FEDERAL DEPOSIT INSURANCE CORPORATION: DEPOSIT INSURANCE COVERAGE

I. INTRODUCTION

The Great Depression of the early 1930s brought about the greatest financial and business decline in U.S. history. Banks were probably affected more than any other business. As a result, several banking reform measures were passed by Congress. The basic reasons for these regulatory reforms were for depositor protection and for preventing a problem financial institution from disrupting monetary stability.

The most significant reform was contained in the Banking Act of 1933 which established a system of federal insurance of deposits, thus eliminating the link between the fate of insured depositors and the fate of their banks. The vehicle for this protection was the Federal Deposit Insurance Corporation (FDIC).

The FDIC is an independent corporate agency of the federal government, with certain governmental privileges granted to it and with public monies constituting a part of its capital funds. It is managed by a board of directors of five persons, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party. The directors cannot hold office in or own the stock of any bank insured by the FDIC.

The Corporation maintains eight regional offices, each of which is headed by a regional director. Early in its history, when bank failures were more numerous, the majority of the Corporation’s employees were in the Division of Liquidation. However, the largest proportion of employees is now engaged in examination and related activities. The Corporation also maintains a legal department, as well as a Division of Liquidation, Division of Research, and Comptroller’s Office.

To provide security for its insured accounts and for operations, the FDIC by law may assess each insured bank an annual amount equal to a percentage of the bank’s deposit liability. Assessments are collected semi-annually and calculated according to a statutory formula. Insured banks are required to file quarterly reports disclosing the condition of the bank and its deposit liabilities. Accumulated FDIC assessments for insuring deposits constitute a permanent insurance fund. For insured commercial banks, the assessments are place in the Bank Insurance Fund (BIF). These assets are the reserves that guarantee that the FDIC is able to fulfill its insurance obligations. Additionally, if necessary for insurance purposes, the FDIC is allowed by law to borrow and has a line of credit with the U.S. Treasury.

The bank regulatory powers of the FDIC were obtained in the Banking Act of 1933, establishing the Corporation, and the Banking Act of 1935. The underlying rationale for this grant of regulatory power was the need for the corporation as an insurer of bank deposits to “inspect its risk.” Such authority was believed necessary to keep the Corporation’s risk within the bounds of its financial resources. FDIC’s supervisory and regulatory matters concerning the internal affairs of banks guarantee adherence as the Corporation has the power to terminate deposit insurance, issue cease-and-desist orders, remove bank officials and affiliated parties, and levy fines.

To further allay concerns and assure depositors of the safety of their money, Congress passed resolutions in 1982 reaffirming that deposits insured by the FDIC are backed by the full faith and credit of the United States. Title IX of the Competitive Equality Banking Act of 1987, which was signed by the President on August 10, 1987, is entitled “Full Faith and Credit of Federally Insured Depository Institutions.” Section 901 of Title IX is a “Reaffirmation of Security of Funds Deposited in Federally Insured Depository Institutions” and states as follows:

A. Findings

The Congress finds and declares that:

since the 1930’s, the American people have relied upon federal deposit insurance to ensure the safety and security of their funds in federally insured depository institutions; and
the safety and security of such funds is an essential element of the American financial system.

B. Sense of Congress

In view of the findings and declarations contained in subsection (a), it is the sense of the Congress that it should reaffirm that deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.

In 1989, with the passage of FIRREA, the FDIC gained authority to insure thrifts through the Savings Association Insurance Fund (SAIF) and to manage the Resolution Trust Corporation in its handling of failed thrifts. The FDIC may conduct examinations of insured thrifts for deposit insurance purposes and is empowered to prevent thrifts from conducting activities or actions that could result in a serious threat to the insurance fund.

The Federal Deposit Insurance Reform Act of 2005 (P.L. 109-171) made several significant changes to FDIC coverage. Of particular significance, the act raised the deposit insurance limit on retirement accounts from $100,000 to $250,000; provided for inflation adjustments to increase the current standard maximum deposit insurance amount of $100,000 and the deposit insurance limit for retirement accounts on a 5-year cycle beginning in 2010; and provided pass thru insurance coverage to employee benefit accounts even if the institution may not legally accept employee benefit plan deposits due to its capital category. The FDIC also completed the merger of the Bank Insurance Fund and the Savings Association Insurance Fund on March 31, 2006.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) made several significant changes to FDIC coverage. The Act permanently raised the standard maximum deposit insurance amount (SMDIA) from $100,000 to $250,000 and extended the transaction account guarantee program through December 31, 2012, and made participation in the program mandatory.

II. PURPOSE OF ARTICLE

Most bank account customers have a general understanding that a depositor is insured with the FDIC up to the basic insurance amount of $250,000, including certain retirement accounts. But few depositors understand that FDIC rules provide for higher coverage through the proper styling of accounts. The purpose of this article is to give an overview of FDIC insurance coverage for various accounts and entities.

The following chart shows standard insurance amounts for FDIC account ownership categories. All deposits that an account holder has in the same ownership category are added together and insured up to the standard insurance amount.

FDIC Deposit Insurance Coverage Limits by account ownership category
Single Accounts (owned by one person)	$ 250,000 per owner
Joint Accounts (owned by two or more persons)	$ 250,000 per co-owner
Certain Retirement Accounts (includes IRAs)	$ 250,000 per owner
Revocable Trust Accounts	$ 250,000 per owner per beneficiary up to 5 beneficiaries (more coverage available with 6 or more beneficiaries subject to specific limitations and requirements)
Corporation, Partnership and Unincorporated Association Accounts	$ 250,000 per corporation, partnership or unincorporated association
Irrevocable Trust Accounts	$ 250,000 for the non-contingent, ascertainable interest of each beneficiary
Employee Benefit Plan Accounts	$ 250,000 for the non-contingent, ascertainable interest of each plan participant
Government Accounts	$ 250,000 per official custodian
To calculate your deposit insurance coverage Use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) at: www.fdic.gov/edie.
For questions about FDIC coverage limits and requirements Visit www.FDIC.gov/deposit/deposits, call toll-free 1-877-ASK-FDIC, or ask a representative at your bank.

III. QUESTIONS AND ANSWERS

1. Suppose an individual depositor places funds aggregating over $250,000 at several branches of a bank. Will separate insurance coverage of $250,000 apply to each branch?

No. The law deems a main bank and all its branches as a single bank for FDIC insurance purposes. Multiple deposits in separately chartered banks will receive separate insurance coverage.

2. Suppose an individual depositor places funds aggregating over $250,000 at several banks owned by the same bank holding company. Will separate insurance coverage of $250,000 apply to each bank?

Within the same bank holding company, the FDIC will look for separate charters to determine if the individual’s deposit account in each subsidiary bank is separately insured.

3. How is FDIC insurance coverage affected when an individual has accounts at two banks that are merged and the aggregate deposits exceed $250,000 as a result of the merger?

FDIC regulations provide that separate deposit insurance continues for six months from the date that the merger takes effect, but in the case of a time deposit, the earliest maturity date after the six-month period. For time deposits that mature within six months of the merger and are renewed at the same dollar amount (with or without accrued interest added to the principal amount) and for the same term as the original deposit, separate insurance applies to the renewed deposits until the first maturity date after the six-month period. Time deposits that mature within six months of the merger and are renewed on any other basis or are not renewed and become demand deposits, are separately insured until the end of the six-month period.

4. How is a joint account insured following the death of a depositor who is a joint owner of the account?

Joint accounts may have separate insurance coverage from individual accounts owned by a depositor. The death of one joint account owner would affect the surviving joint owner for deposit insurance purposes. E.g., Husband and Wife have a joint account with $250,000and Wife has an individual account with $250,000. FDIC insurance would cover the Wife’s $500,000 interest. Should the Husband die, Wife (as survivor of the joint account) would hold two individual $250,000 accounts and only $250,000 in deposit insurance coverage. FDIC rules provide, in this limited instance, that survivors of joint accounts have a six-month grace period to restructure their accounts and remain separately insured for the grace period.

5. Are IRAs, SEPs and Keogh plans insured separately from other deposits owned by an individual?

Yes. Self-directed retirement accounts such as traditional and Roth IRA’s, SEPs, Section 457 deferred compensation plan accounts and Keogh plan accounts owned by the same person in the same insured bank are added together and the total is insured up to $250,000. Self-directed retirement accounts and all Section 457 deferred compensation plan accounts, regardless of whether they are self directed or not, are included in this category of coverage. The self-directed retirement accounts are not aggregated with any other accounts of the owner. Naming beneficiaries on a self-directed retirement account does not increase insurance coverage

6. Are escrow accounts insured only to $250,000 or up to $250,000 per owner of co-mingled funds in an escrow account?

The owner of the portion of co-mingled funds would be insured to $250,000, if the records kept in the ordinary course of business of the person in whose name the deposit is maintained, show the name and interest of any portion of the account. The FDIC also has the discretion, under Section 330.5 to look beyond how an account is titled and consider whether any underlying deposit records evidence that the account is held in a fiduciary capacity. If the depositor is the owner’s agent, the escrow account funds would be added to any individual deposit account of the owner and insured to $250,000 in the aggregate.

7. Do decedent accounts receive separate insurance coverage?

A decedent’s accounts that are held in the name of the decedent or in the name of the personal representative of the estate are insured to $250,000. The beneficiary’s deposit accounts and the personal representative’s accounts are not added to the decedent’s accounts for deposit insurance purposes while the funds remain in probate.

8. How are corporate, partnership or unincorporated association accounts insured by the FDIC?

Corporate, partnership or unincorporated association accounts receive separate deposit insurance coverage so long as the entity is engaged in any “independent activity,” i.e., any activity other than one directed solely at increasing deposit insurance coverage. A sole proprietorship is not considered an unincorporated association and such account is added together with any account in the name of the owner for deposit insurance coverage purposes. A joint venture account is either a joint account or an unincorporated association account, depending upon the bank’s records as to the nature of the account (See, “Special note regarding authorized signers on single ownership accounts” following the questions and answers).

9. How are authorized signers on single ownership accounts treated for deposit insurance coverage purposes?

For FDIC deposit insurance purposes, a single ownership account with one or more “authorized signer” is not treated as a joint ownership account where deposit account records indicate clearly and unequivocally that the account is an individual or single ownership account and that any other persons who are signatories on the account are merely authorized to withdraw funds on behalf of the true owner. The FDIC will not look to the source or use of the funds in an account for the purpose of determining the ownership funds.

This rule affects principally two forms of accounts: “convenience accounts” and “sole proprietorship” accounts. Convenience accounts typically involve the owner of the account (e.g., a parent) and another person who is entitled to write checks on the account (e.g., child). The authorized signer usually acts upon the instruction of the account owner, but without a formal power of attorney or agency documentation. Sole proprietorship accounts are typically a business account owned by an individual. However, it is often necessary for other (non-owner) employees of the business to be authorized signers. The employees clearly have no ownership interest in the account.

Under former FDIC rules, both of these accounts were considered to be joint accounts, and the interest of the non-owner was aggregated with any other interests in joint accounts owned by the non-owner at the bank and insured up to $100,000. The FDIC may now treat these accounts as single ownership accounts, provided that deposit account records clearly indicate such an arrangement (12 C.F.R. Section 330.5(a)).

The regulation states that funds owned by a natural person and deposited in one or more deposit accounts in his or her own name shall be added together and insured up to $250,000 in the aggregate. If more than one natural person has the right to withdraw funds from an individual account (excluding persons who have the right to withdraw by virtue of a Power of Attorney) the account shall be treated as a joint ownership account and shall be insured in accordance with the joint ownership account provisions (Section 330.7) unless the deposit account records clearly indicate, to the satisfaction of the FDIC, that the funds are owned by one individual and that other signatories on the account are merely authorized to withdraw funds on behalf of the owner.

10. What types of accounts are eligible for FDIC insurance?

FDIC insurance covers all deposit accounts at insured banks and savings associations, including checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limit.

The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you purchased these products from an insured bank or savings association.

11. How can I keep my deposits within FDIC insurance limits?

If you and your family have $250,000 or less in all of your deposit accounts at the same insured bank or savings association, you do not need to worry about your insurance coverage - your deposits are fully insured. A depositor can have more than $250,000 at one insured bank or savings association and still be fully insured provided the accounts meet certain requirements. In addition, federal law provides for insurance coverage of up to $250,000 for certain retirement accounts.

12. What are the basic FDIC coverage limits?*

Single Accounts (owned by one person): $250,000 per owner

Joint Accounts (two or more persons): $250,000 per co-owner

IRAs and other certain retirement accounts: $250,000 per owner

Revocable trust accounts: Each owner is insured up to $250,000 for the interests of each beneficiary, subject to specific limitations and requirements

*These deposit insurance coverage limits refer to the total of all deposits that account holders have at each FDIC-insured bank. The listing above shows only the most common ownership categories that apply to individual and family deposits, and assumes that all FDIC requirements are met.

13. Is it possible to have more than $250,000 at one insured bank and still be fully covered?

You may qualify for more than $250,000 in coverage at one insured bank or savings association if you own deposit accounts in different ownership categories. The most common account ownership categories for individual and family deposits are single accounts, joint accounts, revocable trust accounts and certain retirement accounts.

14. What is a single account?

This is a deposit account owned by one person and titled in that person’s name only, with no beneficiaries. All of your single accounts at the same insured bank are added together and the total is insured up to $250,000. For example, if you have a checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $250,000. Note that retirement accounts and eligible trust accounts are not included in this ownership category.

15. What is a joint account?

This is a deposit account owned by two or more people and titled jointly in the co-owners’ names only, with no beneficiaries. If all co-owners have equal rights to withdraw money from a joint account, a co-owner’s shares of all joint accounts at the same insured bank are added together and the total is insured up to $250,000. Note that jointly owned revocable trust accounts are not included in this ownership category.

If a couple has a joint checking account and a joint savings account at the same insured bank, each co-owner’s shares of the two accounts are added together and insured up to $250,000 per owner, providing up to $500,000 in coverage for the couple’s joint accounts.

Example: John and Mary have three joint accounts totaling $600,000 at an insured bank. Under FDIC rules, each co-owner’s share of each joint account is considered equal unless otherwise stated in the bank's records. John and Mary each own $300,000 in the joint account category, putting a total of $100,000 ($50,000 for each) over the insurance limit.

