FDIC Proposed Rule on Deposits of Foreign Branches of US Banks

March 12, 2013 at 8:49 pm Leave a comment


The Federal Deposit Insurance Corporation (“FDIC”) recently issued a proposed rule that provides certain deposits of foreign branches of U.S. banks are not insured deposits. 


During September 2012, the Financial Services Authority of the United Kingdom issued a proposed rule, the effect of which would be that branches of U.S. banks in the U.K. would make their deposits payable in the U.K. and the U.S.

 The potential FDIC issue is that a foreign branch deposit payable in the U.S. may be considered an insured deposit.  For purposes of the Federal Deposit Insurance Act (“FDI Act”), an insured deposit excludes any obligation of a foreign branch of a U.S. bank unless (i) such obligation would be a deposit if carried on the books and records of the bank in the U.S. and (ii) it is expressly payable in the United States.  Section 3(l) of the FDI Act (12 U.S.C. 1818(l)).

 Proposed Rule

The proposed rule generally provides that a deposit of a foreign branch of a U.S. bank payable in the U.S. and outside the U.S. is not a deposit insured by the FDIC.  Thus, the proposed rule generally requires that the foreign branch deposit be payable exclusively in the U.S in order to be FDIC insured, and clarifies, for example, that a foreign branch deposit payable in the U.S. and the U.K. does not satisfy the requirements to be an insured deposit. 

 The FDI Act generally provides for a depositor preference regime, in which depositors have priority over general unsecured creditors in the event of a bank’s liquidation or bankruptcy.  The proposed rule provides that the foreign branch deposits payable in the U.S. and outside the U.S. are treated as deposits for purposes of the preference regime and would receive the same, preferential treatment as the domestic deposits of U.S. banks.

 The FDIC welcomes comments to the proposed rule, and, in particular, whether the proposed rule should incorporate an exception for the posting of adequate collateral by the bank.  Comments to the proposed rule are due to the FDIC by April 22, 2013.  Please contact any of Stinson’s banking attorneys if you have any questions regarding this summary or would like assistance in formulating comments to the proposed rule.  Read the full notice of proposed rulemaking, http://www.fdic.gov/news/board/2013/2013-02-12_notice_dis-a_res.pdf.

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