thus avoiding the need for a
deposit insurance determination), or
that it would be ‘‘unlikely’’ that the
FDIC would use a straight deposit
payoff, an insured deposit transfer, or a
deposit insurance national bank to
resolve a large bank are again
controverted by the facts. Since 2008,
the FDIC has conducted 36 resolutions
where an all-deposit assumption
transaction could not be arranged.
Moreover, the sheer size of many
covered institutions limits the number
of institutions that could even consider
purchasing all assets and assuming all
deposits (or simply assuming all
deposits), increasing the chances that a
deposit insurance payout or a bridge
bank will be the least costly
alternative.20 To use these resolution
methods, the FDIC must be able to make
a deposit insurance determination.
Moreover, a former Chairman of the
FDIC publicly shared his reaction to a
commenter’s suggestion that the FDIC
would never need to determine deposit
insurance for the largest banks, stating
that the suggestion was ‘‘in effect,
proposing 100% deposit insurance at
banks, which would sound the death
knell for any pretense of market
discipline and a private sector banking
system.’’ He stated that, historically, the
FDIC ‘‘had no ability to deal with large
bank failures in any way other than by
recapitalizing them or merging them
into even larger banks if [the FDIC]
couldn’t quickly segregate the
uninsured deposits from the insured.
Without this information, the FDIC
might as well throw in the towel on
instilling private sector discipline in the
banking system.’’ 21 The possibility of
failure must exist to maintain market
discipline and avoid moral hazard.
Some commenters assert that
additional regulation is unnecessary
because the FDIC’s informational needs
for a deposit insurance determination
are already addressed in its current
regulation at 12 CFR 360.9. The current
approach under § 360.9 is not adequate
and additional regulation is necessary
for two reasons. First, as discussed in II.
Need for Further Rulemaking, the
informational and provisional hold
aspects of § 360.9 are inadequate for the
largest depository institutions. The
institutions covered by § 360.9 are
permitted to populate the data fields by
using only data elements currently
maintained in-house. If the institution
does not maintain the information to
complete a particular data field, then a
null value can be used in that field. As
a result of this discretionary approach,
these institutions’ standard data files are
frequently incomplete. The provisional
hold capability falls short because
§ 360.9 requires these institutions to
maintain the technological capability to
automatically place and release holds
on deposit accounts if an insurance
determination could not be made by the
FDIC by the next business day after
failure. Although provisional holds
allow depositors’ access to a portion of
their total deposit while the insurance
determination is being finalized, the
hold does not facilitate a faster or more
efficient insurance determination.
Second, because deposit data files
must be transmitted to the FDIC,
standardized by FDIC staff, and then
processed on the FDIC’s IT system, a
deposit insurance determination is still
a very time consuming and manually
intensive endeavor. While § 360.9
would assist the FDIC in fulfilling its
legal mandates regarding the resolution
of failed institutions subject to that rule,
the FDIC believes that if one of the
largest IDIs were to fail with little prior
warning, additional measures would be
needed to ensure the prompt and
accurate payment of deposit insurance
to all depositors.
Beyond the constraints apparent in
§ 360.9, significant resources are needed
to collect and standardize the
information needed to process the high
volume of accounts a covered
institution has in a manner that will
20 The least cost test does not consider indirect or
speculative costs, such as costs to other entities in
the economy that result from a bank’s failure. Thus,
absent a systemic risk determination, the FDIC
cannot consider these costs as a reason to
implement a more costly alternative.
21 Bill Isaac (former FDIC Chairman), online
response to Bert Ely, FDIC’s Sudden Concern with
Insurance Limit Makes No Sense, American Banker
(May 18, 2016), available at https://www.american
banker.com/bankthink/fdics-sudden-concern-withinsurance-limit-makes-no-sense-1081055-1.html.
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avoid significant disruption to
depositors and the payment system.
Processing deposit accounts after
gathering needed information can take
significant time after failure as well. As
the amount of time needed to gather
information from a depositor increases,
the speed of insurance payment to that
depositor decreases. Delays in
processing deposit insurance
determinations at banks with millions of
deposit accounts would likely be more
significant than the delays imposed
during past resolutions of smaller banks.
For example, in the wake of IndyMac’s
failure, it took FDIC staff significant
time and resources to complete deposit
insurance determinations for many
formal revocable trust and irrevocable
trust accounts. Given the level of public
anxiety after the failure of IndyMac
Bank, it is not unreasonable to be
concerned that the fear of loss on
deposits could be even greater in the
event of the failure of a covered
institution. The reporting required
under the final rule will help the FDIC
prepare to make deposit insurance
determinations after the failure of a
covered institution.
Several commenters assert that there
is no need for covered institutions to
maintain account information that
duplicates or overlaps with information
already maintained outside the
institution by account holders who can
provide the information expeditiously
in the event of the institution’s failure.
These commenters believe that a twopronged approach by which prompt
payment is made to most depositors and
later payment is made to certain other
depositors once the required
information has been received has had
no negative effect on public confidence
in deposit insurance and the banking
system. To a large extent, the final rule
accommodates this concern by limiting
the recordkeeping requirements for
certain types of deposit accounts for
which covered institutions do not
already maintain the information
needed for deposit insurance
determination.
The evolution of deposit products and
relationships has rendered current
regulatory standards less effective in
facilitating rapid deposit insurance
determination. Account features and
customer use and expectations have
changed. Immediate and continuous
access to deposit accounts is more
common now than in the past. Deposit
accounts are increasingly used by
beneficial owners of deposits who are
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not the named account holder (e.g.,
MMDAs associated with brokered
sweep accounts and prepaid account
programs administered by a third party
that places deposits at an IDI on behalf
of the cardholders). Also, demand
deposit accounts held in connection
with revocable trusts are used more
commonly. Because these accounts are
transactional, those depositors expect to
have immediate access without regard
for the respective institution’s failure.
Checks outstanding at the time of failure
need to be processed and either paid or
returned in a timely manner, often no
more than a few business days, in order
to avoid cascading consequences across
the payments system. However, it could
take time after failure for the FDIC to
gather the information needed to make
a deposit insurance determination for
the deposit accounts that those checks
are drawn upon. The final rule seeks to
minimize the amount of time needed to
make deposits in those accounts
accessible so that the impact on
depositors and the payments system in
general is minimized.
Some of the commenters maintain
that the FDIC should develop its own IT
system capabilities to handle deposit
insurance determinations at an
institution of any size. One advocated
for the development and use of a single
insurance calculation system to be
deployed at every covered institution,
while another discussed the use of a
custodial facility to reconcile depositor
data transmitted by the institution with
data transmitted by financial
intermediaries. As described in V.
Alternatives Considered, the FDIC
considered developing a system to
rapidly transfer all deposit data from a
failed IDI’s IT system to the FDIC for
processing in order to calculate and
make deposit insurance determinations
but determined that absorbing the
deposit system or systems of a large,
complex institution quickly enough to
make a prompt insurance determination
is practically infeasible.
B. Comments Concerning the Expected
Effects of the Rule
Several commenters challenged the
conclusions and methodology of the
FDIC’s analysis of the proposed rule’s
expected effects. One commenter
remarked that the ‘‘proposed rule would
impose unnecessary costs without
delivering any benefit’’ and that the
FDIC ‘‘almost certainly has grossly
underestimated the cost to the affected
banks of implementing and maintaining
deposit-account aggregation as specified
in the NPR.’’ Commenters criticized
different cost components of the
analysis, including whether the model
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was up-to-date, captured the impact of
the rule on all market participants, and
the assumptions and robustness of the
model. The FDIC has considered these
comments in development of the final
rule.
Expected Costs
FDIC costs: One commenter noted
that the NPR did not include costs to the
FDIC. The FDIC estimates that this rule
may require as many as 15 full-time
equivalent employees to assist with
implementation of the regulation.22 The
present value of these costs at a 3.5
percent discount rate for 30 years
increases the estimated cost of the rule
by approximately $36 million.23 The
costs of these employees include wages,
benefits, and taxes, and are adjusted for
inflation. The FDIC believes this is a
conservative estimate as it anticipates
that administration of the rule will
require less effort over time.
Costs to depositors: Commenters
noted that the NPR did not include the
costs that depositors will incur updating
or providing account information to
covered institutions. The FDIC believes
that the number of accounts where
depositors will be asked to provide
account information is significantly
reduced from the NPR given the
alternative recordkeeping requirements
provided for in the final rule. Even so,
the FDIC estimates that the cost to
depositors will be approximately $56
million. In calculating this estimate, the
FDIC assumes a 100 percent response
rate by depositors with a level of effort
(LOE) for depositors equal to the LOE of
the covered institutions and the average
national wage rate of $27 per hour.24
Depositors are not required to provide
account information, however, and the
FDIC expects that some depositors will
not provide it. A depositor who
provides the account information
reveals that he or she perceives that the
benefit of providing the information
justifies the cost of doing so.
Costs to intermediaries: Some
commenters criticized the FDIC’s cost
estimate because it did not include the
potential impact on other market
participants, including administrators,
custodians, and sub-custodians. In
response to comments discussed
elsewhere in this preamble, the final
rule provides alternative recordkeeping
22 Costs for full-time equivalent employees
should be considered opportunity costs (that is,
hours worked on the implementation of the final
rule rather than on other work assignments).
23 For example, this discount rate is used in OMB
Circular A–4 and A–94, Appendix C (revised
November 2015 for calendar year 2016).
24 Bureau of Labor Statistics, Establishment Data,
Table B–3.
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requirements for certain deposit
accounts. The FDIC expects that the cost
to intermediaries will be mitigated by
the final rule’s alternative recordkeeping
requirements.
Number of deposit accounts: Several
commenters criticized the FDIC’s
analysis on the grounds that it was
based on outdated information, and it
included some banks that would not be
covered by the NPR and excluded some
banks that would be covered. Based
upon comments received on the NPR
and taking into consideration the banks
that amended their Call Reports to
reflect a deposit account total under the
two million threshold, the FDIC
updated its model using June 30, 2016
Call Report data, adding banks that will
be subject to the final rule and removing
banks that are no longer expected to be
subject to the final rule. The number of
covered institutions increased from 36
to 38, and the number of deposit
accounts rose by 4.7 percent. This
update, by itself, added approximately
$6.4 million to the estimated cost of the
rule.
Ongoing costs: The FDIC’s cost
estimate was also criticized as not
addressing the ongoing costs of
compliance or considering anticompetitive effects. Some commenters
argued that the FDIC failed to take into
consideration ongoing costs; other
commenters argued that the FDIC’s
estimate of these costs was too low. The
FDIC did not receive any evidence that
its estimate for one year of ongoing costs
was too high; however, it did update its
estimate to include costs incurred in
later years. The FDIC extended the
horizon for annual ongoing costs by
calculating the present value of these
costs over a 30-year horizon at a 3.5
percent discount rate.25 This recalculation raises the estimated cost of
ongoing operations from $2.9 million to
approximately $55 million.
Costs and risks of data breaches:
Several commenters stated that the
additional information maintained by
banks as a result of this final rule would
increase the risk and cost of data
breaches. As stated in the NPR, covered
institutions already maintain significant
amounts of personally identifiable
information (PII) on their depositors.
However, the final rule has been
modified in a way that should largely
address this issue. It does not require
covered institutions to bring records inhouse that currently are permitted to
reside outside the institution with the
25 For example, this discount rate is used in OMB
Circular A–4 and A–94, Appendix C (revised
November 2015 for calendar year 2016).
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account holder or other designated third
party.
Foreign deposits: One commenter
stated that the rule should not cover
foreign deposits. The rule does not
cover foreign deposits and the cost
calculations take into account only
domestic deposit accounts.
Misinterpretation of rule
requirements: Several commenters
stated the costs of the final rule would
be orders of magnitude higher than the
FDIC’s estimate as they believed the rule
would require them to collect or report
changes to beneficial ownership and
account balances on a daily basis. The
proposed rule did not contain any such
requirement. Similarly, the final rule
does not require daily collection or
reporting but rather periodic
demonstrations that covered institutions
can promptly provide deposit account
information to the FDIC. In any event,
the final rule sets forth alternative
recordkeeping requirements that can be
met to satisfy the rule with respect to
accounts insured on a pass-through
basis and certain deposit accounts held
in connection with formal trusts.
Model robustness to changes in
assumptions: One commenter stated
that the costs in the model are sensitive
to the assumptions used by the FDIC.
The FDIC did not receive any
information that would indicate that its
assumptions are inappropriate. Further,
this comment ignored the effect that
changing assumptions has on the
benefits of the rule, which also rise with
the banks’ difficulty in obtaining
accurate account information. For
example, assuming that the percentage
of accounts with insufficient deposit
records will be higher would raise the
costs of the rule, but it would also
increase the benefits of the rule because,
absent the final rule, a higher percentage
of accounts with missing or incorrect
information would likely further delay
an insurance determination.
Reliability of cost estimate: The NPR
noted that even if actual compliance
costs turned out to be twice the
projected cost, such costs would still be
relatively small in the context of the
size, annual income, and expenses of
covered institutions. Referring to this
statement, one commenter stated that
the ‘‘margin of error in the estimate
could be as much as 100 percent.’’ The
FDIC recognizes that no model will
perfectly capture all of the costs
associated with this rule. Doubling the
estimated costs merely demonstrates the
robustness of the FDIC’s cost estimate.
Moreover, none of the commenters
proposed an alternative model or
provided their own compliance cost
data. The FDIC invited the submission
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of such information when it issued the
ANPR and the NPR.
Relative costs for smaller institutions:
Another commenter states that the
FDIC’s compliance cost estimates do not
accurately reflect the burden the
proposed rule would place on covered
institutions and that compliance
burdens would fall disproportionately
on smaller institutions, which do not
have the economies of scale to absorb
the costs. This commenter suggests that
the FDIC provide a cost calculation that
stratifies the financial impact of the
proposal by total deposits, so that the
actual costs relative to size, other
expenses, and earnings can be
accurately assessed. One commenter
noted that, while the costs of the rule
relative to revenue and expenses are
very small for covered institutions as a
whole, this is because of the outsized
influence of large banks on aggregate
revenue and expenses. While the FDIC
recognizes that the cost of the rule per
account and as a percentage of assets,
revenue, and expenses will be higher for
relatively smaller covered institutions
and, while it considered these costs
when determining whether to adopt the
final rule, the FDIC concluded that
incomplete deposit account information
at institutions with two million or more
deposit accounts poses an unacceptable
risk to the DIF and depositors. However,
institutions can submit a request to the
FDIC for an exemption from the final
rule if their deposit-taking business
model does not pose a significant risk to
the DIF or depositors because all
deposits they accept are fully insured.
Moreover, the primary determinant of
the costs of the rule per institution is
not likely to be the size of the
institution, but rather the quality of its
current IT system for deposit recordkeeping. Those institutions with more
robust and accurate record-keeping
systems will incur fewer costs. Those
with less robust and less accurate
record-keeping systems will incur
greater compliance costs.
Expected Benefits
Multiple commenters argued that the
FDIC should quantify the expected
benefits of the final rule. None of the
commenters provided their view on the
quantitative benefits of the rule. Because
there is no market in which the value of
these public benefits can be determined,
it is not possible to quantify or estimate
these benefits with precision.
Some commenters questioned the
benefits that the rule would provide.
One individual argued that the rule
would not deliver any benefit. One
group of trade associations described
the expected benefits as ‘‘marginal,’’ and
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another individual described the rule as
providing little benefit. The commenters
offered minimal explanation of their
positions on the expected benefits apart
from speculating that the failure of one
of these large institutions was unlikely,
notwithstanding the events of the recent
financial crisis. In the FDIC’s view, the
final rule provides many benefits, as
explained in II. Background and IV.
Expected Effects.
C. Comments Concerning Possible
Alternatives to the Proposed Rule
As described in V. Alternatives
Considered, the FDIC considered a
number of alternatives in developing the
proposed and final rule, including: (i)
Adjusting thresholds above or below the
proposed two million accounts; (ii)
excluding certain account types; (iii)
maintaining the FDIC’s current
approach to deposit insurance
determinations (status quo); (iv)
developing an internal FDIC IT system
and transfer processes capable of
subsuming the deposit system of any
large covered IDI in order to perform
deposit insurance determinations; and
(v) simplifying deposit insurance
coverage rules. The FDIC received
comments on these alternatives.
In deciding which institutions would
be subject to the final rule, the FDIC
considered thresholds above and below
two million deposit accounts. The FDIC
received one comment on this
alternative. The commenter suggested
that the threshold should include both
the number of accounts and total dollar
amount of deposits and suggested that
the threshold for the number of
accounts should be higher—10 million
accounts. Raising the threshold would
decrease the costs of the rule on the
industry because fewer institutions
would be covered, but would also
increase the risk that the information
would not be available for the FDIC to
make timely and accurate deposit
insurance determinations for large
institutions and limit the FDIC’s
resolution options, thereby potentially
increasing its loss.
Several commenters argued that it
would be too costly to impose
additional recordkeeping requirements
for certain types of deposit accounts.
The FDIC recognizes that under current
generally applicable deposit insurance
rules for certain types of deposit
accounts, information needed for
deposit insurance purposes may reside
outside an IDI’s deposit account records,
and the final rule does not require that
covered institutions collect the
additional information needed from
account holders for these types of
deposit accounts.
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Some commenters supported
maintaining the status quo and
considered existing regulatory standards
(specifically § 360.9) to be adequate.
Adoption of § 360.9 was an important
step toward resolving a large depository
institution in an efficient and orderly
manner. However, while § 360.9 would
assist the FDIC in fulfilling its legal
mandates regarding the resolution of a
failed institution that is subject to that
rule, the FDIC believes that if the largest
of depository institutions were to fail
with little prior warning, additional
measures would be needed to ensure the
prompt and accurate payment of deposit
insurance to all depositors.
The FDIC received a comment
supporting the alternative in which the
FDIC creates a software solution to
calculate and make deposit insurance
determinations to be deployed at all
covered institutions. The FDIC finds
that alternative is not feasible, given the
challenge of creating one program to
accommodate the different and bespoke
deposit systems of all covered
institutions.
D. Comments Concerning the Proposed
Rule’s Requirements
1. Problems Associated With Beneficial
Ownership Information
One commenter stated that requiring
a large amount of beneficial owner data
to be collected on a daily basis would
be superfluous because the FDIC would
only need to use the data for deposit
insurance determinations if and when a
covered institution failed. Moreover,
requiring daily updates on beneficial
customer data would result in high costs
and risk customer dissatisfaction.
Generally speaking, beneficial
ownership of deposits placed in covered
institutions relies upon the principles of
agency law or fiduciary relationships to
provide ‘‘pass-through’’ deposit
insurance coverage to the beneficial
owners of those accounts. In most
circumstances, the agents, fiduciaries,
custodians, or other accountholders
maintain the requisite beneficial
ownership data in their own records,
and presumably, those accountholders
update their records as necessary,
including on a daily basis, as ownership
of the underlying deposits changes.
While the final rule requires a covered
institution’s IT system to be capable of
accepting and processing beneficial
ownership data for all accounts on any
given day, i.e., the day of the covered
institution’s failure, the beneficial
ownership information will not be
required to be transferred and
maintained on a daily basis at the
covered institution provided that 12
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87749
CFR part 330 permits the recordkeeping
associated with those deposit accounts
to be maintained by an entity other than
the covered institution. See, 12 CFR
330.5 and 330.7.
Some commenters remarked that
having to submit requests for exceptions
for individual account holders would be
‘‘senselessly cumbersome and grossly
inefficient—including for the FDIC
itself—considering that all or most
covered banks would be expected to
seek exceptions for certain classes or
accounts.’’ The FDIC has considered the
comments regarding the inefficiency as
well as the burden to both the covered
institutions and the FDIC of having to
submit and process, respectively,
requests for exceptions from the final
rule’s requirements for each individual
account holder for whom it would not
be possible to obtain the requisite
information. The FDIC has revised its
proposal to address this concern. As
more fully described in III. Description
of the Final Rule, the final rule adopts
a bifurcated approach to deposit
account recordkeeping requirements
based upon the recordkeeping
procedures permitted by 12 CFR part
330. Under this approach, covered
institutions will not be required to
collect and maintain information for
certain deposit accounts provided that
12 CFR part 330 allows the requisite
information to be maintained by the
account holder or some other third
party. Consequently, it will not be
necessary for covered institutions to
request exceptions for individual
deposit accounts or for certain ‘‘classes’’
of deposit accounts provided that the
relevant deposit account ownership
information for those accounts is
maintained in accordance with 12 CFR
part 330.
Certain commenters claimed that the
proposed rule would be unduly costly,
burdensome, and impracticable in the
case of particular account holders, such
as banks needing to obtain ownership
and balance information from agents
and other custodians who service
payment cards issued by large
corporations as checking and debit
substitutes. One commenter expected
that information for retirement plan
participants would not be forthcoming
from sponsors, fiduciaries and others
involved in plan administration because
participants’ interests change daily,
there are multiple intermediaries from
whom information would need to be
collected, and because plan sponsors
and fiduciaries won’t disclose
participant information for fear of
violating participants’ privacy and
breaching fiduciary duties under the
Employee Retirement Income Security
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Act of 1974.26 Another commenter
contended that a lawyer’s disclosure of
clients’ identities and interests in client
trust accounts conflicts with ethical
rules protecting confidential client
information.
After balancing the goals of the final
rule and the concerns of the
commenters, the FDIC decided to align
the deposit account recordkeeping
requirements of this final rule with the
recordkeeping requirements set forth in
12 CFR 330.5 and 12 CFR 330.7. These
two sections of the FDIC’s regulations
address deposit account ownership (and
recordkeeping) in the context of
fiduciary relationships (as described in
§ 330.5) and which includes agents,
nominees, guardians and custodians.
Compliance with these recordkeeping
requirements is necessary to ensure the
availability of pass-through deposit
insurance to the underlying beneficial
owners of the deposits. The commenters
presented various arguments for
different types of pass-through deposits
to support their request for ‘‘class’’
exceptions.
Retirement and other employee
benefit plan accounts. For the reasons
discussed, the FDIC will consider these
accounts to be subject to the alternative
recordkeeping requirements of final part
370. Nevertheless, the covered
institutions will be required to assign a
unique identifier to the account holder.
Covered institutions will also be
required to maintain a ‘‘pending reason’’
code in their deposit account records for
each account to comply with
§ 370.4(b)(1)(ii) of the final rule. The
covered institutions should have
procedures in place to obtain the
necessary plan participant information
as soon as possible after failure. Any
delay in the receipt of the requisite
information post-failure will adversely
impact the FDIC’s ability to complete its
deposit insurance determinations and
disburse deposit insurance payments to
the plan administrators.
Interest on Lawyer Trust Accounts
and Real Estate Trust Accounts. Several
commenters described the problems
facing lawyers attempting to maintain
current and accurate information
regarding their clients’ identities and
transactions associated with their
Interest on Lawyer Trust Accounts
(‘‘IOLTA’’) accounts. The commenters
asserted that frequent, if not daily,
deposits and withdrawals are made on
behalf of various clients. Therefore,
requiring the lawyers to provide up-todate information on a daily basis would
be ‘‘administratively difficult and
costly’’ for the lawyers who are the
26 29
U.S.C. 1002.
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account holders. As the American Bar
Association Model Rule 1.15 requires
lawyers to keep adequate records on
IOLTAs for up to five years, the lawyer
or law firm (as the account holder)
should be able to provide the necessary
information regarding their clients, who
are the beneficial owners of the deposit
in the IOLTA account, in a timely
fashion. The commenters also pointed
out that lawyers have a fiduciary duty
to maintain the confidentiality of their
clients’ sensitive or personal
information and raised concerns that
this duty could be compromised by
routinely disclosing such information to
a covered institution. The FDIC
recognizes that FinCEN recently
excepted IOLTAs and other lawyer
escrow accounts from its customer due
diligence final rule; it appears that
FinCEN relied upon many of the same
considerations discussed here.27 It is
important to note, however, that
FinCEN and the FDIC are addressing
different problems through their
respective rulemakings; i.e., the
prevention of money laundering and
timely deposit insurance
determinations, respectively.
Ultimately, the safeguards provided by
the lawyers’ rules of professional
responsibility to properly manage their
IOLTA accounts coupled with the offsite recordkeeping allowed pursuant to
§ 330.5(b)(1)–(3) for fiduciary
relationships justify the reduced deposit
account recordkeeping requirements for
IOLTA accounts.
The same commenters asserted that
Real Estate Trust Accounts (‘‘RETAs’’)
are very similar in structure and concept
to IOLTAs and, therefore, should also be
excepted as a class of deposits from the
recordkeeping requirements of final part
370. RETAs represent another type of
pooled, custodial account in which a
title/escrow agent deposits funds from
multiple clients; the funds are usually
held for a short period of time until the
clients’ real estate transactions are
completed. Deposit account
recordkeeping for RETAs is also subject
to the off-site recordkeeping
requirements of § 330.5(b)(1)–(3) for
fiduciary relationships. Therefore,
covered institutions will only be
required to assign a unique identifier to
the account holder and maintain a
‘‘pending reason’’ code in its deposit
account records in accordance with
§ 370.4(b)(1)(ii).
Mortgage servicing accounts. The
FDIC received several comments
requesting that the recordkeeping
requirements of the proposed rule be
revised to allow relevant information
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regarding mortgagors whose payments
are placed in a mortgage servicing
account (‘‘MSA’’) to continue to be
maintained with the mortgage servicing
company rather than at the covered
institution. Commenters from the
mortgage servicing industry provided a
description of the typical transactions
which occur in a mortgage servicing
account, explaining that there are
safeguards which would make the need
to access the funds in such an account
on the first business day after a covered
institution’s failure a low priority for the
servicer. For example, payments of
principal and interest are made in
advance; mortgage servicing contracts
require the servicer to maintain back-up
liquidity sources; and while the
transaction volume in these accounts is
usually high, the deposit amounts
allocated to individual beneficial
owners are typically far less than the
SMDIA. In addition, mortgage servicing
deposit accounts are expressly included
in § 330.7(d) and are usually held by a
mortgage servicing company in a
custodial or fiduciary capacity. The
FDIC has considered these comments
and, based on these considerations, the
FDIC has concluded that MSAs
maintained by a third party mortgage
servicer must only comply with the
recordkeeping requirements set forth in
12 CFR 370.4(b)(1). On the other hand,
MSAs for which the covered institution
serves as the mortgage servicer must
comply with the recordkeeping
requirements set forth in § 370.4(a).
Brokered deposits and sweep
accounts. Several commenters raised
concerns about the impact of the
proposed rule on brokered deposits.
One proposed revising the exemption
provision to apply to deposits received
through a deposit allocation or sweep
service in amounts that do not exceed
the SMDIA, expressly permitting a
custodian or sub-custodian, as account
holder, to refuse to provide beneficial
owner data for all deposits placed
through a deposit placement network or
cash sweep program, and granting an
exception based on such refusal without
requiring a particularized showing for
each of the custodian’s customers.
Another commenter recommended
excepting deposits placed in a covered
institution by a non-covered institution
through a deposit placement network.
Another commenter provided data
concerning the scope and composition
of brokered deposits and sweep
programs as a subset of the entire
banking industry’s deposit base.
According to this commenter, as of
March 31, 2016, there were $813 billion
of brokered deposits reported on bank
Call Reports; of this amount,
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approximately $350 billion were
brokered CDs. This commenter also
estimated that $350 billion of the $813
billion reported brokered deposits are in
sweep programs and noted that deposits
in some sweep programs are not
categorized as ‘‘brokered deposits’’ and
are therefore not reported as such on the
Call Reports of those banks in which
they are deposited. According to this
commenter, almost 13 percent of
domestic deposits are held on a passthrough basis through broker-dealers or
other banks through these various
deposit programs, and average sweep
deposit balances and purchases of
brokered CDs are substantially below
the SMDIA.
Brokered deposits—for example,
those that are part of a deposit
placement network or as brokered CDs
offered by or sweep programs sponsored
by a broker-dealer—represent another
type of deposit account where a
fiduciary or other agent or custodian is
the account holder on behalf of
beneficial owners. In recognition of the
recordkeeping requirements set forth in
§ 330.5, the final rule provides for
‘‘alternative recordkeeping’’ for those
deposit accounts. The covered
institutions are authorized to maintain
their account records for brokered
deposit accounts in accordance with the
off-site and multi-tiered relationship
methods set forth in § 330.5(b). The
covered institutions will be required to
assign a unique identifier to the account
holder which will be the entity placing
the deposit(s) in the covered institution.
The covered institutions will not be able
to designate the appropriate right and
capacity code because they will not
have access to the requisite underlying
information regarding the beneficial
owners; consequently, they will need to
maintain in their deposit account
records information sufficient to
populate the pending reason field in the
pending file that would be generated by
the IT system as required under
§ 370.4(b)(1) and Appendix B of the
final rule and, if appropriate, comply
with the certification requirement set
forth in § 370.5.
Prepaid accounts. One commenter
argued for a class exemption for closedloop and non-reloadable cards because
funds paid in exchange for many of
these types of cards are not FDICinsured on a pass-through basis, bank
collection of information on the owners
of the cards is limited at best, and the
cards are often easily transferrable (e.g.,
given to friends or relatives). As
discussed in the preamble to the NPR
(and acknowledged by the commenter),
the funds paid to a merchant for a
closed-loop (or merchant) card are not
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insured on a pass-through basis by the
FDIC because ‘‘the funds are not placed
into a custodial deposit account at an
insured depository institution.’’ 28 The
FDIC’s General Counsel’s Opinion No. 8
(‘‘GC Opinion’’) affirms this principle by
stating that the GC Opinion ‘‘does not
address merchant cards because such
cards do not involve the placement of
funds at insured depository
institutions.’’ 29 The guidance provided
in the GC Opinion ‘‘is limited to bank
cards and other nontraditional access
mechanisms, such as computers, that
provide access to funds at insured
depository institutions.’’ 30
This commenter also advocated for a
class exemption for open-loop cards.
The commenter noted that there are
practical limitations to obtaining
beneficiary-level information given
customers’ very real concern for data
security and privacy. It emphasized that
employers and government agencies are
very sensitive to daily transmittal of PII
and would prefer to maintain the
information in their own systems. In
addition, this commenter believed that
it is highly unlikely that any individual
would receive benefits on an open-loop
payroll card or government benefits card
in excess of $250,000. Finally, it pointed
out that other Federal agencies (the
Consumer Financial Protection Bureau,
FinCEN) have issued regulations on
prepaid accounts (or imposed additional
customer identification requirements)
that may or may not complement the
proposed rule’s requirements.
Covered institutions that issue and
administer their own prepaid account
programs will need to meet the general
recordkeeping requirements set forth in
§ 370.4(a) because they maintain in their
deposit account records the information
needed to determine deposit insurance
coverage. On the other hand, if an
account holder (such as a third party
program manager, for example)
administers a prepaid account program
and the covered institution does not
maintain the information needed to
determine deposit insurance coverage in
its deposit account records, then those
deposits would be eligible for passthrough deposit insurance coverage in
accordance with §§ 330.5 and 330.7 if
specified conditions are met.
Consequently, the alternative
recordkeeping requirements set forth in
28 81
FR 10026, 10035 (February 26, 2016).
General Counsel’s Opinion No. 8—
Insurability of Funds Underlying Stored Value
Cards and Other Nontraditional Access
Mechanisms, 74 FR 67155 (November 13, 2008),
available at https://www.fdic.gov/regulations/laws/
rules/5500-500.html.
30 Id.
29 FDIC
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§ 370.4(b)(1) would be applicable
instead.
One comment stated that for a subset
of prepaid accounts, the covered
institutions have represented that they
will modify their deposit systems (in
addition to other IT systems
enhancements required by the final
rule) to be able to receive ‘‘sensitive [PII]
from employers and government
agencies at the specific point in time of
a bank resolution.’’ According to the
commenter, this additional modification
would allow employers or governments
to maintain the accuracy and integrity of
employee/beneficiary data on their own
systems. Industry-driven technological
innovations also may facilitate the
covered institutions’ ability to comply
with this critical timing requirement.
Under the final rule, the covered
institutions will be permitted to rely on
the alternative recordkeeping
requirements set forth in § 370.4(b)(1)
for any type of deposit account that
meets the criteria set forth therein, i.e.,
the covered institution’s deposit
account records disclose the existence
of a relationship which might provide a
basis for additional deposit insurance in
accordance with 12 CFR 330.5 or 330.7
(a ‘‘§ 370.4(b)(1) account’’). Consistent
with the goals of preserving public
confidence, an additional condition
applies to accounts with transactional
features. The covered institution must
certify that the respective account
holder(s) will be able to provide the
necessary depositor/beneficial owner
information to the FDIC upon failure of
the covered institution so that the FDIC
will be able to determine the deposit
insurance coverage within 24 hours
after the FDIC’s appointment as receiver
to help ensure that the FDIC will be able
to complete the deposit insurance
determination over closing weekend.
The requisite depositor information for
these § 370.4(b)(1) accounts must be
received by the FDIC so that they will
be part of the initial deposit insurance
determination process. Examples of
such deposit accounts include, but are
not limited to: Deposits placed by third
parties with associated sweep accounts,
whether or not those sweep accounts are
categorized as brokered deposits, and
prepaid accounts. If these deposit
accounts are not part of the initial
deposit insurance determination, then
the FDIC would be required to place
holds on the funds in those accounts
until the necessary information is
received and processed. As a result, the
beneficial owners of these § 370.4(b)(1)
accounts would not have access to their
funds on the next business day after the
covered institution’s failure. It is
possible that for some depositors, this
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delay would create a hardship; the
inability to access their funds could
result in returned checks and an
inability to handle their day-to-day
financial obligations. In the event that a
covered institution is unable to certify
that that the account holder will be able
to provide the required information
regarding the § 370.4(b)(1) accounts to
the FDIC upon failure of the covered
institution so that the FDIC will be able
to use the covered institution’s IT
system to determine deposit insurance
coverage within 24 hours after its
appointment as receiver, then the
covered institution will have to request
an exception from the FDIC.
2. Trust Accounts
Although deposit insurance coverage
for trust accounts is not dependent upon
the principle of pass-through insurance,
issues concerning the identification of
the beneficiaries of a trust and their
respective interests create a similar
problem for covered institutions, and
ultimately for the FDIC, when faced
with making such deposit insurance
determinations. Several commenters
contended that covered institutions,
regardless of client base, would satisfy
at least one, if not all three, of the
criteria identified as warranting an
exception under § 370.4(c) of the
proposed rule for these types of
accounts; i.e., the covered institution
does not maintain information
identifying the beneficial owner(s) and
the account holder has refused to
provide such information, disclosure of
such information is protected by law or
by contract, and information concerning
the beneficiaries changes frequently and
updating the information is neither cost
effective nor technologically practicable.
They stated that trustees are bound by
common law and statutory fiduciary
duties to keep certain information
confidential, including PII such as the
names and Social Security Numbers
(‘‘SSNs’’) of the trust beneficiaries. The
fiduciary duties of loyalty and
confidentiality are the basis for allowing
a Certification of Trust (under § 1013 of
the Uniform Trust Code), ‘‘to protect the
privacy of a trust instrument by
discouraging requests from persons
other than beneficiaries for complete
copies of the instrument in order to
verify a trustee’s authority.’’ These
commenters further believed (based
upon anecdotal information) that
individual trustees would open
accounts at other institutions not subject
to the proposed rule’s requirements to
avoid having to respond to the
unwanted inquiry from a covered
institution. The commenters identified a
number of different trust arrangements
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which should be included within the
trust deposit exception: trusts
administered by third-party individual
or institutional trustees, collective
investment funds (including common
trust funds), corporate trustees for bond
indentures, and fiduciary self-deposits
made by covered institutions.
The FDIC has considered all of the
arguments advanced by the commenters
as described above. Rather than adopt
the exception process as described in
the proposed rule, the FDIC has decided
to require recordkeeping for certain
types of trust accounts based upon the
covered institution’s knowledge about
the trustee or grantor (the account
holder), as well as information regarding
the beneficiaries of the trust which
should be maintained by the covered
institution. The FDIC has developed this
approach based upon the comment
letters. Moreover, the FDIC has
considered the deposit account
ownership analysis provided in 12 CFR
part 330 in the context of the various
types of trust accounts. For example, the
FDIC recognizes that such factors as the
common law and statutory duties of
confidentiality and loyalty imposed
upon trustees would make it difficult or
impossible for them to disclose the
necessary information regarding the
beneficiaries of certain trust accounts.
