[Federal Register: July 17, 2008 (Volume 73, Number 138)]
[Rules and Regulations]               
[Page 41180-41211]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jy08-18]                         

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AD26

 
Large-Bank Deposit Insurance Determination Modernization

AGENCY: Federal Deposit Insurance Corporation (``FDIC'').

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule requiring the largest 
insured depository institutions to adopt mechanisms that would, in the 
event of the institution's failure: provide the FDIC with standard 
deposit account and other customer information; and allow the placement 
and release of holds on liability accounts, including deposits. The 
final rule applies only to insured depository institutions having at 
least $2 billion in domestic deposits and either: more than 250,000 
deposit accounts (currently estimated to be 152 institutions); or total 
assets over $20 billion, regardless of the number of deposit accounts 
(currently estimated to be 7 institutions).
    The FDIC is adopting the final rule concurrently with its adoption 
of an interim rule establishing practices for determining deposit and 
other liability account balances at a failed insured depository 
institution. With exceptions indicated in the final rule, institutions 
subject to this final rule will have eighteen months from the effective 
date of the final rule to implement its requirements.

EFFECTIVE DATE: August 18, 2008.

FOR FURTHER INFORMATION CONTACT: James Marino, Project Manager, 
Division of Resolutions and Receiverships, (202) 898-7151 or 
jmarino@fdic.gov, Joseph A. DiNuzzo, Counsel, Legal Division, (202) 
898-7349 or jdinuzzo@fdic.gov; or Christopher L. Hencke, Counsel, Legal 
Division, (202) 898-8839 or chencke@fdic.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The final rule requires the largest insured depository institutions 
to adopt mechanisms that would, in the event of the institution's 
failure: (1) Provide the FDIC with standard deposit account and other 
customer information; and (2) allow the placement and release of holds 
on liability accounts, including deposits. These requirements were 
addressed in two advance notices of proposed rulemaking issued in 2005 
and 2006, respectively the ``2005 ANPR'' and the ``2006 ANPR''.\1\ 
Also, in January of this year the FDIC published a proposed rule 
composed of two parts, addressing in part two the issues involved in 
the final rule and addressing in part one issues involving the FDIC's 
practices for determining deposit and other liability account balances 
at a failed insured depository institution (``proposed rule'').\2\
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    \1\ 70 FR 73652 (Dec. 13, 2005) and 71 FR 74857 (Dec. 13, 2006).
    \2\ 73 FR 2364 (January 14, 2008).
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    The FDIC received twenty-one comments on the proposed rule. (The 
comment letters may be viewed on the FDIC's Web site at http://
www.fdic.gov/regulations/laws/federal/2008/08comAD26.html.)
    Based in part on those comments, the FDIC has decided to finalize 
the proposed rule by issuing two separate rulemakings--(1) the final 
rule, covering part two of the proposed rule and (2) a separate interim 
rule, covering part one of the proposed rule (``Interim Rule on 
Processing Deposit Accounts'').
    Throughout the preamble the terms ``deposit'' (or ``domestic 
deposit''), ``foreign deposit'' and ``international banking facility 
deposit'' identify liabilities having different meanings for deposit 
insurance purposes. A ``deposit'' is used as defined in section 3(l) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)) (``Section 
3(l)''). A deposit includes only deposit liabilities payable in the 
United States, typically those deposits maintained in a domestic office 
of an insured depository institution. Only deposits meeting these 
criteria are eligible for insurance coverage. Insured depository 
institutions may maintain deposit liabilities in a foreign branch 
(``foreign deposits''), but these liabilities are not deposits in the 
statutory sense (for insurance or depositor preference purposes) for 
the time that they are payable solely at a foreign branch or branches. 
Insured depository institutions also may maintain liabilities in an 
international banking facility (IBF). An ``international banking 
facility deposit,'' as defined by the Board of Governors of the Federal 
Reserve System in Regulation D (12 CFR 204.8(a)(2)), also is excluded 
from the definition of ``deposit'' in Section 3(l) and the depositor 
preference statute (12 U.S.C. 1821(d)(11)).
    The FDIC anticipates questions regarding implementation of the 
functionality required by this rule. Questions and requests for 
telephonic meetings may be submitted via e-mail to 
depositclaims@fdic.gov.

[[Page 41181]]

II. Overview

    The final rule applies to large FDIC-insured institutions, defined 
as ``Covered Institutions.'' The definition includes insured depository 
institutions having at least $2 billion in domestic deposits and at 
least either: (1) 250,000 deposit accounts; or (2) $20 billion in total 
assets, regardless of the number of deposit accounts. In summary, 
Covered Institutions are required to adopt mechanisms that would, in 
the event of the institution's failure:
     Allow automatic posting of provisional holds on large 
liability accounts in any percentage specified by the FDIC on the day 
of failure.
     Provide the FDIC with deposit and customer account data in 
a standard format.
     Allow automatic removal of the provisional holds and 
posting of the results of insurance determinations as specified by the 
FDIC.

III. The Proposed Rule

Definition of Institutions Covered

    Under the proposed rule a Covered Institution was defined as any 
insured depository institution having at least $2 billion in domestic 
deposits and at least either: (1) 250,000 deposit accounts; or (2) $20 
billion in total assets, regardless of the number of deposit 
accounts.\3\ All other insured depository institutions were designated 
as Non-Covered Institutions and, thus, were not subject to this part of 
the proposed rule.\4\
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    \3\ For the purposes of the criteria in the text, an ``insured 
depository institution'' includes all institutions defined as such 
in the FDI Act. 12 U.S.C. 1813(c)(2). Other applicable terms would 
be as defined in the Reports of Condition and Income (Call Report) 
instructions (for insured banks) and Thrift Financial Reports (TFR) 
instructions (for insured savings associations): ``deposit 
accounts'' mean the total number of deposit accounts (including 
retirement accounts), ``domestic deposits'' mean total deposits held 
in domestic offices (for insured banks) or deposits (for insured 
savings associations), and ``total assets'' means the reported 
amount of total assets.
    \4\ The criteria for a Covered Institution apply to separately 
chartered insured depository institutions. Commonly owned depository 
institutions are not aggregated for the purposes of these criteria. 
Furthermore, a holding company may own insured depository 
institutions that are both Covered and Non-Covered.
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Continuation of Business Operations

    As discussed in the proposed rule, in the event of failure a 
Covered Institution's legal entity status will terminate. In most 
cases, however, it is expected that a new entity will carry on the 
Covered Institution's business operations.\5\ The new legal entity 
under which business operations will be continued is the Successor 
Institution, which could include an established or new insured 
depository institution or a bridge bank operated by the FDIC. Through 
the proposed rule the FDIC intended to provide a means to facilitate 
access to deposit funds and maintain the franchise value of the failed 
Covered Institution or a Successor Institution. Thus, in most cases, 
core business operations would continue post failure, although some 
operations might be suspended temporarily.
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    \5\ The provisional hold functionality and other requirements of 
the proposed rule were to be developed in this context. It is 
possible a Covered Institution may be liquidated in the event of 
failure. The decision to liquidate or continue the deposit 
operations of a Covered Institution would be made on a case-by-case 
basis depending on the individual circumstances at the time.
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Process Overview

    As discussed in part one of the proposed rule, in the event of 
failure, the FDIC would complete daily account processing to generate 
the end-of-day deposit ledger balances used by the FDIC for insurance 
purposes. Under part two of the proposed rule, after completion of the 
failed Covered Institution's final daily processing, the Successor 
Institution would place provisional holds on selected \6\ deposit 
accounts, foreign deposit accounts and certain other liability accounts 
subject to a sweep arrangement. Provisional holds, once posted, would 
allow depositors access to the remaining balance in their accounts the 
day following failure, yet guard against the possibility of an 
uninsured depositor or unsecured general creditor receiving more than 
allowed under deposit insurance rules or the depositor preference 
statute.\7\ The FDIC would use a standard set of depositor and customer 
data to make deposit insurance determinations. These determinations 
would be provided to the Successor Institution, probably several days 
after failure. The Successor Institution would then remove the 
provisional holds as specified by the FDIC and, if necessary, replace 
them with additional holds or debits based upon the deposit insurance 
determinations. The FDIC would continue to notify the Successor 
Institution to remove additional holds as information is received from 
depositors to complete the insurance determination.
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    \6\ The FDIC will supply the business rules upon which a 
provisional hold will be placed. These business rules will be based 
upon current balance and account product types.
    \7\ Uninsured depositors are entitled to a pro rata distribution 
of the receivership proceeds with respect to their claim. The FDIC--
at its discretion-may immediately distribute receivership proceeds 
in the form of advance dividends at failure. Advance dividends are 
based on the expected recovery to uninsured depositors.
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Provisional Holds

    General description. The proposed rule would have required Covered 
Institutions to have in place an automated process for implementing 
provisional holds concurrent with or immediately following the daily 
deposit account processing on the day of failure. After the placement 
of provisional holds, all other holds previously placed by the 
institution would still remain in effect.\8\ The proposal did not 
require development of mechanisms to stop or alter interest accrual for 
the affected accounts.
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    \8\ Provisional holds could overlap preexisting holds if the 
entire account is held or the unheld account balance before posting 
the provisional hold is less than the amount of the provisional 
hold. In such cases posting the provisional hold would have to be 
constructed so that it did not cause the account to become 
``overdrawn'' and trigger service fees against the account.
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    Account-by-account application. Provisional holds would be applied 
to individual accounts in an automated fashion. Commonly owned accounts 
would not have been aggregated by ownership for the purposes of 
calculating or placing provisional holds. Provisional holds would 
extend to all non-closed deposit accounts held in domestic and foreign 
offices, as well as certain sweep account arrangements.\9\
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    \9\ Non-closed deposit accounts include those that are open, 
dormant, inactive, abandoned, restricted, frozen or blocked, in the 
process of closing or subject to escheatment.
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    The nature of a provisional hold. As explained in the proposed 
rule, the provisional hold is intended to bar access to some or all of 
a customer's account pending the results of the insurance 
determination. The proposed rule offered for comment the following 
three options for implementing provisional holds.
     Persistent hold. A ``persistent'' provisional hold would 
be applied once (on or immediately after the day of failure) and stay 
on the deposit account until it is removed at the order of the FDIC. 
Once applied, the persistent hold would reduce the customer's available 
balance.
     Memo hold. A memo-type provisional hold remains effective 
only intra-day and does not affect the batch deposit posting process. 
The memo type provisional hold amount is calculated immediately after 
end-of-day balances are available on the day of failure and the same 
amount is applied on a daily basis until changed or removed at the 
instruction of the FDIC. Once applied, a memo-type provisional hold 
would