Mary’s ownership share in all joint accounts equals $300,000 [1/2 of the checking account ($25,000), 1/2 of the savings account ($75,000), and 1/2 of the CD ($200,000), for a total of $300,000]. Since her coverage in the joint ownership category is limited to $250,000, $50,000 is uninsured.
John’s ownership share in all joint accounts is the same as Mary’s, so $50,000 is uninsured.

Joint Account Example
Account Title	Type of Deposit	Account Balance
Mary and John Smith	Checking	$50,000
John or Mary Smith	Savings	$150,000
Mary Smith or John Smith	CD	$400,000
Total Deposits		$600,000

Insurance coverage for each owner is calculated as follows:
Account Holders	Ownership Share	Amount Insured	Amount Uninsured
John	$300,000	$250,000	$50,000
Mary	$300,000	$250,000	$50,000
Total	$600,000	$500,000	$100,000

16. What is meant by certain retirement accounts?

These are deposit accounts owned by one person and titled in the name of that person’s retirement plan. Only the following types of retirement plans are insured in this ownership category:

Individual Retirement Accounts (IRAs) including traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs
Section 457 deferred compensation plan accounts (whether self-directed or not)
Self-directed defined contribution plan accounts
Self-directed Keogh plan (or H.R. 10 plan) accounts

All deposits that an individual has in any of the types of retirement plans listed above at the same insured bank are added together and the total is insured up to $250,000. For example, if an individual has an IRA and a self-directed Keogh account at the same bank, the deposits in both accounts would be added together and insured up to $250,000.

NOTE: Naming beneficiaries on a retirement account does not increase deposit insurance coverage.

17. What is a revocable trust account?

This is a deposit account held as a payable on death (POD) or in trust for (ITF) account or that is established in the name of a formal revocable trust (also known as a living or family trust account).

POD and ITF accounts - also known as testamentary or Totten Trust accounts - are the most common form of revocable trust deposits. These informal revocable trusts are created when the account owner signs an agreement - usually part of the bank’s signature card - stating that the deposits will be payable to one or more beneficiaries upon the owner’s death.

Living trusts - or family trusts - are formal revocable trusts created for estate planning purposes. The owner of a living trust controls the deposits in the trust during his or her lifetime. The trust document sets forth who shall receive trust assets after the death of the owner.

Deposit insurance coverage for revocable trust accounts is provided to the owner of the trust. However, the amount of coverage is based on the number of beneficiaries named in the trust and, in some cases, the interests allocated to those beneficiaries, up to the insurance limit. A trust beneficiary can be an individual (regardless of the relationship to the owner), a charity or another non-profit organization (as defined by the IRS).

Revocable trust coverage is based on all revocable trust deposits held by the same owner at the same bank, whether formal or informal. If a revocable trust account has more than one owner, each owner’s coverage is calculated separately, using the following rules:

Revocable Trust Deposits with Five or Fewer Beneficiaries - Each owner’s share of revocable trust deposits is insured up to $250,000 for each beneficiary (i.e., $250,000 times the number of different beneficiaries), regardless of actual interest provided to beneficiaries.

Revocable Trust Deposits with Six or More Beneficiaries - Each owner’s share of revocable trust deposits is insured for the greater of either (1) coverage based on each beneficiary’s actual interest in the revocable trust deposits, with no beneficiary’s interest to be insured for more than $250,000, or (2) $1,250,000.

NOTE: Determining coverage for living trust accounts that have six or more beneficiaries and provide different interests for the trust beneficiaries can be complicated. Contact the FDIC at 1-877-275-3342 if you need assistance in determining the insurance coverage of your revocable trust.

POD Account Example: This example applies to POD accounts only. (Coverage may be different for some living trusts.) Bill has a $250,000 POD account with his wife Sue as beneficiary. Sue has a $250,000 POD account with Bill as beneficiary. In addition, Bill and Sue jointly have a $1,500,000 POD account with their three children as equal beneficiaries.

Account Title	Account Balance	Amount Insured	Amount Uninsured
Bill POD to Sue	$250,000	$250,000	$0
Sue POD to Bill	$250,000	$250,000	$0
Bill and Sue POD to 3 children	$1,500,000	$1,500,000	$0
Total	$2,000,000	$2,000,000	$0

These three accounts totaling $2,000,000 are fully insured because each owner is entitled to $250,000 of coverage for each beneficiary. Bill has $1,000,000 of insurance coverage because he names four beneficiaries - his wife in the first account and his three children in the third account). Sue also has $1,000,000 of insurance coverage $250,000 for each of her beneficiaries - her husband in the second account and her three children in the third account.

When calculating coverage for revocable trust accounts, keep in mind that:

Coverage is based on the number of beneficiaries (and, if the account has six or more beneficiaries, the interests of the beneficiaries) named by each owner. Additional coverage is not provided for the trust owner(s). For example, if a father owns a $750,000 POD account naming his two sons as beneficiaries, the account is insured for $500,000 - $250,000 for the interest of each beneficiary. The remaining $250,000 is uninsured.
FDIC insurance limits apply to all revocable trust deposits - including all POD/ITF and living trust accounts - that a trust owner has at one insured bank. In applying the $250,000 per beneficiary insurance limit, the FDIC combines an owner’s POD accounts with the living trust accounts that name the same beneficiaries at the same bank.

More in-depth information on types of deposit accounts

Single Accounts

What is a single account?

A single account is a deposit account owned by one person, with no beneficiaries. Such accounts include deposits titled in the owner’s name alone, deposits established for the benefit of the owner by an agent, nominee, guardian, custodian or conservator, and deposits belonging to the owner of a sole proprietorship.

How are single accounts insured?

All single accounts established by, or for the benefit of, the same person are added together. The total is insured up to a maximum of $250,000, including principal and interest.

Example of Insurance Coverage for Single Accounts
Depositor	Type of Deposit	Amount Deposited
Jane Smith	Savings account	$25,000
Jane Smith	Certificate of Deposit	$250,000
Jane Smith	NOW account	$50,000
Jane Smith's sole proprietorship	Checking account	$50,000
Total Deposited		$375,000
Insurance Available		$250,000
Uninsured Amount		$125,000

What is the Uniform Transfer to Minor Act and how are deposit accounts established under this law insured?

The Uniform Transfer to Minor Act is a state law that allows an adult to make a gift to a minor. Funds given to a minor by this method are held in the name of a custodian for the minor’s benefit. Funds deposited for the minor’s benefit under the Act are added to any other single accounts of the minor, and the total is insured up to a maximum of $250,000.

How are sole proprietorship accounts insured?

These are deposits owned by an unincorporated business, in contrast to a business that is incorporated or a partnership. Deposit accounts owned by a sole proprietor are insured as the single funds of the person who owns the business. So, if an individual has an account in his name alone and another account in the name of his sole proprietorship, the balances in those accounts would be combined and insured to a up to a maximum of $250,000 in the single account category.

How are decedent estate accounts insured?

These are funds deposited by an executor or administrator for the estate of a deceased person. These accounts are insured up to $250,000 as the single account funds of the deceased person. This coverage limit would include any other funds maintained in the name of the deceased individual. It is important to note that coverage is not provided on a per beneficiary basis. So, even though there might be multiple beneficiaries of the decedent’s estate, the account established for the estate would not be insured for more than $250,000. The funds are, however, insured separately from the personal funds of the executor or administrator.

Certain Retirement Accounts

What are certain retirement accounts?

These are deposit accounts owned by one person and titled in the name of that person’s:

Individual Retirement Account including traditional IRA, Roth IRA, Simplified Employee Pension (SEP) IRA or Savings Incentive Match Plans for Employees (SIMPLE) IRA
Section 457 deferred compensation plan account (such as eligible deferred compensation plans provided by state and local governments regardless of whether the plan is self-directed)
Self-directed defined contribution plan account, such as a self-directed 401(k) plan, a self-directed SIMPLE plan held in the form of a 401(k) plan, a self-directed defined contribution money purchase plan, or a self-directed defined contribution profit-sharing plan
Self-directed Keogh plan account (or H.R. 10 plan account) designed for self-employed individuals

What is the definition of self-directed?

The FDIC defines the term “self-directed” to mean that plan participants have the right to direct how the money is invested, including the ability to direct that the deposits be placed at an FDIC-insured bank.

If a participant of a retirement plan has the right to choose a particular depository institution’s deposit accounts as an investment, the FDIC would consider the account to be self-directed. Also, if a plan has as its default investment option deposit accounts at a particular FDIC-insured institution, the FDIC would deem the plan to be self-directed for deposit insurance purposes because, by inaction, the participant has directed the placement of such deposits.

However, if a plan’s only investment vehicle is the deposit accounts of a particular bank, so that participants have no choice of investments, the plan would not be deemed self-directed for deposit insurance purposes. Finally, if a plan consists only of a single employer/employee, and the employer establishes the plan with a single-investment option of plan assets, the plan would be considered self-directed for deposit insurance purposes.

How are certain retirement accounts insured?

Each person’s deposits in certain retirement accounts at the same insured bank are added together and insured up to $250,000. Naming beneficiaries to a self-directed retirement account does not increase insurance coverage.

Are Roth IRAs treated the same as traditional IRAs?

A Roth IRA is treated the same as a traditional IRA for deposit insurance purposes. So, if a depositor has both a Roth IRA and a traditional IRA at the same insured bank, the funds in both accounts are added together and insured up to $250,000.

Example of Insurance Coverage for Self-Directed Retirement Accounts
Account Title	Account Balance
Bob Johnson's Roth IRA	$110,000
Bob Johnson's IRA	$75,000
Total	$185,000
Amount Insured	$185,000

Explanation: Since Bob’s total in all self-directed retirement accounts at the same bank is less than the $250,000 limit, both IRAs are fully insured.

How are Coverdell IRAs or Health Savings Accounts insured?

Coverdell Education Savings Accounts (formerly known as an Education IRAs), Health Savings Accounts and Medical Savings Accounts are not included in the certain retirement ownership category. Depending on the structure, these accounts may be included in the single account or trust account ownership category. Also, accounts established under Section 403(b) of the Internal Revenue Code (annuity contracts for certain employees of public schools, tax-exempt organizations and ministers) are not included in the certain retirement ownership category.

Joint Accounts

What is a joint account?

A joint account is a deposit account owned by two or more individuals, with no beneficiaries. Federal deposit insurance covers joint accounts owned in any manner conforming to applicable state law, such as joint tenants with a right of survivorship, tenants by the entirety, and tenants in common.

What are the requirements for joint accounts?

Joint accounts are insured separately from other ownership categories if all of the following conditions are met:

All co-owners must be natural persons. This means that legal entities such as corporations or partnerships are not eligible for joint account deposit insurance coverage.
Each of the co-owners must have personally signed a deposit account signature card. The execution of an account signature card is not required for certificates of deposit, deposit obligations evidenced by a negotiable instrument or accounts maintained by an agent, nominee, guardian, custodian, or conservator, but the deposit must in fact be jointly owned.
Each of the co-owners must have a right of withdrawal on the same basis as the other co-owners.

For example, if one co-owner can withdraw funds on his or her signature alone, but the other co-owner can withdraw funds only on the signature of both co-owners, then this requirement has not been satisfied; the co-owners do not have equal withdrawal rights. Likewise, if a co-owner’s right to withdraw funds is limited to a specified dollar amount, the funds in the account will be allocated between the co-owners according to their withdrawal rights and insured as single account funds. For example, if $250,000 is deposited in the names of A and B, but A has the right to withdraw only up to $50,000 from the account, $50,000 is allocated to A and the remainder ($200,000) is allocated to B. The funds, as allocated, are then added to any other single account funds of A or B, respectively.

How are joint accounts insured?

An individual’s (co-owner’s) interests in all qualifying joint accounts are added together and the total is insured up to the $250,000 maximum. Each co-owner’s interest (or share) in a joint account is deemed equal. The balance of a joint account can exceed $250,000, as long as no owner’s share of joint accounts at the same bank exceeds $250,000. The use of different Social Security numbers does not determine insurance coverage, nor does rearranging the owners’ names, changing the style of the names, or using “or” rather than “and” to join the owners’ names in a joint account title.

Example of Insurance Coverage for Joint Accounts
Account Title	Owners	Balance
#1	A and B	$250,000
#2	B and A	$120,000
#3	A and B and C	$180,000
#4	A and D	$80,000
Total		$630,000

Each owner’s ownership interests in these four joint accounts follow:

A’s Ownership Interest
1/2 of the balance in account #1	$125,000
1/2 of the balance in account #2	$60,000
1/3 of the balance in account #3	$60,000
1/2 of the balance in account #4	$40,000
Total of A’s Ownership Interest	$285,000

A’s ownership interest in the joint account category is $285,000. This amount is more than the $250,000 maximum, so $250,000 is insured and $35,000 is uninsured.

B’s Ownership Interest
1/2 of the balance in account #1	$125,000
1/2 of the balance in account #2	$60,000
1/3 of the balance in account #3	$60,000
Total of B’s Ownership Interest	$245,000

B’s ownership interest in the joint account category is $245,000. That amount is less than the $250,000 maximum, so B is fully insured.

C’s Ownership Interest
1/3 of the balance in account #3	$60,000
Total of C’s Ownership Interest	$60,000

C’s ownership interest in the joint account category is $60,000. That amount is less than the $250,000 maximum, so C is fully insured.

D’s Ownership Interest
1/2 of the balance in account #4	$40,000
Total of D’s Ownership Interest	$40,000

D’s ownership interest in the joint account category is $40,000. That amount is less than the $250,000 maximum, so D is fully insured.

Summary of Insurance Coverage for Joint Accounts
Owner	Account Balance	Insured	Uninsured
A	$285,000	$250,000	$35,000
B	$245,000	$245,000	$0
C	$60,000	$60,000	$0
D	$40,000	$40,000	$0
Total	$630,000	$595,000	$35,000

Revocable Trust Accounts

What is a revocable trust account?

