FDIC INSURANCE DODD-FRANK WORLD CATHERINE LIVINGSTON DIRECTOR FIS REGULATORY ADVISORY SERVICES IN A

Transcription

1 FDIC INSURANCE IN A DODD-FRANK WORLD BY CATHERINE LIVINGSTON DIRECTOR FIS REGULATORY ADVISORY SERVICES

2 FDIC Insurance in a Dodd Frank World Catherine Livingston, Director Introduction Change = Confusion So it is time to re-learn some FDIC insurance rules Today we will cover: Who is insured and for how much What disclosures are required At account opening In your branches For your sweep customers Stored value cards Regulatory changes in the last 2.5 years 2 Introduction Change = Confusion So it is time to re-learn some FDIC insurance rules Today we will cover: Who is insured and for how much What disclosures are required At account opening In your branches For your sweep customers Stored value cards Regulatory changes in the last 2.5 years 3 1

3 Who is Insured? The depositor Always the depositor 4 Categories of Insurance Single/Individual ownership accounts Joint ownership accounts Revocable trust accounts Irrevocable trust accounts Retirement accounts Public unit or government held accounts Accounts held by an agent Accounts of a corporation 5 Single/Individual ownership accounts Only one owner Insured to $250,000 Must be an individual All single ownership accounts of a customer are aggregated for deposit insurance coverage purposes 6 2

4 Joint ownership accounts Two or more account owners Must be individuals All owners reflected on signature card All owners must have equal withdrawal rights A person s interests in joint ownership accounts are aggregated and insured to $250, Permanent Changes Affecting Revocable Trusts Revocable trusts include: Formal (living trust set up as part of estate planning) Informal (POD or ITF) Grantor can revoke the trust or change beneficiaries Trust passes to designated beneficiaries at the death of the grantor Differs from irrevocable trusts which can t be revoked or changed by the grantor once established 8 Revocable Trusts Under the old rules, the amount of insurance coverage for revocable trusts was based on multiplying the SMDIA of $250,000 times the number of qualified beneficiaries Family relationship used to be required to be a qualified beneficiary Under the revised rules a qualified beneficiary now is: Any individual (a real live human being) Any charity Any not-for-profit organization 9 3

5 Coverage Limits Revocable Trust Accounts Five or fewer beneficiaries: SMDIA times the number of qualified beneficiaries Over five qualified beneficiaries: If all share equally then SMDIA times the number of qualified beneficiaries If all do not share equally, coverage is for the greater of: $1,250,000 The aggregate of the interests of all of the beneficiaries provided that no beneficiary is insured for more than $250, Revocable Trust Example Unequal Shares Account Balance $2,000,000 Situation 1: Each Dwarf gets $200,000 and Charming the balance Coverage Result: Seven dwarfs X $200,000 = $1,400,000 plus $250,000 for Charming Total insurance $1,650,000 ($350,000 uninsured balance) Situation 2: Each Dwarf gets $10,000 and Charming the balance Coverage Result: Seven dwarfs times $10, = $70, plus $250,000 for Charming = total of $320,000. But the coverage is the greater of the insured interests or $1,250,000, so the account is covered for $1,250, Revocable trust accounts must be titled as a trust Trust POD, ITF, ATF For informal trusts, institution records must show the identity of the beneficiary 12 4

6 Revocable trust accounts Generally a revocable trust account is insured by the number of grantors multiplied by the number of beneficiaries multiplied by $250,000 Account title must reflect that it is a trust account Do not count contingent beneficiaries but beneficiaries after a life estate are not contingent Insurance coverage aggregates all interests of a beneficiary per grantor 13 Revocable Trust Examples Example #1: Account #1 $200,000 balance Titled: My living trust with spouse as sole beneficiary Account #2 $100,000 balance Titled: Me POD to spouse Combine both accounts of same owner and same beneficiary for insurance coverage and coverage applicable is $250, Revocable Trust Examples Example #2: One account The Livingston Family Living Trust Co-Owners Husband and Wife Beneficiaries Three Children Coverage = 2 owners X 3 beneficiaries X $250,000 Account is insured up to $1,500,

