Gunster – Banking Advisory, January 2009
On January 27, 2009, the Federal Deposit Insurance Corporation (“FDIC”) issued a final rule on the FDIC’s practices for processing deposit accounts for failed depository institutions (“Final Rule”). TheFinal Rule replaces the FDIC’s July 2008 interim rule and applies to all insured depository institutions.
The Final Rule establishes the FDIC’s practices for determining, for deposit insurance and receivership purposes, deposit and other account balances at a failed institution. The Final Rule provides that when an institution fails, the FDIC, as receiver, will construct an ending balance sheet and determinethe value and nature of the claims against the failed institution. On the institution’s date of failure, the FDIC will determine such claims by treating depositsand other liabilities of the institution as end-of-day ledger balances for each account using the institution’s normal posting procedures.
Furthermore, in order to ensure proper distributionof assets, the FDIC will establish a cutoff point inwhich the FDIC will act to stop deposit transactionsthat may create new liabilities or extinguish existingliabilities from external transactions. The Final Rulealso discusses the treatment of specific items suchas uncollected deposited checks and sweep accountsin the event of the institution’s failure.
Additionally, the Final Rule imposes disclosurerequirements in connection with sweep accounts.The Final Rule requires that institutions inform their sweep account customers whether swept funds are treated as deposits by the institution. This disclosure must be made: (i) within sixty (60) days after July 1, 2009; (ii) in all new sweep account contracts; and (iii) in renewals of existing sweep account contracts. If, on the other hand, swept funds are not treated as deposits, institutions must disclose the status swept funds would have if the institution were to fail (“Disclosure Requirements”).
Please note that the Disclosure Requirements do notapply to sweep accounts where: (i) the funds aremoved between deposit accounts and (ii) the sweepdoes not result in a change in the customer’sinsurance coverage.
The Final Rule does not impose specific disclosure language and allows each institution to draft its own as long as the Disclosure Requirements are met.
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Should you wish to receive further informationconcerning matters discussed in this publication,please contact the following:
Clemente L. Vazquez-Bello305.376.6082 ▪ [email protected]
Andres A. Fernandez305.376.6097 ▪ [email protected]
Marina Olman305.376.6069 ▪ [email protected]