Therefore, the FDIC has determined that
all deposit accounts established
pursuant to a formal trust agreement—
either formal revocable or irrevocable
(when the trustee of the irrevocable trust
is not the covered institution) must
comply with the alternative
recordkeeping requirements set forth in
§ 370.4(b)(2). This alternative
recordkeeping method should include
all formal revocable trust accounts
which are commonly referred to as
‘‘living trusts’’ or ‘‘family trusts’’ 31 and
all irrevocable trust accounts when
established by another person or entity
as trustee.32 A covered institution
would only be required to satisfy the
more limited recordkeeping
requirements set forth in § 370.4(b)(2) of
the final rule for those deposit accounts
governed by a formal trust agreement.
One requirement of that paragraph,
however, provides that the covered
institution maintain a unique identifier
for the grantor of a formal trust account
if the trust account has transactional
features. The FDIC recognizes that many
consumers now open formal trust
accounts and use them to handle their
daily financial transactions. Compliance
with this requirement regarding the
grantor will permit the FDIC to begin
3. Security Risks of Collecting
Depositors’ PII
An area of particular concern for
many commenters was the proposal’s
requirement that a covered institution
obtain PII from third parties such as
financial intermediaries, trustees,
escrow companies, benefit plan
administrators, and government entities
who have opened deposit accounts on
behalf of other entities. A commenter
remarked that the requirement to obtain
and store PII and other sensitive
information regarding covered
institutions’ financial intermediary
customers and their beneficial owners
31 See
33 12
32 12
34 12
PO 00000
12 CFR 330.10(a).
CFR 330.13.
the deposit insurance determination
process and, during that delay, allow
access to some portion of that deposit
account and process outstanding
checks.
In contrast, any deposit account held
in a covered institution established
pursuant to an informal testamentary
trust will be required to comply with all
of the recordkeeping requirements set
forth in § 370.4(a) of the final regulation.
‘‘Such informal trusts are commonly
referred to as payable-on-death
accounts, in-trust-for accounts, or
Totten Trust accounts’’ (‘‘PODs’’).33 To
comply with the FDIC’s current
regulations regarding deposit insurance
coverage for informal revocable trust
accounts, any IDI is already required to
specifically name the beneficiaries in
the deposit account records of the IDI.34
Finally, covered institutions which act
as the trustee for certain irrevocable
trust accounts would also be required to
maintain trust account information in
accordance with § 370.4(a) of the final
regulation.
As with other classes of deposits for
which the FDIC will not have the
requisite information at the time of a
covered institution’s failure, deposit
insurance determinations on the various
types of formal trust accounts will not
be possible until the account holder
provides the FDIC with the necessary
trust documentation after closing
weekend. Therefore, based upon how
quickly the trust documentation and/or
information about beneficiaries is
provided as well as the number of trust
accounts to be determined, account
holders may experience a delay in
receiving the insured deposits placed in
their trust accounts. This is the deposit
insurance determination process
currently employed by the FDIC;
however, the volume of trust accounts at
a covered institution could prolong the
deposit insurance determination period.
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CFR 330.10(b)(2).
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‘‘would cause substantial disruption in
the deposit markets and increase the
risk of breaches of security of
depositors’ [PII]’’. The commenters
expressed particular concern regarding
the added security risk for both the
financial intermediaries and the covered
institutions if they are required to
collect depositors’ PII for deposit
accounts opened by various third
parties on behalf of numerous beneficial
owners.
The FDIC has addressed this concern.
Because the recordkeeping requirements
for all types of pass-through deposit
accounts will be based upon the existing
recordkeeping requirements for deposit
insurance purposes set forth in §§ 330.5
and 330.7, the covered institutions will
not be required to request, collect, and
maintain PII on the beneficial owners of
the deposits placed by certain financial
intermediaries. In addition, the covered
institutions will not be required to
request and maintain information
regarding the beneficiaries (which are
required to perform a deposit insurance
determination) of trust accounts that are
governed by a formal trust agreement
pursuant to §§ 330.10 and 330.13.
4. Official Items
The statutory definition of deposit
includes, but is not limited to, certified
checks, traveler’s checks, cashier’s
checks and money orders.35 Informally,
these types of deposit instruments are
known as ‘‘official items.’’ Part 330 of
the FDIC’s regulations does not adopt
this popular convention and contains no
definition of official items.
Nevertheless, the FDIC’s Financial
Institution Employee’s Guide to Deposit
Insurance utilizes the term and includes
the following examples: Money orders,
expense checks, interest checks, official
checks/cashier’s checks, travelers’
checks, and loan disbursement
checks.36 Two commenters stated that
cashier’s checks, teller’s checks,
certified checks, and personal money
orders (all commonly known as ‘‘official
items’’) would be particularly
problematic because the covered
institution does not typically have tax
identification numbers (‘‘TINs’’) for
non-customer purchasers, payees, or
holders of any of these instruments.
Consequently, both commenters
requested that these deposit instruments
be exempted as a class from the
proposed recordkeeping requirements in
the final rule. Moreover, commenters
from the banking industry and
35 12
U.S.C. 1813(l)(1) and –(4).
FDIC’s Financial Institution Employee’s
Guide to Deposit Insurance, 2016 Ed., available at
https://www.fdic.gov/deposit/DIGuideBankers/
index.html.
36 See
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potentially covered institutions
explained the practical difficulties with
obtaining and maintaining the necessary
depositor information regarding these
deposit instruments. To address these
issues, the FDIC adopted the following
approach in the final rule: Covered
institutions will not be required to
modify their recordkeeping practices
with respect to these types of deposits.
While the FDIC believes that covered
institutions do generally maintain
records concerning the number of
deposit instruments issued and for
which they are primarily liable, they
routinely will not have a SSN or TIN for
the payee. Therefore, pursuant to
§ 370.4(c) of the final rule, covered
institutions will not be required to
assign a unique identifier to the payee
or designate the appropriate right and
capacity code. Nevertheless, the covered
institution must maintain in its deposit
account records a ‘‘pending reason’’
code in data field 2 of the pending file
format set forth in Appendix B for all of
its official items.
5. Assigning Right and Capacity Codes
One commenter submitted that the
proposed rule’s requirement to assign
the appropriate ownership right and
capacity code to each of the covered
institution’s deposit accounts presents
practical and administrative challenges
for both the covered institution and its
deposit customers. Other commenters
pointed out that covered institutions
will be required to review all of their
current account records in order to
accurately identify and code their
deposit accounts in accordance with the
FDIC’s deposit insurance categories. In
addition, many accounts on legacy
systems would have to be reviewed and
missing data and documentation
obtained in order to comply with certain
part 330 requirements. According to one
commenter, this would be ‘‘a
momentous undertaking’’ imposing
significant burden.
Covered institutions would also have
to develop new procedures when
opening accounts and re-train
employees to classify accounts
appropriately. Also, in many cases, the
covered institutions’ employees do not
have the subject matter expertise to
accurately designate some types of
accounts such as trust accounts. Other
types of deposit accounts potentially
difficult to identify and/or designate
include joint accounts and accounts for
corporations, partnerships, and
unincorporated associations. The
problems with assigning the correct
right and capacity code to joint
accounts, as described by the
commenters, will be discussed
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87753
separately, infra. One commenter also
believed that this requirement
effectively transfers the FDIC’s
responsibility to interpret and apply
part 330 to the covered institutions. It
asserted that ‘‘[n]on-covered institutions
would not take on this additional
responsibility.’’
The commenters offered the following
recommendations regarding the
proposed requirement that covered
institutions assign the correct right and
capacity code to each deposit account.
It appears the first choice would be for
the FDIC to amend 12 CFR part 330
prior to finalizing proposed part 370—
presumably by eliminating certain
criteria which the FDIC uses to define
or characterize various categories of
deposit accounts. Another suggestion
would be to allow the covered
institutions to rely on their internal
coding to assign the requisite codes
rather than requiring them to align their
designations with the FDIC’s rights and
capacities codes. Some commenters
seem to assume that in the context of
bank failures and the concomitant
deposit insurance determination, the
FDIC disregards part 330’s
requirements. The commenters
requested that the final rule permit
‘‘covered banks to classify accounts for
FDIC insurance determination as
recorded on their internal systems, in
line with FDIC’s current practice in
bank failures.’’ The commenters asked
that the FDIC make deposit insurance
determinations in the same manner
(based upon the same criteria) for
covered institutions as it would in the
case of a smaller bank failure.
As discussed previously in the
preamble to the NPR, the FDIC will not
be amending 12 CFR part 330 prior to
or in conjunction with the issuance of
12 CFR part 370 as a final rule.37 While
both regulations concern deposit
insurance, they serve independent
purposes. The purpose of part 330 is,
among other things, to ‘‘provide rules
for the recognition of deposit ownership
in various circumstances.’’ 38 The FDIC
follows part 330 when making deposit
insurance determinations at the time of
failure. Aside from governing the
application of deposit insurance, the
rules in part 330 are intended to assist
both IDIs and their deposit customers to
structure deposit accounts so that their
accounts will conform with the rules for
various account types. In that way, a
depositor could be confident that his or
her funds will be fully insured by the
FDIC in the event of the IDI’s failure. On
the other hand, final part 370 requires
37 81
38 12
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the largest IDIs, the covered institutions,
to develop IT systems capable of
performing the deposit insurance
calculations in the event of failure and
to maintain their deposit account
records in accordance with the
information requirements set forth in
the final rule. When 12 CFR part 370 is
fully implemented, the FDIC will be in
a better position to complete the deposit
insurance determination ‘‘as soon as
possible’’ rather than waiting for deposit
account information to be provided after
a covered institution’s failure which
might result in an unacceptable delay.
The covered institutions requested
that they be allowed to rely on the
internal coding of their deposit
accounts. The FDIC presumes that for
many accounts, the covered institutions’
internal coding will, in fact, align with
the appropriate FDIC right and capacity
code, e.g., individual, joint, business,
and PODs. In certain circumstances,
however, it may be necessary for the
covered institutions to refer to the
appropriate section of part 330 and/or
the FDIC’s Financial Institution
Employee’s Guide to Deposit Insurance
(or perhaps call the FDIC Call Center) in
order to make an accurate assignment of
the FDIC right and capacity code. All of
the deposits held by a depositor in the
same right and capacity must be
aggregated before the deposit insurance
determination can be performed.
Assigning the correct right and capacity
code is necessary so that the FDIC
would be able to complete the deposit
insurance determination promptly. If
the codes assigned by the covered
institutions do not align with FDIC
codes, then the FDIC could not rely on
the covered institution’s records for
deposit insurance determination
purposes. In the context of a bank
failure, the FDIC typically will look
behind the titling and will examine the
failed bank’s records if there is a
question or concern regarding the
proper deposit insurance coverage.
The FDIC does not anticipate
handling deposit insurance
determinations at a covered institution
in a different manner than it has done
historically with smaller IDIs. Smaller
IDIs have not generally had numerous
deposit accounts that are not readily
assigned to the most common FDIC
rights and capacities codes; therefore,
this has not created a problem for either
the smaller institutions or the FDIC at
failure. The FDIC has recognized,
however, that for certain types of
deposit accounts, e.g., those based upon
pass-through deposit insurance and
certain types of trust accounts, the
covered institutions will not have
sufficient information regarding the
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beneficial owners or the beneficiaries,
respectively, to assign the correct FDIC
right and capacity code. For those types
of accounts, § 370.4(b)(1) and (b)(2)
permit the covered institution to
maintain a ‘‘pending reason’’ code in
the pending file (as set forth in
Appendix B) of its deposit account
records in lieu of the correct right and
capacity code.
Finally, the commenters asserted that
this requirement, in effect, transfers the
FDIC’s responsibility to interpret and
apply part 330 to the covered
institutions. IDIs play an important role
in maintaining a functioning deposit
insurance system, which benefits them,
their customers and the public in
general. Prompt payment of deposit
insurance is only possible when IDIs
maintain sufficient records to enable the
FDIC to perform its deposit insurance
determination function consistent with
FDI Act requirements and authority.
The FDIC provides a number of different
resources to the banking industry as
well as the public to assist in the
interpretation and application of the
part 330 rules. For example, the FDIC
conducts live Deposit Insurance
Coverage Seminars for bank officers and
employees throughout the year.
Moreover, videos of these seminars are
available on YouTube. The FDIC also
provides guidance to IDIs and the public
through the operation of a call center.
FDIC staff receives calls from bank
customer service representatives seeking
assistance in real time to structure new
deposit accounts for their customers
properly. A new edition of the FDIC’s
Financial Institution Employee’s Guide
to Deposit Insurance was recently
published, and finally, the Electronic
Deposit Insurance Estimator (also
known as ‘‘EDIE’’) is located on the
FDIC’s Web site. All of these FDIC
resources are available for the use of
IDIs (including the covered institutions)
as well as the public. Presumably this
information is instructive in opening
and structuring deposit accounts so that
they are (and remain) in compliance
with the criteria set forth in part 330.
6. Joint Accounts and Signature Cards
Both in response to the ANPR and the
NPR, certain commenters have
expressed their concern with the
challenges they would face trying to
comply with § 330.9(c)(1)(ii) of the
FDIC’s regulations. That particular
paragraph requires that ‘‘each co-owner
has personally signed a deposit account
signature card’’ in order to be a
‘‘qualifying joint account’’ for purposes
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of deposit insurance under part 330.39
Some commenters stated that covered
institutions would have to go through
all of their deposit accounts (in this
particular case, those accounts styled as
joint accounts) to verify that those
accounts satisfied the part 330
requirements. They have characterized
this process as a ‘‘momentous
undertaking.’’ Moreover, the covered
institutions expect that keeping these
records accurate and up-to-date ‘‘would
be a continuing and likely
insurmountable challenge.’’ They noted
that frequently an individual opening a
joint account will take the signature
card for a co-owner to sign but never
return the completed signature card to
the bank establishing the account.
Finally, the commenters asserted that
‘‘there is no current requirement for
banks to (1) ensure that all signature
cards are complete and on file for joint
accounts, or (2) record in deposit
recordkeeping systems which joint
accounts have complete signature
cards.’’
Regulations requiring that each coowner of a joint account must
personally sign a signature card or the
account would not be treated as a joint
account for deposit insurance
determinations have been in existence
since 1967.40 Most recently, the FDIC
addressed the commenters’ concerns
regarding § 330.9(c) in the preamble of
the NPR.41 Briefly, the FDIC’s
justifications for maintaining the joint
ownership signature card requirement
are as follows: (i) The FDIC’s signature
card requirement simply reflects safe
and sound banking practice; (ii) the
signature card represents the contractual
relationship between the IDI and the
depositor (or depositors), and signature
cards are a reliable indicator of deposit
ownership; and (iii) elimination of the
signature card requirement for joint
accounts could enable some depositors
to ‘‘disguise’’ single accounts as joint
accounts in order to be eligible for an
additional $250,000 of deposit
insurance coverage. Finally, the FDIC
believes that the three year
implementation time frame should
provide the covered institutions with
adequate time both to review their
39 The other criteria which must be satisfied in
order to be recognized as a ‘‘qualifying joint
account’’ are: The co-owners of the funds in the
account are ‘‘natural persons’’ as defined in
§ 330.1(l) and each co-owner possesses withdrawal
rights on the same basis. 12 CFR 330.9(c)(i) and
–(iii).
40 12 CFR 330.9; see FDIC, Final Rule, 32 FR
10408, 10409 (July 14, 1967); 12 CFR 564.9(b)
(repealed); see FHLBB Final Rule, 32 FR 10415,
10416 (July 14, 1967). Certain types of accounts
have been exempted from this requirement.
41 81 FR 10026, 10032 (February 26, 2016).
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current and legacy account records and
to develop procedures to maintain the
accuracy of these records going forward.
As discussed previously, the FDIC will
not be amending provisions of 12 CFR
part 330 as part of the adoption of part
370 as a final rule.
7. Community Banks
Several commenters noted that
requiring account holders of deposits
eligible for pass-through insurance to
provide beneficial owner data would
force community banks to share
confidential data on their most vital
asset, i.e., their large-dollar depositors.
One commenter believed that
community banks would incur steep
costs and potential customer
dissatisfaction if forced to comply with
the covered institutions’ requests for the
beneficial ownership information.
However, financial intermediaries,
which may include community banks,
may not be willing to disclose sensitive
and proprietary information regarding
their customers to the covered
institutions.
One of the commenters raised another
concern that the proposed rule would
adversely affect community banks that
participate in deposit placement
networks. According to this commenter,
thousands of community banks
participate in deposit placement
networks and the commenter believes
that deposit allocation services are a
vital tool for community banks. Those
banks would be required to furnish
competing banks with confidential
information about some of their largest
depository customers any business day
that a community bank placed customer
funds at a covered institution. Two
commenters recommended that an
exception from the requirements of the
proposed rule should automatically
apply to the class of deposits (rather
than an account by account exception)
placed by community banks in a
covered institution through a deposit
placement network. According to the
commenter, this type of exception
would assure community banks that
they would not be penalized if they
participated in a deposit placement
network.
The requirements of the final rule
have addressed these potential
concerns. As discussed above, the final
rule provides for ‘‘alternative
recordkeeping’’ for deposits placed by
agents, custodians or some other
fiduciary on behalf of others as set forth
in §§ 330.5 and 330.7 of the FDIC’s
deposit insurance rules. Therefore,
community banks will not be required
to provide covered institutions with
proprietary information concerning
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their large-dollar customers in the event
a community bank places deposits with
a covered institution. As currently
permitted pursuant to the applicable
provisions of part 330, community
banks will be allowed to retain the
beneficial ownership information on
these customers rather than provide it to
the covered institution. Likewise, the
recordkeeping requirements applicable
to deposit placement networks will not
be affected by the issuance of the final
rule. Nevertheless, if deposits placed by
community banks with covered
institutions serve as transaction
accounts for the beneficial owners
thereof, then the underlying ownership
information (i.e., the identity of each
beneficial owner and their respective
interest in the accounts) must be
provided to the FDIC upon the covered
institution’s failure so that the FDIC will
be able to use the covered institution’s
IT system to determine deposit
insurance coverage for those deposit
accounts within 24 hours after the
FDIC’s appointment as receiver.
8. Foreign Deposits
Two commenters recommended that
foreign deposits, i.e., those deposits
placed in the foreign branches of U.S.
banks, should not be within the scope
of the final rule. Both commenters
asserted that the FDIC does not need
depositor information concerning these
foreign deposits; foreign deposits are not
‘‘insured’’ deposits, and therefore, the
FDIC does not require that type of
information in order to complete its
deposit insurance determination. One of
the commenters added that the FDIC
already has access to information
concerning foreign deposits because that
information is required pursuant to
§ 360.9 of the FDIC’s regulations.
In accordance with 12 U.S.C.
1813(l)(5)(A), a foreign deposit is not a
‘‘deposit’’ unless it is dually payable in
a U.S. branch and a foreign branch of a
U.S. bank. If dually payable, however, it
would be an uninsured deposit for
purposes of the FDIC’s deposit
insurance determination and would be
recognized as a general unsecured claim
(a priority two claim) against the failed
bank’s receivership. Consequently,
foreign deposits, by definition, are
beyond the scope of the final rule.
Therefore, no recordkeeping
requirements will be imposed on the
covered institutions with respect to
foreign deposits. It is worth noting,
however, that the FDIC will no longer
have access to information regarding
foreign deposits pursuant to § 360.9
once covered institutions are compliant
with part 370 and are released from the
§ 360.9 requirements.
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9. Exceptions Process
A commenter argued that providing
the FDIC with the authority to approve
or disapprove a covered institution’s
request ‘‘in its sole discretion’’ would
confer unlimited power on the FDIC to
discourage or prohibit lawful
acceptance by well-capitalized covered
institutions of brokered deposits and
other deposits placed on a pass-through
insurance basis through deposit
allocation sweep services. This
commenter cited as a source of concern
recent regulatory actions by the FDIC
and other Federal banking agencies and
asked the FDIC to avoid the
misperception that it will discourage
lawful deposit brokerage relationships
by making them too costly or
burdensome for covered institutions.
The commenter’s concern that the
FDIC will exercise ‘‘virtually unlimited
power to use the Proposed Rule . . . to
discourage or prohibit well-capitalized
covered institutions from accepting
brokered and other pass-through
deposits’’ is unfounded. The particular
concern that the FDIC would discourage
lawful brokerage relationships under
this final rule is addressed by the
adoption of alternate recordkeeping
requirements permitted for brokered
deposits. It is not intended to otherwise
affect brokered deposits.
Several commenters asserted that
obtaining the information from account
holders that is needed for deposit
insurance calculations would be a
significant challenge; one of these
commenters remarked that full
compliance with the proposed rule for
certain account types would be
‘‘extremely difficult if not practically
impossible.’’ These commenters argued
that the volume of information on
financial intermediaries and their
beneficial owners, the frequency of
changes to the information, and certain
legal impediments to disclosure would
pose significant operational and cost
issues. In addition to requesting
exceptions for classes of deposits, some
of the commenters believed that the
final rule should also include a process
for requesting exceptions for other
‘‘idiosyncratic accounts’’ for which
obtaining the requisite depositor
information would be impossible or
cost-prohibitive.
The FDIC believes that the
modifications to the recordkeeping
requirements as described in the final
rule should address the concerns of
covered institutions and the concerns
raised about community banks. As a
result of the concerns raised by
commenters, the FDIC has decided that
the deposit account recordkeeping
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requirements of part 370 should align
with the existing deposit insurance
recordkeeping requirements provided in
§ 330.5 and § 330.7. These two sections
of 12 CFR part 330 allow an IDI to
maintain the deposit account records for
various types of pass-through deposit
accounts off-site and with third parties.
Nevertheless, in the event that a covered
institution identifies other
‘‘idiosyncratic accounts’’ which would
not be covered by the recordkeeping
methods described in §§ 330.5 and
330.7, the final rule includes a
procedure for requesting an exception
from the recordkeeping requirements set
forth in § 370.4. The covered institution
would be required to submit a request
to the FDIC for the exception in the form
of a letter and explain the circumstances
that would make it impracticable or
overly burdensome to meet the
applicable recordkeeping requirements.
Additionally, the request must provide
the number and dollar value of the
deposit accounts that would be subject
to the exception. When reviewing the
request, the FDIC would consider
primarily the implications that a delay
in deposit insurance determination
would have for a particular account
holder or the beneficial owner of the
deposits, the related effect on public
confidence, the nature of the deposit
relationship, and the ability of the
covered institution to obtain the
information necessary for the FDIC to
make an accurate deposit insurance
determination.
Several commenters believed a more
detailed exception process than that
provided for in the proposed rule is
needed, and they posed a number of
questions regarding the process. For
example, there were several questions
concerning how a covered institution
would demonstrate that an entire class
of deposit accounts would meet one or
more of the three criteria for an
exception. The commenters also asked
whether a covered institution would be
required to continue to gather depositor
information on accounts subject to an
exception request during the pendency
of the FDIC’s consideration of that
request. They wanted assurances both
that the FDIC would respond
expeditiously to requests for exceptions
and that in the event that a request was
denied, the FDIC would not require
immediate compliance. The
commenters were concerned that a
covered institution be allowed a
reasonable time to achieve compliance
should an exception request be denied.
As discussed, supra, the final rule
does not provide for classes of deposits
to be ‘‘excepted’’ from the requirements
of part 370. Instead, covered institutions
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will continue to be allowed to maintain
the beneficial ownership information for
deposit accounts that are currently
subject to the off-site recordkeeping
provisions of §§ 330.5 and 330.7 with
the appropriate custodian, agent, or
other fiduciary as set forth in those
sections of the FDIC’s regulations.
Therefore, there is no need for a process
to request exceptions for classes of
deposits. Further, the FDIC has
addressed the commenters’ concerns
regarding the covered institutions’
compliance during the pendency of an
exception request, as the final rule
provides that a covered institution will
not be in violation of any requirements
of the rule for which the institution has
submitted a request for relief pursuant
to § 370.6(b) or § 370.8(a)–(c) while
awaiting the FDIC’s response to the
request. Finally, a covered institution
will be given a reasonable amount of
time to comply with recordkeeping
requirements for certain deposit
accounts in the event that the covered
institution’s request for an exception is
denied.
The commenters asked whether there
would be a general sunset time frame for
approved exceptions, and if so, whether
there would be a flexible process to
renew those exceptions. The final rule
does not impose a general sunset time
frame for approved exceptions.
Depending on the circumstances,
approvals could be tailored to be timelimited or open-ended. Section 370.8(e)
allows the FDIC to grant its approval of
a covered institution’s request for an
exception subject to certain conditions
that would have to be met or to limit its
approval to a particular time frame.
The commenters also wanted to know
what type of process there would be to
appeal the FDIC’s adverse ruling on a
petition for an exception. They
recommended that the FDIC provide
public notice of all exceptions granted
or denied on a timely and ongoing
basis—without naming the petitioners
or specific deposit account holders—
with explanations of the bases for those
rulings. These commenters also believed
that because the exception process ‘‘is
so critical that input from covered
institutions would be needed to assure
a workable scheme,’’ the exception
process should be further clarified and
re-proposed for public notice and
comment.
The FDIC believes that the
modifications to the recordkeeping
requirements as described in the final
rule should provide much of the
requested relief. Given the alternative
recordkeeping allowed for certain
described deposit accounts, the FDIC
does not anticipate that many covered
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institutions will need to request
exceptions from the final rule’s
requirements. With respect to
§ 370.4(b)(1) accounts that have
transactional features, if a covered
institution will not be able to provide
the certification required pursuant to
§ 370.5(a), then the covered institution
must submit a request for an exception
from that certification requirement as
provided for in § 370.8(b).
10. Comments Concerning the
Implementation Period
The proposed rule provided for an
implementation period of two years,
and several commenters proposed that
four years would be an appropriate
time-frame for implementation. The
FDIC has considered the commenters’
discussion of impediments that would
exist for a two-year implementation
period and believes that the
modifications made in the final rule to
harmonize it with the recordkeeping
permitted under 12 CFR part 330 make
a three-year implementation period
reasonable and feasible.
E. Comments Concerning Possible
Adverse Consequences
Several commenters expressed
concern over possible adverse
consequences for covered institutions,
related entities, and the financial system
generally if the proposed rule was
adopted as proposed. One commenter
specifically noted that the rule could
result in treating some depositors at
covered institutions differently than the
same kind of depositors at non-covered
institutions because the covered
institution would be applying a more
stringent standard to its deposits for
insurance purposes, and deposit
insurance determinations should not
depend on the size or complexity of the
depository institution. As discussed,
supra, 12 CFR part 330 of the FDIC’s
regulations which govern the criteria for
ownership of deposits by right and
capacity has not been amended in
connection with the adoption of final
part 370. Specifically, the FDIC has not
imposed ‘‘more stringent standards’’ on
covered institutions with respect to
‘‘qualifying joint accounts,’’ for
example, than on any other IDI. As
discussed in I. Policy Objectives, the
final rule ensures that customers of both
large and small failed banks will receive
the same prompt access to their funds
and that deposit insurance limits are
recognized equally at both large and
small banks.
One commenter objected to the
proposed rule’s requirement that, if a
covered institution is granted an
exception, it must then notify account
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holders that delays in the payment of
deposit insurance are possible due to
the absence of required information.
According to this commenter, such a
notification could raise concerns on the
part of depositors, lead them to rethink
their account relationships, drive
deposits away from excepted accounts,
create competitive disadvantages, and
be categorically unfair. The final rule
imposes no requirement that covered
institutions notify depositors of a
possible delay in payment of deposit
insurance. Therefore, the commenter’s
concerns should be alleviated.
The FDIC has adopted the suggestion
of another commenter, however, who
argued that disclosures regarding a
delay in payment should not be
required whenever the custodian,
administrator or other fiduciary will
provide the current beneficial owner
data to the FDIC before midnight on the
day of the covered institution’s failure.
Section 370.5(a) requires a covered
institution to certify to the FDIC that the
information needed to calculate deposit
insurance for § 370.4(b)(1) accounts
with transactional features will be
available to the FDIC upon failure of the
covered institution so that the FDIC will
be able to use the covered institution’s
IT system to determine deposit
insurance coverage within 24 hours of
its appointment as receiver. In view of
this requirement, there is no need for
covered institutions to provide
notification of a possible delay in
deposit insurance payments because the
FDIC will have the requisite information
in time to complete the deposit
insurance determination on these timesensitive accounts during the closing
weekend.
One commenter asserted that certain
account holders likely would be
motivated to seek out alternative
banking relationships rather than
provide the information requested by
the covered institutions. This would
result in disruption to these account
holders and to other aspects of their
banking relationship, as well as to the
deposit markets. One commenter argued
that the proposed rule could discourage
smaller and mid-sized retail-focused
institutions from actively seeking small
deposit accounts in order to avoid being
covered by the proposed rule. This in
turn could encourage such institutions
to consider riskier and more volatile
funding sources. The FDIC believes that
these concerns have been addressed and
mitigated by the alternative
recordkeeping requirements found in
§ 370.4(b) of the final rule.
These commenters also asserted that
‘‘end-to-end’’ testing for compliance on
an annual basis would involve an
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excessive commitment of time and
personnel. The requirement for end-toend testing has been deleted from the
final rule. Finally, they contended that
it is not necessary and not in accordance
with corporate governance principles
for a covered institution’s board of
directors to certify or attest to the
covered institution’s compliance with
the proposed rule’s requirements. This
additional board responsibility would
be an undue burden on the board and
should remain within the purview of
the covered institution’s management.
The FDIC considered this comment and
revised the corporate governance
requirement accordingly. In the final
rule, § 370.10(a)(1)(ii), the annual
certification must be signed by the
covered institution’s chief executive
officer or its chief operating officer.
VII. Regulatory Analysis and Procedure
A. Paperwork Reduction Act
The FDIC has determined that this
final rule involves a collection of
information pursuant to the provisions
of the Paperwork Reduction Act of 1995
(the ‘‘PRA’’) (44 U.S.C. 3501 et seq.). In
accordance with the PRA, the FDIC may
not conduct or sponsor, and an
organization is not required to respond
to, this information collection unless the
information collection displays a
currently valid OMB control number.
OMB has assigned an OMB control
number.
OMB Control Number: 3064–0202.
Frequency of Response: On occasion.
Affected Public: Insured depository
institutions having two million or more
deposit accounts and their depositors.42
Implementation Burden: 43
Estimated number of respondents: 38
covered institutions and their
depositors.
Estimated time per response: 44
137,014 hours (average).
Low complexity: 29,158–35,072 hours.
Medium complexity: 38,404–59,588
hours.
High complexity: 69,908–911,016
hours.
Estimated total implementation
burden: 5.21 million hours.
Ongoing Burden:
42 Covered institutions will, as necessary, contact
their depositors to obtain accurate and complete
account information for deposit insurance
determinations. For the purposes of this analysis,
the FDIC assumes that every depositor will
voluntarily respond.
43 Implementation costs and hours are spread
over a three-year period.
44 For PRA purposes, covered institutions are
presented in roughly equal-sized low, medium and
high complexity tranches ranked by their PRA
implementation hours.
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Estimated number of respondents: 38
covered institutions and their
depositors.
Estimated time per response: 526
hours (average) per year.
Low complexity: 481–529 hours.
Medium complexity: 458–577 hours.
High complexity: 507–666 hours.
Estimated total ongoing annual
burden: 20,000 hours per year.
Description of Collection
The final rule would require a
covered institution to (1) maintain
complete and accurate data on each
depositor’s ownership interest by right
and capacity for all of the institution’s
deposit accounts, except as provided,
and (2) configure its IT system to be
capable of calculating the insured and
uninsured amount in each deposit
account by ownership right and
capacity, which would be used by the
FDIC to make deposit insurance
determinations in the event of the
institution’s failure.
These requirements also must be
supported by policies and procedures
and will involve ongoing burden for
testing, reporting to the FDIC, and
general maintenance of recordkeeping
and IT systems functionality. Estimates
of both initial implementation and
ongoing burden are provided.
Compliance with this proposed rule
would involve certain reporting
requirements:
• Not later than ten business days
after the effective date of the final rule
or after becoming a covered institution,
a covered institution shall designate a
point of contact responsible for
implementing the requirements of this
rulemaking.
• Covered institutions would be
required to certify annually that their IT
systems can calculate deposit insurance
coverage accurately and completely
within the 24 hour time frame set forth
in the final rule. If a covered institution
experiences a significant change in its
deposit taking operations, it may be
required to demonstrate more frequently
than annually that its IT system can
calculate deposit insurance coverage
accurately and completely.
• In connection with the certification,
covered institutions shall complete a
deposit insurance coverage summary
report (as detailed in VI. The Proposed
Rule).
• Covered institutions may seek relief
from any specific aspect of the final
rule’s requirements if circumstances
exist that would make it impracticable
or overly burdensome to meet those
requirements. When doing so, they must
demonstrate the need for exception,
describe the impact of an exception on
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the ability to quickly and accurately
calculate deposit insurance for the
related deposit accounts, and state the
number of, and the dollar value of
deposits in, the related deposit
accounts.
Estimated Costs
Comments submitted in response to
the NPR did not estimate with
particularity the implementation and
ongoing costs for covered institutions to
comply with the proposed rule. The
FDIC has, however, estimated the costs
to covered institutions based on, among
other things, information gathered in
connection with § 360.9 compliance
visitations, the cost model developed by
an outside consultant for the purpose of
developing the ANPR, and estimated
costs associated with burdens that were
identified by commenters in response to
the NPR. The total projected cost of the
final rule for covered institutions
amounts to $386 million and
approximately 5.2 million total labor
hours over three years. The cost
components of the estimate include (1)
implementing the deposit insurance
calculation, (2) legacy data cleanup, (3)
data extraction, (4) data aggregation, (5)
data standardization, (6) data quality
control and compliance, (7) data
reporting, and (8) ongoing operations.
Estimates of total costs and labor hours
for each component are calculated by
assuming a standard mix of skilled labor
tasks, industry standard hourly
compensation estimates, and labor
productivity. It is assumed that a
combination of in-house and external
services is used for legacy data clean up
in proportions of 40 and 60 percent
respectively. Finally, the estimated costs
for each institution are adjusted
according to the complexity of their
operations and systems.
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Implementation Costs
Implementation costs are expected to
vary widely among the covered
institutions. There are considerable
differences in the complexity and scope
of the deposit operations across covered
institutions. Some covered institutions
only slightly exceed the two million
deposit account threshold while others
greatly exceed that number. In addition,
some covered institutions—most
notably the largest—have proprietary
deposit systems likely requiring an inhouse, custom solution for the proposed
requirements while others may
purchase deposit software from a
vendor or use a servicer for deposit
processing. Deposit software vendors
and servicers are expected to
incorporate the proposed requirements
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into their products or services to be
available for their clients.
The implementation costs for all
covered institutions are estimated to
total $330 million and require
approximately 5.2 million labor hours.
The implementation costs cover (1)
making the deposit insurance
calculation, (2) legacy data cleanup,45
(3) data extraction, (4) data aggregation,
(5) data standardization, (6) data quality
control and compliance, and (7) data
reporting. The estimated PRA burden
for individual covered institutions will
range from $2.3 million to $100 million,
and require between 29,158 and 911,016
hours.
Ongoing Reporting Costs
The estimated burden on individual
covered institutions for ongoing costs
for reporting, testing, maintenance, and
other periodic items is estimated to
range between $68,676 and $99,865
annually and require between 458 and
666 labor hours.
Comments
The FDIC has a continuing interest in
comments on paperwork burden.
Comments are invited on (a) whether
the collection of information is
necessary for the proper performance of
the FDIC’s functions, including whether
the information has practical utility; (b)
the accuracy of the estimates of the
burden of the information collection,
including the validity of the
methodology and assumptions used; (c)
ways to enhance the quality, utility, and
clarity of the information to be
collected; and (d) ways to minimize the
burden of the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601, et seq.) (‘‘RFA’’) requires
each federal agency to prepare a final
regulatory flexibility analysis in
connection with the promulgation of a
final rule, or certify that the final rule
will not have a significant economic
impact on a substantial number of small
entities.46 For purposes of the RFA,
‘‘small entities’’ is currently defined to
include depository institutions with
assets of $550 million or less. The
requirements of the final rule are not
expected to apply to any depository
institutions with assets of $550 million
or less. Pursuant to section 605(b) of the
RFA, the FDIC certifies that the final
rule will not have a significant
C. Small Business Regulatory
Enforcement Act
The Office of Management and Budget
has determined that this final rule is a
‘‘major rule’’ within the meaning of the
Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801, et
seq.) (‘‘SBREFA’’). As required by the
SBREFA, the FDIC will file the
appropriate reports with Congress and
the Government Accountability Office
so that the final rule may be reviewed.