[[Page 41182]]

reduce the customer's available intra-day balance.
     Holding balances in an alternate account. Rather than 
placing an account hold, balances could be removed from the account to 
which a provisional hold is to be applied and otherwise ``held'' in a 
work in progress (WIP) or suspense account. Since balances are removed 
from the affected account, they would not be available to the customer 
until the provisional hold was removed and the balance restored to the 
original account.
    Provisional holds for deposit accounts. Under the proposed rule, on 
the day of failure the FDIC would specify a deposit account balance 
(the ``account balance threshold'') that would determine whether a 
provisional hold would be placed on a particular deposit account.\10\ 
No provisional hold would be placed on a deposit account with a balance 
less than or equal to the account balance threshold. For a deposit 
account above the account balance threshold, the FDIC would specify, 
again on the day of failure, a percentage (the ``provisional hold 
percentage'') that would be multiplied by the account balance in excess 
of the account balance threshold.\11\ The product of this 
multiplication would equal the dollar amount of the provisional hold. 
The proposed rule would have required a Covered Institution to adopt 
systems allowing the hold to be calculated and placed. The account 
balance threshold as well as the provisional hold percentage could vary 
for the following four categories, as the Covered Institution 
customarily defines them:
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    \10\ The account balance threshold could be any dollar amount 
specified by the FDIC, including zero.
    \11\ The provisional hold percentage could be any percentage 
specified by the FDIC, from 0 to 100 percent.
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    1. Consumer demand deposit, negotiable order of withdrawal 
(``NOW'') and money market deposit accounts (``MMDA'').
    2. Other consumer deposit accounts (time deposit and savings 
accounts, excluding NOW accounts and MMDAs).
    3. Non-consumer demand deposit, NOW accounts and MMDAs.
    4. Other non-consumer deposit accounts (time deposit and savings 
accounts, excluding NOW accounts and MMDAs).
    Provisional holds for foreign deposits. For foreign deposits the 
provisional hold methodology was proposed to be the same as for deposit 
accounts, except that the account balance thresholds and the 
provisional hold percentages could have varied based on the country in 
which the account is located.
    Provisional holds for IBF deposits. For IBF deposits the 
provisional hold methodology was proposed to be the same as for deposit 
accounts, except that the account balance thresholds and the 
provisional hold percentages could have been different.
    Provisional holds for deposit accounts with prearranged, automated 
sweep features. As discussed in part one of the proposed rule, certain 
deposit accounts have a feature to ``sweep'' funds periodically 
according to predefined rules into another deposit account, a foreign 
deposit or an alternative investment vehicle.\12\ The deposit account 
through which the customer has primary access to deposited funds--
usually a demand deposit account--is the ``base sweep account.'' The 
investable or excess account balance is swept periodically into a 
``sweep investment vehicle.'' Sweep investment vehicles may include, 
but are not limited to: (1) A deposit account at the same institution 
or an affiliated insured depository institution, (2) a foreign or IBF 
deposit, (3) repurchase agreements, (4) federal funds, (5) commercial 
paper and (6) a proprietary or third-party money market mutual fund.
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    \12\ Sweep accounts as described here do not include zero 
balance account (ZBA) arrangements that move funds to and from a 
master (or concentration) deposit account and one or more subsidiary 
deposit accounts at the same bank. Such deposit account arrangements 
are not intended to provide a yield on excess deposit balances nor 
do they change the customer's insurance status. ZBAs would be 
subject to the provisional hold methodology for deposit accounts 
described above.
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    The proposed rule would have subjected some sweep accounts to the 
same provisional hold requirements as a deposit account. These were 
defined as ``Class A'' sweep accounts and included:
     Base sweep accounts where the sweep investment vehicle is 
another deposit account in an office of the same institution. Both the 
base sweep account and the sweep investment vehicle are deposits that 
would have been subject to the provisional hold requirements of a 
deposit account.
     Base sweep accounts where funds are wired from the Covered 
Institution to a separate legal entity other than the Covered 
Institution (e.g., a proprietary or third-party money market mutual 
fund). In this case, funds residing in the base sweep account (if any) 
would have been subject to a provisional hold as any other deposit 
account held in a domestic office. No provisional hold would have been 
required for funds residing outside the Covered Institution in the 
sweep investment vehicle.
    The proposed rule defined all other sweep accounts as ``Class B'' 
sweep accounts requiring a dual provisional hold methodology. For the 
fund balance remaining in the base sweep account as of the 
institution's customary end-of-day on the day of failure, the 
provisional hold methodology would have been the same as applied to 
other deposit accounts. For the funds residing in the sweep investment 
vehicle as of the institution's customary end-of-day, the provisional 
hold methodology would have had a separate account balance threshold 
and provisional hold percentage.\13\ The proposed rule would have 
required the balance threshold as well as the provisional hold 
percentage to vary for different types of sweep investment 
vehicles.\14\
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    \13\ Some Covered Institutions may allow a single base sweep 
account to be associated with multiple investment vehicles. In this 
case a separate provisional hold methodology would have been 
developed for each investment vehicle.
    \14\ Some alternative investment vehicles are deposits held in 
foreign offices. These foreign deposits would be subject only to the 
provisional hold methodology for the sweep alternative investment. 
Such foreign deposits would be excluded from the provisional hold 
methodology designed for non-sweep deposits held in the same foreign 
office.
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    The proposed rule would not have required mechanisms to stop the 
processing of any prearranged deposit account sweep transactions in the 
event of failure. The provisional holds process described above would 
have allowed for the transfer of balances from a deposit account to a 
sweep investment vehicle. The provisional holds would have applied to 
liability accounts as they were designated on the books and records of 
the institution at its customary end-of-day.
    Provisional holds for deposit accounts which accept automated 
credits from funds invested within the Covered Institution. Certain 
customers may provide the depository institution with instructions each 
day or periodically to invest funds in a non-deposit investment vehicle 
within the institution (e.g., an overnight time account at the Cayman 
Island branch), whereby such funds are automatically credited to the 
customer's deposit account the following day (``automated credit 
account''). The proposed rule would have required a dual provisional 
hold methodology for automated credit accounts. For the fund balance 
remaining in the automated credit account as of the institution's 
customary end-of-day the provisional hold methodology would have been 
the same as applied to other deposit accounts. For the funds residing 
in the investment vehicle as of the institution's customary end-of-day, 
the provisional hold methodology would have had the

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capability of a separate account balance threshold and provisional hold 
percentage.\15\ The account balance threshold, as well as the 
provisional hold percentage, would have been required to vary for 
different types of investment vehicles. These account balance 
thresholds and provisional hold percentages could be different from 
those applied to: (1) Funds automatically swept into a similar or 
identical investment vehicle or (2) funds held in a similar or 
identical investment vehicle that does not provide for an automated 
crediting of funds.\16\
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    \15\ Some automated credit accounts may also be a base sweep 
account. In this case a separate provisional hold methodology must 
be developed for each investment vehicle. It is possible, for 
example, for a customer to each day provide the institution with 
instructions to invest a certain amount of funds in a Cayman Island 
branch time account where the funds would be returned to the 
customer's demand deposit account the following morning. Further, 
the customer may also have provided prearranged instructions to have 
excess balances residing in the same demand deposit account swept to 
a Cayman Island branch account where such funds also are returned to 
the demand account the following morning. In this case the Covered 
Institution must have a provisional hold methodology that: (1) 
Treats funds residing in the demand deposit account as of the 
institution's end-of-day consistent with other deposit accounts, (2) 
treats funds residing in the Cayman Island branch account as a 
result of the prearranged sweep consistent with other Cayman Island 
sweep investment vehicles and (3) treats funds residing in the 
Cayman Island branch account as a result of the daily investment 
instructions using a separate account balance threshold and 
provisional hold percentage.
    \16\ Some investment vehicles are foreign deposits. These funds 
would be subject only to the provisional hold methodology for the 
automated credit account. Such accounts would be excluded from the 
provisional hold methodology designed for non-sweep foreign deposits 
held in the same office.
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    Account balance used for provisional hold calculation. The proposed 
rule would have required the account balance threshold and provisional 
hold percentage to be applied against the end-of-day ledger balance as 
calculated by the institution, in the event of failure.
    Provisional hold duration. Under the proposed rule, the methodology 
for implementing a provisional hold process was required to hold funds 
until removed by the Successor Institution as instructed by the FDIC. 
Provisional holds would have been removed when the results of the 
deposit insurance determination are available, generally anticipated 
being several days after failure, depending on the size and complexity 
of the failed institution's deposit base.
    Provisional hold designation. The proposed rule would have required 
provisional holds to be labeled ``FDIC PHold''.
    Provisional hold customer disclosure. The proposed rule requested 
comment on whether the FDIC should require the provisional hold, once 
placed, to be apparent if the customer views account information on-
line or through other means.
    Security level and mechanism for manual removal of provisional 
holds. The proposed rule would have required the Covered Institution to 
create policies, procedures and systems reasonably capable of 
preventing the alteration of FDIC provisional holds or other FDIC hold 
amounts except under the specific written direction of the FDIC.
    Timeliness of the provisional holds process. The proposed rule 
would have required a Covered Institution to have the capability of 
placing provisional holds on the applicable accounts prior to the 
Successor Institution opening for business the following day, but in no 
case later than 9 a.m. local time the day following the day of the 
depository institution failure.
    Exception for systems with a small number of accounts. The proposed 
rule requested comment on whether a Covered Institution having multiple 
account systems through which provisional holds will be placed may 
apply them manually in certain cases. Some account systems may service 
a relatively small number of accounts making the manual application of 
provisional holds feasible. If used, the proposed rule would have 
required approval by the FDIC in response to a written request, 
including a justification for the manual process and its relative 
effectiveness for posting provisional holds in the event of failure.
    Institutional contacts. The proposed rule would have required a 
Covered Institution to notify the FDIC of the person(s) responsible for 
producing the standard deposit data download and administering 
provisional holds, both while this functionality is being constructed 
and on an on-going basis. The Covered Institution would have been 
responsible for ensuring such contact information is current.

Removal of Provisional Holds

    General process. As specified in the proposed rule, the FDIC would 
begin forwarding insurance determination results to the Successor 
Institution once a substantial number of the insurance determinations 
have been made, which should be within a few days after failure. These 
results would have been required to be incorporated into the 
institution's deposit systems as soon as practicable, perhaps as 
quickly as the day following the receipt of the standard depositor and 
customer data sets. The results would contain instructions for the 
removal of provisional holds as well as replacement transactions, which 
could include the placement of new holds or account debits and credits.
    Removal of provisional holds. As proposed, the Successor 
Institution would be required to remove provisional holds in batch as 
specified by the FDIC. On the day(s) provisional holds are to be 
removed, the FDIC would provide the Successor Institution with a file 
listing the accounts subject to removal of the provisional hold. A file 
format was specified and would be provided to the Successor Institution 
through FDICconnect or Direct Connect, depending on the size of the 
file. The file would be encrypted using an FDIC-supplied algorithm.

Provisional Hold Replacement Transactions

    Debiting and crediting accounts after provisional holds are 
removed. As specified in the proposed rule, on the day a provisional 
hold removal file is provided to the Successor Institution, the FDIC 
also would provide a file or set of files either in ACH format or in a 
tab- or pipe-delimited format listing the accounts subject to debit or 
credit transactions, which reflect the results of the insurance 
determination process. A file format was specified and would be 
provided to the Successor Institution through FDICconnect or Direct 
Connect, depending on the size of the file. The file would be encrypted 
using an FDIC-supplied algorithm to secure data during the transport 
process.
    Posting of additional FDIC holds. As specified in the proposed 
rule, on the day provisional holds are to be removed the FDIC also 
would provide the Successor Institution with a file listing the 
accounts subject to a new hold to be placed after the removal of the 
provisional hold. A file format was specified and would be provided to 
the Successor Institution through FDICconnect or Direct Connect, 
depending on the size of the file. The file would be encrypted using an 
FDIC-supplied algorithm.

Removal of Additional FDIC Holds

    Under the proposed approach, in some cases provisional holds would 
be replaced by a second FDIC hold. These holds would be removed over 
time as further information is gathered from depositors needed to 
complete the insurance determination. A file format was specified.

