FDIC Proposes Replacing Large-Bank Deposit Insurance Rule

The Short Answer: What This Proposal Does and Does Not Change

The FDIC wants to drop one deposit insurance rule for the largest banks and change another. The change is about how banks keep records. It does not change how much of your money is insured.

That is the common mix-up. News that the FDIC wants to replace a deposit insurance rule can sound like the coverage limit is moving. The coverage limit is the most the FDIC insures for one depositor at one bank. It isn't moving. A change to the limit isn't part of this plan.

Today, the biggest banks must keep systems that could work out each customer's insured amount if the bank failed. Under the plan, the FDIC's own systems would do that math instead. This is still a proposal, not a final rule.

Here is how the plan works. The FDIC would cancel Part 370, the rule that makes banks build those systems. It would revise an older rule, section 360.9, so large banks still keep clean records. Comments are due 60 days after the plan appears in the Federal Register. That is the federal government's daily publication of new rules and notices.

What Is the FDIC Proposing for Large Bank Deposit Insurance?

The FDIC wants to change who does the math when a very large bank fails. That math means working out how much of each customer's money is insured. The plan would cancel Part 370 and revise section 360.9, an older rule that stays in place.

Because the plan is a draft, the public gets a say first. Banks, trade groups and everyday depositors can all send comments. The FDIC reads them before it makes a final decision.

Before: the bank runs the insurance math on its own systems.
After: the bank keeps clean records, and the FDIC runs the math.

The FDIC told banks about the plan in a Financial Institution Letter, or FIL. A FIL is the FDIC's official notice to the banks it oversees. You can find the letter in the FIL list on the FDIC's website.

In the letter, the agency says banks already covered by the revised rule would face no new duties. Treat that as the agency's claim until a final rule appears.

What Is FDIC Part 370?

Part 370 is an FDIC rule about recordkeeping. Its formal title is "Recordkeeping for Timely Deposit Insurance Determination." A deposit insurance determination means working out how much of each customer's money is insured after a bank fails.

Picture a huge bank with millions of accounts that closes on a Friday. Before Monday, someone has to sort every account by owner and account type. Only then can insured money reach customers on time.

Part 370 made the biggest banks build and keep systems that can do this sorting fast. It applies only to the banks with the most deposit accounts. That cutoff counts accounts, not dollars.

What Is the 12 CFR 360.9 Rule, and Why Is It Staying?

Section 360.9 is an older FDIC rule for large banks. Its full label is 12 CFR 360.9. Here, 12 CFR means Title 12 of the Code of Federal Regulations. The Code of Federal Regulations is the official collection of federal rules, and Title 12 is the part that covers banks.

The rule stays because the FDIC's plan would give it a bigger job. It makes large banks keep records and tools that help the FDIC act fast after a bank fails. Those records let the FDIC sort accounts by owner and account type before customers need their money.

Under the plan, 360.9 would take over key duties from Part 370, a newer FDIC recordkeeping rule. Banks now under Part 370 would still keep supporting records and provisional hold tools. A provisional hold is a temporary freeze on part of a large balance while the FDIC works out what is insured.

Section 360.9 uses a broader test than Part 370. A bank can fall under it in two ways. The first is having two million or more deposit accounts. The second is having at least $2 billion in deposits plus one more thing. That bank needs either 250,000 or more deposit accounts or $20 billion or more in total assets. Total assets means everything the bank owns, such as the loans it has made and the cash it holds.

Both paths are set out in the rule text of section 360.9. Together the two paths reach more banks than Part 370 does. A bank can meet the second path while staying well under two million accounts. Bank Y, a made-up bank in the hypothetical example below, shows how that works.

Which Banks Are Covered by the FDIC Part 370 Recordkeeping Rule?

Part 370 covers only the banks with the most deposit accounts. A deposit account is any checking, savings or certificate of deposit (CD) account you open. A CD is a savings account that holds your money for a set term. Most smaller banks have far fewer accounts, so they fall outside the rule.

The idea isn't new. In January 2006, the FDIC asked for early ideas on modernizing large-bank insurance decisions, in an advance notice from the FDIC. An advance notice is a request for comments before a draft rule exists. In December 2007, the FDIC proposed a rule to improve how it decides insurance coverage when a large bank fails.

Here is a quick comparison. Part 370 covers banks with two million or more deposit accounts. Section 360.9 covers those same banks. It also covers banks with at least $2 billion in deposits that have either 250,000 accounts or $20 billion in assets.

Here is a hypothetical example, not FDIC data. Imagine two made-up banks, with numbers we assumed for teaching. Bank X has more than two million accounts, so both rules reach it. Bank Y has $5 billion in deposits and 300,000 accounts, so only 360.9 reaches it.

