An exception will exist, however, for funds swept from a noninterest-bearing transaction account to a noninterest-bearing savings account. Such swept funds will be treated as being in a noninterest-bearing transaction account.
As a result of this treatment, such swept funds will be insured under the transaction account guarantee component of the program. The treatment of sweeps from a noninterest-bearing transaction account out of an insured institution, such as a sweep to a mutual fund that is, the wiring of funds from the deposit account to an account maintained by the mutual fund at another insured depository institution , will be treated differently.
Under the FDIC's interim rule published in July of , external sweeps will not be completed after the failure of the insured depository institution. Thus, the funds will remain in the customer's noninterest-bearing transaction account, which will be insured under the transaction account guarantee component of the program.
The funds in Eurodollar accounts after the completion of a sweep will not be protected for any amount under the FDIC's general deposit insurance regulations or transaction account guarantee component of the Temporary Liquidity Guarantee Program. Rather, the customer will be treated as a general unsecured creditor. Eurodollar accounts—except for Eurodollar accounts owed to a bank—also do not qualify as senior unsecured debt and, thus, will not be guaranteed under the debt guarantee component of the program.
In the case of a repurchase sweep, under the interim rule published in July of , the FDIC will recognize the customer's ownership interest in securities to the extent that the repo sweep customer is the legal owner of identified securities subject to the repurchase agreement. If the customer is not the legal owner of identified securities, the customer's rights will depend upon the nature of the customer's account.
Assuming that the account is a noninterest-bearing transaction deposit account, the customer's funds will be fully protected under the transaction account guarantee component of the program. Similarly, in the case of an uncompleted external sweep, the result will depend upon whether the customer's deposit account is an interest-bearing account as opposed to a non-interest bearing transaction account. Assuming that the deposit account is a non-interest bearing transaction account, the customer's funds will be fully protected under the transaction account guarantee component of the program.
Are funds that are classified on a bank's general ledger as noninterest-bearing savings accounts covered under the Temporary Liquidity Guarantee Program? If the funds are swept from a noninterest-bearing transaction account to a noninterest-bearing savings account, as defined in Regulation D, the funds will be protected in full under the transaction account component of the program.
With respect to sweep accounts, do banks have to provide disclosures on an on-going basis or is it sufficient that they provide a one-time disclosure to their sweep clients? The disclosure requirements under the transaction account guarantee program are intended to ensure adequate notice to accountholders. The details regarding how to affect such notice are left to depository institutions to be accomplished in a commercially reasonable manner.
So long as effective notice is given, whether it be a one-time disclosure or on-going is left to the institution. For purposes of the sweep in The term "savings deposit" includes an MMDA. Therefore, a "noninterest-bearing savings deposit account" includes a noninterest-bearing MMDA. What if the funds in a guaranteed low-interest NOW account with interest rate no higher than 0. Will the funds lose the benefit of the guarantee?
The FDIC's regulations include the following rule: "[I]n the case of funds swept from a noninterest-bearing transaction account to a noninterest-bearing savings deposit account, the FDIC will treat the swept funds as being in a noninterest-bearing transaction account.
Thus, if the funds are guaranteed prior to the sweep, the funds should be guaranteed after the sweep. This rationale applies with equal force to low-interest NOW accounts with interest rates no higher than 0. The funds in such accounts are guaranteed under the transaction account guarantee program; therefore, the funds should be guaranteed after the sweep assuming that the sweep or reclassification does not change the basic nature of the funds.
This means that the interest rate after the sweep must be no higher than the interest rate before the sweep. Assuming the satisfaction of this requirement, the swept funds will continue to be protected under the transaction account guarantee program. How can an insured depository institution "commit" to maintaining the interest rate on NOW accounts to no more than 0. The regulations do not prescribe a procedure for making this commitment. Therefore, the Board of Directors or other authorized officials can make the commitment in accordance with the institution's usual procedures for making decisions.
In any event, the commitment or decision should be clear and should be reflected in writing, in the institution's books and records, so that no confusion will exist as to the nature of the commitment. Many banks offer NOW accounts with a variable rate of interest that can change at the bank's discretion. In these instances, where rate changes are at the bank's discretion and the current rate being paid is at or below the limit, can those be included in the Temporary Liquidity Guarantee Program TLGP and thus included in the balances on Schedule RC-O?
Banks need to have made a commitment to keep the interest rate at or below 0. There is no automatic coverage if market conditions drive rates on a bank's NOW accounts below the limit. What about NOW accounts with a tiered-rate structure? Or NOW accounts with a fluctuating interest rate?
