[Federal Register Volume 74, Number 179 (Thursday, September 17, 2009)]
[Rules and Regulations]
[Pages 47711-47718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22406]



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  Federal Register / Vol. 74, No. 179 / Thursday, September 17, 2009 / 
Rules and Regulations  

[[Page 47711]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 330 and 347

RIN 3064-AD36


Deposit Insurance Regulations; Temporary Increase in Standard 
Coverage Amount; Mortgage Servicing Accounts; Revocable Trust Accounts; 
International Banking; Foreign Banks

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule amending its deposit 
insurance regulations to: Reflect Congress's extension, until December 
31, 2013, of the temporary increase in the standard maximum deposit 
insurance amount (``SMDIA'') from $100,000 to $250,000; finalize the 
interim rule, with minor modifications, on revocable trust accounts; 
and finalize the interim rule on mortgage servicing accounts. The FDIC 
is also adopting technical, conforming amendments to its international 
banking regulations to substitute several existing references to 
``$100,000'' with references to the SMDIA.

DATES: Effective Date: The final rule is effective October 19, 2009.

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, Legal 
Division (202) 898-7349; Christopher Hencke, Counsel, Legal Division 
(202) 898-8839; Daniel G. Lonergan, Counsel, Legal Division (202) 898-
6791; or James V. Deveney, Section Chief, Deposit Insurance Section, 
Division of Supervision and Compliance (202) 898-6687, Federal Deposit 
Insurance Corporation, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Overview

    In the last quarter of 2008, the FDIC issued interim rules on three 
deposit-insurance related matters: (1) The temporary increase in the 
SMDIA from $100,000 to $250,000; (2) revisions to the rules on 
revocable trust accounts; and (3) revisions to the rules on mortgage 
servicing accounts. In this final rule, the FDIC is amending its 
insurance regulations to reflect Congress's extension of the temporary 
increase in the SMDIA (from $100,000 to $250,000) through December 31, 
2013, and finalizing the interim rules on revocable trust accounts and 
mortgage servicing accounts. The four-year extension of the increase in 
the SMDIA, which necessitates revisions to the deposit insurance 
regulations and examples therein, also affords the FDIC with the 
opportunity to now make technical amendments to the FDIC's 
international banking regulations (12 CFR Part 347) to replace several 
references therein to a ``$100,000'' benchmark with references to the 
SMDIA, consistent with the Federal Deposit Insurance Reform Conforming 
Amendments Act of 2005 (Pub. L. 109-173).

I. Extension of Temporary Increase in the SMDIA

Background

    The Emergency Economic Stabilization Act of 2008 temporarily 
increased the SMDIA from $100,000 to $250,000, effective October 3, 
2008, through December 31, 2009.\1\ On October 17, 2008, the FDIC 
adopted an interim rule amending its deposit insurance regulations to 
reflect this temporary increase in the SMDIA.\2\ Subsequent to the 
issuance of this interim rule, on May 20, 2009, the President signed 
the Helping Families Save Their Homes Act of 2009, which, among other 
provisions, extended the temporary increase in the SMDIA from December 
31, 2009 to December 31, 2013.\3\ After December 31, 2013, the SMDIA 
will, by law, return to $100,000.
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    \1\ Public Law 110-343 (Oct. 3, 2008).
    \2\ 73 FR 61658 (Oct. 17, 2008).
    \3\ Public Law 111-22 (May 20, 2009).
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The Final Rule

    The final rule amends the FDIC's deposit insurance rules (12 CFR 
Part 330) to indicate that the increase in the SMDIA from $100,000 to 
$250,000 is effective through December 31, 2013. In light of this long-
term extension of the SMDIA, the FDIC also has updated the deposit 
insurance coverage examples provided in the insurance rules to reflect 
$250,000 as the SMDIA. The FDIC believes this will help to avoid any 
confusion that might result among depositors and financial institution 
employees if the examples continue to employ the $100,000 SMDIA and 
related numerical values.

II. Deposit Insurance Coverage of Revocable Trust Accounts

The Interim Revocable Trust Account Rule

    In September 2008, the FDIC issued an interim rule designed to make 
the coverage rules for revocable trust accounts easier to understand 
and apply.\4\ In particular, the interim rule eliminated the concept of 
``qualifying beneficiaries.'' The elimination of the ``qualifying 
beneficiary'' concept was intended to achieve greater fairness by 
broadening the scope of eligible beneficiaries and facilitate deposit 
insurance determinations on revocable trust accounts.
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    \4\ 73 FR 56706 (Sept. 30, 2008).
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    Also, the interim rule provided a two-part deposit insurance 
coverage calculation method for revocable trust accounts. Under the 
rule, where a trust account owner has five times the SMDIA ($1,250,000) 
or less in revocable trust accounts at one FDIC-insured institution, 
the owner is insured up to the SMDIA ($250,000) per beneficiary--
without regard to the exact beneficial interest of each beneficiary in 
the trust. For a revocable trust account owner with both more than 
$1,250,000 and more than five different beneficiaries named in the 
trust(s), the interim rule insures the owner for the greater of either: 
$1,250,000, or the aggregate total of all the beneficiaries' actual 
interests in the trust(s) limited to $250,000 for each beneficiary.
    In addition, the interim rule sought to simplify the application of 
the deposit insurance rules to both life-estate interests and to 
irrevocable trusts springing from a revocable trust. The interim rule 
simplified the deposit insurance coverage rules to deem the value of 
each life estate interest to be the SMDIA amount. Thus, for example,

