[Federal Register Volume 78, Number 178 (Friday, September 13, 2013)]
[Rules and Regulations]
[Pages 56583-56589]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22340]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 78, No. 178 / Friday, September 13, 2013 / 
Rules and Regulations

[[Page 56583]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AE00


Deposit Insurance Regulations; Definition of Insured Deposit

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule (``Final Rule'') that amends 
its deposit insurance regulations with respect to deposits in foreign 
branches of U.S. insured depository institutions (``IDI'' or ``U.S. 
bank''). The Final Rule clarifies that deposits in branches of U.S. 
banks located outside the United States are not FDIC-insured deposits. 
This would be the case even if they are also payable at an office 
within the United States (``dual payability''). As discussed further 
below, a pending proposal by the United Kingdom's Prudential Regulation 
Authority (``U.K. PRA''), formerly known as the Financial Services 
Authority, has made it more likely that large U.S. banks will change 
their U.K. foreign branch deposit agreements to make their U.K. 
deposits payable both in the United Kingdom and the United States. This 
action has the potential to expose the Deposit Insurance Fund (``DIF'') 
to expanded deposit insurance liability and create operational 
complexities if these types of deposits were treated as insured. The 
purpose of the Final Rule is to protect the DIF against the liability 
that it would otherwise face as a potential global deposit insurer, 
preserve confidence in the FDIC deposit insurance system, and ensure 
that the FDIC can effectively carry out its critical deposit insurance 
functions.

DATES: The effective date of the Final Rule is October 15, 2013.

FOR FURTHER INFORMATION CONTACT: F. Angus Tarpley III, Supervisory 
Counsel, Legal Division, (202) 898-6646; Catherine Ribnick, Counsel, 
Legal Division, (202) 898-6803; Matthew Green, Associate Director, 
Division of Insurance and Research, (202) 898-3670.

SUPPLEMENTARY INFORMATION: 

I. Background

    Congress created the FDIC in 1933 to end the banking crisis 
experienced during the Great Depression, to maintain stability and 
public confidence in the nation's financial system, and to safeguard 
bank deposits through deposit insurance. If a bank fails, the FDIC pays 
out deposit insurance from the DIF, which is funded by assessments on 
IDIs. In the most recent financial crisis, the FDIC's deposit insurance 
guarantee, with its backing by the full faith and credit of the United 
States Government, contributed significantly to financial stability in 
an otherwise unstable financial environment. In the FDIC's history, no 
depositor has ever lost a penny of an insured deposit.
    The Federal Deposit Insurance Act (``FDI Act'') \1\ mandates the 
payment of deposit insurance ``as soon as possible'' to reduce the 
economic disruptions caused by bank failures and to preserve stability 
in the financial markets of the United States.\2\ The FDIC generally 
pays out deposit insurance on the next business day after a bank 
failure, and insured depositors often have uninterrupted access to 
their insured deposits through ATMs and other means. The prompt payment 
of deposit insurance preserves confidence in the deposit insurance 
system and promotes financial stability. Prompt payment depends on a 
number of key factors, including the FDICs having immediate access to 
the deposit records of a failed bank and clarity about the application 
of laws and practices that could affect deposits in a particular 
location.
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    \1\ 12 U.S.C. 1811, et seq.
    \2\ See FDI Act section 11(f)(1), 12 U.S.C. 1821(f)(1).
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A. Definition of ``Deposit''

    The term ``deposit'' is defined in section 3(l) of the FDI Act.\3\ 
Since the establishment of the FDIC in 1933, Congress has made 
distinctions between domestic and foreign deposits. The current 
statutory definition of ``deposit'' under section 3(l) makes clear that 
foreign branch deposits are not ``deposits'' for any purpose under the 
FDI Act, except under certain prescribed circumstances. In relevant 
part, the law specifies that ``any obligation of a depository 
institution which is carried on the books and records of an office of 
such bank or savings association located outside of any State'' shall 
not be a deposit for any of the purposes of the FDI Act or be included 
as part of the total deposits or of an insured deposit, ``unless--(i) 
such obligation would be a deposit if it were carried on the books and 
records of the depository institution, and would be payable at, an 
office located in any State; and (ii) the contract evidencing the 
obligation provides by express terms, and not by implication, for 
payment at an office of the depository institution located in any 
State.'' \4\
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    \3\ 12 U.S.C. 1813(l).
    \4\ FDI Act section 3(l)(5), 12 U.S.C. 1813(l)(5).
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    Therefore, deposit obligations carried on the books and records of 
a foreign branch of a U.S. bank that would otherwise fall within one of 
the categories of deposits created by section 3(l) are not deposits 
unless they (1) would be deposits if carried on the books and records 
of the IDI in the United States and (2) are expressly payable in the 
United States.\5\
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    \5\ Id. The FDI Act provides that the FDIC Board may prescribe a 
deposit by regulation.
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    The vast majority of deposit agreements governing relationships 
between U.S. banks and their foreign branch depositors have to date not 
expressly provided for payment of foreign branch deposits at an office 
in the United States. Accordingly, these foreign branch deposits would 
not qualify as ``deposits'' for any purpose under the FDI Act, 
including deposit insurance and the priority regime for the 
distribution of a failed bank's receivership assets, known as 
``depositor preference,'' as further discussed below. While ``deposit'' 
has a defined legal meaning under the FDI Act, for ease of reference, 
these obligations in foreign branches will generally be called 
``foreign branch deposits'' in this Final Rule.