A revocable trust account is a deposit account that indicates an intention that the funds will belong to one or more beneficiaries upon the death of the owner (grantor/settlor/trustor). There are both informal and formal revocable trusts:

Informal revocable trusts - often called payable on death (POD), Totten trust, or in trust for (ITF) accounts - are created when the account owner signs an agreement, usually part of the bank’s signature card, stating that the funds are payable to one or more beneficiaries upon the owner’s death.
Formal revocable trusts - known as living or family trusts - are written trusts created for estate planning purposes. The owner (also known as a grantor, settlor or trustor) controls the funds in the trust during his or her lifetime and reserves the right to revoke the trust.

How are revocable trust accounts insured?

Revocable trust coverage is based on all revocable trust deposits held by the same owner at the same insured bank, whether formal or informal. If a revocable trust account has more than one owner, each owner’s coverage is calculated separately, using the following rules:

Revocable Trust Deposits with Five or Fewer Beneficiaries - Each owner’s share of revocable trust deposits is insured up to $250,000 for each beneficiary (i.e., $250,000 times the number of different beneficiaries), regardless of the actual interests of the beneficiaries.
Revocable Trust Deposits with Six or More Beneficiaries - Each owner’s share of revocable trust deposits is insured for the greater of either (1) the coverage based on each beneficiary’s actual interest in the revocable trust deposits, with no beneficiary’s interest to be insured for more than $250,000, or (2) $1,250,000.

Example — POD Accounts with One Owner
Account Title	Account Balance	Amount Insured	Amount Uninsured
John Smith POD to son	$250,000	$250,000	$0

Explanation: This revocable trust account is insured up to $250,000 since there is one beneficiary who will receive the deposit when the owner dies.

Can a revocable trust account have more than $250,000 in insurance coverage?

If a revocable trust account has more than one owner (e.g., husband and wife) or is held for more than one beneficiary, the insured balance of the account can exceed $250,000 and still be fully insured. If there is more than one owner, the FDIC will assume that the owners’ shares are equal unless the deposit account records state otherwise.

Example — POD Accounts with Multiple Owners and Beneficiaries
Account Title	Account Balance	Amount Insured	Amount Uninsured
Husband and Wife POD 3 children	$1,500,000	$1,500,000	$0
Husband POD wife	$250,000	$250,000	$0
Wife POD husband	$250,000	$250,000	$0
Husband POD niece and nephew	$500,000	$500,000	$0
Husband and wife POD grandchild	$600,000	$500,000	$100,000
Total	$3,100,000	$3,000,000	$100,000

Explanation: All but one account is fully insured. The account naming the one grandchild is insured to $500,000 because each owner is entitled to $250,000 insurance coverage for the sole beneficiary.

Living Trust Example: A husband and wife have a living trust leaving all trust assets equally to their three children upon the death of the last owner. All deposits held in the name of this trust at one FDIC-insured bank would be covered up to $1,500,000. Each owner is entitled to $750,000 of insurance coverage because they each have three beneficiaries who will receive the trust deposits when both owners have died.

What is the deposit insurance coverage of a revocable trust deposit when the beneficiaries do not have equal interests?

If a revocable trust has five or fewer beneficiaries, then each owner’s share of all trust deposits at one insured bank is covered up to $250,000 times the number of beneficiaries, regardless of the actual proportional interests set forth in the trust document. For example:

An individual has $750,000 in revocable trust deposits at one FDIC-insured bank. The trust document specifies that 60% goes to one child, 30% goes to a second child, and 10% to a third child. The full balance of the trust is insured, because the owner receives coverage of $250,000 per beneficiary, regardless of the actual interests set forth in the trust document.

If a revocable trust has six or more beneficiaries, then each owner’s share of revocable trust deposits is insured for the greater of either (1) the coverage based on each beneficiary’s actual interest in the revocable trust deposits, with no beneficiary’s interest to be insured for more than $250,000, or (2) $1,250,000. For example:

An individual has $1,400,000 in revocable trust deposits at one FDIC-insured bank. The trust document specifies that 50% of the funds will belong to the owner’s son and 10% will belong to each of his five grandchildren. Maximum coverage for this depositor’s funds is the greater of (1) the coverage based on each beneficiary’s actual interest in the revocable trust deposits, with no beneficiary’s interest exceeding $250,000, or (2) $1,250,000. In determining the deposit insurance coverage, we first must calculate the coverage based on actual interests:

The amount attributable to the first beneficiary is $700,000 ($1,400,000 X 50%). Of this amount $250,000 is insured and $450,000 is uninsured.
The amount attributable to each of the 5 remaining beneficiaries is $140,000 ($1,400,000 X 10%). Since the amount going to each remaining beneficiary is less than $250,000, this portion is fully insured.
Based on actual interests, the owner is insured for $950,000, leaving $450,000 uninsured.

Revocable Trust Deposits $1,400,000
Beneficiary	Beneficiary Interest	Allocated Amount	Insured Amount	Uninsured Amount

Son	50%	$700,000	$250,000	$450,000
GC1	10%	$140,000	$140,000	$0
GC2	10%	$140,000	$140,000	$0
GC3	10%	$140,000	$140,000	$0
GC4	10%	$140,000	$140,000	$0
GC5	10%	$140,000	$140,000	$0
Total	100%	$1,400,000	$950,000	$450,000

The actual interest insured amount ($950,000) is then compared with the minimum coverage amount ($1,250,000) for trusts with six or more beneficiaries. Since the coverage based on actual interests is less than $1,250,000, the trust owner’s deposits are insured up to $1,250,000, and only $150,000 is uninsured.

An individual has $2.5 million in revocable trust deposits at one FDIC-insured bank. The trust document specifies that 10% of the funds will belong to each of her five children and 5% will belong to each of her 10 grandchildren. As before, we must first calculate the coverage based on actual interests:

The amount attributable to each of the first 5 beneficiaries is $250,000 ($2,500,000 X 10% (each child’s share)). Since this amount is at the maximum coverage an owner can receive per beneficiary, the deposits attributable to these beneficiaries is fully insured. The amount attributable to each of the remaining 10 beneficiaries is $125,000 ($2,500,000 X 5% (each grandchild’s share)). Since this amount is less than the $250,000 per-beneficiary limit, the deposits attributable to the remaining beneficiaries is also fully insured.

The actual interest insured amount ($2,500,000) is then compared with the minimum coverage amount ($1,250,000) for trusts with six or more beneficiaries. Since the coverage based on actual interests is greater than $1,250,000, the trust is insured based on actual interests, not the minimum amount.

For a formal living (or family) trust, how is a beneficiary’s life estate interest insured?

Living trusts often give a beneficiary the right to receive income from the trust or to use trust assets during the beneficiary’s lifetime (known as a life estate interest). When the beneficiary with the life estate interests dies, the remaining assets pass to other beneficiaries. A life estate interest is insured up to $250,000, separate from the interests of the other remaining beneficiaries. For example:

A husband creates a living trust giving his wife a life estate interest in the trust assets, with the remaining assets to belong equally to the couple’s two children upon both parent’s death. Deposits held in the name of this trust would be insured up to $750,000 ($250,000 for each beneficiary - the wife and two children).

Are living trust accounts and POD accounts separately insured?

The $250,000 per beneficiary insurance limit applies to all revocable trust accounts - POD and living trust accounts - that an owner has at the same insured bank. For example:

A father has a POD account with a balance of $400,000 naming his son and daughter as beneficiaries. He also has a living trust account with a balance of $200,000 naming the same beneficiaries. The funds in both accounts would be added together and $300,000 would be attributable as the beneficial interest of each child. Therefore, the two accounts together would be insured for $500,000 ($250,000 per beneficiary) and uninsured for $100,000.

Irrevocable Trust Accounts

What is an irrevocable trust?

Irrevocable trust accounts are deposit accounts held by a trust established by statute or a written trust agreement, in which the creator of the trust (grantor/settlor/trustor) contributes funds or property and gives up all power to cancel or change the trust.

There are two types of irrevocable trusts -

Those created following of the death of an owner of a revocable trust. The insurance coverage of these irrevocable trusts is the same as for revocable trusts, which is described above.
Those that are created as an irrevocable (usually by a court order or established under a will) and are notderived from a revocable trust. The insurance coverage of these irrevocable trusts is described below.

How are funds deposited pursuant to an irrevocable trust document insured?

The interests of a beneficiary in all deposit accounts established by the same settlor and held at the same insured bank under an irrevocable trust are added together and insured up to $250,000, provided all of the following requirements are met:

The insured bank’s deposit account records must disclose the existence of the trust relationship. The beneficiaries and their interests in the trust must be identifiable from the deposit account records of the bank or from the records of the trustee
The amount of each beneficiary’s interest must not be “contingent” as that term is defined by FDIC regulations
The trust must be valid under state law

Since the amount of insurance for an irrevocable trust depends upon specific terms and conditions of the trust, owners or trustees of an irrevocable trust may wish to consult with their legal or financial advisor for assistance in determining the amount of insurance coverage available to trust deposits.

What is the insurance coverage if the grantor retains an interest in the trust?

If the grantor retains an interest in the trust, the amount of the retained interest would be added to any single accounts owned by the grantor at the same bank and the total insured up to $250,000.

What if the beneficiaries or their interests in an irrevocable trust cannot be ascertained?

When the ownership interests of the beneficiaries cannot be determined, insurance coverage for the entire trust is generally limited to a maximum of $250,000.

Employee Benefit Plan Accounts

What is the deposit insurance coverage for employee benefit plans, such as pension plans and profit-sharing plans?

The general rule is that deposits belonging to pension plans and profit-sharing plans receive pass-through insurance, meaning that each participant’s non-contingent and ascertainable interest in a deposit - as opposed to the deposit as a whole - is insured up to $250,000. In order for a pension or profit-sharing plan to receive pass-through insurance, the institution’s deposit account records must specifically disclose the fact that the funds are owned by an employee benefit plan. In addition, the details of the participants’ beneficial interests in the account must be ascertainable from the institution’s deposit account records or from the records that the plan administrator (or some other person or entity that has agreed to maintain records for the plan) maintains in good faith and in the regular course of business.

Is employee benefit plan coverage based on the number of plan participants?

Coverage for an employee benefit plan’s deposits is based on each participant’s share of the plan. Because plan participants normally have different interests in the plan, insurance coverage cannot be determined by simply multiplying the number of participants by $250,000. To determine the maximum amount a plan can have on deposit in a single bank and remain fully insured, first determine which participant has the largest share of the plan assets, then divide $250,000 by that percentage. For example, if a plan has 20 participants, but one participant has an 80% share of the plan assets, the most the plan can have on deposit in a single bank and still remain fully insured is $312,500. ($250,000/.80 = $312,500)

Example — Employee Benefit Plan that Qualifies for Pass-Through Coverage
Account Title				Balance
Happy Pet Clinic Benefit Plan				$700,000
Plan Participants	Plan Share	Share of Deposit	Amount Insured	Amount Uninsured
Dr. Todd	35%	$245,000	$245,000	$0
Dr. Jones	30%	$210,000	$210,000	$0
Tech Evans	20%	$140,000	$140,000	$0
Tech Barnes	15%	$105,000	$105,000	$0
Plan Total	100%	$700,000	$700,000	$0

3. Explanation:

This employee benefit plan can deposit $700,000 in an FDIC-insured bank and have all of its participants fully insured. The $700,000 deposit results in Dr. Todd’s interest (the largest participant) being insured for $245,000 (35% of $700,000). When Dr. Todd’s interest is fully insured, the interests of the other participants are also fully insured, since they have smaller shares of the plan.

Corporation, Partnership, and Unincorporated Association Accounts

What are corporations, partnerships and unincorporated association accounts?

These are accounts established by businesses and organizations - including for-profit and not-for-profit organizations - engaged in an independent activity, meaning that the entity is operated primarily for some purpose other than to increase insurance coverage.

What are unincorporated associations?

Unincorporated associations typically include religious, community and civic organizations and social clubs that are not incorporated.

What is the deposit insurance coverage for funds deposited by a corporation, partnership, or unincorporated association?

Funds deposited by a corporation, partnership, or unincorporated association are insured up to a maximum of $250,000. Funds deposited by a corporation, partnership, or unincorporated association are insured separately from the personal accounts of the stockholders, partners or members. To qualify for this coverage, the entity must be engaged in an independent activity, meaning that the entity is operated primarily for some purpose other than to increase deposit insurance.

Is there any way that a business can qualify for additional insurance coverage?

No, there is no way that a corporation, partnership or unincorporated association can qualify for more than $250,000 in insurance coverage for its deposits at one bank. Separate accounts owned by the same entity, but designated for different purposes, are not separately insured. Instead, such accounts are added together and insured up to $250,000. If a corporation has divisions or units that are not separately incorporated, the deposit accounts of those divisions or units will be added to any other deposit accounts of the corporation for purposes of determining deposit insurance coverage.

Does the number of partners, members or account signatories increase deposit insurance coverage?

The number of partners, members or account signatories that a corporation, partnership, or unincorporated association has does not affect coverage. For example, deposits owned by a homeowners association are insured up to $250,000 in total, not $250,000 for each member of the association.

How are deposits of a sole-proprietorship insured?

Deposits owned by a business that is a sole proprietorship are not insured under this category. Rather, they are insured as the single account deposits of the person who is the sole proprietor. So, funds deposited in the sole proprietorship’s name are added to any other single accounts of the sole proprietor and the total is insured to a maximum of $250,000.

Government Accounts

What are government accounts?

Government accounts are also known as public unit accounts. This category includes deposit accounts of the United States, any state, county, municipality (or a political subdivision of any state, county, or municipality), the District of Columbia, Puerto Rico and other government possessions and territories, or an Indian tribe

How are public unit accounts insured?

Insurance coverage of a public unit account differs from a corporation, partnership, or unincorporated association account in that the coverage extends to the official custodian of the funds belonging to the public unit rather than the public unit itself. The insurance coverage of public unit accounts depends upon (1) the type of deposit, and (2) the location of the insured depository institution. All time and savings deposits owned by a public unit and held by the same official custodian in an insured depository institution within the State in which the public unit is located are added together and insured up to $250,000. Separately, all demand deposits owned by a public unit and held by the same official custodian in an insured depository institution within the State in which the public unit is located are added together and insured up to $250,000. For the purpose of these rules, the term “savings deposits” includes NOW accounts, money market deposit accounts and other interest-bearing checking accounts.