[[Page 47712]]

where the owner creates a living trust account and provides a life 
estate interest for the owner's spouse, in addition to specific 
bequests to named beneficiaries, the spousal interest is deemed to be 
the SMDIA.
    Another complication is presented when an irrevocable living trust 
springs from a revocable trust upon the owner's death. Under the prior 
rules, the coverage of the trust account often would decrease because 
the FDIC's rules governing irrevocable trust accounts were stricter 
than the rules governing revocable trust accounts.\5\ To prevent this 
decrease in coverage, the interim rule provided that irrevocable trust 
accounts would be governed by the same rules as revocable trust 
accounts when the irrevocable trust is created through the death of the 
owner (grantor) of a revocable living trust.
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    \5\ For example, assume that account owner ``A'' establishes a 
living trust that names three children as beneficiaries. Assume also 
that the trust agreement specifies that the revocable trust shall 
become an irrevocable trust upon the owner's (grantor's) death. In 
this example, during the life of the owner, the insurance coverage 
of an account in the name of the trust would be determined by 
multiplying the number of beneficiaries (3) by the SMDIA ($250,000). 
Thus, the account would be insured up to $750,000. Following the 
death of the owner, however, the coverage would change because the 
trust itself would change from a revocable trust to an irrevocable 
trust. Under the prior rules, the coverage of an irrevocable trust 
account would depend upon whether the interests of the beneficiaries 
were contingent (for example, contingent upon graduating from 
college or contingent upon the discretion of the trustee). Assuming 
that all beneficial interests were contingent, the coverage of the 
account would be $250,000. Thus, in this example, the coverage would 
decrease from $750,000 to $250,000 following the death of the owner 
(and following the expiration of the FDIC's six-month grace period).
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    Finally, the interim rule solicited specific comment on the effect 
that the revocable trust simplifications enunciated in the interim rule 
might have on the Deposit Insurance Fund (``DIF'') reserve ratio.\6\
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    \6\ The reserve ratio is determined by dividing the DIF fund 
balance by the estimated insured deposits by the industry, 12 U.S.C. 
1817(1).
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    The FDIC solicited comment on all aspects of the interim rule, and 
explicitly solicited comment on: (1) Whether the $1,250,000 threshold 
is a proper benchmark for distinguishing coverage for revocable trust 
owners based on the beneficial interests of the trust beneficiaries; 
(2) whether the FDIC's irrevocable trust accounts rules should be 
revised in order that all trusts are covered by similar rules; and (3) 
what effect the interim rule will have on the level of insured 
deposits.

Comments Received on the Interim Revocable Trust Rule

    The FDIC received eighteen comments on the interim rule for 
revocable trust accounts. These comments included one from a large bank 
trade association representing all types of banks, one from a bank 
trade association representing community banks, and one from a smaller 
trade association representing community and regional banks, and 
thrifts, operating in one particular State. The FDIC also received 
fourteen comments from private citizens and one comment from some 
members of a national trade association for lawyers. Overall, these 
comments were highly favorable.
    Eight commenters addressed the interim rule's overall goal of, and 
success at achieving, simplification, and applauded the FDIC's efforts 
to clarify the deposit insurance rules. One commenter advocated greater 
clarity in the application of the revocable trust rule's coverage of 
trust accounts with balances exceeding $1,250,000 and naming more than 
five beneficiaries, and another generally asserted that the rule 
contained ambiguities.
    With regard to specific issues within the interim rule, ten 
commenters expressed strong support for the interim rule's deletion of 
the former rule's ``qualifying beneficiary'' concept. One commenter 
advocated that the effective date of this change be made retroactive to 
an earlier point in time in order to provide favorable treatment to 
depositors who had uninsured deposits in bank failures occurring in 
early 2008. In response to the FDIC's specific solicitation of comment 
on the interim rule's use of a $500,000 benchmark (presently 
$1,250,000) for delineating separate deposit insurance treatment for 
higher-dollar revocable trust interests, five commenters deemed this to 
be a reasonable benchmark, although one advocated that the amount be 
raised significantly. One commenter observed that because most owners 
of a revocable trust account at an insured depository institution will 
commonly fall below the benchmark, the interim rule's lower-dollar 
coverage approach--that fails to distinguish unequal beneficial 
interests--will simplify coverage.
    In response to the interim rule's specific solicitation of comment 
regarding the Deposit Insurance Fund, one commenter suggested that it 
is likely difficult to clearly determine whether the interim rule will 
result in a net increase in the level of insured deposits. In short, 
the commenter postulated that, while the increase in deposit insurance 
limits and other changes made in the interim rule may permit more 
deposits to be deemed ``insured,'' it may also be the case that the 
rule's effect will be to simply permit depositors to leave higher 
account sums at one insured depository institution instead of having to 
spread such revocable trust deposits over multiple institutions.
    Four commenters expressly requested that the FDIC clarify the rules 
regarding the proper manner of ``titling'' a payable-on-death (``POD'') 
account in order to ensure that the revocable trust account funds are 
fully insured. Specifically, one citizen commenter relayed that she had 
received conflicting advice from numerous local banks as to whether or 
not the title of her revocable trust POD account had to expressly 
include the acronym ``POD,'' the phrase ``in trust for'' (``ITF''), or 
whether it had to include the name of a beneficiary in the title, 
either along with, or without, such acronyms. The commenter was unsure 
whether current FDIC rules deem it sufficient that the other account 
records at the depository institution contain this information. This 
commenter advocated that the burden should not fall on the public to 
learn and clarify the titling rules. Another commenter advocated 
eliminating the requirement that the POD account title contain the POD/
ITF designation, and asserted that it should be sufficient that the 
owner's account records at the bank reflect the beneficiaries. A third 
commenter expressed the view that banks appear to take different 
approaches to titling these accounts and recommended uniform rules to 
address this titling issue. Two of these commenters suggested that some 
banks' software does not easily permit the addition of ``POD'' or 
``ITF'' to account titles. One bank trade association observed that the 
purpose of the account titling requirement is to facilitate FDIC 
staff's ability, at resolution, to quickly determine deposit insurance 
eligibility, and asked whether a bank's utilization of a computer code 
in the title to denote account ownership could be deemed sufficient to 
meet the revocable trust account titling requirements. On a separate 
titling issue, one commenter asked that the FDIC clarify that an owner 
may, in naming a POD account, name a revocable trust as a beneficiary.
    The FDIC expressly solicited comment on whether the FDIC's 
irrevocable trust account rules should be revised so that all trusts 
are covered by substantially the same rules. Four comments addressed 
the interim rule's continuing application of the revocable trust rules 
to a living trust after the death of the owner (and notwithstanding the 
fact that such trust converts to an irrevocable trust upon such event), 
and all commented favorably. These commenters also urged that the 
deposit insurance rules for

[[Page 47713]]

irrevocable and revocable trusts should be the same.
    One commenter also expressly advocated that the FDIC clarify that 
when a ``sole proprietor'' is a named beneficiary, then the sole 
proprietor is covered by the rule in his or her individual capacity. 
Lastly, one commenter recommended that the definition of ``non-
contingent trust interest'' be expanded to include the interest of a 
discretionary beneficiary and presumptive remainderman of a 
discretionary trust.

