February 19, 2013 –
FDIC issues proposed rule on deposits in foreign branches of U.S. banks

On February 12, 2013, the Federal Deposit Insurance Corporation issued a notice of proposed rulemaking (the “proposed rule”) to clarify the status of deposits in foreign branches of U.S. banks.

The proposed rule stems from a recent proposal by the U.K.’s Financial Services Authority relating to the effect of national depositor preference laws that makes it likely that large U.S. banks will change their deposit agreements to make their U.K. branch deposits payable in both the U.K. and U.S.

Currently, under the Federal Deposit Insurance Act, money deposited in foreign branches of U.S. banks are not considered deposits, unless the funds are payable in the U.S.

The proposed rule, among other things, clarifies that while deposits in foreign branches of U.S. banks can be deposits for purposes of the national depositor preference statute enacted in 1993, they are not FDIC-insured.

The proposed rule, which will be issued with a 60-day comment period upon publication, would not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. These funds will continue to be insured by the FDIC to the same extent that they have been.

As a result of the proposed rule, U.S. banks with foreign branches may need to update their existing account documentation to address the new regulatory treatment of foreign deposits.

* * * * *

For more information regarding the Proposed Rule, please contact Clemente Vazquez-Bello or Gabriel Caballero.

Read a complete copy of the proposed rule: Deposit Insurance Regulations; Definition of Insured Deposit (FDIC, 2/12/13)