Deposit Insurance Regulations; Definition of Insured Deposit, 11604-11609 [2013-03578]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 78, Number 33 (Tuesday, February 19, 2013)]
[Proposed Rules]
[Pages 11604-11609]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03578]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 78, No. 33 / Tuesday, February 19, 2013 / 
Proposed Rules

[[Page 11604]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AE00


Deposit Insurance Regulations; Definition of Insured Deposit

AGENCY: Federal Deposit Insurance Corporation (FDIC).

SUMMARY: The FDIC is proposing to amend its deposit insurance 
regulations, with respect to deposits payable in branches of United 
States insured depository institutions (``United States bank'' or 
``bank'') outside of the United States. The proposed rule would clarify 
that deposits in these foreign branches of United States banks are not 
FDIC-insured deposits. This would be the case whether or not they are 
dually payable both at the branch outside the United States and at an 
office within the United States. As discussed further below, a recent 
proposal by the United Kingdom's Financial Services Authority (``U.K. 
FSA'') makes it very likely that large United States banks will be 
changing their United Kingdom foreign branch deposit agreements to make 
them payable both in the United Kingdom and the United States. This 
action has the potential to increase significantly the exposure of the 
Deposit Insurance Fund (``DIF'') and operational complexities were such 
deposits to be treated as insured. The purpose of this proposed rule is 
to preserve confidence in the FDIC deposit insurance system, ensure 
that the FDIC can effectively carry out its critical deposit insurance 
functions, and protect the DIF against the uncertain liability that it 
would otherwise face as a global deposit insurer. Should a United 
States bank make its foreign deposits dually payable, those deposits 
would be considered ``deposit liabilities'' under the Federal Deposit 
Insurance Act's (``FDI Act'') depositor preference regime, and would 
therefore be on an equal footing with domestic deposits in the event of 
the bank's liquidation.

DATES: Written comments on the proposed rule must be received by the 
FDIC not later than April 22, 2013.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web site: https://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web 
site.
     Email: Comments@FDIC.gov. Include ``RIN 3064-AE00'' in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EDT).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Public Inspection: All comments received will be posted 
without change to https://www.fdic.gov/regulations/laws/federal 
including any personal information provided. Paper copies of public 
comments may be ordered from the Public Information Center by telephone 
at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Matthew Green, Associate Director, 
Division of Insurance and Research, (202) 898-3670; F. Angus Tarpley 
III, Supervisory Counsel, Legal Division, (202) 898-6646; Catherine 
Ribnick, Counsel, Legal Division, (202) 898-6803

SUPPLEMENTARY INFORMATION: 

I. Introduction

    Congress created the FDIC in 1933 to end the banking crisis 
experienced during the Great Depression, to restore public confidence 
in the banking system, and to safeguard bank deposits through deposit 
insurance. Deposit insurance promotes sound, effective, and 
uninterrupted operation of the banking system by protecting the safety 
and liquidity of covered bank deposits. The FDIC pays out deposit 
insurance from the DIF, which is funded by assessments on insured 
depository institutions. In addition, the FDIC can access a line of 
credit from the United States Treasury if necessary for deposit 
insurance purposes. In the most recent financial crisis, the FDIC's 
deposit insurance guarantee, with its backing by the full faith and 
credit of the United States Government, contributed significantly to 
financial stability in an otherwise unstable financial environment. In 
the FDIC's history, no depositor has ever lost a penny of an insured 
deposit.
    The FDI Act, 12 U.S.C. 1811, et seq., mandates the payment of 
deposit insurance ``as soon as possible'' to reduce the economic 
disruptions caused by bank failures and to preserve stability in the 
financial markets of the United States. See FDI Act section 11(f), 12 
U.S.C. 1821(f). The FDIC generally pays out deposit insurance on the 
next business day after a bank failure, and insured depositors often 
have uninterrupted access to their insured deposits through ATMs and 
other means. The prompt payment of deposit insurance preserves 
confidence in the deposit insurance system and promotes financial 
stability. Prompt payment depends on a number of key factors, including 
the FDIC's having immediate access to the deposit records of the failed 
bank and clarity about the application of laws and practices that could 
affect deposits in a particular location.
    To the extent a failed bank's depositors are uninsured, these 
depositors share in the proceeds from the liquidation of the assets of 
the failed bank, as conducted by the FDIC as receiver. The FDI Act 
contains a priority framework, known as ``national depositor 
preference,'' which governs the distribution of bank receivership 
proceeds to claimants, other than secured creditors whose claims are 
satisfied to the extent of their security. Under this regime, 
administrative expenses of the receiver are reimbursed first. Deposit 
liabilities (which include both home-country (uninsured) deposits and 
the claim of the FDIC standing in the shoes of insured depositors as 
subrogee) are reimbursed next, followed in order by general or senior 
liabilities; subordinated liabilities; and obligations to shareholders. 
FDI Act section 11(d)(11), 12 U.S.C. 1821(d)(11).