The Final Revocable Trust Rule

    The final rule closely follows the interim rule, with minor 
revisions. Notably, in light of the statutory extension of the 
temporary increase in the SMDIA, the final rule reflects the new 
$250,000 SMDIA, the new $1,250,000 benchmark for revocable trust 
account coverage following this change, and revised examples employing 
both of these dollar values and revised values for the hypothetical 
sums within the examples to enhance their illustrative utility. We also 
have provided additional examples illustrating how the revised rules 
would apply. Pursuant to statute, December 31, 2013 is the ending date 
for the $250,000 SMDIA, and after this date the SMDIA will revert to 
$100,000. At that time the FDIC will revisit the need to revise these 
limits and examples.
    In response to several specific questions raised by commenters 
about the titling requirements for revocable trust accounts, clarifying 
language has been incorporated into the final rule to address titling 
of revocable trust accounts. Simply, the rule provides that, for 
revocable trust accounts, ``title'' includes an insured depository 
institution's electronic deposit account records. In addressing this 
issue, the FDIC is retaining the requirement that the title of a 
revocable trust account identify the account as such in order to 
qualify for coverage under the revocable trust account rules; however, 
the final rule clarifies that the FDIC will consider information in an 
insured depository institution's electronic deposit account records to 
determine if the titling requirement is satisfied. For example, the 
FDIC would recognize an account as a revocable trust account even if 
the account signature card does not designate the account as a 
revocable trust account as long as the institution's electronic deposit 
account records identify (through a code or otherwise) the account as a 
revocable trust account.
    The final rule, like the interim rule, eliminates the concept of 
``qualifying beneficiaries,'' and requires only that a revocable trust 
beneficiary be a natural person, or a charity or other non-profit 
organization. This change was universally applauded by commenters to 
the interim rule. The final rule also incorporates the interim rule's 
two-part calculation method for deposit insurance coverage of revocable 
trust accounts. While, as a result of the temporary increase in the 
SMDIA, the benchmark between the lower-dollar and higher-dollar 
revocable trust deposit insurance treatments has increased to 
$1,250,000 (from $500,000 as set forth in the originally-issued interim 
rule), it is anticipated that the lower-balance treatment for revocable 
trust ownership interests falling below $1,250,000 at one institution 
will likely capture most revocable trust accounts, and this should 
advance the FDIC's goals of simplifying the treatment of unequal 
beneficial interests and quickening deposit insurance coverage 
determinations. The deposit insurance coverage calculation method for 
revocable trust ownership interests that are both above this $1,250,000 
benchmark and involve more than five beneficiaries, consistent with the 
interim rule, will ensure that reasonable limits remain on the maximum 
coverage available to revocable trust account owners and avoid the 
potential of unlimited coverage being afforded to such accounts through 
contrived trust structures. Moreover, consistent with the interim rule, 
where a POD account owner names his or her living trust as a 
beneficiary of the POD account, for insurance purposes, the FDIC will 
consider the beneficiaries of the trust to be the beneficiaries of the 
POD account.

III. Mortgage Servicing Accounts

Background

    The FDIC's deposit insurance regulations include specific rules 
addressing the deposit insurance coverage of payments collected by 
mortgage servicers and deposited in accounts at insured depository 
institutions (``mortgage servicing accounts''). 12 CFR 330.7(d). 
Accounts maintained by mortgage servicers in a custodial or other 
fiduciary capacity may include funds paid by mortgagors (borrowers) for 
principal and interest, and may also include funds mortgagors advance 
as amounts held for the payment of taxes and insurance premiums.
    Historically, under section 330.7(d), funds representing principal 
and interest payments in a mortgage servicing account were insured for 
the interest of each owner (mortgagee, investor or security holder) in 
those accounts. On the other hand, funds maintained by a servicer in a 
custodial or fiduciary capacity representing payments by mortgagors of 
taxes and insurance premiums are added together and insured for the 
ownership interest of each mortgagor in those accounts. Thus, funds 
representing payments of principal and interest were insurable on a 
pass-through basis to each mortgagee, investor, or security holder, 
while funds representing payments of taxes and insurance have been 
insurable on a pass-through basis to each mortgagor or borrower. This 
treatment was consistent with the FDIC's longstanding view, dating from 
the adoption of the rules, that principal and interest funds are owned 
by the owners (or mortgagee, investor or security holder) on whose 
behalf the servicer, as agent, accepts the principal and interest 
payments, and are not funds owned by the borrowers. Taxes and insurance 
funds, on the other hand, are insured to the mortgagors or borrowers 
under the view that the latter funds are still owned by the borrower 
until the servicer actually pays the tax and insurance bills.
    In October of last year, the FDIC issued an interim rule addressing 
the insurance coverage of mortgage servicing accounts.\7\ In the 
interim rule, the FDIC acknowledged that securitization methods for 
mortgages have become increasingly complex, with multi-layer 
securitization structures possible, and indicated that as a consequence 
it has become both more difficult and time-consuming for a servicer to 
identify and determine the share of any investor in a securitization 
and in the principal and interest funds on deposit at an insured 
depository institution. Prior to the issuance of the interim rule, the 
FDIC had become increasingly concerned that, in the event of a failure 
of an FDIC-insured depository institution, a servicer holding a deposit 
account in the institution would have a difficult and time-consuming 
task to identify every security holder in the securitization and 
determine his or her share. Further, the FDIC believed that application 
of the prior deposit insurance rule could result in delays in the 
servicer receiving the insured amounts, and result in losses for 
amounts that, due to the complexity of the securitization agreements, 
could not be attributed to the particular investors to whom the funds 
belong. Ultimately, because the FDIC concluded that application of the 
previous rule could potentially result in increased losses to otherwise 
insured depositors, lead to withdrawal of deposits for principal and

