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From Banking and Finance Law Daily, February 17, 2016

FDIC proposal targets access to deposits in large bank failures

By Andrew A. Turner, J.D.

The Federal Deposit Insurance Corporation is proposing changes in recordkeeping requirements for FDIC-insured institutions with a large number of deposit accounts to facilitate rapid payment of insured deposits to customers if the institutions were to fail. The proposed rulemaking would apply to institutions with more than two million deposit accounts (currently 36 banks). There will be 90-day comment period on the proposal.

Under the proposal, these institutions would generally be required to maintain complete and accurate data on each depositor. Further, the institutions would be required to ensure that their information technology systems are capable of calculating the amount of insured money for each depositor within 24 hours of a failure. The FDIC is not proposing or considering making these requirements applicable to smaller institutions, including community banks.

The FDIC is required to provide depositors with access to their insured accounts as soon as possible after an institution fails. Typically, this money is available by the next business day. However, for a bank with a large number of deposit accounts, payments might be delayed if the bank's records are unclear or incomplete, making it difficult to determine what is insured and what is not.

Some of the banks covered by the proposal “now have more than 50 million deposit accounts, offer FDIC-insured accounts using complex account structures, and use information technology systems that are more complex than smaller banks typically employ,” FDIC Chairman Martin J. Gruenberg said. Banks covered by the proposal would be required to improve the quality of their deposit data and make changes to their information systems.

Each covered institution would be required to collect the information needed to allow the FDIC to determine promptly the deposit insurance coverage for each owner of funds on deposit at the covered institution. There would be a two-year deadline for a covered institution to obtain the information needed to determine deposit insurance coverage, assign account ownership right and capacity codes to each deposit account, and develop IT system capabilities. Covered institutions would be required to certify compliance annually.

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