Does the insurance coverage differ if the public unit maintains funds in an out of state bank?

The insurance coverage of public unit accounts is different if the depository institution is located outside the State in which the public unit is located. In that case, all deposits owned by the public unit and held by the same official custodian are added together and insured up to $250,000. Time and savings deposits are not insured separately from demand deposits.

What is the definition of a political subdivision?

The term “political subdivision” is defined to include drainage, irrigation, navigation, improvement, levee, sanitary, school or power districts, and bridge or port authorities and other special districts created by state statute or compacts between the states. The term “political subdivision” also includes any subdivision or principal department of a public unit (state, county, or municipality) if the subdivision or department meets the following tests:

The creation of the subdivision or department has been expressly authorized by the law of such public unit;
Some functions of government have been delegated to the subdivision or department by such law; and
The subdivision or department is empowered to exercise exclusive control over funds for its exclusive use.

What is the definition of an official custodian?

An “official custodian” is an officer, employee or agent of a public unit having official custody of public funds and lawfully depositing the funds in an insured institution. In order to qualify as an official custodian, a person must have plenary authority - including control - over the funds. Control of public funds includes possession as well as the authority to establish accounts in insured depository institutions and to make deposits, withdrawals and disbursements.

IV. FDIC DEPOSIT INSURANCE RULES FOR REVOCABLE TRUST ACCOUNTS

A. Introduction

The Federal Deposit Insurance Corporation (FDIC) approved a final rule to simplify aspects of the agency’s deposit insurance coverage rules. The final rule simplifies deposit insurance coverage for deposits held in connection with revocable and irrevocable trusts by merging these two deposit insurance categories and applying a simpler, common calculation to determine coverage.

The final rule will make the trust rules consistent and easier to understand for bankers and depositors and to facilitate prompt payment of deposit insurance by the FDIC in the event of the insured depository institution’s failure.

B. Final Rule

Under the final rule, a deposit owner’s trust deposits will be insured in an amount up to $250,000 for each of the trust beneficiaries, not to exceed five, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries. This will result in a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits.

V. PERMANENT DEPOSIT INSURANCE COVERAGE INCREASE

A. FDIC Deposit Insurance Coverage Increase

The permanent increase in deposit insurance coverage from $100,000 to $250,000 per depositor per institution became effective on July 22, 2010, when President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) into law. On August 10, 2010, the FDIC Board of Directors adopted a final rule amending its insurance regulations and advertising regulations to conform with provisions of the Act.

The final rule revised the FDIC’s official sign for advertising deposit insurance coverage, as prescribed in 12 C.F.R Part 328 of the FDIC’s regulations, to reflect the permanent SMDIA. The change to the official sign is effective immediately. To ensure depositors are accurately informed of the permanent SMDIA of $250,000, insured depository institutions should promptly obtain the new official signs and, upon receipt, display them without delay - in any event not later than January 3, 2011, the date for mandatory compliance with the final rule.

FDIC Deposit Insurance Coverage

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or savings association fails. FDIC deposit insurance is backed by the full faith and credit of the United States government. Since the FDIC was established, no depositor has ever lost a single penny of FDIC-insured funds.

FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.

There is no need for depositors to apply for FDIC insurance or even to request it. Coverage is automatic.

To ensure funds are fully protected, depositors should understand their deposit insurance coverage limits. The FDIC provides separate insurance coverage for deposits held in different ownership categories such as single accounts, joint accounts, Individual Retirement Accounts (IRAs) and trust accounts.

Basic FDIC Deposit Insurance Coverage Limits*

Single Accounts (owned by one person) $250,000 per owner

Joint Accounts (two or more persons) $250,000 per co-owner

IRAs and certain other retirement accounts $250,000 per owner

Trust Accounts $250,000 per owner per beneficiary subject to specific limitations and requirements

* These deposit insurance coverage limits refer to the total of all deposits that an accountholder (or accountholders) has at each FDIC-insured bank. The listing above shows only the most common ownership categories that apply to individual and family deposits, and assumes that all FDIC requirements are met.

If you have questions about FDIC coverage limits and requirements, please visit www.myFDICinsurance.gov, call toll-free 1-877-ASK-FDIC, or ask a representative at your bank.

VI. FDIC TEMPORARY LIQUIDITY GUARANTEE PROGRAM

A. Introduction

The FDIC has modified its Temporary Liquidity Guarantee Program, (TLGP) which includes guaranteeing newly issued senior unsecured debt and full insurance for noninterest-bearing transaction accounts.

The agency made a number of revisions to its interim final rule after receiving comments from the public. The most significant changes to the guarantee program for senior unsecured debt issued between October 14, 2008 and June 30, 2009, are as follows:

Payment default by the issuer, not bank failure or bankruptcy, will be the trigger for timely payment.
The guarantee of short-term borrowings of 30 days or less maturity, including federal funds, are excluded from the program.
The guarantee fee, initially proposed to be a flat 75 basis points, was changed to a tiered structure: 50 basis points for debt with a maturity of 180 days or less, 75 basis points for maturities of 181 to 364 days, and 100 basis points for longer maturities.
A bank with no outstanding senior unsecured debt as of September 30, 2008, will be allowed to participate in the guarantee program with new debt up to 2 percent of liabilities.

The full guarantee on noninterest-bearing transaction accounts will also include (a) Interest on Lawyers Trust Accounts (IOLTA) and (b) NOW accounts with interest rates of no more than 50 basis points. In addition, banks will not have to aggregate accounts in determining the coverage under the program. Only balances over $250,000 in transaction accounts will be covered and assessed (10 basis points), regardless of the account ownership. The coverage will be in effect until the end of 2009, after which these accounts will be subject to the basic insurance coverage rules. Coverage under the initial program was to extend until the end of 2009, after which these accounts were to be subject to the basic insurance coverage rules.

The FDIC extended the transaction account guarantee (TAG) portion of the temporary liquidity guarantee program for an additional six months, through June 30, 2010. For institutions that choose to remain in the program, the fee to participate was raised and adjusted to reflect the institution’s risk.

Eligible entities have until December 5, 2008, to opt-out of the TLGP. Once in the program, an entity is in for the duration. Those entities choosing to opt-out will not be able to participate at a later date. Any debt issued on or before June 30, 2009, will be fully protected through the earlier of the maturity of the debt instrument or June 30, 2012.

B. Debt Guarantee Program

1. Senior Unsecured Debt

The term “senior unsecured debt” means-

a. For the period from October 13, 2008 through December 5, 2008, unsecured borrowing that:

(1) Is evidenced by a written agreement or trade confirmation;

(2) Has a specified and fixed principal amount;

(3) Is noncontingent and contains no embedded options, forwards, swaps or other derivatives;

(4) Is not, by its terms, subordinated to any other liability; and

b. After December 5, 2008, unsecured borrowing that satisfies the foregoing criteria and that has a stated maturity of more than 30 days.

Senior unsecured debt may pay either a fixed or floating interest rate based on a commonly-used reference rate witha fixed amount of scheduled principal payments. The term “commonly-used reference rate” includes a single index of a Treasury bill rate, the prime rate,and LIBOR.

Senior unsecured debt may include, for example, the following debt: federal funds purchased, promissory notes, commercial paper, unsubordinated unsecured notes, including zero-coupon bonds, U.S. dollardenominatedcertificatesof deposit owed to an insured depository institution, an insured credit union as defined in the Federal Credit Union Act,or a foreign bank, U.S.dollar denominated deposits in an international banking facility (IBF) of an insured depository institution owed to an insured depository institution or a foreign bank, and U.S. dollar denominated deposits on the books and records of foreign branches of U.S. insured depository institutions that are owed to an insured depository institution or a foreign bank.

Senior unsecured debt excludes, for example, any obligation that has a stated maturity of “one month,” obligations from guarantees or other contingent liabilities, derivatives, derivative-linked products,debts that are paired or bundled with other securities, convertible debt, capital notes, the unsecured portion of otherwise secured debt, negotiable certificates of deposit, deposits denominated in a foreign currency or other foreign deposits, revolving credit agreements, structured notes, instruments that are used for trade credit, retail debt securities, and any funds regardless of form that are swept from individual, partnership,or corporate accounts held at depository institutions. Also excluded are loans from affiliates, including parents and subsidiaries, and institution-affiliated parties.

2. Debt Guarantee Limit

The maximum amount of outstanding debt that is guaranteed under the debt guarantee program for each participating entity at any time is limited to 125 percent of the par value of the participating entity’s senior unsecured debt that was outstanding as of the close of business September 30, 2008 and that was scheduled to mature on or before June 30, 2009. If a participating entity that is an insured depository institution had either no senior unsecured debt or only had federal funds purchased, outstanding on September 30, 2008, its debt guarantee limit is two percent of its consolidated total liabilities as of September 30, 2008.

If a participating entity, other than an insured depository institution, had no senior unsecured debt outstanding on September 30, 2008, the entity may seek to have some amount of debt covered by the debt guarantee program. The FDIC, after consultation with the appropriate federal banking agency, will decide, on a case-by-case basis, whether such a request will be granted and, if granted, what the entity’s debt guarantee limit will be.

The FDIC may make exceptions to anentity’sdebtguaranteelimit. For example, the FDIC may allow a participatingentitytoexceedthelimit otherwise applicable,reducethelimitbelow theamountotherwise applicable, and/or imposeotherlimitsorrequirementsafter consultation with the entity’s appropriate Federal banking agency.

3. Calculating and Reporting Responsibility

Participating entities are responsible for calculating and reporting to the FDIC the amount of senior unsecured debt as of September 30, 2008.

a. Each participating entity shall calculate the amount of its senior unsecured debt outstanding as of the close of business September 30, 2008, that was scheduled to mature on or before June 30, 2009.

b. Each participating entity shall report the calculated amount to the FDIC, even if such amount is zero, in an approved format via FDICconnect no later than December 5, 2008.

c. In each subsequent report to the FDIC concerning debt issuances or balances outstanding, each participating entity shall state whether it has issued debt identified as FDIC-guaranteed debt that exceeded its debt guarantee limit at any time since the previous reporting period.

d. The Chief Financial Officer (CFO) or equivalent of each participating entity shall certify the accuracy of the information reported in each report submitted pursuant to this section.

4. Duration of Guarantee

For guaranteed debt issued on or before June 30, 2009, the guarantee expires on the earliest of the date of the entity’s opt-out, if any, the maturity of the debt, or June 30, 2012.

5. Long Term Non-Guaranteed Debt Option

On or before11:59 p.m. EST, December 5, 2008, a participating entity may also notify the FDIC that it has elected to issue senior unsecured non-guaranteed debt with maturities beyond June 30,2012, at anytime, in any amount,and without regard to the guarantee limit. By making this election the participating entity agrees to pay to the FDIC the nonrefundable fee as provided in the final rule.

6. Payment on Guaranty

Upon the uncured failure ofa participating entity to make a timely payment of principal or interest as required under an FDIC-guaranteed debt instrument, the FDIC will pay the unpaid principal and/or interest.

C. Transaction Account Guarantee Program

1. Noninterest-Bearing Transaction Account (July 1, 2010, through December 31, 2010)

The term “noninterest-bearing transaction account” means a transaction account that is:

a. Maintained at an insured depository institution;

b. With respect to which interest is neither accrued nor paid; and

c. On which the insured depository institution does notr eserve the right to require advance notice of an intended withdrawal.

A non interest-bearing transaction account does not include, for example, an interest-bearing money market deposit account (MMDA).

For purposes of the transaction account guarantee program, from July 1, 2010 through December 31, 2010, a noninterest-bearing transaction account includes (a) accounts commonly known as Interest on Lawyers Trust Accounts (IOLTAs) (or functionally equivalent accounts); and (b) Negotiable Order of Withdrawal accounts (NOW accounts) with interest rates no higher than 0.25 percent if the insured depository institution at which the account is held has committed to maintain the interest rate at no more than 0.25 percent at all times through December 31, 2010.

2. Noninterest-Bearing Transaction Account (January 1, 2011, through December 31, 2012)

a. Introduction

Effective January 1, 2011, participation in the transaction account guarantee program became mandatory, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. At that time, the exception to noninterest-bearing transaction account status for NOW accounts with an interest rate at no more than 0.25 percent was eliminated. IOLTAs continue to qualify as noninterest-bearing transaction accounts.

The FDIC approved a final rule that implemented unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning on December 31, 2010, and ending December 31, 2012, as mandated by the Dodd-Frank Act. This coverage replaces the unlimited coverage under the Transaction Account Guarantee Program (TAGP).

b. Noninterest-Bearing Transaction Accounts

Under the final rule, noninterest-bearing transaction accounts are limited to traditional checking accounts and demand deposit accounts (DDA) that allow for an unlimited number of deposits and withdrawals at any time, whether held by a business, an individual or other type of depositor and which do not pay interest. NOW accounts are not included within the definition of noninterest-bearing transaction accounts.

Under the final rule, whether an account is noninterest-bearing is determined by the terms of the account agreement and not by the fact that the rate on an account may be zero percent at any particular point in time. For example, a financial institution might offer an account with a rate of zero percent except when the balance exceeds a prescribed threshold. Such an account would not qualify as a noninterest-bearing transaction account even though the balance is less than the prescribed threshold and the interest rate is zero percent. Under the final rule, at all times, such an account would be treated as an interest-bearing account because the account agreement provides for the payment of interest under certain circumstances. Conversely, as under the TAGP, the waiving of fees is not treated as the earning of interest. For example, financial institutions sometimes waive fees or provide fee-reducing credits for customers with checking accounts. Under the final rule, such account features would not prevent an account from qualifying as a noninterest-bearing transaction account, as long as the account otherwise satisfies the definition of the noninterest-bearing transaction account.

Interest-bearing accounts may be converted to noninterest-bearing checking accounts after December 31, 2010, and still obtain the benefits of unlimited FDIC coverage. Such accounts are eligible for treatment as a noninterest-bearing transaction account as long as, under the modified deposit agreement, the depositor may not earn interest on the account.

This same principle for determining whether a deposit account qualifies as a noninterest-bearing transaction account will apply when financial institutions no longer are prohibited from paying interest on demand deposit accounts (July 21, 2011). At that time, demand deposit accounts offered by financial institutions that allow for the payment of interest will not satisfy the definition of a noninterest-bearing transaction account.

