If the institution is participating in the transaction account guarantee program, the notice must also state that funds held in noninterest-bearing transactions accounts at the entity are insured in full by the FDIC. These disclosures must be provided in simple, readily understandable text. Under the Final Rule as amended, the definition of noninterest-bearing transaction accounts includes Interest on Lawyers Trust Accounts and functionally equivalent accounts and low-interest NOW accounts defined as NOW accounts with interest rates no higher than 0.
Thus, institutions that offer such accounts must comply with the disclosure requirements of the transaction account guarantee program. What are the disclosure requirements for the Transaction Account Guarantee Program? Under that program, through December 31, , all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.
Coverage under the Transaction Account Guarantee Program is in addition to and separate from the coverage available under the FDIC's general deposit insurance rules. If the institution uses sweep arrangements or takes other actions that result in funds being transferred or reclassified to an account that is not guaranteed under the transaction account guarantee program for example, an interest-bearing account , the institution must disclose those actions to the affected customers and clearly advise them, in writing, that such actions will void the FDIC's transaction account guarantee.
Similarly, a participating institution should disclose to depositors special situations where the coverage provided under the Transaction Account Guarantee Program may or may not be available, as in the case where an institution issues official checks drawn on another insured depository institution. If the other institution is participating in the Transaction Account Guarantee Program, then the payee of the official check would be fully covered. If the other institution is not a participating institution, then whether the payee is insured for the amount of the official check would be based on the FDIC's general deposit insurance rules.
The institution that provides such official checks to its customers must disclose this information to those customers. Is a lobby notice adequate to indicate to customers that an institution has opted out of the transaction account component of the Temporary Liquidity Guarantee Program? Is there specification of wording on the notice? When do customers have to be notified? Under the transaction account guarantee program, lobby notices advising customers whether the institution is or is not participating in the program are required, as well as website notices if the bank has on-line banking services.
Safe harbor sample disclosure language for both participants and non-participants is included in the final rule. If the institution uses sweep arrangements or takes other actions that result in funds being transferred or reclassified to an account that is not guaranteed under the transaction account guarantee program, for example, an interest-bearing account, the institution must disclose those actions to the affected customers and clearly advise them, in writing, that such actions will void the FDIC's guarantee with respect to the swept, transferred, or reclassified funds.
These disclosure requirements become effective December 19, Prior to that date, eligible entities should provide adequate disclosures of the substance of the requirements in a commercially reasonable manner. The purpose of the disclosure requirement is to ensure that depositors of an insured institution understand the nature and scope of the FDIC protections afforded to their transaction accounts, and situations where some NOW accounts may not qualify for the guarantee are inherently confusing to account holders.
Such disclosures must be provided in simple, readily understandable text. For institutions that offer internet banking services, does the entire transaction account guarantee program disclosure have to appear on a bank's homepage or other website that accesses online banking services , or can the institution simply add a link on the homepage that takes accountholders to an appropriate disclosure?
Following such disclosure of participation, an appropriately titled link to additional disclosures would be acceptable. A link titled simply "transaction account guarantee program" does not ensure that accountholders will see the required disclosure. Something like "Important disclosures regarding the guarantee program" would seem to be appropriate.
What deposit accounts are included in the definition of a "noninterest-bearing transaction account"? All funds in noninterest-bearing transaction deposit accounts held in domestic offices and insured branches in Puerto Rico and U. A "noninterest-bearing transaction account" is defined as a transaction account with respect to which interest is neither accrued nor paid and on which the insured depository institution does not reserve the right to require advance notice of an intended withdrawal.
This definition encompasses traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time.
This definition does not encompass interest-bearing money market deposit accounts MMDAs. However, for purposes of the transaction account guarantee program, the FDIC is including in the definition of a noninterest-bearing transaction account:.
How long will the Temporary Liquidity Guarantee Program's deposit coverage last? The coverage will now last through December 31, for those entities that have not opted out of the program. Deposits payable solely outside the United States including Eurodollar deposits are not guaranteed under the transaction account guarantee component of the Temporary Liquidity Guarantee Program.
However, U. The term "foreign bank" does not include a foreign central bank or other similar non-U. In this context, the phrase "owed to an insured depository institution or a foreign bank" means owed to an insured depository institution or a foreign bank in its own capacity and not as agent. How does the guarantee on noninterest-bearing transaction deposit accounts affect a customer's insurance coverage for other types of accounts?
Does the full deposit insurance coverage for non-interest bearing deposit transaction accounts cover all such accounts in the bank regardless of ownership? For example does it include municipal or government deposits? Will public funds held in non-interest bearing transaction deposit accounts that are collateralized with pledged securities be included in the amount assessed for the guaranteed additional insurance?
Does the institution need to pledge against that part of their aggregate balance that is already covered by FDIC insurance? If a participating institution is required to pledge collateral for public deposits, this requirement is imposed by state law and not by the FDIC's regulations. The amount of collateral would depend upon the wording and meaning of the state law. Any questions about the meaning of the applicable state law should be presented to the state regulator or State Department of Banking.
Are accounts that waive fees or provide fee reducing credits considered "non-interest bearing" under the Temporary Liquidity Guarantee Program? Such account features do not prevent an account from qualifying under the Transaction Account Guarantee Program as a noninterest-bearing transaction account, as long as the account otherwise satisfies the definition. Are interest-bearing accounts that offer zero interest covered under the Temporary Liquidity Guarantee Program?
No, in general, only noninterest-bearing transaction accounts are covered. NOW accounts with interest rates of 0.
Whether an account is noninterest-bearing will be determined by the account agreement regardless of the actual interest paid.
However, the FDIC will treat funds swept from a noninterest bearing transaction account into a noninterest-bearing savings account as being in the noninterest-bearing transaction account for purposes of the guarantee.
Are cashier's checks and money orders covered under the Temporary Liquidity Guarantee Program? Cashier's checks and money orders issued by an insured depository institution are "deposits" as defined in the Federal Deposit Insurance Act.
In addition, these instruments are "demand deposits" and therefore "transaction accounts" as defined in Regulation D. Being "deposits" as well as "transaction accounts," these funds will be protected in full under the transaction account component of the program. Are escrow accounts covered under the Temporary Liquidity Guarantee Program? What is the amount of coverage on the title company's account at the bank if a depository institution opts out? Any institution that opted out during this extension period continued in the TAG program through December 31, Below is a list of the eligible insured depository institutions participating in the original TAG Program that opted out of the first TAG Program extension.
Any election to opt out will be effective on July 1, Each participating IDI that elects to opt out of the TAG extension is also required, on or before May 20, , to amend its disclosures. The extension and modification of the TAG by the FDIC presents participating banks and savings institutions with an important decision to make in a relatively short time. Each institution will want to consider the manner in which the revised program interacts with its own financial condition and business plans.
Whether or not a participating institution decides to continue, conforming changes will be required promptly to existing account documentation and customer disclosures. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. All Rights Reserved. Password Passwords are Case Sensitive. Forgot your password? Free, unlimited access to more than half a million articles one-article limit removed from the diverse perspectives of 5, leading law, accountancy and advisory firms.
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Background The TAG was established by the FDIC in October, , as part of the Federal government's efforts to address the serious disruptions then afflicting the financial services sector. Conclusions The extension and modification of the TAG by the FDIC presents participating banks and savings institutions with an important decision to make in a relatively short time. John K. Last week's widely publicized inter-agency squabble between members of the Board of Directors of the Federal Deposit Insurance Corporation FDIC has thrown a spotlight on efforts to revise With the transition from the Trump Administration to the Biden Administration, the financial regulators heated up their efforts on climate change.
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