D. Riegle Community Development and
Regulatory Improvement Act
The Riegle Community Development
and Regulatory Improvement Act
requires that the FDIC, in determining
the effective date and administrative
compliance requirements of new
regulations that impose additional
reporting, disclosure, or other
requirements on IDIs, consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations.47 Subject to
certain exceptions, new regulations and
amendments to regulations prescribed
by a Federal banking agency which
impose additional reporting,
disclosures, or other new requirements
on IDIs shall take effect on the first day
of a calendar quarter which begins on or
after the date on which the regulations
are published in final form.48
In accordance with these provisions,
the FDIC has considered the final rule’s
benefits and any administrative burdens
that the final rule would place on
covered institutions and their customers
in determining the effective date and
administrative compliance requirements
of the final rule. IV. Expected Effects
details the expected benefits of the final
rule and the administrative burdens that
the final rule would place on depository
institutions and their customers. The
final rule imposes additional reporting
and other requirements IDIs, and
accordingly, shall take effect no earlier
than the first day of the calendar quarter
that begins on or after the date on which
the final rule is published.
E. Plain Language
Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113
Stat.1338, 1471) requires the Federal
45 Including
47 12
46 See
48 12
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costs to depositors.
5 U.S.C. 603, 604 and 605.
economic impact on a substantial
number of small entities.
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U.S.C. 4802(a).
U.S.C. 4802(b).
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banking agencies to use plain language
in all proposed and final rules
published after January 1, 2000. The
FDIC has sought to present the final rule
in a simple and straightforward manner.
List of Subjects in 12 CFR Part 370
Bank deposit insurance, Banks,
Banking, Reporting and recordkeeping
requirements, Savings and loan
associations.
Authority and Issuance
For the reasons stated in the preamble,
the Board of Directors of the Federal
Deposit Insurance Corporation adds part
370 to title 12 of the Code of Federal
Regulations to read as follows:
■
PART 370—RECORDKEEPING FOR
TIMELY DEPOSIT INSURANCE
DETERMINATION
Sec.
370.1 Purpose and scope.
370.2 Definitions.
370.3 Information technology system
requirements.
370.4 Recordkeeping requirements.
370.5 Actions required for certain deposit
accounts with transactional features.
370.6 Implementation.
370.7 Accelerated implementation.
370.8 Relief.
370.9 Communication with the FDIC.
370.10 Compliance.
Appendix A to Part 370—Ownership Right
and Capacity Codes
Appendix B to Part 370—Output Files
Structure
Authority: 12 U.S.C. 1817(a)(9), 1819
(Tenth), 1821(f)(1), 1822(c), 1823(c)(4).
§ 370.1
Purpose and scope.
Unless otherwise provided in this
part, each ‘‘covered institution’’
(defined in § 370.2(a)) is required to
implement the information technology
system and recordkeeping capabilities
needed to calculate the amount of
deposit insurance coverage available for
each deposit account in the event of its
failure. Doing so will improve the
FDIC’s ability to fulfill its statutory
mandates to pay deposit insurance as
soon as possible after a covered
institution’s failure and to resolve a
covered institution at the least cost to
the Deposit Insurance Fund.
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§ 370.2
Definitions.
For purposes of this part:
(a) Account holder means the person
or entity who has opened a deposit
account with a covered institution and
with whom the covered institution has
a direct legal and contractual
relationship with respect to the deposit.
(b) Brokered deposit has the same
meaning as provided in 12 CFR
337.6(a)(2).
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(c) Covered institution means an
insured depository institution which,
based on its Reports of Condition and
Income filed with the appropriate
federal banking agency, has 2 million or
more deposit accounts during the two
consecutive quarters preceding the
effective date of this part or thereafter.
(d) Compliance date means the date
that is three years after the later of the
effective date of this part or the date on
which an insured depository institution
becomes a covered institution.
(e) Deposit has the same meaning as
provided under section 3(l) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(l)).
(f) Deposit account records has the
same meaning as provided in 12 CFR
330.1(e).
(g) Ownership rights and capacities
are set forth in 12 CFR part 330.
(h) Payment instrument means a
check, draft, warrant, money order,
traveler’s check, electronic instrument,
or other instrument, payment of funds,
or monetary value (other than currency).
(i) Standard maximum deposit
insurance amount (or ‘‘SMDIA’’) has the
same meaning as provided pursuant to
section 11(a)(1)(E) of the Federal
Deposit Insurance Act (12 U.S.C.
1821(a)(1)(E)) and 12 CFR 330.1(o).
(j) Transactional features with respect
to a deposit account means that the
depositor or account holder can make
transfers or withdrawals from the
deposit account to make payments or
transfers to third persons or others
(including another account of the
depositor or account holder at the same
institution or at a different institution)
by means of a negotiable or transferable
instrument, payment order of
withdrawal, check, draft, prepaid
account access device, debit card, or
other similar order made by the
depositor and payable to third parties,
or by means of a telephonic (including
data transmission) agreement, order or
instruction, or by means of an
instruction made at an automated teller
machine or similar terminal or unit. For
purposes of this definition, ‘‘telephonic
(including data transmission)
agreement, order or instruction’’
includes orders and instructions made
by means of facsimile, computer,
internet, handheld device, or other
similar means.
(k) Unique identifier means an alphanumeric code associated with an
individual or entity that is used
consistently and continuously by a
covered institution to monitor the
covered institution’s relationship with
that individual or entity.
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§ 370.3 Information technology system
requirements.
(a) A covered institution must
configure its information technology
system to be capable of performing the
functions set forth in paragraph (b) of
this section within 24 hours after the
appointment of the FDIC as receiver. To
the extent that a covered institution
does not maintain its deposit account
records in the manner prescribed under
§ 370.4(a) but instead in the manner
prescribed under § 370.4(b) or (c), the
covered institution’s information
technology system must be able to
perform the functions set forth in
paragraph (b) of this section upon input
by the FDIC of additional information
collected from account holders after
failure of the covered institution.
(b) Each covered institution’s
information technology system must be
capable of:
(1) Accurately calculating the deposit
insurance coverage for each deposit
account in accordance with 12 CFR part
330;
(2) Generating and retaining output
records in the data format and layout
specified in Appendix B;
(3) Restricting access to some or all of
the deposits in a deposit account until
the FDIC has made its deposit insurance
determination for that deposit account
using the covered institution’s
information technology system; and
(4) Debiting from each deposit
account the amount that is uninsured as
calculated pursuant to paragraph (b)(1)
of this section.
§ 370.4
Recordkeeping requirements.
(a) General recordkeeping
requirements. Except as otherwise
provided in paragraphs (b) and (c) of
this section, a covered institution must
maintain in its deposit account records
for each account the information
necessary for its information technology
system to meet the requirements set
forth in § 370.3. The information must
include:
(1) The unique identifier of each
(i) Account holder;
(ii) Beneficial owner of a deposit, if
the account holder is not the beneficial
owner;
(iii) Grantor and each beneficiary, if
the deposit account is held in
connection with an informal revocable
trust that is insured pursuant to 12 CFR
330.10 (e.g., payable-on-death accounts,
in-trust-for accounts, and Totten Trust
accounts); and
(iv) Grantor and each beneficiary, if
the deposit account is held by the
covered institution as the trustee of an
irrevocable trust that is insured
pursuant to 12 CFR 330.12.
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(2) The applicable ownership right
and capacity code listed and described
in Appendix A to this part.
(b) Alternative recordkeeping
requirements. As permitted under this
paragraph, a covered institution may
maintain in its deposit account records
less information than is required under
paragraph (a) of this section.
(1) For each deposit account for
which a covered institution’s deposit
account records disclose the existence
of a relationship which might provide a
basis for additional deposit insurance in
accordance with 12 CFR 330.5 or 330.7
and for which the covered institution
does not maintain information that
would be needed for its information
technology system to meet the
requirements set forth in § 370.3, the
covered institution must maintain, at a
minimum, the following in its deposit
account records:
(i) The unique identifier of the
account holder; and
(ii) The corresponding ‘‘pending
reason’’ code in data field 2 of the
pending file format set forth in
Appendix B (and need not maintain a
‘‘right and capacity’’ code).
(2) For each formal revocable trust
account that is insured as described in
12 CFR 330.10 and for each irrevocable
trust account that is insured as
described in 12 CFR 330.13, and for
which the covered institution does not
maintain the information that would be
needed for its information technology
system to meet the requirements set
forth in § 370.3, the covered institution
must, at a minimum, maintain in its
deposit account records:
(i) The unique identifier of the
account holder;
(ii) The unique identifier of the
grantor if the deposit account has
transactional features; and
(iii) The corresponding ‘‘pending
reason’’ code in data field 2 of the
pending file format set forth in
Appendix B (and need not maintain a
‘‘right and capacity’’ code).
(c) Recordkeeping requirements for
official items. A covered institution
must maintain in its deposit account
records the information needed for its
information technology system to meet
the requirements set forth in § 370.3
with respect to accounts held in the
name of the covered institution from
which withdrawals are made to honor a
payment instrument issued by the
covered institution, such as a certified
check, loan disbursement check, interest
check, traveler’s check, expense check,
official check, cashier’s check, money
order, or any similar payment
instrument that the FDIC identifies in
guidance issued to covered institutions
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in connection with this part. To the
extent that the covered institution does
not have such information, it need only
maintain in its deposit account records
for those accounts the corresponding
‘‘pending reason’’ code in data field 2 of
the pending file format set forth in
Appendix B (and need not maintain
‘‘right and capacity’’ codes).
§ 370.5 Actions required for certain
deposit accounts with transactional
features.
(a) For each deposit account with
transactional features for which the
covered institution maintains its deposit
account records in accordance with
§ 370.4(b)(1), a covered institution must
certify to the FDIC that the account
holder will provide to the FDIC the
information needed for the covered
institution’s information technology
system to calculate deposit insurance
coverage as set forth in § 370.3(b) within
24 hours after the appointment of the
FDIC as receiver. Such certification may
be part of the annual certification of
compliance required pursuant to
§ 370.10(a)(1).
(b) Notwithstanding paragraph (a) of
this section, a covered institution need
not provide such certification with
respect to:
(1) Accounts maintained by a
mortgage servicer, in a custodial or
other fiduciary capacity, which are
comprised of payments by mortgagors of
principal, interest, taxes and insurance;
(2) Accounts maintained by real estate
brokers, real estate agents, or title
companies in which funds from
multiple clients are deposited and held
for a short period of time in connection
with a real estate transaction;
(3) Accounts established by an
attorney or law firm on behalf of clients,
commonly known as an Interest on
Lawyers Trust Accounts, or functionally
equivalent accounts; and
(4) Accounts held in connection with
an employee benefit plan (as defined in
12 CFR 330.15(f)(2)).
(c) The covered institution’s failure to
provide the certification required under
paragraph (a) of this section shall be
deemed not to constitute a violation of
this part if the FDIC has granted the
covered institution relief from that
certification requirement.
§ 370.6
Implementation.
(a) A covered institution must satisfy
the information technology system and
recordkeeping requirements set forth in
this part before the compliance date.
(b) A covered institution may submit
a request to the FDIC for an extension
of its compliance date. The request shall
state the amount of additional time
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needed to meet the requirements of this
part, the reason(s) for which such
additional time is needed, and the total
number and dollar value of accounts for
which deposit insurance coverage could
not be calculated using the covered
institution’s information technology
system were the covered institution to
fail as of the date of the request. The
FDIC’s grant of a covered institution’s
request for extension may be
conditional or time-limited.
§ 370.7
Accelerated implementation.
(a) On a case-by-case basis, the FDIC
may accelerate, upon notice, the
implementation time frame for all or
part of the requirements of this part for
a covered institution that:
(1) Has a composite rating of 3, 4, or
5 under the Uniform Financial
Institution’s Rating System (CAMELS
rating), or in the case of an insured
branch of a foreign bank, an equivalent
rating;
(2) Is undercapitalized, as defined
under the prompt corrective action
provisions of 12 CFR part 325; or
(3) Is determined by the appropriate
federal banking agency or the FDIC in
consultation with the appropriate
federal banking agency to be
experiencing a significant deterioration
of capital or significant funding
difficulties or liquidity stress,
notwithstanding the composite rating of
the covered institution by its
appropriate federal banking agency in
its most recent report of examination.
(b) In implementing this section, the
FDIC must consult with the covered
institution’s appropriate federal banking
agency and consider the complexity of
the covered institution’s deposit system
and operations, extent of the covered
institution’s asset quality difficulties,
volatility of the institution’s funding
sources, expected near-term changes in
the covered institution’s capital levels,
and other relevant factors appropriate
for the FDIC to consider in its role as
insurer of the covered institution.
§ 370.8
Relief.
(a) Exemption. A covered institution
may submit a request in the form of a
letter to the FDIC for an exemption from
this part if it demonstrates that it does
not take deposits from any account
holder which, when aggregated, would
exceed the SMDIA for any owner of the
funds on deposit and will not in the
future.
(b) Exception. A covered institution
may submit a request in the form of a
letter to the FDIC for exception from any
specific aspect of the information
technology system requirements,
recordkeeping requirements,
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certification requirements, or reporting
requirements set forth in this part if
circumstances exist that would make it
impracticable or overly burdensome to
meet those requirements. In its request
letter, the covered institution must
demonstrate the need for exception,
describe the impact of an exception on
the ability to quickly and accurately
calculate deposit insurance for the
related deposit accounts, and state the
number of, and the dollar value of
deposits in, the related deposit
accounts.
(c) Release from this part. A covered
institution may submit a request in the
form of a letter to the FDIC for release
from this part if, based on its Reports of
Condition and Income filed with the
appropriate federal banking agency, it
has less than two million deposit
accounts during any three consecutive
quarters after becoming a covered
institution.
(d) Release from 12 CFR 360.9
requirements. A covered institution is
released from the provisional hold and
standard data format requirements of 12
CFR 360.9 upon submitting to the FDIC
the compliance certification required
under § 370.10(a).
(e) FDIC approval of a request. The
FDIC will consider all requests
submitted in writing by a covered
institution on a case-by-case basis in
light of the objectives of this part, and
the FDIC’s grant of any request made by
a covered institution pursuant to this
section may be conditional or timelimited.
§ 370.9
Communication with the FDIC.
(a) Point of contact. Not later than ten
business days after either the effective
date of this part or becoming a covered
institution, a covered institution must
notify the FDIC of the person(s)
responsible for implementing the
recordkeeping and information
technology system capabilities required
by this part.
(b) Address. Point-of-contact
information, reports and requests made
under this part shall be submitted in
writing to: Office of the Director,
Division of Resolutions and
Receiverships, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429–0002.
§ 370.10
Compliance.
(a) Certification and report. A covered
institution shall submit to the FDIC a
certification of compliance and a
deposit insurance coverage summary
report on or before the compliance date
and annually thereafter.
(1) The certification must:
(i) Confirm that the covered
institution has implemented and
successfully tested its information
technology system for compliance with
this part during the preceding calendar
year; and
(ii) Be signed by the covered
institution’s chief executive officer or
chief operating officer.
(2) The deposit insurance coverage
summary report must include:
(i) A description of any material
change to the covered institution’s
information technology system or
deposit taking operations since the prior
annual certification;
(ii) The number of deposit accounts,
number of different account holders,
and dollar amount of deposits by
ownership right and capacity code (as
listed and described in Appendix A);
(iii) The total number of fully-insured
deposit accounts and the total dollar
amount of deposits in all such accounts;
(iv) The total number of deposit
accounts with uninsured deposits and
the total dollar amount of uninsured
amounts in all of those accounts; and
87761
(v) By deposit account type, the total
number of, and dollar amount of
deposits in, deposit accounts for which
the covered institution’s information
technology system cannot calculate
deposit insurance coverage using
information currently maintained in the
covered institution’s deposit account
records.
(3) If a covered institution experiences
a significant change in its deposit taking
operations, the FDIC may require that it
submit a certification of compliance and
a deposit insurance coverage summary
report more frequently than annually.
(b) FDIC Testing. (1) The FDIC will
conduct periodic tests of a covered
institution’s compliance with this part.
These tests will begin no sooner than
the last day of the first calendar quarter
following the compliance date and
would occur no more frequently than on
a three-year cycle thereafter, unless
there is a material change to the covered
institution’s information technology
system, deposit-taking operations, or
financial condition.
(2) A covered institution shall provide
the appropriate assistance to the FDIC as
the FDIC tests the covered institution’s
ability to satisfy the requirements set
forth in this part.
(c) Effect of pending requests. A
covered institution that has submitted a
request pursuant to § 370.6(b) or
§ 370.8(a) through (c) will not be
considered to be in violation of this part
as to the requirements that are the
subject of the request while awaiting the
FDIC’s response to such request.
Appendix A to Part 370—Ownership
Right and Capacity Codes
A covered institution must use the codes
defined below when assigning ownership
right and capacity codes.
Code
Illustrative description
SGL ....................................
Single Account (12 CFR 330.6): An account owned by one person with no testamentary or ‘‘payable-on-death’’
beneficiaries. It includes individual accounts, sole proprietorship accounts, single-name accounts containing
community property funds, and accounts of a decedent and accounts held by executors or administrators of a
decedent’s estate.
Joint Account (12 CFR 330.9): An account owned by two or more persons with no testamentary or ‘‘payable-ondeath’’ beneficiaries (other than surviving co-owners). An account does not qualify as a joint account unless: (1)
All co-owners are living persons; (2) each co-owner has personally signed a deposit account signature card (except that the signature requirement does not apply to certificates of deposit, to any deposit obligation evidenced
by a negotiable instrument, or to any account maintained on behalf of the co-owners by an agent or custodian);
and (3) each co-owner possesses withdrawal rights on the same basis.
Revocable Trust Account (12 CFR 330.10): An account owned by one or more persons that evidences an intention that, upon the death of the owner(s), the funds shall belong to one or more beneficiaries. There are two
types of revocable trust accounts:
(1) Payable-on-Death Account (Informal Revocable Trust Account): An account owned by one or more persons
with one or more testamentary or ‘‘payable-on-death’’ beneficiaries.
(2) Revocable Living Trust Account (Formal Revocable Trust Account): An account in the name of a formal revocable ‘‘living trust’’ with one or more grantors and one or more testamentary beneficiaries.
Irrevocable Trust Account (12 CFR 330.13): An account in the name of an irrevocable trust (unless the trustee is
an insured depository institution, in which case the applicable code is DIT.
JNT .....................................
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REV ....................................
IRR .....................................
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Code
Illustrative description
CRA ....................................
Certain Other Retirement Accounts (12 CFR 330.14 (b)–(c)) to the extent that participants under such plan have
the right to direct the investment of assets held in individual accounts maintained on their behalf by the plan, including an individual retirement account described in section 408(a) of the Internal Revenue Code (26 U.S.C.
408(a)), an account of a deferred compensation plan described in section 457 of the Internal Revenue Code (26
U.S.C. 457), an account of an individual account plan as defined in section 3(34) of the Employee Retirement
Income Security Act (29 U.S.C. 1002), a plan described in section 401(d) of the Internal Revenue Code (26
U.S.C. 401(d)).
Employee Benefit Plan Account (12 CFR 330.14): An account of an employee benefit plan as defined in section
3(3) of the Employee Retirement Income Security Act (29 U.S.C. 1002), including any plan described in section
401(d) of the Internal Revenue Code (26 U.S.C. 401(d)), but not including any account classified as a Certain
Retirement Account.
Business/Organization Account (12 CFR 330.11): An account of an organization engaged in an ‘independent activity’ (as defined in § 330.1(g)), but not an account of a sole proprietorship.
This category includes:
a. Corporation Account: An account owned by a corporation.
b. Partnership Account: An account owned by a partnership.
c. Unincorporated Association Account: An account owned by an unincorporated association (i.e., an account
owned by an association of two or more persons formed for some religious, educational, charitable, social, or
other noncommercial purpose).
Government Account (12 CFR 330.15): An account of a governmental entity.
All time and savings deposit accounts of the United States and all time and savings deposit accounts of a
state, county, municipality, or political subdivision depositing funds in an insured depository institution in the
state comprising the public unit or wherein the public unit is located (including any insured depository institution having a branch in said state).
All demand deposit accounts of the United States and all demand deposit accounts of a state, county, municipality, or political subdivision depositing funds in an insured depository institution in the state comprising the
public unit or wherein the public unit is located (including any insured depository institution having a branch
in said state).
All deposits, regardless of whether they are time, savings or demand deposit accounts of a state, county, municipality or political subdivision depositing funds in an insured depository institution outside of the state
comprising the public unit or wherein the public unit is located.
Mortgage Servicing Account (12 CFR 330.7(d)): An account held by a mortgage servicer, funded by payments by
mortgagors of principal and interest.
Public Bond Accounts (12 CFR 330.15(c)): An account consisting of funds held by an officer, agent or employee of
a public unit for the purpose of discharging a debt owed to the holders of notes or bonds issued by the public
unit.
IDI as trustee of irrevocable trust accounts (12 CFR 330.12): ‘‘Trust funds’’ (as defined in § 330.1(q)) account held
by an insured depository institution as trustee of an irrevocable trust.
Annuity Contract Accounts (12 CFR 330.8): Funds held by an insurance company or other corporation in a deposit
account for the sole purpose of funding life insurance or annuity contracts and any benefits incidental to such
contracts.
Custodian accounts for American Indians (12 CFR 330.7(e)): Funds deposited by the Bureau of Indian Affairs of
the United States Department of the Interior (the ‘‘BIA’’) on behalf of American Indians pursuant to 25 U.S.C.
162(a), or by any other disbursing agent of the United States on behalf of American Indians pursuant to similar
authority, in an insured depository institution.
IDI Accounts under Department of Energy Program: Funds deposited by an insured depository institution pursuant
to the Bank Deposit Financial Assistance Program of the Department of Energy.
BUS ....................................
GOV1–GOV2–GOV3 ..........
GOV1 ..........................
GOV2 ..........................
GOV3 ..........................
MSA ....................................
PBA ....................................
DIT ......................................
ANC ....................................
BIA ......................................
DOE ....................................
Appendix B to Part 370—Output Files
Structure
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The output files will include the data
necessary for the FDIC to determine the
deposit insurance coverage in a resolution. A
Customer File. Customer File will be used
by the FDIC to identify the customers. One
record represents one unique customer.
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covered institution must have the capability
to prepare and maintain the files detailed
below. These files must be prepared in
successive iterations as the covered
institution receives additional data from
external sources necessary to complete any
pending deposit insurance calculations. The
unique identifier is required in all four files
to link the customer information. All files are
pipe delimited. Do not pad leading and
trailing spacing or zeros for the data fields.
The data elements will include:
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Field name
Description
1. CS_Unique_ID .........
This field is the unique identifier that is the primary key for the depositor data record. It will
be generated by the covered institution and there shall not be duplicates.
This field shall contain the ID number that identifies the entity based on a government issued
ID or corporate filling. Populate as follows:.
—For a United States individual—Legal identification number (e.g., SSN, TIN, Driver’s License, or Passport Number).
—For a foreign national individual—where a SSN or TIN does not exist, a foreign passport
or other legal identification number (e.g., Alien Card).
—For a Non-Individual—the Tax identification Number (TIN), or other register entity number.
The valid customer identification types, are noted below: ..........................................................
—SSN—Social Security Number.
—TIN—Tax Identification Number.
—DL—Driver’s License, issued by a State or Territory of the United States.
—ML—Military ID.
—PPT—Valid Passport.
—AID—Alien Identification Card.
—OTH—Other.
The customer type field indicates the type of entity the customer is at the covered institution.
The valid values are:.
—IND—Individual.
—BUS—Business.
—TRT—Trust.
—NFP—Non-Profit.
—GOV—Government.
—OTH—Other.
Customer first name. Use only for the name of individuals and the primary contact for entity
Customer middle name. Use only for the name of individuals and the primary contact for entity.
Customer last name. Use only for the name of individuals and the primary contact for entity
Customer suffix ............................................................................................................................
The registered name of the entity. Do not use this field if the customer is an individual ..........
Street address line 1. The current account statement mailing address of record .....................
Street address line 2. If available, the second address line .......................................................
Street address line 3. If available, the third address line ...........................................................
The city associated with the permanent legal address ...............................................................
The state for United States addresses or state/province/county for international addresses ....
—For United States addresses use a two-character state code (official United States Postal
Service abbreviations) associated with the permanent legal address.
—For international address follow that country state code.
The Zip/Postal Code associated with the customers’ permanent legal address ........................
—For United States zip codes, use the United States Postal Service ZIP+4 standard.
—For international zip codes follow that standard format of that country.
The country associated with the permanent legal address. Provide the country name or the
standard International Organization for Standardization (ISO) country code.
Customer telephone number. The telephone number on record for the customer, including
the country code if not within the United States.
The email address on record for the customer ...........................................................................
This field indicates whether the customer has outstanding debt with covered institution. This
field may be used by the FDIC to determine offsets. Enter ‘‘Y’’ if customer has outstanding
debt with covered institutions, enter ‘‘N’’ otherwise.
This field shall only be used for Government customers. This field indicates whether the covered institution has pledged securities to the government entity, to cover any shortfall in
deposit insurance. Enter ‘‘Y’’ if the government entity has outstanding security pledge with
covered institutions, enter ‘‘N’’ otherwise.
2. CS_Govt_ID .............
3. CS_Govt_ID_Type ...
4. CS_Type ..................
5. CS_First_Name ........
6. CS_Middle_Name ....
7. CS_Last_Name ........
8. CS_Name_Suffix ......
9. CS_Entity_Name ......
10. CS_Street_Add_Ln1
11. CS_Street_Add_Ln2
12. CS_Street_Add_Ln3
13. CS_City ..................
14. CS_State ................
15. CS_ZIP ..................
16. CS_Country ...........
17. CS_Telephone .......
18. CS_Email ...............
19. CS_Outstanding_
Debt_Flag.
20. CS_Security_
Pledge_Flag.
Account File. The Account File contains
the deposit ownership rights and capacities
information, allocated balances, insured
Format
amounts, and uninsured amounts. The
balances are in U.S. dollars. The Account file
1. CS_Unique_ID .........
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Description
This field is the unique identifier that is the primary key for the depositor data record. It will
be generated by the covered institution and there cannot be duplicates.
Deposit account identifier. The primary field used to identify a deposit account .......................
The account identifier may be composed of more than one physical data element to uniquely
identify a deposit account..
Account ownership categories ....................................................................................................
—SGL—Single accounts.
—JNT—Joint accounts.
—REV—Revocable trust accounts.
—RR—Irrevocable trust accounts.
—CRA—Certain retirement accounts.
3. DP_Right_Capacity ..
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Variable Character.
Character (3).
Character (3).
Variable Character.
Variable Character.
Variable
Variable
Variable
Variable
Variable
Variable
Variable
Variable
Character.
Character.
Character.
Character.
Character.
Character.
Character.
Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Character (1).
Character (1).
is linked to the Customer File by the CS_
Unique_ID.
The data elements will include:
Field name
2. DP_Acct_Identifier ...
Variable Character.
Format
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Variable Character.
Variable Character.
Character (4).
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Field name
4. DP_Prod_Cat ...........
5. DP_Allocated_Amt ...
6. DP_Acc_Int ..............
7. DP_Total_PI .............
8. DP_Hold_Amount ....
9. DP_Insured_Amount
10. DP_Uninsured_
Amount.
11. DP_Prepaid_Account_Flag.
12. DP_PT_Account_
Flag.
13. DP_PT_Trans_Flag
Description
Format
—EBP—Employee benefit plan accounts.
—BUS—Business/Organization accounts.
—GOV1, GOV2, GOV3—Government accounts (public unit accounts).
—MSA—Mortgage servicing accounts for principal and interest payments.
—DIT—Accounts held by a depository institution as the trustee of an irrevocable trust.
—ANC—Annuity contract accounts.
—PBA—Public bond accounts.
—BIA—Custodian accounts for American Indians.
—DOE—Accounts of an IDI pursuant to the Bank Deposit Financial Assistance Program of
the Department of Energy.
Product category or classification ...............................................................................................
—DDA—Demand Deposit Accounts.
—NOW—Negotiable Order of Withdrawal.
—MMA—Money Market Deposit Accounts.
—SAV—Other savings accounts.
—CDS—Time Deposit accounts and Certificate of Deposit accounts, including any accounts
with specified maturity dates that may or may not be renewable..
The current balance in the account at the end of business on the effective date of the file, allocated to a specific owner in that insurance category.
For JNT accounts, this is a calculated field that represents the allocated amount to each
owner in JNT category..
For REV accounts, this is a calculated field that represents the allocated amount to each
owner-beneficiary in REV category..
For other accounts with only one owner, this is the account current balance..
This balance shall not be reduced by float or holds. For CDs and time deposits, the balance
shall reflect the principal balance plus any interest paid and available for withdrawal not already included in the principal (do not include accrued interest).
Accrued interest allocated similarly as data field #5 DP_Allocated_Amt ....................................
The amount of interest that has been earned but not yet paid to the account as of the date
of the file..
Total amount adding #5 DP_Allocated_Amt and #6 DP_Acc_Int ...............................................
Hold amount on the account .......................................................................................................
The available balance of the account is reduced by the hold amount. It has no effect on current balance (ledger balance).
The insured amount of the account ............................................................................................
The uninsured amount of the account ........................................................................................
This field indicates a prepaid account with covered institution. Enter ‘‘Y’’ if account is a prepaid account with covered institutions, enter ‘‘N’’ otherwise.
This field indicates a pass-through account with covered institution. Enter ‘‘Y’’ if account is a
pass-through with covered institutions, enter ‘‘N’’ otherwise.
This field indicates whether the fiduciary account has sub-accounts that have transactional
features. Enter ‘‘Y’’ if account has transactional features, enter ‘‘N’’ otherwise.
Account Participant File. The Account
Participant File will be used by the FDIC to
identify account participants, to include the
official custodian, beneficiary, bond holder,
mortgagor, or employee benefit plan
participant, for each account and account
holder. One record represents one unique
account participant. The Account Participant
Character (3).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Character (1).
Character (1).
Character (1).
File is linked to the Account File by CS_
Unique_ID and DP_Acct_Identifier.
The data elements will include:
Field name
Description
Format
1. CS_Unique_ID .........
This field is the unique identifier that is the primary key for the depositor data record. It will be
generated by the covered institution and there shall not be duplicates.
Deposit account identifier. The primary field used to identify a deposit account. ...........................
The account identifier may be composed of more than one physical data element to uniquely
identify a deposit account.
Account ownership categories ..........................................................................................................
—SGL—Single accounts.
—JNT—Joint accounts.
—REV—Revocable trust accounts.
—IRR—Irrevocable trust accounts.
—CRA—Certain retirement accounts.
—EBP—Employee benefit plan accounts.
—BUS—Business/Organization accounts.
—GOV1, GOV2, GOV3—Government accounts (public unit accounts).
—MSA—Mortgage servicing accounts for principal and interest payments.
—DIT—Accounts held by a depository institution as the trustee of an irrevocable trust.
—ANC—Annuity contract accounts.
—PBA—Public bond accounts.
—BIA—Custodian accounts for American Indians.
—DOE—Accounts of an IDI pursuant to the Bank Deposit Financial Assistance Program of the
Department of Energy.
Variable Character.
2. DP_Acct_Identifier ...
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3. DP_Right_Capacity ..
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Variable Character.
Character (4).
87765
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Field name
Description
4. DP_Prod_Category ..
Product category or classification .....................................................................................................
—DDA—Demand Deposit Accounts.
—NOW—Negotiable Order of Withdrawal.
—MMA—Money Market Deposit Accounts.
—SAV—Other savings accounts.
—CDS—Time Deposit accounts and Certificate of Deposit accounts, including any accounts
with specified maturity dates that may or may not be renewable.
Amount of funds attributable to the account participant as an account holder (e.g., Public account holder of a public bond account) or the amount of funds entitled to the beneficiary for
the purpose of insurance determination (e.g., Revocable Trust).
This field is the unique identifier for the Account Participant. It will be generated by the covered
institution and there shall not be duplicates. If the account participant is an existing bank customer this field is the same as CS_Unique_ID field.
This field shall contain the ID number that identifies the entity based on a government issued ID
or corporate filling. Populate as follows:
—For a United States individual—Legal identification number (e.g., SSN, TIN, Driver’s License,
or Passport Number).
—For a foreign national individual—where a SSN or TIN does not exist, a foreign passport or
other legal identification number (e.g., Alien Card).
—For a Non-Individual—the Tax identification Number (TIN), or other register entity number.
The valid customer identification types, are: ....................................................................................
—SSN—Social Security Number.
—TIN—Tax Identification Number.
—DL—Driver’s License, issued by a State or Territory of the United States.
—ML—Military ID.
—PPT—Valid Passport.
—AID—Alien Identification Card.
—OTH—Other.
Customer first name. Use only for the name of individuals and the primary contact for entity ......
Customer middle name. Use only for the name of individuals and the primary contact for entity ..
Customer last name. Use only for the name of individuals and the primary contact for entity .......
The registered name of the entity. Do not use this field if the participant is an individual ..............
This field is used as the participant type identifier. The field will list the ‘‘beneficial owner’’ type:
5. AP_Allocated_
Amount.
6. AP_Participant_ID ....
7. AP_Govt_ID .............
8. AP_Govt_ID_Type ...
9. AP_First_Name ........
10. AP_Middle_Name ..
11. AP_Last_Name ......
12. AP_Entity_Name ....
13. AP_Participant_
Type.
Format
Character (3).
Decimal (14,2).
Variable Character.
Variable Character.
Character (3).
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Character (3).
—OC—Official Custodian.
—BEN—Beneficiary.
—BHR—Bond Holder.
—MOR—Mortgagor.
—EPP—Employee Benefit Plan Participant.
Pending File. The Pending File contains
the information needed for the FDIC to
contact the owner or agent requesting
additional information to complete the
deposit insurance calculation. Each record
represents a deposit account.
The data elements will include:
Field name
Description
Format
1. CS_Unique_ID .........
This field is the unique identifier that is the primary key for the depositor data record. It will be
generated by the covered institution and there cannot be duplicates.
Reason code for the account to be included in Pending file ...........................................................
For deposit account records maintained by the bank, use the following codes.
—A—agency or custodian.
—B—beneficiary.
—OI—official item.
—RAC—right and capacity code.
For alternative recordkeeping requirements, use the following codes.
—ARB—direct obligation brokered deposit.
—ARBN—non-direct obligation brokered deposit.
—ARCRA—certain retirement accounts.
—AREBP—employee benefit plan accounts.
—ARM—mortgage servicing for principal and interest payments.
—ARO—other deposits.
—ARTR—trust accounts.
The FDIC needs these codes to initiate the collection of needed information.
Deposit account identifier. The primary field used to identify a deposit account ............................
The account identifier may be composed of more than one physical data element to uniquely
identify a deposit account.
Account ownership categories ..........................................................................................................
—SGL—Single accounts.
—JNT—Joint accounts.
—REV—Revocable trust accounts.
—IRR—Irrevocable trust accounts.
—CRA—Certain retirement accounts.
Variable Character.
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2. Pending_Reason .....
3. DP_Acct_Identifier ...
4. DP_Right_Capacity ..
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Character (5).
Variable Character.
Character (4).
87766
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Field name
5. DP_Prod_Category ..
6. DP_Cur_Bal .............
7. DP_Acc_Int ..............
8. DP_Total_PI .............
9. DP_Hold_Amount ....
10. DP_Prepaid_Account_Flag.
11. CS_Govt_ID ...........
12. CS_Govt_ID_Type
13.
14.
15.
16.
17.
18.
CS_First_Name ......
CS_Middle_Name ..
CS_Last_Name ......
CS_Name_Suffix ....
CS_Entity_Name ....
CS_Street_Add_Ln1
19. CS_Street_Add_Ln2
20. CS_Street_Add_Ln3
21. CS_City ..................
22. CS_State ................
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23. CS_ZIP ..................
24. CS_Country ...........
25. CS_Telephone .......
26. CS_Email ...............
27. CS_Outstanding_
Debt_Flag.
VerDate Sep<11>2014
Description
Format
—EBP—Employee benefit plan accounts.
—BUS—Business/Organization accounts.
—GOV1, GOV2, GOV3—Government accounts (public unit accounts).
—MSA—Mortgage servicing accounts for principal and interest payments.
—DIT—Accounts held by a depository institution as the trustee of an irrevocable trust.
—ANC—Annuity contract accounts.
—PBA—Public bond accounts.
—BIA—Custodian accounts for American Indians.
—DOE—Accounts of an IDI pursuant to the Bank Deposit Financial Assistance Program of the
Department of Energy.
Product category or classification .....................................................................................................
—DDA—Demand Deposit Accounts.
—NOW—Negotiable Order of Withdrawal.
—MMA—Money Market Deposit Accounts.
—SAV—Other savings accounts.
—CDS—Time Deposit accounts and Certificate of Deposit accounts, including any accounts
with specified maturity dates that may or may not be renewable.
Current balance ................................................................................................................................
The current balance in the account at the end of business on the effective date of the file.
This balance shall not be reduced by float or holds. For CDs and time deposits, the balance
shall reflect the principal balance plus any interest paid and available for withdrawal not already included in the principal (do not include accrued interest).