A. Treatment of Deposits in Foreign Branches of United States Banks

    Funds deposited into foreign branches of United States banks are 
not ``deposits,'' as defined under the FDI Act, unless those banks make 
the deposits payable at an office of the bank

[[Page 11605]]

in the United States using express contractual terms to that effect. 
FDI Act section 3(l)(5)(A), 12 U.S.C. 1813(l)(5)(A). United States 
banks currently operate through branches in dozens of countries. 
Foreign branch deposits have doubled since 2001 to total approximately 
$1 trillion today. A significant percentage of these branch deposits 
are located in the United Kingdom. United States banks often operate 
foreign branches to provide banking, foreign currency, and payment 
services to multinational corporations. In many cases these branches do 
not engage in retail deposit or other retail banking services; their 
typical depositors are large businesses that choose to bank in a 
foreign branch of a United States bank to benefit from the advantages 
of a large bank's multi-country branch network, which allows the 
transfer of funds to and from branch offices located in different 
countries and in different time zones pursuant to deposit agreements 
governed by non-United States law.
    Currently, the overwhelming majority of the deposits in these 
foreign branches of United States banks are payable only outside the 
United States. This may in part be because, in the past, making 
deposits in foreign branches dually payable has been costly for two 
reasons. First, it increased a bank's deposit insurance assessment base 
(which, in the past, excluded deposits solely payable outside the 
United States) and, thus, its deposit insurance assessment. Second, the 
deposits became subject to the Federal Reserve's Regulation D, 12 CFR 
part 204. Recent events have reduced or eliminated the cost of making 
these deposits dually payable, however. First, in section 331(b) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress 
changed the deposit insurance assessment base so that it now includes 
all liabilities; converting a deposit in a foreign branch to dual 
payability no longer increases a bank's assessment base or deposit 
insurance assessment. Second, the Federal Reserve now pays interest on 
reserves and allows more flexibility with respect to the reserves it 
requires. We also understand that United States banks may have 
refrained from making deposits in foreign branches dually payable out 
of concern that doing so could cause them to lose the protection from 
sovereign risk accorded them under section 25(c) of the Federal Reserve 
Act, 12 U.S.C. 633.\1\ Nothing in this proposed rule is intended to 
preclude a United States bank from protecting itself against sovereign 
risk by excluding from its deposit agreements with foreign branch 
depositors liability for sovereign risk.
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    \1\ This section provides that a member bank is not required to 
repay a deposit in a foreign branch if it cannot do so because of 
``war, insurrection, or civil strife'' or actions taken by the 
foreign government, unless the member bank has explicitly agreed in 
writing to repay foreign branch deposits in such circumstances.
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    Because these deposits have not been deposits for purposes of the 
FDI Act, depositors in foreign branches of United States banks have not 
received FDIC insurance. They are also not considered depositors for 
purposes of the national depositor preference provisions of the FDI Act 
and thus, if the bank were to fail, would share in the distribution of 
their bank's liquidated assets only as general creditors after the 
claims of United States (uninsured) depositors and the FDIC as subrogee 
of insured depositors had been satisfied. As discussed further below, 
this treatment of deposits payable only in overseas branches under the 
FDI Act's priority regime reflects important policy considerations.