Now work through it as a depositor. First, ask whether your bank looks more like Bank X, Bank Y or neither. If it is neither, neither rule reaches it. Either way, the step that protects you is the same: confirm each balance fits under the coverage limit. To see where your money sits, use our bank directory to look up your bank's details.

Why Is the FDIC Rescinding the Part 370 Rule?

The FDIC's answer is that it can now do the insurance math itself. Under Part 370, each of the biggest banks must build tools that work out how much of each deposit is insured. The agency's own systems have improved since that rule began, it says.

The agency also argues that dropping Part 370 would match costs to benefits better. In its view, the change would not materially impede its ability to calculate and pay insured deposits. That is the FDIC's own claim, and public comments may test it. Real payout speed under the new setup won't be known until a final rule is in place and tested.

In our opinion, one central system makes sense. Building the same tool at every big bank repeats costly work. There is a catch. A fast FDIC system cannot fix messy bank records. So the record-keeping duties banks keep under a separate rule, section 360.9, still matter.

How Much Would the FDIC Proposal Save Banks Each Year?

No one can give a confirmed yearly figure yet. This article does not give a yearly dollar figure. We could not check a savings estimate against a source we trust, so we leave the number out. Any figure the FDIC gives would be a forecast, not a measured result.

Such a forecast would count costs banks would stop paying. Those include building, testing and running their own insurance-math systems.

The savings would come from one change. Today, large banks build and run their own systems to work out how much of each deposit is insured. Under the proposal, they would not need to. They would still pay to keep account records and hold some tools.

Will you see lower fees? Don't count on it. The first savings would go to the covered banks. A bank might pass some on as lower fees or higher deposit rates, or it might not. The proposal promises neither. To check a quoted number, find the cost section of the FDIC's notice.

When Are Comments Due on the FDIC Large-Bank Deposit Insurance Proposal?

Comments are due 60 days after the proposal is published in the Federal Register. The Federal Register is the federal government's daily publication of new rules and notices. We have not confirmed the publication date, so this article cannot give a calendar deadline.

The FDIC board has already voted to put the proposal out for public comment. The comment period is the window when anyone can send the FDIC feedback.

That clock starts on publication, not on the day the FDIC board voted. Those two dates can differ. The vote date alone can mislead you.

Anyone can comment, including everyday depositors. You can send a comment through the FDIC or through Regulations.gov, the federal rules website. After the deadline, the FDIC reviews what people sent. It may then adopt the rule, change it or drop it.

Find the Federal Register notice and note its publication date. The FDIC's Financial Institution Letter about the plan is a good starting point. Count 60 days forward. Then confirm the exact deadline printed in the notice before you send a comment.

A Merger Story: When Your Coverage Can Change Without You Doing Anything

A bank merger can push your savings over the insurance limit without you doing a thing. FDIC rules give you a grace period, which is a set window of time to fix it.

Imagine a 72-year-old saver with $200,000 at Bank A and $150,000 at Bank B. These numbers are assumptions. Then Bank A buys Bank B. Now she has $350,000 at one bank in one ownership category, meaning the way the accounts are titled.

That is $100,000 over the $250,000 limit. During the grace period, her old Bank B money stays separately insured. After it ends, the usual rule applies, which explains why a second account at the same bank adds no coverage. Ask the bank for her exact deadline, then move or retitle funds before it.

What Depositors Should Do While the Rule Is Pending

If every balance at each bank fits under its coverage limit, you don't need to do anything about this proposal. The FDIC insures up to $250,000 per depositor, per bank, for each ownership type. Ownership type means how an account is held, such as single, joint or retirement. The FDIC's deposit insurance pages on its website list every ownership type.

Suppose your banker says, "This rule change protects you more." You reply, "Does it change my $250,000 coverage?" The honest answer is no. Congress sets that limit, so a rule like this can't raise it.

To check where you stand, list each account at each bank. Note who owns it and its type. Then add up the totals for each bank and each type. You can check your totals by ownership type in a few minutes.

Conclusion: A Back-Office Change With a Front-Desk Lesson

Most depositors can relax about this one. The banks with the most deposit accounts gain the most, since they could retire their own calculation tools. Banks outside the rules' size tests would generally see no change. Some larger community-focused banks could still meet the 360.9 test. It is still a proposal, and your coverage limit stays the same.

Here is the part worth sharing. Bank records and FDIC systems shape how fast the FDIC can pay you. The FDIC expects this plan not to materially impede its ability to calculate and pay insured deposits. Actual speed stays uncertain until a final rule is in place and tested.

Your own account setup decides how much the FDIC pays you. Coverage counts per bank and per ownership type, such as a single account or a joint account.

So do one thing today. Add up your balances at each bank, sorted by ownership type. Then check again if your bank ever merges with another.