[[Page 47714]]

interest payments from depository institutions, and unnecessarily 
reduce liquidity for such institutions, the FDIC issued the interim 
rule.
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    \7\ 73 FR 61658 (Oct. 17, 2008).
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    In issuing the interim rule, the FDIC sought to make the deposit 
insurance coverage rules for mortgage servicing accounts easy to 
understand and apply. Moreover, because the considerable sum of 
principal and interest funds on deposit at insured depository 
institutions serve as a significant source of liquidity for the 
institutions and a source of credit to the institutions' respective 
communities, the FDIC sought to prevent the application of the 
insurance rules from prompting any inadvertent, adverse consequences. 
To address these aims, as well as the practical issues presented by 
increasingly complex securitization methods, the interim rule 
determined deposit insurance coverage on principal and interest 
payments in a mortgage servicing account on a per-mortgagor (or per-
borrower) basis--and not on a pass-through basis to each mortgagee, 
investor, or security holder--due to the fact that servicers are able 
to identify mortgagors more quickly than investors. This approach 
enables the FDIC to pay deposit insurance more quickly. Specifically, 
the interim rule provided deposit insurance coverage to a mortgage 
servicing account based on each mortgagor's payments of principal and 
interest into the account up to the standard maximum deposit insurance 
amount of $250,000 per mortgagor.
    Coverage is thus provided to the mortgagees/investors as a 
collective group, based on the cumulative amount of the mortgagors' 
payments of principal and interest into the account. This deposit 
insurance coverage of payments of principal and interest per mortgagor 
is not aggregated with, nor otherwise affects, the coverage provided to 
each such mortgagor in other accounts the mortgagor might maintain at 
the same depository institution. This is to be distinguished from the 
deposit insurance coverage afforded to payments of taxes and insurance 
premiums. Consistent with their treatment historically under the 
deposit insurance rules, amounts in a mortgage servicing account that 
represent payments for taxes and insurance are insured on a pass-
through basis as the funds of each respective mortgagor, but unlike a 
mortgagor's principal and interest payments in the mortgage servicing 
account, the payments for taxes and insurance are added to other 
individually owned funds of each mortgagor at the same institution and 
insured up to the applicable limit.

Comments on the Interim Rule's Mortgage Servicing Provisions

    The FDIC received five comments on the interim rule addressing the 
deposit insurance coverage of mortgage servicing accounts. All five 
comments favored the interim rule's handling of deposit insurance 
coverage on payments of principal and interest in a mortgage servicing 
account on a per-mortgagor (or per-borrower) basis. These views 
included comments from a large bank trade association, a loan servicer, 
a large government sponsored enterprise, a loan securitization 
professional, along with one comment submitted by a national bank. 
Although all five commenters supported the FDIC's interim rule, several 
raised specific issues.
    One commenter advocated that the regulations clarify that payments 
of taxes and insurance in mortgage servicing accounts and ``any similar 
accounts'' held by a servicer or paying agent should not be aggregated 
with personal accounts of a mortgagor, and noted that the interim rule 
was ``not clear'' in this regard. Two commenters urged the FDIC to 
apply the interim rule's treatment of principal and interest payments 
comprising mortgage servicing accounts to other types of servicing 
accounts that similarly consist of principal and interest payments but 
for non-mortgage loans, such as motor vehicle loans. In short, they 
suggested that the FDIC extend the interim rule's treatment of 
principal and interest cash flows to other types of loan 
securitizations and not simply mortgages, and suggested that these sums 
may raise liquidity concerns similar to those raised by mortgage loan 
servicing account funds.
    Another commenter supported the interim rule but expressed concern 
that several types of mortgage servicing deposits might not be 
adequately insured. For example, this commenter advocated that the 
rules provide pass-through deposit insurance coverage, on a per-
borrower basis, to other types of mortgage servicing funds, such as 
``repair escrows, replacement reserve escrows, bond related escrow 
accounts, rental achievement escrows, and debt service escrows.'' This 
commenter urged the FDIC to separately insure such accounts, as well as 
escrows for taxes and insurance, up to the SMDIA.

The Final Rule on Mortgage Servicing Accounts

    The final rule is essentially unchanged from the interim rule. 
Although one commenter urged that the FDIC clarify in the rules that 
payments of taxes and insurance in mortgage servicing accounts and any 
``similar'' accounts held by a servicer should not be aggregated with 
personal accounts of a mortgagor, and asserted that the interim rule 
was ``not clear'' in this regard, the FDIC concludes that any 
additional clarification is unneeded. The interim rule expressly 
addressed this issue with respect to tax and insurance payments in 
servicing accounts, and specifically contrasted the deposit insurance 
treatment of payments of taxes and insurance with the insurance 
treatment afforded payments of principal and interest in servicing 
accounts. The interim rule provided that the FDIC's historical 
treatment of taxes and insurance payments had not changed. Drawing a 
clear distinction with principal and interest payments, the interim 
rule provided that taxes and insurance funds are instead ``insured to 
the mortgagors or borrowers on the theory that the borrower still owns 
the funds until the tax and insurance bills are actually paid by the 
servicer.''
    The preamble to the interim rule indicated that, although the 
principal and interest payments in mortgage servicing accounts are not 
aggregated for insurance purposes with other accounts the mortgagor 
might maintain at the same insured depository institution, ``[a]s under 
the current insurance rules, under the interim rule amounts in a 
mortgage servicing account constituting payments of taxes and insurance 
premiums will be insured on a pass-through basis as the funds of each 
respective mortgagor,'' and such funds ``will be added to other 
individually owned funds held by each such mortgagor at the same 
insured institution.'' This was also made clear in the FDIC's Financial 
Institution Letter, FIL-111-2008, issued October 8, 2008. In short, the 
interim rule did not alter the FDIC's historical treatment of payments 
by mortgagors of tax and insurance premiums in mortgage servicing 
accounts.
    It was also suggested that the FDIC extend the interim rule's 
deposit insurance treatment of principal and interest cash flows to 
servicing accounts for other types of loan securitizations--and not 
simply mortgages--such as motor vehicle loans. The FDIC declines to do 
so. As noted in the interim rule, the FDIC sought to address the 
increasing complexity of mortgage securitizations and the resulting 
impact these complexities have upon depositor certainty as to the 
application of deposit insurance rules, and have upon the timely 
resolution of deposit insurance determinations.

