The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) on Tuesday approved a notice of proposed rulemaking to clarify that while deposits in foreign branches of U.S. banks can be deposits for purposes of the national depositor preference statute enacted in 1993, they are not FDIC-insured.
Currently, under the Federal Deposit Insurance Act, money deposited in foreign branches of U.S. banks are not considered deposits, unless the funds are payable in the U.S. A recent proposal by the United Kingdom's Financial Services Authority (FSA) relating to the effect of national depositor preference laws makes it likely that large U.S. banks will change their deposit agreements to make their U.K. branch deposits payable in both the U.K. and U.S.
"Today's proposed regulation 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," said FDIC Chairman Martin Gruenberg.
The proposed rule, which will be issued with a 60-day comment period upon publication in the Federal Register, would not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. These funds will continue to be insured by the FDIC to the same extent that they have been.