B. National Depositor Preference

    When a U.S. bank fails, uninsured depositors share in the proceeds 
from the liquidation of the failed bank's

[[Page 56584]]

assets. In 1993, Congress amended the FDI Act to establish a system of 
depositor preference in failed-bank resolutions.\6\ In general, 
``depositor preference'' refers to a resolution distribution regime in 
which the claims of depositors have priority over (that is, are 
satisfied before) the claims of general unsecured creditors.
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    \6\ Omnibus Budget Reconciliation Act of 1993, Public Law 103-
66, 107 Stat. 312.
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    Under this regime, set forth in section 11(d)(11) of the FDI Act, 
the receiver of a failed bank distributes amounts realized from its 
liquidation to pay claims in the following order of priority.\7\ 
Administrative expenses of the receiver are reimbursed first.\8\ Any 
``deposit liability'' is reimbursed next, followed in order by general 
or senior liabilities, subordinated liabilities, and obligations to 
shareholders. The term ``deposit liability'' in section 11(d)(11) is 
not defined.
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    \7\ 12 U.S.C. 1821(d)(11).
    \8\ Secured creditors' claims are satisfied to the extent of 
their security.
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C. The 1994 Advisory Opinion

    Shortly after Congress added the national depositor preference 
provisions, the FDIC's Acting General Counsel was asked whether the 
term ``deposit liability'' would include deposit obligations payable 
solely at a foreign branch of a U.S. bank.\9\ As described in the 
Acting General Counsel's 1994 Advisory Opinion (``General Counsel 
Advisory Opinion 94-1''), national depositor preference makes general 
unsecured creditor claims subordinate to any ``deposit liability'' of 
the institution. General Counsel Advisory Opinion 94-1 concluded that 
the term ``deposit liability'' should be defined with reference to 
``deposit'' under section 3(l) of the FDI Act, which excluded, for any 
purpose, any obligation of a bank payable only at an office of that 
bank located outside the United States.\10\
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    \9\ See FDIC Advisory Opinion 94-1, Letter of Acting General 
Counsel Douglas H. Jones (Feb. 28, 1994).
    \10\ Section 3(l) was later amended to specify that an 
obligation carried on the books and records of a foreign office of a 
U.S. bank would not be a ``deposit'' for any purpose unless it were 
payable at an office located in the United States and the contract 
evidencing the obligation expressly provided for such payment and 
met other criteria. Riegle Community Development and Regulatory 
Improvement Act, Public Law 103-325 (1994), section 326(b)(2).
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    Under the interpretation set forth in General Counsel Advisory 
Opinion 94-1, ``deposit liability'' for purposes of national depositor 
preference includes only deposits payable in the United States and 
excludes obligations payable solely at a foreign branch of a U.S. bank. 
Accordingly, an obligation in a foreign branch of a U.S. bank has not 
been considered a ``deposit liability'' for purposes of the national 
depositor preference provisions of section 11(d)(11) of the FDI Act. 
Thus, if a U.S. bank were to fail, its foreign branch depositors would 
share in the distribution of the bank's liquidated assets as general 
creditors after the claims of uninsured domestic depositors and the 
FDIC as subrogee of insured depositors have been satisfied.\11\ If a 
foreign branch deposit of a U.S. bank were expressly payable at an 
office of the bank in the United States, however, that deposit would be 
treated equally with uninsured domestic deposits in the depositor 
preference regime.
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    \11\ While section 41 of the FDI Act, 12 U.S.C. 1831r, generally 
prohibits the FDIC in its corporate capacity and other agencies from 
making any payment that would satisfy any claim against a bank for 
foreign branch deposits, the FDIC as receiver of a failed bank may 
make payments from the receivership estate to satisfy such claims.
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D. Foreign Branch Deposits of U.S. Banks

