Notice of Proposed Rulemaking on Simplification of Deposit Insurance Rules for Trust and Mortgage Servicing Accounts

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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules

will make its own determination about

the confidential status of the

information and treat it according to its

determination.

It is DOE’s policy that all comments

may be included in the public docket,

without change and as received,

including any personal information

provided in the comments (except

information deemed to be exempt from

public disclosure).

VI. Approval of the Office of the

Secretary

The Secretary of Energy has approved

publication of this supplemental notice

of proposed rulemaking.

List of Subjects in 10 CFR Part 430

Administrative practice and

procedure, Confidential business

information, Energy conservation,

Household appliances, Imports,

Incorporation by reference,

Intergovernmental relations, Small

businesses.

Signing Authority

This document of the Department of

Energy was signed on July 22, 2021, by

Kelly Speakes-Backman, Principal

Deputy Assistant Secretary and Acting

Assistant Secretary for Energy Efficiency

and Renewable Energy, pursuant to

delegated authority from the Secretary

of Energy. That document with the

original signature and date is

maintained by DOE. For administrative

purposes only, and in compliance with

requirements of the Office of the Federal

Register, the undersigned DOE Federal

Register Liaison Officer has been

authorized to sign and submit the

document in electronic format for

publication, as an official document of

the Department of Energy. This

administrative process in no way alters

the legal effect of this document upon

publication in the Federal Register.

Signed in Washington, DC, on July 23,

2021.

Treena V. Garrett,

Federal Register Liaison Officer, U.S.

Department of Energy.

For the reasons stated in the

preamble, DOE is proposing to amend

part 430 of Chapter II of Title 10, Code

of Federal Regulations as set forth

below:

PART 430—ENERGY CONSERVATION

PROGRAM FOR CONSUMER

PRODUCTS

■1

ocument upon

publication in the Federal Register.

Signed in Washington, DC, on July 23,

2021.

Treena V. Garrett,

Federal Register Liaison Officer, U.S.

Department of Energy.

For the reasons stated in the

preamble, DOE is proposing to amend

part 430 of Chapter II of Title 10, Code

of Federal Regulations as set forth

below:

PART 430—ENERGY CONSERVATION

PROGRAM FOR CONSUMER

PRODUCTS

■1. The authority citation for part 430

continues to read as follows:

Authority: 42 U.S.C. 6291–6309; 28 U.S.C.

2461 note.

■2. Appendix I to subpart B of part 430

is amended by:

■a. Adding an introductory note; and

■b. Revising section 2.1.1;

The addition and revision read as

follows:

Appendix I to Subpart B of Part 430—

Uniform Test Method for Measuring the

Energy Consumption of Cooking

Products

Note: Prior to [Date 180 days after

publication of a final rule], representations

with respect to the energy use or efficiency

of a microwave oven, including compliance

certifications, must be based on testing

conducted in accordance with either this

appendix as it now appears or appendix I as

it appeared at 10 CFR part 430, subpart B

revised as of January 1, 2021. Beginning on

[Date 180 days after publication of a final

rule] representations with respect to energy

use or efficiency of a microwave oven,

including compliance certifications, must be

based on testing conducted in accordance

with this appendix.

*

*

*

*

*

2.1.1

Microwave ovens, excluding any

microwave oven component of a combined

cooking product. Install the microwave oven

in accordance with the manufacturer’s

instructions and connect to an electrical

supply circuit with voltage as specified in

section 2.2.1 of this appendix. Install the

microwave oven in accordance with section

5, paragraph 5.2 of IEC 62301 (Second

Edition) (incorporated by reference; see

§ 430.3), disregarding the provisions

regarding batteries and the determination,

classification, and testing of relevant modes

anufacturer’s

instructions and connect to an electrical

supply circuit with voltage as specified in

section 2.2.1 of this appendix. Install the

microwave oven in accordance with section

5, paragraph 5.2 of IEC 62301 (Second

Edition) (incorporated by reference; see

§ 430.3), disregarding the provisions

regarding batteries and the determination,

classification, and testing of relevant modes.

