Expiration of Temporary Unlimited Coverage for Noninterest-Bearing Transaction Accounts





Frequently Asked Questions Regarding the Expiration of Temporary Unlimited Coverage for Noninterest-Bearing Transaction AccountsPrintable Version – PDF

Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts (NIBTAs) at all FDIC-insured depository institutions (IDIs) from December 31, 2010 through December 31, 2012 (the Dodd-Frank Deposit Insurance Provision).  In anticipation of the expiration of the Dodd-Frank Deposit Insurance Provision, the FDIC issued Financial Institution LetterFIL-45-2012 to provide related direction and guidance to IDIs.Below are frequently asked questions and answers concerning the expiration of the Dodd-Frank Deposit Insurance Provision.

1. When the Dodd-Frank Deposit Insurance Provision expires, how will noninterest-bearing transaction accounts be insured by the FDIC?  What will be the impact on deposit insurance coverage on other types of accounts?

Beginning January 1, 2013, noninterest-bearing transaction accounts will no longer be insured separately from depositors’ other accounts at the same IDI.  Instead, noninterest-bearing transaction accounts will be added to any of a depositor’s other accounts in the applicable ownership category, and the aggregate balance insured up to at least the Standard Maximum Deposit Insurance Amount (SMDIA) of $250,000, per depositor, at each separately chartered IDI.

For example, if after the expiration of the Dodd-Frank Deposit Insurance Provision a depositor under the single ownership category has $500,000 deposited in a noninterest-bearing transaction account and $250,000 deposited in a certificate of deposit, or total deposits of $750,000, the depositor would be insured for up to $250,000 and uninsured for the remaining balance of $500,000.

Depositors should be made aware that Section 335 of the Dodd-Frank Act permanently increases the SMDIA to $250,000.

2. How will the expiration of the Dodd-Frank Deposit Insurance Provision affect deposit insurance coverage for Interest on Lawyer Trust Accounts (IOLTAs)?

After December 31, 2012, funds deposited in IOLTAs will no longer be insured under the Dodd-Frank Deposit Insurance Provision.  However, because IOLTAs are fiduciary accounts, they generally qualify for pass-through coverage on a per-client basis.  FDIC regulations provide that deposit accounts owned by one party but held in a fiduciary capacity by another party are eligible for pass-through deposit insurance coverage if (1) the deposit account records generally indicate the account’s custodial or fiduciary nature and (2) the details of the relationship and the interests of other parties in the account are ascertainable from the deposit account records or from records maintained in good faith and in the regular course of business by the depositor or by some person or entity that maintains such records for the depositor.

If an IOLTA does qualify for pass-through coverage as a fiduciary account, then each separate client for whom a law firm holds funds in an IOLTA may be insured up to $250,000 for his or her funds.

For example, if a law firm maintains an IOLTA with $250,000 attributable to Client A, $150,000 to Client B, and $75,000 to Client C, the account would be fully insured if the IOLTA meets the requirements for pass-through coverage.  If the clients have other funds at the same IDI, those funds would be added to their respective shares of the funds in the IOLTA for insurance coverage purposes.

3. How will the expiration of the Dodd-Frank Deposit Insurance Provision affect deposit insurance coverage for official checks?

Official checks, such as cashier’s checks and money orders issued by IDIs, are “deposits” as defined under the FDI Act (12 U.S.C. §1831(l)) and Part 330 of the FDIC’s regulations.  The payee of the official check ………………….Read more at http://www.fdic.gov/deposit/deposits/unlimited/expiration.html

 

On a side note……..Far more worrying for American and British depositors though is this paragraph Golem XIV brings up from a joint Bank of England and FDIC paper from 2012 which points to the possibility of using deposit insurance funds to bail out illiquid banks:

“The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors.2

Of course, if deposit insurance money is used as a resolution tool to bail out a bank which then goes on to fail anyway (as we have already seen multiple times since 2008 — a bank receives a large liquidity injection, and goes onto fail anyway) depositors could end up moneyless.

 

Source  http://azizonomics.com/2013/03/21/whose-insured-deposits-will-be-plundered-next/

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