    Many U.S. banks currently operate through branches in foreign 
countries, often to provide banking, foreign currency and payment 
services to multinational corporations. Foreign branch deposits have 
doubled since 2001 and total approximately $1 trillion today. In many 
cases, these branches do not engage in retail deposit taking or other 
retail banking services. Often, their typical depositors are large 
businesses that choose to bank in a foreign branch of a U.S. bank under 
deposit agreements governed by non-U.S. law to take advantage of a 
large bank's multi-country branch network, which allows the transfer of 
funds to and from branch offices located in different countries and in 
different time zones.
    Currently, the overwhelming majority of the foreign branch deposits 
of U.S. banks are payable only outside the United States. In the past, 
making deposits in foreign branches dually payable would have been 
costly to U.S. banks for several reasons. First, dually payable 
deposits would have increased a bank's deposit insurance assessment 
base (which, in the past, excluded deposits payable solely outside the 
United States) and, therefore, its deposit insurance assessment. 
Second, the dually payable deposits would have become subject to the 
Federal Reserve's Regulation D.\12\ Third, U.S. banks may have 
refrained from making foreign deposits dually payable out of concern 
that doing so could cause them to lose the protection from sovereign 
risk accorded them under section 25(c) of the Federal Reserve Act.\13\
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    \12\ 12 CFR Part 204. Regulation D imposes uniform reserve 
requirements on all depository institutions with transaction 
accounts or non-personal time deposits.
    \13\ 12 U.S.C. 633. This section provides that a member bank is 
not required to repay a deposit in a foreign branch if it cannot do 
so because of ``war, insurrection, or civil strife'' or actions 
taken by the foreign government, unless the member bank has 
explicitly agreed in writing to repay foreign deposits in such 
circumstances.
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    Recent events have reduced the cost of making foreign deposits 
dually payable. First, in section 331(b) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act,\14\ Congress changed the deposit 
insurance assessment base so that it now in effect covers all 
liabilities, including foreign branch deposits. Thus, a U.S. bank's use 
of dual payability would no longer increase a bank's assessment base or 
deposit insurance assessment. Second, the Federal Reserve now pays 
interest on reserves and allows more flexibility with respect to the 
reserves it requires. Finally, as discussed below, nothing in this 
Final Rule is intended to preclude a U.S. bank from protecting itself 
against sovereign risk.
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    \14\ Public Law 111-203, 124 Stat. 1538.
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E. The U.K. PRA Consultation Paper

    In September 2012, the U.K. PRA published a Consultation Paper 
addressing the implications of national depositor preference regimes in 
countries outside the European Economic Area (``EEA''). The 
Consultation Paper proposes to prohibit banks from non-EEA countries, 
including U.S. banks, from operating deposit-taking branches in the 
United Kingdom unless U.K. depositors in those branches would be on an 
equal footing in the national depositor preference regime with domestic 
(uninsured) depositors in a failure resolution of the bank. A 
significant percentage of foreign branch deposits of U.S. banks are 
located in the United Kingdom and would be subject to this requirement.
    The Consultation Paper proposes several options to ensure that 
depositors in U.K. branches would be treated equally in the event of a 
multinational bank's resolution. U.S. banks with branches in the United 
Kingdom could comply in one of these ways. First, the U.S. bank could 
accept deposits in the United Kingdom using a U.K.-incorporated 
subsidiary. Second, U.S. banks could create a trust arrangement to 
segregate assets of the U.K. branch to meet its deposit liabilities, 
under which the trust would specify the U.K. branch depositors as 
beneficiaries of the trust.

[[Page 56585]]

Third, U.S. banks could take other actions to comply, such as making 
their U.K. deposits payable both in the United States and in the United 
Kingdom. The Consultation Paper indicates that dual payability should 
allow U.K. depositors to participate in the preference given to home 
country (that is, United States) depositors in the resolution of a U.S. 
bank. The U.K. PRA is still considering comments on the Consultation 
Paper and has not provided a date by which the requirements proposed in 
the Consultation Paper will be implemented.

F. Notice of Proposed Rulemaking

    In light of the U.K. PRA's proposal and subsequent action required 
of U.S. banks with branches in the United Kingdom, the FDIC proposed to 
amend its deposit insurance regulations with respect to deposits 
payable in branches of U.S. banks located outside the United States. On 
February 19, 2013, the FDIC published in the Federal Register and 
invited public comment on a Notice of Proposed Rulemaking: Deposit 
Insurance Regulations; Definition of Insured Deposit (the ``Proposed 
Rule'').\15\ The Proposed Rule proposed to amend the FDIC's deposit 
insurance regulations to clarify that deposits in foreign branches of 
U.S. banks are not FDIC-insured deposits. The FDIC is now adopting as 
final the proposed amendments to its deposit insurance regulations, 12 
CFR 330.3(e), with minor technical changes.
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    \15\ 78 FR 11604 (February 19, 2013).
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II. Statutory Framework

A. Definition of ``Insured Deposit''

    The Final Rule clarifies that foreign branch deposits are not 
insured deposits for purposes of the FDI Act, regardless of the 
location at which the deposit is payable. The FDI Act defines ``insured 
deposit'' as the net amount due any depositor for deposits in an 
insured depository institution as determined under section 11(a) of the 
FDI Act.\16\ Section 11(a) of the FDI Act,\17\ cross-referenced in the 
definition of ``insured deposit,'' instructs the FDIC to ``insure the 
deposits of all insured depository institutions as provided in this 
Act,'' but does not expressly address foreign deposits. The FDI Act 
definition of ``deposit'' in section 3(l)(5)(A) makes clear that 
obligations carried on the books and records of an office located 
outside the United States shall not be deposits for any purpose under 
the FDI Act, but it does not address whether they must be considered 
deposits for all purposes, including for purposes of deposit insurance, 
if they would qualify as deposits under 3(l)(5)(A) because they are 
payable at an office within the United States under express contractual 
terms.
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    \16\ FDI Act section 3(m)(1), 12 U.S.C. 1813(m)(1).
    \17\ 12 U.S.C. 1821(a).
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B. Rulemaking Authority