Under the final rule, as discussed below, financial institutions will be required to inform depositors of any changes in the terms of an account that will affect their deposit insurance coverage under this new provision of the deposit insurance rules.

1. Payment of Interest on Demand Deposit Accounts – Deposit Insurance Notice Requirement

Under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), insured depository institutions (IDIs) may pay interest on demand deposit accounts (DDAs) starting July 21, 2011. Under another section of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for noninterest-bearing transaction accounts through December 31, 2012.

As a result, if on or after July 21, 2011, an IDI modifies the terms of a DDA so that the account may pay interest, the IDI must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account. This notice requirement does not apply to DDAs modified after December 31, 2012. As of January 1, 2013, noninterest bearing transaction accounts are insured subject to the standard maximum deposit insurance amount of $250,000.

The FDIC has not imposed specific requirements as to the form of the notice. Rather, the FDIC expects IDIs to act in a commercially reasonable manner and to comply with applicable state and federal laws and regulations in informing depositors of changes to their account agreements.

As under the TAGP, the final rule’s definition of a noninterest-bearing transaction account encompasses “official checks” issued by financial institutions. Official checks, such as cashier’s checks and money orders issued by financial institutions, are “deposits” as defined under the FDI Act and FDIC’s regulations. The payee of the official check (the party to whom the check is payable) is the insured party. Because official checks meet the definition of a noninterest-bearing transaction account, the payee (or the party to whom the payee has endorsed the check) would be insured for the full amount of the check in the event of failure of the financial institution that issued the official check.

The FDIC’s rule, as under the TAGP, includes an exception from the treatment of swept funds in situations where funds are swept from a noninterest-bearing transaction account to a noninterest-bearing savings account, notably a money market deposit account (MMDA). Often referred to as “reverse sweeps,” these products entail an arrangement in which a single deposit account is divided into two sub-accounts, a transaction account and an MMDA. Under the final rule, the FDIC will consider such accounts noninterest-bearing transaction accounts.

c. Mandatory Participation

Under the TAGP, which expired on December 31, 2010, financial institutions could choose not to participate in the program. Since the Dodd-Frank Act mandates deposit insurance coverage, noninterest-bearing transaction accounts at all financial institutions will receive this temporary deposit insurance coverage. Financial institutions are not required to take any action (i.e. opt-in or opt-out) to obtain separate coverage for noninterest-bearing transaction accounts.

d. Disclosure and Notice Requirements

The final rule includes disclosure and notice requirements to ensure that depositors are aware of and understand what types of accounts will be covered by this temporary deposit insurance coverage for noninterest-bearing transaction accounts. The final rule includes three disclosure and notice requirements: (1) financial institutions must post a prescribed notice in their main office, each branch and, if applicable (bank provides internet deposit services), on their Web site; (2) financial institutions currently participating in the TAGP must notify NOW account depositors (that are currently protected under the TAGP because of interest rate restrictions on those accounts) that, beginning January 1, 2011, those accounts no longer will be eligible for unlimited protection; and (3) financial institutions must notify customers individually of any action they take to affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.

1. Posted Notice

The final rule requires each financial institution to post, prominently, a copy of the following notice in the lobby of its main office, in each domestic branch and, if it offers Internet deposit services, on its Web site.

NOTICE OF CHANGES IN TEMPORARY FDIC INSURANCE COVERAGE FOR TRANSACTION ACCOUNTS

All funds in a “noninterest-bearing transaction account” are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC’s general deposit insurance rules.

The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts.

For more information about temporary FDIC insurance coverage of transaction accounts, visit www.fdic.gov.

e. Regulatory Reporting Revisions for IOLTAs

Effective December 31, 2010, all IDIs were required to begin reporting the quarter-end dollar amount and number of noninterest-bearing transaction accounts (as defined in the Dodd-Frank Act) of more than $250,000 in new data items in their respective regulatory reports, i.e., the Consolidated Reports of Condition and Income (Call Report) for banks, the Thrift Financial Report (TFR) for savings associations, and the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002) for insured branches. The amendments to the FDI Act including IOLTAs in the definition of “noninterest-bearing transaction account” necessitate a revision of the recently issued instructions for reporting on noninterest-bearing transaction accounts and estimated uninsured deposits.

Accordingly, the FDIC, in consultation with the other banking agencies, is providing the following revised guidance for year-end 2010 regulatory reporting:

For Call Report Schedule RC-O, Memorandum items 5.a and 5.b; TFR Schedule DI, Line Items DI580 and DI585; and FFIEC 002 Schedule O, Memorandum items 5.a and 5.b, IDIs should treat IOLTAs as noninterest-bearing transaction accounts. Thus, IDIs should include those IOLTAs with balances of more than $250,000 in the total amount and number of Dodd-Frank Act noninterest-bearing transaction accounts of more than $250,000 that they report in these data items.
For Call Report Schedule RC-O, Memorandum item 2; TFR Schedule DI, Line Item DI210; and FFIEC 002 Schedule O, Memorandum item 2, IDIs should treat all noninterest-bearing transaction accounts, including all IOLTAs, as insured deposits and therefore exclude the balances of these accounts from the estimate of uninsured deposits that they report in this data item. This data item is required to be completed by banks and savings associations with $1 billion or more in total assets and by insured branches with $1 billion or more in total claims on nonrelated parties.

f. FDIC Frequently Asked Questions

For further information regarding the rules applicable to unlimited FDIC coverage of noninterest-bearing transaction accounts, please go to http://www.fdic.gov/deposit/deposits/unlimited/faq.pdf.

3. Account Guarantee

Prior to January 1, 2011, a depositor’s funds in a noninterest-bearing transaction account maintained at a participating entity that is an insured depository institution are guaranteed in full for any institution that did not previously opt-out of the transaction account guarantee program. Commencing January 1, 2011, through December 31, 2012, since participation in the transaction account guarantee program is mandatory for all insured depository institutions, a depositor’s funds in a noninterest-bearing transaction account are guaranteed in full.

In determining whether funds are in a noninterest-bearing transaction accountfor purposes of this section,the FDIC will apply its normal rules and procedures for determining account balances at a failed insured depository institution. Under these procedures, funds may be swept or transferred from a noninterest-bearing transaction account to another type of deposit or nondeposit account.

Unless the funds are in a noninterest-bearingtransaction account after the completion of a sweep, the funds will not be guaranteed under the transaction account guarantee program.

Notwithstanding the provisions of the foregoing paragraph,in the case of funds swept from a noninterest-bearing transaction account to a noninterest-bearing savings deposit account,the FDIC will treat the swept funds as being in a noninterest-bearing transaction account. Asaresult of this treatment, the funds swept from a noninterest- bearing transaction account to a noninterest-bearing savings account will be guaranteed under the transaction account guarantee program.

D. Participation In TLGP

1. Initial period. All eligible entities were covered under the temporary liquidity guarantee program for the period from October 14, 2008, through December 5, 2008, unless they opted out on or before 11:59 p.m. EST, December 5, 2008, in which case the coverage ended on the date of the opt-out.

2. Opt-out and opt-in options. From October 14, 2008, through December 5, 2008, each eligible entity was a participating entity in both the debt guarantee program and the transaction account guarantee program, unless the entity opted out. No later than 11:59 p.m. EST, December 5, 2008, each eligible entity was required to inform the FDIC if it desired to opt out of the debt guarantee program or the transaction account guarantee program, or both. Failure to opt out by 11:59 p.m. EST, December 5, 2008, constituted a decision to continue in the program after that date. Prior to December 5, 2008, an eligible entity could opt in to either or both programs by informing the FDIC that it would not opt out of either or both programs.

An eligible entity could elect to opt out of either the debt guarantee program or the transaction account guarantee program or both. The choice to opt out, once made, was irrevocable, except that, in the case of a merger between two eligible entities, the resulting institution was given a one-time option to revoke a prior decision to opt-out. Similarly, the choice to affirmatively opt in, once made, was irrevocable.

All eligible entities that are affiliates of a U.S. bank holding company or that are affiliates of an eligible entity that is a U.S. savings and loan holding company were required to make the same decision regarding continued participation in each guarantee program; failure to do so constituted an opt out by all members of the group.

Procedures for opting out and for making an affirmative decision to opt in were provided by the FDIC’s secure e-business website FDICconnect.

E. Disclosures Regarding TLGP Participation

1. The FDIC will publish on its website:

a. A list of the eligible entities that have opted out of the debt guarantee program, and

b. A list of the eligible entities that have opted out of the transaction account guarantee program (effective through December 31, 2010).

2. Debt guarantee program. Each eligible entity that does not opt out of the debt guarantee program must include the following disclosure statement in all written materials provided to lenders or creditors regarding any senior unsecured debt issued by it on or after December 19, 2008, through June 30, 2009, that is guaranteed under the debt guarantee program:

This debt is guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States. The details of the FDIC guarantee are provided in the FDIC’s regulations, 12 C.F.R. pt. 370, and at the FDIC’s website, http://www.fdic.gov/regulations/resources/TLGP/index.html. The expiration date of the FDIC’s guarantee is the earlier of the maturity date of the debt or June 30, 2012.

Each eligible entity that does not opt out of the debt guarantee program must include the following disclosure statement in all written materials provided to lenders or creditors regarding any senior unsecured debt issued by it on or after December 19, 2008, through June 30, 2009, that is not guaranteed under the debt guarantee program:

This debt is not guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program.

3. Transaction account guarantee program (through December 31, 2010). Each insured depository institution that offers noninterest-bearing transaction accounts must post a prominent notice in the lobby of its main office, each domestic branch and, if it offers Internet deposit services, on its website clearly indicating whether the institution is participating in the transaction account guarantee program. If the institution is participating in the transaction account guarantee program, the notice must state that funds held in noninterest-bearing transactions accounts at the entity are guaranteed in full by the FDIC.

F. Noninterest-Bearing Transaction Accounts – Notice of Expiration of Temporary Unlimited FDIC Coverage

1. Introduction

Pursuant to Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts (NIBTAs), including Interest on Lawyer Trust Accounts (IOLTA), is scheduled to expire on December 31, 2012. Absent a change in law, beginning January 1, 2013, the FDIC no longer will provide separate, unlimited deposit insurance coverage for NIBTAs at insured depository institutions (IDIs). Rather the FDIC will insure NIBTAs up to $250,000 in coverage at each separately chartered IDI. IDIs are encouraged to take reasonable steps to provide adequate advance notice to NIBTA depositors of the changes in FDIC insurance coverage so that they may consider the impact of any change in coverage in their management of these transaction accounts. The NBA is urging Congress to extend the Transaction Account Guarantee Program during the post-election “lame-duck” session.

2. Notice of Reduction in FDIC Coverage

Some NIBTA depositors may not be aware of the reduction in coverage. To ensure NIBTA depositors receive adequate advance notice of this insurance coverage change, IDIs are encouraged to:

Provide NIBTA depositors adequate advance notice in writing that the temporary unlimited coverage for NIBTA deposits is scheduled to expire on December 31, 2012, and thereafter the FDIC will insure NIBTAs up to $250,000 per depositor.

Remove from their main offices, branches, and Web sites the “Notice of Changes in Temporary FDIC Insurance Coverage for Transaction Accounts.”
Review NIBTA account agreements and related disclosure statements, and modify the documents as necessary to accurately reflect NIBTA coverage on January 1, 2013.

3. Removal of Notices

Under the Transaction Account Guarantee Program, IDIs were required to post a “Notice of Changes in Temporary FDIC Insurance Coverage For Transaction Accounts” in their main offices, branches, and on their Web sites to advise depositors about the temporary nature of the unlimited deposit insurance coverage for NIBTAs. Because this temporary coverage will expire at year-end in the absence of congressional action, IDIs should remove these notices from their main offices, branches, and Web sites, and should remove any other notices they may have made available to customers, no later than January 2, 2013.

4. Reminder to NIBTA Depositors of the Expiration of Temporary Full Deposit Insurance Coverage for Noninterest-Bearing Transaction Accounts

Although the Dodd-Frank Act imposes no specific notice requirement for IDIs in connection with the expiration of temporary unlimited coverage for NIBTAs, IDIs are encouraged, as a matter of prudent commercial practice, to remind their NIBTA depositors about the pending expiration and the impact that expiration will have on their deposit insurance coverage. IDIs may use any reasonable method of providing reminders to depositors, such as individual written notices to each NIBTA depositor or notices on regular account statements. IDIs may use electronic mail for depositors who ordinarily receive account information in this manner.

Set forth below is model language for such a notice to NIBTA depositors:

NOTICE OF EXPIRATION OF THE TEMPORARY FULL FDIC INSURANCE COVERAGE FOR NONINTEREST-BEARING TRANSACTION ACCOUNTS

By operation of federal law, beginning January 1, 2013, funds deposited in a noninterest-bearing transaction account (including an Interest on Lawyer Trust Account) no longer will receive unlimited deposit insurance coverage by the Federal Deposit Insurance Corporation (FDIC). Beginning January 1, 2013, all of a depositor's accounts at an insured depository institution, including all noninterest-bearing transaction accounts, will be insured by the FDIC up to the standard maximum deposit insurance amount ($250,000), for each deposit insurance ownership category.

Alternatively, institutions placing a notice on regular account statements with space limitations may wish to utilize a shorter notice to NIBTA depositors, such as:

NOTICE: By federal law, as of 1/1/2013, funds in a noninterest-bearing transaction account (including an IOLTA/IOLA) will no longer receive unlimited deposit insurance coverage, but will be FDIC-insured to the legal maximum of $250,000 for each ownership category.

The FDIC encourages IDIs to be proactive in reminding NIBTA depositors of the scheduled expiration. Reminders should be provided to NIBTA depositors sufficiently in advance of the insurance coverage change so depositors have adequate time to consider the impact of any change in coverage in their management of these transaction accounts.