B. The Consultation Paper of the United Kingdom's Financial Services 
Authority

    In September 2012, the U.K. FSA published a Consultation Paper 
addressing the implications of national depositor preference regimes in 
countries outside the European Economic Area (``EEA''). The 
Consultation Paper proposes to prohibit banks from non-EEA countries, 
including United States banks, from operating deposit-taking branches 
in the United Kingdom unless United Kingdom depositors in such branches 
would be on an equal footing in the national depositor preference 
regime with home-country (uninsured) depositors in a resolution of the 
bank if it were to fail. One of the U.K. FSA's proposed remedies would 
require United States banks to change their United Kingdom deposit 
agreements so that the deposits are payable both in the United Kingdom 
and in the United States.
    As outlined above, the effective result of such a change proposed 
by the U.K. FSA to the existing deposit agreements would be that the 
bank's deposits in the United Kingdom branch would be treated on a par 
with deposits in a branch in the United States and thus would be given 
depositor preference priority in a distribution of assets. However, the 
FDI Act and FDIC regulations do not specifically deal with the 
availability of deposit insurance for deposits in foreign branches that 
have been made dually payable, leaving unaddressed the question whether 
United Kingdom branch deposits would be eligible for FDIC deposit 
insurance as well.
    Any potential for a significant expansion of FDIC deposit insurance 
coverage outside the United States, with the concomitant potential 
impact on United States taxpayers, must be addressed expeditiously. 
Absent decisive action, the FDIC could find itself subject to liability 
to depositors throughout the world.
    The U.K. FSA currently has proposed that the rules governing 
deposit-taking by foreign banks in the United Kingdom will become final 
in early 2013, with implementation to take place two years later. 
Shortly after the rule's becoming final, however, United States banks 
with branches in the United Kingdom will be required to disclose to 
their United Kingdom depositors information regarding how the FDI Act's 
national depositor preference regime operates. Specifically, the 
required disclosure must indicate that, upon failure of the bank, 
claims for recovery of the bank's United Kingdom deposits would be 
subordinated to claims for recovery of the bank's United States 
deposits and, among other disclosures, that United Kingdom depositors 
would suffer losses before home-country depositors suffer any losses. 
The Consultation Paper makes clear that a disclosure that merely 
indicates that United Kingdom depositors would be in a weaker position 
vis-[agrave]-vis home-country (uninsured) depositors in the event of 
insolvency would not constitute sufficient disclosure.
    The Consultation Paper also specifies the required methodology of 
disclosure, including disclosure in deposit contracts with new 
customers and required revisions to deposit contracts with existing 
customers; among other things, the revisions to existing deposit 
contracts must explain to customers the specific purpose of the 
revisions. The firms are directed to make no distinction between retail 
and corporate customers. Furthermore, the disclosures are to be made on 
any Web site that offers deposit-taking services.
    United States banks have advised the FDIC that they are likely to 
begin the process of sending out these disclosures shortly and, 
further, that they would likely make their deposits payable both in the 
United Kingdom and the United States at the same time or shortly 
thereafter to minimize the likelihood of depositor run-off and mitigate 
any potential damage to their customer relationships. Such changes are 
of particular concern to the FDIC. Absent timely direction from the 
FDIC, there

[[Page 11606]]

could be significant impact on the FDIC's deposit insurance program.
    ``Dual payability'' should not be confused with mere access to 
funds in a country other than one's home country. Thus, for example, a 
United States-based traveler may have access to funds in a United 
States bank account via an ATM transaction overseas without making that 
account dually payable, and the reverse is true for travelers with 
deposits in foreign branches accessing their funds at an ATM in the 
United States. In each case such access is a mere service the bank 
provides to its customer as distinguished from a right to payment in a 
liquidation.
    In light of these recent international developments, the FDIC is 
issuing this notice of proposed rulemaking, with request for comments, 
to address the applicability of deposit insurance to deposits in 
foreign branches of United States banks.