Accrued interest ................................................................................................................................
The amount of interest that has been earned but not yet paid to the account as of the date of
the file.
Total of principal and accrued interest .............................................................................................
Hold amount on the account ............................................................................................................
The available balance of the account is reduced by the hold amount. It has no impact on current
balance (ledger balance).
This field indicates a prepaid account with covered institution. Enter ‘‘Y’’ if account is a prepaid
account, enter ‘‘N’’ otherwise.
This field shall contain the ID number that identifies the entity based on a government issued ID
or corporate filling. Populate as follows:.
—For a United States individual—Legal identification number (e.g., SSN, TIN, Driver’s License
or Passport Number).
—For a foreign national individual—where a SSN or TIN does not exist, a foreign passport or
other legal identification number (e.g., Alien Card).
—For a Non-Individual—the Tax identification Number (TIN), or other register entity number.
The valid customer identification types: ...........................................................................................
—SSN—Social Security Number.
—TIN—Tax Identification Number.
—DL—Driver’s License, issued by a State or Territory of the United States.
—ML—Military ID.
—PPT—Valid Passport.
—AID—Alien Identification Card.
—OTH—Other.
Customer first name. Use only for the name of individuals and the primary contact for entity ......
Customer middle name. Use only for the name of individuals and the primary contact for entity ..
Customer last name. Use only for the name of individuals and the primary contact for entity .......
Customer suffix .................................................................................................................................
The registered name of the entity. Do not use this field if the customer is an individual ...............
Street address line 1 .........................................................................................................................
The current account statement mailing address of record.
Street address line 2 .........................................................................................................................
If available, the second address line.
Street address line 3 .........................................................................................................................
If available, the third address line.
The city associated with the permanent legal address ....................................................................
The state for United States addresses or state/province/county for international addresses .........
—For United States addresses use a two-character state code (official United States Postal
Service abbreviations) associated with the permanent legal address.
—For international address follow that country state code.
The Zip/Postal Code associated with the customers’ permanent legal address .............................
—For United States zip codes, use the United States Postal Service ZIP+4 standard.
—For international zip codes follow the standard format of that country.
The country associated with the permanent legal address. Provide the country name or the
standard International Organization for Standardization (ISO) country code.
Customer telephone number. The telephone number on record for the customer, including the
country code if not within the United States.
The email address on record for the customer ................................................................................
This field indicates whether the customer has outstanding debt with covered institution. This
field may be used to determine offsets. Enter ‘‘Y’’ if customer has outstanding debt with covered institutions, enter ‘‘N’’ otherwise.
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Character (3).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Decimal (14,2).
Character (1).
Variable Character.
Character (3).
Variable
Variable
Variable
Variable
Variable
Variable
Character.
Character.
Character.
Character.
Character.
Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Variable Character.
Character (1).
Federal Register / Vol. 81, No. 233 / Monday, December 5, 2016 / Rules and Regulations
Field name
28. CS_Security_
Pledge_Flag.
29. DP_PT_Account_
Flag.
30. PT_Parent_Customer_ID.
31. DP_PT_Trans_Flag
Description
Format
This field indicates whether the CI has pledged securities to the government entity, to cover any
shortfall in deposit insurance. Enter ‘‘Y’’ if the government entity has outstanding security
pledge with covered institutions, enter ‘‘N’’ otherwise. This field shall only be used for Government customers.
This field indicates a pass-through account with covered institution. Enter ‘‘Y’’ if account is a
pass-through with covered institutions, enter ‘‘N’’ otherwise.
This field contains the unique identifier of the parent customer ID who has the fiduciary responsibility at the covered institution.
This field indicates whether the fiduciary account has sub-accounts that have transactional features. Enter ‘‘Y’’ if account has transactional features, enter ‘‘N’’ otherwise.
Dated at Washington, DC, this 15th day of
November, 2016.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016–28396 Filed 12–2–16; 8:45 am]
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BILLING CODE 6714–01–P
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Character (1).
Character (1).
Variable Character.
Character (1).
]]>Agencies
[Federal Register Volume 81, Number 233 (Monday, December 5, 2016)]
[Rules and Regulations]
[Pages 87734-87767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28396]
[[Page 87733]]
Vol. 81
Monday,
No. 233
December 5, 2016
Part III
Federal Deposit Insurance Corporation
-----------------------------------------------------------------------
12 CFR Part 370
Recordkeeping for Timely Deposit Insurance Determination; Final Rule
Federal Register / Vol. 81 , No. 233 / Monday, December 5, 2016 /
Rules and Regulations
[[Page 87734]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 370
RIN 3064-AE33
Recordkeeping for Timely Deposit Insurance Determination
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The FDIC is adopting a final rule to facilitate prompt payment
of FDIC-insured deposits when large insured depository institutions
fail. The final rule requires each insured depository institution that
has two million or more deposit accounts to (1) configure its
information technology system to be capable of calculating the insured
and uninsured amount in each deposit account by ownership right and
capacity, which would be used by the FDIC to make deposit insurance
determinations in the event of the institution's failure, and (2)
maintain complete and accurate information needed by the FDIC to
determine deposit insurance coverage with respect to each deposit
account, except as otherwise provided.
DATES: Effective April 1, 2017.
FOR FURTHER INFORMATION CONTACT: Marc Steckel, Deputy Director,
Division of Resolutions and Receiverships, 571-858-8224; Teresa J.
Franks, Associate Director, Division of Resolutions and Receiverships,
571-858-8226; Shane Kiernan, Counsel, Legal Division, 703-562-2632;
Karen L. Main, Counsel, Legal Division, 703-562-2079.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
With this final rule (``final rule''), the FDIC adopts regulatory
requirements that will facilitate the FDIC's prompt payment of deposit
insurance after the failure of insured depository institutions
(``IDIs'') with two million or more deposit accounts. These
institutions are typically large and complex. By law, the FDIC must pay
deposit insurance ``as soon as possible'' after an IDI fails while also
resolving the IDI in the manner least costly to the Deposit Insurance
Fund (``DIF'').\1\ The FDIC believes that prompt payment of deposit
insurance is essential to the FDIC's mission for several reasons.
First, prompt payment of deposit insurance maintains public confidence
in the FDIC, the banking system and overall financial stability.
Second, facilitating prompt access to insured funds for depositors
enables them to meet their financial needs and obligations. A delay in
the payment of deposit insurance--especially in the case of the failure
of one of the largest IDIs--could harm the entire financial system and
national economy. For example, the failure of such a large IDI could
cause disruptions to check clearing processes, direct debit
arrangements, or other payment system functions. Third, prompt payment
can help to avoid a reduction in franchise value by expanding options
for resolution thereby decreasing potential losses to the DIF. Fourth,
the final rule seeks to promote long term stability in the banking
system by reducing moral hazard.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1821(f)(1); 12 U.S.C. 1823(c)(4).
---------------------------------------------------------------------------
The final rule is expected to significantly reduce the difficulties
the FDIC would face in making prompt deposit insurance determinations
at the largest IDIs. While the FDIC is authorized to rely upon the
deposit account records of a failed IDI to determine deposit insurance
coverage, the institution's records can be voluminous and inconsistent.
Moreover, they may be incomplete for deposit insurance purposes.
Consolidation of the banking industry has resulted in larger
institutions that have more complex information technology systems
(``IT systems'') and data management challenges. The final rule
generally requires IDIs with two million or more deposit accounts
(``covered institutions'') to maintain complete and accurate depositor
information and to configure their IT systems in a manner that permits
the FDIC to calculate deposit insurance coverage promptly in the event
of failure.
The final rule will facilitate consideration of the full range of
resolution options that can be invoked by the FDIC to resolve a covered
institution in a manner that satisfies the least-cost resolution
requirement. These resolution methods include: Purchase-and-assumption
transactions; establishment of bridge depository institutions; and
payout and liquidation, in which the FDIC pays depositors the insured
amount of their deposits and liquidates the failed IDI's assets to pay
remaining claims. Expanding the range of resolution options and
including those that impose losses on uninsured depositors can also
improve market discipline.
In order to resolve a bank under the least-cost requirement, the
FDIC must be able to estimate the cost to the DIF of each possible
resolution type. As part of this estimate, the FDIC must be able to
rapidly identify insured versus uninsured deposits. Insufficient
information about a bank's insured deposits and the difficulties posed
in identifying relationships between deposit accounts at the time of
closing, due in part to the large volume of deposit accounts managed by
the institution, may impede the FDIC's ability to meet the least-cost
requirement or to ensure timely access to insured funds.
Covered institutions often use multiple deposit systems, which
complicates deposit insurance determinations. Depending on the
structure of the deposit systems, data aggregation and account
identification may be burdensome, inefficient, and time-consuming, all
adding to the cost of resolution. For certain types of deposit
accounts, depositors need daily access to funds, so prompt payment is
essential to providing confidence and maintaining financial stability.
While challenges resulting from incomplete information are present when
any bank fails, obtaining the necessary information could significantly
delay the availability of funds when information is incomplete for a
large number of accounts. Such delays could lead to a decrease in
public confidence in the FDIC's deposit insurance program. Ensuring the
swift availability of funds for millions of depositors at a large
institution promotes financial stability by increasing confidence in
deposit insurance and availability of funds.
Another of the final rule's policy objectives is that depositors at
both large and small failed banks receive the same prompt access to
their deposits with full recognition of and respect for the deposit
insurance limits, which should reduce potential disparities that might
undermine market discipline or create unintended competitive advantages
in the deposit market. Confidence in the ability of the FDIC to
promptly determine insured amounts and provide access to insured
deposits should help uninsured depositors realize that they may face
losses in a large bank failure. This realization should mitigate moral
hazard and help to curtail excessive risk taking on the part of the
largest banks.
II. Background
A. Legal Authority
The FDIC is authorized to prescribe rules and regulations as it may
deem necessary to carry out the provisions of the Federal Deposit
Insurance Act (``FDI Act'').\2\ Under the FDI Act, the FDIC is
responsible for paying deposit insurance ``as soon as possible''
following the
[[Page 87735]]
failure of an IDI.\3\ It must also implement the resolution of a failed
IDI at the least cost to the DIF.\4\ To pay deposit insurance, the FDIC
uses a failed IDI's records to aggregate the amounts of all deposits
that are maintained by a depositor in the same right and capacity and
then applies the standard maximum deposit insurance amount (``SMDIA'')
of $250,000.\5\ As authorized by law, the FDIC generally relies on the
failed institution's deposit account records to identify deposit owners
and the right and capacity in which deposits are maintained.\6\ The
FDIC has a right and a duty under section 7(a)(9) of the FDI Act to
take action as necessary to ensure that each IDI maintains, and the
FDIC receives on a regular basis from such IDI, information on the
total amount of all insured deposits, preferred deposits, and uninsured
deposits at the institution.\7\ Requiring covered institutions to
maintain complete and accurate records regarding the ownership and
insurability of deposits and to have an IT system that can be used to
calculate deposit insurance coverage in the event of failure will
facilitate the FDIC's prompt payment of deposit insurance and enhance
the ability to implement the least costly resolution of these
institutions.
---------------------------------------------------------------------------
\2\ 12 U.S.C. 1819(a) (Tenth), 1820(g), 1821(d)(4)(B)(iv).
\3\ 12 U.S.C. 1821(f)(1).
\4\ 12 U.S.C. 1823(c)(4).
\5\ 12 U.S.C. 1821(a)(1)(C), 1821(a)(1)(E).
\6\ 12 U.S.C. 1822(c), 12 CFR 330.5.
\7\ 12 U.S.C. 1817(a)(9).
---------------------------------------------------------------------------
B. Current Regulatory Approach
Although the statutory requirement that the FDIC pay insurance ``as
soon as possible'' does not specify a time period for paying insured
depositors, the FDIC strives to pay depositors promptly in the event of
an IDI's failure. Indeed, the FDIC strives to make most insured
deposits available to depositors by the next business day after a bank
fails. For the reasons set forth earlier, the FDIC believes that prompt
payment of deposit insurance is essential.
The FDIC took an initial step toward ensuring that prompt deposit
insurance determinations could be made at large IDIs through the
issuance of Sec. 360.9 of the FDIC's regulations.\8\ Section 360.9
applies to IDIs with at least $2 billion in domestic deposits and at
least 250,000 deposit accounts or $20 billion in total assets.\9\
Currently, there are 155 IDIs that meet those criteria. Section 360.9
requires these institutions to be able to provide the FDIC with
standard deposit account information that can be used in the event of
the institution's failure. The appendices to 12 CFR part 360 prescribe
the form and content of the data files that those institutions must
provide to the FDIC. Section 360.9 also requires these institutions to
maintain the technological capability to automatically place (and later
release) provisional holds on deposit accounts if an insurance
determination could not be made by the FDIC by the next business day
after failure. Additionally, large volumes of deposit account data must
be transferred from the IDI to the FDIC pursuant to Sec. 360.9, which
could cause further delay.
---------------------------------------------------------------------------
\8\ 12 CFR 360.9. See 73 FR 41180 (July 17, 2008).
\9\ 12 CFR 360.9(b)(1).
---------------------------------------------------------------------------
While Sec. 360.9 would assist the FDIC in fulfilling its legal
mandates regarding the resolution of a failed institution that is
subject to that rule, the FDIC believes that if the largest of
depository institutions were to fail with little prior warning,
additional measures would be needed to ensure the prompt and accurate
payment of deposit insurance to all depositors.
C. Need for Further Rulemaking
The FDIC is authorized to rely upon the deposit account records of
a failed IDI to determine the amount of deposit insurance available on
each account. However, in the FDIC's experience, it is not unusual for
a failed bank's records to be ambiguous or incomplete. For example, an
account may be titled as a joint account but may not qualify to be
insured as a joint account because signature cards are missing or have
not been signed by all joint account holders. A further complication is
that bank records on trust accounts are often in paper form or
electronically scanned images that require a time-consuming manual
review.
In addition to problems with ambiguity or incompleteness of an
institution's records, it is also possible that an institution simply
is not required to maintain record of the beneficial owners of deposits
with respect to certain types of deposit accounts under the existing
regulatory framework. For example, under part 330, a deposit may be
insured even if record of beneficial ownership is maintained outside of
the IDI by an agent or third party that has been designated to maintain
such record.
Under each of these circumstances, in order to ensure the accurate
payment of deposit insurance without imposing risk of overpayment by
the DIF, the FDIC would need to delay the payment of deposit insurance
while it manually reviews files and obtains additional information.
Such delays in the insurance determination process could increase the
likelihood of disruptions to an assuming institution's or an FDIC-
managed bridge depository institution's payment processing functions,
such as clearing checks and authorizing direct debits.
While these challenges to accurately determining and promptly
paying deposit insurance may be present at any size of failed
institution, they become increasingly formidable as the size and
complexity of the institution increases. Larger institutions are
generally more complex, have more deposit accounts, greater geographic
dispersion, multiple deposit systems, and more issues with data
accuracy and completeness. The largest IDIs which grew through
acquisition have inherited the legacy recordkeeping and deposit account
systems of the acquired banks. Those systems might have inaccurate or
incomplete deposit account records. Additionally, acquired records
might not be automated or compatible with the acquiring institution's
deposit systems, resulting in use of multiple deposit platforms.
Although some of the largest institutions are able to conduct their
banking operations without integrating these inherited systems or
updating the acquired deposit account records, the state of their
deposit systems would complicate and prolong the deposit insurance
determination process in the event of failure. Because of the potential
problems posed by delays in determination and payment of deposit
insurance, improved strategies must be implemented to ensure that
deposit insurance can be paid promptly.
The FDIC's experiences during the most recent financial crisis,
which peaked in the months following the promulgation of Sec. 360.9,
indicated that failures can often happen with very little notice and
time for the FDIC to prepare. Since 2009, the FDIC was called upon to
resolve 47 institutions with 30 days or less to plan the resolution
(which includes review of deposit account records). While these 47
institutions were smaller, the financial condition of two banks with a
very large number of deposit accounts--Washington Mutual Bank and
Wachovia--deteriorated very quickly, also leaving the FDIC little time
to prepare.\10\ If a large bank were to fail because of liquidity
problems rather than capital deterioration, for example, the FDIC would
anticipate having less lead time to prepare to make deposit insurance
determinations, which could result in the need for more time post-
[[Page 87736]]
failure and less prompt payment of deposit insurance.
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\10\ In their final Call Reports (2Q-08) Washington Mutual
reported 42 million deposit accounts and Wachovia reported 29
million deposit accounts.
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The FDIC has worked with institutions covered by Sec. 360.9 for
several years to confirm their ability to comply with that rule's
requirements. This implementation process has led the FDIC to conclude
that the standard data sets and other requirements of Sec. 360.9 are
not sufficient to mitigate the complexities presented in the failure of
the largest institutions. Based on its experience reviewing deposit
data (and often finding inaccurate or incomplete data), deposit
recordkeeping systems, and capabilities for imposing provisional holds
in the course of its Sec. 360.9 compliance visits, the FDIC believes
that Sec. 360.9 has not been as effective as intended in enhancing the
capacity of the FDIC to make prompt deposit insurance determinations
necessary for the largest IDIs. Specifically, the continued growth in
the number of deposit accounts at larger IDIs and the number and
complexity of deposit systems used by many of these institutions since
the promulgation of Sec. 360.9 would exacerbate the difficulties
present in making prompt deposit insurance determinations.
Additionally, the institutions covered by Sec. 360.9 are permitted
discretion when populating the data fields that often results in
missing information.
A failed IDI that has multiple deposit systems would further
complicate the aggregation of deposits by depositor in a particular
right and capacity, causing additional delay. Additionally, deposit
taking practices have evolved, and innovative products and services
have proliferated throughout the financial services markets. Customer
use of deposit accounts has changed. Accounts that may have been used
in the past as traditional savings vehicles are now used more
frequently for transactional purposes. For example, checking accounts
held in connection with a formal revocable trust are used to pay for
everyday living expenses. Brokered deposits are sometimes held in money
market deposit accounts (``MMDAs'').
Using the FDIC's IT system to make deposit insurance determinations
at a failed institution with a large number of deposit accounts would
require the transmission of massive amounts of deposit data from the
IDI's IT system to the FDIC's IT system. The transfer of such a large
volume of data would be very time consuming and the time required for
processing that data would present a significant impediment to making
deposit insurance determinations in the timely manner that the public
has come to expect. The 38 institutions currently covered by the final
rule each have between 2 million and 87 million deposit accounts as of
June 30, 2016. Requiring these covered institutions to enhance their
deposit account data and upgrade their IT systems so that the FDIC can
promptly determine deposit insurance available on most deposit accounts
using the covered institutions' IT systems would help to resolve the
timing issues presented when transferring and processing such a large
volume of deposit data.
Advance Notice of Proposed Rulemaking
On April 28, 2015, the FDIC published in the Federal Register an
Advance Notice of Proposed Rulemaking (``ANPR'') seeking comment on
whether certain IDIs such as those that have two million or more
deposit accounts should be required to take steps to ensure that
depositors would have access to their FDIC-insured funds in a timely
manner (usually within one business day of failure) if one of these
institutions were to fail.\11\ Specifically, the FDIC sought comment on
whether these IDIs should be required to enhance their recordkeeping to
maintain and be able to provide substantially more accurate and
complete data on each depositor's ownership interest by right and
capacity for all or a large subset of the institution's deposit
accounts. The FDIC sought comment on whether these IDIs' IT systems
should have the capability to calculate the insured and uninsured
amounts for each depositor by deposit insurance right and capacity for
all or a substantial subset of deposit accounts at the end of any
business day. The FDIC also sought comment on the potential costs and
benefits associated with instituting such requirements. The comment
period ended on July 27, 2015. The FDIC received 10 comment letters.
The FDIC also had six meetings or conference calls with banks, trade
groups, and software providers.
---------------------------------------------------------------------------
\11\ 80 FR 23478 (April 28, 2015).
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Notice of Proposed Rulemaking
Following the ANPR, the FDIC developed and then published in the
Federal Register a notice of proposed rulemaking entitled
``Recordkeeping for Timely Deposit Insurance Determination'' soliciting
public comment on its proposal to require each IDI with two million or
more deposit accounts to maintain complete and accurate information
needed to allow the FDIC to determine promptly the deposit insurance
coverage for each deposit account, and to have an IT system that is
capable of calculating the insured and uninsured amounts for all
deposit accounts in accordance with the FDIC's deposit insurance rules
set forth in 12 CFR part 330 (the ``NPR'' for the ``proposed
rule'').\12\ Under the proposed rule, each covered institution's IT
system would facilitate the FDIC's deposit insurance determination by
being able to calculate deposit insurance coverage for each deposit
account and adjust account balances to the insured amount within 24
hours after the appointment of the FDIC as receiver should the covered
institution fail. Relief from the proposed rule's requirements would
have come in the form of: An extension of the implementation deadlines;
an exception from the information collection requirements for certain
deposit accounts or types of deposit accounts if conditions for
exception could be met; exemption from all of the proposed rule's
requirements if all the deposits a covered institution takes are fully
insured; or release from all of the proposed rule's requirements when a
covered institution no longer meets the definition of a covered
institution. Each covered institution would need to certify compliance
with the proposed rule annually, with enforcement measures to be taken
in accordance with Sec. 8 of the FDI Act, if necessary.
---------------------------------------------------------------------------
\12\ 81 FR 10026 (February 26, 2016).
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The NPR's comment period expired on June 27, 2016. The FDIC
received 14 comment letters in total from IDIs, industry trade
associations, financial intermediaries, mortgage servicing companies,
technology firms, an industry consultant, and an individual. In
addition, FDIC staff participated in meetings or conference calls with
industry representatives. The FDIC considered all of the comments it
received when developing the final rule, and the comments and the
FDIC's responses are discussed in VI. Discussion of Comments.
III. Description of the Final Rule
A. Summary
The scope of the final rule is unchanged from the NPR. It applies
to any IDI that has two million or more deposit accounts, defined as a
``covered institution.'' As contemplated by the proposed rule, under
the final rule, each covered institution must configure its IT system
to be capable of accurately calculating the deposit insurance available
for each deposit account in accordance with the FDIC's deposit
insurance rules set forth in 12 CFR part 330 should the covered
institution fail.
[[Page 87737]]
The FDIC would use the covered institution's IT system to facilitate
the deposit insurance determinations in the event of the covered
institution's failure.
In order for the FDIC to effectively use the covered institution's
IT system to calculate deposit insurance, the covered institution's
deposit account records must contain certain information concerning the
identity of the owner of the funds on deposit and details about the
right and capacity in which the deposit is held for deposit insurance
purposes. The proposed rule would have required covered institutions to
maintain this information in their deposit account records for all
accounts unless the FDIC granted the covered institution an exception
from this requirement. In light of comments received in response to the
NPR, the final rule modifies this approach. Recognizing that insured
depository institutions do not maintain all information needed for
deposit insurance determination in their deposit account records for
every account, along with the significant challenges associated with
collecting that information, the FDIC has bifurcated the recordkeeping
requirement.
Under the final rule's general recordkeeping requirements, a
covered institution will need to ensure that its deposit account
records contain the information needed for its IT system to be able to
calculate deposit insurance coverage for those deposit accounts for
which it already maintains the necessary information. A covered
institution should, in the normal course of business, already maintain
in its deposit account records the information necessary to do this
for: Single ownership accounts; joint ownership accounts; accounts held
by a corporation, partnership, or unincorporated association for
themselves; informal revocable trust (i.e., ``payable-on-death'' or
``in-trust-for'') accounts; and any account of an irrevocable trust for
which the covered institution itself is the trustee.
The final rule recognizes that, under the FDIC's deposit insurance
rules set forth in 12 CFR part 330, the amount of deposit insurance
available may not be determinable without reference to information that
an IDI does not, and is not otherwise required to, maintain in its
deposit account records under the existing regulatory framework. After
an IDI fails, this information must be provided to the FDIC so that the
FDIC can determine the full amount of deposit insurance available.
Accordingly, under the final rule, a covered institution does not need
to meet the general recordkeeping requirements described in this
section, but may instead meet alternative recordkeeping requirements
with respect to certain types of deposit accounts for which it is not
required under 12 CFR part 330 to maintain in its deposit account
records the information that would be needed for the FDIC to determine
the full amount of deposit insurance coverage. Certain additional
provisions apply to deposit accounts with transactional features.
To meet the alternative recordkeeping requirements, the covered
institution must maintain in its deposit account records certain
information that will facilitate the FDIC's prompt collection of the
information needed to determine deposit insurance with respect to those
deposit accounts after its failure. These alternative recordkeeping
requirements apply to deposit accounts that would be insured on a
``pass-through'' basis (such as brokered deposits) because beneficial
owner information is not maintained by the covered institution, and to
deposit accounts for which the amount of insurance is dependent on
additional facts (such as deposit accounts held in connection with a
trust). The FDIC also recognizes that it may not always be feasible for
a covered institution to maintain information in its deposit account
records needed to calculate the deposit insurance with respect to
official items prior to presentment and, therefore, if the information
needed for deposit insurance calculation is not available, the covered
institution will need to maintain in its deposit account records
certain information that will facilitate the FDIC's deposit insurance
determination after the failure of a covered institution.
For deposit accounts with ``transactional features'' for which the
covered institution maintains its deposit account records in accordance
with the alternative recordkeeping requirements set forth in Sec.
370.4(b)(1), a covered institution must certify that the information
needed to calculate deposit insurance coverage will be submitted to the
FDIC so that deposit insurance can be determined within 24 hours after
the appointment of the FDIC as receiver. The FDIC has been concerned
about timely deposit insurance determinations for accounts with
transactional features since the inception of this rulemaking process.
One of the options presented in the ANPR was that ``[f]or a large
subset of deposits (``closing night deposits''), including those where
depositors have the greatest need for immediate access to funds (such
as transaction accounts and money market deposit accounts (``MMDAs''),
deposit insurance determinations would be made on closing night.'' \13\
The FDIC acknowledged that the concept of ``closing night deposits''
served as a proxy for those deposit accounts for which depositors would
expect immediate access to their funds on the next business day. The
ANPR explained that in order to make deposit insurance determinations
on closing night, the covered institutions would be required to:
``Obtain and maintain data on all closing night deposits . . . at the
end of any business day (since failure can occur on any business
day).'' \14\ The ANPR solicited comment from the banking industry
regarding what types of deposits should be considered as ``closing
night deposits.''
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\13\ 80 FR 23478, 23480 (April 28, 2015).
\14\ Id.
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After reviewing the comments received on the ANPR, the FDIC
concluded that there really was no consensus among the potentially
covered institutions regarding what types of deposits could be
designated as ``closing night deposits.'' As a result, the FDIC adopted
the approach in the proposed rule that, generally, covered institutions
would need to collect and maintain the necessary depositor information
for all deposit accounts unless the conditions for exception could be
satisfied. Then, the FDIC would have all the depositor information
necessary to begin the deposit insurance determinations immediately
upon the covered institution's failure. However, in response to the
commenters' objections to the proposed rule's approach, the FDIC
developed the bifurcated approach set forth in the final rule. In this
way, the final rule is consistent with the recordkeeping standards
established in Sec. Sec. 330.5 and 330.7; i.e., the deposit records
for certain types of deposit accounts may be maintained off-site and
with third parties rather than at the covered institution.
Nevertheless, the requisite beneficial ownership information for those
accounts must be made available to the FDIC so that the deposit
insurance determination can be completed during the closing night
process. The FDIC believes that requiring covered institutions to
certify that the information needed to calculate deposit insurance
coverage for certain deposit accounts with transactional features will
be submitted to the FDIC by the respective account holder in time for
the calculation to be performed within 24 hours after the appointment
of the FDIC as receiver is important to ensure that the FDIC can make
deposit insurance determinations expeditiously
[[Page 87738]]
after failure of a covered institution to avoid delays in payment
processing.
The proposed rule would have provided a two-year timeframe for
implementation of IT system and recordkeeping requirements. Under the
final rule, a covered institution has three years after the effective
date for implementation and can apply to the FDIC for extension of that
timeframe.
B. Section-by-Section Description of the Final Rule
1. Section 370.1 Purpose and Scope
The purpose of the final rule is to help the FDIC overcome the
challenges it faces when fulfilling its statutory mandate to pay
deposit insurance as soon as possible after the failure of an IDI with
millions of deposit accounts at the least cost to the DIF. These
challenges become more pronounced as the number of deposit accounts at
an IDI rises above two million. Moreover, the number of deposit
accounts is highly correlated with other attributes that contribute to
this challenge, such as the complexity of account relationships and the
use of multiple deposit systems by these institutions. Accordingly, the
final rule requires IDIs with two million or more deposit accounts to
configure their IT systems to be capable of calculating the amount of
deposit insurance coverage available for each deposit account in the
event of failure.
2. Section 370.2 Definitions
This section provides definitions of terms that are used in the
final rule. A covered institution is an IDI which, based on its Reports
of Condition and Income (``Call Reports'') filed with the appropriate
Federal banking agency, has two million or more deposit accounts during
the two consecutive quarters preceding the effective date of the final
rule or thereafter.
For purposes of the final rule, account holder is defined as the
person who has opened a deposit account with a covered institution and
with whom the covered institution has a direct legal and contractual
relationship with respect to the deposit. An account holder is often,
but not always, the person who actually owns deposits in a deposit
account, and to whom deposit insurance inures under the FDIC's deposit
insurance rules set forth in 12 CFR part 330. The person who actually
owns the deposits is commonly referred to as the ``beneficial owner''
of a deposit or as the ``principal.'' When the account holder does not
have ownership rights to deposits, it is typically acting as an agent,
custodian, or fiduciary on behalf of the beneficial owner of the
deposit. In these situations, deposit insurance coverage can ``pass
through'' the account holder to the beneficial owner of the deposit,
and the deposit would be insured to the beneficial owner based on the
deposit insurance right and capacity in which those deposits are owned.
Because the account holder is the party with whom a covered institution
has a deposit account relationship, it is the account holder who will
need to provide the information needed for purposes of calculating
deposit insurance. For that reason, the final rule's recordkeeping
requirements with respect to certain deposit accounts are framed around
the relationship between the covered institution and the account
holder.
Several terms are defined by reference to their statutory or
regulatory definitions. Specifically, brokered deposit has the same
meaning as provided in 12 CFR 337.6(a)(2); deposit has the same meaning
as provided under section 3(l) of FDI Act (12 U.S.C. 1813(l)); deposit
account records has the same meaning as provided in 12 CFR 330.1(e);
and standard maximum deposit insurance amount (or ``SMDIA'') has the
same meaning as provided pursuant to section 11(a)(1)(E) of the FDI Act
(12 U.S.C. 1821(a)(1)(E)) and 12 CFR 330.1(o). Ownership rights and
capacities are set forth in 12 CFR part 330.
Compliance date means the date that is three years after the later
of the effective date of this part or the date on which an IDI becomes
a covered institution. In response to the NPR, commenters had suggested
that a four-year implementation period be provided. In light of the
bifurcated approach to recordkeeping taken in the final rule, the FDIC
believes that a three-year implementation period will be sufficient.
Payment instrument means a check, draft, warrant, money order,
traveler's check, electronic instrument, or other instrument, payment
of funds, or monetary value (other than currency). This definition is
consistent with Sec. 1002(18) of the Consumer Financial Protection Act
of 2010 (12 U.S.C. 5481(18)) and common banking usage.
Transactional features, with respect to a deposit account, means
that the depositor or account holder can make transfers or withdrawals
from the deposit account to make payments or transfers to third persons
or others (including another account of the depositor or account holder
at the same institution or at a different institution) by means of a
negotiable or transferable instrument, payment order of withdrawal,
check, draft, prepaid account access device, debit card, or other
similar order made by the depositor and payable to third parties, or by
means of a telephonic (including data transmission) agreement, order or
instruction, or by means of an instruction made at an automated teller
machine or similar terminal or unit. For purposes of this definition,
``telephonic (including data transmission) agreement, order or
instruction'' includes orders and instructions made by means of
facsimile, computer, internet, handheld device, or other similar means.
When interpreting this definition, the FDIC will consider the frequency
with which a depositor or account holder may make transfers or
withdrawals with respect to a deposit account, in addition to other
account features. For example, an account comprised of time deposits
will not be deemed to have transactional features solely because it
allows a depositor or account holder who is not the beneficial owner to
redeem or withdraw the time deposit and transfer the proceeds on a one-
time basis to the beneficial owner.
Unique identifier means an alpha-numeric code associated with an
individual or entity that is used by a covered institution to monitor
its relationship with only that individual or entity. The unique
identifier may be, but is not required to be, a government-issued
identification number such as a social security number or tax
identification number. It could also be a customer identification
number already in use by the covered institution for other operational
or regulatory purposes.
3. Section 370.3 Information Technology System Requirements
As was proposed in the NPR, each covered institution is required to
configure its IT system to be capable of accurately calculating the
deposit insurance available to each beneficial owner of funds on
deposit in accordance with the FDIC's deposit insurance rules set forth
in 12 CFR part 330. Additionally, the IT system must be able to adjust
account balances within 24 hours after the appointment of the FDIC as
receiver. Each covered institution's IT system would need to be capable
of grouping each beneficial owner's deposits within the applicable
ownership right and capacity because deposit insurance is available up
to the SMDIA for each ownership right and capacity in which the
deposits are held. To do this, a covered institution must maintain in
its deposit account records certain information, as described in Sec.
370.4. The covered institution's IT system would also need to be able
to
[[Page 87739]]
generate a record that reflects the deposit insurance calculation. This
record would contain, at a minimum, the name and unique identifier of
the account holder or beneficial owner of a deposit if the account
holder is not the beneficial owner, the balance of each beneficial
owner's deposits in each deposit account grouped by ownership right and
capacity, the aggregated balance of each beneficial owner's deposits
within each applicable ownership right and capacity, the amount of the
aggregated balance within each ownership right and capacity that is
insured, and the amount of the aggregated balance within each ownership
right and capacity that is uninsured. Appendix B to the final rule
specifies the data format for the records that the covered
institution's IT system would need to produce.
If a covered institution were to fail, its depositors' access to
their funds would need to be restricted while the FDIC makes deposit
insurance determinations in order to avoid overpayment. Each covered
institution's IT system would need to be capable of restricting access
to some or all of the funds in each deposit account until the FDIC has
determined the deposit insurance coverage for that account using the
covered institution's IT system.
The deposit insurance determinations for most deposit accounts
would be made within 24 hours after failure and holds on those accounts
would be removed. Holds would remain in place on deposit accounts for
which a deposit insurance determination has not been made within that
time frame and would be removed after the determination has been made.
The covered institution's IT system would need to adjust the
balance in each deposit account, if necessary, after the deposit
insurance determination has been completed so that only insured
deposits are made available. Specifically, if any of a beneficial
owner's deposits within a particular ownership right and capacity were
not insured, then the covered institution's IT system would need to
debit the respective deposit accounts for the uninsured amount
associated with each account. To the extent that a beneficial owner of
deposits is uninsured, it will have a claim against the receivership
for the failed covered institution that would be paid out of the assets
of the receivership on equal footing with all other deposit claims,
including the FDIC's subrogated claim for insured deposits.
A covered institution's IT system would need to be capable of
performing these functions for most deposit accounts within 24 hours
after the FDIC's appointment as receiver should the covered institution
fail, and within 24 hours after the FDIC receives from the remaining
account holders the additional information needed to determine deposit
insurance coverage.
The FDIC's regulations and resources concerning deposit insurance
that are available to the public on the FDIC's Web site are useful
tools that covered institutions can use to develop the capabilities of
their IT systems to meet the final rule's requirements.\15\ The FDIC
also intends to offer guidance and outreach to facilitate covered
institutions' efforts to meet this requirement.
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\15\ See FDIC's Financial Institution Employee's Guide to
Deposit Insurance, 2016 Ed., available at https://www.fdic.gov/deposit/DIGuideBankers/.
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4. Section 370.4 Recordkeeping Requirements
In response to commenters' recommendations, the final rule's
recordkeeping requirements have been modified from those set forth in
the proposed rule. While the proposed rule would have required covered
institutions to collect and maintain significantly more information on
deposit relationships than is currently contemplated under part 330,
the final rule recognizes that such information may continue to reside
in records maintained outside the covered institution by either the
account holder or a party designated by the account holder, as set
forth in part 330. The final rule contemplates, however, that in many
instances, a covered institution will already maintain in its deposit
account records the necessary information for its IT system to
calculate deposit insurance coverage and therefore the institution will
be capable of fulfilling the general recordkeeping requirement to
maintain in its deposit account records for each account the unique
identifier for the appropriate parties and the applicable ownership
right and capacity code. Accordingly, Sec. 370.4(a) imposes a general
recordkeeping requirement whereby the covered institution must assign a
unique identifier to each account holder, beneficial owner, grantor,
and beneficiary, as appropriate, and assign the applicable ownership
right and capacity code listed in Appendix A. A covered institution
should, in the normal course of business, already have in its deposit
account records the necessary information to do this for, among others,
deposit accounts that would be insured as: single ownership accounts;
joint ownership accounts; accounts owned by a corporation, partnership,
or unincorporated association; informal revocable trust (i.e.,
``payable-on-death'' or ``in-trust-for'') accounts; and any account
held in connection with an irrevocable trust for which the covered
institution itself is the trustee.