The Generation of Deposit Account and Customer Data in a Standard 
Structure

    The proposed rule would have required a Covered Institution to have 
in

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place practices and procedures to provide the FDIC with required 
depositor and customer data in a standard format following the close of 
any day's business. Covered Institutions would not have been required 
to collect or generate new depositor or customer information. The 
standard data files would have been created through a mapping of pre-
existing data elements and internal institution codes into standard 
data formats. Data was to be provided on all non-closed deposit or 
foreign deposit accounts as well as Class B and automated credit 
accounts.
    Files. The proposed rule would have required these data to be 
provided in the following five separate files:
    1. Deposit file. Data fields for each non-closed deposit or foreign 
deposit account, except those deposit or foreign deposit accounts 
serving as an investment vehicle reported in the Class B Sweep/
Automated Credit file.
    2. Class B Sweep/Automated Credit file. Data fields capturing 
information on funds residing in investment vehicles linked to each 
non-closed deposit account: (1) Involved in Class B sweep activity or 
(2) which accept automated credits.
    3. Hold file.\17\ Deposit hold data fields for each non-closed 
deposit account.
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    \17\ The Hold file contains information on holds against each 
deposit account, including FDIC provisional holds. Since provisional 
holds may be generated after the completion of an institution's 
nightly deposit processing cycle, they may not be reflected fully in 
the Hold file generated as of the day of closing. The FDIC may 
require a second Hold file to be generated the day following closing 
to fully capture provisional holds that may not have been posted 
until the next deposit processing cycle.
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    4. Customer file. Data fields for each customer.
    5. Deposit-customer join file. Data necessary to link each deposit 
and foreign deposit with the customers who have an interest in the 
account.
    Possible file combinations. The proposed rule provided that data 
could be submitted using one of each deposit, Class B sweep/automated 
credit, hold, customer, customer address and deposit-customer join 
files. Alternatively, data could be supplied using multiple files for 
each type. The number of files could correspond to the number of 
institutional systems of record, for example.
    File format. Under the proposed rule depositor and customer data 
files would have been provided in tab- or pipe-delimited format. 
Further, each file name would contain the institution's FDIC 
Certificate Number, the file type (deposit, sweep hold, customer, 
customer address, join or other) and the date of the extract. The FDIC 
would support both ASCII and EBCDIC delimited files. All EBCDIC fields 
must be provided in Pic(X) format. Binary, packed or signed numeric 
formats would not be allowed.
    File transmission mechanism. Under the proposed rule the data files 
would be provided to the FDIC in the most expeditious manner. Data 
which can be compressed and encrypted could be transmitted to FDIC 
using existing telecommunication services. Should the volume be too 
great to transmit in the most expeditious manner then a portable hard 
drive should be used and physically transported by FDIC personnel to 
the FDIC's data processing facilities.

Reporting Requirements

    The proposed rule noted that the criteria defining a Covered 
Institution include the number of its deposit accounts, total domestic 
deposits and total assets. Total domestic deposits and total assets are 
reported quarterly on the Consolidated Reports of Condition and Income 
(insured bank) and the Thrift Financial Report (insured savings 
association). Savings associations report the number of deposit 
accounts quarterly, but banks report on the total number of deposit 
accounts only annually, as part of the June reporting cycle. The FDIC 
recommended quarterly reporting of the number of deposit accounts for 
all insured institutions with total assets over $1 billion.

Testing Requirements

    The proposed rule indicated the FDIC would conduct an initial test 
at each Covered Institution sometime after the initial implementation 
period ends.\18\ All testing would be coordinated with the financial 
institution and conducted at the site of their choosing if multiple 
sites are available. Once the initial test is completed successfully, 
the FDIC anticipated that it would conduct additional tests 
infrequently at institutions that do not make major changes to their 
deposit systems \19\--perhaps only once every three-to-five years. It 
was noted that more frequent testing may be necessary for institutions 
that make major acquisitions, experience financial distress (even if 
the distress is unlikely to result in failure) or undertake major 
system conversions.
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    \18\ In addition to testing, the FDIC expects to require that 
information contact points be validated (and updated as needed) 
every three-to-six months.
    \19\ A major change to a deposit system means a change made to a 
Covered Institution's data environment affecting one or more of the 
data elements described in attached Appendices. Changes could be the 
result of a merger or the streamlining of a financial institution's 
systems of record.
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    The proposed rule would have required Covered Institutions to 
establish a series of test accounts on their deposit account systems 
that could be used for verification purposes. These accounts would be 
used to verify the processing of holds, debits and credits.
    The FDIC also contemplated development of a XML validation service 
which would be provided to each Covered Institution for the purpose of 
establishing compliance with the standard data requirements for 
depositor and customer records. The XML schema would read a file (which 
has been created in the standard format), validate the accuracy and 
integrity of the file content and provide a report that establishes the 
institution's compliance with the criteria. In addition to the XML 
service, the FDIC also proposed providing a more readable description 
of the validation process to help facilitate institutional testing.
    The proposed rule provided that a Covered Institution would be 
responsible for ensuring that a representative sample of data has been 
passed through the XML validation service. At a minimum the sampling 
strategy should cover a cross-section of different insurance categories 
and a cross section of account ledger balances maintained by the 
institution. The Covered Institution would have been required to 
provide the FDIC its sampling strategy along with the validation 
results as a part of the periodic verification process.
    To reduce the frequency of FDIC testing and ensure ongoing 
compliance, the FDIC proposed requiring Covered Institutions to conduct 
tests in-house on a regular basis (perhaps every year) and provide the 
FDIC with evidence that the test was conducted and a summary of the 
test results.
    In addition, the proposed rule would allow the FDIC to test certain 
other requirements inside the institution, including but not limited to 
the ability to place and remove provisional holds, place new holds and 
implement debits and credits using a data set that meets the FDIC 
standards.

Implementation Requirements

    Institutions meeting the criteria of a Covered Institution upon the 
effective date of the regulation. The proposed rule would have required 
a Covered Institution to fully implement the respective requirements 18 
months from the regulation's effective date.
    Institutions meeting the criteria of a Covered Institution after 
the effective date of the regulation. The proposed rule would have 
required that any insured institution meeting the criteria

[[Page 41185]]

of a Covered Institution for at least two consecutive quarters would 
have 18 months following the end of the two consecutive quarters in 
which to fully implement the respective requirements.
    Merger involving two Covered Institutions. Under the proposed rule, 
the requirements were to be fully implemented within 18 months 
following the completion of an acquisition, although an acquisition 
does not delay any implementation requirements which may already have 
been in place for the individual institutions involved in the merger.
    Merger involving a Covered and Non-Covered Institution. Under the 
proposed rule, the requirements were to be fully implemented within 18 
months following the completion of an acquisition, although a merger 
does not delay any implementation requirements which may already have 
been in place for the individual institutions involved in the merger.
    Exception for troubled institutions. Under the proposed rule, on a 
case-by-case basis, the FDIC could accelerate the implementation 
timeframe of all or part of the proposed rule for a Covered Institution 
that either: (1) Has a composite rating of 3, 4 or 5 under the Uniform 
Financial Institutions Rating System (commonly referred to as CAMELS) 
\20\ or (2) is undercapitalized as defined for purposes of the prompt 
corrective action (``PCA'') rules.\21\ In determining the accelerated 
implementation timeframe for such institutions, the FDIC would have 
been required to consider such factors as the: (1) Complexity of the 
institution's deposit systems and operations; (2) extent of asset 
quality difficulties; (3) volatility of funding sources; (4) expected 
near-term changes in capital levels; and (5) other relevant factors 
appropriate for the FDIC to consider in its roles as insurer and 
possible receiver of the institution. The proposed rule would have 
required the FDIC to consult with the Covered Institution's primary 
federal regulator in determining whether to implement this provision of 
the proposed rule.
---------------------------------------------------------------------------

    \20\ CAMELS is an acronym drawn from the first letters of the 
individual components of the rating system: Capital adequacy, Asset 
quality, Management, Earnings, Liquidity, and Sensitivity to market 
risk.
    \21\ 12 CFR Part 325.
---------------------------------------------------------------------------

    Applications for extension of implementation requirements. The 
proposed rule provided that a Covered Institution could request an 
extension of the 18-month deadline for implementing the requirements. 
An application for such an extension would be subject to the FDIC's 
rules of general applicability, 12 CFR 303.251. For good cause shown, 
the FDIC could grant the application for an extension.

New Deposit Accounts

    The proposed rule would not have required a unique depositor ID for 
customer accounts, rather the FDIC would rely upon customer information 
already maintained by the Covered Institution to link commonly owned 
accounts. Nevertheless, the FDIC asked whether a unique depositor ID 
should be assigned by Covered Institutions when a new account is opened 
and the relative costs of such a requirement.

IV. Comments on the Proposed Rule

    The FDIC received twenty-one comments on the proposed rule, the 
bulk of which addressed both parts of the proposed rule. Four of the 
comments were from banking industry trade associations (including one 
joint letter), two from bank regulatory authorities, ten from large 
insured depository institutions, one from a law firm representing 
broker-dealers who place brokered funds in insured depository 
institutions, one from a member-owned electronic funds transfer network 
and three from individuals. The following is a summary of the comments 
we received on part two of the proposed rule--Large-Bank Deposit 
Insurance Determination Modernization.

General Comments

    The FDIC received a joint comment letter from three banking 
industry trade associations. This letter summarized their sense of the 
second part of the proposed rule as follows: ``The Associations support 
the intent of the NPR to provide in a bank failure for timely deposit 
insurance determination, prompt release of depositor funds, and least 
cost resolution. Nonetheless many of the NPR's proposals would be very 
costly for banks to implement. We recommend adoption of elements from 
the NPR only where demonstrated benefits justify the cost, and request 
that the FDIC make every effort to limit the burdens on banks and 
provide flexibility to accommodate the variety of bank systems.''

Cost and Benefits

    Many of the large-bank and all of the bank trade association 
commenters expressed concern over the potential costs of implementing 
the provisions of the second part of the proposed rule. Several 
commenters also noted that the expected benefits to the FDIC are not 
likely to outweigh the costs, especially given the perceived extremely 
low likelihood of failure of any particular large bank.
    Commenters emphasized that the potential implementation costs are 
not small. ``Indeed, even small changes to information systems require 
hundreds of person hours both in programming and testing to ensure 
proper functionality and avoid disruption with ongoing operations. 
Several of our member banks estimate that the cost per institution of 
the initial implementation and testing of the Proposal's requirements 
is likely to exceed $10 million and involve thousands of hours of 
labor. As institutions begin the implementation process, based on prior 
experience, these costs could increase beyond these initial estimates, 
perhaps substantially. Moreover, significant additional costs will be 
incurred to maintain and test these processes in the future.''
    Several large banks provided estimates of implementation costs in 
their comments. These cost estimates are shown in Table 1 along with 
their deposit assessment base and a comparison of the estimated cost 
with a 1 basis point deposit insurance assessment.
    Several commenters also cited the extremely low likelihood of the 
failure of a Covered Institution and that the FDIC typically is aware 
of financial difficulties well in advance of failure. It was noted this 
early warning should allow the FDIC ample time for preparation.

[[Page 41186]]



                                    Table 1.--Estimated Implementation Costs
----------------------------------------------------------------------------------------------------------------
                                                                              1-Basis point
                                        Estimated            Assessable        annual FDIC     Estimated cost as
           Responder               implementation cost      deposits ($       assessment ($       a % of 1 BP
                                                             millions)          millions)          assessment
----------------------------------------------------------------------------------------------------------------
Bank A.........................  $8-10 million.........            630,000               63.0              13-16
Bank B.........................  ``total costs in the              230,000               23.0                 NA
                                  millions of dollars''.
Bank C.........................  ``in excess of $2                  29,000                2.9                 70
                                  million''.
Bank D.........................  $2-4 million..........             17,000                1.7            120-235
----------------------------------------------------------------------------------------------------------------

    One banking trade association noted that the proposed requirements 
are likely to provide no financial benefit to the FDIC. ``The proposed 
rule offers no financial benefit to the FDIC because the FDIC does not 
pay out the full amount of an uninsured deposit's recovery from a 
failed institution until several years after the failed institution is 
closed. Hence, the FDIC has ample time after an institution is closed 
to properly aggregate deposit accounts to ensure that no uninsured 
depositor obtains an excess recovery from the FDIC. Since the deposit-
account aggregation process under the proposed rule will not be 
foolproof, the FDIC must still conduct a post-failure review of all 
deposit accounts in a failed institution to ensure that they have been 
properly aggregated for deposit-insurance purposes. The only way the 
FDIC will pay out too much to an uninsured depositor is if its initial 
dividend payment to uninsured depositors cannot be recovered through 
(1) an offset against future dividend payments or (2) if offsets 
against subsequent dividend payments do not fully recover the 
overpayment, court actions or other collection procedures.''