7 Revocable Trusts & Non-Qualifying Beneficiaries Interests of a non-qualifying beneficiary are treated as single ownership accounts of the owner Grantor (owner) POD XYZ Corporation Account is insured to the grantor under single owner rules Grantor POD Child of Grantor and XYZ Corporation Insured to $250,000 based on son s interest with any excess aggregated with any single ownership accounts of grantor 16 Irrevocable trusts All beneficiaries are qualified and insured to $250,000 For requirements The account must be titled as a trust Beneficiaries must be identifiable from institution records or records of the trustee Beneficiaries must have a non-contingent interest The grantor must have retained no interest in the trust 17 Retirement Accounts A person s interest in self-directed retirement funds is insured in the aggregate to $250,000 Coverdale Education Savings Accounts and Health Savings Accounts are not retirement accounts. Insured as revocable trusts. 18 6

8 Retirement Accounts A person s interest in self-directed retirement funds is insured in the aggregate to $250,000 Coverdale Education Savings Accounts and Health Savings Accounts are not retirement accounts. They are insured as revocable trusts 19 Accounts of corporations, partnerships, and unincorporated associations Treated as single ownership accounts and insured to $250,000 The corporation must have an independent activity, not just exist for deposit insurance purpose Operating subsidiary corporations of a parent corporation are insured separately A joint account of two corporations is insured as a single-owner account Accounts of partnerships and associations are insured separately from the accounts of individual partners and members 20 Government accounts Deposit insurance is based on the custodian of the funds in the account Non-interest bearing demand deposit accounts* and interest bearing savings type accounts (including time deposits) are separately insured for $250,000 each All out-of-state deposits are insured in the aggregate for $250,000 * Note that during the duration of the Temporary Liquidity Guaranty Program, banks which participate in the Transaction Account Guaranty portion of the program receive an unlimited guarantee of their noninterest bearing transaction accounts 21 7

9 Funds held for a person in a fiduciary or escrow account are insured as single ownership accounts of the person Aggregated with other single ownership accounts of the person 22 Make sure that customers understand that deposit insurance coverage is not necessarily limited to $250,000 Unless Congress acts to extend it, the current $250,000 coverage will revert back to $100,000 on December 31, Stored Value Cards Revised FDIC s General Counsel s Opinion No. 8 ( GG8 ) Now indicates - all funds underlying a stored value product will be treated as deposits But - Whether the funds are insurable to the holders of the access mechanisms, as opposed to the distributor of the access mechanisms, will depend upon the satisfaction of the FDIC s standard requirements for obtaining pass-through insurance coverage So the card owners, not issuers, are covered if the cards qualify for pass-thru coverage 24 8

10 Pass-thru Coverage Standards The account records of the insured institution must disclose the existence of the agency or custodial relationship The records of the insured depository institution or records maintained by the custodian or other party must disclose the identities of the actual owners and the amount owned by each such owner The funds in the account must be owned (under the agreements among the parties or applicable law) by the purported owners and not by the custodian (or other party) If all three above are not met, no pass thru coverage! 25 FDIC Membership Bank Signs What does it look like? Where do they go? Required in areas where deposits are taken Teller lines, drive thrus, CSR desk Permissible in other areas Remote Service Facilities ATMs, POS terminals, tellers in other facilities FDIC Membership Bank Signs November 2007 rules Can vary sign in color and size for required signs Can t be any smaller than official sign Can t be a rainbow two colors only Must order and pay for yourself Can order official sign from FDICconnect May place signage next to the sign reflecting the insurance increase to $250,000 9

11 Some Recent Changes Turmoil in financial markets = Panicked consumers needed reassurance Significant expansion of FDIC coverage was the answer Confusion no more! Timeline over 2.5 years 28 Two Temporary Changes Temporary increase of the Standard Maximum Deposit Insurance Amount ( SMDIA ) From $100,000 to To $250,000 But only through 12/31/2009 originally Temporarily provide unlimited FDIC guarantee to noninterest-bearing transaction accounts Again only through 12/31/2009 The $250,000 coverage limit increase applies to all insured institutions The unlimited coverage for noninterest-bearing transaction accounts applies only to institutions which did not opt-out of the coverage (TAG Program) Several extensions of both 29 Two Temporary Changes Temporary increase of the Standard Maximum Deposit Insurance Amount ( SMDIA ) Extended through 12/31/2013 Now permanent as of July 21, 2010 New signs, again! The $250,000 coverage limit increase applies to all insured institutions 30 10

