FDIC Implementation Actions Re: Dodd-Frank Act

December 9, 2010 at 2:32 pm Leave a comment

The FDIC took two actions recently related to the implementation of certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that will affect all insured depository institutions.  The first action was adoption of a final rule amending the FDIC’s deposit insurance regulations to implement section 343 of the Dodd-Frank Act, which provides for unlimited insurance for “noninterest-bearing transaction accounts” for two years starting December 31, 2010.  A summary of the final rule is set out below and the text of the final rule is available at http://www.fdic.gov/news/board/Nov9no4.pdf

The second action was approval of a proposed rule which would implement a provision in the Dodd-Frank Act that changes the assessment base from one based on domestic deposits (as it has been since 1935) to one based on assets.  A summary of the proposed rule is set out below and the text of the proposed rule is available at http://www.fdic.gov/news/board/Nov9no6.pdf

We will continue to monitor Dodd-Frank Act implementations by the federal banking regulators and bring you updates as new and amended regulations are proposed and finalized. 

What This Means For Your Bank

  • The provision of the Dodd-Frank Act providing unlimited insurance on certain accounts begins soon.  Ensure your Bank has complied with the disclosure and notice requirements now.  
  • Be prepared for a significant change in the assessment base which will affect how your assessments are calculated. 

Noninterest-Bearing Transaction Accounts Final Rule

The final rule revises the FDIC’s deposit insurance regulations to include noninterest-bearing transaction accounts as a new temporary deposit insurance account category. All funds held in such accounts are fully insured, without limit, and this coverage is separate from, and in addition to, the coverage provided to depositors for other accounts at an insured depository institution.

Noninterest-bearing accounts, as defined in the Dodd-Frank Act, include only traditional, noninterest-bearing demand deposit (or checking) accounts that allow for an unlimited number of transfers and withdrawals at any time, whether held by a business, individual or other type of depositor.

The new temporary provision for unlimited coverage of deposit insurance for noninterest-bearing transaction accounts is similar to the FDIC’s Transaction Account Guarantee Program (TAGP) but differs significantly in the definition of “noninterest-bearing transaction account.” The TAGP, which expires December 31, 2010, includes low-interest NOW (negotiable order of withdrawal) accounts and Interest on Lawyer Trust Accounts (IOLTAs). The final rule expressly states that NOW and IOLTA accounts are not covered under the Dodd-Frank Act definition of noninterest-bearing transaction accounts and do not qualify for temporary unlimited coverage. It should also be noted that, unlike under TAGP, section 343 of the Dodd-Frank Act does not allow insured depository institutions to opt out of this statutory provision. 

The final rule includes disclosure and notice requirements as part of the implementation of section 343. As explained in detail in the final rule: (1) insured depository institutions must post a prescribed notice in their main office, each branch, and if applicable, on their website; (2) no later than December 31, 2010 insured depository institutions currently participating in the TAGP must notify by mail NOW account depositors (that are currently protected under the TAGP because of interest rate restrictions on those accounts) and IOLTA depositors that, beginning January 1, 2011, those accounts no longer will be eligible for unlimited protection; and (3) insured depository institutions must notify customers individually of any action they take to affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.  

Deposit Assessment Proposed Rule

The proposed amendments to the FDIC’s Assessments regulations (12 CFR 327) are to:

(1)        implement revisions to the Federal Deposit Insurance Act made by the Dodd-Frank Act regarding the definition of an institution’s deposit insurance assessment base by changing the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity;

(2)        alter the unsecured debt adjustment in light of the changes to the assessment base;

(3)        add an adjustment for long-term debt held by an insured depository institution where the debt is issued by another insured depository institution;

(4)        eliminate the secured liability adjustment;

(5)        change the brokered deposit adjustment to conform to the change in the assessment base and change the way the adjustment will apply to large institutions; and

(6)        revise deposit insurance assessment rate schedules, including base assessment rates, in light of the changes to the assessment base, as the new base would be much larger than the current base.

Except as otherwise provided, the proposed rate schedule and other revisions to the assessment rules would take effect for the quarter beginning April 1, 2011, and would be reflected in the June 30, 2011 fund balance and the invoices for assessments due September 30, 2011. The proposal will have a 45-day comment period upon publication in the Federal Register.

Entry filed under: Uncategorized.

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