II. Background

A. U.K. FSA Consultation Paper

    As noted above, in September 2012, the U.K. FSA issued a 
Consultation Paper addressing the implications of national depositor 
preference regimes of countries outside the EEA. The U.K. FSA has 
proposed to prohibit a non-EEA bank from operating a deposit-taking 
branch in the United Kingdom unless United Kingdom depositors are on an 
equal footing in the national depositor preference regime with home-
country (uninsured) depositors in a resolution scenario. The U.K. FSA 
has directed that banks from non-EEA countries that operate national 
depositor preference regimes take steps to ensure such equal treatment, 
and has identified three potential solutions (while not precluding the 
possibility that there could be other solutions that would satisfy the 
U.K. FSA's concerns):
    a. The first alternative offered by the U.K. FSA is 
subsidiarization. Under this alternative, non-EEA banks whose home 
countries operate national depositor preference regimes would accept 
deposits in the United Kingdom using a United Kingdom-incorporated 
subsidiary rather than a branch. If firms from a non-EEA country that 
operates a national depositor preference regime place their United 
Kingdom deposits in a United Kingdom-incorporated subsidiary, the 
United Kingdom depositors would not be subordinated to home-country 
depositors in the event the firms fails. When a United Kingdom-
incorporated subsidiary fails, all of its depositors, including United 
Kingdom depositors are subject to United Kingdom resolution and/or 
insolvency laws.
    b. The second alternative offered by the U.K. FSA is to give banks 
the option of segregating, or ring-fencing, assets in the United 
Kingdom through a trust arrangement. The trust arrangement would 
specify that United Kingdom branch depositors are the beneficiaries of 
the trust, and the banks would have to provide a legal opinion 
explaining how the measure eliminates the subordination of United 
Kingdom branch depositors, and that any legal challenge would not 
divert the ring-fenced assets from their intended use.
    c. A third option for those countries like the United States whose 
statutes permit, would be ``dual payability''--making deposits payable 
in both the home country and the United Kingdom. Under United States 
law, dual payability would result in those deposits occupying the same 
distribution priority level as home-country (uninsured) deposits under 
the national depositor preference regime.

B. National Depositor Preference

    In 1993, Congress amended the FDI Act to include a depositor 
preference provision in the federal failed-bank resolution framework. 
Omnibus Budget Reconciliation Act of 1993, Public Law 103-66. As noted 
above, in general, ``depositor preference'' refers to a distribution 
model in which the claims of depositors have priority over (i.e., are 
satisfied before) the claims of general unsecured creditors.
    Shortly after Congress added the national depositor preference 
provisions, FDIC legal staff was asked to address the impact of these 
new preference provisions on deposit obligations payable solely at a 
foreign branch or branches of a United States bank. See FDIC Advisory 
Opinion 94-1, Letter of Acting General Counsel Douglas H. Jones (Feb. 
28, 1994). As described in this Advisory Opinion, national depositor 
preference made general unsecured creditor claims subordinate to any 
``deposit liability'' of the institution. Since all deposit liabilities 
would be preferred over the claims of other creditors, FDIC staff was 
expressly asked whether the term ``deposit liability'' would include, 
or exclude, those obligations payable solely at a foreign branch of a 
United States bank.
    The Advisory Opinion explored the meaning of the term ``deposit 
liability'' used in other provisions of United States law. The Advisory 
Opinion specifically noted that the FDI Act definition of the term 
``deposit'' expressly excludes any obligation of a bank that is payable 
only at an office of such bank located outside of the United States. 
See FDI Act section 3(l), 12 U.S.C. 1813(l), and discussion below. The 
Advisory Opinion concluded that, to qualify as a deposit liability 
under the national depositor preference amendments to the FDI Act, the 
controlling deposit agreement would have to specify in express terms 
that the obligation is payable in the United States. Only by way of 
these express contractual terms would certain obligations of a foreign 
branch be considered deposits under the new depositor preference regime 
and be preferred over the claim of any general, unsecured creditor in a 
liquidation of a multinational bank. Obligations payable solely at a 
foreign branch of a United States chartered bank were deemed to be 
excluded from the term ``deposit liability'' for purposes of national 
depositor preference.