Meeting the FDIC's Objectives

    A letter from a bank regulatory agency cited the importance of 
advance preparation in the event of a large-bank failure. The commenter 
noted that the proposal ``reduces the chance that policymakers will 
invoke the systemic risk exception of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA) \22\ for technical reasons 
rather than true concern over spillovers. This outcome has the benefit 
of reducing potential resource misallocations arising from implied 
guarantees of large-bank creditors. I further argued [in a previous 
comment letter] that policymakers will not achieve this desired outcome 
by implementing a new determination regime only at the time when banks 
are in trouble.'' This commenter also provided the following five 
observations regarding recent financial events:
---------------------------------------------------------------------------

    \22\ Pub. L.102-242 (1991).
---------------------------------------------------------------------------

    1. ``Several very large financial institutions (FIs) moved from 
reasonably strong financial positions to what observers characterized 
as near failure in short periods of time.''
    2. ``The market turmoil reinforced the benefits of an ex ante 
system that provide creditors of failed banks with ex post rapid access 
to their available funds.''
    3. ``Responses during the recent tumult reinforce the need for bank 
policymakers to actively manage the implied safety net.''
    4. ``Recent events reaffirm the need for policymakers to act before 
bad outcomes occur.''
    5. ``Large financial institutions have been at the epicenter of 
recent events, and some of their creditors benefited most directly from 
the policy response.''
    One large-bank commenter ``supports the FDIC's continued work on 
this important project. The current environment reminds us that bank 
failures are not necessarily a phenomenon of only the past.''

Covered Institution Exemptions

    Several commenters recommended exemptions from the definition of a 
Covered Institution. Three potential exemptions were discussed.
    Strong financial condition. Several commenters--including a state 
banking agency--suggested that a Covered Institution with strong 
financial characteristics should be exempt from the proposed 
requirements. The state banking agency noted that the proposed 
requirements would apply to only one depository institution in its 
state, but that this institution has consistently demonstrated strong 
financial characteristics. As such, commenters recommended that the 
FDIC consider an exemption based on such things as CAMELS ratings, debt 
ratings, capital levels or other financial characteristics.
    Specialty institutions. Several commenters proposed an exemption 
for specialty institutions, specifically those primarily involved in 
credit card operations and bankers' banks. With regard to credit card 
banks, it was noted that the deposits of these banks consist largely of 
credit card overpayments and balances used to secure cards. In that 
these are typically low balances, the commenters argued the deposits 
attributed to credit card operations should be exempt from the criteria 
of a Covered Institution.
    Fewer than 250,000 deposit accounts. Several commenters requested 
that the definition for a Covered Institution should include only those 
depository institutions with at least 250,000 deposit accounts. One 
large-bank commenter with fewer than 250,000 deposit accounts (that 
would be a Covered Institution under the criteria proposed) argued that 
the bank's ``insurance determination profile is no more complex than 
that of a small to mid-sized bank.'' It was further argued ``due to the 
large balances of our typical deposit accounts, the ratio of our 
deposit insurance coverage to our domestic assessed deposit base is 
substantially lower than nearly all other U.S. banks. [Our] potential 
exposure to the insurance fund is therefore at best modest and creates 
few of the complex challenges which the NPR seeks to address.''

Implementation Time

    Most large-banks and all bank trade association commenters argued 
for an extension in implementation time from the proposed 18 months to 
24-to-36 months. Commenters contend the proposed requirements of the 
proposed rule are significantly more complex than those of the past 
advance notices of proposed rulemaking; particularly with regard to the 
provisional hold requirements on sweep accounts and foreign deposits. 
Several commenters also recommended an extension in implementation time 
for institutions recently involved in merger and assumption activities.

Provisional Hold Exemptions

    Sunsetting deposit systems. One large bank suggested providing an 
exemption from requirements for deposit systems expected to be retired 
in the near future, as long as the replacement system is compliant.
    Small systems. Several commenters requested that--for a Covered 
Institution

[[Page 41187]]

with multiple deposit systems--the FDIC should provide an exemption for 
systems handling a small percent of overall deposit accounts at the 
Covered Institution. As an example, the commenters proposed that a 
deposit system handling five percent or fewer of the Covered 
Institution's deposit accounts should be exempt from the provisional 
holds requirements.

Foreign Deposit Provisional Holds

    Several large-bank and all banking trade association commenters 
recommended changing the provisional hold requirement on foreign 
deposits to be uniform across all countries in which the Covered 
Institution has deposit accounts. Commenters noted that for individual 
institutions all foreign deposits frequently reside on a single deposit 
system and that mandating different provisional hold percentages by 
country would be burdensome.

Provisional Hold Flexibility

    All banking trade association and many large bank commenters 
approved of the flexibility to implement provisional holds using the 
options of a persistent hold, a memo hold or a WIP account. The 
commenters noted that this flexibility could reduce significantly 
implementation costs. Generally the commenters believed they understood 
what the FDIC intended to accomplish through provisional holds and 
requested they be provided the flexibility to implement the holds in a 
manner least costly for their institution.
    Several commenters also requested additional flexibility regarding 
the placement of provisional holds on funds swept out of a deposit 
account into a sweep investment vehicle. It was noted that--in some 
cases--funds are swept into a system within the institution that does 
not have the capability of posting holds. In these cases commenters 
requested the option of placing the hold on these funds as they return 
to the deposit account rather than when they reside in the alternative 
investment vehicle. Again, the commenters argued that they understood 
the FDIC's intent and asked that they be allowed to implement the hold 
in a manner least costly for their institution.

Provisional Hold Disclosure

    Most banking trade associations and several large-bank commenters 
argued it was unnecessary and unduly burdensome to require on-line or 
other disclosure of provisional holds. Commenters noted the FDIC has 
other mechanisms for distributing information to customers in the event 
of a bank failure that would be equally effective.

Deposit Broker Requirements

    One commenter requested confirmation that the proposed rule would 
not require changes to brokered deposit recordkeeping or require 
brokers to develop systems to comply with the rule. The commenter noted 
that in addition to the more traditional brokered CD programs many 
brokers offer brokered money market deposit and NOW accounts.

Unique Depositor ID

    All commenters addressing the proposal to require a unique 
depositor ID for newly opened accounts recommend against it. One 
commenter noted ``the compliance and training costs would be excessive 
while offsetting benefits are not apparent.''

V. The Final Rule

    After considering the comments on the second part of the proposed 
rule, the FDIC has adopted a final rule in a form similar to that 
proposed. While there are a number of limited changes from the proposed 
rule, the main changes are that the final rule will:
     Permit application to the FDIC for an exemption from the 
requirements of the final rule if an institution has a high 
concentration of deposits incidental to credit card operations.
     Expand the circumstances under which a Covered Institution 
may be required to accelerate implementation of the final rule 
requirements to include materially deteriorating financial conditions, 
as discussed below.
     Provide for a uniform provisional hold strategy for 
foreign deposits.
     Allow application to use alternatives to persistent 
provisional holds.

Costs and Benefits

    Many commenters cited the potentially high implementation costs of 
the final rule and noted that the expected benefits might be low, 
especially given the low likelihood of a Covered Institution failure. 
One banking trade association commenter suggested there would be no 
benefits to the FDIC.
    In the proposed rule the FDIC noted that even if the likelihood of 
a failure among Covered Institutions is perceived to be low, it is not 
zero. Recent events have placed stress on the banking industry as a 
whole. The FDIC must have in place a credible plan for resolving the 
failure of an institution of any size at the least possible cost. The 
ability to provide depositors prompt access to funds and determine the 
insurance status of depositors in a failed institution in a timely 
manner is a critical element for ensuring a least-costly resolution and 
maintaining public confidence.
    Meeting the FDIC's legal mandates. FDICIA was one of the most 
important pieces of legislation affecting the FDIC's failure resolution 
process. Its least-cost requirement effectively requires uninsured 
depositors to be exposed to losses.\23\ Also, FDICIA's legislative 
history and the nature of the systemic risk exception provide a clear 
message that uninsured depositors of large institutions are to be 
treated on par with uninsured depositors of other institutions. The 
requirements being imposed in this rulemaking provide essential support 
for the FDIC to meet these statutory mandates--particularly given the 
current size and complexity of some insured depository institutions.
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 1823(c)(4).
---------------------------------------------------------------------------

    Providing liquidity to depositors. The provisional hold 
functionality creates a mechanism for the FDIC to provide customer 
access to deposit accounts immediately after failure, albeit with some 
FDIC hold for large accounts. The ability to continue uninterrupted the 
deposit operations of a Covered Institution in the event of failure has 
significant benefits for depositors and also helps preserve the 
institution's franchise value.
    Enhancement of market discipline. The FDIC's legal mandates have 
direct implications for Too-Big-to-Fail and market discipline. If 
financial markets perceive that uninsured depositors in large 
institutions will be made whole in the event of failure, uninsured 
deposits will be directed toward these larger depository institutions, 
which could result in a significant misallocation of economic 
resources. Many market observers believe there are substantial benefits 
of improved market discipline that accrue even without serious industry 
distress or bank failures.
    Effective market discipline also limits the size of troubled 
institutions and results in a more rapid course toward failure. Both 
serve to mitigate overall resolution losses. Lower resolution losses 
benefit insured institutions through lower insurance assessments.
    Equity in the treatment of depositors of insured institutions. 
Without the provisions of the final rule, the FDIC is concerned that 
the resolution of a Covered Institution could be accomplished only 
through a significant departure from the FDIC's normal claims 
procedures. This departure could leave the bank closed until an 
insurance determination is made or require the use of shortcuts to 
speed the opening of the bridge institution. The use of shortcuts or 
other mechanisms to facilitate

[[Page 41188]]

depositor access to funds could result in disparate treatment among 
depositors within the failed institution and certainly different 
treatment relative to the closure of a Non-Covered Institution.
    Preservation of franchise value in the event of failure. The sale 
of the franchise of a failed institution can provide significant value 
to mitigate failure costs and is likely to be part of a least-cost 
resolution. Superior Bank, FSB, one of the largest failures over the 
past 10 years, generated a franchise premium of $52 million, or 17 
percent of current estimated FDIC losses in the failure. An ineffective 
claims process--especially one deviating significantly from the FDIC's 
normal policies and procedures--risks reducing or destroying an 
important asset of the receivership. Preservation of franchise value in 
the event of failure of a Covered Institution will be an important 
benefit of the final rule.
    A banking trade association commenter suggested the FDIC delay 
implementation of the final rule ``until the FDIC evaluates how to 
relieve such cost and burden on the industry.'' The FDIC first proposed 
the elements of the final rule in its 2005 ANPR. A second ANPR was 
issued in 2006, roughly a year in advance of the January 2008 proposed 
rule leading to this final rule. As indicated in the proposed rule, 
based on the respective comments on the 2005 and 2006 ANPRs, the FDIC 
reduced the potential for industry burden relative to the requirements 
in the proposed rule. Several of the commenters on the proposed rule 
acknowledged this reduction in industry burden. Likewise, as a result 
of the comments on the proposed rule, the FDIC has further reduced the 
potential for industry burden as to the requirements of the final rule.
    In both ANPRs and in the proposed rule the FDIC requested comment 
on alternative approaches that could meet the FDIC's objectives with a 
lower industry burden. None of these three requests for comment yielded 
suggestions for a different overall approach meeting the FDIC's 
objectives. In consideration of the extensive public comment process 
covering the second part of the proposed rule, the FDIC believes no 
further examination of costs and benefits is necessary prior to the 
adoption of the final rule.

