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Financial Services Law Insights and Observations

FDIC Proposes Amended Definition of Insured Deposits


Consumer Finance

On February 12, the FDIC approved a proposed rule that would amend its deposit insurance regulations to clarify that deposits in foreign branches of U.S. banks are not FDIC-insured. The U.K. Financial Services Authority (FSA) has proposed a rule to prohibit banks from non-European Economic Area countries from operating deposit-taking branches in the U.K. unless U.K. depositors in such branches would be on an equal footing in the national depositor preference regime with home-country (uninsured) depositors if a bank were to fail and require a resolution. The FDIC believes that U.S. banks seeking to comply with the FSA proposal likely will change their U.K. deposit agreements so that the deposits are payable both in the U.K. and in the U.S. The proposed FDIC rule is intended to protect the Deposit Insurance Fund against the potential resulting liability that the FDIC could face as a deposit insurer for customers of foreign branches of U.S.-based insured depository institutions. While deposits at foreign branches of U.S. banks would not be insured, they could be treated as deposits for purposes of national depositor preference laws. The proposed rule would not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. The FDIC is seeking comment on all aspects of the proposal within 60 days of its publication in the Federal Register.