12 The TLG Changes Temporary Liquidity Guaranty ( TLG ) program contained two parts One to provide government guarantees to certain financial institution debt (not part of this training session) and The Transaction Account Guaranty ( TAG ) program providing UNLIMITED coverage to certain noninterest-bearing transaction accounts Institutions could opt-out of either or both of the above 31 More on the TAG program Unlimited coverage for noninterest-bearing transaction accounts which include: Non-interest bearing (demand deposit) accounts IOLTAs NOW accounts (if interest is no higher than.50% during the TAG program) 32 NOW Accounts and Interest Rates Negotiable order of withdrawal accounts (NOW accounts) with interest rates no higher than 0.50 percent for which the insured institution has committed to maintain the interest rate at or below 0.50 percent for the duration of the TAG program. Had to commit to keep those qualifying accounts at or below.50% A board resolution or other WRITTEN document required to document that commitment! 33 11

13 Scope of the TAG Guarantee The full guarantee of noninterest-bearing transaction accounts applies to: All forms of account ownership (individual, partnership, corporate, trust) All 8 categories of coverage (individual, joint, retirement, etc.) The fact that the SMDIA limit had already been reached for a category of ownership coverage did not cause funds in a covered noninterest- bearing transaction account to lose its unlimited guarantee. 34 Scope of the TAG Guarantee The full guarantee of noninterest-bearing transaction accounts applies to: All forms of account ownership (individual, partnership, corporate, trust) All 8 categories of coverage (individual, joint, retirement, etc.) The fact that the SMDIA limit has already been reached for a category of ownership coverage will not cause funds in a covered noninterest- bearing transaction account to lose its unlimited guarantee Signage confusion with extensions as changes 35 TAG Extension 2010 Before Dodd-Frank Extended through December 31, 2010 Extension began July 1, 2010 If continuing, needed commitment of.25% Covered accounts could not pay higher interest Board commitment required 36 12

14 The Dodd-Frank Act Changes SMDIA permanently increased to $250,000 on all accounts TAG program successor extended until December 31, 2012 Insurance NOT a guarantee Participation mandatory for all institutions as of January 1, 2011 No opt out permitted New signage required! 37 The Dodd-Frank Act Changes NOW and IOLTA excluded as non-interest bearing even if low rate New signs and notices required Uproar in legal industry IOLTA accounts legislated back in to unlimited coverage Last minute move on December 29, 2010 New signs required!! 38 Dodd-Frank Act Signs NOTICE OF CHANGES IN TEMPORARY FDIC INSURANCE COVERAGE FOR TRANSACTION ACCOUNTS All funds in a "noninterest-bearing transaction account" are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC's general deposit insurance rules. The term "noninterest-bearing transaction account" includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts ("IOLTAs"). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts. For more information about temporary FDIC insurance coverage of transaction accounts, visit ww.fdic.gov

15 New Notice Requirements Notice and signs were required to be delivered/in place by December 31, 2010 General model language provided for posting NOW customers to be notified but no model language We recommend: Beginning January 1, 2011, NOW accounts will no longer be eligible for unlimited FDIC insurance protection. Those accounts will however continue to be provided FDIC insurance protection of at least $250,000 available to depositors under the FDIC s general deposit insurance rules. 40 Other Things that Trigger Disclosures Sweeps which move funds out of fully guaranteed noninterest-bearing transaction accounts Once again, no model language has been provided For any product where insurance coverage changes When Regulation Q disappears and you start paying interest 41 FAQs on Other Things that Trigger Dodd- Frank Disclosures FAQs to be found at: What is a sweep account? Pre-arranged automated, daily recurring funds transfers Target balance sweeps Reserve sweeps Excluded Non-automated customer-initiated transfers Not covered under sweeps for this notice Sweeps from an interest bearing account into a non-deposit investment product But other disclosure required 42 14

16 Non-Deposit Sweep Accounts Rule effective January 22, 2009 In final rules Must disclose Whether swept funds are deposits If not deposits, what status would depositor have as a creditor If funds are moved externally, funds may not be moved at all and how funds would be treated Annual notice Original notice within 60 days of July 1, 2009 Model language None provided Contact legal counsel for help 43 Non-Deposit Sweep Accounts Rule effective January 22, 2009 In final rules Must disclose Whether swept funds are deposits If not deposits, what status would depositor have as a creditor If funds are moved externally, funds may not be moved at all and how funds would be treated Annual notice Original notice within 60 days of July 1, 2009 Model language None provided Contact legal counsel for help 44 Resources for You FDIC s deposit insurance information: FDIC s regulations on deposit insurance coverage: SMDIA increase: Dodd-Frank unlimited coverage program : Coverage, Disclosure, and Regulatory Reporting Revisions for Interest on Lawyers Trust Accounts (IOLTAs): FDIC s FAQs - Sweep disclosures: Proposed rule on training:

17 Thank you! 46 16