Definition of Institutions Covered

    The final rule applies to a Covered Institution, defined as any 
insured depository institution having at least $2 billion in domestic 
deposits and at least either: (1) 250,000 deposit accounts; or (2) $20 
billion in total assets, regardless of the number of deposit 
accounts.\24\ All other insured depository institutions are designated 
Non-Covered Institutions and, thus, are not subject to the final 
rule.\25\
---------------------------------------------------------------------------

    \24\ For the purposes of the criteria in the text, an ``insured 
depository institution'' includes all institutions defined as such 
in the FDI Act. 12 U.S.C. 1813(c)(2). Other applicable terms would 
be as defined in the Reports of Condition and Income (Call Report) 
instructions (for insured banks) and Thrift Financial Reports (TFR) 
instructions (for insured savings associations): ``deposit 
accounts'' mean the total number of deposit accounts (including 
retirement accounts), ``domestic deposits'' mean total deposits held 
in domestic offices (for insured banks) or deposits (for insured 
savings associations), and ``total assets'' means the reported 
amount of total assets.
    \25\ As discussed previously, the criteria for a Covered 
Institution apply to separately chartered insured depository 
institutions.
---------------------------------------------------------------------------

    Commenters suggested exemptions for institutions: (1) With strong 
financial characteristics, (2) specializing in credit card operations 
or services to depository institutions (bankers' banks) and (3) with 
fewer than 250,000 deposit accounts. As discussed below, based on the 
comments, the final rule provides (through an application process) for 
an exemption from the final rule for institutions with a high 
concentration of deposits incidental to credit card operations.
    Strong financial characteristics. The financial characteristics of 
Covered Institutions vary considerably, as reflected in differing 
CAMELS ratings, capital levels and debt ratings. The recent 
difficulties experienced by the financial markets demonstrate the 
degree to which rapid financial deterioration is possible, even for 
some institutions only recently considered to be in strong health. The 
FDIC is concerned that the possible pace of financial deterioration-
even among those historically showing strong financial characteristics-
could expose the FDIC to undue risk, especially given the potential 
implementation times cited by commenters. Thus, the final rule provides 
no exception to the criteria of a Covered Institution based on 
financial characteristics.
    Credit card specialists and bankers' banks. Some depository 
institutions specialize in credit card operations. As such, the 
preponderance of their deposits relate to overpayments on credit cards 
or balances held to secure a credit card. Some credit card specialists 
have in excess of 250,000 deposit accounts and could also have more 
than $2 billion in domestic deposits. Such institutions rarely hold 
large deposit balances in a significant number of accounts. As 
discussed below, under the final rule, the FDIC will permit application 
for an exemption from the final rule requirements if an institution has 
a high concentration of deposits incidental to credit card operations.
    A bankers' bank specializes primarily in services to other 
depository institutions. Deposit balances can be large and such 
organizations typically have high levels of uninsured deposits. A large 
bankers' bank raises concerns similar to other depository institutions, 
perhaps to a greater extent given its stronger link to those 
institutions. For a bankers' bank the FDIC would be concerned about 
rapidly restoring deposit operations in the event of failure so that 
depositors can have access to their funds. Consequently, the final rule 
provides no exception to the criteria of a Covered Institution for a 
bankers' bank.
    Fewer than 250,000 deposit accounts. Under the proposed rule a 
Covered Institution could include a depository institution with fewer 
than 250,000 deposit accounts, as long as it has total assets in excess 
of $20 billion and domestic deposits over $2 billion. These criteria 
expand the list of Covered Institutions by roughly seven compared to a 
more narrow definition including depository institutions with at least 
250,000 deposit accounts and over $2 billion in domestic deposits. Some 
large depository institutions with fewer than 250,000 deposit accounts 
play a significant role in the financial system, some having total 
assets in excess of $100 billion. In the event of failure, the FDIC 
would be concerned about rapidly restoring deposit operations so that 
depositors can have access to their funds. Hence, the final rule 
provides no exception to the criteria of a Covered Institution based on 
the number of deposit accounts.

Provisional Holds

    General description. The final rule requires Covered Institutions 
to have in place an automated process for implementing provisional 
holds concurrent with or immediately following the daily deposit 
account processing on the day of failure. After the placement of 
provisional holds, all other holds previously placed by the institution 
would still remain in effect.\26\ The final rule does not require 
development of mechanisms to stop or

[[Page 41189]]

alter interest accrual for the affected accounts.
---------------------------------------------------------------------------

    \26\ Provisional holds could overlap preexisting holds if the 
entire account is held or the unheld account balance before posting 
the provisional hold is less than the amount of the provisional 
hold. In such cases posting the provisional hold would have to be 
constructed so that it did not cause the account to become 
``overdrawn'' and trigger service fees against the account.
---------------------------------------------------------------------------

    Account-by-account application. Provisional holds must be applied 
to individual accounts in an automated fashion. Commonly owned accounts 
need not be aggregated by ownership for the purposes of calculating or 
placing provisional holds. Provisional holds will extend to all non-
closed deposit accounts held in domestic and foreign offices, as well 
as certain sweep account arrangements.\27\ For these purposes a deposit 
account also includes omnibus accounts reflected on the books and 
records of the Covered Institution used to temporarily house customer 
funds, such as those used in connection with sweep transactions.
---------------------------------------------------------------------------

    \27\ As noted above, non-closed deposit accounts include those 
that are open, dormant, inactive, abandoned, restricted, frozen or 
blocked, in the process of closing or subject to escheatment.
---------------------------------------------------------------------------

    The nature of a provisional hold. The final rule requires a 
persistent provisional hold to be applied once (on or immediately after 
the day of failure) and stay on the deposit account until it is removed 
at the order of the FDIC. Once applied, the persistent hold would 
reduce the customer's available balance.
    The proposed rule discussed the use of memo holds and holding 
balances in an alternate account, such as a work in progress or 
suspense account. The use of these alternatives could reduce 
implementation costs. Under the final rule, a Covered Institution may 
apply to the FDIC to develop a provisional holds process involving memo 
holds or alternative account mechanisms. If used, the Covered 
Institution is required to obtain prior approval from the FDIC in 
response to a written request, including a justification for the 
process and its relative effectiveness for posting provisional holds in 
the event of failure.
    Provisional holds for deposit accounts. Under the final rule, a 
Covered Institution is required to develop and implement a process 
whereby a provisional hold could be placed on each deposit account in 
excess of the ``account balance threshold'' specified by the FDIC on 
the day of failure.\28\ No provisional hold would be placed on a 
deposit account with a balance less than or equal to the account 
balance threshold. For a deposit account above the account balance 
threshold, the FDIC would specify, again on the day of failure, a 
percentage (the ``provisional hold percentage'') that would be 
multiplied by the account balance in excess of the account balance 
threshold.\29\ The product of this multiplication would equal the 
dollar amount of the provisional hold. The final rule requires a 
Covered Institution to adopt systems allowing the hold to be calculated 
and placed. The account balance threshold as well as the provisional 
hold percentage could vary for the following four categories, as the 
Covered Institution customarily defines them:
---------------------------------------------------------------------------

    \28\ The account balance threshold could be any dollar amount 
specified by the FDIC, including zero.
    \29\ The provisional hold percentage could be any percentage 
specified by the FDIC, from 0 to 100 percent.
---------------------------------------------------------------------------

    1. Consumer demand deposit, negotiable order of withdrawal 
(``NOW'') and money market deposit accounts (``MMDA'').
    2. Other consumer deposit accounts (time deposit and savings 
accounts, excluding NOW accounts and MMDAs).
    3. Non-consumer demand deposit, NOW accounts and MMDAs.
    4. Other non-consumer deposit accounts (time deposit and savings 
accounts, excluding NOW accounts and MMDAs).
    One commenter requested confirmation that the proposed rule would 
not require changes to brokered deposit recordkeeping or require 
brokers to develop systems to comply with the rule. The final rule does 
not impose any such requirements, although deposit brokers may be 
affected in the event of the failure of a Covered Institution. Under 
the final rule a brokered deposit would be treated as any other deposit 
account for provisional hold purposes. The implications for deposit 
brokers may vary depending on the ability of the underlying owners to 
access funds in the account or otherwise change their ownership 
interests. Some brokered deposit accounts may be structured as money 
market deposit accounts, for example, thus allowing the underlying 
owners check-writing access to funds in the account. If an underlying 
owner with an uninsured interest removes funds from the account 
subsequent to failure, the result might be a shortfall to other 
underlying owners. Responsibility for this shortfall will rest with the 
broker or agent in whose name the account is titled, and not the FDIC 
as insurer.
    Provisional holds for foreign deposits. Under the final rule, a 
Covered Institution is required to develop and implement a process 
whereby a provisional hold could be placed on each foreign deposit 
account on the day of failure applying a provisional hold percentage to 
the entire account balance. For foreign deposits the provisional hold 
percentage may differ from that applied to deposit accounts. Also, the 
provisional hold percentage would not vary by account category (i.e., 
consumer versus non-consumer and transaction versus non-transaction) as 
is the case with deposit accounts.
    The proposed rule would have required the provisional hold 
percentage on foreign deposits to vary by country. Several commenters 
noted that foreign deposits frequently are housed on a single deposit 
system within the institution. It was argued that the application of 
different provisional hold mechanisms based on a country would be 
burdensome. After considering these comments, the FDIC believes an 
effective provisional hold strategy could be implemented without the 
need for country-by-country distinctions.
    Provisional holds for IBF deposits. Under the final rule, a Covered 
Institution is required to develop and implement a process whereby a 
provisional hold could be placed on each IBF deposit account on the day 
of failure applying a provisional hold percentage to the entire account 
balance. For IBF deposits the provisional hold percentage may differ 
from that applied to deposit or foreign deposit accounts. Also, the 
provisional hold percentage would not vary by account category (i.e., 
consumer versus non-consumer, and transaction versus non-transaction) 
as is the case with deposit accounts.
    Provisional holds for deposit accounts with prearranged, automated 
sweep features. For sweep accounts \30\ under the final rule the FDIC 
will consider a deposit account through which the customer has primary 
access to deposited funds--usually a demand deposit account--as the 
``base sweep account.'' The investable or excess account balance is 
swept periodically into a ``sweep investment vehicle.''
---------------------------------------------------------------------------

    \30\ Sweep accounts as described here do not include zero 
balance account (ZBA) arrangements that move funds to and from a 
master (or concentration) deposit account and one or more subsidiary 
deposit accounts at the same bank. Such deposit account arrangements 
are not intended to provide a yield on excess deposit balances nor 
do they change the customer's insurance status. ZBAs would be 
subject to the provisional hold methodology for deposit accounts 
described above.
---------------------------------------------------------------------------

    In the case where the sweep investment vehicle is another deposit 
account in the same institution, both the base sweep account and the 
sweep investment vehicle are deposits subject to the provisional hold 
requirements of a deposit account. Some sweep arrangements channel 
funds through an omnibus account as an intermediate step prior to their 
transfer to the sweep investment vehicle. In some cases, such as with 
``next-day'' money market mutual fund sweeps, customer funds