III. Statutory Framework

A. Definition of ``Deposit''

    The term ``deposit'' is defined in FDI Act section 3(l), 12 U.S.C. 
1813(l). As early as the Banking Act of 1933, Congress made a 
distinction between domestic and foreign deposits, and the current 
statutory definition of ``deposit'' makes clear that foreign branch 
deposits are not deposits for the purposes of the FDI Act except under 
certain prescribed circumstances. In most relevant part, the law 
specifies that the following shall not be a deposit for any of the 
purposes of the FDI Act or be included as part of the total deposits or 
of an insured deposit: any obligation of a depository institution which 
is carried on the books and records of an office of such bank or 
savings association located outside of any State, unless such 
obligation would be a deposit if it were carried on the books and 
records of the depository institution, and would be payable at, an 
office located in any State; and the contract evidencing the obligation 
provides by express terms, and not by implication, for payment at an 
office of the depository institution located in any State. FDI Act 
section 3(l)(5), 12 U.S.C. 1813(l)(5).
    Therefore, deposit obligations of a foreign branch of a United 
States bank that would otherwise fall within one of the categories of 
deposits created by section 3(l), or which the FDIC Board would 
otherwise prescribe as a deposit by regulation, are deemed not to be 
deposits unless they (1) would be deposits if carried on the books and 
records of the insured depository institution in the United States and 
(2)

[[Page 11607]]

are expressly payable in the United States.
    Historically, the great majority of deposit agreements governing 
relationships between United States banks and their foreign branch 
depositors have not expressly provided for payment of foreign branch 
deposits at an office in the United States. Thus, these foreign branch 
deposits have not been considered ``deposits'' for any purpose under 
the FDI Act, including depositor preference and deposit insurance.

B. Definition of ``Insured Deposit''

    The FDI Act defines ``insured deposit'' as the net amount due any 
depositor for deposits in an insured depository institutions as 
determined under section 11(a). FDI Act section 3(m)(1), 12 U.S.C. 
1813(m)(1). FDI Act section 11(a), 12 U.S.C. 1821(a), cross-referenced 
in the definition of ``Insured Deposit,'' directs the FDIC to ``insure 
the deposits of all insured depository institutions as provided in this 
Act.'' Section 11(a) provides only limited direction affecting certain 
categories of deposits. It does not expressly address foreign deposits.
    The FDIC issues rules and regulations necessary to carry out the 
statutory mandates of the FDI Act and other laws that the FDIC is 
charged with administering or enforcing. In instances such as this one 
where a statute is silent or general on issues critical to the FDIC's 
fundamental responsibilities, the FDIC has used its rulemaking 
authority to effectuate its statutory responsibilities.
    Providing deposit insurance to insured depository institutions and 
maintaining public confidence in the banking system through that 
deposit insurance in the event of a bank's insolvency are two central 
functions of the FDIC. In order to permit the FDIC to carry out these 
functions successfully, Congress has authorized the FDIC to undertake 
rulemaking to implement the FDI Act effectively, particularly with 
respect to its deposit insurance functions. The FDI Act gives the FDIC 
explicit rulemaking and definitional authorities to ensure that it can 
adapt to changed circumstances as necessary to carry out its important 
deposit insurance responsibilities.
    The FDI Act contains several provisions granting the FDIC broad 
authority to issue regulations to carry out its core functions and 
responsibilities, including the duty ``to insure the deposits of all 
insured depository institutions.'' Notably, FDI Act section 
11(d)(4)(B)(iv), 12 U.S.C. 1821(d)(4)(B)(iv), authorizes the FDIC (in 
its corporate capacity) to promulgate ``such regulations as may be 
necessary to assure that the requirements of this section [FDI Act 
section 11, 12 U.S.C. 1821, which addresses, in FDI Act section 11(f), 
12 U.S.C. 1821(f), the payment of deposit insurance] can be implemented 
with respect to each insured depository institution in the event of its 
insolvency.''
    Other grants of FDIC rulemaking authority can be found in FDI Act 
section 9(a)(Tenth), 12 U.S.C. 1819(a)(Tenth) (authorizing the FDIC 
Board to prescribe ``such rules and regulations as it may deem 
necessary to carry out the provisions of this chapter * * *''), and FDI 
Act section 10(g), 12 U.S.C. 1820(g) (authority to ``prescribe 
regulations'' and ``to define terms as necessary to carry out'' the FDI 
Act) (emphasis added).

