FDIC Proposal on Deposit Account Records and Failed Bank Deposit Insurance Determinations: FDIC Requests Comment on Whether Certain Insured Depository Institutions Should Enhance Recordkeeping to Maintain More Accurate and Complete Data on Deposit Accounts and Develop Capabilities to Calculate Insured Amounts for Each Depositor at the End of Any Business Day

Sullivan & Cromwell LLP - April 30, 2015

On April 28, 2015, the Federal Deposit Insurance Corporation (the “FDIC”) published in the Federal Register an advance notice of proposed rulemaking (the “ANPR”) proposing new recordkeeping standards and deposit insurance calculation requirements for certain FDIC-insured depository institutions that have a large number of deposit accounts (each, a “Covered Institution”).  The ANPR requests comment on whether and how Covered Institutions—which the FDIC suggested could be financial institutions with more than two million deposit accounts—should be required to (1) enhance recordkeeping by maintaining substantially more accurate and complete data on each depositor’s ownership interest by right and capacity for all or a large subset of their deposit accounts, and (2) develop and maintain the capability to calculate the insured and uninsured amounts for each depositor by deposit insurance category for all (or a substantial subset of) deposit accounts at the end of any business day.  The ANPR indicates that the proposed enhancements are necessary to facilitate the FDIC’s statutory responsibility to pay deposit insurance “as soon as possible following the failure of an insured depository institution.”  As of December 31, 2014, the requirements embodied in the ANPR, if adopted as proposed, would apply to 37 institutions.
The proposed deposit insurance calculation requirement would represent a fundamental shift in practice and the outsourcing to insured depository institutions of a function that historically has been performed by the FDIC.  To date, neither the FDIC nor any insured financial institution has known or been able to calculate the exact amount of deposits covered by deposit insurance, except on or following an actual date of an insured financial institution’s failure, when calculated by the FDIC.  Deposit insurance assessments are currently calculated by the FDIC and paid by the insured financial institution generally based on estimates of insured deposits.
Any ultimate proposal would supplement a rulemaking adopted by the FDIC in 2008 (the “2008 Rulemaking”) to facilitate prompt deposit insurance determinations at large insured depository institutions.  The 2008 Rulemaking requires certain insured financial institutions to maintain processes that would provide the FDIC with standard deposit account information promptly in the event of the institution’s failure and to maintain the technological capability to automatically place and release holds on deposit accounts.  The 2008 Rulemaking contemplates that a failed institution will transmit standardized-format data to the FDIC for the FDIC to determine specifically which amounts are insured and which are not.  Under the 2008 Rulemaking, however, the determinations are not able to be made on closing night, and for some accounts, the determination cannot be made on closing weekend.  Based on the FDIC’s experience during the financial crisis and the possibility that a bank with a large number of deposit accounts could fail with little advance warning, the ANPR asserts that “further changes are needed to ensure that the FDIC can maintain the public trust in the banking system and can fulfill its statutory obligation to make insured depositors whole ‘as soon as possible.’”

The ANPR requests comment on a number of topics, including:

  • which categories of depository institutions should be subject to the enhanced recordkeeping and calculation requirements;
  • the technical challenges, costs and trade-offs of requiring the enhanced recordkeeping requirements;
  • the timetable for implementation;
  • whether Covered Institutions should be required to provide depositors with information regarding which of their deposits are insured;
  • the types of accounts for which deposit insurance determinations should be made on the night of a Covered Institution’s failure rather than at a later date;
  • how to make deposit insurance determinations for accounts that are held in the name of an agent or custodian;
  • whether to impose recordkeeping and other requirements with respect to prepaid cards;
  • whether recordkeeping requirements should be imposed with respect to trust accounts with multiple beneficiaries; and
  • which requirements, if any, should be imposed with respect to special categories of accounts, such as retirement accounts, employee benefit plan accounts and government accounts. 
While inherently preliminary, the proposals outlined in the ANPR, if ultimately adopted, could impose significant operational and information technology-related requirements on Covered Institutions.  These requirements could also be difficult to implement, especially for institutions with a number of “legacy” records systems resulting from previous mergers or acquisitions.

Comments on the ANPR are due no later than July 27, 2015.