    The FDIC issues rules and regulations necessary to carry out the 
statutory mandates of the FDI Act and other laws that the FDIC is 
charged with administering or enforcing. In instances such as this one 
where a statute is silent or general in nature on issues critical to 
the FDIC's fundamental responsibilities, the FDIC has used its 
rulemaking authority to effectuate its statutory duties.
    Providing deposit insurance to IDIs and maintaining public 
confidence in the banking system through deposit insurance in the event 
of a U.S. bank's insolvency are two central functions of the FDIC. In 
order to permit the FDIC to carry out these functions successfully, the 
FDIC is authorized to undertake rulemaking to implement the FDI Act 
effectively, particularly with respect to its deposit insurance 
functions. The FDI Act gives the FDIC explicit rulemaking and 
definitional authorities to ensure that it can adapt to changed 
circumstances as necessary to carry out its deposit insurance 
responsibilities.
    The FDI Act contains several provisions granting the FDIC authority 
to issue regulations to carry out its core functions and 
responsibilities, which include the duty ``to insure the deposits of 
all insured depository institutions.'' Notably, FDI Act section 
11(d)(4)(B)(iv) authorizes the FDIC to promulgate ``such regulations as 
may be necessary to assure that the requirements of this section [FDI 
Act section 11, which addresses, in section 11(f) the payment of 
deposit insurance] can be implemented with respect to each insured 
depository institution in the event of its insolvency.'' \18\
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    \18\ 12 U.S.C. 1821(d)(4)(B)(iv).
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    Other grants of FDIC rulemaking authority can be found in FDI Act 
section 9(a)(Tenth) (authorizing the FDIC Board to prescribe ``such 
rules and regulations as it may deem necessary to carry out the 
provisions of this chapter . . . '') and FDI Act section 10(g) 
(authorizing the FDIC to ``prescribe regulations'' and ``to define 
terms as necessary to carry out'' the FDI Act).\19\
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    \19\ 12 U.S.C. 1819(a)(Tenth); 1820(g).
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III. Summary of Comments in Response to Proposed Rule

    As noted above, the FDIC solicited public comment on the Proposed 
Rule on February 19, 2013. The comment period ended on April 22, 2013. 
The FDIC received comments from three industry groups and two 
individuals in response to the Proposed Rule. After careful 
consideration of the comments, the FDIC is adopting the Proposed Rule 
as final, with technical format changes.

A. Comments in Response to Proposed Rule

    Overall, commenters did not object to the concept that foreign 
branch deposits are not insured, as clarified in the Proposed Rule. One 
individual acknowledged that the Proposed Rule would limit the DIF's 
exposure, but argued that it would adversely affect public relations. 
The commenter suggested that foreign deposits be insured up to the 
domestic limit, with U.S. banks with foreign branches paying double 
their current assessments in order to strengthen the DIF. However, the 
FDIC believes that it is inconsistent with congressional intent and the 
FDIC's statutory mandate of promoting confidence in the U.S. banking 
system to insure foreign deposits in the manner the commenter proposed. 
The FDIC believes that the better approach is to make clear that 
foreign branch deposits, whether or not deposit liabilities for the 
purpose of national depositor preference, are not ``insured deposits.''
    Commenters did not object to the Proposed Rule itself, but most of 
the commenters raised several issues related to risks they assert would 
result if U.S. banks employed dual payability to satisfy the U.K. PRA 
requirement to treat domestic and foreign branch deposits equally. 
These commenters advocated an alternative approach, which they believe 
would better address their concerns. The FDIC has carefully considered 
their comments and discusses them below.

B. Section 11(d)(11) Approach

    Instead of adopting the FDIC's Proposed Rule, the commenters 
suggested that the FDIC formally interpret ``deposit liability'' for 
purposes of the depositor preference regime in section 11(d)(11) of the 
FDI Act, to include all deposits of a U.S. bank, wherever payable (the 
``section 11(d)(11) approach''). According to the commenters, this 
alternative would achieve the result of equal treatment of uninsured 
domestic deposits and foreign branch deposits in the event of a U.S. 
bank's resolution without