IV. The Proposed Rule

A. The Proposed Rule

    The proposed rule would address several key concerns: (1) 
Maintaining public confidence in federal deposit insurance; (2) 
protecting the DIF; (3) ensuring that, in the event of an insolvency, 
the FDIC is in a position to administer the resulting receivership 
effectively and fairly; and (4) enhancing international cooperation.
    The FDIC is proposing to amend its deposit insurance regulations, 
12 CFR part 330, section 330.3(e), relating to deposits payable outside 
of the United States. The proposed rule would explicitly state that an 
obligation of an insured depository institution that is carried on the 
books and records of a foreign branch shall not be an insured deposit 
for the purpose of the deposit insurance regulations, even if the 
obligation is payable both at an office within the United States and 
outside the United States. This would ensure that the FDIC will be able 
to carry out its critical mission in the United States, and the DIF 
will be protected from potential global liability.
    The proposed rule would not affect the ability of a bank to make a 
foreign deposit ``dually payable'' in the United States and abroad. 
Should a bank do so, its foreign branch deposits would be treated as 
deposit liabilities under the FDI Act's depositor preference regime in 
the same way as, and on an equal footing with, domestic deposits. This 
means that dually payable deposits in foreign branches of United States 
banks and domestic deposits in the bank would both receive preferred 
status over general creditors should the bank fail and be placed in 
receivership, although the deposits in the foreign branches would not 
receive FDIC deposit insurance.
    The proposed rule is not intended to affect the operation of 
Overseas Military Banking Facilities operated under Department of 
Defense regulations, 32 CFR parts 230 and 231, or similar facilities 
authorized under Federal statute. Such facilities are established under 
statutory authority, separate from State or Federal laws that govern 
the broader banking industry, for the benefit of specific United States 
customers. These customers include active duty and reserve United 
States military personnel, Department of Defense United States civilian 
employees, and United States employees of other United States 
government departments stationed abroad. Consistent with this approach, 
a United States military banking facility located in a foreign country 
has been treated as a ``domestic'' office for purposes of the Report on 
Condition and Income. Accordingly, deposits placed at such facilities 
overseas have and would continue to receive FDIC deposit insurance if 
they meet the requirements of FDI Act section 3(l)(5)(A), 12 U.S.C. 
1813(l)(5)(A).\2\
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    \2\ See FDIC Advisory Opinion 96-6, Letter of Assistant General 
Counsel Alan J. Kaplan (Mar. 5, 1996).
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B. Objective of the Proposed Rule

    The goal of the proposed rule is to ensure that the FDIC can carry 
out its mandate to provide deposit insurance by protecting the DIF. 
Absent this rulemaking, the DIF faces potential liability that could be 
global in scope, a risk that could extend to the United States which 
backs the DIF with full faith and credit. This threat is aggravated by 
the higher deposit insurance limits afforded by the DIF as contrasted 
with the deposit insurance systems of many other countries.
    Timely payment of deposit insurance in the event of a bank failure 
is critical to promoting depositor confidence in the United States 
deposit insurance system. That system is designed to function in the 
context of the domestic legal system and functions very effectively in 
that context. Insuring deposits in foreign jurisdictions raises a 
series of challenges that threatens the ability to make timely payment. 
These challenges include access to books and records and foreign law 
and practice. Any resulting delay would undermine this confidence.
    With respect to the FDIC's insurance determination and prompt 
payment of deposit insurance, there can be no assurance that the FDIC 
will have access

[[Page 11608]]

to either the failed branch's premises or its deposit records. Rather, 
such access could be subject to the local law of the foreign 
jurisdiction and, possibly, to the discretion of the foreign 
jurisdiction's regulatory authorities. For example, in an extreme case, 
FDIC representatives may be unable to obtain visas or other travel 
permits even to enter the foreign jurisdiction. Even if full access to 
the foreign branch's premises and deposit records were provided to the 
FDIC, such access may be delayed for an indeterminate period of time, 
and any significant delay would be antithetical to one of the primary 
objectives of providing deposit insurance to depositors: the FDIC's 
payment of deposit insurance ``as soon as possible'' in accordance with 
FDI Act section 11(f)(1), 12 U.S.C. 1821(f)(1). Consequently, 
significant operational issues due to external factors may impede the 
FDIC's prompt payment of deposit insurance (usually the next business 
day) to depositors of foreign branches of failed United States insured 
depository institutions. Indeed, in the context of a significant 
financial crisis in a number of countries, the problems presented could 
be particularly acute.