[[Page 47715]]

    The FDIC also declines the commenter suggestion that separate 
insurance, on a pass-through, per-borrower basis be afforded to other 
types of mortgage servicing funds such as ``repair escrows, replacement 
reserve escrows, bond related escrow accounts, rental achievement 
escrows, and debt service escrows.'' As the FDIC noted in the interim 
rule, consistent with its previous deposit insurance rules, amounts in 
a mortgage servicing account constituting payments of taxes and 
insurance premiums are insured on a pass-through basis as the funds of 
each respective mortgagor and are added to other individually owned 
funds held by each such mortgagor at the same insured institution. The 
FDIC's interim rule sought to make the deposit insurance coverage rules 
for mortgage servicing accounts easy to understand and apply. 
Additionally, because principal and interest funds on deposit at 
insured depository institutions serve as both a significant source of 
liquidity for the institutions and a significant source of credit to 
the institution's community, the FDIC sought to ensure that no 
inadvertent adverse consequences resulted from the application of the 
deposit insurance rules. It is not clear that the suggested revisions 
would be consistent with either of these aims. Although commenter[s] 
suggested that other types of ``escrow'' funds should garner similar 
treatment under the insurance rules as do deposits representing tax and 
insurance payments, the comment does not clearly identify in what 
specific manner the legal rights and obligations attendant to these 
various types of bond-related, debt service, and rental achievement 
escrows are similar to the rights and obligations of mortgagors in 
their tax and insurance payments. Nor is it clear whether, and to what 
extent, such payments represent a significant liquidity source for 
depository institutions such that the need for more specific clarity as 
to deposit insurance is needed in order to avert any inadvertent 
consequences or losses to borrowers or investors.

IV. Technical Amendments to FDIC International Banking Regulations

    The FDIC is also amending its Part 347 International Banking 
regulations to make technical, conforming amendments relating to the 
SMDIA. The FDI Reform Act introduced the term ``SMDIA'' and instituted 
several substantive changes to the deposit insurance coverage 
provisions in the FDI Act. Additionally, the Federal Deposit Insurance 
Reform Conforming Amendments Act of 2005 (``Reform Conforming Act''), 
Public Law 109-173, amended the International Banking Act of 1978, 12 
U.S.C. 3104, necessitating the need for technical conforming amendments 
to substitute the term ``SMDIA'' in place of ``$100,000'' in the FDIC's 
International Banking regulations. 12 CFR Part 347.\8\ The four-year 
extension in the increase in the SMDIA, which provides the FDIC with 
the necessity to make revisions to the deposit insurance regulations 
and examples therein, also affords the FDIC with the opportunity to now 
make technical amendments to the FDIC's international banking 
regulations to replace several distinct references to a ``$100,000'' 
benchmark with references to the SMDIA, consistent with the Reform 
Conforming Act.
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    \8\ Per statute, the Reform Conforming Act substitution of the 
SMDIA in the international banking provisions was effective on April 
1, 2006. Reform Conforming Act Sec.  2; 71 FR 14629 (March 23, 
2006).
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V. Paperwork Reduction Act

    The final rule will revise the FDIC's deposit insurance 
regulations. It will not involve any new collections of information 
pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Consequently, no information collection has been submitted to the 
Office of Management and Budget for review.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant impact on a substantial number of small entities.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that the final rule will not have a significant impact 
on a substantial number of small entities. The final rule implements 
the temporary increase in the SMDIA, simplifies the coverage rules for 
mortgage servicing accounts, and simplifies the deposit insurance rules 
for revocable trust accounts held at FDIC-insured depository 
institutions.

VII. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681). The final rule should have a 
positive effect on families by clarifying the coverage rules for 
mortgage servicing accounts, which contain, for a period of time, the 
mortgage payments from borrowers, and the rules for revocable trust 
accounts, a popular type of consumer bank account.

VIII. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996 
(``SBREFA'') (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the final rule may be reviewed.

IX. Plain Language

    Section 722 of the Gramm-Leach-Blilely Act (Pub. L. 106-102, 113 
Stat. 1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the final rule in a simple and 
straightforward manner, and has made revisions to the previous interim 
rule in response to commenter concerns seeking clarification of the 
application of the deposit insurance rules.

List of Subjects

12 CFR Part 330

    Bank deposit insurance, Banks, Banking, Reporting and recordkeeping 
requirements, Savings and loan associations, Trusts and trustees.

12 CFR Part 347

    Bank deposit insurance, Banks, Banking, International banking; 
Foreign banks.

0
For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation hereby amends parts 330 and 347 of title 
12 of the Code of Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 continues to read as follows:

    Authority: 12 U.S.C. 1813(1), 1813(m), 1817(i), 1818(q), 1819 
(Tenth), 1820(f), 1821(a), 1822(c).


[[Page 47716]]



0
2. In Sec.  330.1, paragraph (n) is revised to read as follows:


Sec.  330.1  Definitions.

* * * * *
    (n) Standard maximum deposit insurance amount, referred to as the 
``SMDIA'' hereafter, means $250,000 from October 3, 2008, until 
December 31, 2013. Effective January 1, 2014, the SMDIA means $100,000 
adjusted pursuant to subparagraph (F) of section 11(a)(1) of the FDI 
Act (12 U.S.C. 1821(a)(1)(F)). All examples in this part use $250,000 
as the SMDIA.
* * * * *

0
3. In Sec.  330.7, paragraph (d) is revised to read as follows:


Sec.  330.7  Account held by an agent, nominee, guardian, custodian or 
conservator.