[[Page 56586]]

creating global liability for the DIF. They also argued that this would 
eliminate the risk of litigation over depositor preference, as well as 
reduce the risk of litigation by foreign depositors over deposit 
insurance because banks would be less likely to employ dual payability. 
Alternatively, commenters suggested a ``combined approach'' in which a 
formal interpretation of ``deposit liability'' could be issued in 
addition to a rule clarifying that deposits in foreign branches are not 
insured, even if they are also payable at a U.S. branch.
    The commenters acknowledged that the proposed alternative would 
contradict FDIC General Counsel Advisory Opinion 94-1, but they argued 
that their interpretation of ``deposit liability'' is supported by the 
plain meaning of the term deposit liability, its uses elsewhere in the 
FDI Act, legislative history, and reference to state law priority 
regimes. They further argued that the depositor preference provision in 
the FDI Act does not distinguish among depositors because it accords 
priority to any ``deposit liability.''
    Commenters argued that the term ``deposit liability'' in the FDI 
Act should not be bound by the Act's definition of ``deposit.'' They 
cite to a canon of statutory construction that suggests that where 
Congress chooses to use two different terms, they are intended to have 
two different meanings. Commenters argued that the term ``deposit 
liability'' is used elsewhere in the FDI Act to suggest a broader 
definition than the term ``deposit,'' from which foreign deposit 
obligations are excluded. They contended that there is legislative 
history supporting the notion that Congress did not intend to 
distinguish between foreign and domestic depositors under the depositor 
preference provisions of the FDI Act. In particular, these commenters 
pointed to congressional committees which used broad and general 
language to describe depositor preference. Moreover, the commenters 
suggested that Congress intended to follow state depositor preference 
statutes, and that one of these states specifically included foreign 
branch deposits in its depositor preference statute, while the majority 
of other states with depositor preference statutes did not refer to 
foreign deposits specifically, but referred to deposits in a broad and 
general manner.
    From a practical standpoint, several commenters noted that the 
section (11)(d)(11) approach is also consistent with current bank 
reporting requirements. For instance, deposit liabilities on a bank's 
balance sheet would include all deposits, domestic and foreign. 
Similarly, the general instructions for Schedule RC-E to the 
Consolidated Reports of Condition and Income (``Call Report''), which 
all insured depository institutions must file, refer to both domestic 
and foreign branch deposits as ``deposit liabilities.'' The Call Report 
also requires foreign deposits to be reported as ``deposit 
liabilities.''
    According to these commenters, the approach of reinterpreting 
``deposit liability'' as used in section 11(d)(11) not only bolsters 
international cooperation, but also eliminates the potential for 
inconsistent treatment of deposits in different foreign jurisdictions. 
They argued that the section 11(d)(11) approach would be compatible 
with the FSB's Key Attributes and the most recent draft of the European 
Commission's proposed Resolution and Recovery Directive. It would also 
eliminate potential risks and costs to the FDIC and the ongoing need 
for guidance to banks, foreign depositors, and foreign regulators on 
how dual payability would work.
    Ultimately, commenters argued that the section 11(d)(11) approach 
would better address industry concerns about ensuring equal treatment 
of depositors under the U.S. depositor preference regime in a 
liquidation than if U.S. banks were to change their deposit agreements 
to make foreign branch deposits dually payable. The commenters 
contended that the FDIC would be justified in changing its previous 
position, set forth in General Counsel Advisory Opinion 94-1, by 
adopting their proposed approach under section 11(d)(11) of the FDI 
Act. According to the commenters, General Counsel Advisory Opinion 94-1 
reached its conclusion without sufficient substantive discussion. 
Furthermore, they noted that General Counsel Advisory Opinion 94-1 was 
not a binding interpretation approved by the FDIC Board of Directors 
and would therefore not be entitled to significant deference.
    The FDIC believes that formally interpreting ``deposit liability'' 
as the commenters proposed would be inconsistent with current statutory 
language, and as commenters acknowledged, would overturn a longstanding 
Advisory Opinion. General Counsel Advisory Opinion 94-1 is based on a 
reasonable interpretation of the FDI Act. While the term ``deposit 
liability'' is not defined in the FDI Act, the definition of 
``deposit'' under section 3(l) explicitly refers to the term ``deposit 
liabilities.'' In addition, the legislative history of the depositor 
preference provision does not define ``deposit liability'' under 
section 11(d)(11) and does not explicitly include foreign branch 
deposits in the class of depositors who are entitled to depositor 
preference.\20\ The FDI Act does allow a deposit in a foreign branch of 
a U.S. bank to receive depositor preference, but only under the 
circumstances specifically stated in the statute; that is, the deposit 
must be dually payable.
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    \20\ See House Budget Committee Report, H.R. Rep. No. 103-111, 
103rd Cong., 1st Sess. 1993 at 87, 1993 U.S.C.C.A.N. 378, 462 (May 
25, 1993).
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C. Comments Relating to Dual Payability