The final rule recognizes, however, that under the FDIC's deposit
insurance rules, where an IDI's deposit account records disclose the
existence of a relationship that might provide a basis for additional
insurance, the details of the relationship must be ascertainable from
either the IDI's deposit account records or from records maintained by
the depositor or by a third party that has undertaken to maintain such
records for the depositor. (See 12 CFR 330.5 concerning recognition of
deposit ownership and fiduciary relationships; 12 CFR 330.7 concerning
accounts held by an agent, nominee, guardian, custodian, or
conservator; 12 CFR 330.10 concerning revocable trust accounts; and 12
CFR 330.13 concerning irrevocable trust accounts.) Accordingly, under
Sec. 370.4(b), a covered institution may meet alternative
recordkeeping requirements with respect to those types of accounts.
Under the alternative recordkeeping requirements, the covered
institution must maintain in its deposit account records for each
deposit account where the basis for additional deposit insurance is
contained in records maintained by the account holder, or a party
designated by the account holder, the unique identifier for only the
account holder. It must also maintain in its deposit account records
information sufficient to populate the ``pending reason'' field of the
pending file set forth in Appendix B, which is to be generated by the
covered institution's IT system pursuant to Sec. 370.3(b) of the final
rule. For deposit accounts held in connection with formal trusts for
which the covered institution is not trustee, the covered institution
will need to maintain in its deposit account records the unique
identifier of the account holder, and the unique identifier of the
grantor (if the grantor is not the account holder) if the account has
transactional features. The unique identifier of the grantor is needed
in order to begin calculating how much deposit insurance would be
available, at a minimum, on deposit accounts held in connection with a
formal trust. The covered institution will also need to maintain in its
deposit account records information sufficient to populate the
``pending reason'' field of the pending file set forth in Appendix B,
which is to be
[[Page 87740]]
generated by the covered institution's IT system pursuant to Sec.
370.3(b) of the final rule.
Additionally, a covered institution will need to maintain in its
deposit account records the information needed for its IT system to
calculate deposit insurance coverage with respect to payment
instruments drawn on an account of the covered institution (commonly
referred to as ``official items''), such as a cashier's check, teller's
check, certified check, personal money order, or foreign draft. The
FDIC recognizes that it may not always be feasible to identify the
beneficial owner of such instruments and, therefore, if the necessary
information is not available, the covered institution will need to
maintain in its deposit account records for those accounts only the
``pending reason'' code to indicate that more information is needed
before deposit insurance can be calculated. This will be used to
populate the ``pending reason'' field of the pending file set forth in
Appendix B, which is to be generated by the covered institution's IT
system pursuant to Sec. 370.3(b) of the final rule.
To the extent that a covered institution does not meet the
recordkeeping requirements set forth in Sec. 370.4(a) and instead
meets the alternative recordkeeping requirements set forth in Sec.
370.4(b), it must take the additional action set forth in Sec. 370.5
with respect to those deposit accounts that have transactional
features.
5. Section 370.5 Actions Required for Certain Deposit Accounts With
Transactional Features
The FDIC is concerned that many deposit accounts held in the name
of someone other than the beneficial owner of the deposit (such as an
agent, nominee, custodian, fiduciary, or other third party) are relied
upon for transactions. In the case of a failure of a covered
institution, with its millions of deposit accounts, any material delay
in the payment of deposit insurance could undermine public confidence
in the financial system and be extremely disruptive not only for
individual depositors but also for the community or region as a whole.
Widespread or extended delay could even result in systemic
consequences. Therefore, Sec. 370.5(a) imposes the requirement that,
with respect to deposit accounts with transactional features that are
held in the name of a third party for the benefit of others, the
covered institution certify that all information needed to calculate
deposit insurance coverage can and will be submitted to the FDIC upon
failure of the covered institution to minimize any delay in the FDIC's
efforts to calculate deposit insurance within 24 hours after
appointment as receiver using the covered institution's IT system. The
timeframe within which this information must be received will likely
need to be less than 24 hours because the covered institution's IT
system will need time to process the information once received. This
requirement applies not only to traditional demand and checking
accounts, but also to savings deposit accounts that have transactional
features, such as MMDAs, and to prepaid accounts that are entitled to
deposit insurance coverage. The final rule provides, however, that this
certification requirement does not apply with respect to mortgage
servicing accounts, lawyers trust accounts, real estate trust accounts,
or accounts held by employee benefits plans. A covered institution that
is unable to provide this certification must apply to the FDIC for an
exception from the certification requirement. In addition, the final
rule makes clear that a covered institution's failure to provide the
certification shall be deemed not to constitute a violation of this
part if the FDIC has granted the covered institution relief from the
certification requirement.
6. Section 370.6 Implementation
This section provides that a covered institution must comply with
the final rule no later than the compliance date, which is three years
after the later of the effective date of the final rule or the date on
which the institution becomes a covered institution by reaching the
threshold of two million deposit accounts. Under Sec. 370.6(b), a
covered institution may request that the FDIC extend the implementation
time period. The request must state the amount of additional time
needed and the reasons therefor. It must also report the total number
of, and dollar amount in, accounts for which the covered institution's
IT system could not calculate deposit insurance coverage if the covered
institution were to fail as of the date of the request.
7. Section 370.7 Accelerated Implementation
The final rule provides for accelerated implementation on a case-
by-case basis and after notice from the FDIC to a covered institution
in three scenarios. The first would be when a covered institution has
received a composite rating of 3, 4, or 5 under the Uniform Financial
Institution's Rating System (CAMELS rating) in its most recently
completed Report of Examination. The second scenario would be when a
covered institution has become undercapitalized, as defined in the
prompt corrective action provisions of 12 CFR part 325. The third would
be when the appropriate Federal banking agency or the FDIC, in
consultation with the appropriate Federal banking agency, has
determined that a covered institution is experiencing a significant
deterioration of capital or significant funding difficulties or
liquidity stress, notwithstanding the composite rating of the covered
institution by its appropriate Federal banking agency in its most
recent Report of Examination.
While the FDIC recognizes concerns about the imposition of an
accelerated implementation deadline during economic distress, including
the concern that a covered institution's attention might be diverted to
solving critical problems that threaten its financial condition,
providing depositors with immediate access to funds and preserving
systemic stability is also critical. The ability to accelerate the
implementation deadline must be balanced against any hardship an
accelerated implementation period might impose on a covered
institution. Before accelerating the implementation time period, the
FDIC would consult with the covered institution's appropriate Federal
banking agency. The FDIC would also evaluate the complexity of the
covered institution's deposit systems and operations, the extent of the
covered institution's asset quality difficulties, the volatility of the
covered institution's funding sources, the expected near-term changes
in the covered institution's capital levels, and other relevant factors
appropriate for the FDIC's consideration as deposit insurer.
8. Section 370.8 Relief
Under Sec. 370.8(a) of the final rule, a covered institution may
submit a request to the FDIC for an exemption if it demonstrates that
it has not and will not take deposits which, when aggregated, would
exceed the SMDIA (currently $250,000) for any beneficial owner of the
funds on deposit. In other words, if each owner of deposits were to
have an amount equal to or less than the SMDIA on deposit at a covered
institution, then all deposits would be fully insured. Deposit
insurance determinations at failed covered institutions that meet this
condition should not be complicated and, therefore, the FDIC does not
believe that requiring such covered institutions to develop the
capability to calculate deposit insurance coverage would be necessary.
Recognizing that circumstances may currently exist, or emerge in
the future,
[[Page 87741]]
for which a covered institution is unable to comply with the
recordkeeping requirements set forth in Sec. 370.4 or some particular
provision therein with respect to an identified deposit account or
class of deposit accounts, Sec. 370.8(b) allows a covered institution
to request an exception for those accounts. In its request letter, the
covered institution must demonstrate the need for an exception,
describe the impact of an exception on the ability to accurately
calculate deposit insurance for the related deposit accounts, and state
the number of, and the dollar value of deposits in, those deposit
accounts. When reviewing the request, the FDIC would consider the
implications that a delayed deposit insurance determination would have
for a particular account holder or the beneficial owners of deposits,
the nature of the deposit relationship, and the ability of the covered
institution to obtain the information needed for an accurate
calculation of deposit insurance.
A covered institution that no longer meets the criteria for being a
covered institution may submit a request for release from the final
rule's requirements. Section 370.8(c) provides that if the number of
deposit accounts at a covered institution drops below the two million
deposit account threshold for three consecutive quarters based on
Schedule RC-O in the Report of Condition and Income, the institution
may request release. Like any other IDI, an institution released under
this paragraph would become a covered institution again if it were to
have two million or more deposit accounts for two consecutive quarters.
The objectives of the final rule supersede the objectives of 12 CFR
360.9. Accordingly, if a covered institution reaches full compliance
with the final rule, the results intended under Sec. 360.9 will be
largely accomplished. Paragraph (d) permits a covered institution to
request a release from the requirements set forth in Sec. 360.9 upon
submission of its first certification of compliance with the final
rule's requirements.
This section further provides that the FDIC will consider all
requests made under relevant provisions of the final rule on a case-by-
case basis in light of the final rule's objectives, and that the FDIC's
grant of a covered institution's request may be conditional or time-
limited.
9. Section 370.9 Communication With the FDIC
This section requires that within ten business days after either
the effective date of the final rule or becoming a covered institution,
whichever is later, a covered institution notify the FDIC of the
person(s) responsible for implementing the recordkeeping or IT system
requirements set forth in this part. Point-of-contact information,
reports and requests are to be submitted in writing to: Office of the
Director, Division of Resolutions and Receiverships, Federal Deposit
Insurance Corporation, 550 17th Street NW., Washington, DC 20429-0002.
10. Section 370.10 Compliance
The final rule sets forth a two-part approach for compliance.
First, beginning on or before the compliance date and annually
thereafter, a covered institution must certify that it has implemented
and successfully tested its IT system for compliance with the final
rule's requirements during the preceding calendar year. The
certification must be signed by the covered institution's chief
executive officer or chief operating officer. Along with its
certification of compliance, the covered institution must also submit a
summary deposit insurance coverage report to the FDIC. The summary
deposit insurance coverage report would list key metrics for evaluating
deposit insurance risk to the DIF and coverage available to a covered
institution's depositors. Those metrics are: The number of account
holders, the number of deposit accounts, and the dollar amount of
deposits by ownership right and capacity; the total number of fully-
insured deposit accounts and the dollar amount of deposits in those
accounts; the total number of deposit accounts with uninsured amounts
and the total dollar amount of insured and uninsured amounts in those
accounts; the total number of deposit accounts and the dollar amount of
deposits in accounts, broken out by account type, for which the covered
institution's IT system cannot calculate deposit insurance coverage
because it is permitted to maintain alternative recordkeeping
requirements as set forth in Sec. 370.4(b); and a description of any
substantive change to the covered institution's IT system or deposit
taking operations since the prior annual certification.
Second, the FDIC will conduct periodic on-site inspections and
tests of each covered institution's IT system's capability to
accurately calculate deposit insurance coverage in the event of
failure. Testing will begin no sooner than the last day of the first
calendar quarter following the compliance date, and will occur no more
frequently than on a three-year cycle thereafter, unless there is a
material change to the covered institution's IT system, deposit-taking
operations, or financial condition. The FDIC will provide data
integrity and IT system testing instructions to covered institutions
through the issuance of procedures or guidelines prior to the final
rule's effective date and before initiating its compliance testing
program, and will provide outreach to covered institutions to
facilitate their implementation efforts. The final rule also requires
covered institutions to assist the FDIC in resolving any issues that
arise upon the FDIC's on-site inspection and testing of the IT system's
capabilities.
The final rule provides that a covered institution will not be in
violation of any requirements of the rule for which the institution has
submitted a request for relief pursuant to Sec. 370.6(b) or Sec.
370.8(a)-(c) while awaiting the FDIC's response to the request.
IV. Expected Effects
Using current data, the FDIC estimates that the rule will apply to
38 institutions, each with two million or more deposit accounts.\16\
Together, these institutions hold more than $10 trillion in total
assets and manage over 400 million deposit accounts.
---------------------------------------------------------------------------
\16\ All data in this section is calculated using FDIC Call
Report Data as of June 30, 2016.
---------------------------------------------------------------------------
The FDIC has evaluated the estimated cost to implement this rule,
as well as the benefits to the FDIC's resolution process and to the
millions of account holders who would need immediate access to their
funds in the event of failure of a covered institution. The main
determinants of the estimated cost to institutions covered by the final
rule are the number of deposit accounts they hold and the number of
deposit IT systems they manage. Benefits of the rule include: Ensuring
prompt and efficient deposit insurance determinations by the FDIC and
thus the liquidity of deposit funds; enabling the FDIC to readily
resolve a failed IDI; reducing the costs of failure of a covered
institution by increasing the FDIC's resolution options; and promoting
long term stability in the banking system by reducing moral hazard.
These benefits are expected to accrue to the public at large.
However, because there is no market in which the value of these
expected benefits can be determined, it is not possible to quantify
these benefits with precision. As the public benefits cannot be
quantified, the FDIC presents an analytical framework that describes
the qualitative effects of the proposed rule and the quantitative
effects where possible, consistent with
[[Page 87742]]
the FDIC Statement of Policy on the Development and Review of FDIC
Regulations and Policies.
Expected Costs
The FDIC's initial estimate of the cost of this rule, as described
in the NPR, was approximately $328 million. The FDIC has updated its
cost estimate to $478 million, based in part upon comments the FDIC
received in response to the NPR. The updated estimated cost to covered
institutions represents $386 million of this total, with the remaining
estimated costs accruing to depositors and the FDIC. Even with these
updates, the estimated costs to covered institutions remain small
relative to their revenues and expenses.
In estimating the costs of this rule, the FDIC engaged the services
of an independent consulting firm. Working with the FDIC, the
consultant used its extensive knowledge and experience with IT systems
at financial institutions to develop a model to provide cost estimates
for the following activities:
Implementing the deposit insurance calculation
Legacy data clean-up
Data extraction
Data aggregation
Data standardization
Data quality control and compliance
Data reporting
Ongoing operations
Cost estimates for these activities were derived from a projection
of the types of workers needed for each task, an estimate of the amount
of labor hours required, an estimate of the industry average labor cost
(including benefits) for each worker needed, and an estimate of worker
productivity. The analysis assumed that manual data clean-up would be
needed for 5 percent of deposit accounts, 10 accounts per hour would be
resolved, and internal labor would be used for 60 percent of the clean-
up. This analysis also projected higher costs for institutions based on
the following factors:
Higher number of deposit accounts
Higher number of distinct core servicing platforms
Higher number of depository legal entities or separate
organizational units
Broader geographic dispersal of accounts and customers
Use of sweep accounts
Greater degree of complexity in business lines, accounts, and
operations
Illustration 1 provides a diagram of the cost model.
[GRAPHIC] [TIFF OMITTED] TR05DE16.000
Table 1 shows that almost half of the rule's estimated total costs
are attributable to legacy data clean-up. These legacy data clean-up
cost estimates are sensitive to both the number of deposit accounts and
the number of deposit IT systems. More than 90 percent of the legacy
data clean-up costs are associated with manually collecting account
information from customers and entering it into the covered
institution's systems. Data aggregation, which is sensitive to the
number of deposit IT systems, makes up about 13 percent of the rule's
estimated costs.
[[Page 87743]]
Table 1--Estimated Implementation * Costs by Component
------------------------------------------------------------------------
Components Component cost Percent of total
------------------------------------------------------------------------
Legacy Data Cleanup................. $226,482,333 47.43%
Data Aggregation.................... 64,015,373 13.41%
Ongoing Operations **............... 55,175,451 11.55%
Data Standardization................ 36,573,894 7.66%
FDIC Costs **....................... 36,001,520 7.54%
Data Extraction..................... 25,397,761 5.32%
Quality Control and Compliance...... 18,403,006 3.85%
Insurance Calculation............... 9,500,400 1.99%
Reporting........................... 5,971,800 1.25%
-----------------------------------
Total Cost...................... 477,521,538 100%
------------------------------------------------------------------------
* Estimates of bank implementation costs include both initial and
ongoing costs associated with this final rule.
** Present value of annual costs using a 3.5 percent discount rate over
a 30-year time horizon. For example, this discount rate is used in OMB
Circular No. A-4 and A-94, Appendix C (revised November 2015 for
calendar year 2016).
Table 2--Comparison of Bank Implementation * Costs to Expenses
[Amounts in thousands]
[Estimated cost to covered institutions: $385,517]
------------------------------------------------------------------------
2015 Expenses Implementation *
Expense item for covered cost as percent
institutions of expense
------------------------------------------------------------------------
Noninterest Expense................. $260,857,965 0.15%
Personnel Expense................... 119,069,416 0.32%
Tax Expense......................... 49,262,660 0.78%
Interest Expense.................... 26,761,300 1.44%
Fixed Expense: Premises............. 28,446,163 1.36%
------------------------------------------------------------------------
Cost as Percent
of Income
-----------------------------------
Pre-Tax Net Income, 2015............ $157,197,668 0.25%
-----------------------------------
Cost per Deposit
Account
-----------------------------------
Number of Deposit Accounts, 2Q 2016. 416,149.383 $0.93
-----------------------------------
Cost as Percent
of Assets
-----------------------------------
Total Assets, 2Q 2016........... $10,558,645,376 0.004%
------------------------------------------------------------------------
* Estimates of bank implementation costs include both initial and
ongoing costs associated with this final rule.
These estimates of initial and ongoing costs of implementation are
higher than those provided in the NPR. The increase in total estimated
implementation costs is the result of updating the data, reviewing the
cost methodology, and incorporating comments received on the NPR. Even
with the revisions, however, the updated cost estimate does not alter
the FDIC's overall assessment of the expected effects of the final
rule.
The estimated total cost of the final rule remains relatively small
for covered institutions. The estimated costs amount to an average of
93 cents per deposit account and one-quarter of one percent of pre-tax
net income, as shown in Table 2. Banks with more serious deficiencies
in their current systems or with greater complexity in their business
lines, accounts, and operations are expected to incur above-average
compliance costs. These estimates may overstate the costs of the final
rule because some covered institutions are already undertaking efforts
to improve their data quality to address their own operational concerns
and to comply with other statutes and regulations.
Expected Benefits
The recent financial crisis has demonstrated that large financial
institutions can fail very rapidly. The failure of a covered
institution would likely involve millions of deposit insurance claims.
An orderly resolution requires ready access to complete and accurate
information about the insurance status of depositors. The final rule
ensures that the FDIC can conduct an orderly resolution of covered
institutions despite the informational challenges they pose.
Financial crises are, by their very nature, unpredictable, and
unique and the likelihood, duration and magnitude of any such crisis
cannot be predicted with mathematical precision. There are over $9
trillion in deposits in United States banks and the FDIC insures each
qualifying account up to a maximum of $250,000, regardless of the
events that unfold during any particular crisis. During the recent
financial crisis, the federal government provided trillions of dollars
of government support to large financial institutions.\17\ Some of the
[[Page 87744]]
institutions covered by this rule received government support that far
exceeds the anticipated costs of this rule.
---------------------------------------------------------------------------
\17\ See, e.g., David Luttrell, Tyler Atkinson, & Harvey
Rosenblum, Assessing the Costs and Consequences of the 2007-09
Financial Crisis and Its Aftermath, Federal Reserve Bank of Dallas
Economic Letter (Sept. 2013), available at https://www.dallasfed.org/assets/documents/research/eclett/2013/el1307.pdf; Richard G.
Anderson & Charles S. Gascon, A Closer Look, Assistance Programs in
the Wake of Crisis, The Regional Economist, Federal Reserve Bank of
St. Louis (Jan. 2011), available at https://www.stlouisfed.org/~/
media/Files/PDFs/publications/pub_assets/pdf/re/2011/a/bailouts.pdf;
U.S. Gov't Accountability Office, GAO-10-100, Regulators' Use of
Systemic Risk Exception Raises Moral Hazard Concerns and
Opportunities Exist to Clarify the Provision (2010), available at
https://www.gao.gov/assets/310/303248.pdf.
---------------------------------------------------------------------------
The FDIC expects that the benefits of the final rule will accrue
broadly to the public at large, to bank customers, to IDIs not covered
by the rule, and to the covered institutions themselves. As discussed
earlier, the FDIC expects the final rule to provide significant
benefits, including ensuring prompt and efficient deposit insurance
determinations by the FDIC and thus the liquidity of deposit funds;
enabling the FDIC to more readily resolve a failed IDI; reducing the
costs of failure of a covered institution by increasing the FDIC's
resolution options; and promoting long term stability in the banking
system by reducing moral hazard.
The public at large will be the primary beneficiaries of the final
rule. An effective failed bank resolution maintains liquidity in the
economy by providing timely access to insured funds, promotes financial
stability by ensuring an orderly, least costly resolution, and reduces
moral hazard by recognizing deposit insurance limits (since uninsured
depositors could be subject to losses even at the largest banks).
Making accurate deposit insurance determinations for all insured
institutions is a key component in carrying out the FDIC's mission of
maintaining confidence in the banking system and minimizing costs to
the DIF.
Broadly, the final rule facilitates the consideration of resolution
methods that might otherwise be unavailable, enabling the FDIC to
resolve a failing covered institution in the least costly manner. With
more resolution options, the FDIC may be less likely to resolve a
failing large institution by having another large institution absorb
it; absorption by another large institution would further increase
concentration among the largest banks and raise concerns about longer
term financial stability. This final rule reduces the likelihood of
invoking a systemic risk exception, the cost of assistance provided as
the result of a failure and receivership for which the systemic risk
exception has been invoked, and the associated long-term risk of
increased moral hazard and damaged market discipline.\18\
---------------------------------------------------------------------------
\18\ As mandated by the Dodd-Frank Act, future payments pursuant
to the systemic risk exception can only be made with respect to an
institution in receivership, removing the possibility of open bank
assistance. See Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 1106, 124 Stat. 1376 (2010).
This change increases the likelihood that the failure of a covered
institution will involve millions of deposit insurance claims.
---------------------------------------------------------------------------
Bank customers will also benefit from the final rule. Timely
deposit insurance determinations will give bank customers expeditious
access to insured funds to meet their transaction needs and financial
obligations. Moreover, any current deficiencies in IT systems and data
gathering that prevent covered institutions from identifying
relationships between deposit accounts are likely to also prevent them
from having the ability to quickly inform customers whether or not
their deposits are insured, if asked.
IDIs not covered by the final rule will benefit because the prompt
payment of deposit insurance at the largest IDIs should promote public
confidence in the banking system as a whole. The provisions of the
final rule will help to level the competitive playing field between
large banks with two million or more deposit accounts and community
banks, which typically maintain far fewer deposit accounts. The
requirements of the final rule will reduce the perception that
uninsured depositors at large banks are less likely to incur losses in
the event of failure than their counterparts at smaller institutions.
The enhancements to data accuracy and completeness supported by the
final rule should benefit covered institutions as well. Improvements to
data on depositors and information systems as a result of adopting the
final rule may lead to efficiencies in managing customer data.
Accordingly, the upgrades in depositor information required under this
rule are likely to benefit covered institutions by improving their
ability to serve their customers and increasing their depositors'
confidence that deposit insurance can be paid promptly by the FDIC in
the event of failure. Moreover, the processing of daily bank
transactions may be less prone to data errors.
V. Alternatives Considered
A number of alternatives were considered in developing the final
rule. The major alternatives include (1) adjusting thresholds above or
below the proposed two million accounts, (2) imposing recordkeeping
requirements on all account types, (3) maintaining the FDIC's current
approach to deposit insurance determinations (status quo), (4)
developing an internal IT system and transfer processes within the FDIC
capable of subsuming the deposit system of any large covered IDI in
order to perform deposit insurance determinations, and (5) simplifying
deposit insurance coverage rules. The FDIC considers the final rule to
be the most effective approach among the alternatives in terms of cost
to the industry, the speed and accuracy of deposit insurance
determinations, access to funds, and reduction of systemic and
information security risks. Development of the final rule was based on
a careful evaluation of expected effects, public comments, and the
FDIC's experience in resolving failed banks.
In deciding which institutions would be subject to the final rule,
the FDIC considered thresholds above and below two million deposit
accounts. Raising the threshold would decrease the costs of the final
rule to the industry because fewer institutions would be covered, but
would also increase the risk that the FDIC would be unable to make
timely and accurate deposit insurance determinations for large
institutions and limit the FDIC's resolution options, thereby
potentially increasing the costs of resolution.
Making a correct and timely deposit insurance determination
requires that the FDIC have access to accurate data on deposit accounts
as well as on any relationships among those accounts. The FDIC has
learned from prior experience that it is possible to manage data
quality problems at small institutions without delaying or materially
altering the outcome of the deposit insurance determination. However,
the ability of the FDIC to promptly manage data quality problems at
large institutions declines rapidly with the number and complexity of
deposit accounts. Therefore, resolving data quality problems at
institutions with the largest number of accounts and most complex
deposit account systems prior to failure, as required by this final
rule, should substantially lower the risk of inaccuracy or delay in
making determinations.
As described in IV. Expected Effects, the FDIC estimates that the
costs associated with the two million account threshold for these large
IDIs will be relatively modest compared to their net income and other
costs of doing business. Decreasing the threshold below two million
accounts would impose higher costs on the industry as a whole, and the
marginal benefits of
[[Page 87745]]
the rule would decline since smaller institutions present less risk to
prompt deposit insurance determinations.
In determining the scope of the final rule, the FDIC considered
requiring covered institutions to maintain complete and accurate
records for all accounts as originally proposed. However, the FDIC
recognizes that covered institutions may not maintain in their deposit
account records, and may not be able to obtain, for all accounts the
information needed for deposit insurance purposes. The FDIC's
regulation that sets forth the standards for deposit insurance
coverage, 12 CFR part 330, permits records to reside outside of an IDI
with respect to certain types of deposit accounts, as long as certain
requirements are satisfied, without adverse consequences for the
insurability of deposits. Similarly, the final rule recognizes that
covered institutions will not have and therefore do not need to keep
complete records for deposit insurance purposes for those types of
deposit accounts.
Additionally, costs associated with developing the ability to
collect data, produce key account holder information in a timely
manner, and perform a deposit insurance calculation are estimated to be
relatively high for some account types. For example, for covered
institutions the costs associated with collecting key information
regarding beneficial ownership of deposits held by a prepaid account
program manager on behalf of program participants is likely to be
higher than for other account types for which beneficial ownership can
be readily determined. For trust accounts, the identity and number of
beneficiaries can often change, making the costs associated with
collecting key information from the account holder, trustee, or other
interested parties relatively high.
Another alternative is to maintain the status quo established by 12
CFR 360.9. However, that rule does not adequately address an important
problem that arises in the resolution of the largest and most complex
institutions. Deposit insurance determinations under Sec. 360.9
necessitate a secure bulk download of depositor data that introduces
additional delays in making determinations. The FDIC's experience in
resolving large institutions shows that the amount of time for data to
download can vary widely based on the file size, complexity of the
data, and the number of deposit systems, among other things. Given the
limited time available to the FDIC to make determinations, these delays
pose the risk of creating financial hardships for depositors and
disrupting financial markets.
Another alternative considered was to establish a system to rapidly
transmit all deposit data from a failed IDI's IT system to the FDIC for
processing in order to calculate and make deposit insurance
determinations. Although this alternative utilizes a common deposit
insurance calculation IT system, absorbing the deposit system or
systems of a large, complex institution quickly enough to make a prompt
insurance determination is infeasible as a practical matter. Unlike
typical small and mid-sized IDIs, covered institutions have large
amounts of data and often use multiple deposit account IT systems which
are programmed to meet institution-specific needs. FDIC staff, working
with staff from each large institution, would have to develop an
individualized solution for each institution tailored to its IT systems
and third-party applications. Extensive initial and ongoing testing
would be required to establish that the data transmission would allow a
prompt and accurate insurance determination. Additionally, covered
institutions would still bear the cost of legacy data cleanup and data
aggregation, which are the two largest cost components in the cost
model.
The alternative of the FDIC establishing an IT system to rapidly
transfer all deposit data from a failed IDI would also likely impose
large ongoing costs for covered institutions because any significant
change to the deposit system of a large IDI would necessitate further
testing and validation. Further, the large IT development, testing, and
recertification costs borne by the FDIC under this alternative would
ultimately be paid by insured depository institutions through ongoing
deposit insurance assessments. In contrast, the final rule requires
that a covered institution's IT system have the ability to calculate
deposit insurance coverage for all deposit accounts in the event of a
failure. It would use the data that the covered institution has on hand
at the time of failure as well as data collected by the FDIC from
depositors shortly after failure. Under the final rule, IT costs would
be absorbed by covered institutions rather than by the entire banking
industry.
Another alternative the FDIC considered was to simplify deposit
insurance coverage rules. Currently, deposit insurance is provided
under different ownership rights and capacities, some of which involve
complex types of deposit accounts. Reducing the number of rights and
capacities or simplifying the coverage rules would reduce the costs
associated with covered institutions' development of the capability to
calculate deposit insurance coverage. However, efforts to simplify the
deposit insurance coverage rules could effectively reduce coverage to
depositors at all FDIC insured institutions, an approach that would
impose a cost on a wider range of institutions and bank customers.
Further, these complex account types present problems when the FDIC
must analyze a significant number of these accounts at the same time.
The FDIC's established methods for dealing with these more complex
accounts in smaller and mid-sized resolutions include manual
processing, an approach that could take too long in a larger resolution
involving a significant number of these accounts. Consequently, the
FDIC is not pursuing simplification of the deposit insurance coverage
rules.
VI. Discussion of Comments
Generally, the issues raised by the commenters may be categorized
under the following topics: The need for regulation, expected effects
of the proposed rule, possible alternatives to the proposed rule,
problems with the proposed rule's requirements, and possible adverse
consequences.
A. Comments Concerning the Need for Regulation
The commenters generally agree that it is important for depositors
to have prompt access to their insured deposits in the event of the
failure of a large and complex IDI. However, some commenters contended
that the proposed rule is unnecessary because covered institutions are
unlikely to fail. One commenter remarked that the likelihood of failure
is ``essentially zero.'' This commenter maintained that it is more
likely that market forces and the FDIC's enforcement powers and
supervisory authority would solve the problems of a large institution
before failure. This commenter also asserted that, even if failure did
occur, a transaction in which all deposits are assumed by another
institution would be the least costly resolution, thereby avoiding the
need for a deposit insurance determination. The payment of all
uninsured deposits would preserve the failed bank's franchise value,
this commenter argued, while adherence to deposit insurance limits
could cause runs at other financial institutions and be systemically
disruptive. Another commenter suggested that it would be ``unlikely''
that the FDIC would use a straight deposit payoff, an insured deposit
transfer, or a deposit insurance national bank to resolve a large bank.
Similarly, other commenters posited that, if a
[[Page 87746]]
covered institution were to fail, then an all-deposit purchase and
assumption transaction would be the least costly resolution, thereby
avoiding the need for a deposit insurance determination.
While the likelihood of any particular covered institution's
failure may be low at a given point in time, history suggests that the
financial condition of institutions that are perceived to be in good
health can deteriorate quickly and with little notice. In 2008 and
2009, several large insured depository institutions failed, including
IndyMac Bank and Washington Mutual Bank. In general, very large IDIs
rely on credit-sensitive funding more than smaller IDIs do, which makes
them more likely to suffer a rapid liquidity-induced failure.
The contention that warning signs will give the FDIC sufficient
notice to plan for resolution of a covered institution and the related
argument by another commenter that the ``FDIC has provided absolutely
no evidence that a large bank . . . has ever failed with little prior
warning'' are also controverted by the events of the recent banking and
financial crisis. The financial condition of several large and complex
financial institutions deteriorated very rapidly in 2008. Numerous
academic studies, articles, reports to Congress, other government
reports, and Congressional testimony (including testimony from FDIC
officials) have documented that short term funding challenges rapidly
caused distress at banks during the last financial crisis (resulting in
either bank failure or government intervention to prevent failure, as
in the case of Wachovia Bank and Citibank).\19\ This dynamic, present
in the failure of Washington Mutual, for example, increases the risk
that the FDIC will have little lead time to prepare for the failure of
a covered institution.
---------------------------------------------------------------------------
\19\ See, e.g., Testimony of Scott G. Alvarez, General Counsel,
Board of Governors of the Federal Reserve System, The Acquisition of
Wachovia Corporation by Wells Fargo & Company Before the Financial
Crisis Inquiry Commission, Before the Financial Crisis Inquiry
Commission (Sept. 1, 2010); Testimony of Sheila C. Bair, Chairwoman
of the FDIC, Causes and Current State of the Financial Crisis Before
the Financial Crisis Inquiry Commission, Before the Financial Crisis
Inquiry Commission (Jan. 14, 2010); Financial Crisis Inquiry
Commission, ``The Financial Crisis Inquiry Report: Final Report of
the National Commission on the Causes of the Financial and Economic
Crisis in the United States'' (U.S. Government Printing Office,
2011); Philip Strahan, Liquidity Risk and Credit in the Financial
Crisis, Federal Reserve Bank of San Francisco Economic Letter (May
14, 2012); U.S. Gov't Accountability Office, GAO-10-100, Federal
Deposit Insurance Act: Regulators Use of Systemic Risk Exception
Raises Moral Hazard Concerns and Opportunities Exist to Clarify the
Provision (April 2010).
---------------------------------------------------------------------------
While certain post-crisis reforms have resulted in a more resilient
banking system with stronger liquidity and capital, the effect of these
reforms has not been tested in a crisis. These post-crisis reforms
mitigate but do not eliminate the risk of failure. Other post-crisis
reforms have limited the FDIC's authorities. For example, during the
most recent crisis the FDIC was able to provide debt guarantees through
the Temporary Liquidity Guarantee Program under then-existing statutory
authority to bolster liquidity in the financial system. Under current
law, such a program would require Congressional approval.
The contentions that, even if a large bank did fail, a transaction
in which all deposits are assumed by another institution or in which
all assets are purchased and deposit liabilities assumed would be the
least costly resolution (thus avoiding the need for a deposit insurance
determination), or that it would be ``unlikely'' that the FDIC would
use a straight deposit payoff, an insured deposit transfer, or a
deposit insurance national bank to resolve a large bank are again
controverted by the facts. Since 2008, the FDIC has conducted 36
resolutions where an all-deposit assumption transaction could not be
arranged. Moreover, the sheer size of many covered institutions limits
the number of institutions that could even consider purchasing all
assets and assuming all deposits (or simply assuming all deposits),
increasing the chances that a deposit insurance payout or a bridge bank
will be the least costly alternative.\20\ To use these resolution
methods, the FDIC must be able to make a deposit insurance
determination.
---------------------------------------------------------------------------
\20\ The least cost test does not consider indirect or
speculative costs, such as costs to other entities in the economy
that result from a bank's failure. Thus, absent a systemic risk
determination, the FDIC cannot consider these costs as a reason to
implement a more costly alternative.
---------------------------------------------------------------------------
Moreover, a former Chairman of the FDIC publicly shared his
reaction to a commenter's suggestion that the FDIC would never need to
determine deposit insurance for the largest banks, stating that the
suggestion was ``in effect, proposing 100% deposit insurance at banks,
which would sound the death knell for any pretense of market discipline
and a private sector banking system.'' He stated that, historically,
the FDIC ``had no ability to deal with large bank failures in any way
other than by recapitalizing them or merging them into even larger
banks if [the FDIC] couldn't quickly segregate the uninsured deposits
from the insured. Without this information, the FDIC might as well
throw in the towel on instilling private sector discipline in the
banking system.'' \21\ The possibility of failure must exist to
maintain market discipline and avoid moral hazard.
---------------------------------------------------------------------------
\21\ Bill Isaac (former FDIC Chairman), online response to Bert
Ely, FDIC's Sudden Concern with Insurance Limit Makes No Sense,
American Banker (May 18, 2016), available at https://www.americanbanker.com/bankthink/fdics-sudden-concern-with-insurance-limit-makes-no-sense-1081055-1.html.