Will such accounts be covered under the transaction account guarantee program? NOW accounts are not guaranteed under the transaction account guarantee program unless the interest rate is no higher than 0. Further, NOW accounts are not guaranteed unless the insured depository institution "commits" to maintaining the rate at or below 0. These requirements will not be satisfied in the case of a NOW account with a tiered-rate structure or a NOW account with a fluctuating interest rate unless the maximum possible rate is limited to 0.
For example, the deposit contract might provide that 0. If the account is structured in this manner, the entire NOW account product will not be covered under the transaction account guarantee program regardless of the balance of an individual's account. The account will be excluded because the possibility exists for the balance to increase such that the interest rate could rise above 0.
Similarly, the contract might provide that the interest rate shall be tied to an index such as Treasury bill rates. Unless this type of contract provides that the interest rate is capped at 0. Again, the account will be excluded because the possibility exists that the rate will rise above 0.
In summary, these types of NOW accounts will be covered under the transaction account guarantee program only if the provisions of the contract are such that the interest rate cannot exceed 0. What if the interest rate on NOW accounts cannot be lowered to 0. The FDIC's regulations do not set forth a procedure for reducing interest rates. Rather, the FDIC contemplates that the insured depository institution will proceed in accordance with the terms of its deposit contracts and applicable law, including Regulation DD Truth in Savings , 12 C.
Part How will institutions be assessed for the transaction account guarantee part of the Temporary Liquidity Guarantee Program? Institutions will not be assessed on amounts that are otherwise insured. This surcharge will be collected through the normal assessment cycle. After December 31, , those institutions that have not opted out of the first extension will be charged a higher annualized rate according to the institution's risk category:.
Rates will remain the same through the second extension. How will institutions be assessed on noninterest-bearing transaction accounts that have pass-through coverage? As of July 1, , the additional premiums associated with the Transaction Account Guarantee Program will be based upon average daily balance amounts. Previously, these balances were reported on a spot, quarter-end basis. Every institution, regardless of risk category, will be charged its normal quarterly risk-based deposit insurance assessment.
That assessment will equal its assessment rate times its assessment base which is almost equal to total domestic deposits. What will happen if the fees for the Temporary Liquidity Guarantee Program do not cover the cost?
Will there be any cost to the taxpayer? The U. If fees are not enough to cover costs of the program, the difference will be made up through a special assessment on all insured institutions, in accordance with statutory requirements for recovering costs associated with a systemic risk determination.
Will participating entities be subject to any additional reporting requirements to participate in this program? We will leverage existing reporting mechanisms to the FDIC and other primary federal regulators. Separate reporting will be necessary related to the FDIC-guarantee of senior unsecured debt. Assessments under the program will be based upon reports of condition and income Call Report and Thrift Financial Report and will be collected as part of the quarterly collection process for deposit insurance assessments generally.
Failure to properly report or to timely pay assessments under the transaction account guarantee program will subject the institution to enforcement action under section 8 of the Federal Deposit Insurance Act, as well as to civil money penalties for false or inaccurate report of condition and income filings or for late payment of assessments under 12 C.
Entities wishing to participate in the Transaction Account Guarantee Program extension do not need to take any additional action.
Entities are encouraged to coordinate their election decisions with other members of their consolidated groups as all members of a holding company must make the same election with respect to each component of the TLGP and with the extensions.
A decision by one member of a group to opt-out will be irrevocable and binding on all other group members. An entity can opt out of either the senior unsecured debt guarantee part of the program, the transaction account guarantee part of the program, or both. However, all eligible entities within a U. Banking Holding Company or a U. Savings and Loan Holding Company structure must make the same decision regarding continued participation in each component of the program the transaction account guarantee component and the debt guarantee component or none of the members of the holding company structure will be eligible for participation in that component of the program.
Only in one circumstance. In the case of a merger between two eligible entities, the resulting institution will have a one-time option to revoke a prior decision to opt-out. Can one eligible entity opt out while an affiliated entity or parent participates in the Temporary Liquidity Guarantee Program?
All eligible entities within a U. Savings and Loan Holding Company structure must make the same decision regarding continued participation in each component of the program the Transaction Account Guarantee Program component and the Debt Guarantee Program component or none of the members of the holding company structure will be eligible for participation in that component of the program.
Accessing FDIC connect. Liz says. February 12, at am. WiseDoc says. February 17, at pm. Drew says. March 4, at pm. Heather says. July 28, at am. TippY says. September 13, at pm. Michael says. August 21, at pm. Roger Wells says. November 20, at am. I'm Jonathan and I've been sharing my discoveries about money since Father, husband, self-directed investor, financial freedom enthusiast, and perpetual learner.
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