[[Page 41190]]

will reside in the omnibus deposit account as reflected in the Covered 
Institution's end-of-day ledger balances. Under the final rule the 
omnibus account is subject to the provisional hold requirements of a 
deposit account.
    In the case where the sweep investment vehicle is housed in a 
separate legal entity other than the Covered Institution (e.g., a 
proprietary or third-party money market mutual fund), funds residing in 
the base sweep account (if any) are subject to a provisional hold as 
any other deposit account. No provisional hold is required for funds 
residing outside the Covered Institution in the sweep investment 
vehicle.
    All other sweep accounts, those where the sweep investment vehicle 
is not a deposit and is reflected on the books and records of the 
Covered Institution, are required by the final rule to have a dual 
provisional hold methodology. This means that, for the fund balance 
remaining in the base sweep account as of the institution's customary 
end-of-day on the day of failure, the provisional hold methodology will 
be the same as applied to other deposit accounts. But, for the funds 
residing in the sweep investment vehicle as of the institution's 
customary end-of-day, the provisional hold methodology will have a 
separate account balance threshold and provisional hold percentage.\31\ 
Under the final rule the balance threshold as well as the provisional 
hold percentage may vary for different types of sweep investment 
vehicles.\32\
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    \31\ Some Covered Institutions may allow a single base sweep 
account to be associated with multiple investment vehicles. In this 
case a separate provisional hold methodology must be developed for 
each investment vehicle.
    \32\ Some alternative investment vehicles are deposits held in 
foreign offices. These foreign deposits would be subject only to the 
provisional hold methodology for the sweep alternative investment. 
Such foreign deposits would be excluded from the provisional hold 
methodology designed for non-sweep deposits held in the same foreign 
office.
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    The proposed rule distinguished between Class A and Class B sweep 
account arrangements, where Class A sweep arrangements were those where 
the sweep investment vehicle is either a deposit or a money market 
mutual fund account while Class B covered all other sweep arrangements. 
In response to comments and for better clarity this distinction is not 
used in the final rule.
    The final rule does not require mechanisms to stop the processing 
of any prearranged deposit account sweep transactions in the event of 
failure. The provisional holds described above would allow for the 
transfer of balances from a deposit account to a sweep investment 
vehicle. The provisional holds would apply to liability accounts as 
they are designated on the books and records of the institution at its 
customary end-of-day.
    One commenter noted that frequently ``systems or processes for 
booking swept products (like securities repos, money market mutual 
funds or fed funds) are not like a deposit system that would have 
functionality for holds. In many cases, there are not `accounts' in a 
sense equivalent to a deposit account. * * * Due to the structure, 
timing and automated processes of sweeps, there is no practical ability 
of a customer to access and remove such funds until the incoming side 
of that sweep transaction is processed and the funds are placed back 
into the U.S. deposit account. Bank deposit systems could utilize 
existing capabilities to either place holds on the domestic deposit 
account upon return of the funds or a bank could trap such funds prior 
to their being returned by routing such funds into an alternative 
suspense account. This method would allow the FDIC to control such 
funds until it releases them to the customer and would reduce the 
burden and cost of process and technology development.'' The final rule 
would allow a Covered Institution to apply to the FDIC to use such 
approaches. If used, the Covered Institution is required to obtain 
prior approval from the FDIC in response to a written request, 
including a justification for the process and its relative 
effectiveness for posting provisional holds in the event of failure.
    Provisional holds for deposit accounts which accept automated 
credits from funds invested within the Covered Institution. The final 
rule requires a dual provisional hold methodology for automated credit 
accounts. For the fund balance remaining in the automated credit 
account as of the institution's customary end-of-day the provisional 
hold methodology would be the same as applied to other deposit 
accounts. For the funds residing in the investment vehicle as of the 
institution's customary end-of-day, the provisional hold methodology 
must have the capability of a separate account balance threshold and 
provisional hold percentage.\33\ The account balance threshold as well 
as the provisional hold percentage are required to vary for different 
types of investment vehicles. These account balance thresholds and 
provisional hold percentages could be different from those applied to: 
(1) Funds automatically swept into a similar or identical investment 
vehicle or (2) funds held in a similar or identical investment vehicle 
that does not provide for an automated crediting of funds.\34\
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    \33\ Some automated credit accounts may also be a base sweep 
account. In this case a separate provisional hold methodology must 
be developed for each investment vehicle. It is possible, for 
example, for a customer to each day provide the institution with 
instructions to invest a certain amount of funds in a Cayman Island 
branch time account where the funds would be returned to the 
customer's demand deposit account the following morning. Further, 
the customer may also have provided prearranged instructions to have 
excess balances residing in the same demand deposit account swept to 
a Cayman Island branch account where such funds also are returned to 
the demand account the following morning. In this case the Covered 
Institution must have a provisional hold methodology that: (1) 
Treats funds residing in the demand deposit account as of the 
institution's end-of-day consistent with other deposit accounts, (2) 
treats funds residing in the Cayman Island branch account as a 
result of the prearranged sweep consistent with other Cayman Island 
sweep investment vehicles and (3) treats funds residing in the 
Cayman Island branch account as a result of the daily investment 
instructions using a separate account balance threshold and 
provisional hold percentage.
    \34\ Some investment vehicles are foreign deposits. These funds 
would be subject only to the provisional hold methodology for the 
automated credit account. Such accounts would be excluded from the 
provisional hold methodology designed for non-sweep foreign deposits 
held in the same office.
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    Account balance used for provisional hold calculation. The final 
rule requires the account balance threshold and provisional hold 
percentage to be applied against the end-of-day ledger balance 
calculated by the institution as of the date of failure.
    Provisional hold duration. Under the final rule, the methodology 
for implementing a provisional hold process will be required to hold 
funds until removed by the Successor Institution as instructed by the 
FDIC. Provisional holds will be removed when the results of the deposit 
insurance determination are available, generally anticipated being 
several days after failure, depending on the size and complexity of the 
failed institution's deposit base.
    Provisional hold designation. The final rule requires provisional 
holds to be labeled ``FDIC Hold.''
    Provisional hold customer disclosure. The majority of the 
commenters addressing the issue of provisional hold disclosure 
indicated it would be burdensome and unnecessary. They indicated the 
FDIC has other means at its disposal to notify customers the 
provisional holds are in place. Once placed, the provisional hold will 
be reflected in the account's available balance, which can be viewed 
and accessed through normal channels.
    The final rule does not require the development of new mechanisms 
so that provisional holds, once placed, would be apparent if the 
customer

[[Page 41191]]

views account information on-line or through other means.
    Security level and mechanism for manual removal of provisional 
holds. The final rule requires the Covered Institution to create 
policies, procedures and systems reasonably capable of preventing the 
alteration of FDIC provisional holds or other FDIC hold amounts except 
under the specific written direction of the FDIC.
    Timeliness of the provisional holds process. The final rule 
requires a Covered Institution to have the capability of placing 
provisional holds on the applicable accounts prior to the Successor 
Institution opening for business the following day, but in no case 
later than 9 a.m. local time the day following the day of the 
depository institution failure.
    Exception for systems with a small number of accounts. The final 
rule allows an exception for account systems servicing a relatively 
small number of accounts making the manual application of provisional 
holds feasible. If used, the Covered Institution is required to obtain 
prior approval from the FDIC in response to a written request, 
including a justification for the manual process and its relative 
effectiveness for posting provisional holds in the event of failure.
    Institutional contacts. The final rule requires a Covered 
Institution to notify the FDIC of the person(s) responsible for 
producing the standard deposit data download and administering 
provisional holds, both while this functionality is being constructed 
and on an on-going basis. The Covered Institution is responsible for 
ensuring such contact information is current.

Removal of Provisional Holds

    Removal of provisional holds. Under the final rule, the Successor 
Institution is required to remove provisional holds in batch as 
specified by the FDIC. On the day(s) provisional holds are to be 
removed, the FDIC would provide the Successor Institution with a file 
listing the accounts subject to removal of the provisional hold. The 
file format is shown in Appendix A. The file will be in a tab-or pipe-
delimited ASCII format and provided to the Successor Institution 
through FDICconnect or Direct Connect, depending on the size of the 
file. The file will be encrypted using an FDIC-supplied algorithm. The 
FDIC will provide the Successor Institution with the necessary software 
algorithms needed to decrypt the data files.
    In addition to the batch process used to remove provisional holds, 
the Covered Institution is required to have in place a mechanism for 
manual removal of provisional holds on a case-by-case basis. The FDIC 
expects that virtually all provisional holds will be removed via the 
batch process described above; however, the removal of provisional 
holds on a case-by-case basis during the business day, which could 
include the day following failure, may also be necessary to provide an 
individual depositor access to funds.

Provisional Hold Replacement Transactions

    Debiting and crediting accounts after provisional holds are 
removed. Under the final rule, on the day a provisional hold removal 
file is provided to the Successor Institution, the FDIC also will 
provide a file or set of files in a tab-or pipe-delimited ASCII format 
listing the accounts subject to debit or credit transactions, which 
reflect the results of the insurance determination process. Appendix B 
provides details on the debit/credit data file structure. The debit and 
credit transaction file will be transmitted to the Successor 
Institution through FDICconnect or Direct Connect, depending on the 
size of the file. The file will be encrypted using an FDIC-supplied 
algorithm.
    Posting of additional FDIC holds. Under the final rule, on the day 
provisional holds are to be removed, the FDIC also will provide the 
Successor Institution with a file listing the accounts subject to a new 
hold to be placed after the removal of the provisional hold. The file 
format is shown in Appendix A. The file will be in a tab-or pipe-
delimited ASCII format and provided to the Successor Institution 
through FDICconnect or Direct Connect, depending on the size of the 
file. The file will be encrypted using an FDIC-supplied algorithm.

Removal of Additional FDIC Holds

    Under the final rule, in some cases provisional holds will be 
replaced by a second FDIC hold. These holds will be removed over time 
as further information is gathered from depositors needed to complete 
the insurance determination. These additional FDIC holds will be 
removed using the same file format described in Appendix A.

The Generation of Deposit Account and Customer Data in a Standard 
Structure

    The final rule requires a Covered Institution to have in place 
practices and procedures to provide the FDIC with required depositor 
and customer data in a standard format following the close of any day's 
business. The depositor and customer data would be provided as soon as 
practicable, but in no case later than by the following calendar day, 
and must reflect the end-of-day ledger balances as customarily shown on 
the books and records of the Covered Institution as of the day data are 
requested. Furthermore, all other deposit account and customer data 
provided must be current as of the close of business on that day.
    Covered Institutions are not required to collect or generate new 
depositor or customer information. The standard data files would be 
created through a mapping of pre-existing data elements and internal 
institution codes into standard data formats. Data will be provided on 
all non-closed deposit or foreign deposit accounts as well as sweep and 
automated credit accounts.
    Files. The final rule requires these data to be provided in the 
following five separate files:
    1. Deposit file. Data fields for each non-closed deposit or foreign 
deposit account,\35\ except those accounts serving as an investment 
vehicle reported in the Sweep/Automated Credit file. See Appendix C for 
more detail.
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    \35\ For these purposes a deposit account also includes omnibus 
accounts reflected on the books and records of the Covered 
Institution used to temporarily house customer funds, such as those 
used in connection with sweep transactions.
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    2. Sweep/Automated Credit file. Data fields capturing information 
on funds residing in investment vehicles linked to each non-closed 
deposit account: (1) Involved in sweep activity where the sweep 
investment vehicle is not a deposit and is reflected on the books and 
records of the Covered Institution or (2) which accept automated 
credits. See Appendix D for more detail.
    3. Hold file.\36\ Deposit hold data fields for each non-closed 
deposit account. See Appendix E for more detail.
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    \36\ The Hold file contains information on holds against each 
deposit account, including FDIC provisional holds. Since provisional 
holds may be generated after the completion of an institution's 
nightly deposit processing cycle, they may not be reflected fully in 
the Hold file generated as of the day of closing. In this case the 
FDIC would require a second Hold file to be generated the day 
following closing to fully capture provisional holds that may not 
have been posted until the next deposit processing cycle.
---------------------------------------------------------------------------

    4. Customer file. Data fields for each customer. See Appendix F for 
more detail.
    5. Deposit-customer join file. Data necessary to link each deposit 
and foreign deposit with the customers who have an interest in the 
account. See Appendix G for more detail.
    Possible file combinations. The final rule provides that data could 
be submitted using one of each deposit, sweep/automated credit, hold, 
customer, and deposit-customer join files. Alternatively, data could be 
supplied using multiple files for each

[[Page 41192]]

type. The number of files could correspond to the number of 
institutional systems of record, for example. When an institution 
provides multiple data files for a single deposit application, all of 
the files must sum to the institution's subsidiary system control 
totals. In addition, either a set of customer files or a single 
customer file must accompany the deposit file(s). See Appendix H for 
rules governing the possible file combinations for depositor and 
customer data.
    File format. Under the final rule depositor and customer data files 
must be provided in tab- or pipe-delimited ASCII format. Each file name 
would contain the institution's FDIC Certificate Number, the file type 
(deposit, sweep, hold, customer, join or other) and the date of the 
extract. Additional data could be provided, not required by the 
regulation, that may be helpful to the FDIC's deposit insurance 
determination process. For these additional files, the names should 
describe the file content such as ``lookup table'' or ``product 
codes''. All files will be compressed and encrypted using an FDIC-
supplied or specified algorithm. The FDIC would transmit the encryption 
algorithm over FDICconnect. The FDIC will support an ASCII file format.
    File transmission mechanism. Under the final rule, the data files 
must be provided to the FDIC in the most expeditious manner. Data which 
are compressed and encrypted could be transmitted to the FDIC using 
FDICconnect or a secure FTP site which the FDIC has established for 
this purpose. Should the volume be too great to be transmitted 
electronically, then a portable hard drive should be used and 
physically transported by FDIC personnel to the FDIC's data processing 
facilities.