C. Other Options

    The FDIC has explored alternative options for addressing the issues 
the U.K. FSA Consultation Paper has triggered. As noted above, the FDIC 
published an advisory opinion in 1994 that found that foreign deposits 
payable solely abroad were not deposits under the FDI Act for purposes 
of national depositor preference. The FDIC has considered whether to 
revisit the conclusions reached in this advisory opinion. The FDIC has 
also reviewed the status of deposits in foreign branches in light of 
the history of the FDI Act. In addition, the FDIC has received input 
from a number of United States banks affected by the U.K. FSA's 
actions, as well as the U.K. FSA itself. The FDIC seeks comment from 
all interested parties on all aspects of the proposed rule, including 
whether other alternatives are available that would accomplish the 
goals of the rule (protecting the DIF from exposure to expanded 
international deposit insurance liability arising from dually payable 
deposits and associated operational complexities) in a more effective 
manner.
    In particular, the FDIC seeks comment on whether it should consider 
an alternative approach to the proposed rule that would not entirely 
preclude deposit insurance for dually payable deposits, but only if 
enumerated conditions designed to protect the DIF and facilitate 
deposit insurance determinations were satisfied. For example, United 
States banks wishing to obtain deposit insurance for their dually 
payable foreign branch deposits could be required to transmit assets to 
or pledge collateral in favor of the FDIC in an amount equal to 100 
percent of the deposit insurance for which the deposits in the foreign 
branch would be eligible. These assets or collateral would be 
transmitted to or pledged in favor of the FDIC, not to or in favor of 
the private depositor, for the purpose of eliminating potential losses 
to the DIF stemming from these foreign deposits in the event of a bank 
failure. The rule could specify what types of assets or collateral 
would be acceptable, such as United States Treasury securities. FDIC 
regulations dealing with collateral to be pledged by foreign banks for 
deposits in a United States branch, 12 CFR 347.209(d), suggest other 
types of assets or collateral that may be appropriate. The regulation 
could also designate the source of the funding for the assets to be 
transmitted or for the collateral to be pledged from domestic assets or 
those of the foreign branch, and the regulation could specify how often 
the sufficiency of the collateral or assets would be reviewed, e.g., 
daily, monthly. Alternatively, banks could post a surety bond in the 
same amount to ensure that these deposits receive deposit insurance. 
Such a rule could also address operational considerations by 
establishing requirements for the deposit agreements that provide for 
dually payable foreign deposits. These agreements could, for example, 
be required to contain a choice of law provision designating United 
States law as governing any disputes arising under the agreement. The 
agreements would have to be maintained at the principal domestic office 
of the United States bank, and they would have to be available in 
English. Finally, the rule could reserve to the FDIC the discretion to 
prescribe additional requirements deemed to be necessary to protect the 
DIF from expanded liability. Such additional requirements could likely 
include recordkeeping directions. The FDIC looks forward to receiving 
comments on any aspect of this alternative proposal and welcomes 
comment on other alternative enumerated conditions that would allow the 
FDIC to continue providing deposit insurance to dually payable deposits 
while ensuring no possibility of loss to the DIF.

V. Request for Comments

    The FDIC invites comments on all aspects of the proposed rule. 
Written comments must be received by the FDIC no later than April 22, 
2013. In particular, the FDIC seeks comments with respect to the 
following questions:

A. Insured Depository Institutions

    1. Please describe the impact the proposed rule is expected to have 
on your business model, operations and customers, including:
    a. The number and location of foreign branches in which the 
deposits have been made ``dually payable'' by contract between you and 
your depositors;
    b. The terms of the contract pursuant to which the deposits in your 
foreign branches have been made ``dually payable''; and
    c. Any representations in your foreign branches, such as the logo 
of the FDIC, indicating that deposits are insured.

