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In a move that should take no one by surprise, on November 15, the Federal Deposit Insurance Corporation (FDIC) adopted a final rule—initially proposed in February 2016—that creates new recordkeeping requirements for large FDIC-insured banks, and which would govern the determination and payment of insured customer deposits in the event of a large bank failure.

Like the proposed rule, the final rule will require banks with more than two million depositors— “covered institutions” currently numbering 38 depository institutions—to keep complete and accurate records on each depositor and maintain information technology systems that can calculate the amount of each depositor’s insured deposit within 24 hours of a failure. The records will have to be maintained in the form of multiple (and detailed) “output files” (customer, account, account participant, and pending). Covered institutions also will have to certify their compliance with the final rule to the FDIC on an annual basis.

As stated by FDIC Chair Martin Gruenberg at the time of the final rule’s adoption, “Timely access to insured deposits when a bank fails is critical to maintaining public confidence in the banking system. The final rule. . . would bolster the FDIC’s ability to provide depositors at large banks that have at least two million accounts with the same rapid access to their insured funds as the FDIC provides when a smaller institution fails.”

The FDIC received a limited number of comments on the proposed rule (14 in total), some of which questioned the underlying premises, costs, and benefits of the proposal. In adopting the final rule, the FDIC did not change the core provisions of the rule, which will require a covered institution to maintain “on site” depositor information on deposit accounts and the beneficial owners of all deposits. In turn, the FDIC’s deposit insurance determinations will no longer be primarily based on records held by third party brokers, agents, or other representatives.

In response to comments on the potential impact of the rule on certain types of pass through accounts, however, the FDIC adopted a bifurcated approach to the rule’s recordkeeping requirements for trust deposits, brokered deposits, and other accounts that qualify for “pass through” deposit insurance coverage, in order to facilitate their compliance with the final rule. These alternative requirements will allow covered institutions to rely in part on external account information and develop systems that process these types of accounts during a longer period after a failure—except for certain accounts that have transactional features. For this last category of accounts, the rule will require (subject to limited exceptions) that the covered institution certify that all information needed for the covered institution’s IT system to calculate deposit insurance coverage will be submitted to the FDIC within 24 hours after appointment of the FDIC as receiver.

A covered institution’s failure to comply with the new rule will subject it to regulatory criticism and possible administrative enforcement action under section 8 of the Federal Deposit Insurance Act. The final rule, however, does not change the statutory basis for pass through deposit insurance coverage.

Effective Date

The final rule will become effective on April 1, 2017. Covered institutions will have three years (rather than two years, as previously proposed) after the later of (i) the effective date of the rule or (ii) the date on which the depository institution becomes a covered institution, to develop the IT and other systems to come into compliance with the new rule.

On a case-by-case basis, however, the FDIC may accelerate the implementation period under three scenarios:

  1. The covered institution has received a composite rating of 3, 4, or 5 under the Uniform Financial Institution’s Rating System (CAMELS rating) in its most recent examination.
  2. The covered institution has become undercapitalized, as defined in the prompt corrective action provisions of 12 C.F.R. Part 325.
  3. The covered institution’s primary federal banking agency, or the FDIC in consultation with the primary agency, has determined that the covered institution is experiencing significant capital or funding liquidity issues.