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FDIC: Failed Banks Might Have To Freeze Some Accounts

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The Federal Deposit Insurance Corp. may require some large banks it takes over to help it freeze checking accounts and other accounts with balances as low as $30,000.

The FDIC describes the possible new “provisional hold percentage” and “account balance threshold” guidelines in a notice of proposed rulemaking published today in the Federal Register.

The proposed rules would apply to FDIC-insured banks with at least $2 billion in domestic deposits and at least 250,000 deposit accounts.

The rules also would apply to FDIC-insured banks with at least $2 billion in domestic deposits and at least $20 billion in assets.

Banks in those size categories would have to “adopt mechanisms that would, in the event of the institution’s failure: provide the FDIC with standard deposit account and customer information, and allow the FDIC to place and release holds on liability accounts, including deposits,” officials write in the preamble to a draft of the proposed hold mechanism regulations.

The FDIC estimates the hold and hold releasing mechanism regulations would apply to about 159 insured financial institutions.

The FDIC also has proposed regulations that would govern how it calculates deposit account balances for failed banks of all sizes.

The FDIC needs new hold capabilities because of the possibility that it would have to handle the failure of a large, complicated, multistate bank, officials write.

The FDIC would create a “provisional hold” mechanism requirement, which would affect account processing on the day of a bank failure, and it also might create a more extended kind of hold, such as a “persistent hold,” officials write.

“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,” officials write.

“Provisional holds would be applied to individual accounts in an automated fashion,” officials write. “Commonly owned accounts would not be aggregated by ownership for the purposes of calculating or placing provisional holds…. 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 longer holds, such as “persistent holds,” “would be removed over time as further information is gathered from depositors needed to complete the insurance determination,” officials write.

The holds could apply to negotiable order of withdrawal accounts and money market deposit accounts, and they also could apply to time deposit accounts, savings accounts, and non-consumer deposit accounts, officials write.

“The likely value of the account balance threshold for deposit accounts would be between $30,000 and $80,000,” FDIC officials write. “Based on data provided by a sample of insured institutions, this range of values would make only about 10% of deposit accounts subject to the provisional hold at most institutions.”

A copy of the notice of proposed rulemaking is available


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