    The commenters also presented a number of arguments related to the 
negative consequences that would result if they employ dual payability, 
in support of their proposed alternative approach. These arguments 
include contentions that:
     In the future, other foreign financial regulators might 
not allow banks to use dual payability as an acceptable means to ensure 
equal treatment of domestic and foreign branch deposits.
     The Proposed Rule would weaken efforts to facilitate 
international cooperation for cross-border resolution.
     It is unclear whether a U.S. bank with foreign branches 
would retain the protections of section 25C of the Federal Reserve Act 
on its dually payable deposits.
     Bank resolutions would become more complex and burdensome 
for the FDIC under the Proposed Rule if U.S. banks made deposits dually 
payable.
     Banks would incur significant operational and 
administrative expenses if they employed dual payability to satisfy the 
U.K. PRA.
     Both retail customers and multinational corporate 
depositors would also be confused about changes to their deposit 
contracts and the implications of dually payable deposits.
    Finally, some commenters argued that the section 11(d)(11) approach 
would eliminate the litigation risk to the FDIC that they believe could 
occur under the Proposed Rule. The commenters contended that the terms 
``deposit'' and ``insured deposit'' are equivalent. Under this 
interpretation, a dually payable foreign branch deposit would also be 
an ``insured deposit'' under section 3(m).\21\
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    \21\ 12 U.S.C. 1813(m).
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    The FDIC is cognizant of the fact that the industry considers dual 
payability and the other options that the U.K. PRA suggested for 
compliance with the Consultation Paper to be undesirable for a variety 
of reasons. Without expressing

[[Page 56587]]

an opinion as to the merits of the commenters' various policy arguments 
in support of the section 11(d)(11) approach, the FDIC believes that 
their proposed approach is inconsistent with current statutory 
language, as discussed above. However, the FDIC does have authority to 
adopt this Final Rule. The FDIC is authorized under the FDI Act to 
issue regulations and has used its rulemaking authority in the past to 
address the conditions under which it will insure deposits and believes 
it may use that authority in a similar manner to address the insurance 
status of foreign branch deposits.\22\ Ultimately, the Final Rule only 
clarifies that foreign branch deposits are not insured, a concept to 
which commenters were not opposed. The Final Rule does not affect the 
ability to employ dual payability to comply with the U.K. PRA, which is 
an option under current law for U.S. banks.
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    \22\ FDI Act sections 11(d)(4)(B)(iv), 12 U.S.C. 
1821(d)(4)(B)(iv); 9(a)(Tenth), 12 U.S.C. 1819(a)(Tenth); 10(g), 12 
U.S.C. 1820(g); see, e.g., Unlimited Coverage for Noninterest-
Bearing Transaction Accounts, 75 FR 69577 (Nov. 15, 2010) (codified 
at 12 CFR part 330); Permanent Increase in Standard Coverage Amount, 
75 FR 49363 (Aug. 10, 2010) (codified at 12 CFR part 330).
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D. Other Comments

    The FDIC sought comment on whether it should consider another 
option that would not entirely preclude deposit insurance for dually 
payable deposits, but only if enumerated conditions designed to protect 
the DIF and facilitate deposit insurance determinations were satisfied. 
The FDIC did not receive any comments addressing this alternative.
    The FDIC also requested comment on the Proposed Rule's effect on 
deposits at Overseas Military Banking Facilities located on Department 
of Defense installations or similar facilities or programs authorized 
under Federal statute. The FDIC did not receive any comments in 
response to this request.
    While not a formal comment in response to the Proposed Rule, the 
FDIC received an inquiry on the deposit insurance status of a former 
member of the Trust Territory of the Pacific Islands.

IV. Description of the Final Rule

A. Overview

    The Final Rule amends the deposit insurance regulations, 12 CFR 
330.3(e), as they relate to deposits payable outside of the United 
States. The Final Rule states explicitly that an obligation of an IDI 
that is carried on the books and records of a foreign branch of a U.S. 
bank shall not be an insured deposit for the purposes of the deposit 
insurance regulations, even if the obligation is also payable at an 
office within the United States. This ensures that the FDIC will be 
able to fulfill its statutory mission and protect the DIF from 
potential global liability.
    The Final Rule would not affect the ability of a U.S. bank to make 
a foreign deposit dually payable. Should a bank do so, its foreign 
branch deposits would be treated as deposit liabilities under the FDI 
Act's depositor preference regime in the same way as, and on an equal 
footing with, domestic uninsured deposits.
    The Final Rule clarifies that it does not affect the operation of 
Overseas Military Banking Facilities operated under Department of 
Defense regulations, 32 CFR Parts 230 and 231, or similar facilities 
authorized under Federal statute. These types of facilities are 
established under statutory authority, separate from State or Federal 
laws that govern the broader banking industry, for the benefit of 
specific U.S. persons. These include active duty and reserve U.S. 
military personnel, Department of Defense U.S. civilian employees, and 
U.S. employees of other U.S. government departments stationed abroad. 
Consistent with this approach, an U.S. Overseas Military Banking 
Facility located in a foreign country has been treated as a domestic 
office for purposes of the Call Report. Accordingly, deposits placed at 
these facilities overseas would not be affected by this Final Rule and 
would continue to receive FDIC deposit insurance if they meet the 
definition of ``deposit'' in section 3(l) of the FDI Act.\23\
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 1813(l); see FDIC Advisory Opinion 96-6, Letter 
of Assistant General Counsel Alan J. Kaplan (Mar. 5, 1996).
---------------------------------------------------------------------------