If the microwave oven can communicate

through a network (e.g., Bluetooth® or

internet connection), disable the network

function, by means provided in the

manufacturer’s user manual, for the duration

of testing. If the manufacturer’s user manual

does not provide a means for disabling the

network function, test the microwave oven

with the network function in the factory

default setting or in the as-shipped condition

as instructed in Section 5, Paragraph 5.2 of

IEC 62301 (Second Edition). The clock

display must be on, regardless of

manufacturer’s instructions or default setting

or supplied setting. The clock display must

remain on during testing, unless the clock

display powers down automatically with no

option for the consumer to override this

function. Install a watt meter in the circuit

that meets the requirements of section 2.6.1.1

of this appendix.

*

*

*

*

*

[FR Doc. 2021–16023 Filed 8–2–21; 8:45 am]

BILLING CODE 6450–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 330

RIN 3064–AF27

Simplification of Deposit Insurance

Rules

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Federal Deposit

Insurance Corporation is seeking

comment on proposed amendments to

its regulations governing deposit

insurance coverage

8–2–21; 8:45 am]

BILLING CODE 6450–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 330

RIN 3064–AF27

Simplification of Deposit Insurance

Rules

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Federal Deposit

Insurance Corporation is seeking

comment on proposed amendments to

its regulations governing deposit

insurance coverage. The proposed rule

would simplify the deposit insurance

regulations by establishing a ‘‘trust

accounts’’ category that would provide

for coverage of deposits of both

revocable trusts and irrevocable trusts,

and provide consistent deposit

insurance treatment for all mortgage

servicing account balances held to

satisfy principal and interest obligations

to a lender.

DATES: Comments will be accepted until

October 4, 2021.

ADDRESSES: You may submit comments

on the notice of proposed rulemaking

using any of the following methods:

• Agency Website: https://

www.fdic.gov/resources/regulations/

federal-register-publications/. Follow

the instructions for submitting

comments on the agency website.

• Email: comments@fdic.gov. Include

RIN 3064–AF27 on the subject line of

the message.

• Mail: James P. Sheesley, Assistant

Executive Secretary, Attention:

Comments-RIN 3064–AF27, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, DC 20429.

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street NW

building (located on F Street) on

business days between 7 a.m. and 5 p.m.

• Public Inspection: All comments

received, including any personal

information provided, will be posted

generally without change to https://

www.fdic.gov/resources/regulations/

federal-register-publications/.

FOR FURTHER INFORMATION CONTACT:

James Watts, Counsel, Legal Division,

(202) 898–6678, jwatts@fdic.gov;

Kathryn Marks, Counsel, Legal Division,

siness days between 7 a.m. and 5 p.m.

• Public Inspection: All comments

received, including any personal

information provided, will be posted

generally without change to https://

www.fdic.gov/resources/regulations/

federal-register-publications/.

FOR FURTHER INFORMATION CONTACT:

James Watts, Counsel, Legal Division,

(202) 898–6678, jwatts@fdic.gov;

Kathryn Marks, Counsel, Legal Division,

(202) 898–3896, kmarks@fdic.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Simplification of Deposit Insurance Trust

Rules

A. Policy Objectives

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1 Trusts include informal revocable trusts

(commonly referred to as payable-on-death

accounts, in-trust-for accounts, or Totten trusts),

formal revocable trusts, and irrevocable trusts.

2 See 73 FR 56706 (Sep. 30, 2008).

3 In 2008, the FDIC adopted an insurance

calculation for revocable trusts that have five or

fewer beneficiaries. Under this rule, 12 CFR

330.10(a), each trust grantor is insured up to

$250,000 per beneficiary.