* * * * *
    (d) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments by mortgagors of principal and interest, shall be 
insured for the cumulative balance paid into the account by the 
mortgagors, up to the limit of the SMDIA per mortgagor. Accounts 
maintained by a mortgage servicer, in a custodial or other fiduciary 
capacity, which are comprised of payments by mortgagors of taxes and 
insurance premiums shall be added together and insured in accordance 
with paragraph (a) of this section for the ownership interest of each 
mortgagor in such accounts. This provision is effective as of October 
10, 2008, for all existing and future mortgage servicing accounts.
* * * * *

0
4. In Sec.  330.9, paragraph (b) is revised to read as follows:


Sec.  330.9  Joint ownership accounts.

* * * * *
    (b) Determination of insurance coverage. The interests of each co-
owner in all qualifying joint accounts shall be added together and the 
total shall be insured up to the SMDIA. (Example: ``A&B'' have a 
qualifying joint account with a balance of $150,000; ``A&C'' have a 
qualifying joint account with a balance of $200,000; and ``A&B&C'' have 
a qualifying joint account with a balance of $375,000. A's combined 
ownership interest in all qualifying joint accounts would be $300,000 
($75,000 plus $100,000 plus $125,000); therefore, A's interest would be 
insured in the amount of $250,000 and uninsured in the amount of 
$50,000. B's combined ownership interest in all qualifying joint 
accounts would be $200,000 ($75,000 plus $125,000); therefore, B's 
interest would be fully insured. C's combined ownership interest in all 
qualifying joint accounts would be $225,000 ($100,000 plus $125,000); 
therefore, C's interest would be fully insured.
* * * * *

0
5. Section 330.10 is revised to read as follows:


Sec.  330.10  Revocable trust accounts.

    (a) General rule. Except as provided in paragraph (e) of this 
section, the funds owned by an individual and deposited into one or 
more accounts with respect to which the owner evidences an intention 
that upon his or her death the funds shall belong to one or more 
beneficiaries shall be separately insured (from other types of accounts 
the owner has at the same insured depository institution) in an amount 
equal to the total number of different beneficiaries named in the 
account(s) multiplied by the SMDIA. This section applies to all 
accounts held in connection with informal and formal testamentary 
revocable trusts. Such informal trusts are commonly referred to as 
payable-on-death accounts, in-trust-for accounts or Totten Trust 
accounts, and such formal trusts are commonly referred to as living 
trusts or family trusts. (Example 1: Account Owner ``A'' has a living 
trust account with four different beneficiaries named in the trust. A 
has no other revocable trust accounts at the same FDIC-insured 
institution. The maximum insurance coverage would be $1,000,000, 
determined by multiplying 4 times $250,000 (the number of beneficiaries 
times the SMDIA). (Example 2: Account Owner ``A'' has a payable-on-
death account naming his niece and cousin as beneficiaries, and A also 
has, at the same FDIC-insured institution, another payable-on-death 
account naming the same niece and a friend as beneficiaries. The 
maximum coverage available to the account owner would be $750,000. This 
is because the account owner has named only three different 
beneficiaries in the revocable trust accounts--his niece and cousin in 
the first, and the same niece and a friend in the second. The naming of 
the same beneficiary in more than one revocable trust account, whether 
it be a payable-on-death account or living trust account, does not 
increase the total coverage amount.) (Example 3: Account Owner ``A'' 
establishes a living trust account, with a balance of $300,000, naming 
his two children ``B'' and ``C'' as beneficiaries. A also establishes, 
at the same FDIC-insured institution, a payable-on-death account, with 
a balance of $300,000, also naming his children B and C as 
beneficiaries. The maximum coverage available to A is $500,000, 
determined by multiplying 2 times $250,000 (the number of different 
beneficiaries times the SMDIA). A is uninsured in the amount of 
$100,000. This is because all funds that a depositor holds in both 
living trust accounts and payable-on-death accounts, at the same FDIC-
insured institution and naming the same beneficiaries, are aggregated 
for insurance purposes and insured to the applicable coverage limits.)
    (b) Required intention and naming of beneficiaries. (1) The 
required intention in paragraph (a) of this section that upon the 
owner's death the funds shall belong to one or more beneficiaries must 
be manifested in the ``title'' of the account using commonly accepted 
terms such as, but not limited to, ``in trust for,'' ``as trustee 
for,'' ``payable-on-death to,'' or any acronym therefor. For purposes 
of this requirement, ``title'' includes the electronic deposit account 
records of the institution. (For example, the FDIC would recognize an 
account as a revocable trust account even if the title of the account 
signature card does not designate the account as a revocable trust 
account as long as the institution's electronic deposit account records 
identify (through a code or otherwise) the account as a revocable trust 
account.) The settlor of a revocable trust shall be presumed to own the 
funds deposited into the account.
    (2) For informal revocable trust accounts, the beneficiaries must 
be specifically named in the deposit account records of the insured 
depository institution.
    (c) Definition of beneficiary. For purposes of this section, a 
beneficiary includes a natural person as well as a charitable 
organization and other non-profit entity recognized as such under the 
Internal Revenue Code of 1986, as amended.
    (d) Interests of beneficiaries outside the definition of 
beneficiary in this section. If a beneficiary named in a trust covered 
by this section does not meet the definition of beneficiary in 
paragraph (c) of this section, the funds corresponding to that 
beneficiary shall be treated as the individually owned (single 
ownership) funds of the owner(s). As such, they shall be aggregated 
with any other single ownership accounts of such owner(s) and insured 
up to the SMDIA per owner. (Example: Account Owner ``A'' establishes a 
payable-on-death account naming a pet as beneficiary with a balance of 
$100,000. A also has an individual account at the same FDIC-insured 
institution with a balance of

