FDIC: Failed Banks Might Have To Freeze Some Accounts

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