    As noted above, the FDIC received an inquiry about the intended 
effect of the Proposed Rule on one of the former members of the Trust 
Territory of the Pacific Islands. The Final Rule is not intended to 
affect the status of insured deposits, if any, in depository 
institutions located in any of the former members.\24\
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    \24\ Micronesia, the Marshall Islands, and Palau, formerly among 
the members of the Trust Territory of the Pacific Islands, are 
independent countries. The FDI Act refers to the Trust Territory of 
the Pacific Islands, but the trusteeship of its former members has 
been terminated. See section 3(a)(3), 12 U.S.C. 1813(a)(3).
---------------------------------------------------------------------------

    The Final Rule also makes a technical change in section 330.3(e) to 
streamline the regulation by incorporating the definition of ``State'' 
under the FDI Act.\25\
---------------------------------------------------------------------------

    \25\ Id. The term ``State'' means any State of the United 
States, the District of Columbia, any territory of the United 
States, Puerto Rico, Guam, American Samoa, the Trust Territory of 
the Pacific Islands, the Virgin Islands, and the Northern Mariana 
Islands.
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B. Objective of the Final Rule

    The Final Rule addresses several key concerns: (1) Maintaining 
public confidence in the nation's financial system; (2) protecting the 
DIF; (3) ensuring that, in the event of a U.S. bank's insolvency, the 
FDIC is in a position to effectively administer deposit insurance 
payments; and (4) addressing global financial issues of importance to 
the deposit insurance system and the banking public.
    The goal of the Final Rule is to ensure that the FDIC can carry out 
its mandate to provide deposit insurance and to protect the DIF. Absent 
this rulemaking, the extension of deposit insurance to foreign branch 
deposits could potentially compromise the DIF, and by implication, the 
U.S. Government, which provides a full faith and credit backing to the 
deposit insurance guarantee. This threat is aggravated by the higher 
deposit insurance limits the FDIC provides in contrast with the deposit 
insurance systems of many other countries. There is no indication that 
Congress ever intended the DIF to have global liability.
    Moreover, by its very nature, performing a deposit insurance 
determination for deposits in foreign branches could compromise the 
FDIC's ability to make timely deposit insurance payments. The FDI Act 
directs the FDIC to pay deposit insurance ``as soon as possible.'' \26\ 
The FDIC usually makes this prompt payment by the next business day 
after a closing, and the timely payment of deposit insurance plays a 
key role in promoting depositor confidence in the U.S. deposit 
insurance system and stability in the banking industry.
---------------------------------------------------------------------------

    \26\ Section 11(f)(1), 12 U.S.C. 1821(f)(1).
---------------------------------------------------------------------------

    The FDIC would likely face obstacles in trying to satisfy this 
statutory obligation when dealing with deposits in foreign branches. 
These challenges could include interference with the FDIC's prompt and 
unfettered access to books and records of the foreign branch and being 
forced to deal with the impact of the local law applicable to the 
branch, including the appropriate role of the foreign jurisdiction's 
regulatory authorities. In an extreme case, for example, FDIC 
representatives might be unable to obtain visas or other travel permits 
to enter the foreign jurisdiction. Even if full access to the foreign 
branch's premises and deposit records were provided to the FDIC, access 
could be delayed for an indeterminate period of time. Further, 
operational issues could not only impede the FDIC's prompt payment of 
deposit insurance to

[[Page 56588]]

depositors of foreign branches of failed U.S. banks, but could also 
aggravate a financial crisis that transcends national borders.

C. Section-by-Section Analysis of the Final Rule

    The Final Rule makes three changes to the deposit insurance rules. 
First, it adds to the current list of authorities two additional 
statutory references: FDI Act section 10(g) and FDI Act section 
11(d).\27\ Next, the Final Rule amends the definition of ``insured 
deposit'' in section 330.1(i) of Part 330 to add the phrase ``and this 
part'' to the existing definition.
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 1820(g); 12 U.S.C. 1821(d).
---------------------------------------------------------------------------

    Lastly, in section 330.3(e), which deals with ``General 
Principles,'' the Final Rule amends the existing text relating to 
``Deposits payable solely outside of the United States and certain 
other locations.'' The Final Rule strikes ``solely'' from the 
subsection heading and makes the existing text the first of three 
paragraphs. The Final Rule also makes a technical change to the 
existing text by substituting ``any State'' for ``the States of the 
United States, the District of Columbia, Puerto Rico, Guam, the 
Commonwealth of the Northern Mariana Islands, American Samoa, the Trust 
Territory of the Pacific Islands, and the Virgin Islands.'' This 
amendment streamlines the regulation by incorporating the definition of 
``State'' under the FDI Act.
    The second paragraph clarifies that any deposit carried on the 
books and records of an office of a U.S. bank located outside any 
State, regardless of where payable--that is, even if dually payable--is 
not an insured deposit. In the third paragraph the Final Rule 
establishes, by rule of construction, that Overseas Military Banking 
Facilities operated under Department of Defense regulations, 32 CFR 
Parts 230 and 231, are not to be considered as located outside any 
State, as defined in section 3(a)(3) of the FDI Act.

