FDIC Finalizes Depositor Preference Rule

FDIC UK PRA

On September 10, the FDIC approved a final rule to clarify that deposits in foreign branches of U.S. banks are not insured. The impetus for the rule was the U.K. Prudential Regulation Authority’s (PRA) (formerly the Financial Services Authority) proposal 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 PRA 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 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 will not be insured, they can be treated as deposits for purposes of national depositor preference laws. The rule will not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. The rule takes effect 30 days from publication in the Federal Register.