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Some commenters assert that additional regulation is unnecessary
because the FDIC's informational needs for a deposit insurance
determination are already addressed in its current regulation at 12 CFR
360.9. The current approach under Sec. 360.9 is not adequate and
additional regulation is necessary for two reasons. First, as discussed
in II. Need for Further Rulemaking, the informational and provisional
hold aspects of Sec. 360.9 are inadequate for the largest depository
institutions. The institutions covered by Sec. 360.9 are permitted to
populate the data fields by using only data elements currently
maintained in-house. If the institution does not maintain the
information to complete a particular data field, then a null value can
be used in that field. As a result of this discretionary approach,
these institutions' standard data files are frequently incomplete. The
provisional hold capability falls short because Sec. 360.9 requires
these institutions to maintain the technological capability to
automatically place and release holds on deposit accounts if an
insurance determination could not be made by the FDIC by the next
business day after failure. Although provisional holds allow
depositors' access to a portion of their total deposit while the
insurance determination is being finalized, the hold does not
facilitate a faster or more efficient insurance determination.
Second, because deposit data files must be transmitted to the FDIC,
standardized by FDIC staff, and then processed on the FDIC's IT system,
a deposit insurance determination is still a very time consuming and
manually intensive endeavor. While Sec. 360.9 would assist the FDIC in
fulfilling its legal mandates regarding the resolution of failed
institutions subject to that rule, the FDIC believes that if one of the
largest IDIs were to fail with little prior warning, additional
measures would be needed to ensure the prompt and accurate payment of
deposit insurance to all depositors.
Beyond the constraints apparent in Sec. 360.9, significant
resources are needed to collect and standardize the information needed
to process the high volume of accounts a covered institution has in a
manner that will
[[Page 87747]]
avoid significant disruption to depositors and the payment system.
Processing deposit accounts after gathering needed information can take
significant time after failure as well. As the amount of time needed to
gather information from a depositor increases, the speed of insurance
payment to that depositor decreases. Delays in processing deposit
insurance determinations at banks with millions of deposit accounts
would likely be more significant than the delays imposed during past
resolutions of smaller banks. For example, in the wake of IndyMac's
failure, it took FDIC staff significant time and resources to complete
deposit insurance determinations for many formal revocable trust and
irrevocable trust accounts. Given the level of public anxiety after the
failure of IndyMac Bank, it is not unreasonable to be concerned that
the fear of loss on deposits could be even greater in the event of the
failure of a covered institution. The reporting required under the
final rule will help the FDIC prepare to make deposit insurance
determinations after the failure of a covered institution.
Several commenters assert that there is no need for covered
institutions to maintain account information that duplicates or
overlaps with information already maintained outside the institution by
account holders who can provide the information expeditiously in the
event of the institution's failure. These commenters believe that a
two-pronged approach by which prompt payment is made to most depositors
and later payment is made to certain other depositors once the required
information has been received has had no negative effect on public
confidence in deposit insurance and the banking system. To a large
extent, the final rule accommodates this concern by limiting the
recordkeeping requirements for certain types of deposit accounts for
which covered institutions do not already maintain the information
needed for deposit insurance determination.
The evolution of deposit products and relationships has rendered
current regulatory standards less effective in facilitating rapid
deposit insurance determination. Account features and customer use and
expectations have changed. Immediate and continuous access to deposit
accounts is more common now than in the past. Deposit accounts are
increasingly used by beneficial owners of deposits who are not the
named account holder (e.g., MMDAs associated with brokered sweep
accounts and prepaid account programs administered by a third party
that places deposits at an IDI on behalf of the cardholders). Also,
demand deposit accounts held in connection with revocable trusts are
used more commonly. Because these accounts are transactional, those
depositors expect to have immediate access without regard for the
respective institution's failure. Checks outstanding at the time of
failure need to be processed and either paid or returned in a timely
manner, often no more than a few business days, in order to avoid
cascading consequences across the payments system. However, it could
take time after failure for the FDIC to gather the information needed
to make a deposit insurance determination for the deposit accounts that
those checks are drawn upon. The final rule seeks to minimize the
amount of time needed to make deposits in those accounts accessible so
that the impact on depositors and the payments system in general is
minimized.
Some of the commenters maintain that the FDIC should develop its
own IT system capabilities to handle deposit insurance determinations
at an institution of any size. One advocated for the development and
use of a single insurance calculation system to be deployed at every
covered institution, while another discussed the use of a custodial
facility to reconcile depositor data transmitted by the institution
with data transmitted by financial intermediaries. As described in V.
Alternatives Considered, the FDIC considered developing a system to
rapidly transfer all deposit data from a failed IDI's IT system to the
FDIC for processing in order to calculate and make deposit insurance
determinations but determined that absorbing the deposit system or
systems of a large, complex institution quickly enough to make a prompt
insurance determination is practically infeasible.
B. Comments Concerning the Expected Effects of the Rule
Several commenters challenged the conclusions and methodology of
the FDIC's analysis of the proposed rule's expected effects. One
commenter remarked that the ``proposed rule would impose unnecessary
costs without delivering any benefit'' and that the FDIC ``almost
certainly has grossly underestimated the cost to the affected banks of
implementing and maintaining deposit-account aggregation as specified
in the NPR.'' Commenters criticized different cost components of the
analysis, including whether the model was up-to-date, captured the
impact of the rule on all market participants, and the assumptions and
robustness of the model. The FDIC has considered these comments in
development of the final rule.
Expected Costs
FDIC costs: One commenter noted that the NPR did not include costs
to the FDIC. The FDIC estimates that this rule may require as many as
15 full-time equivalent employees to assist with implementation of the
regulation.\22\ The present value of these costs at a 3.5 percent
discount rate for 30 years increases the estimated cost of the rule by
approximately $36 million.\23\ The costs of these employees include
wages, benefits, and taxes, and are adjusted for inflation. The FDIC
believes this is a conservative estimate as it anticipates that
administration of the rule will require less effort over time.
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\22\ Costs for full-time equivalent employees should be
considered opportunity costs (that is, hours worked on the
implementation of the final rule rather than on other work
assignments).
\23\ For example, this discount rate is used in OMB Circular A-4
and A-94, Appendix C (revised November 2015 for calendar year 2016).
---------------------------------------------------------------------------
Costs to depositors: Commenters noted that the NPR did not include
the costs that depositors will incur updating or providing account
information to covered institutions. The FDIC believes that the number
of accounts where depositors will be asked to provide account
information is significantly reduced from the NPR given the alternative
recordkeeping requirements provided for in the final rule. Even so, the
FDIC estimates that the cost to depositors will be approximately $56
million. In calculating this estimate, the FDIC assumes a 100 percent
response rate by depositors with a level of effort (LOE) for depositors
equal to the LOE of the covered institutions and the average national
wage rate of $27 per hour.\24\ Depositors are not required to provide
account information, however, and the FDIC expects that some depositors
will not provide it. A depositor who provides the account information
reveals that he or she perceives that the benefit of providing the
information justifies the cost of doing so.
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\24\ Bureau of Labor Statistics, Establishment Data, Table B-3.
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Costs to intermediaries: Some commenters criticized the FDIC's cost
estimate because it did not include the potential impact on other
market participants, including administrators, custodians, and sub-
custodians. In response to comments discussed elsewhere in this
preamble, the final rule provides alternative recordkeeping
[[Page 87748]]
requirements for certain deposit accounts. The FDIC expects that the
cost to intermediaries will be mitigated by the final rule's
alternative recordkeeping requirements.
Number of deposit accounts: Several commenters criticized the
FDIC's analysis on the grounds that it was based on outdated
information, and it included some banks that would not be covered by
the NPR and excluded some banks that would be covered. Based upon
comments received on the NPR and taking into consideration the banks
that amended their Call Reports to reflect a deposit account total
under the two million threshold, the FDIC updated its model using June
30, 2016 Call Report data, adding banks that will be subject to the
final rule and removing banks that are no longer expected to be subject
to the final rule. The number of covered institutions increased from 36
to 38, and the number of deposit accounts rose by 4.7 percent. This
update, by itself, added approximately $6.4 million to the estimated
cost of the rule.
Ongoing costs: The FDIC's cost estimate was also criticized as not
addressing the ongoing costs of compliance or considering anti-
competitive effects. Some commenters argued that the FDIC failed to
take into consideration ongoing costs; other commenters argued that the
FDIC's estimate of these costs was too low. The FDIC did not receive
any evidence that its estimate for one year of ongoing costs was too
high; however, it did update its estimate to include costs incurred in
later years. The FDIC extended the horizon for annual ongoing costs by
calculating the present value of these costs over a 30-year horizon at
a 3.5 percent discount rate.\25\ This re-calculation raises the
estimated cost of ongoing operations from $2.9 million to approximately
$55 million.
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\25\ For example, this discount rate is used in OMB Circular A-4
and A-94, Appendix C (revised November 2015 for calendar year 2016).
---------------------------------------------------------------------------
Costs and risks of data breaches: Several commenters stated that
the additional information maintained by banks as a result of this
final rule would increase the risk and cost of data breaches. As stated
in the NPR, covered institutions already maintain significant amounts
of personally identifiable information (PII) on their depositors.
However, the final rule has been modified in a way that should largely
address this issue. It does not require covered institutions to bring
records in-house that currently are permitted to reside outside the
institution with the account holder or other designated third party.
Foreign deposits: One commenter stated that the rule should not
cover foreign deposits. The rule does not cover foreign deposits and
the cost calculations take into account only domestic deposit accounts.
Misinterpretation of rule requirements: Several commenters stated
the costs of the final rule would be orders of magnitude higher than
the FDIC's estimate as they believed the rule would require them to
collect or report changes to beneficial ownership and account balances
on a daily basis. The proposed rule did not contain any such
requirement. Similarly, the final rule does not require daily
collection or reporting but rather periodic demonstrations that covered
institutions can promptly provide deposit account information to the
FDIC. In any event, the final rule sets forth alternative recordkeeping
requirements that can be met to satisfy the rule with respect to
accounts insured on a pass-through basis and certain deposit accounts
held in connection with formal trusts.
Model robustness to changes in assumptions: One commenter stated
that the costs in the model are sensitive to the assumptions used by
the FDIC. The FDIC did not receive any information that would indicate
that its assumptions are inappropriate. Further, this comment ignored
the effect that changing assumptions has on the benefits of the rule,
which also rise with the banks' difficulty in obtaining accurate
account information. For example, assuming that the percentage of
accounts with insufficient deposit records will be higher would raise
the costs of the rule, but it would also increase the benefits of the
rule because, absent the final rule, a higher percentage of accounts
with missing or incorrect information would likely further delay an
insurance determination.
Reliability of cost estimate: The NPR noted that even if actual
compliance costs turned out to be twice the projected cost, such costs
would still be relatively small in the context of the size, annual
income, and expenses of covered institutions. Referring to this
statement, one commenter stated that the ``margin of error in the
estimate could be as much as 100 percent.'' The FDIC recognizes that no
model will perfectly capture all of the costs associated with this
rule. Doubling the estimated costs merely demonstrates the robustness
of the FDIC's cost estimate. Moreover, none of the commenters proposed
an alternative model or provided their own compliance cost data. The
FDIC invited the submission of such information when it issued the ANPR
and the NPR.
Relative costs for smaller institutions: Another commenter states
that the FDIC's compliance cost estimates do not accurately reflect the
burden the proposed rule would place on covered institutions and that
compliance burdens would fall disproportionately on smaller
institutions, which do not have the economies of scale to absorb the
costs. This commenter suggests that the FDIC provide a cost calculation
that stratifies the financial impact of the proposal by total deposits,
so that the actual costs relative to size, other expenses, and earnings
can be accurately assessed. One commenter noted that, while the costs
of the rule relative to revenue and expenses are very small for covered
institutions as a whole, this is because of the outsized influence of
large banks on aggregate revenue and expenses. While the FDIC
recognizes that the cost of the rule per account and as a percentage of
assets, revenue, and expenses will be higher for relatively smaller
covered institutions and, while it considered these costs when
determining whether to adopt the final rule, the FDIC concluded that
incomplete deposit account information at institutions with two million
or more deposit accounts poses an unacceptable risk to the DIF and
depositors. However, institutions can submit a request to the FDIC for
an exemption from the final rule if their deposit-taking business model
does not pose a significant risk to the DIF or depositors because all
deposits they accept are fully insured. Moreover, the primary
determinant of the costs of the rule per institution is not likely to
be the size of the institution, but rather the quality of its current
IT system for deposit record-keeping. Those institutions with more
robust and accurate record-keeping systems will incur fewer costs.
Those with less robust and less accurate record-keeping systems will
incur greater compliance costs.
Expected Benefits
Multiple commenters argued that the FDIC should quantify the
expected benefits of the final rule. None of the commenters provided
their view on the quantitative benefits of the rule. Because there is
no market in which the value of these public benefits can be
determined, it is not possible to quantify or estimate these benefits
with precision.
Some commenters questioned the benefits that the rule would
provide. One individual argued that the rule would not deliver any
benefit. One group of trade associations described the expected
benefits as ``marginal,'' and
[[Page 87749]]
another individual described the rule as providing little benefit. The
commenters offered minimal explanation of their positions on the
expected benefits apart from speculating that the failure of one of
these large institutions was unlikely, notwithstanding the events of
the recent financial crisis. In the FDIC's view, the final rule
provides many benefits, as explained in II. Background and IV. Expected
Effects.
C. Comments Concerning Possible Alternatives to the Proposed Rule
As described in V. Alternatives Considered, the FDIC considered a
number of alternatives in developing the proposed and final rule,
including: (i) Adjusting thresholds above or below the proposed two
million accounts; (ii) excluding certain account types; (iii)
maintaining the FDIC's current approach to deposit insurance
determinations (status quo); (iv) developing an internal FDIC IT system
and transfer processes capable of subsuming the deposit system of any
large covered IDI in order to perform deposit insurance determinations;
and (v) simplifying deposit insurance coverage rules. The FDIC received
comments on these alternatives.
In deciding which institutions would be subject to the final rule,
the FDIC considered thresholds above and below two million deposit
accounts. The FDIC received one comment on this alternative. The
commenter suggested that the threshold should include both the number
of accounts and total dollar amount of deposits and suggested that the
threshold for the number of accounts should be higher--10 million
accounts. Raising the threshold would decrease the costs of the rule on
the industry because fewer institutions would be covered, but would
also increase the risk that the information would not be available for
the FDIC to make timely and accurate deposit insurance determinations
for large institutions and limit the FDIC's resolution options, thereby
potentially increasing its loss.
Several commenters argued that it would be too costly to impose
additional recordkeeping requirements for certain types of deposit
accounts. The FDIC recognizes that under current generally applicable
deposit insurance rules for certain types of deposit accounts,
information needed for deposit insurance purposes may reside outside an
IDI's deposit account records, and the final rule does not require that
covered institutions collect the additional information needed from
account holders for these types of deposit accounts.
Some commenters supported maintaining the status quo and considered
existing regulatory standards (specifically Sec. 360.9) to be
adequate. Adoption of Sec. 360.9 was an important step toward
resolving a large depository institution in an efficient and orderly
manner. However, while Sec. 360.9 would assist the FDIC in fulfilling
its legal mandates regarding the resolution of a failed institution
that is subject to that rule, the FDIC believes that if the largest of
depository institutions were to fail with little prior warning,
additional measures would be needed to ensure the prompt and accurate
payment of deposit insurance to all depositors.
The FDIC received a comment supporting the alternative in which the
FDIC creates a software solution to calculate and make deposit
insurance determinations to be deployed at all covered institutions.
The FDIC finds that alternative is not feasible, given the challenge of
creating one program to accommodate the different and bespoke deposit
systems of all covered institutions.
D. Comments Concerning the Proposed Rule's Requirements
1. Problems Associated With Beneficial Ownership Information
One commenter stated that requiring a large amount of beneficial
owner data to be collected on a daily basis would be superfluous
because the FDIC would only need to use the data for deposit insurance
determinations if and when a covered institution failed. Moreover,
requiring daily updates on beneficial customer data would result in
high costs and risk customer dissatisfaction. Generally speaking,
beneficial ownership of deposits placed in covered institutions relies
upon the principles of agency law or fiduciary relationships to provide
``pass-through'' deposit insurance coverage to the beneficial owners of
those accounts. In most circumstances, the agents, fiduciaries,
custodians, or other accountholders maintain the requisite beneficial
ownership data in their own records, and presumably, those
accountholders update their records as necessary, including on a daily
basis, as ownership of the underlying deposits changes. While the final
rule requires a covered institution's IT system to be capable of
accepting and processing beneficial ownership data for all accounts on
any given day, i.e., the day of the covered institution's failure, the
beneficial ownership information will not be required to be transferred
and maintained on a daily basis at the covered institution provided
that 12 CFR part 330 permits the recordkeeping associated with those
deposit accounts to be maintained by an entity other than the covered
institution. See, 12 CFR 330.5 and 330.7.
Some commenters remarked that having to submit requests for
exceptions for individual account holders would be ``senselessly
cumbersome and grossly inefficient--including for the FDIC itself--
considering that all or most covered banks would be expected to seek
exceptions for certain classes or accounts.'' The FDIC has considered
the comments regarding the inefficiency as well as the burden to both
the covered institutions and the FDIC of having to submit and process,
respectively, requests for exceptions from the final rule's
requirements for each individual account holder for whom it would not
be possible to obtain the requisite information. The FDIC has revised
its proposal to address this concern. As more fully described in III.
Description of the Final Rule, the final rule adopts a bifurcated
approach to deposit account recordkeeping requirements based upon the
recordkeeping procedures permitted by 12 CFR part 330. Under this
approach, covered institutions will not be required to collect and
maintain information for certain deposit accounts provided that 12 CFR
part 330 allows the requisite information to be maintained by the
account holder or some other third party. Consequently, it will not be
necessary for covered institutions to request exceptions for individual
deposit accounts or for certain ``classes'' of deposit accounts
provided that the relevant deposit account ownership information for
those accounts is maintained in accordance with 12 CFR part 330.
Certain commenters claimed that the proposed rule would be unduly
costly, burdensome, and impracticable in the case of particular account
holders, such as banks needing to obtain ownership and balance
information from agents and other custodians who service payment cards
issued by large corporations as checking and debit substitutes. One
commenter expected that information for retirement plan participants
would not be forthcoming from sponsors, fiduciaries and others involved
in plan administration because participants' interests change daily,
there are multiple intermediaries from whom information would need to
be collected, and because plan sponsors and fiduciaries won't disclose
participant information for fear of violating participants' privacy and
breaching fiduciary duties under the Employee Retirement Income
Security
[[Page 87750]]
Act of 1974.\26\ Another commenter contended that a lawyer's disclosure
of clients' identities and interests in client trust accounts conflicts
with ethical rules protecting confidential client information.
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\26\ 29 U.S.C. 1002.
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After balancing the goals of the final rule and the concerns of the
commenters, the FDIC decided to align the deposit account recordkeeping
requirements of this final rule with the recordkeeping requirements set
forth in 12 CFR 330.5 and 12 CFR 330.7. These two sections of the
FDIC's regulations address deposit account ownership (and
recordkeeping) in the context of fiduciary relationships (as described
in Sec. 330.5) and which includes agents, nominees, guardians and
custodians. Compliance with these recordkeeping requirements is
necessary to ensure the availability of pass-through deposit insurance
to the underlying beneficial owners of the deposits. The commenters
presented various arguments for different types of pass-through
deposits to support their request for ``class'' exceptions.
Retirement and other employee benefit plan accounts. For the
reasons discussed, the FDIC will consider these accounts to be subject
to the alternative recordkeeping requirements of final part 370.
Nevertheless, the covered institutions will be required to assign a
unique identifier to the account holder. Covered institutions will also
be required to maintain a ``pending reason'' code in their deposit
account records for each account to comply with Sec. 370.4(b)(1)(ii)
of the final rule. The covered institutions should have procedures in
place to obtain the necessary plan participant information as soon as
possible after failure. Any delay in the receipt of the requisite
information post-failure will adversely impact the FDIC's ability to
complete its deposit insurance determinations and disburse deposit
insurance payments to the plan administrators.
Interest on Lawyer Trust Accounts and Real Estate Trust Accounts.
Several commenters described the problems facing lawyers attempting to
maintain current and accurate information regarding their clients'
identities and transactions associated with their Interest on Lawyer
Trust Accounts (``IOLTA'') accounts. The commenters asserted that
frequent, if not daily, deposits and withdrawals are made on behalf of
various clients. Therefore, requiring the lawyers to provide up-to-date
information on a daily basis would be ``administratively difficult and
costly'' for the lawyers who are the account holders. As the American
Bar Association Model Rule 1.15 requires lawyers to keep adequate
records on IOLTAs for up to five years, the lawyer or law firm (as the
account holder) should be able to provide the necessary information
regarding their clients, who are the beneficial owners of the deposit
in the IOLTA account, in a timely fashion. The commenters also pointed
out that lawyers have a fiduciary duty to maintain the confidentiality
of their clients' sensitive or personal information and raised concerns
that this duty could be compromised by routinely disclosing such
information to a covered institution. The FDIC recognizes that FinCEN
recently excepted IOLTAs and other lawyer escrow accounts from its
customer due diligence final rule; it appears that FinCEN relied upon
many of the same considerations discussed here.\27\ It is important to
note, however, that FinCEN and the FDIC are addressing different
problems through their respective rulemakings; i.e., the prevention of
money laundering and timely deposit insurance determinations,
respectively. Ultimately, the safeguards provided by the lawyers' rules
of professional responsibility to properly manage their IOLTA accounts
coupled with the off-site recordkeeping allowed pursuant to Sec.
330.5(b)(1)-(3) for fiduciary relationships justify the reduced deposit
account recordkeeping requirements for IOLTA accounts.
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\27\ 81 FR 29398, 29416 (May 11, 2016).
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The same commenters asserted that Real Estate Trust Accounts
(``RETAs'') are very similar in structure and concept to IOLTAs and,
therefore, should also be excepted as a class of deposits from the
recordkeeping requirements of final part 370. RETAs represent another
type of pooled, custodial account in which a title/escrow agent
deposits funds from multiple clients; the funds are usually held for a
short period of time until the clients' real estate transactions are
completed. Deposit account recordkeeping for RETAs is also subject to
the off-site recordkeeping requirements of Sec. 330.5(b)(1)-(3) for
fiduciary relationships. Therefore, covered institutions will only be
required to assign a unique identifier to the account holder and
maintain a ``pending reason'' code in its deposit account records in
accordance with Sec. 370.4(b)(1)(ii).
Mortgage servicing accounts. The FDIC received several comments
requesting that the recordkeeping requirements of the proposed rule be
revised to allow relevant information regarding mortgagors whose
payments are placed in a mortgage servicing account (``MSA'') to
continue to be maintained with the mortgage servicing company rather
than at the covered institution. Commenters from the mortgage servicing
industry provided a description of the typical transactions which occur
in a mortgage servicing account, explaining that there are safeguards
which would make the need to access the funds in such an account on the
first business day after a covered institution's failure a low priority
for the servicer. For example, payments of principal and interest are
made in advance; mortgage servicing contracts require the servicer to
maintain back-up liquidity sources; and while the transaction volume in
these accounts is usually high, the deposit amounts allocated to
individual beneficial owners are typically far less than the SMDIA. In
addition, mortgage servicing deposit accounts are expressly included in
Sec. 330.7(d) and are usually held by a mortgage servicing company in
a custodial or fiduciary capacity. The FDIC has considered these
comments and, based on these considerations, the FDIC has concluded
that MSAs maintained by a third party mortgage servicer must only
comply with the recordkeeping requirements set forth in 12 CFR
370.4(b)(1). On the other hand, MSAs for which the covered institution
serves as the mortgage servicer must comply with the recordkeeping
requirements set forth in Sec. 370.4(a).
Brokered deposits and sweep accounts. Several commenters raised
concerns about the impact of the proposed rule on brokered deposits.
One proposed revising the exemption provision to apply to deposits
received through a deposit allocation or sweep service in amounts that
do not exceed the SMDIA, expressly permitting a custodian or sub-
custodian, as account holder, to refuse to provide beneficial owner
data for all deposits placed through a deposit placement network or
cash sweep program, and granting an exception based on such refusal
without requiring a particularized showing for each of the custodian's
customers. Another commenter recommended excepting deposits placed in a
covered institution by a non-covered institution through a deposit
placement network.
Another commenter provided data concerning the scope and
composition of brokered deposits and sweep programs as a subset of the
entire banking industry's deposit base. According to this commenter, as
of March 31, 2016, there were $813 billion of brokered deposits
reported on bank Call Reports; of this amount,
[[Page 87751]]
approximately $350 billion were brokered CDs. This commenter also
estimated that $350 billion of the $813 billion reported brokered
deposits are in sweep programs and noted that deposits in some sweep
programs are not categorized as ``brokered deposits'' and are therefore
not reported as such on the Call Reports of those banks in which they
are deposited. According to this commenter, almost 13 percent of
domestic deposits are held on a pass-through basis through broker-
dealers or other banks through these various deposit programs, and
average sweep deposit balances and purchases of brokered CDs are
substantially below the SMDIA.
Brokered deposits--for example, those that are part of a deposit
placement network or as brokered CDs offered by or sweep programs
sponsored by a broker-dealer--represent another type of deposit account
where a fiduciary or other agent or custodian is the account holder on
behalf of beneficial owners. In recognition of the recordkeeping
requirements set forth in Sec. 330.5, the final rule provides for
``alternative recordkeeping'' for those deposit accounts. The covered
institutions are authorized to maintain their account records for
brokered deposit accounts in accordance with the off-site and multi-
tiered relationship methods set forth in Sec. 330.5(b). The covered
institutions will be required to assign a unique identifier to the
account holder which will be the entity placing the deposit(s) in the
covered institution. The covered institutions will not be able to
designate the appropriate right and capacity code because they will not
have access to the requisite underlying information regarding the
beneficial owners; consequently, they will need to maintain in their
deposit account records information sufficient to populate the pending
reason field in the pending file that would be generated by the IT
system as required under Sec. 370.4(b)(1) and Appendix B of the final
rule and, if appropriate, comply with the certification requirement set
forth in Sec. 370.5.
Prepaid accounts. One commenter argued for a class exemption for
closed-loop and non-reloadable cards because funds paid in exchange for
many of these types of cards are not FDIC-insured on a pass-through
basis, bank collection of information on the owners of the cards is
limited at best, and the cards are often easily transferrable (e.g.,
given to friends or relatives). As discussed in the preamble to the NPR
(and acknowledged by the commenter), the funds paid to a merchant for a
closed-loop (or merchant) card are not insured on a pass-through basis
by the FDIC because ``the funds are not placed into a custodial deposit
account at an insured depository institution.'' \28\ The FDIC's General
Counsel's Opinion No. 8 (``GC Opinion'') affirms this principle by
stating that the GC Opinion ``does not address merchant cards because
such cards do not involve the placement of funds at insured depository
institutions.'' \29\ The guidance provided in the GC Opinion ``is
limited to bank cards and other nontraditional access mechanisms, such
as computers, that provide access to funds at insured depository
institutions.'' \30\
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\28\ 81 FR 10026, 10035 (February 26, 2016).
\29\ FDIC General Counsel's Opinion No. 8--Insurability of Funds
Underlying Stored Value Cards and Other Nontraditional Access
Mechanisms, 74 FR 67155 (November 13, 2008), available at https://www.fdic.gov/regulations/laws/rules/5500-500.html.
\30\ Id.
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This commenter also advocated for a class exemption for open-loop
cards. The commenter noted that there are practical limitations to
obtaining beneficiary-level information given customers' very real
concern for data security and privacy. It emphasized that employers and
government agencies are very sensitive to daily transmittal of PII and
would prefer to maintain the information in their own systems. In
addition, this commenter believed that it is highly unlikely that any
individual would receive benefits on an open-loop payroll card or
government benefits card in excess of $250,000. Finally, it pointed out
that other Federal agencies (the Consumer Financial Protection Bureau,
FinCEN) have issued regulations on prepaid accounts (or imposed
additional customer identification requirements) that may or may not
complement the proposed rule's requirements.
Covered institutions that issue and administer their own prepaid
account programs will need to meet the general recordkeeping
requirements set forth in Sec. 370.4(a) because they maintain in their
deposit account records the information needed to determine deposit
insurance coverage. On the other hand, if an account holder (such as a
third party program manager, for example) administers a prepaid account
program and the covered institution does not maintain the information
needed to determine deposit insurance coverage in its deposit account
records, then those deposits would be eligible for pass-through deposit
insurance coverage in accordance with Sec. Sec. 330.5 and 330.7 if
specified conditions are met. Consequently, the alternative
recordkeeping requirements set forth in Sec. 370.4(b)(1) would be
applicable instead.
One comment stated that for a subset of prepaid accounts, the
covered institutions have represented that they will modify their
deposit systems (in addition to other IT systems enhancements required
by the final rule) to be able to receive ``sensitive [PII] from
employers and government agencies at the specific point in time of a
bank resolution.'' According to the commenter, this additional
modification would allow employers or governments to maintain the
accuracy and integrity of employee/beneficiary data on their own
systems. Industry-driven technological innovations also may facilitate
the covered institutions' ability to comply with this critical timing
requirement.
Under the final rule, the covered institutions will be permitted to
rely on the alternative recordkeeping requirements set forth in Sec.
370.4(b)(1) for any type of deposit account that meets the criteria set
forth therein, i.e., the covered institution's deposit account records
disclose the existence of a relationship which might provide a basis
for additional deposit insurance in accordance with 12 CFR 330.5 or
330.7 (a ``Sec. 370.4(b)(1) account''). Consistent with the goals of
preserving public confidence, an additional condition applies to
accounts with transactional features. The covered institution must
certify that the respective account holder(s) will be able to provide
the necessary depositor/beneficial owner information to the FDIC upon
failure of the covered institution so that the FDIC will be able to
determine the deposit insurance coverage within 24 hours after the
FDIC's appointment as receiver to help ensure that the FDIC will be
able to complete the deposit insurance determination over closing
weekend. The requisite depositor information for these Sec.
370.4(b)(1) accounts must be received by the FDIC so that they will be
part of the initial deposit insurance determination process. Examples
of such deposit accounts include, but are not limited to: Deposits
placed by third parties with associated sweep accounts, whether or not
those sweep accounts are categorized as brokered deposits, and prepaid
accounts. If these deposit accounts are not part of the initial deposit
insurance determination, then the FDIC would be required to place holds
on the funds in those accounts until the necessary information is
received and processed. As a result, the beneficial owners of these
Sec. 370.4(b)(1) accounts would not have access to their funds on the
next business day after the covered institution's failure. It is
possible that for some depositors, this
[[Page 87752]]
delay would create a hardship; the inability to access their funds
could result in returned checks and an inability to handle their day-
to-day financial obligations. In the event that a covered institution
is unable to certify that that the account holder will be able to
provide the required information regarding the Sec. 370.4(b)(1)
accounts to the FDIC upon failure of the covered institution so that
the FDIC will be able to use the covered institution's IT system to
determine deposit insurance coverage within 24 hours after its
appointment as receiver, then the covered institution will have to
request an exception from the FDIC.
2. Trust Accounts
Although deposit insurance coverage for trust accounts is not
dependent upon the principle of pass-through insurance, issues
concerning the identification of the beneficiaries of a trust and their
respective interests create a similar problem for covered institutions,
and ultimately for the FDIC, when faced with making such deposit
insurance determinations. Several commenters contended that covered
institutions, regardless of client base, would satisfy at least one, if
not all three, of the criteria identified as warranting an exception
under Sec. 370.4(c) of the proposed rule for these types of accounts;
i.e., the covered institution does not maintain information identifying
the beneficial owner(s) and the account holder has refused to provide
such information, disclosure of such information is protected by law or
by contract, and information concerning the beneficiaries changes
frequently and updating the information is neither cost effective nor
technologically practicable. They stated that trustees are bound by
common law and statutory fiduciary duties to keep certain information
confidential, including PII such as the names and Social Security
Numbers (``SSNs'') of the trust beneficiaries. The fiduciary duties of
loyalty and confidentiality are the basis for allowing a Certification
of Trust (under Sec. 1013 of the Uniform Trust Code), ``to protect the
privacy of a trust instrument by discouraging requests from persons
other than beneficiaries for complete copies of the instrument in order
to verify a trustee's authority.'' These commenters further believed
(based upon anecdotal information) that individual trustees would open
accounts at other institutions not subject to the proposed rule's
requirements to avoid having to respond to the unwanted inquiry from a
covered institution. The commenters identified a number of different
trust arrangements which should be included within the trust deposit
exception: trusts administered by third-party individual or
institutional trustees, collective investment funds (including common
trust funds), corporate trustees for bond indentures, and fiduciary
self-deposits made by covered institutions.
The FDIC has considered all of the arguments advanced by the
commenters as described above. Rather than adopt the exception process
as described in the proposed rule, the FDIC has decided to require
recordkeeping for certain types of trust accounts based upon the
covered institution's knowledge about the trustee or grantor (the
account holder), as well as information regarding the beneficiaries of
the trust which should be maintained by the covered institution. The
FDIC has developed this approach based upon the comment letters.
Moreover, the FDIC has considered the deposit account ownership
analysis provided in 12 CFR part 330 in the context of the various
types of trust accounts. For example, the FDIC recognizes that such
factors as the common law and statutory duties of confidentiality and
loyalty imposed upon trustees would make it difficult or impossible for
them to disclose the necessary information regarding the beneficiaries
of certain trust accounts. Therefore, the FDIC has determined that all
deposit accounts established pursuant to a formal trust agreement--
either formal revocable or irrevocable (when the trustee of the
irrevocable trust is not the covered institution) must comply with the
alternative recordkeeping requirements set forth in Sec. 370.4(b)(2).
This alternative recordkeeping method should include all formal
revocable trust accounts which are commonly referred to as ``living
trusts'' or ``family trusts'' \31\ and all irrevocable trust accounts
when established by another person or entity as trustee.\32\ A covered
institution would only be required to satisfy the more limited
recordkeeping requirements set forth in Sec. 370.4(b)(2) of the final
rule for those deposit accounts governed by a formal trust agreement.
One requirement of that paragraph, however, provides that the covered
institution maintain a unique identifier for the grantor of a formal
trust account if the trust account has transactional features. The FDIC
recognizes that many consumers now open formal trust accounts and use
them to handle their daily financial transactions. Compliance with this
requirement regarding the grantor will permit the FDIC to begin the
deposit insurance determination process and, during that delay, allow
access to some portion of that deposit account and process outstanding
checks.
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\31\ See 12 CFR 330.10(a).
\32\ 12 CFR 330.13.
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In contrast, any deposit account held in a covered institution
established pursuant to an informal testamentary trust will be required
to comply with all of the recordkeeping requirements set forth in Sec.
370.4(a) of the final regulation. ``Such informal trusts are commonly
referred to as payable-on-death accounts, in-trust-for accounts, or
Totten Trust accounts'' (``PODs'').\33\ To comply with the FDIC's
current regulations regarding deposit insurance coverage for informal
revocable trust accounts, any IDI is already required to specifically
name the beneficiaries in the deposit account records of the IDI.\34\
Finally, covered institutions which act as the trustee for certain
irrevocable trust accounts would also be required to maintain trust
account information in accordance with Sec. 370.4(a) of the final
regulation.
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\33\ 12 CFR 330.10(a).
\34\ 12 CFR 330.10(b)(2).
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As with other classes of deposits for which the FDIC will not have
the requisite information at the time of a covered institution's
failure, deposit insurance determinations on the various types of
formal trust accounts will not be possible until the account holder
provides the FDIC with the necessary trust documentation after closing
weekend. Therefore, based upon how quickly the trust documentation and/
or information about beneficiaries is provided as well as the number of
trust accounts to be determined, account holders may experience a delay
in receiving the insured deposits placed in their trust accounts. This
is the deposit insurance determination process currently employed by
the FDIC; however, the volume of trust accounts at a covered
institution could prolong the deposit insurance determination period.
3. Security Risks of Collecting Depositors' PII
An area of particular concern for many commenters was the
proposal's requirement that a covered institution obtain PII from third
parties such as financial intermediaries, trustees, escrow companies,
benefit plan administrators, and government entities who have opened
deposit accounts on behalf of other entities. A commenter remarked that
the requirement to obtain and store PII and other sensitive information
regarding covered institutions' financial intermediary customers and
their beneficial owners
[[Page 87753]]
``would cause substantial disruption in the deposit markets and
increase the risk of breaches of security of depositors' [PII]''. The
commenters expressed particular concern regarding the added security
risk for both the financial intermediaries and the covered institutions
if they are required to collect depositors' PII for deposit accounts
opened by various third parties on behalf of numerous beneficial
owners.
The FDIC has addressed this concern. Because the recordkeeping
requirements for all types of pass-through deposit accounts will be
based upon the existing recordkeeping requirements for deposit
insurance purposes set forth in Sec. Sec. 330.5 and 330.7, the covered
institutions will not be required to request, collect, and maintain PII
on the beneficial owners of the deposits placed by certain financial
intermediaries. In addition, the covered institutions will not be
required to request and maintain information regarding the
beneficiaries (which are required to perform a deposit insurance
determination) of trust accounts that are governed by a formal trust
agreement pursuant to Sec. Sec. 330.10 and 330.13.