Testing Requirements

    The FDIC will conduct an initial test at each Covered Institution 
sometime after the initial implementation period ends.\37\ All testing 
will be coordinated with the financial institution and conducted at the 
site of their choosing if multiple sites are available. Once the 
initial test is completed successfully, the FDIC anticipates conducting 
additional tests infrequently at institutions that do not make major 
changes to their deposit systems \38\--perhaps only once every three-
to-five years. More frequent testing may be necessary for institutions 
that make major acquisitions, experience financial distress (even if 
the distress is unlikely to result in failure) or undertake major 
system conversions.
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    \37\ In addition to testing, the FDIC expects to require that 
information contact points be validated (and updated as needed).
    \38\ A major change to a deposit system means a change made to a 
Covered Institution's data environment affecting one or more of the 
data elements described in attached Appendices. Changes could be the 
result of a merger or the streamlining of a financial institution's 
systems of record.
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    Covered Institutions will be asked to establish a series of test 
accounts on their deposit account systems that could be used for 
verification purposes. These accounts will be used to verify the 
processing of holds, debits and credits.
    The FDIC also contemplates development of a XML validation service 
to be provided to each Covered Institution for the purpose of 
establishing compliance with the standard data requirements for 
depositor and customer records. The XML schema will read a file (which 
has been created in the standard format), validate the accuracy and 
integrity of the file content and provide a report that establishes the 
institution's compliance with the criteria. In addition to the XML 
service, the FDIC also will provide a description of the validation 
process to help facilitate institutional testing.
    Covered Institutions will be responsible for ensuring that a 
representative sample of data has been passed through the XML 
validation service. At a minimum the sampling strategy should cover a 
cross-section of different insurance categories and of account ledger 
balances maintained by the institution. The Covered Institution will be 
required to provide the FDIC its sampling strategy along with the 
validation results as a part of the periodic verification process.
    To reduce the frequency of FDIC testing and ensure ongoing 
compliance, the FDIC will require Covered Institutions to conduct tests 
in-house every year and provide the FDIC with verification that the 
test was conducted, a summary of the test results and certification 
that the functionality can be successfully implemented.
    In addition, the FDIC will test certain other requirements inside 
the institution, including but not limited to the ability to place and 
remove provisional holds, place new holds and implement debits and 
credits using a data set that meets the FDIC standards.

Implementation Requirements

    Institutions meeting the criteria of a Covered Institution upon the 
effective date of the regulation. The final rule requires a Covered 
Institution to fully implement the respective requirements no later 
than 18 months from the regulation's effective date.
    Institutions meeting the criteria of a Covered Institution after 
the effective date of the regulation. The final rule requires that any 
insured institution meeting the criteria of a Covered Institution for 
at least two consecutive quarters will have 18 months following the end 
of the two consecutive quarters in which to fully implement the 
respective requirements.
    Merger involving two Covered Institutions. Under the final rule, 
the requirements are to be fully implemented within 18 months following 
the completion of an acquisition, although an acquisition does not 
delay any implementation requirements which may already have been in 
place for the individual institutions involved in the merger.
    Merger involving a Covered and Non-Covered Institution. Under the 
final rule, the requirements are to be fully implemented within 18 
months following the completion of an acquisition, although a merger 
does not delay any implementation requirements which may already have 
been in place for the individual institutions involved in the merger.
    Exception for certain institutions. Under the final rule, on a 
case-by-case basis, the FDIC could accelerate the implementation 
timeframe of all or part of the final rule for a Covered Institution 
that: (1) Has a composite rating of 3, 4 or 5 under the Uniform 
Financial Institutions Rating System (commonly referred to as 
CAMELS),\39\ or in the case of an insured branch of a foreign bank, an 
equivalent rating, (2) is undercapitalized as defined for purposes of 
the prompt corrective action (``PCA'') rules \40\ or (3) is determined 
by the appropriate Federal banking agency or the FDIC in consultation 
with the appropriate Federal banking agency to be experiencing a 
significant deterioration of capital or significant funding 
difficulties or liquidity stress, notwithstanding the composite rating 
of the institution by its appropriate Federal banking agency in its 
most recent report of examination. In determining the accelerated 
implementation timeframe for such institutions, the FDIC will consider 
such factors as the: (1) Complexity of the institution's deposit 
systems and operations; (2) extent of asset quality difficulties; (3) 
volatility of funding sources; (4) expected near-term

[[Page 41193]]

changes in capital levels; and (5) other relevant factors appropriate 
for the FDIC to consider in its roles as insurer and possible receiver 
of the institution. The final rule requires the FDIC to consult with 
the Covered Institution's primary federal regulator in determining 
whether to implement this provision.
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    \39\ CAMELS is an acronym drawn from the first letters of the 
individual components of the rating system: Capital adequacy, Asset 
quality, Management, Earnings, Liquidity, and Sensitivity to market 
risk.
    \40\ 12 CFR Part 325.
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    Applications for extension of implementation requirements. The 
final rule provides that a Covered Institution could request an 
extension of the 18-month deadline for implementing the requirements. 
An application for such an extension would be subject to the FDIC's 
rules of general applicability, 12 CFR 303.251. For good cause shown, 
the FDIC could grant the application for an extension.
    One commenter requested that the FDIC provide an exemption from the 
proposed requirements for deposit systems which may be retired in the 
near future, as long as the replacement system is intended to be 
compliant. Such a request could be addressed as an application for 
extension of implementation requirements.

New Deposit Accounts

    The proposed rule asked whether a unique depositor ID should be 
assigned by Covered Institutions when a new account is opened and to 
indicate the relative costs of such a requirement. Commenters generally 
indicated the assignment of a unique depositor ID was burdensome and 
unnecessary to meet the FDIC's objectives. The final rule does not 
include a requirement to assign a unique depositor ID when a new 
account is opened.

FDIC Contact

    Applications for an exemption from the criteria of a Covered 
Institution, a request for flexibility in the use of provisional holds, 
an extension of implementation requirements or the submission of point-
of-contact information should be submitted in writing to: Office of the 
Director, Division of Resolutions and Receiverships, Federal Deposit 
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429-0002.

VI. Plain language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. No commenters suggested that the proposed rule was 
unclear, and the final rule is substantively similar to the proposed 
rule.

VII. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, the FDIC may not conduct or sponsor, and respondents are not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
The FDIC submitted the information collections (as more fully described 
below) contained in this rule to OMB for review. No collections of 
information will be made until OMB approval has been obtained.
    Background/General Description of Collection: Section 360.9 
contains collections of information pursuant to the Paperwork Reduction 
Act (44 U.S.C. 3501 et seq.) (``PRA''). In particular, the following 
requirements of this proposed rule constitute collections of 
information as defined by the PRA: (A) All notices that Covered 
Institutions must provide the FDIC of persons responsible for producing 
the standard data download and administering provisional holds, both 
while the functionality is being constructed and on an on-going basis 
(360.9(c)(3)); (B) written practices and procedures for providing the 
FDIC with required deposit account and customer data, as to all 
accounts held in domestic and foreign offices, in a standard format 
upon the close of any day's business, to be created through a mapping 
of pre-existing data elements into standard data formats in six 
separate files, as indicated in the appendices to this Part 360 
(360.9(d) (1) and (2); (C) all data provided to the FDIC pursuant to 
360.9(d)(3); and (D) the dollar costs and time burdens associated with 
information systems acquisition, modification and maintenance that 
respondents will need in order to respond to the information 
requirements. Items A, B, C, and D are reflected, to some extent, as 
on-going burdens and costs; Item D represents primarily implementation 
or ``start-up'' burdens and costs. As discussed below, the FDIC has 
clarified its burden estimates in order to distinguish on-going costs 
and burdens from implementation or start-up costs and to provide 
additional detail concerning the FDIC's calculations.
    Costs estimated in the proposed rule: Compliance with the 
requirements of the proposed rule would have required Covered 
Institutions to implement functionality to post provisional holds, 
remove provisional holds, post debit and credit transactions, post 
additional holds and provide customer data in a standard format 
reconciled to supporting subsidiary systems. These requirements also 
were required to be supported by policies and procedures as well as 
notification of individuals responsible for the systems. Further, the 
requirements involved on-going costs for testing and general 
maintenance and upkeep of the functionality. Estimates of both initial 
implementation and on-going costs were provided.
    In the proposed rule implementation costs were estimated to vary 
widely among the Covered Institutions due to considerable differences 
in the complexity and scope of the deposit operations across Covered 
Institutions. Some Covered Institutions only slightly exceeded the 
250,000 deposit account threshold while several institutions had over 
20 million deposit accounts. In addition, some Covered Institutions--
most notably the largest-have proprietary deposits systems likely 
requiring an in-house, custom solution for the proposed requirements 
while most--generally the small-to-mid-sized ones--purchase deposit 
software from a vendor or use a servicer for deposit processing. 
Deposit software vendors and servicers were expected to incorporate the 
proposed requirements into their products or services to be available 
for their clients. In these cases estimated implementation costs were 
greatly reduced. The analysis assumed 100 of the 159 Covered 
Institutions, or 63 percent, would have reduced implementation costs 
due to the use of software or services from a vendor.
    The cost estimates used in the proposed rule were based on comments 
from the 2005 and 2006 ANPRs that provided some indication of 
implementation and on-going costs. Further, during November 2007 the 
FDIC had conversations with several Covered Institutions and deposit 
software vendors, which also assisted in formulating these cost 
estimates.
    For Covered Institutions with proprietary deposit systems 
implementation costs were estimated to vary considerably. The costs for 
the least complex of these institutions were estimated to range between 
$250,000 and $350,000.\41\ For super-regional organizations 
implementation costs were estimated to be between $2 million and $4 
million.\42\ The costs for the largest, most complex Covered 
Institutions were estimated to be several