5. Review of Account Agreements and Disclosure Statements

Some IDIs may have amended their deposit account agreements and disclosure statements for NIBTAs to include information about the temporary unlimited deposit insurance coverage for these deposits. To ensure that NIBTA account agreements and disclosure statements provided to new IDI depositors accurately reflect the change in coverage as of January 1, 2013, IDIs should review all of their account agreements and disclosure statements used in connection with NIBTA deposits to ensure that these documents accurately reflect FDIC insurance coverage for these accounts as of January 1, 2013. IDIs should complete this review and make necessary adjustments to NIBTA account documentation promptly upon expiration of unlimited coverage.

6. Providing Collateral For Public Deposits

IDIs are reminded that, in accordance with applicable state law, sufficient collateral should be set aside to secure accounts of government depositors to the extent those accounts exceed $250,000 after December 31, 2012.

7. Regulatory Reporting

The Call Report items and instructions pertaining to the accounts for which the temporary unlimited coverage applies will remain in effect for purposes of the December 31, 2012, Call Report. Revisions to the Call Report materials for March 31, 2013, will be made as set out below.

Memorandum items 5.a and 5.b on Schedule RC-O, in which institutions report the amount and number of “noninterest-bearing transaction accounts (as defined in Section 343 of the Dodd-Frank Act) of more than $250,000” will be removed from the Call Report forms after the year-end 2012 report date. In addition, references to the temporary unlimited coverage in the instructions to Schedule RC-O, Memorandum item 2, “Estimated amount of uninsured deposits, including related interest accrued and unpaid,” and Schedule RC-E, Memorandum item 1.c, “Fully insured brokered deposits,” will be removed from these instructions in the instruction book update that will be issued as part of the Call Report materials for March 31, 2013.

G. Assessments

1. Debt Guarantee Program

a. Waiver of assessment for certain initial periods. No eligible entity shall pay any assessment associated with the debt guarantee program for the period from October 14, 2008, through November 12, 2008. An eligible entity that opts out of the program on or before December 5, 2008, will not pay any assessment under the program.

b. Notice to the FDIC. No guaranteed debt shall be issued by a participating entity under the FDIC’s debt guarantee program unless notice of the issuance of such debt and payment of associated assessments is provided to the FDIC as required by this section and, for guaranteed debt issued after November 21, 2008, the participating entity agrees to be bound by the terms of the Master Agreement, as set forth on the FDIC’s website.

(1) Any eligible entity that does not opt out of the debt guarantee program on or before December 5, 2008, and that issues any guaranteed debt during the period from October 14, 2008, through December 5, 2008, which is still outstanding on December 5, 2008, shall notify the FDIC of that issuance via the FDIC’s e-business website FDICconnect on or before December 19, 2008, and the entity’s Chief Financial Officer or equivalent shall certify that the issuances identified as FDIC-guaranteed debt outstanding at each point of time did not exceed the debt guarantee limit.

(2) Each participating entity that issues guaranteed debt after December 5, 2008, shall notify the FDIC of that issuance via the FDIC’s e-business website FDICconnect within the time period specified by the FDIC. The eligible entity’s Chief Financial Officer or equivalent shall certify that the issuance of guaranteed debt does not exceed the debt guarantee limit.

(3) The FDIC will provide procedures governing notice to the FDIC and certification of guaranteed amount limits for purposes of this section.

c. Amount of assessments for debt within the debt guarantee limit.

(1) Calculation of assessment. Except as provided in paragraph c, below, of this section, the amount of assessment will be determined by multiplying the amount of FDIC-guaranteed debt times the term of the debt (expressed in years) times an annualized assessment rate determined in accordance with the following table.

For debt with a maturity of

The annualized assessment rate (in basis points) is

180 days or less (excluding overnight debt)

181-364 days

365 days or greater

100

(2) If the debt matures after June 30, 2012, then June 30, 2012, will be used as the maturity date.

(3) The amount of assessment for an eligible entity, other than an insured depository institution, that controls, directly or indirectly, or is otherwise affiliated with, at least one insured depository institution will be determined by multiplying the amount of FDIC-guaranteed debt times the term of the debt (expressed in years) times an annualized assessment rate determined in accordance with the rates set forth in the table above, except that each such rate shall be increased by 10 basis points, if the combined assets of all insured depository institutions affiliated with such entity constitute less than 50 percent of consolidated holding company assets. The comparison of assets for purposes of this paragraph shall be determined as of September 30, 2008, except that in the case of an entity that becomes an eligible entity after October 13, 2008, the comparison of assets shall be determined as of the date that it becomes an eligible entity

d. Long term non-guaranteed debt fee. Each participating entity that elects to issue long term non-guaranteed debt must pay the FDIC a nonrefundable fee equal to 37.5 basis points times the amount of the entity’s senior unsecured debt, that had a maturity date on or before June 30, 2009, and was outstanding as of September 30, 2008. If the entity had no such debt outstanding as of September 30, 2008, the fee will equal 37.5 basis points times the amount of the entity’s debt guarantee limit.

2. Transaction Accounts Guarantee Program

a. Waiver of assessment for certain initial periods. No eligible entity shall pay any assessment associated with the transaction account guarantee program for the period from October 14, 2008, through November 12, 2008. An eligible entity that opts out of the program on or before December 5, 2008, will not pay any assessment under the program.

b. Initiation of assessments. Beginning on November 13, 2008, each eligible entity that does not opt out of the transaction account guarantee program on or before December 5, 2008, will be required to pay the FDIC assessments on all deposit amounts in noninterest-bearing transaction accounts calculated in accordance with paragraph c below.

c. Amount of assessment. Any eligible entity that did not opt out of the transaction account guarantee program before December 5, 2008, was required to pay quarterly an annualized 10 basis point assessment on any deposit amounts exceeding the existing deposit insurance limit of $250,000, as reported on its quarterly Consolidated Reports of Condition and Income, Thrift Financial Report, or Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks in any noninterest-bearing transaction accounts, including any such amounts swept from a noninterest bearing transaction account into an noninterest bearing savings deposit account. This assessment was in addition to an institution’s risk-based assessment imposed under Part 327.

Effective January 1, 2010, the annual assessment rate for the transaction account guarantee program was raised to either 15 basis points, 20 basis points or 25 basis points, depending on the Risk Category assigned to an institution in the FDIC’s risk-based premium system. Commencing January 1, 2011, when participation in the transaction account guarantee program is mandatory for all depository institutions, assessments will be computed as part of the general FDIC premium assessment.

VII. INCREASED COVERAGE FOR RETIREMENT ACCOUNTS

A. Introduction

The maximum coverage for certain retirement accounts has been increased to $250,000. The retirement accounts covered by the increase are the same retirement accounts that are currently insured separately from other accounts. These include IRAs (both traditional IRAs and Roth IRAs), Section 457 deferred compensation plan accounts, self-directed Keough plan accounts and self-directed defined contribution plan accounts, which are primarily 401(k) accounts.

Self-directed plans involve those in which participants have the right to direct how their funds are invested, including the ability to direct that the funds be deposited at an FDIC-insured institution (but does not include accounts where the employer has selected the available options).

All such retirement funds owned by the same person on deposit at the same FDIC-insured institution will be added together and the total will be insured up to $250,000. (NOTE: A Coverdell Education Savings Account, formerly known as an Education IRA, is not eligible for insurance coverage as a retirement account. A Coverdell Account is a trust created for the purpose of paying the qualified education expenses of a designated beneficiary and is insured as an irrevocable trust account).

B. Types of Retirement Accounts Eligible for the Increased Coverage Limit of $250,000

Retirement accounts covered by the increased deposit insurance coverage limits include (1) individual retirement accounts described in Section 408(a) of the Internal Revenue Code; (2) eligible deferred compensation plan accounts described in Section 457 of the IRC (Section 457 – Plan Accounts); and (3) individual account plans defined in Section 3(34) of the Employee Retirement Income Security Act (Defined Contribution Plan Accounts) and any plan described in Section 401(d) of the IRC (Keogh Plan Accounts) to the extent that participants and beneficiaries under such plans have a right to direct the investment of assets held in individual accounts maintained on their behalf by the plans.

1. IRAs

For purposes of deposit insurance coverage, IRAs include traditional IRAs (into which individuals may make tax-deductible contributions, within prescribed dollar limitations, on which the earnings are tax-deferred); Roth IRAs (into which individuals may make contributions, within prescribed dollar limitations, the earnings on which are tax-free); Simplified Employee Pension (SEP) IRAs (into which employers may make contributions to traditional IRAs established by employees); and Savings Incentive Match Plans for Employees (SIMPLE) IRAs (into which employers of eligible small companies are required to make either matching contributions to the plan or non-elective contributions paid to eligible employees regardless of whether the employees make salary-reduction contributions to the plan).

An individual’s interest in all these types of IRAs are combined with his or her interests in any of the other retirement accounts (eligible for the $250,000 coverage limit) and insured to a limit of $250,000. For example, if an individual has a $75,000 in a traditional IRA, $100,000 in a Roth IRA and a $100,000 interest in a self-directed Defined Contribution Plan Account, $250,000 of the combined amount of the accounts would be insured and $25,000 would be uninsured.

The increased coverage of $250,000 for IRAs applies irrespective of whether the IRA is “self-directed.”

2. Section 457 Plan Accounts

Section 457 plans include eligible deferred compensation plans provided by state and local governments, as well as not-for-profit organizations. Deposit accounts held at FDIC-Insured Institutions in connection with Section 457 plans are eligible for insurance coverage up to $250,000 per plan participant. This coverage applies irrespective of whether the Section 457 Plan is “self-directed.”

3. Self-Directed Defined Contribution Plan Accounts

A Defined Contribution Plan Account is defined in ERISA as a “pension plan” which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account, and any income, expenses, gains, losses, and any forfeiture of accounts of other participants which may be allocated to such participant’s account. Defined Contribution Plan Accounts held in the form of deposits at FDIC-insured institutions are eligible for coverage up to $250,000 per participant’s interest, only if the participants under such plans have a right to direct the investment of assets held in individual accounts maintained on their behalf by the plans. As a result, only “self-directed” Defined Contribution Plan Accounts come within the “certain retirement account” category of coverage. For purposes of the final rule, “self-directed” means that the plan participants have the right to direct how their funds are invested, including the ability to direct that the funds be deposited at an FDIC-insured institution.

Most common among the defined contribution plan accounts are the 401(k) Plan and the SIMPLE 401(k) plans. Also qualifying under this category are self-directed defined contribution money purchase plans (in which employer contributions are fixed) and self-directed defined contribution profit-sharing plans (in which employer contributions are based on company profits).

4. Self-Directed Keogh Plan Accounts

Keogh or (HR 10) plan accounts are defined as a “trust forming part of a pension or profit-sharing plan” which provides contributions or benefits for employees some or all of whom are owner-employees. Such plans are designed for self-employed individuals and if “self-directed” in the form of deposits at FDIC-insured institutions are eligible for coverage of up to $250,000 per participant’s interest.

5. Self-Directed

As long as a participant has the right to choose a particular depository institution’s deposit as an investment, the FDIC considers such accounts to be “self-directed.” In addition, if a plan has as its “default” investment option deposits of a particular FDIC-insured institution, the plan is deemed to be self-directed for deposit insurance purposes because, by inaction, the participant has directed that the funds be placed at an FDIC-insured institution. If a plan’s only investment vehicle is the deposits of particular bank, so that participants have no choice of investments, the plan will not be deemed to be “self-directed” for deposit insurance purposes. However, if a plan consists only of a single employer/employee, because the employer establishes the plan with a single-investment option of Plan S, the Plan would be considered “self-directed.” As a result, single employer/employee define contribution plans which limit the options of a fund investments to deposits of a particular insured depository institution would be self-directed for deposit insurance purposes.

VIII. “PASS-THROUGH” DEPOSIT INSURANCE

A. Introduction

Prior to adoption of the increased coverage for retirement accounts described above, the FDIC Board of Directors adopted “pass-through” deposit insurance disclosure rules. The most significant change required insured institutions to provide timely disclosures to administrators of certain retirement and other employee benefit plan accounts about whether their funds qualified for “pass-through” insurance coverage. Among the types of accounts affected by the disclosure rules were 401(k) retirement accounts that are not self-directed, Keogh plan accounts that are not self-directed and corporate pension plan and profit-sharing plan accounts. The “pass–through” revisions became effective on July 1, 1995, and were modified effective April 1, 2006, to reflect the increase in deposit insurance coverage for certain retirement accounts up to $250,000 with the disclosures requirements eliminated at that time.

In general, “pass-through” insurance means that each participant in the account, rather than the total account balance, is individually insured up to $250,000. For example, if there are 25 participants in the account, the funds would be insured by the FDIC to $6.25 million (providing each participant has a $250,000 interest in the account without pass-through insurance the entire $6.25 million account would qualify for only $250,000 of insurance coverage) if the insured depository institution were to fail (providing each participant has a $250,000 interest in the account). Without “pass-through” insurance, the entire $2.5 million account would qualify for only $250,000 of insurance coverage.

B. Conclusion

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the availability of insurance coverage on employee benefit plan deposits was tied to the capital standing of the institution accepting or holding the deposit. In order to allow employee benefit plan depositors to determine the extent of insurance coverage on their plan deposits, insured institutions were required to comply with the notice requirements of the former rules, commencing on July 1, 1995. Effective April 1, 2006, the regulatory burden associated with the capital-status information requirements, including notice and provisions, were eliminated because the insurance coverage for employee benefit plan deposits no longer hinges on the institution’s capital level.

IX. FDIC SWEEP ACCOUNT DISCLOSURES

A. Introduction

The Federal Deposit Insurance Corporation (FDIC) published a final rule on the processing of deposit accounts when a bank fails. While most of the final rule reiterates long-standing FDIC policy, it also contains provisions relating to the newly required disclosures for sweep accounts. Commencing on July 1, 2009, banks will be required to notify sweep customers of their status as insured depositors, uninsured depositors, secured creditors or general creditors. In addition, the final rule specifies that insured institutions may have to reserve against and pay insurance assessments on certain sweep repurchase accounts and clarifies what constitutes a “properly executed” sweep repurchase account contract.

B. Covered Accounts

Under the final rule, a sweep account involves the pre-arranged transfer of funds from a deposit account to: (1) an investment vehicle located outside the bank (external sweep account), or (2) another account or investment vehicle located within the bank (internal sweep account). The transaction must be pre-arranged according to the terms of the account agreement which specifies rules governing the automated transfer of funds out of and into the deposit account. Further, the funds must be transferred from the deposit account to an account or investment vehicle, either located within or outside the bank.

