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FDIC PROPOSES RULES ON DEPOSIT INSURANCE FOR NONINTEREST-BEARING TRANSACTION ACCOUNTS

The Federal Deposit Insurance Corporation (FDIC) has issued a Notice of Proposed Rulemaking to (i) announce that it will not extend the Transaction Account Guarantee Program (TAGP) beyond the scheduled expiration date of December 31, 2010 and (ii) propose amendments to its deposit insurance regulations to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally provides for unlimited deposit insurance for “noninterest-bearing transaction accounts” for two years staring December 31, 2010.

Under the TAGP, which was created in October 2008 as part of the Temporary Liquidity Guarantee Program, the FDIC guarantees all funds in qualifying noninterest-bearing transaction accounts at participating insured depository institutions (IDIs). Certain disclosures are required regardless of participation and participating IDIs are required to pay a separate assessment. The TAGP was to expire on December 31, 2009, but was extended through December 31, 2010. The FDIC could have extended the date again, but chose not to.

Section 343 of the Dodd-Frank Act amends the Federal Deposit Insurance Act to provide full deposit insurance coverage (beyond the standard maximum of $250,000) for the net amount held by any depositor in a noninterest-bearing transaction account at an IDI. Section 343 is effective from December 31, 2010 through December 31, 2012.

Section 343 differs from the TAGP in three significant ways:

  1. Participation: Section 343 is mandatory for all IDIs (whereas IDIs may opt out of the TAGP).
  2. Coverage: Section 343 covers only traditional demand deposit accounts (whereas the TAGP also covers low-interest negotiable order of withdrawal (NOW) accounts or Interest on Lawyers Trust Accounts (IOLTAs)).
  3. Cost: There is no separate assessment under Section 343 (whereas there is a separate assessment under the TAGP). With respect to its deposit insurance regulations, the FDIC is proposing notice and disclosure requirements to inform depositors of the types of accounts subject to the temporary deposit insurance coverage. Generally, the FDIC proposes to require (i) posting of a prescribed notice in IDIs’ offices, branches and websites and (ii) notification to customers affected by the changes in coverage.

The FDIC invites comments on all aspects of the proposed rulemaking by October 15, 2010.

Judy Scheiderer