4. Official Items
The statutory definition of deposit includes, but is not limited
to, certified checks, traveler's checks, cashier's checks and money
orders.\35\ Informally, these types of deposit instruments are known as
``official items.'' Part 330 of the FDIC's regulations does not adopt
this popular convention and contains no definition of official items.
Nevertheless, the FDIC's Financial Institution Employee's Guide to
Deposit Insurance utilizes the term and includes the following
examples: Money orders, expense checks, interest checks, official
checks/cashier's checks, travelers' checks, and loan disbursement
checks.\36\ Two commenters stated that cashier's checks, teller's
checks, certified checks, and personal money orders (all commonly known
as ``official items'') would be particularly problematic because the
covered institution does not typically have tax identification numbers
(``TINs'') for non-customer purchasers, payees, or holders of any of
these instruments. Consequently, both commenters requested that these
deposit instruments be exempted as a class from the proposed
recordkeeping requirements in the final rule. Moreover, commenters from
the banking industry and potentially covered institutions explained the
practical difficulties with obtaining and maintaining the necessary
depositor information regarding these deposit instruments. To address
these issues, the FDIC adopted the following approach in the final
rule: Covered institutions will not be required to modify their
recordkeeping practices with respect to these types of deposits. While
the FDIC believes that covered institutions do generally maintain
records concerning the number of deposit instruments issued and for
which they are primarily liable, they routinely will not have a SSN or
TIN for the payee. Therefore, pursuant to Sec. 370.4(c) of the final
rule, covered institutions will not be required to assign a unique
identifier to the payee or designate the appropriate right and capacity
code. Nevertheless, the covered institution must maintain in its
deposit account records a ``pending reason'' code in data field 2 of
the pending file format set forth in Appendix B for all of its official
items.
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\35\ 12 U.S.C. 1813(l)(1) and -(4).
\36\ See FDIC's Financial Institution Employee's Guide to
Deposit Insurance, 2016 Ed., available at https://www.fdic.gov/deposit/DIGuideBankers/.
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5. Assigning Right and Capacity Codes
One commenter submitted that the proposed rule's requirement to
assign the appropriate ownership right and capacity code to each of the
covered institution's deposit accounts presents practical and
administrative challenges for both the covered institution and its
deposit customers. Other commenters pointed out that covered
institutions will be required to review all of their current account
records in order to accurately identify and code their deposit accounts
in accordance with the FDIC's deposit insurance categories. In
addition, many accounts on legacy systems would have to be reviewed and
missing data and documentation obtained in order to comply with certain
part 330 requirements. According to one commenter, this would be ``a
momentous undertaking'' imposing significant burden.
Covered institutions would also have to develop new procedures when
opening accounts and re-train employees to classify accounts
appropriately. Also, in many cases, the covered institutions' employees
do not have the subject matter expertise to accurately designate some
types of accounts such as trust accounts. Other types of deposit
accounts potentially difficult to identify and/or designate include
joint accounts and accounts for corporations, partnerships, and
unincorporated associations. The problems with assigning the correct
right and capacity code to joint accounts, as described by the
commenters, will be discussed separately, infra. One commenter also
believed that this requirement effectively transfers the FDIC's
responsibility to interpret and apply part 330 to the covered
institutions. It asserted that ``[n]on-covered institutions would not
take on this additional responsibility.''
The commenters offered the following recommendations regarding the
proposed requirement that covered institutions assign the correct right
and capacity code to each deposit account. It appears the first choice
would be for the FDIC to amend 12 CFR part 330 prior to finalizing
proposed part 370--presumably by eliminating certain criteria which the
FDIC uses to define or characterize various categories of deposit
accounts. Another suggestion would be to allow the covered institutions
to rely on their internal coding to assign the requisite codes rather
than requiring them to align their designations with the FDIC's rights
and capacities codes. Some commenters seem to assume that in the
context of bank failures and the concomitant deposit insurance
determination, the FDIC disregards part 330's requirements. The
commenters requested that the final rule permit ``covered banks to
classify accounts for FDIC insurance determination as recorded on their
internal systems, in line with FDIC's current practice in bank
failures.'' The commenters asked that the FDIC make deposit insurance
determinations in the same manner (based upon the same criteria) for
covered institutions as it would in the case of a smaller bank failure.
As discussed previously in the preamble to the NPR, the FDIC will
not be amending 12 CFR part 330 prior to or in conjunction with the
issuance of 12 CFR part 370 as a final rule.\37\ While both regulations
concern deposit insurance, they serve independent purposes. The purpose
of part 330 is, among other things, to ``provide rules for the
recognition of deposit ownership in various circumstances.'' \38\ The
FDIC follows part 330 when making deposit insurance determinations at
the time of failure. Aside from governing the application of deposit
insurance, the rules in part 330 are intended to assist both IDIs and
their deposit customers to structure deposit accounts so that their
accounts will conform with the rules for various account types. In that
way, a depositor could be confident that his or her funds will be fully
insured by the FDIC in the event of the IDI's failure. On the other
hand, final part 370 requires
[[Page 87754]]
the largest IDIs, the covered institutions, to develop IT systems
capable of performing the deposit insurance calculations in the event
of failure and to maintain their deposit account records in accordance
with the information requirements set forth in the final rule. When 12
CFR part 370 is fully implemented, the FDIC will be in a better
position to complete the deposit insurance determination ``as soon as
possible'' rather than waiting for deposit account information to be
provided after a covered institution's failure which might result in an
unacceptable delay.
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\37\ 81 FR 10026, 10032 (February 26, 2016).
\38\ 12 CFR 330.2.
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The covered institutions requested that they be allowed to rely on
the internal coding of their deposit accounts. The FDIC presumes that
for many accounts, the covered institutions' internal coding will, in
fact, align with the appropriate FDIC right and capacity code, e.g.,
individual, joint, business, and PODs. In certain circumstances,
however, it may be necessary for the covered institutions to refer to
the appropriate section of part 330 and/or the FDIC's Financial
Institution Employee's Guide to Deposit Insurance (or perhaps call the
FDIC Call Center) in order to make an accurate assignment of the FDIC
right and capacity code. All of the deposits held by a depositor in the
same right and capacity must be aggregated before the deposit insurance
determination can be performed. Assigning the correct right and
capacity code is necessary so that the FDIC would be able to complete
the deposit insurance determination promptly. If the codes assigned by
the covered institutions do not align with FDIC codes, then the FDIC
could not rely on the covered institution's records for deposit
insurance determination purposes. In the context of a bank failure, the
FDIC typically will look behind the titling and will examine the failed
bank's records if there is a question or concern regarding the proper
deposit insurance coverage.
The FDIC does not anticipate handling deposit insurance
determinations at a covered institution in a different manner than it
has done historically with smaller IDIs. Smaller IDIs have not
generally had numerous deposit accounts that are not readily assigned
to the most common FDIC rights and capacities codes; therefore, this
has not created a problem for either the smaller institutions or the
FDIC at failure. The FDIC has recognized, however, that for certain
types of deposit accounts, e.g., those based upon pass-through deposit
insurance and certain types of trust accounts, the covered institutions
will not have sufficient information regarding the beneficial owners or
the beneficiaries, respectively, to assign the correct FDIC right and
capacity code. For those types of accounts, Sec. 370.4(b)(1) and
(b)(2) permit the covered institution to maintain a ``pending reason''
code in the pending file (as set forth in Appendix B) of its deposit
account records in lieu of the correct right and capacity code.
Finally, the commenters asserted that this requirement, in effect,
transfers the FDIC's responsibility to interpret and apply part 330 to
the covered institutions. IDIs play an important role in maintaining a
functioning deposit insurance system, which benefits them, their
customers and the public in general. Prompt payment of deposit
insurance is only possible when IDIs maintain sufficient records to
enable the FDIC to perform its deposit insurance determination function
consistent with FDI Act requirements and authority. The FDIC provides a
number of different resources to the banking industry as well as the
public to assist in the interpretation and application of the part 330
rules. For example, the FDIC conducts live Deposit Insurance Coverage
Seminars for bank officers and employees throughout the year. Moreover,
videos of these seminars are available on YouTube. The FDIC also
provides guidance to IDIs and the public through the operation of a
call center. FDIC staff receives calls from bank customer service
representatives seeking assistance in real time to structure new
deposit accounts for their customers properly. A new edition of the
FDIC's Financial Institution Employee's Guide to Deposit Insurance was
recently published, and finally, the Electronic Deposit Insurance
Estimator (also known as ``EDIE'') is located on the FDIC's Web site.
All of these FDIC resources are available for the use of IDIs
(including the covered institutions) as well as the public. Presumably
this information is instructive in opening and structuring deposit
accounts so that they are (and remain) in compliance with the criteria
set forth in part 330.
6. Joint Accounts and Signature Cards
Both in response to the ANPR and the NPR, certain commenters have
expressed their concern with the challenges they would face trying to
comply with Sec. 330.9(c)(1)(ii) of the FDIC's regulations. That
particular paragraph requires that ``each co-owner has personally
signed a deposit account signature card'' in order to be a ``qualifying
joint account'' for purposes of deposit insurance under part 330.\39\
Some commenters stated that covered institutions would have to go
through all of their deposit accounts (in this particular case, those
accounts styled as joint accounts) to verify that those accounts
satisfied the part 330 requirements. They have characterized this
process as a ``momentous undertaking.'' Moreover, the covered
institutions expect that keeping these records accurate and up-to-date
``would be a continuing and likely insurmountable challenge.'' They
noted that frequently an individual opening a joint account will take
the signature card for a co-owner to sign but never return the
completed signature card to the bank establishing the account. Finally,
the commenters asserted that ``there is no current requirement for
banks to (1) ensure that all signature cards are complete and on file
for joint accounts, or (2) record in deposit recordkeeping systems
which joint accounts have complete signature cards.''
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\39\ The other criteria which must be satisfied in order to be
recognized as a ``qualifying joint account'' are: The co-owners of
the funds in the account are ``natural persons'' as defined in Sec.
330.1(l) and each co-owner possesses withdrawal rights on the same
basis. 12 CFR 330.9(c)(i) and -(iii).
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Regulations requiring that each co-owner of a joint account must
personally sign a signature card or the account would not be treated as
a joint account for deposit insurance determinations have been in
existence since 1967.\40\ Most recently, the FDIC addressed the
commenters' concerns regarding Sec. 330.9(c) in the preamble of the
NPR.\41\ Briefly, the FDIC's justifications for maintaining the joint
ownership signature card requirement are as follows: (i) The FDIC's
signature card requirement simply reflects safe and sound banking
practice; (ii) the signature card represents the contractual
relationship between the IDI and the depositor (or depositors), and
signature cards are a reliable indicator of deposit ownership; and
(iii) elimination of the signature card requirement for joint accounts
could enable some depositors to ``disguise'' single accounts as joint
accounts in order to be eligible for an additional $250,000 of deposit
insurance coverage. Finally, the FDIC believes that the three year
implementation time frame should provide the covered institutions with
adequate time both to review their
[[Page 87755]]
current and legacy account records and to develop procedures to
maintain the accuracy of these records going forward. As discussed
previously, the FDIC will not be amending provisions of 12 CFR part 330
as part of the adoption of part 370 as a final rule.
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\40\ 12 CFR 330.9; see FDIC, Final Rule, 32 FR 10408, 10409
(July 14, 1967); 12 CFR 564.9(b) (repealed); see FHLBB Final Rule,
32 FR 10415, 10416 (July 14, 1967). Certain types of accounts have
been exempted from this requirement.
\41\ 81 FR 10026, 10032 (February 26, 2016).
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7. Community Banks
Several commenters noted that requiring account holders of deposits
eligible for pass-through insurance to provide beneficial owner data
would force community banks to share confidential data on their most
vital asset, i.e., their large-dollar depositors. One commenter
believed that community banks would incur steep costs and potential
customer dissatisfaction if forced to comply with the covered
institutions' requests for the beneficial ownership information.
However, financial intermediaries, which may include community banks,
may not be willing to disclose sensitive and proprietary information
regarding their customers to the covered institutions.
One of the commenters raised another concern that the proposed rule
would adversely affect community banks that participate in deposit
placement networks. According to this commenter, thousands of community
banks participate in deposit placement networks and the commenter
believes that deposit allocation services are a vital tool for
community banks. Those banks would be required to furnish competing
banks with confidential information about some of their largest
depository customers any business day that a community bank placed
customer funds at a covered institution. Two commenters recommended
that an exception from the requirements of the proposed rule should
automatically apply to the class of deposits (rather than an account by
account exception) placed by community banks in a covered institution
through a deposit placement network. According to the commenter, this
type of exception would assure community banks that they would not be
penalized if they participated in a deposit placement network.
The requirements of the final rule have addressed these potential
concerns. As discussed above, the final rule provides for ``alternative
recordkeeping'' for deposits placed by agents, custodians or some other
fiduciary on behalf of others as set forth in Sec. Sec. 330.5 and
330.7 of the FDIC's deposit insurance rules. Therefore, community banks
will not be required to provide covered institutions with proprietary
information concerning their large-dollar customers in the event a
community bank places deposits with a covered institution. As currently
permitted pursuant to the applicable provisions of part 330, community
banks will be allowed to retain the beneficial ownership information on
these customers rather than provide it to the covered institution.
Likewise, the recordkeeping requirements applicable to deposit
placement networks will not be affected by the issuance of the final
rule. Nevertheless, if deposits placed by community banks with covered
institutions serve as transaction accounts for the beneficial owners
thereof, then the underlying ownership information (i.e., the identity
of each beneficial owner and their respective interest in the accounts)
must be provided to the FDIC upon the covered institution's failure so
that the FDIC will be able to use the covered institution's IT system
to determine deposit insurance coverage for those deposit accounts
within 24 hours after the FDIC's appointment as receiver.
8. Foreign Deposits
Two commenters recommended that foreign deposits, i.e., those
deposits placed in the foreign branches of U.S. banks, should not be
within the scope of the final rule. Both commenters asserted that the
FDIC does not need depositor information concerning these foreign
deposits; foreign deposits are not ``insured'' deposits, and therefore,
the FDIC does not require that type of information in order to complete
its deposit insurance determination. One of the commenters added that
the FDIC already has access to information concerning foreign deposits
because that information is required pursuant to Sec. 360.9 of the
FDIC's regulations.
In accordance with 12 U.S.C. 1813(l)(5)(A), a foreign deposit is
not a ``deposit'' unless it is dually payable in a U.S. branch and a
foreign branch of a U.S. bank. If dually payable, however, it would be
an uninsured deposit for purposes of the FDIC's deposit insurance
determination and would be recognized as a general unsecured claim (a
priority two claim) against the failed bank's receivership.
Consequently, foreign deposits, by definition, are beyond the scope of
the final rule. Therefore, no recordkeeping requirements will be
imposed on the covered institutions with respect to foreign deposits.
It is worth noting, however, that the FDIC will no longer have access
to information regarding foreign deposits pursuant to Sec. 360.9 once
covered institutions are compliant with part 370 and are released from
the Sec. 360.9 requirements.
9. Exceptions Process
A commenter argued that providing the FDIC with the authority to
approve or disapprove a covered institution's request ``in its sole
discretion'' would confer unlimited power on the FDIC to discourage or
prohibit lawful acceptance by well-capitalized covered institutions of
brokered deposits and other deposits placed on a pass-through insurance
basis through deposit allocation sweep services. This commenter cited
as a source of concern recent regulatory actions by the FDIC and other
Federal banking agencies and asked the FDIC to avoid the misperception
that it will discourage lawful deposit brokerage relationships by
making them too costly or burdensome for covered institutions.
The commenter's concern that the FDIC will exercise ``virtually
unlimited power to use the Proposed Rule . . . to discourage or
prohibit well-capitalized covered institutions from accepting brokered
and other pass-through deposits'' is unfounded. The particular concern
that the FDIC would discourage lawful brokerage relationships under
this final rule is addressed by the adoption of alternate recordkeeping
requirements permitted for brokered deposits. It is not intended to
otherwise affect brokered deposits.
Several commenters asserted that obtaining the information from
account holders that is needed for deposit insurance calculations would
be a significant challenge; one of these commenters remarked that full
compliance with the proposed rule for certain account types would be
``extremely difficult if not practically impossible.'' These commenters
argued that the volume of information on financial intermediaries and
their beneficial owners, the frequency of changes to the information,
and certain legal impediments to disclosure would pose significant
operational and cost issues. In addition to requesting exceptions for
classes of deposits, some of the commenters believed that the final
rule should also include a process for requesting exceptions for other
``idiosyncratic accounts'' for which obtaining the requisite depositor
information would be impossible or cost-prohibitive.
The FDIC believes that the modifications to the recordkeeping
requirements as described in the final rule should address the concerns
of covered institutions and the concerns raised about community banks.
As a result of the concerns raised by commenters, the FDIC has decided
that the deposit account recordkeeping
[[Page 87756]]
requirements of part 370 should align with the existing deposit
insurance recordkeeping requirements provided in Sec. 330.5 and Sec.
330.7. These two sections of 12 CFR part 330 allow an IDI to maintain
the deposit account records for various types of pass-through deposit
accounts off-site and with third parties. Nevertheless, in the event
that a covered institution identifies other ``idiosyncratic accounts''
which would not be covered by the recordkeeping methods described in
Sec. Sec. 330.5 and 330.7, the final rule includes a procedure for
requesting an exception from the recordkeeping requirements set forth
in Sec. 370.4. The covered institution would be required to submit a
request to the FDIC for the exception in the form of a letter and
explain the circumstances that would make it impracticable or overly
burdensome to meet the applicable recordkeeping requirements.
Additionally, the request must provide the number and dollar value of
the deposit accounts that would be subject to the exception. When
reviewing the request, the FDIC would consider primarily the
implications that a delay in deposit insurance determination would have
for a particular account holder or the beneficial owner of the
deposits, the related effect on public confidence, the nature of the
deposit relationship, and the ability of the covered institution to
obtain the information necessary for the FDIC to make an accurate
deposit insurance determination.
Several commenters believed a more detailed exception process than
that provided for in the proposed rule is needed, and they posed a
number of questions regarding the process. For example, there were
several questions concerning how a covered institution would
demonstrate that an entire class of deposit accounts would meet one or
more of the three criteria for an exception. The commenters also asked
whether a covered institution would be required to continue to gather
depositor information on accounts subject to an exception request
during the pendency of the FDIC's consideration of that request. They
wanted assurances both that the FDIC would respond expeditiously to
requests for exceptions and that in the event that a request was
denied, the FDIC would not require immediate compliance. The commenters
were concerned that a covered institution be allowed a reasonable time
to achieve compliance should an exception request be denied.
As discussed, supra, the final rule does not provide for classes of
deposits to be ``excepted'' from the requirements of part 370. Instead,
covered institutions will continue to be allowed to maintain the
beneficial ownership information for deposit accounts that are
currently subject to the off-site recordkeeping provisions of
Sec. Sec. 330.5 and 330.7 with the appropriate custodian, agent, or
other fiduciary as set forth in those sections of the FDIC's
regulations. Therefore, there is no need for a process to request
exceptions for classes of deposits. Further, the FDIC has addressed the
commenters' concerns regarding the covered institutions' compliance
during the pendency of an exception request, as the final rule provides
that a covered institution will not be in violation of any requirements
of the rule for which the institution has submitted a request for
relief pursuant to Sec. 370.6(b) or Sec. 370.8(a)-(c) while awaiting
the FDIC's response to the request. Finally, a covered institution will
be given a reasonable amount of time to comply with recordkeeping
requirements for certain deposit accounts in the event that the covered
institution's request for an exception is denied.
The commenters asked whether there would be a general sunset time
frame for approved exceptions, and if so, whether there would be a
flexible process to renew those exceptions. The final rule does not
impose a general sunset time frame for approved exceptions. Depending
on the circumstances, approvals could be tailored to be time-limited or
open-ended. Section 370.8(e) allows the FDIC to grant its approval of a
covered institution's request for an exception subject to certain
conditions that would have to be met or to limit its approval to a
particular time frame.
The commenters also wanted to know what type of process there would
be to appeal the FDIC's adverse ruling on a petition for an exception.
They recommended that the FDIC provide public notice of all exceptions
granted or denied on a timely and ongoing basis--without naming the
petitioners or specific deposit account holders--with explanations of
the bases for those rulings. These commenters also believed that
because the exception process ``is so critical that input from covered
institutions would be needed to assure a workable scheme,'' the
exception process should be further clarified and re-proposed for
public notice and comment.
The FDIC believes that the modifications to the recordkeeping
requirements as described in the final rule should provide much of the
requested relief. Given the alternative recordkeeping allowed for
certain described deposit accounts, the FDIC does not anticipate that
many covered institutions will need to request exceptions from the
final rule's requirements. With respect to Sec. 370.4(b)(1) accounts
that have transactional features, if a covered institution will not be
able to provide the certification required pursuant to Sec. 370.5(a),
then the covered institution must submit a request for an exception
from that certification requirement as provided for in Sec. 370.8(b).
10. Comments Concerning the Implementation Period
The proposed rule provided for an implementation period of two
years, and several commenters proposed that four years would be an
appropriate time-frame for implementation. The FDIC has considered the
commenters' discussion of impediments that would exist for a two-year
implementation period and believes that the modifications made in the
final rule to harmonize it with the recordkeeping permitted under 12
CFR part 330 make a three-year implementation period reasonable and
feasible.
E. Comments Concerning Possible Adverse Consequences
Several commenters expressed concern over possible adverse
consequences for covered institutions, related entities, and the
financial system generally if the proposed rule was adopted as
proposed. One commenter specifically noted that the rule could result
in treating some depositors at covered institutions differently than
the same kind of depositors at non-covered institutions because the
covered institution would be applying a more stringent standard to its
deposits for insurance purposes, and deposit insurance determinations
should not depend on the size or complexity of the depository
institution. As discussed, supra, 12 CFR part 330 of the FDIC's
regulations which govern the criteria for ownership of deposits by
right and capacity has not been amended in connection with the adoption
of final part 370. Specifically, the FDIC has not imposed ``more
stringent standards'' on covered institutions with respect to
``qualifying joint accounts,'' for example, than on any other IDI. As
discussed in I. Policy Objectives, the final rule ensures that
customers of both large and small failed banks will receive the same
prompt access to their funds and that deposit insurance limits are
recognized equally at both large and small banks.
One commenter objected to the proposed rule's requirement that, if
a covered institution is granted an exception, it must then notify
account
[[Page 87757]]
holders that delays in the payment of deposit insurance are possible
due to the absence of required information. According to this
commenter, such a notification could raise concerns on the part of
depositors, lead them to rethink their account relationships, drive
deposits away from excepted accounts, create competitive disadvantages,
and be categorically unfair. The final rule imposes no requirement that
covered institutions notify depositors of a possible delay in payment
of deposit insurance. Therefore, the commenter's concerns should be
alleviated.
The FDIC has adopted the suggestion of another commenter, however,
who argued that disclosures regarding a delay in payment should not be
required whenever the custodian, administrator or other fiduciary will
provide the current beneficial owner data to the FDIC before midnight
on the day of the covered institution's failure. Section 370.5(a)
requires a covered institution to certify to the FDIC that the
information needed to calculate deposit insurance for Sec. 370.4(b)(1)
accounts with transactional features will be available to the FDIC upon
failure of the covered institution so that the FDIC will be able to use
the covered institution's IT system to determine deposit insurance
coverage within 24 hours of its appointment as receiver. In view of
this requirement, there is no need for covered institutions to provide
notification of a possible delay in deposit insurance payments because
the FDIC will have the requisite information in time to complete the
deposit insurance determination on these time-sensitive accounts during
the closing weekend.
One commenter asserted that certain account holders likely would be
motivated to seek out alternative banking relationships rather than
provide the information requested by the covered institutions. This
would result in disruption to these account holders and to other
aspects of their banking relationship, as well as to the deposit
markets. One commenter argued that the proposed rule could discourage
smaller and mid-sized retail-focused institutions from actively seeking
small deposit accounts in order to avoid being covered by the proposed
rule. This in turn could encourage such institutions to consider
riskier and more volatile funding sources. The FDIC believes that these
concerns have been addressed and mitigated by the alternative
recordkeeping requirements found in Sec. 370.4(b) of the final rule.
These commenters also asserted that ``end-to-end'' testing for
compliance on an annual basis would involve an excessive commitment of
time and personnel. The requirement for end-to-end testing has been
deleted from the final rule. Finally, they contended that it is not
necessary and not in accordance with corporate governance principles
for a covered institution's board of directors to certify or attest to
the covered institution's compliance with the proposed rule's
requirements. This additional board responsibility would be an undue
burden on the board and should remain within the purview of the covered
institution's management. The FDIC considered this comment and revised
the corporate governance requirement accordingly. In the final rule,
Sec. 370.10(a)(1)(ii), the annual certification must be signed by the
covered institution's chief executive officer or its chief operating
officer.
VII. Regulatory Analysis and Procedure
A. Paperwork Reduction Act
The FDIC has determined that this final rule involves a collection
of information pursuant to the provisions of the Paperwork Reduction
Act of 1995 (the ``PRA'') (44 U.S.C. 3501 et seq.). In accordance with
the PRA, the FDIC may not conduct or sponsor, and an organization is
not required to respond to, this information collection unless the
information collection displays a currently valid OMB control number.
OMB has assigned an OMB control number.
OMB Control Number: 3064-0202.
Frequency of Response: On occasion.
Affected Public: Insured depository institutions having two million
or more deposit accounts and their depositors.\42\
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\42\ Covered institutions will, as necessary, contact their
depositors to obtain accurate and complete account information for
deposit insurance determinations. For the purposes of this analysis,
the FDIC assumes that every depositor will voluntarily respond.
---------------------------------------------------------------------------
Implementation Burden: \43\
---------------------------------------------------------------------------
\43\ Implementation costs and hours are spread over a three-year
period.
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Estimated number of respondents: 38 covered institutions and their
depositors.
Estimated time per response: \44\ 137,014 hours (average).
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\44\ For PRA purposes, covered institutions are presented in
roughly equal-sized low, medium and high complexity tranches ranked
by their PRA implementation hours.
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Low complexity: 29,158-35,072 hours.
Medium complexity: 38,404-59,588 hours.
High complexity: 69,908-911,016 hours.
Estimated total implementation burden: 5.21 million hours.
Ongoing Burden:
Estimated number of respondents: 38 covered institutions and their
depositors.
Estimated time per response: 526 hours (average) per year.
Low complexity: 481-529 hours.
Medium complexity: 458-577 hours.
High complexity: 507-666 hours.
Estimated total ongoing annual burden: 20,000 hours per year.
Description of Collection
The final rule would require a covered institution to (1) maintain
complete and accurate data on each depositor's ownership interest by
right and capacity for all of the institution's deposit accounts,
except as provided, and (2) configure its IT system to be capable of
calculating the insured and uninsured amount in each deposit account by
ownership right and capacity, which would be used by the FDIC to make
deposit insurance determinations in the event of the institution's
failure.
These requirements also must be supported by policies and
procedures and will involve ongoing burden for testing, reporting to
the FDIC, and general maintenance of recordkeeping and IT systems
functionality. Estimates of both initial implementation and ongoing
burden are provided.
Compliance with this proposed rule would involve certain reporting
requirements:
Not later than ten business days after the effective date
of the final rule or after becoming a covered institution, a covered
institution shall designate a point of contact responsible for
implementing the requirements of this rulemaking.
Covered institutions would be required to certify annually
that their IT systems can calculate deposit insurance coverage
accurately and completely within the 24 hour time frame set forth in
the final rule. If a covered institution experiences a significant
change in its deposit taking operations, it may be required to
demonstrate more frequently than annually that its IT system can
calculate deposit insurance coverage accurately and completely.
In connection with the certification, covered institutions
shall complete a deposit insurance coverage summary report (as detailed
in VI. The Proposed Rule).
Covered institutions may seek relief from any specific
aspect of the final rule's requirements if circumstances exist that
would make it impracticable or overly burdensome to meet those
requirements. When doing so, they must demonstrate the need for
exception, describe the impact of an exception on
[[Page 87758]]
the ability to quickly and accurately calculate deposit insurance for
the related deposit accounts, and state the number of, and the dollar
value of deposits in, the related deposit accounts.
Estimated Costs
Comments submitted in response to the NPR did not estimate with
particularity the implementation and ongoing costs for covered
institutions to comply with the proposed rule. The FDIC has, however,
estimated the costs to covered institutions based on, among other
things, information gathered in connection with Sec. 360.9 compliance
visitations, the cost model developed by an outside consultant for the
purpose of developing the ANPR, and estimated costs associated with
burdens that were identified by commenters in response to the NPR. The
total projected cost of the final rule for covered institutions amounts
to $386 million and approximately 5.2 million total labor hours over
three years. The cost components of the estimate include (1)
implementing the deposit insurance calculation, (2) legacy data
cleanup, (3) data extraction, (4) data aggregation, (5) data
standardization, (6) data quality control and compliance, (7) data
reporting, and (8) ongoing operations. Estimates of total costs and
labor hours for each component are calculated by assuming a standard
mix of skilled labor tasks, industry standard hourly compensation
estimates, and labor productivity. It is assumed that a combination of
in-house and external services is used for legacy data clean up in
proportions of 40 and 60 percent respectively. Finally, the estimated
costs for each institution are adjusted according to the complexity of
their operations and systems.
Implementation Costs
Implementation costs are expected to vary widely among the covered
institutions. There are considerable differences in the complexity and
scope of the deposit operations across covered institutions. Some
covered institutions only slightly exceed the two million deposit
account threshold while others greatly exceed that number. In addition,
some covered institutions--most notably the largest--have proprietary
deposit systems likely requiring an in-house, custom solution for the
proposed requirements while others may purchase deposit software from a
vendor or use a servicer for deposit processing. Deposit software
vendors and servicers are expected to incorporate the proposed
requirements into their products or services to be available for their
clients.
The implementation costs for all covered institutions are estimated
to total $330 million and require approximately 5.2 million labor
hours. The implementation costs cover (1) making the deposit insurance
calculation, (2) legacy data cleanup,\45\ (3) data extraction, (4) data
aggregation, (5) data standardization, (6) data quality control and
compliance, and (7) data reporting. The estimated PRA burden for
individual covered institutions will range from $2.3 million to $100
million, and require between 29,158 and 911,016 hours.
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\45\ Including costs to depositors.
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Ongoing Reporting Costs
The estimated burden on individual covered institutions for ongoing
costs for reporting, testing, maintenance, and other periodic items is
estimated to range between $68,676 and $99,865 annually and require
between 458 and 666 labor hours.
Comments
The FDIC has a continuing interest in comments on paperwork burden.
Comments are invited on (a) whether the collection of information is
necessary for the proper performance of the FDIC's functions, including
whether the information has practical utility; (b) the accuracy of the
estimates of the burden of the information collection, including the
validity of the methodology and assumptions used; (c) ways to enhance
the quality, utility, and clarity of the information to be collected;
and (d) ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) (``RFA'')
requires each federal agency to prepare a final regulatory flexibility
analysis in connection with the promulgation of a final rule, or
certify that the final rule will not have a significant economic impact
on a substantial number of small entities.\46\ For purposes of the RFA,
``small entities'' is currently defined to include depository
institutions with assets of $550 million or less. The requirements of
the final rule are not expected to apply to any depository institutions
with assets of $550 million or less. Pursuant to section 605(b) of the
RFA, the FDIC certifies that the final rule will not have a significant
economic impact on a substantial number of small entities.
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\46\ See 5 U.S.C. 603, 604 and 605.
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C. Small Business Regulatory Enforcement Act
The Office of Management and Budget has determined that this final
rule is a ``major rule'' within the meaning of the Small Business
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801, et seq.)
(``SBREFA''). As required by the SBREFA, the FDIC will file the
appropriate reports with Congress and the Government Accountability
Office so that the final rule may be reviewed.
D. Riegle Community Development and Regulatory Improvement Act
The Riegle Community Development and Regulatory Improvement Act
requires that the FDIC, in determining the effective date and
administrative compliance requirements of new regulations that impose
additional reporting, disclosure, or other requirements on IDIs,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations.\47\ Subject to certain exceptions, new
regulations and amendments to regulations prescribed by a Federal
banking agency which impose additional reporting, disclosures, or other
new requirements on IDIs shall take effect on the first day of a
calendar quarter which begins on or after the date on which the
regulations are published in final form.\48\
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\47\ 12 U.S.C. 4802(a).
\48\ 12 U.S.C. 4802(b).
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In accordance with these provisions, the FDIC has considered the
final rule's benefits and any administrative burdens that the final
rule would place on covered institutions and their customers in
determining the effective date and administrative compliance
requirements of the final rule. IV. Expected Effects details the
expected benefits of the final rule and the administrative burdens that
the final rule would place on depository institutions and their
customers. The final rule imposes additional reporting and other
requirements IDIs, and accordingly, shall take effect no earlier than
the first day of the calendar quarter that begins on or after the date
on which the final rule is published.
E. Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat.1338, 1471) requires the Federal
[[Page 87759]]
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The FDIC has sought to present the
final rule in a simple and straightforward manner.
List of Subjects in 12 CFR Part 370
Bank deposit insurance, Banks, Banking, Reporting and recordkeeping
requirements, Savings and loan associations.
Authority and Issuance
0
For the reasons stated in the preamble, the Board of Directors of the
Federal Deposit Insurance Corporation adds part 370 to title 12 of the
Code of Federal Regulations to read as follows:
PART 370--RECORDKEEPING FOR TIMELY DEPOSIT INSURANCE DETERMINATION
Sec.
370.1 Purpose and scope.
370.2 Definitions.
370.3 Information technology system requirements.
370.4 Recordkeeping requirements.
370.5 Actions required for certain deposit accounts with
transactional features.
370.6 Implementation.
370.7 Accelerated implementation.
370.8 Relief.
370.9 Communication with the FDIC.
370.10 Compliance.
Appendix A to Part 370--Ownership Right and Capacity Codes
Appendix B to Part 370--Output Files Structure
Authority: 12 U.S.C. 1817(a)(9), 1819 (Tenth), 1821(f)(1),
1822(c), 1823(c)(4).
Sec. 370.1 Purpose and scope.
Unless otherwise provided in this part, each ``covered
institution'' (defined in Sec. 370.2(a)) is required to implement the
information technology system and recordkeeping capabilities needed to
calculate the amount of deposit insurance coverage available for each
deposit account in the event of its failure. Doing so will improve the
FDIC's ability to fulfill its statutory mandates to pay deposit
insurance as soon as possible after a covered institution's failure and
to resolve a covered institution at the least cost to the Deposit
Insurance Fund.
Sec. 370.2 Definitions.
For purposes of this part:
(a) Account holder means the person or entity who has opened a
deposit account with a covered institution and with whom the covered
institution has a direct legal and contractual relationship with
respect to the deposit.
(b) Brokered deposit has the same meaning as provided in 12 CFR
337.6(a)(2).
(c) Covered institution means an insured depository institution
which, based on its Reports of Condition and Income filed with the
appropriate federal banking agency, has 2 million or more deposit
accounts during the two consecutive quarters preceding the effective
date of this part or thereafter.
(d) Compliance date means the date that is three years after the
later of the effective date of this part or the date on which an
insured depository institution becomes a covered institution.
(e) Deposit has the same meaning as provided under section 3(l) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
(f) Deposit account records has the same meaning as provided in 12
CFR 330.1(e).
(g) Ownership rights and capacities are set forth in 12 CFR part
330.
(h) Payment instrument means a check, draft, warrant, money order,
traveler's check, electronic instrument, or other instrument, payment
of funds, or monetary value (other than currency).
(i) Standard maximum deposit insurance amount (or ``SMDIA'') has
the same meaning as provided pursuant to section 11(a)(1)(E) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(E)) and 12 CFR
330.1(o).
(j) Transactional features with respect to a deposit account means
that the depositor or account holder can make transfers or withdrawals
from the deposit account to make payments or transfers to third persons
or others (including another account of the depositor or account holder
at the same institution or at a different institution) by means of a
negotiable or transferable instrument, payment order of withdrawal,
check, draft, prepaid account access device, debit card, or other
similar order made by the depositor and payable to third parties, or by
means of a telephonic (including data transmission) agreement, order or
instruction, or by means of an instruction made at an automated teller
machine or similar terminal or unit. For purposes of this definition,
``telephonic (including data transmission) agreement, order or
instruction'' includes orders and instructions made by means of
facsimile, computer, internet, handheld device, or other similar means.
(k) Unique identifier means an alpha-numeric code associated with
an individual or entity that is used consistently and continuously by a
covered institution to monitor the covered institution's relationship
with that individual or entity.
Sec. 370.3 Information technology system requirements.