1. Internal vs. External Sweeps

FDIC determines the treatment of funds swept out of a deposit account based on where the funds reside on the institution’s end-of-day ledger. If the sweep is to an account within the institution, it will be treated as an internal sweep. Importantly, internal sweeps will be completed in accordance with the institution’s normal processing procedures, even if that processing occurs after the bank is closed.

Funds that reside outside the institution on its end-of-day ledger will be treated as external sweeps. Once FDIC takes control of a failed bank, it will try to stop external sweeps, which may or may not be possible.

a. Examples of internal sweeps:

Sweeps from a deposit account into a Eurodollar or IBF account in the failed bank. Funds that have been swept into a Eurodollar and IBF account are not deposits and will be treated as unsecured general creditor claims against the receivership.
Sweeps from a deposit account to a Fed Funds account. Funds that have been swept into a Fed Funds account are not deposits and will be treated as general creditor claims against a receivership.
Sweeps from a deposit account to pay an existing loan where the funds are swept back into the originating deposit account. Funds that have been swept out of the deposit account will be used to reduce the loan balance; funds remaining in the deposit account are insured deposits.
Depositor-owned funds in a general ledger account will be treated as if they had never left the originating deposit account and therefore will have the status of an insured deposit.
The full amount of swept funds attributable to an individual customer residing in an omnibus account will be deemed to be the customer’s regardless of any netting practices used.

b. Examples of external sweeps:

Sweep to a money market mutual fund (MMMF) that is stopped; funds will be treated as if they never left the originating deposit account. The key question is whether the account is over the deposit insurance limit.
Sweep completed to a MMMF; funds reside outside the bank. The customer is a secured creditor and will receive payment for the value of the assets in the MMMF.
Sweep completed to a MMMF into an account maintained by the MMMF at the failed bank. Customer may get pass-through deposit insurance depending on how the account is titled. If the depository institution’s records establish the MMMF as owner of the swept funds, the sweep would be completed, and the maximum insurance amount would be $250,000. However, if the depository institution’s records state that the MMMF account was established for the benefit of the sweep customers, then the swept funds are treated as though they never left the originating deposit account, and the sweep customers would be eligible for pass-through insurance.

C. Disclosure Requirements

Under the final rule, effective July 1, 2009, (1) in all new sweep accounts; (2) in renewals of existing sweep account contracts; and (3) for all other sweep accounts, within 60-days after July 1, 2009, and no less than annually thereafter, banks must prominently disclose in writing to sweep account customers whether their swept funds are deposits within the meaning of 12 U.S.C. § 1813(l). If the funds are not deposits, the bank must further disclose the status such funds would have if the institution failed, for example, general creditor status or secured creditors status. This distinction is extremely important for customers because general creditors usually receive nothing when a bank fails. Such disclosures must be consistent with how the bank reports such funds on its Call Reports.

The disclosure requirements do not apply to arrangements where a customer initiates transfers through instructions provided to the bank, which could be on a daily basis, to move funds from a deposit account to another account or investment vehicle. The disclosure rules also do not apply to sweep accounts where: the transfers are within a single account, or a sub-account; or the sweep account involves only deposit-to-deposit sweeps, such as zero-balance accounts, unless the sweep results in a change in the customer’s insurance coverage, reverse sweeps and sweeps to money market deposit accounts.

In addition, the disclosure rules do not apply to accounts held on the bank’s trust accounting system, even if the Trust Department uses an omnibus deposit account to collect idle cash and then sweep it from the omnibus account to an investment vehicle. FDIC views the omnibus account as an intermediary account used simply for administrative purposes to hold the idle cash before sweeping it to the investment vehicle.

In communicating the disclosure requirements to sweep customers, banks need not modify their existing contracts with existing sweep customers, but the disclosures should be made in all new agreements and agreement renewals. The final rule provides that a bank may comply with the requirements for the initial and periodic disclosures through, for example, client letters, transaction confirmation statements or account statements.

For external sweep arrangements, for example, (external money market mutual fund sweeps), the required disclosures should indicate the possibility that, if the institution should fail, the applicable funds might not be swept to the source outside the institution and should indicate how the funds would be treated in that situation-for example, they would be treated as deposits and insured under the applicable insurance rules and limits.

The final rule does not require that specific language be included in the disclosures to sweep customers, allowing institutions to fashion their own disclosures, as long as they satisfy the disclosure requirements. To comply with the new disclosure rules will require banks to review the operational “mechanics” of their sweep accounts as well as review their sweep account contracts.

A sample disclosure for a new repurchase or similar sweep account contract might read:

“Funds in this account are not covered by FDIC deposit insurance. In the event of a bank failure, an account holder will be deemed to be the owner of certain assets or perfected security interests, subject to a repurchase agreement with the bank.”

D. Repurchase Sweep Accounts

In the final rule, the FDIC indicates that it will distinguish between sweeps involving repurchase contracts that are “properly executed” from those that are not. The distinction is that in a properly executed sweep, at the end of the day the customer either holds legal title to the assets or has a perfected security interest in the assets. In such cases, where the sweep customer either owns or possesses a perfected security interest in the assets, upon a bank failure, the FDIC will recognize the customer’s ownership or security interest in the assets. If the value of the assets at least equals the dollar amount of funds swept from the customer’s account, the customer’s swept funds will be fully protected in the event of failure.

The FDIC has indicated that whether such a perfected security interest exists is based on:

Who “controls” the security:
Whether the daily confirmation identifies a particular security; and
Whether the bank has the right to substitute securities.

Properly executed sweeps generally involve a third-party custodian for the assets who takes direction to effect the transfer of funds or securities only from the repo customer. By contrast, “improperly executed” sweeps typically involve repos for which the bank retains control over the security or a pool of securities and simultaneously serves as the repo buyer’s custodial agent. This type of repo is often called a hold-in-custody, or HIC repo. Even though the assets are segregated in accordance with the Treasury Department’s rules under the Government Securities Act and the assets may be held at a correspondent bank or other third party, FDIC’s position is that a HIC repo gives the bank too much control over the securities for the customer to have a perfected security interest.

The consequence of having an improperly executed sweep repo is that FDIC will treat funds swept from such a sweep account as though they never left the deposit account. Therefore, under the final rule, a bank would have to disclose to its customer that in the event of failure, funds in excess of FDIC insurance limits will be treated as uninsured deposits. Just as critically, the final rule states that funds swept from an improperly executed sweep account must be reported on a Call or Thrift Financial Report as deposits for purposes of reserves and assessments as well as for Regulation Q, which prohibits the payment of interest on demand deposits.

During a recent ABA telephone briefing, FDIC staff has clarified that the agency will consider a sweep repo to be properly executed if it satisfies each of the following conditions:

Specific securities subject to the transaction are identified by written daily confirmations (as required by the Government Securities Act);
There is language in the agreement expressly stating that the bank is acting as the agent of the repo customer and in the event of default (i.e., bank failure), the repo customer will have the right to direct the bank to sell the securities and apply the proceeds in satisfaction of any repo seller liability; and
The agreement does not include a right of substitution of securities.

The NBA is aware that many existing sweep repo agreements include a provision in which the bank retains the right to substitute securities. Importantly, as a temporary measure solely to assist banks with meeting the impending disclosure effective dates, even if a repo contract includes a right of substitution, FDIC has stated that if a bank expressly states in its sweep repo disclosure or on its daily confirmation that it will not exercise its right of substitution, FDIC will recognize the repo as properly executed. However, the agency expects banks to take the steps necessary to amend their repo agreements to provide the necessary customer protection.

E. Questions And Answers

1. Q: Could you clarify the types of sweep accounts subject to the disclosure requirements?

A: For the purposes of disclosure, a sweep account involves the pre-arranged transfer of funds from a deposit account to: (1) an investment vehicle located outside the depository institution or (2) another account or investment vehicle located within the depository institution. Sweep arrangements subject to the disclosure requirements are those allowing for the recurring movement of funds, typically daily, between the deposit account and the other account or sweep investment vehicle. Excluded from this definition are accounts involving:

a. Customer-initiated transactions not pre-arranged through the deposit account agreement.

b. Transactions used to amortize a loan according to a regular payment schedule, such as monthly or biweekly.

c. Deposit-to-deposit sweeps that do not result in a change in insurance status of the funds. These include zero-balance accounts (ZBAs) and reserve sweeps. ZBAs involve a master concentration account connected with one or more subsidiary accounts. The account instructions typically call for any funds residing in the subsidiary accounts at the end of the day to be swept to the master concentration account. All accounts associated with a ZBA usually are owned by the same legal entity; thus, the movement of funds between the master and subsidiary accounts will not involve a change in insurance status for the customer. Likewise, reserve sweeps typically involve a transaction deposit account connected to a money market deposit account, usually structured as a sub-account, between which funds are moved on a periodic basis. In some cases, the customer may not be aware that a sub-account has been established. Whether or not the customer is aware of such arrangements, a deposit-to-deposit sweep where the insurance status of the customer is unchanged is not covered by the disclosure requirements.

d. Bill-paying arrangements.

2. Q: What are the most common sweep arrangements covered by the disclosure requirements?

A: The three most common sweep arrangements involve:

a. A Eurodollar deposit (typically a Cayman Island or Nassau branch deposit) or an International Banking Facility (IBF) deposit.

b. Repurchase agreements.

c. Money market mutual funds.

The FDIC also is aware of sweep arrangements that transfer funds into Fed Funds and holding company commercial paper. Another arrangement uses the swept funds to pay down the customer’s loan with the depository institution. This type of loan sweep is notan arrangement used to amortize a loan; rather, excess funds in the deposit account are swept daily to pay down the loan balance and the following day the swept funds are made available to the customer's deposit account.

3. Q: When do the sweep disclosure requirements of the rule become effective?

A: (1) For sweep account agreements in effect on July 1, 2009, the disclosures must be provided to sweep account customers within 60 days after July 1, 2009, (i.e., no later than September 1, 2009) and at least annually thereafter. (2) Starting July 1, 2009, the institution must provide the disclosures when the institution enters into a new sweep account agreement with a customer and at least annually thereafter. (3) Starting July 1, 2009, the institution must provide the disclosures when the institution renews an existing sweep account agreement with a customer and at least annually thereafter.

4. Q: What type of disclosure is required by the rule?

A: Institutions must prominently disclose in writing to sweep account customers whether their swept funds are deposits within the meaning of 12 U.S.C. 1813(l). If the funds are not deposits, the institution must further disclose the status such funds would have if the institution failed, e.g., general creditor status or secured creditor status. Disclosure can be made through various means, such as client letters, transactions confirmation statements or account statements. The disclosure must be consistent with how such funds are reported on Call and Thrift Financial Reports.

5. Q: What approach will the FDIC take in determining how swept funds will be treated in the event of failure?

A: The rule establishes the following three principles to be used in establishing deposit and other account balances in the event of failure.

a. The FDIC generally will use end-of-day ledger balances as normally calculated by the depository institution.

b. It is the receiver’s responsibility upon taking control of a failed institution to block funds from moving out of or into the institution.

c. The receiver may correct deposit and other account balances, if necessary to protect the first two principles.

Additionally, the FDIC will apply the following guidelines for funds swept internally within the insured depository institution:

a. Ownership of the funds and the nature of the claim will be based on the institution’s records.

b. Depositor-owned funds residing in a general ledger account will be a deposit for insurance purposes.

c. The full amount of swept funds attributable to an individual customer residing in an omnibus account will be treated as belonging to that customer, regardless of any netting of debits and credits for the customer in the omnibus account.

6. Q: How do the FDIC’s established principles (to be applied in the event of failure) coincide with a bank's normal posting processes?

A: The FDIC generally will follow the bank’s normal posting process on the day of failure to arrive at the end-of-day deposit and other account balances used for claims purposes. This means that sweep processes designed to move funds internally within the institution typically will be carried out on the day of failure, even if these processes are scheduled to occur after the FDIC takes control of the institution. Since most sweep transactions are scheduled to move funds prior to the institution’s normal end-of-day, these processes will occur on the day of failure. For claims purposes, the FDIC will use deposit and other account balances as reflected on the institution’s end-of-day ledger. The mechanics and timing of how funds move within the institution are important to determine how swept funds will be treated in the event of failure.

For sweep arrangements that move funds outside the institution (external) the receiver may block such funds from leaving the institution when it takes control. If the external sweep is blocked, such swept funds will be treated as if they had not left the originating deposit account. In the case where externally swept funds have left the institution by the time the receiver takes control, the sweep transaction will be deemed completed and posted to the deposit account according to normal procedures.

7. Q: How are the various individual sweep account arrangements treated in the event of failure?

A: The February 2, 2009, http://www.fdic.gov/regulations/laws/federal/2009/09FinalAD26.pdf notice on the rule illustrates how various sweep account arrangements are treated in the event of failure.

8. Q: What is the priority scheme used by the FDIC when it acts as a receiver for a failed insured depository institution?

A: The FDIC follows the following statutory priority scheme:

a. Administrative expenses of the receiver

b. Deposits (insured and uninsured)

c. General creditors (including foreign and IBF deposits)

d. Subordinated debt

e. Shareholder interests

The FDIC operates under statutory depositor preference requirements 12 U.S.C. 1821(d)(11). Under normal procedures the depositor class must be paid in full before general creditors receive any value.

9. Q: Will the FDIC provide specific disclosure language for the various types of sweep products?

A: No. Those who commented on the final rule suggested that the FDIC be flexible as to the disclosure requirements and not prescribe specific language. Also, providing sample disclosure language might not be practical because sweep agreements vary considerably.

10. Q: Do the disclosure requirements apply when funds are swept into an investment vehicle unaffiliated with the bank, as opposed to a proprietary or otherwise affiliated investment vehicle?

A: Yes, the disclosure requirements apply to covered sweep arrangements regardless of the affiliation of the investment vehicle.

11. Q: We have a sweep product that moves funds from a non-interest bearing transaction account, covered in full by the FDIC’s Transaction Account Guaranty Program, into an interest-bearing deposit account not covered by the guarantee. Is this sweep arrangement subject to disclosure under this rule because the insurance status of the customer may change?