V. Summary Evaluation

    In identifying the need to clarify that deposits in foreign 
branches of U.S. banks are not FDIC-insured deposits, the FDIC has 
evaluated legally available and viable alternatives, as well as the 
benefits and costs associated with such alternatives, based on 
available information. The Final Rule is consistent with statutory 
authority and objectives and would achieve the FDIC's mission of 
maintaining stability and public confidence in the nation's financial 
system by insuring deposits. It would also help ensure the FDIC's 
ability to administer a failed U.S. bank's receivership. Further, the 
Final Rule would benefit the public by clarifying the treatment of 
foreign branch deposits during a resolution and by limiting the 
exposure to the DIF that could occur as a result of changes in the 
requirements for U.S. banks to operate in foreign countries.
    The FDIC seeks to minimize to the extent practicable the burdens 
which the Final Rule could impose on the banking industry and the 
public. While the FDIC recognizes that some U.S. banks may employ dual 
payability for their foreign branch deposits to address the U.K. 
proposal, the final rule does not change this avenue available under 
current law. Therefore, based on available information, the FDIC 
believes that the Final Rule itself would not impose any additional 
costs on the banking industry or the public.

VI. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (``PRA''), 44 U.S.C. 
3501, et seq., the FDIC may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid Office of Management and Budget (``OMB'') control 
number. The Final Rule clarifies that deposit insurance is not 
available for deposits in foreign branches of U.S. banks. It does not 
require any new collections of information as contemplated by the PRA. 
Consequently, no information has been submitted to the Office of 
Management and Budget for review. If a future modification to the Call 
Report is warranted, it would be issued separately and published in the 
Federal Register for notice and comment.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601, et seq., 
requires each Federal agency to prepare a final regulatory flexibility 
analysis in connection with the promulgation of a final rule, or 
certify that the final rule will not have a significant economic impact 
on a substantial number of small entities.\28\ The RFA provides that an 
agency is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the proposed rule will not have a 
significant impact on a substantial number of small entities.
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    \28\ See 5 U.S.C. 603, 604 and 605.
---------------------------------------------------------------------------

    Pursuant to Section 605(b) of the RFA, the FDIC certifies that the 
Final Rule will not have a significant economic impact on a substantial 
number of small entities. The Final Rule specifies that deposit 
insurance is inapplicable to deposits in foreign branches of U.S. 
banks. Using reports of condition and income and FFIEC form 030 reports 
filed within recent years, the FDIC has been able to identify only one 
bank that is considered a small entity for the purposes of the RFA that 
has a foreign branch and, thus, could be affected by the Final Rule. 
The Final Rule, however, imposes no burdens on IDIs of any size because 
it clarifies only that foreign branch deposits are not insured and does 
not require any action on the part of U.S. banks.

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the Final 
Rule is not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), 5 U.S.C. 801 
et seq. As SBREFA requires, the FDIC will file the appropriate reports 
with Congress and the General Accounting Office so that the Final Rule 
may be reviewed.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471) requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Final Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Banks, Banking, Reporting and recordkeeping 
requirements, Savings and Loan associations, Trusts and trustees.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation amends part 330 of title 12 of the Code 
of Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 is revised to read as follows:

    Authority:  12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 
1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c).


0
2. In Sec.  330.1, revise paragraph (i) to read as follows:


Sec.  330.1  Definitions.

* * * * *
    (i) Insured deposit has the same meaning as that provided under 
section

[[Page 56589]]

3(m)(1) of the Act (12 U.S.C. 1813(m)(1)) and this part.
* * * * *
0
3. In Sec.  330.3, revise paragraph (e) to read as follows:


Sec.  330.3  General principles.

* * * * *
    (e) Deposits payable outside of the United States and certain other 
locations. (1) Any obligation of an insured depository institution 
which is payable solely at an office of that institution located 
outside any State, as the term ``State'' is defined in section 3(a)(3) 
of the Act (12 U.S.C. 1813(a)(3)), is not a deposit for the purposes of 
this part.
    (2) Except as provided in paragraph (e)(3) of this section, any 
obligation of an insured depository institution which is carried on the 
books and records of an office of that institution located outside any 
State, as referred to in paragraph (e)(1) of this section, shall not be 
an insured deposit for purposes of this part, or any other provision of 
this part, notwithstanding that the obligation may also be payable at 
an office of that institution located within any State.
    (3) Rule of construction. For purposes of this paragraph (e), 
Overseas Military Banking Facilities operated under Department of 
Defense regulations, 32 CFR Parts 230 and 231, are not considered to be 
offices located outside any State, as referred to in paragraph (e)(1) 
of this section.
* * * * *

    Dated at Washington, DC, this 10th day of September, 2013.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-22340 Filed 9-12-13; 8:45 am]
BILLING CODE 6714-01-P