White Paper on the Status of Foreign Branch Deposits Under the Depositor Preference Rule Authored by Sullivan & Cromwell LLP in Conjunction with Cleary Gottlieb and Davis Polk

January 2, 2013

The status of deposits payable solely in a foreign branch of a U.S. bank (“foreign branch deposits”) has become a central issue in the efforts of the Federal Deposit Insurance Corporation (the “FDIC”) to develop an effective and credible system for resolving a systemically important U.S. bank with significant international operations (“U.S. G-SIB”). This issue has also become a linchpin in achieving international cooperation and coordination in both regulating and resolving global banks.

The three undersigned firms recommend that the FDIC exercise its clear legal authority to issue a formal interpretation or regulation with respect to foreign branch deposits that would effectuate its goals without adverse consequences. Specifically, the FDIC should interpret the term “deposit liability,” as used in Section 11(d)(11) of the Federal Deposit Insurance Act (the “FDIA”), to include all the deposits of a U.S. bank whether made and payable at domestic branches or foreign branches. Under this approach, foreign branch deposits would remain uninsured.