[[Page 47717]]

$175,000. Because the pet is not a ``beneficiary,'' the two accounts 
are aggregated and treated as a single ownership account. As a result, 
A is insured in the amount of $250,000, but is uninsured for the 
remaining $25,000.)
    (e) Revocable trust accounts with aggregate balances exceeding five 
times the SMDIA and naming more than five different beneficiaries. 
Notwithstanding the general coverage provisions in paragraph (a) of 
this section, for funds owned by an individual in one or more revocable 
trust accounts naming more than five different beneficiaries and whose 
aggregate balance is more than five times the SMDIA, the maximum 
revocable trust account coverage for the account owner shall be the 
greater of either: five times the SMDIA or the aggregate amount of the 
interests of each different beneficiary named in the trusts, to a limit 
of the SMDIA per different beneficiary. (Example 1: Account Owner ``A'' 
has a living trust with a balance of $1 million and names two friends, 
``B'' and ``C'' as beneficiaries. At the same FDIC-insured institution, 
A establishes a payable-on-death account, with a balance of $1 million 
naming his two cousins, ``D'' and ``E'' as beneficiaries. Coverage is 
determined under the general coverage provisions in paragraph (a) of 
this section, and not this paragraph (e). This is because all funds 
that A holds in both living trust accounts and payable-on-death 
accounts, at the same FDIC-insured institution, are aggregated for 
insurance purposes. Although A's aggregated balance of $2 million is 
more than five times the SMDIA, A names only four different 
beneficiaries, and coverage under this paragraph (e) applies only if 
there are more than five different beneficiaries. A is insured in the 
amount of $1 million (4 beneficiaries times the SMDIA), and uninsured 
for the remaining $1 million.) (Example 2: Account Owner ``A'' has a 
living trust account with a balance of $1,500,000. Under the terms of 
the trust, upon A's death, A's three children are each entitled to 
$125,000, A's friend is entitled to $15,000, and a designated charity 
is entitled to $175,000. The trust also provides that the remainder of 
the trust assets shall belong to A's spouse. In this case, because the 
balance of the account exceeds $1,250,000 (5 times the SMDIA) and there 
are more than five different beneficiaries named in the trust, the 
maximum coverage available to A would be the greater of: $1,250,000 or 
the aggregate of each different beneficiary's interest to a limit of 
$250,000 per beneficiary. The beneficial interests in the trust for 
purposes of determining coverage are: $125,000 for each of the children 
(totaling $375,000), $15,000 for the friend, $175,000 for the charity, 
and $250,000 for the spouse (because the spouse's $935,000 is subject 
to the $250,000 per-beneficiary limitation). The aggregate beneficial 
interests total $815,000. Thus, the maximum coverage afforded to the 
account owner would be $1,250,000, the greater of $1,250,000 or 
$815,000.)
    (f) Co-owned revocable trust accounts. (1) Where an account 
described in paragraph (a) of this section is established by more than 
one owner, the respective interest of each account owner (which shall 
be deemed equal) shall be insured separately, per different 
beneficiary, up to the SMDIA, subject to the limitation imposed in 
paragraph (e) of this section. (Example 1: A and B, two individuals, 
establish a payable-on-death account naming their three nieces as 
beneficiaries. Neither A nor B has any other revocable trust accounts 
at the same FDIC-insured institution. The maximum coverage afforded to 
A and B would be $1,500,000, determined by multiplying the number of 
owners (2) times the SMDIA ($250,000) times the number of different 
beneficiaries (3). In this example, A would be entitled to revocable 
trust coverage of $750,000 and B would be entitled to revocable trust 
coverage of $750,000.) (Example 2: A and B, two individuals, establish 
a payable-on-death account naming their two children, two cousins, and 
a charity as beneficiaries. The balance in the account is $1,750,000. 
Neither A nor B has any other revocable trust accounts at the same 
FDIC-insured institution. The maximum coverage would be determined 
(under paragraph (a) of this section) by multiplying the number of 
account owners (2) times the number of different beneficiaries (5) 
times $250,000, totaling $2,500,000. Because the account balance 
($1,750,000) is less than the maximum coverage amount ($2,500,000), the 
account would be fully insured.) (Example 3: A and B, two individuals, 
establish a living trust account with a balance of $3.75 million. Under 
the terms of the trust, upon the death of both A and B, each of their 
three children is entitled to $600,000, B's cousin is entitled to 
$380,000, A's friend is entitled to $70,000, and the remaining amount 
($1,500,000) goes to a charity. Under paragraph (e) of this section, 
the maximum coverage, as to each co-owned account owner, would be the 
greater of $1,250,000 or the aggregate amount (as to each co-owner) of 
the interest of each different beneficiary named in the trust, to a 
limit of $250,000 per account owner per beneficiary. The beneficial 
interests in the trust considered for purposes of determining coverage 
for account owner A are: $750,000 for the children (each child's 
interest attributable to A, $300,000, is subject to the $250,000-per-
beneficiary limitation), $190,000 for the cousin, $35,000 for the 
friend, and $250,000 for the charity (the charity's interest 
attributable to A, $750,000, is subject to the $250,000 per-beneficiary 
limitation). As to A, the aggregate amount of the beneficial interests 
eligible for deposit insurance coverage totals $1,225,000. Thus, the 
maximum coverage afforded to account co-owner A would be $1,250,000, 
which is the greater of $1,250,000 or the aggregate of all the 
beneficial interests attributable to A (limited to $250,000 per 
beneficiary), which totaled slightly less at $1,225,000. Because B has 
equal ownership interest in the trust, the same analysis and coverage 
determination also would apply to B. Thus, of the total account balance 
of $3.75 million, $2.5 million would be insured and $1.25 million would 
be uninsured.)
    (2) Notwithstanding paragraph (f)(1) of this section, where the 
owners of a co-owned revocable trust account are themselves the sole 
beneficiaries of the corresponding trust, the account shall be insured 
as a joint account under Sec.  330.9 and shall not be insured under the 
provisions of this section. (Example: If A and B establish a payable-
on-death account naming themselves as the sole beneficiaries of the 
account, the account will be insured as a joint account because the 
account does not satisfy the intent requirement (under paragraph (a) of 
this section) that the funds in the account belong to the named 
beneficiaries upon the owners' death. The beneficiaries are in fact the 
actual owners of the funds during the account owners' lifetimes.)
    (g) For deposit accounts held in connection with a living trust 
that provides for a life-estate interest for designated beneficiaries, 
the FDIC shall value each such life estate interest as the SMDIA for 
purposes of determining the insurance coverage available to the account 
owner under paragraph (e) of this section. (Example: Account Owner 
``A'' has a living trust account with a balance of $1,500,000. Under 
the terms of the trust, A provides a life estate interest for his 
spouse. Moreover, A's three children are each entitled to $275,000, A's 
friend is entitled to $15,000, and a designated charity is entitled to 
$175,000. The trust also provides that the remainder of the trust 
assets shall belong to A's granddaughter. In this case, because the 
balance of the account exceeds $1,250,000 ((5) five