(a) A covered institution must configure its information technology
system to be capable of performing the functions set forth in paragraph
(b) of this section within 24 hours after the appointment of the FDIC
as receiver. To the extent that a covered institution does not maintain
its deposit account records in the manner prescribed under Sec.
370.4(a) but instead in the manner prescribed under Sec. 370.4(b) or
(c), the covered institution's information technology system must be
able to perform the functions set forth in paragraph (b) of this
section upon input by the FDIC of additional information collected from
account holders after failure of the covered institution.
(b) Each covered institution's information technology system must
be capable of:
(1) Accurately calculating the deposit insurance coverage for each
deposit account in accordance with 12 CFR part 330;
(2) Generating and retaining output records in the data format and
layout specified in Appendix B;
(3) Restricting access to some or all of the deposits in a deposit
account until the FDIC has made its deposit insurance determination for
that deposit account using the covered institution's information
technology system; and
(4) Debiting from each deposit account the amount that is uninsured
as calculated pursuant to paragraph (b)(1) of this section.
Sec. 370.4 Recordkeeping requirements.
(a) General recordkeeping requirements. Except as otherwise
provided in paragraphs (b) and (c) of this section, a covered
institution must maintain in its deposit account records for each
account the information necessary for its information technology system
to meet the requirements set forth in Sec. 370.3. The information must
include:
(1) The unique identifier of each
(i) Account holder;
(ii) Beneficial owner of a deposit, if the account holder is not
the beneficial owner;
(iii) Grantor and each beneficiary, if the deposit account is held
in connection with an informal revocable trust that is insured pursuant
to 12 CFR 330.10 (e.g., payable-on-death accounts, in-trust-for
accounts, and Totten Trust accounts); and
(iv) Grantor and each beneficiary, if the deposit account is held
by the covered institution as the trustee of an irrevocable trust that
is insured pursuant to 12 CFR 330.12.
[[Page 87760]]
(2) The applicable ownership right and capacity code listed and
described in Appendix A to this part.
(b) Alternative recordkeeping requirements. As permitted under this
paragraph, a covered institution may maintain in its deposit account
records less information than is required under paragraph (a) of this
section.
(1) For each deposit account for which a covered institution's
deposit account records disclose the existence of a relationship which
might provide a basis for additional deposit insurance in accordance
with 12 CFR 330.5 or 330.7 and for which the covered institution does
not maintain information that would be needed for its information
technology system to meet the requirements set forth in Sec. 370.3,
the covered institution must maintain, at a minimum, the following in
its deposit account records:
(i) The unique identifier of the account holder; and
(ii) The corresponding ``pending reason'' code in data field 2 of
the pending file format set forth in Appendix B (and need not maintain
a ``right and capacity'' code).
(2) For each formal revocable trust account that is insured as
described in 12 CFR 330.10 and for each irrevocable trust account that
is insured as described in 12 CFR 330.13, and for which the covered
institution does not maintain the information that would be needed for
its information technology system to meet the requirements set forth in
Sec. 370.3, the covered institution must, at a minimum, maintain in
its deposit account records:
(i) The unique identifier of the account holder;
(ii) The unique identifier of the grantor if the deposit account
has transactional features; and
(iii) The corresponding ``pending reason'' code in data field 2 of
the pending file format set forth in Appendix B (and need not maintain
a ``right and capacity'' code).
(c) Recordkeeping requirements for official items. A covered
institution must maintain in its deposit account records the
information needed for its information technology system to meet the
requirements set forth in Sec. 370.3 with respect to accounts held in
the name of the covered institution from which withdrawals are made to
honor a payment instrument issued by the covered institution, such as a
certified check, loan disbursement check, interest check, traveler's
check, expense check, official check, cashier's check, money order, or
any similar payment instrument that the FDIC identifies in guidance
issued to covered institutions in connection with this part. To the
extent that the covered institution does not have such information, it
need only maintain in its deposit account records for those accounts
the corresponding ``pending reason'' code in data field 2 of the
pending file format set forth in Appendix B (and need not maintain
``right and capacity'' codes).
Sec. 370.5 Actions required for certain deposit accounts with
transactional features.
(a) For each deposit account with transactional features for which
the covered institution maintains its deposit account records in
accordance with Sec. 370.4(b)(1), a covered institution must certify
to the FDIC that the account holder will provide to the FDIC the
information needed for the covered institution's information technology
system to calculate deposit insurance coverage as set forth in Sec.
370.3(b) within 24 hours after the appointment of the FDIC as receiver.
Such certification may be part of the annual certification of
compliance required pursuant to Sec. 370.10(a)(1).
(b) Notwithstanding paragraph (a) of this section, a covered
institution need not provide such certification with respect to:
(1) Accounts maintained by a mortgage servicer, in a custodial or
other fiduciary capacity, which are comprised of payments by mortgagors
of principal, interest, taxes and insurance;
(2) Accounts maintained by real estate brokers, real estate agents,
or title companies in which funds from multiple clients are deposited
and held for a short period of time in connection with a real estate
transaction;
(3) Accounts established by an attorney or law firm on behalf of
clients, commonly known as an Interest on Lawyers Trust Accounts, or
functionally equivalent accounts; and
(4) Accounts held in connection with an employee benefit plan (as
defined in 12 CFR 330.15(f)(2)).
(c) The covered institution's failure to provide the certification
required under paragraph (a) of this section shall be deemed not to
constitute a violation of this part if the FDIC has granted the covered
institution relief from that certification requirement.
Sec. 370.6 Implementation.
(a) A covered institution must satisfy the information technology
system and recordkeeping requirements set forth in this part before the
compliance date.
(b) A covered institution may submit a request to the FDIC for an
extension of its compliance date. The request shall state the amount of
additional time needed to meet the requirements of this part, the
reason(s) for which such additional time is needed, and the total
number and dollar value of accounts for which deposit insurance
coverage could not be calculated using the covered institution's
information technology system were the covered institution to fail as
of the date of the request. The FDIC's grant of a covered institution's
request for extension may be conditional or time-limited.
Sec. 370.7 Accelerated implementation.
(a) On a case-by-case basis, the FDIC may accelerate, upon notice,
the implementation time frame for all or part of the requirements of
this part for a covered institution that:
(1) Has a composite rating of 3, 4, or 5 under the Uniform
Financial Institution's Rating System (CAMELS rating), or in the case
of an insured branch of a foreign bank, an equivalent rating;
(2) Is undercapitalized, as defined under the prompt corrective
action provisions of 12 CFR part 325; or
(3) Is determined by the appropriate federal banking agency or the
FDIC in consultation with the appropriate federal banking agency to be
experiencing a significant deterioration of capital or significant
funding difficulties or liquidity stress, notwithstanding the composite
rating of the covered institution by its appropriate federal banking
agency in its most recent report of examination.
(b) In implementing this section, the FDIC must consult with the
covered institution's appropriate federal banking agency and consider
the complexity of the covered institution's deposit system and
operations, extent of the covered institution's asset quality
difficulties, volatility of the institution's funding sources, expected
near-term changes in the covered institution's capital levels, and
other relevant factors appropriate for the FDIC to consider in its role
as insurer of the covered institution.
Sec. 370.8 Relief.
(a) Exemption. A covered institution may submit a request in the
form of a letter to the FDIC for an exemption from this part if it
demonstrates that it does not take deposits from any account holder
which, when aggregated, would exceed the SMDIA for any owner of the
funds on deposit and will not in the future.
(b) Exception. A covered institution may submit a request in the
form of a letter to the FDIC for exception from any specific aspect of
the information technology system requirements, recordkeeping
requirements,
[[Page 87761]]
certification requirements, or reporting requirements set forth in this
part if circumstances exist that would make it impracticable or overly
burdensome to meet those requirements. In its request letter, the
covered institution must demonstrate the need for exception, describe
the impact of an exception on the ability to quickly and accurately
calculate deposit insurance for the related deposit accounts, and state
the number of, and the dollar value of deposits in, the related deposit
accounts.
(c) Release from this part. A covered institution may submit a
request in the form of a letter to the FDIC for release from this part
if, based on its Reports of Condition and Income filed with the
appropriate federal banking agency, it has less than two million
deposit accounts during any three consecutive quarters after becoming a
covered institution.
(d) Release from 12 CFR 360.9 requirements. A covered institution
is released from the provisional hold and standard data format
requirements of 12 CFR 360.9 upon submitting to the FDIC the compliance
certification required under Sec. 370.10(a).
(e) FDIC approval of a request. The FDIC will consider all requests
submitted in writing by a covered institution on a case-by-case basis
in light of the objectives of this part, and the FDIC's grant of any
request made by a covered institution pursuant to this section may be
conditional or time-limited.
Sec. 370.9 Communication with the FDIC.
(a) Point of contact. Not later than ten business days after either
the effective date of this part or becoming a covered institution, a
covered institution must notify the FDIC of the person(s) responsible
for implementing the recordkeeping and information technology system
capabilities required by this part.
(b) Address. Point-of-contact information, reports and requests
made under this part shall be submitted in writing to: Office of the
Director, Division of Resolutions and Receiverships, Federal Deposit
Insurance Corporation, 550 17th Street NW., Washington, DC 20429-0002.
Sec. 370.10 Compliance.
(a) Certification and report. A covered institution shall submit to
the FDIC a certification of compliance and a deposit insurance coverage
summary report on or before the compliance date and annually
thereafter.
(1) The certification must:
(i) Confirm that the covered institution has implemented and
successfully tested its information technology system for compliance
with this part during the preceding calendar year; and
(ii) Be signed by the covered institution's chief executive officer
or chief operating officer.
(2) The deposit insurance coverage summary report must include:
(i) A description of any material change to the covered
institution's information technology system or deposit taking
operations since the prior annual certification;
(ii) The number of deposit accounts, number of different account
holders, and dollar amount of deposits by ownership right and capacity
code (as listed and described in Appendix A);
(iii) The total number of fully-insured deposit accounts and the
total dollar amount of deposits in all such accounts;
(iv) The total number of deposit accounts with uninsured deposits
and the total dollar amount of uninsured amounts in all of those
accounts; and
(v) By deposit account type, the total number of, and dollar amount
of deposits in, deposit accounts for which the covered institution's
information technology system cannot calculate deposit insurance
coverage using information currently maintained in the covered
institution's deposit account records.
(3) If a covered institution experiences a significant change in
its deposit taking operations, the FDIC may require that it submit a
certification of compliance and a deposit insurance coverage summary
report more frequently than annually.
(b) FDIC Testing. (1) The FDIC will conduct periodic tests of a
covered institution's compliance with this part. These tests will begin
no sooner than the last day of the first calendar quarter following the
compliance date and would occur no more frequently than on a three-year
cycle thereafter, unless there is a material change to the covered
institution's information technology system, deposit-taking operations,
or financial condition.
(2) A covered institution shall provide the appropriate assistance
to the FDIC as the FDIC tests the covered institution's ability to
satisfy the requirements set forth in this part.
(c) Effect of pending requests. A covered institution that has
submitted a request pursuant to Sec. 370.6(b) or Sec. 370.8(a)
through (c) will not be considered to be in violation of this part as
to the requirements that are the subject of the request while awaiting
the FDIC's response to such request.
Appendix A to Part 370--Ownership Right and Capacity Codes
A covered institution must use the codes defined below when
assigning ownership right and capacity codes.
------------------------------------------------------------------------
Code Illustrative description
------------------------------------------------------------------------
SGL....................................... Single Account (12 CFR
330.6): An account owned by
one person with no
testamentary or ``payable-
on-death'' beneficiaries.
It includes individual
accounts, sole
proprietorship accounts,
single-name accounts
containing community
property funds, and
accounts of a decedent and
accounts held by executors
or administrators of a
decedent's estate.
JNT....................................... Joint Account (12 CFR
330.9): An account owned by
two or more persons with no
testamentary or ``payable-
on-death'' beneficiaries
(other than surviving co-
owners). An account does
not qualify as a joint
account unless: (1) All co-
owners are living persons;
(2) each co-owner has
personally signed a deposit
account signature card
(except that the signature
requirement does not apply
to certificates of deposit,
to any deposit obligation
evidenced by a negotiable
instrument, or to any
account maintained on
behalf of the co-owners by
an agent or custodian); and
(3) each co-owner possesses
withdrawal rights on the
same basis.
REV....................................... Revocable Trust Account (12
CFR 330.10): An account
owned by one or more
persons that evidences an
intention that, upon the
death of the owner(s), the
funds shall belong to one
or more beneficiaries.
There are two types of
revocable trust accounts:
(1) Payable-on-Death Account
(Informal Revocable Trust
Account): An account owned
by one or more persons with
one or more testamentary or
``payable-on-death''
beneficiaries.
(2) Revocable Living Trust
Account (Formal Revocable
Trust Account): An account
in the name of a formal
revocable ``living trust''
with one or more grantors
and one or more
testamentary beneficiaries.
IRR....................................... Irrevocable Trust Account
(12 CFR 330.13): An account
in the name of an
irrevocable trust (unless
the trustee is an insured
depository institution, in
which case the applicable
code is DIT.
[[Page 87762]]
CRA....................................... Certain Other Retirement
Accounts (12 CFR 330.14 (b)-
(c)) to the extent that
participants under such
plan have the right to
direct the investment of
assets held in individual
accounts maintained on
their behalf by the plan,
including an individual
retirement account
described in section 408(a)
of the Internal Revenue
Code (26 U.S.C. 408(a)), an
account of a deferred
compensation plan described
in section 457 of the
Internal Revenue Code (26
U.S.C. 457), an account of
an individual account plan
as defined in section 3(34)
of the Employee Retirement
Income Security Act (29
U.S.C. 1002), a plan
described in section 401(d)
of the Internal Revenue
Code (26 U.S.C. 401(d)).
EBP....................................... Employee Benefit Plan
Account (12 CFR 330.14): An
account of an employee
benefit plan as defined in
section 3(3) of the
Employee Retirement Income
Security Act (29 U.S.C.
1002), including any plan
described in section 401(d)
of the Internal Revenue
Code (26 U.S.C. 401(d)),
but not including any
account classified as a
Certain Retirement Account.
BUS....................................... Business/Organization
Account (12 CFR 330.11): An
account of an organization
engaged in an `independent
activity' (as defined in
Sec. 330.1(g)), but not
an account of a sole
proprietorship.
This category includes:
a. Corporation Account: An
account owned by a
corporation.
b. Partnership Account: An
account owned by a
partnership.
c. Unincorporated
Association Account: An
account owned by an
unincorporated association
(i.e., an account owned by
an association of two or
more persons formed for
some religious,
educational, charitable,
social, or other
noncommercial purpose).
GOV1-GOV2-GOV3............................ Government Account (12 CFR
330.15): An account of a
governmental entity.
GOV1.................................. All time and savings
deposit accounts of the
United States and all
time and savings deposit
accounts of a state,
county, municipality, or
political subdivision
depositing funds in an
insured depository
institution in the state
comprising the public
unit or wherein the
public unit is located
(including any insured
depository institution
having a branch in said
state).
GOV2.................................. All demand deposit
accounts of the United
States and all demand
deposit accounts of a
state, county,
municipality, or
political subdivision
depositing funds in an
insured depository
institution in the state
comprising the public
unit or wherein the
public unit is located
(including any insured
depository institution
having a branch in said
state).
GOV3.................................. All deposits, regardless
of whether they are
time, savings or demand
deposit accounts of a
state, county,
municipality or
political subdivision
depositing funds in an
insured depository
institution outside of
the state comprising the
public unit or wherein
the public unit is
located.
MSA....................................... Mortgage Servicing Account
(12 CFR 330.7(d)): An
account held by a mortgage
servicer, funded by
payments by mortgagors of
principal and interest.
PBA....................................... Public Bond Accounts (12 CFR
330.15(c)): An account
consisting of funds held by
an officer, agent or
employee of a public unit
for the purpose of
discharging a debt owed to
the holders of notes or
bonds issued by the public
unit.
DIT....................................... IDI as trustee of
irrevocable trust accounts
(12 CFR 330.12): ``Trust
funds'' (as defined in Sec.
330.1(q)) account held by
an insured depository
institution as trustee of
an irrevocable trust.
ANC....................................... Annuity Contract Accounts
(12 CFR 330.8): Funds held
by an insurance company or
other corporation in a
deposit account for the
sole purpose of funding
life insurance or annuity
contracts and any benefits
incidental to such
contracts.
BIA....................................... Custodian accounts for
American Indians (12 CFR
330.7(e)): Funds deposited
by the Bureau of Indian
Affairs of the United
States Department of the
Interior (the ``BIA'') on
behalf of American Indians
pursuant to 25 U.S.C.
162(a), or by any other
disbursing agent of the
United States on behalf of
American Indians pursuant
to similar authority, in an
insured depository
institution.
DOE....................................... IDI Accounts under
Department of Energy
Program: Funds deposited by
an insured depository
institution pursuant to the
Bank Deposit Financial
Assistance Program of the
Department of Energy.
------------------------------------------------------------------------
Appendix B to Part 370--Output Files Structure
The output files will include the data necessary for the FDIC to
determine the deposit insurance coverage in a resolution. A covered
institution must have the capability to prepare and maintain the
files detailed below. These files must be prepared in successive
iterations as the covered institution receives additional data from
external sources necessary to complete any pending deposit insurance
calculations. The unique identifier is required in all four files to
link the customer information. All files are pipe delimited. Do not
pad leading and trailing spacing or zeros for the data fields.
[GRAPHIC] [TIFF OMITTED] TR05DE16.001
Customer File. Customer File will be used by the FDIC to
identify the customers. One record represents one unique customer.
The data elements will include:
[[Page 87763]]
----------------------------------------------------------------------------------------------------------------
Field name Description Format
----------------------------------------------------------------------------------------------------------------
1. CS_Unique_ID........................ This field is the unique Variable Character.
identifier that is the primary
key for the depositor data
record. It will be generated
by the covered institution and
there shall not be duplicates.
2. CS_Govt_ID.......................... This field shall contain the ID Variable Character.
number that identifies the
entity based on a government
issued ID or corporate
filling. Populate as follows:.
--For a United States
individual--Legal
identification number (e.g.,
SSN, TIN, Driver's License, or
Passport Number).
--For a foreign national
individual--where a SSN or TIN
does not exist, a foreign
passport or other legal
identification number (e.g.,
Alien Card).
--For a Non-Individual--the Tax
identification Number (TIN),
or other register entity
number.
3. CS_Govt_ID_Type..................... The valid customer Character (3).
identification types, are
noted below:.
--SSN--Social Security Number..
--TIN--Tax Identification
Number.
--DL--Driver's License, issued
by a State or Territory of the
United States.
--ML--Military ID..............
--PPT--Valid Passport..........
--AID--Alien Identification
Card.
--OTH--Other...................
4. CS_Type............................. The customer type field Character (3).
indicates the type of entity
the customer is at the covered
institution. The valid values
are:.
--IND--Individual..............
--BUS--Business................
--TRT--Trust...................
--NFP--Non-Profit..............
--GOV--Government..............
--OTH--Other...................
5. CS_First_Name....................... Customer first name. Use only Variable Character.
for the name of individuals
and the primary contact for
entity.
6. CS_Middle_Name...................... Customer middle name. Use only Variable Character.
for the name of individuals
and the primary contact for
entity.
7. CS_Last_Name........................ Customer last name. Use only Variable Character.
for the name of individuals
and the primary contact for
entity.
8. CS_Name_Suffix...................... Customer suffix................ Variable Character.
9. CS_Entity_Name...................... The registered name of the Variable Character.
entity. Do not use this field
if the customer is an
individual.
10. CS_Street_Add_Ln1.................. Street address line 1. The Variable Character.
current account statement
mailing address of record.
11. CS_Street_Add_Ln2.................. Street address line 2. If Variable Character.
available, the second address
line.
12. CS_Street_Add_Ln3.................. Street address line 3. If Variable Character.
available, the third address
line.
13. CS_City............................ The city associated with the Variable Character.
permanent legal address.
14. CS_State........................... The state for United States Variable Character.
addresses or state/province/
county for international
addresses.
--For United States addresses
use a two-character state code
(official United States Postal
Service abbreviations)
associated with the permanent
legal address.
--For international address
follow that country state code.
15. CS_ZIP............................. The Zip/Postal Code associated Variable Character.
with the customers' permanent
legal address.
--For United States zip codes,
use the United States Postal
Service ZIP+4 standard.
--For international zip codes
follow that standard format of
that country.
16. CS_Country......................... The country associated with the Variable Character.
permanent legal address.
Provide the country name or
the standard International
Organization for
Standardization (ISO) country
code.
17. CS_Telephone....................... Customer telephone number. The Variable Character.
telephone number on record for
the customer, including the
country code if not within the
United States.
18. CS_Email........................... The email address on record for Variable Character.
the customer.
19. CS_Outstanding_Debt_Flag........... This field indicates whether Character (1).
the customer has outstanding
debt with covered institution.
This field may be used by the
FDIC to determine offsets.
Enter ``Y'' if customer has
outstanding debt with covered
institutions, enter ``N''
otherwise.
20. CS_Security_Pledge_Flag............ This field shall only be used Character (1).
for Government customers. This
field indicates whether the
covered institution has
pledged securities to the
government entity, to cover
any shortfall in deposit
insurance. Enter ``Y'' if the
government entity has
outstanding security pledge
with covered institutions,
enter ``N'' otherwise.
----------------------------------------------------------------------------------------------------------------
Account File. The Account File contains the deposit ownership
rights and capacities information, allocated balances, insured
amounts, and uninsured amounts. The balances are in U.S. dollars.
The Account file is linked to the Customer File by the CS_Unique_ID.
The data elements will include:
----------------------------------------------------------------------------------------------------------------
Field name Description Format
----------------------------------------------------------------------------------------------------------------
1. CS_Unique_ID........................ This field is the unique Variable Character.
identifier that is the primary
key for the depositor data
record. It will be generated
by the covered institution and
there cannot be duplicates.
2. DP_Acct_Identifier.................. Deposit account identifier. The Variable Character.
primary field used to identify
a deposit account.
The account identifier may be
composed of more than one
physical data element to
uniquely identify a deposit
account..
3. DP_Right_Capacity................... Account ownership categories... Character (4).
--SGL--Single accounts.........
--JNT--Joint accounts..........
--REV--Revocable trust accounts
--RR--Irrevocable trust
accounts.
--CRA--Certain retirement
accounts.
[[Page 87764]]
--EBP--Employee benefit plan
accounts.
--BUS--Business/Organization
accounts.
--GOV1, GOV2, GOV3--Government
accounts (public unit
accounts).
--MSA--Mortgage servicing
accounts for principal and
interest payments.
--DIT--Accounts held by a
depository institution as the
trustee of an irrevocable
trust.
--ANC--Annuity contract
accounts.
--PBA--Public bond accounts....
--BIA--Custodian accounts for
American Indians.
--DOE--Accounts of an IDI
pursuant to the Bank Deposit
Financial Assistance Program
of the Department of Energy.
4. DP_Prod_Cat......................... Product category or Character (3).
classification.
--DDA--Demand Deposit Accounts.
--NOW--Negotiable Order of
Withdrawal.
--MMA--Money Market Deposit
Accounts.
--SAV--Other savings accounts..
--CDS--Time Deposit accounts
and Certificate of Deposit
accounts, including any
accounts with specified
maturity dates that may or may
not be renewable..
5. DP_Allocated_Amt.................... The current balance in the Decimal (14,2).
account at the end of business
on the effective date of the
file, allocated to a specific
owner in that insurance
category.
For JNT accounts, this is a
calculated field that
represents the allocated
amount to each owner in JNT
category..
For REV accounts, this is a
calculated field that
represents the allocated
amount to each owner-
beneficiary in REV category..
For other accounts with only
one owner, this is the account
current balance..
This balance shall not be
reduced by float or holds. For
CDs and time deposits, the
balance shall reflect the
principal balance plus any
interest paid and available
for withdrawal not already
included in the principal (do
not include accrued interest).
6. DP_Acc_Int.......................... Accrued interest allocated Decimal (14,2).
similarly as data field #5
DP_Allocated_Amt.
The amount of interest that has
been earned but not yet paid
to the account as of the date
of the file..
7. DP_Total_PI......................... Total amount adding #5 Decimal (14,2).
DP_Allocated_Amt and #6
DP_Acc_Int.
8. DP_Hold_Amount...................... Hold amount on the account..... Decimal (14,2).
The available balance of the
account is reduced by the hold
amount. It has no effect on
current balance (ledger
balance).
9. DP_Insured_Amount................... The insured amount of the Decimal (14,2).
account.
10. DP_Uninsured_Amount................ The uninsured amount of the Decimal (14,2).
account.
11. DP_Prepaid_Account_Flag............ This field indicates a prepaid Character (1).
account with covered
institution. Enter ``Y'' if
account is a prepaid account
with covered institutions,
enter ``N'' otherwise.
12. DP_PT_Account_Flag................. This field indicates a pass- Character (1).
through account with covered
institution. Enter ``Y'' if
account is a pass-through with
covered institutions, enter
``N'' otherwise.
13. DP_PT_Trans_Flag................... This field indicates whether Character (1).
the fiduciary account has sub-
accounts that have
transactional features. Enter
``Y'' if account has
transactional features, enter
``N'' otherwise.
----------------------------------------------------------------------------------------------------------------
Account Participant File. The Account Participant File will be
used by the FDIC to identify account participants, to include the
official custodian, beneficiary, bond holder, mortgagor, or employee
benefit plan participant, for each account and account holder. One
record represents one unique account participant. The Account
Participant File is linked to the Account File by CS_Unique_ID and
DP_Acct_Identifier.
The data elements will include:
----------------------------------------------------------------------------------------------------------------
Field name Description Format
----------------------------------------------------------------------------------------------------------------
1. CS_Unique_ID......................... This field is the unique Variable Character.
identifier that is the primary
key for the depositor data
record. It will be generated by
the covered institution and
there shall not be duplicates.
2. DP_Acct_Identifier................... Deposit account identifier. The Variable Character.
primary field used to identify
a deposit account..
The account identifier may be
composed of more than one
physical data element to
uniquely identify a deposit
account.
3. DP_Right_Capacity.................... Account ownership categories.... Character (4).
--SGL--Single accounts..........
--JNT--Joint accounts...........
--REV--Revocable trust accounts.
--IRR--Irrevocable trust
accounts.
--CRA--Certain retirement
accounts.
--EBP--Employee benefit plan
accounts.
--BUS--Business/Organization
accounts.
--GOV1, GOV2, GOV3--Government
accounts (public unit accounts).
--MSA--Mortgage servicing
accounts for principal and
interest payments.
--DIT--Accounts held by a
depository institution as the
trustee of an irrevocable trust.
--ANC--Annuity contract accounts
--PBA--Public bond accounts.....
--BIA--Custodian accounts for
American Indians.
--DOE--Accounts of an IDI
pursuant to the Bank Deposit
Financial Assistance Program of
the Department of Energy.
[[Page 87765]]
4. DP_Prod_Category..................... Product category or Character (3).
classification.
--DDA--Demand Deposit Accounts..
--NOW--Negotiable Order of
Withdrawal.
--MMA--Money Market Deposit
Accounts.
--SAV--Other savings accounts...
--CDS--Time Deposit accounts and
Certificate of Deposit
accounts, including any
accounts with specified
maturity dates that may or may
not be renewable.
5. AP_Allocated_Amount.................. Amount of funds attributable to Decimal (14,2).
the account participant as an
account holder (e.g., Public
account holder of a public bond
account) or the amount of funds
entitled to the beneficiary for
the purpose of insurance
determination (e.g., Revocable
Trust).
6. AP_Participant_ID.................... This field is the unique Variable Character.
identifier for the Account
Participant. It will be
generated by the covered
institution and there shall not
be duplicates. If the account
participant is an existing bank
customer this field is the same
as CS_Unique_ID field.
7. AP_Govt_ID........................... This field shall contain the ID Variable Character.
number that identifies the
entity based on a government
issued ID or corporate filling.
Populate as follows:
--For a United States
individual--Legal
identification number (e.g.,
SSN, TIN, Driver's License, or
Passport Number).
--For a foreign national
individual--where a SSN or TIN
does not exist, a foreign
passport or other legal
identification number (e.g.,
Alien Card).
--For a Non-Individual--the Tax
identification Number (TIN), or
other register entity number.
8. AP_Govt_ID_Type...................... The valid customer Character (3).
identification types, are:.
--SSN--Social Security Number...
--TIN--Tax Identification Number
--DL--Driver's License, issued
by a State or Territory of the
United States.
--ML--Military ID...............
--PPT--Valid Passport...........
--AID--Alien Identification Card
--OTH--Other....................
9. AP_First_Name........................ Customer first name. Use only Variable Character.
for the name of individuals and
the primary contact for entity.
10. AP_Middle_Name...................... Customer middle name. Use only Variable Character.
for the name of individuals and
the primary contact for entity.
11. AP_Last_Name........................ Customer last name. Use only for Variable Character.
the name of individuals and the
primary contact for entity.
12. AP_Entity_Name...................... The registered name of the Variable Character.
entity. Do not use this field
if the participant is an
individual.
13. AP_Participant_Type................. This field is used as the Character (3).
participant type identifier.
The field will list the
``beneficial owner'' type:
--OC--Official Custodian........
--BEN--Beneficiary..............
--BHR--Bond Holder..............
--MOR--Mortgagor................
--EPP--Employee Benefit Plan
Participant.
----------------------------------------------------------------------------------------------------------------
Pending File. The Pending File contains the information needed
for the FDIC to contact the owner or agent requesting additional
information to complete the deposit insurance calculation. Each
record represents a deposit account.
The data elements will include:
----------------------------------------------------------------------------------------------------------------
Field name Description Format
----------------------------------------------------------------------------------------------------------------
1. CS_Unique_ID......................... This field is the unique Variable Character.
identifier that is the primary
key for the depositor data
record. It will be generated by
the covered institution and
there cannot be duplicates.
2. Pending_Reason....................... Reason code for the account to Character (5).
be included in Pending file.
For deposit account records
maintained by the bank, use the
following codes.
--A--agency or custodian........
--B--beneficiary................
--OI--official item.............
--RAC--right and capacity code..
For alternative recordkeeping
requirements, use the following
codes.
--ARB--direct obligation
brokered deposit.
--ARBN--non-direct obligation
brokered deposit.
--ARCRA--certain retirement
accounts.
--AREBP--employee benefit plan
accounts.
--ARM--mortgage servicing for
principal and interest payments.
--ARO--other deposits...........
--ARTR--trust accounts..........
The FDIC needs these codes to
initiate the collection of
needed information.
3. DP_Acct_Identifier................... Deposit account identifier. The Variable Character.
primary field used to identify
a deposit account.
The account identifier may be
composed of more than one
physical data element to
uniquely identify a deposit
account.
4. DP_Right_Capacity.................... Account ownership categories.... Character (4).
--SGL--Single accounts..........
--JNT--Joint accounts...........
--REV--Revocable trust accounts.
--IRR--Irrevocable trust
accounts.
--CRA--Certain retirement
accounts.
[[Page 87766]]
--EBP--Employee benefit plan
accounts.
--BUS--Business/Organization
accounts.
--GOV1, GOV2, GOV3--Government
accounts (public unit accounts).
--MSA--Mortgage servicing
accounts for principal and
interest payments.
--DIT--Accounts held by a
depository institution as the
trustee of an irrevocable trust.
--ANC--Annuity contract accounts
--PBA--Public bond accounts.....
--BIA--Custodian accounts for
American Indians.
--DOE--Accounts of an IDI
pursuant to the Bank Deposit
Financial Assistance Program of
the Department of Energy.
5. DP_Prod_Category..................... Product category or Character (3).
classification.
--DDA--Demand Deposit Accounts..
--NOW--Negotiable Order of
Withdrawal.
--MMA--Money Market Deposit
Accounts.
--SAV--Other savings accounts...
--CDS--Time Deposit accounts and
Certificate of Deposit
accounts, including any
accounts with specified
maturity dates that may or may
not be renewable.
6. DP_Cur_Bal........................... Current balance................. Decimal (14,2).
The current balance in the
account at the end of business
on the effective date of the
file.
This balance shall not be
reduced by float or holds. For
CDs and time deposits, the
balance shall reflect the
principal balance plus any
interest paid and available for
withdrawal not already included
in the principal (do not
include accrued interest).
7. DP_Acc_Int........................... Accrued interest................ Decimal (14,2).
The amount of interest that has
been earned but not yet paid to
the account as of the date of
the file.
8. DP_Total_PI.......................... Total of principal and accrued Decimal (14,2).
interest.
9. DP_Hold_Amount....................... Hold amount on the account...... Decimal (14,2).
The available balance of the
account is reduced by the hold
amount. It has no impact on
current balance (ledger
balance).
10. DP_Prepaid_Account_Flag............. This field indicates a prepaid Character (1).
account with covered
institution. Enter ``Y'' if
account is a prepaid account,
enter ``N'' otherwise.
11. CS_Govt_ID.......................... This field shall contain the ID Variable Character.
number that identifies the
entity based on a government
issued ID or corporate filling.
Populate as follows:.
--For a United States
individual--Legal
identification number (e.g.,
SSN, TIN, Driver's License or
Passport Number).
--For a foreign national
individual--where a SSN or TIN
does not exist, a foreign
passport or other legal
identification number (e.g.,
Alien Card).
--For a Non-Individual--the Tax
identification Number (TIN), or
other register entity number.
12. CS_Govt_ID_Type..................... The valid customer Character (3).
identification types:.
--SSN--Social Security Number...
--TIN--Tax Identification Number
--DL--Driver's License, issued
by a State or Territory of the
United States.
--ML--Military ID...............
--PPT--Valid Passport...........
--AID--Alien Identification Card
--OTH--Other....................
13. CS_First_Name....................... Customer first name. Use only Variable Character.
for the name of individuals and
the primary contact for entity.
14. CS_Middle_Name...................... Customer middle name. Use only Variable Character.
for the name of individuals and
the primary contact for entity.
15. CS_Last_Name........................ Customer last name. Use only for Variable Character.
the name of individuals and the
primary contact for entity.
16. CS_Name_Suffix...................... Customer suffix................. Variable Character.
17. CS_Entity_Name...................... The registered name of the Variable Character.
entity. Do not use this field
if the customer is an
individual.
18. CS_Street_Add_Ln1................... Street address line 1........... Variable Character.
The current account statement
mailing address of record.
19. CS_Street_Add_Ln2................... Street address line 2........... Variable Character.
If available, the second address
line.
20. CS_Street_Add_Ln3................... Street address line 3........... Variable Character.
If available, the third address
line.
21. CS_City............................. The city associated with the Variable Character.
permanent legal address.
22. CS_State............................ The state for United States Variable Character.
addresses or state/province/
county for international
addresses.
--For United States addresses
use a two-character state code
(official United States Postal
Service abbreviations)
associated with the permanent
legal address.
--For international address
follow that country state code.
23. CS_ZIP.............................. The Zip/Postal Code associated Variable Character.
with the customers' permanent
legal address.
--For United States zip codes,
use the United States Postal
Service ZIP+4 standard.
--For international zip codes
follow the standard format of
that country.
24. CS_Country.......................... The country associated with the Variable Character.
permanent legal address.
Provide the country name or the
standard International
Organization for
Standardization (ISO) country
code.
25. CS_Telephone........................ Customer telephone number. The Variable Character.
telephone number on record for
the customer, including the
country code if not within the
United States.
26. CS_Email............................ The email address on record for Variable Character.
the customer.
27. CS_Outstanding_Debt_Flag............ This field indicates whether the Character (1).
customer has outstanding debt
with covered institution. This
field may be used to determine
offsets. Enter ``Y'' if
customer has outstanding debt
with covered institutions,
enter ``N'' otherwise.
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28. CS_Security_Pledge_Flag............. This field indicates whether the Character (1).
CI has pledged securities to
the government entity, to cover
any shortfall in deposit
insurance. Enter ``Y'' if the
government entity has
outstanding security pledge
with covered institutions,
enter ``N'' otherwise. This
field shall only be used for
Government customers.
29. DP_PT_Account_Flag.................. This field indicates a pass- Character (1).
through account with covered
institution. Enter ``Y'' if
account is a pass-through with
covered institutions, enter
``N'' otherwise.
30. PT_Parent_Customer_ID............... This field contains the unique Variable Character.
identifier of the parent
customer ID who has the
fiduciary responsibility at the
covered institution.
31. DP_PT_Trans_Flag.................... This field indicates whether the Character (1).
fiduciary account has sub-
accounts that have
transactional features. Enter
``Y'' if account has
transactional features, enter
``N'' otherwise.
----------------------------------------------------------------------------------------------------------------
Dated at Washington, DC, this 15th day of November, 2016.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-28396 Filed 12-2-16; 8:45 am]
BILLING CODE 6714-01-P
