Alert September 28, 2010

FDIC Issues Proposed Rule to Implement Unlimited Deposit Insurance Coverage on Noninterest-Bearing Transaction Accounts

The FDIC Board of Directors issued a proposed rule (the “Proposed Rule”) to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) that provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts.  The separate coverage for noninterest-bearing transaction accounts becomes effective on December 31, 2010, and terminates on December 31, 2012.  The Proposed Rule also serves as formal notice that the FDIC will not be extending the Transaction Account Guarantee Program (“TAGP”) beyond its scheduled expiration date of December 31, 2010.  Comments are due on the Proposed Rule by October 15, 2010.  The FDIC noted that the shorter than usual comment period is necessary to give insured depository institutions adequate time to implement the notice and disclosure requirements set forth in the proposed rule by December 31, 2010.

Unlike the TAGP, the temporary deposit coverage for noninterest bearing transaction accounts under the Act will apply at all FDIC-insured institutions and will cover only transaction accounts that do not pay interest.  Accordingly, beginning January 1, 2011, low‑interest NOW accounts and Interest on Lawyer Trust Accounts (“IOLTAs”) currently covered under the TAGP will no longer be eligible for an unlimited deposit insurance.

The Proposed Rule sets forth notice and disclosure requirements for insured depository institutions that are designed to ensure that depositors are aware of and understand the types of accounts that will be covered by the temporary deposit insurance for noninterest bearing transaction accounts.  Insured depository institutions will be required to post a notice in their main office, each branch and, if applicable, on their website; notifying customers currently covered by the TAGP that, beginning January 1, 2011, low-interest checking accounts and IOLTAs no longer will be eligible for unlimited guarantee; and notifying customers individually of any action they take that will affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.