B. Customers

    1. Please describe the impact the proposed rule is expected to 
have.

C. Special Considerations

    1. The proposed rule is not intended to affect the provision of 
deposit insurance with respect to deposits at Overseas Military Banking 
Facilities located on Department of Defense installations or similar 
facilities authorized under Federal statute. Please comment as to 
whether the proposed rule could nonetheless negatively affect the 
administration of such facilities.
    2. Please describe any other similar programs not specifically 
addressed that may be negatively affected by this proposed rule.

D. General

    1. Please describe any other consequences of the proposed rule of 
which the FDIC should be made aware.

VI. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    The proposed rule clarifies the applicability of deposit insurance 
to deposits in foreign branches of United States banks. It does not 
involve any new collections of information pursuant to the Paperwork 
Reduction Act (44 U.S.C. 3501, et seq.). Consequently, no information 
has been submitted to the Office of Management and Budget for review.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601, et seq., 
requires an agency publishing a notice of proposed rulemaking to 
prepare and make available for public comment a regulatory flexibility 
analysis that describes the impact of the proposed rule on small 
entities. 5 U.S.C. 603(a).

[[Page 11609]]

The RFA provides that an agency is not required to prepare and publish 
a regulatory flexibility analysis if the agency certifies that the 
proposed rule will not have a significant impact on a substantial 
number of small entities. 5 U.S.C. 605(b).
    Pursuant to section 605(b) of the RFA, the FDIC certifies that the 
proposed rule will not have a significant impact on a substantial 
number of small entities. The proposed rule will specify that deposit 
insurance is inapplicable to deposits in foreign branches of U.S. banks 
and, as such, imposes no burdens on insured depository institutions of 
any size. Therefore, the FDIC is not aware of any banks that are 
considered small entities for the purposes of the RFA and that would be 
affected by this proposed rule.

C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471) requires Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the proposed rule in a simple and 
straightforward manner but nevertheless invites comments on whether the 
proposal is clearly stated and effectively organized, and how the FDIC 
might make the proposed text easier to understand.

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Banks, Banking, Reporting and recordkeeping 
requirements, Savings and Loan associations, Trusts and trustees.
    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend part 330 of title 12 of 
the Code of Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
The authority citation for part 330 is revised to read as follows:

    Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 
1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c)
0
1. In Sec.  330.1, revise paragraph (i) to read as follows:


Sec.  330.1  Definitions.

* * * * *
    (i) Insured deposit has the same meaning as that provided under 
section 3(m)(1) of the Act (12 U.S.C. 1813(m)(1)) and this part.
* * * * *
0
2. In Sec.  330.3, revise paragraph (e) to read as follows:


Sec.  330.3  General principles.

* * * * *
    (e) Deposits payable outside of the United States and certain other 
locations. (1) Any obligation of an insured depository institution 
which is payable solely at an office of such institution located 
outside the States of the United States, the District of Columbia, 
Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, 
American Samoa, the Trust Territory of the Pacific Islands, and the 
Virgin Islands, is not a deposit for the purposes of this part.
    (2) Except as provided in paragraph (e)(3) of this section, any 
obligation of an insured depository institution which is carried on the 
books and records of an office of such institution located outside the 
States of the United States, the District of Columbia, Puerto Rico, 
Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, 
the Trust Territory of the Pacific Islands, and the Virgin Islands, 
shall not be an insured deposit for purposes of this part, 
notwithstanding that it may also be payable at an office of such 
institution located within a State, the District of Columbia, Puerto 
Rico, Guam, the Commonwealth of the Northern Mariana Islands, American 
Samoa, the Trust Territory of the Pacific Islands, and the Virgin 
Islands, or any other provision of this part.
    (3) Rule of Construction: For purposes of this section, Overseas 
Military Banking Facilities operated under Department of Defense 
regulations, 32 CFR parts 230 and 231, are not considered to be offices 
located outside the States of the United States, the District of 
Columbia, Puerto Rico, Guam, the Commonwealth of the Northern Mariana 
Islands, American Samoa, the Trust Territory of the Pacific Islands, 
and the Virgin Islands.
* * * * *

     Dated at Washington, DC, this 12th day of February, 2013.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-03578 Filed 2-15-13; 8:45 am]
BILLING CODE 6714-01-P