A: No, but such arrangements will require a disclosure under the FDIC’s Transaction Account Guaranty Program (12 C.F.R. Section 370.5). Please see the FDIC’s FAQs on the TAGP.

12. Q: Our trust department is responsible for managing certain trust assets, either in a fiduciary or custodial capacity. The management of such assets periodically generates cash for the trust customers, which is invested according to prearranged instructions. This idle cash is moved to an omnibus demand deposit account residing on the books of the bank where it may rest overnight or longer before being transmitted to an investment vehicle, typically a money market mutual fund. Is this a sweep arrangement subject to disclosure?

A: No. Under this arrangement, the funds in question do not originate from a deposit account, as required by the definition of a sweep product subject to the disclosure requirements.

13. Q: The rule distinguishes between repo sweep arrangements properly executed and those that are not properly executed. What is the difference?

A: In a properly executed repo sweep, as of the institution’s end-of-day, the sweep customer either becomes the legal owner of identified assets (usually securities) or obtains a perfected interest in these assets. In an improperly executed repo sweep, the sweep customer obtains neither an ownership interest nor a perfected interest in the applicable assets.

14. Q: Regarding a repo sweep arrangement, what does the FDIC consider to be a perfected interest in a security?

A: Each institution must determine for itself whether a security interest is perfected under the relevant state law. The FDIC generally considers three elements in determining whether the customer has a perfected security interest in a security subject to a repo sweep: (1) the particular security in which the customer has an interest has been identified, and this identity is indicated in a daily confirmation statement; (2) the customer has “control” of the particular security; and (3) there is no substitution of the security during the term of the repurchase agreement even if the agreement allows for substitution with the customer/buyer’s consent.

15. Q: How can a bank satisfy the first element for a properly executed repurchase agreement – that a particular security be identified?

A: The buyer’s interest must be indicated by a confirmation identifying the security (i.e., CUSIP or mortgage-backed security pool number) and also specifying the issuer, maturity date, coupon rate, par amount and market value. Fractional interests in a specific security must be identified, if relevant. An arrangement where bulk segregation or pooling of repurchase collateral without identification of specific securities does not result in the buyer receiving an identified interest in specifically identifies securities. For example, the practice of confirming only “various securities” in connection with a repurchase agreement is not sufficient to comply with this requirement, and the agreement will not be properly perfected.

16. Q: How can a bank satisfy the second element for a properly executed repurchase agreement – that the customer has “control” of the security?

A: The customer must be able to direct the disposition of the security in the event of default. The two most common arrangements used by a depository institution (seller) to hold securities used in repurchase agreements are tri-party and hold-in-custody (HIC).

1. In a tri-party arrangement, the securities are held by an independent third party acting as a custodian. As custodian, the third party has possession over the securities and performs certain functions including affecting the buyer’s orders regarding the securities. It should be noted that solely transferring the securities to a third party custodian does not transfer control. Rather, the customer/buyer must be able to direct the custodian as to the disposition of the securities in the event of a default by the seller. If the seller is the sole party who can direct the custodian to act with respect to the securities, control has not been transferred.

2. In a HIC arrangement: (1) the depository institution maintains physical possession of the securities or (2) a third party maintains physical possession of the securities but the third party accepts direction regarding the securities solely from the depository institution. A HIC arrangement may result in a transfer of control of the security to the customer/buyer if the repurchase agreement allows the depository institution, acting as agent for the customer, to affect the customer’s orders regarding the securities, such as transferring the securities to the customer in the event of failure.

17. Q: How can a bank satisfy the third element for a properly executed repurchase agreement regarding the “right of substitution”?

A: Unless perfection is otherwise accomplished, there must be no substitution of the security during the term of the repurchase agreement even if the agreement allows for substitution with the customer/buyer’s consent.

As a practical matter, substitution generally is not exercised. Repo sweeps typically are overnight investments where the customer may own the security, or an interest in a security, for only a few hours, i.e., late evening to early morning. During such a short time period, it may be impractical to exercise substitution. Substitution of securities in an overnight transaction will result in an unperfected interest in the securities. If substitution occurs, the securities specifically identified in the confirmation will be inaccurate. Therefore, substitution will defeat proper execution because securities will not have been specifically identified.

The FDIC has concerns about the ability to perfect a security interest when there is a substitution clause in a repurchase sweep agreement; however, the clause itself may not defeat perfection. If a substitution clause is present in the repurchase sweep agreement, the depository institution should acknowledge that substitution will not be exercised and indicate this through the sweep disclosure to the customer. Further, newly issued or amended repurchase sweep agreements, including contract renewals, may not contain a substitution clause.

A repurchase agreement may allow for the repurchase of the identified security prior to scheduled maturity and the simultaneous sale of a new security to the customer/buyer for the remaining maturity. The new sale would generate a new confirmation statement to the buyer and the FDIC would not view perfection of the security interest as being defeated assuming the other two elements of control are met.

18. Q: The rule states that in an improperly executed repo sweep, the swept funds would be treated as if they had not left the deposit account from which they originated. Does this mean these funds must be reported as a deposit on the Call Report or Thrift Financial report?

A: Yes. Such reporting must be made after July 1, 2009 – the effective date of the disclosure requirements in the final rule on the “Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure.”

19. Q: The rule indicates that funds resting in an omnibus account in connection with a next-day money market mutual funds sweep are deposits. Does this mean these funds must be reported as a deposit on the Call Report or Thrift Financial Report?

A: Yes. Such reporting must be made after July 1, 2009 – the effective date of the disclosure requirements in final rule on the “Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure.”

20. Q: Regulations under the Government Securities Act (17 C.F.R. Section 403.5) require, among other things, that depository institutions advise the owner of a repurchase agreement that the funds held by the depository institution pursuant to the repurchase agreement “are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation.” How can a depository institution comply with this disclosure requirement and the FDIC’s disclosure requirements for sweep accounts?

A: The depository institution can explain in the disclosure that, unless the institution improperly executes the repurchase agreement, the funds involved in the repurchase agreement are not deposits and, thus, are not insured as such by the FDIC.

X. STORED VALUE CARDS: FDIC GENERAL COUNSEL OPINION NO. 8 (2009)

A. Introduction

The FDIC has approved the new General Counsel’s opinion on the insurability of funds underlying stored value cards and other nontraditional access mechanisms. The new General Counsel’s Opinion No. 8 replaces the previous General Counsel’s Opinion No. 8, published in 1996.

Under the new opinion, (GC8) all funds underlying stored value products will be treated as “deposits” to the extent that the funds have been placed at an insured depository institution. As a result, all such funds will be subject to assessments. Also, all such funds will be insured up to the FDIC insurance limit.

B. Stored Value Products

Stored value products, or “prepaid products,” may be divided into two broad categories: (1) merchant products; and (2) bank products.

1. Merchant Products

A merchant card (also referred to as a “closed-loop” card) enables the cardholder to collect goods or services from a specific merchant or cluster of merchants. Generally, the cards are sold to the public by the merchant in the same manner as gift certificates. Examples are single-purpose cards such as cards sold by book stores or coffee shops. Another example is a prepaid telephone card.

Merchant cards do not provide access to money at a depository institution. When a cardholder uses the card, the merchant is not paid through a depository institution. On the contrary, the merchant has been prepaid through the sale of the card. In the absence of money at a depository institution, no insured “deposit” exists under the FDI Act.

2. Bank Products

Bank cards are different. Bank cards (also referred to as “open-loop” cards) provide access to money at a depository institution. In some cases, the cards are distributed to the public by the depository institution itself. In many cases, the cards are distributed to the public by a third party. For example, in the case of “payroll cards,” the cards often are distributed by an employer to employees. In the case of multi-purpose “general spending cards” or “gift cards,” the cards may be sold by retail stores to customers.

A bank card usually enables the cardholder to effect transfers of funds to merchants through point-of-sale terminals. A bank card also may enable the cardholder to make withdrawals through automated teller machines. In other words, a bank card provides access to money at a depository institution. The money is placed at the depository institution by the card distributor (or other company in association with the card distributor), but is transferred or withdrawn by the cardholder. In some cases, the card is “reloadable” in that additional funds may be placed at the depository institution for the use of the cardholder.

This General Counsel’s opinion does not address merchant cards because such cards do not involve the placement of funds at insured depository institutions. The applicability of this General Counsel’s opinion is limited to bank cards and other nontraditional access mechanisms, such as computers, that provide access to funds at insured depository institutions.

C. Deposits

The original GC8 did not address all types of stored value products offered by (or through) insured depository institutions. For example, it did not address systems in which the depository institution maintains a pooled self-described “reserve account” for all cardholders but also maintains an individual subaccount for each cardholder. Likewise, the original GC8 did not discuss systems in which the access mechanisms are distributed not by the insured depository institution but instead are distributed by a third party (such as the employer in the case of payroll cards or a retail store in the case of general spending cards).

Having reconsidered the issue of whether funds underlying stored value products qualify as “deposits,” the Legal Division has concluded that such funds always should be treated as “deposits” provided that the funds have been placed at an insured depository institution. This conclusion is based upon the general premise that the funds underlying stored value cards and other modern access mechanisms are no different, in substance, than the funds underlying traditional access mechanisms such as checks, official checks, traveler’s checks and money orders.

D. Depositors

A separate issue is whether the holder of an access mechanism (as opposed to the distributor of the access mechanism) should be treated as the insured depositor for the purpose of applying the insurance limit. Under the existing insurance regulations, the FDIC is entitled to rely upon the account records of the failed insured depository institution in determining the owners of deposits. Therefore, in cases in which a separate account has been opened in the name of the holder of the access mechanism, the FDIC will recognize the holder as the owner of the deposit.

In some cases, in an agency or custodial capacity, the distributor of the access mechanisms (or agent on behalf of the distributor) might open a pooled account for all holders of the access mechanisms. In such cases, the FDIC may provide “pass-through” insurance coverage (i.e., coverage that “passes through” the agent to the holders). Such coverage is not available, however, unless certain requirements are satisfied.

First, the account records of the insured depository institution must disclose the existence of the agency or custodial relationship. This requirement can be satisfied by opening the account under a title such as the following: “ABC Company as Custodian for Cardholders.” Second, the records of the insured depository institution or records maintained by the custodian or other party must disclose the identities of the actual owners and the amount owned by each such owner. Third, the funds in the account actually must be owned (under the agreements among the parties or applicable law) by the purported owners and not by the custodian (or other party). If these three requirements are not satisfied, the FDIC will treat the custodian (i.e., the named accountholder) as the owner of the deposits.

It is encouraged that accurate information concerning FDIC insurance coverage be displayed on stored value cards. This information should include the name of the insured depository institution in which the funds are held. When appropriate, the card should also state that the funds are insured by the FDIC to the cardholder. These disclosures will provide the cardholder with important information concerning FDIC deposit insurance coverage.

E. Conclusion

Under GC8, all funds underlying stored value cards and other nontraditional access mechanisms will be treated as “deposits” to the extent that the funds have been placed at an insured depository institution. If the FDIC’s standard recordkeeping requirements are satisfied, the holders of the access mechanisms will be treated as the insured depositors for the purpose of applying the insurance limit. Otherwise, the distributor of the access mechanisms (i.e., the named accountholder) will be treated as the insured depositor.

XI. CONCLUSION AND RESOURCES FOR FURTHER INFORMATION

For further information or assistance regarding Federal Deposit Insurance Coverage, bankers may wish to contact the Federal Deposit Insurance Corporation’s Regional Office in Kansas City, Missouri. The address is: FDIC, 2345 Grand Boulevard, Suite 1200, Kansas City, MO 64108-2638; Telephone: (816) 234-8000. There is also a toll-free FDIC Hotline, called the “FDIC Central Call Center,” for information on deposit insurance at (800) 209-7459 (recorded information is available 24 hours a day, 7 days a week) and operators are available Monday - Friday, 8:00 a.m. - 8:00 p.m. (Eastern Time).

An online reference source, maintained by the FDIC for use by both consumers and financial institutions is “EDIE,” the “Electronic Deposit Insurance Estimator,” which can be accessed at: http://www5.fdic.gov/edie/. EDIE is a an electronic tool to assist anyone to determine if there is adequate deposit insurance for the accounts maintained at a single FDIC-insured financial institution, estimate the deposit insurance coverage a customer will for all of his or her Personal Accounts, including Sole Proprietorship Accounts, at a single financial institution and can be used to estimate deposit insurance for most types of accounts. EDIE is designed for consumers to use for their personal accounts, not other accounts, such as for a corporation, Homeowners Association or church. For assistance or information on church, association, partnership or corporate accounts, contact the FDIC Central Call Center at (877) 275-3342 or (877) ASK-FDIC. For the hearing impaired call (800) 925-4618 or (202) 942-3147 in Washington, D.C.

Should either a financial institution or a customer want to obtain written information from the FDIC, write to: FDIC Consumer Affairs, 550 17^th Street, N.W., Washington, DC 20429 or send an e-mail message from “The Online Customer Assistance Form” at the following address: http://www5.fdic.gov/starsmail/index.asp. The online request for assistance form will ask whether the requestor is a financial institution or a consumer.

XII. RETAINED ASSET ACCOUNTS

The FDIC Chairman has raised concerns regarding the adequacy of disclosures provided by insurance companies when distributing insurance proceeds to consumers through Retained Asset Accounts (RAAs) (an insurance company product in which the beneficiary of a life insurance policy receives proceeds in the form of an account provided by the insurance company in lieu of a lump sum payment). The FDIC has expressed concerns that consumers may mistakenly conclude that the RAAs are products offered by insured depository institutions and, further, that the RAAs are FDIC-insured accounts.

The FDIC has indicated that RAAs generally are not FDIC insured and may be insured by the FDIC only if the insurance company holds the funds in a fiduciary capacity for policy holders/beneficiaries in a deposit account at an insured depository institution. Since participating banks perform various administrative functions relating to RAAs, to minimize confusion, the FDIC indicates that participating banks should ensure that their role in RAA arrangements is properly disclosed in any materials that are provided to customers, even when these materials are distributed by another party. Participating banks should satisfy themselves that the insurance company is making clear disclosures to consumers and beneficiaries regarding the FDIC insurance status of the RAA product.

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