[[Page 47718]]

times the SMDIA) and there are more than five different beneficiaries 
named in the trust, the maximum coverage available to A would be the 
greater of: $1,250,000 or the aggregate of each different beneficiary's 
interest to a limit of $250,000 per beneficiary. The beneficial 
interests in the trust considered for purposes of determining coverage 
are: $250,000 for the spouse's life estate, $750,000 for the children 
(because each child's $275,000 is subject to the $250,000 per-
beneficiary limitation), $15,000 for the friend, $175,000 for the 
charity, and $250,000 for the granddaughter (because the 
granddaughter's $310,000 remainder is limited by the $250,000 per-
beneficiary limitation). The aggregate beneficial interests total 
$1,440,000. Thus, the maximum coverage afforded to the account owner 
would be $1,440,000, the greater of $1,250,000 or $1,440,000.)
    (h) Revocable trusts that become irrevocable trusts. 
Notwithstanding the provisions in section 330.13 on the insurance 
coverage of irrevocable trust accounts, if a revocable trust account 
converts in part or entirely to an irrevocable trust upon the death of 
one or more of the trust's owners, the trust account shall continue to 
be insured under the provisions of this section. (Example: Assume A and 
B have a trust account in connection with a living trust, of which they 
are joint grantors. If upon the death of either A or B the trust 
transforms into an irrevocable trust as to the deceased grantor's 
ownership in the trust, the account will continue to be insured under 
the provisions of this section.)
    (i) This section shall apply to all existing and future revocable 
trust accounts and all existing and future irrevocable trust accounts 
resulting from formal revocable trust accounts.

PART 347--INTERNATIONAL BANKING

0
6. The authority citation for part 347 continues to read as follows:

    Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 
3104, 3105, 3108, 3109; Title IX, Pub. L. 98-181, 97 Stat. 1153.


0
7. In Sec.  347.202:
0
A. Paragraph (e) is revised.
0
B. Paragraphs (v), (w) and (x) are redesignated as (w), (x) and (y), 
respectively, and a new paragraph (v) is added.
    The revision and addition read as follows:


Sec.  347.202  Definitions.

* * * * *
    (e) Domestic retail deposit activity means the acceptance by a 
Federal or State branch of any initial deposit of less than an amount 
equal to the standard maximum deposit insurance amount (``SMDIA'').
* * * * *
    (v) Standard maximum deposit insurance amount, referred to as the 
``SMDIA'' hereafter, means $250,000 from October 3, 2008, until 
December 31, 2013. Effective January 1, 2014, the SMDIA means $100,000 
adjusted pursuant to subparagraph (F) of section 11(a)(1) of the FDI 
Act (12 U.S.C. 1821(a)(1)(F)).
* * * * *

0
8. In Sec.  347.206, paragraph (c) is revised to read as follows:


Sec.  347.206  Domestic retail deposit activity requiring deposit 
insurance by U.S. branch of a foreign bank.

* * * * *
    (c) Grandfathered insured branches. Domestic retail accounts with 
balances of less than an amount equal to the SMDIA that require deposit 
insurance protection may be accepted or maintained in an insured branch 
of a foreign bank only if such branch was an insured branch on December 
19, 1991.
* * * * *

0
9. In Sec.  347.213, paragraph (a)(1) is revised to read as follows:


Sec.  347.213  Establishment or operation of noninsured foreign branch.

    (a) * * *
    (1) The branch only accepts initial deposits in an amount equal to 
the SMDIA or greater; or
* * * * *

0
10. In Sec.  347.215:
0
A. Paragraph (a) introductory text is revised.
0
B. Paragraph (b)(1) is revised.
    The revisions read as follows:


Sec.  347.215  Exemptions from deposit insurance requirement.

    (a) Deposit activities not requiring insurance. A State branch will 
not be considered to be engaged in domestic retail deposit activity 
that requires the foreign bank parent to establish an insured U.S. bank 
subsidiary if the State branch accepts initial deposits only in an 
amount of less than an amount equal to the SMDIA that are derived 
solely from the following:
* * * * *
    (b) Application for an exemption. (1) Whenever a foreign bank 
proposes to accept at a State branch initial deposits of less than an 
amount equal to the SMDIA and such deposits are not otherwise exempted 
under paragraph (a) of this section, the foreign bank may apply to the 
FDIC for consent to operate the branch as a noninsured branch. The 
Board of Directors may exempt the branch from the insurance requirement 
if the branch is not engaged in domestic retail deposit activities 
requiring insurance protection. The Board of Directors will consider 
the size and nature of depositors and deposit accounts, the importance 
of maintaining and improving the availability of credit to all sectors 
of the United States economy, including the international trade finance 
sector of the United States economy, whether the exemption would give 
the foreign bank an unfair competitive advantage over United States 
banking organizations, and any other relevant factors in making this 
determination.
* * * * *

    Dated at Washington, DC, this 9th day of September 2009.

    By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. E9-22406 Filed 9-16-09; 8:45 am]
BILLING CODE 6714-01-P