The FDIC Board yesterday issued a proposed rule that would clarify that deposits in foreign branches of U.S. banks do not qualify for deposit insurance, but that they would count as deposits for purposes of preference over general creditors if the bank failed.
At issue is the U.S. "depositor preference" policy -- opposed in the United Kingdom -- that requires the FDIC to favor domestic depositors over foreign ones in the payment of failure claims above the standard U.S. deposit insurance limit.
The U.K.'s Financial Services Authority last year issued a proposal intended to ensure that U.K. depositors in foreign banks would be treated no worse than domestic depositors if the institution failed.
The FSA proposed requiring banks with such home-country depositor preference policies to convert their British branches into subsidiaries to allow U.K authorities to potentially use the failed institution's assets to pay off their citizens.
The FDIC's proposal "would allow U.S. banks with U.K. branches to exercise existing authority that would bring them into compliance with the FSA's proposal by making the deposits payable in the United States, without triggering U.S. deposit insurance coverage or the restructuring of branches in subsidiaries," FDIC Chairman Martin Gruenberg said.
ABA President and CEO Frank Keating said the association is thankful the FDIC views its proposal as the first step in a process that will include an ongoing dialogue with the industry.
"It’s critical that we avoid balkanizing our smooth and efficient international banking system by creating disparate rules that make it harder for banks to serve customers that conduct business overseas," Keating said.
"More time is needed to develop a system that addresses the FDIC and U.K. banking regulators’ concerns while posing fewer operational burdens for U.S. financial institutions,” he said.
There will be a 60-day comment period on the proposed rule after its publication in the Federal Register.
Read an FDIC staff memo on the proposed rule.
Read the proposed rule.
Read Keating’s statement.