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The Federal Deposit Insurance Corp., or FDIC, has proposed a new regulation to clarify the FDIC-insurance status of deposits made in foreign branches of U.S. banks. The proposed rule states that while these funds can be considered deposits for certain purposes, they are not FDIC-insured.
The rule is intended to protect the FDIC deposit-insurance fund against the uncertain liability it otherwise could face as a deposit insurer for customers of foreign branches of U.S.-based insured depository institutions, according to an FDIC memorandum.
U.S. banks operate through branches in dozens of foreign countries. These branches exist primarily to provide banking, foreign currency and payment services to multinational corporations. Deposits have doubled since 2001 to about $1 trillion, a significant percentage of which is deposited in the United Kingdom, the FDIC said.
Funds deposited in foreign branches of U.S. banks currently aren't considered deposits unless they're payable in the U.S., according to the FDIC statement. However, a recent proposal by a U.K. government authority has made it likely that large U.S. banks will change their deposit agreements to make their U.K. branch deposits payable in both the U.K. and U.S.
In the statement, FDIC Chairman Martin Gruenberg explained that the proposed regulation would allow U.S. banks that have branches in the U.K. to make certain deposits payable in the U.S., without triggering FDIC insurance or restructuring the branches into subsidiaries.
The proposed rule will not affect deposits in overseas military banking facilities. Those facilities are governed by U.S Department of Defense regulations and their deposits will continue to be FDIC-insured to the same extent as they presently are, the FDIC said.
The FDIC insures deposits at 7,181 U.S. banks and savings associations. The agency receives no federal tax dollars, but is funded by insured financial institutions.
The FDIC issued the proposed rule with a 60-day comment period that begins when the rule is published in the Federal Register.
Frank Keating, president of the American Bankers Association, a Washington, D.C.-based trade organization that represents U.S. banks, said in a statement that more time was needed to address the concerns of FDIC and U.K. banking regulators without placing further operational burdens on U.S. financial institutions.
Do you hold deposits in foreign branches of U.S. banks? What do you think of the proposed rule?
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