[[Page 41194]]

times that of the super-regional organizations. For Covered 
Institutions using software or servicing provided by a vendor 
implementation costs were estimated to be $13,000 to $20,000 per 
institution. These costs primarily were due to installation of software 
received from the vendor.
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    \41\ Compliance with the proposed requirements would require 
staff time. The analysis assumed an hourly cost of $160 for Covered 
Institutions.
    \42\ The comment letter provided by the American Bankers 
Association dated March 13, 2007 in response to the 2006 ANPR 
indicated cost estimates provided by members ranged from $2 million 
to $6 million per institution for implementation (page 3).
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    Using this methodology overall industry implementation costs were 
estimated to range between $50 million and $100 million. The best 
estimate of implementation costs is the mid-point of this range, or $75 
million. In reviewing implementation costs as part of the comments 
received from previous ANPRs the FDIC viewed them relative to a one 
basis point assessment against deposits. In this context the estimated 
implementation costs ranged between 11 and 21 percent of a one basis 
point assessment against deposits of Covered Institutions. The mid-
point cost estimate would have been 16 percent.
    On-going costs for testing, maintenance and other periodic items 
were estimated to range between $6,000 and $13,000 for those Covered 
Institutions using software or servicing provided by a vendor. For 
super-regional organizations on-going costs were estimated to be 
between $150,000 and $250,000. The largest, most complex Covered 
Institution was estimated to have on-going costs as high as $500,000 
per year. Overall, on-going industry cost estimates ranged from $4 
million to $6.5 million, or 0.8 to 1.4 percent of a one basis point 
assessment against the deposits of Covered Institutions.
    Comments: Several commenters provided estimates for implementation. 
These cost estimates are discussed in the preamble to the final rule. 
In general, the implementation cost estimates provided by commenters 
were consistent with the assumptions used in the proposed rule. The 
largest, most complex depository institution estimated implementation 
costs to be $8 million to $10 million, within the range of the estimate 
for this institution used in the calculations for the proposed rule.
    Updated cost estimates: The requirements of the final rule 
effectively are identical to the proposed rule. Further, there was 
considerable consistency between the cost comments provided from the 
proposed rule and the assumptions used by the FDIC to estimate the 
costs of the proposed rule. Therefore, the FDIC has not changed its 
estimates regarding implementation or on-going costs.
    When the proposed rule was issued 159 depository institutions were 
estimated to meet the criteria of a Covered Institution. This estimate 
was based on Call and Thrift Financial Report data as of June 2007. 
Since this reporting date eight institutions included in these 159 no 
longer exist due to a merger or acquisition. For commercial banks the 
number of deposit accounts is reported only once a year in June. Based 
on analysis from prior years, the number of institutions potentially 
covered by the criteria has been about 160. While the number of 
potentially covered institutions is reduced each year due to merger and 
acquisition activity, it also has increased as new institutions grow in 
size to meet the criteria. In this regard, for the purposes of this 
cost analysis, the FDIC is assuming that since June 2007 an additional 
eight depository institutions (which it is unable to identify at this 
point) have met the requirements of a Covered Institution. Therefore, 
the FDIC is still basing its cost estimate on 159 Covered Institutions.
    OMB Number: New collection.
    Frequency of Response: On Occasion.
    Affected Public: Insured depository institutions having at least $2 
billion in domestic deposits and either at least: (i) 250,000 deposit 
accounts; or (ii) $20 billion in total assets.
    Estimated Number of Respondents: 159.
    On-Going Burden Hours and Costs:
    Estimated Time per Response: 157 hours to 255.5 hours. These hours 
are calculated as follows: $4 million low-end, annualized, over-all 
industry estimated costs for on-going burden / $160 per hour salary / 
159 respondents = 157 hours; and $6.5 million high-end, annualized, 
over-all industry estimated costs for on-going burden / $160 per hour 
salary / 159 respondents = 255.5 hours.
    Estimated Total Annual Burden: 25,000 hours to 40,625 hours. These 
hours are calculated as follows: 157 hours x 159 respondents = 25,000 
hours at a minimum; and 255.5 hours x 159 respondents = 40,624.5 hours 
at a maximum.
    On-going costs for testing, maintenance and other periodic items 
are estimated to range between $6,000 and $13,000 for those Covered 
Institutions using software or servicing provided by a vendor. For 
super-regional organizations on-going costs are estimated to be between 
$150,000 and $250,000. The largest, most complex Covered Institution 
was estimated to have on-going costs as high as $500,000 per year. 
Overall, on-going industry cost estimates ranged from $4 million to 
$6.5 million. Placed in context, this is 0.8 to 1.4 percent of a one 
basis point assessment against the deposits of Covered Institutions. 
This analysis assumes a cost of $160 per hour for Covered Institutions, 
as suggested by Covered Institutions and vendors.

Implementation Burden Hours and Costs--Capital Start-Up Costs

    Estimated Time per Individual Response: 80 hours to 75,000 hours 
per respondent. With regard to the one-time burden of adopting 
mechanisms required to facilitate provisional holds and standard data 
sets, the FDIC estimates a range from 80 hours for the smallest Covered 
Institutions with the least expensive systems, to 75,000 hours for the 
largest Covered Institutions with the most expensive systems. As 
discussed elsewhere, there is a broad range in the complexity and size 
among Covered Institutions, with the smallest having $2.5 billion in 
total assets and the largest having over $1.3 trillion in total assets. 
The FDIC estimated the range of hours per institution as follows: 
$13,000 overall implementation cost for the smallest, least expensive 
programs using vendor-provided software / $160 per hour salary = 80 
hours; and $12,000,000 overall implementation for the most complex, 
expensive programs using proprietary software / $160 per hour salary = 
75,000 hours. The FDIC considered this range of hours in estimating the 
average response time shown below.
    Estimated Time per Average Response: 1,965 hours to 3,931 hours. 
The FDIC calculated the average, start-up cost of acquiring software/
hardware for the industry as a whole (i.e., all Covered Institutions) 
based upon the cost estimates provided by Covered Institutions, vendors 
and servicers with a low end of $50,000,000 and a high-end of 
$100,000,000. The calculations are as follows: $50,000,000 / $160 per 
hour salary / 159 Covered Institutions = 1,965 hours; and $100,000,000 
/ $160 per hour salary / 159 Covered Institutions = 3,931 hours.
    Estimated Total Annual Burden: 312,500 hours to 625,000 hours. 
Minimum hours calculated as: 1,965 hours x 159 respondents = 312,435 
hours; maximum hours calculated as: 3,931 hours x 159 respondents = 
625,029 hours.
    Estimated Total Annual Burden--Annualized: 104,200 hours to 208,350 
hours. The FDIC averaged over the three-year collection period the 
burden of start-up costs associated with the cost of acquiring 
software/hardware for the industry as a whole (i.e., all Covered 
Institutions). The calculations are as follows: 312,500 hours / 3 = 
104,167 hours; and 625,000 hours / 3 = 208,333 hours.

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    Comment Request: The FDIC has an ongoing interest in public 
comments on its collections of information, including comments on: (a) 
Whether the collection of information is necessary for the proper 
performance of the Agencies' functions, including whether the 
information has practical utility; (b) the accuracy of the estimates of 
the burden of the information collection, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; (d) ways to 
minimize the burden of the information collection on respondents, 
including through the use of automated collection techniques or other 
forms of information technology; and (e) estimates of capital or start 
up costs and costs of operation, maintenance, and purchase of services 
to provide information. Comments may be submitted to the FDIC by any of 
the following methods: By mail to the Executive Secretary, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429; by FAX at (202) 898-8788; or by e-mail to comments@fdic.gov. All 
comments should refer to ``Large Bank Deposit Insurance 
Modernization.'' Copies of comments may also be submitted to the OMB 
desk officer for the FDIC, Office of Information and Regulatory 
Affairs, Office of Management and Budget, New Executive Office 
Building, Room 10235, Washington, DC 20503.

VIII. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA), 
5 U.S.C. 605(b), the FDIC certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities, 
within the meaning of those terms as used in the RFA. The final rule 
requires the largest insured depository institutions to adopt 
mechanisms that would, in the event of the institution's failure: (1) 
Provide the FDIC with standard deposit account and customer 
information; and (2) allow the placement and release of holds on 
liability accounts, including deposits. The final rule applies only to 
Covered Institutions--defined in the final rule as insured depository 
institutions having at least $2 billion in domestic deposits and 
either: (1) More than 250,000 deposit accounts; or (2) total assets 
over $20 billion, regardless of the number of deposit accounts. There 
are no small banking organizations that come within the definition of a 
Covered Institution.

IX. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 360

    Banks, banking, savings associations.

0
For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation hereby amends part 360 of title 12 of the 
Code of Federal Regulations as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

0
1. The authority citation for part 360 continues to read as follows:

    Authority: 12 U.S.C. 1819(a) Tenth, 1821(d)(1), 1821(d)(10)(c), 
1821(d)(11), 1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); 
Sec. 401(h), Pub. L. 101-73, 103 Stat. 357.


0
2. Add new Sec.  360.9 to read as follows:


Sec.  360.9.  Large-bank deposit insurance determination modernization.

    (a) Purpose and scope. This section is intended to allow the 
deposit and other operations of a large insured depository institution 
(defined as a ``Covered Institution'') to continue functioning on the 
day following failure. It also is intended to permit the FDIC to 
fulfill its legal mandates regarding the resolution of failed insured 
institutions to provide liquidity to depositors promptly, enhance 
market discipline, ensure equitable treatment of depositors at 
different institutions and reduce the FDIC's costs by preserving the 
franchise value of a failed institution.
    (b) Definitions.--(1) A covered Institution means an insured 
depository institution which, based on items as defined in Reports of 
Income and Condition or Thrift Financial Reports filed with the 
applicable federal regulator, has at least $2 billion in deposits and 
at least either:
    (i) 250,000 deposit accounts; or
    (ii) $20 billion in total assets, regardless of the number of 
deposit accounts.
    (2) Deposits, number of deposit accounts and total assets are as 
defined in the instructions for the filing of Reports of Income and 
Condition and Thrift Financial Reports, as applicable to the insured 
depository institution for determining whether it qualifies as a 
covered institution. A foreign deposit means an uninsured deposit 
liability maintained in a foreign branch of an insured depository 
institution. An international banking facility deposit is as defined by 
the Board of Governors of the Federal Reserve System in Regulation D 
(12 CFR Sec.  204.8(a)(2)). A demand deposit account, NOW account, 
money market deposit account, savings deposit account and time deposit 
account are as defined in the instructions for the filing of Reports of 
Income and Condition and Thrift Financial Reports.
    (3) Sweep account arrangements consist of a deposit account linked 
to an interest-bearing investment vehicle whereby funds are swept to 
and from the deposit account according to prearranged rules, usually on 
a daily basis, where the sweep investment vehicle is not a deposit and 
is reflected on the books and records of the Covered Institution.
    (4) Automated credit account arrangements consist of a deposit 
account into which funds are automatically credited from an interest-
bearing investment vehicle where the funds in the interest-bearing 
investment vehicle were not invested by prearranged rules.
    (5) Non-covered institution means an insured depository institution 
that does not meet the definition of a covered institution.
    (6) Provisional hold means an effective restriction on access to 
some or all of a deposit or other liability account after the failure 
of an insured depository institution.
    (c) Posting and removing provisional holds.--(1) A covered 
institution shall have in place an automated process for implementing a 
provisional hold on deposit accounts, foreign deposit accounts and 
sweep and automated credit account arrangements immediately following 
the determination of the close-of-business account balances, as defined 
in Sec.  360.8(b)(3), at the failed covered institution.
    (2) The system requirements under paragraph (c)(1) must have the 
capability of placing the provisional holds prescribed under that 
provision no later than 9 a.m. local time the day following the FDIC 
cutoff point, as defined in Sec.  360.8(b)(1).
    (3) Pursuant to instructions to be provided by the FDIC, a covered 
institution must notify the FDIC of the person(s) responsible for 
producing the standard data download and administering provisional 
holds, both

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while the functionality is being constructed and on an on-going basis.
    (4) For deposit accounts held in domestic offices of an insured 
depository institution, the provisional hold algorithm must be designed 
to exempt accounts below a specific account balance threshold, as 
determined by the FDIC. The account balance threshold could be any 
amount, including zero. For accounts above the account balance 
threshold determined by the FDIC, the algorithm must be designed to 
calculate and place a hold equal to the dollar amount of funds in 
excess of the account balance threshold multiplied by the provisional 
hold percentage determined by the FDIC. The provisional hold percentage 
could be any amount, from zero to one hundred percent. The account 
balance threshold as well as the provisional hold percentage could vary 
for the following four categories, as the covered institution 
customarily defines consumer accounts:
    (i) Consumer demand deposit, NOW and money mar