B. Background

1. Deposit Insurance and the FDIC’s

Statutory and Regulatory Authority

2. Evolution of Insurance Coverage of Trust

Deposits

3. Current Rules for Coverage of Trust

Deposits

4. Part 370 and Recordkeeping at the

Largest IDIs

5. Need for Further Rulemaking

C. Description of Proposed Rule

D. Examples Demonstrating Coverage

Under Current and Proposed Rules

E. Alternatives Considered

F. Request for Comment

II. Amendments to Mortgage Servicing

Account Rule

A. Policy Objectives

B. Background and Need for Rulemaking

C. Proposed Rule

D. Request for Comment

III. Regulatory Analysis

A. Expected Effects

1. Simplification of Trust Rules

2. Amendments to Mortgage Servicing

Account Rule

B. Regulatory Flexibility Act

1. Simplification of Trust Rules

2

ternatives Considered

F. Request for Comment

II. Amendments to Mortgage Servicing

Account Rule

A. Policy Objectives

B. Background and Need for Rulemaking

C. Proposed Rule

D. Request for Comment

III. Regulatory Analysis

A. Expected Effects

1. Simplification of Trust Rules

2. Amendments to Mortgage Servicing

Account Rule

B. Regulatory Flexibility Act

1. Simplification of Trust Rules

2. Amendments to Mortgage Servicing

Account Rule

C. Paperwork Reduction Act

D. Riegle Community Development and

Regulatory Improvement Act

E. Treasury and General Government

Appropriations Act, 1999—Assessment

of Federal Regulations and Policies on

Families

F. Plain Language

I. Simplification of Deposit Insurance

Trust Rules

A. Policy Objectives

The Federal Deposit Insurance

Corporation (FDIC) is seeking comment

on proposed amendments to its

regulations governing deposit insurance

coverage for deposits held in connection

with trusts.1 The proposed amendments

are intended to (1) provide depositors

and bankers with a rule for trust account

coverage that is easy to understand and

(2) to facilitate the prompt payment of

deposit insurance in accordance with

the Federal Deposit Insurance Act (FDI

Act), among other objectives.

Accomplishing these objectives also

would further the FDIC’s mission in

other respects, as discussed in greater

detail below.

Clarifying Insurance Coverage for Trust

Deposits

The proposed amendments would

clarify for depositors, bankers, and other

interested parties the insurance rules

and limits for trust accounts. The

proposal both reduces the number of

rules governing coverage for trust

accounts and establishes a

straightforward calculation to determine

coverage. The deposit insurance trust

rules have evolved over time and can be

difficult to apply in some

circumstances. The proposed

amendments are intended to alleviate

some of the confusion that depositors

and bankers may experience with

respect to insurance coverage and

limits

r of

rules governing coverage for trust

accounts and establishes a

straightforward calculation to determine

coverage. The deposit insurance trust

rules have evolved over time and can be

difficult to apply in some

circumstances. The proposed

amendments are intended to alleviate

some of the confusion that depositors

and bankers may experience with

respect to insurance coverage and

limits. Under the current regulations,

there are distinct and separate sets of

rules applicable to deposits of revocable

trusts and irrevocable trusts. Each set of

rules has its own criteria for coverage

and methods by which coverage is

calculated. Despite the FDIC’s efforts to

simplify the revocable trust rules in

2008,2 over the last 13 years FDIC

deposit insurance specialists have

responded to approximately 20,000

complex insurance inquiries per year on

average. More than 50 percent of

inquiries pertain to deposit insurance

coverage for trust accounts (revocable or

irrevocable). The consistently high

volume of complex inquiries about trust

accounts over an extended period of

time suggests continued confusion

about insurance limits. To help clarify

insurance limits, the proposed

amendments would further simplify

insurance coverage of trust accounts

(revocable and irrevocable) by

harmonizing the coverage criteria for

certain types of trust accounts and by

establishing a simplified formula for

calculating coverage that would apply to

these deposits. The FDIC proposes using

the calculation that the FDIC first

adopted in 2008 for revocable trust

accounts with five or fewer

beneficiaries. This formula is

straightforward and is already generally

familiar to bankers and depositors.3

Prompt Payment of Deposit Insurance

The FDI Act requires the FDIC to pay

depositors ‘‘as soon as possible’’ after a

bank failure

ld apply to

these deposits. The FDIC proposes using

the calculation that the FDIC first

adopted in 2008 for revocable trust

accounts with five or fewer

beneficiaries. This formula is

straightforward and is already generally

familiar to bankers and depositors.3

Prompt Payment of Deposit Insurance

The FDI Act requires the FDIC to pay

depositors ‘‘as soon as possible’’ after a

bank failure. However, the insurance

determination and subsequent payment

for many trust deposits can be delayed

when FDIC staff must review complex

trust agreements and apply various rules

for determining deposit insurance

coverage. The proposed amendments

are intended to facilitate more timely

deposit insurance determinations for

trust accounts by reducing the amount

of time needed to review trust

agreements and determine coverage.

These amendments should promote the

FDIC’s ability to pay insurance to

depositors promptly following the

failure of an insured depository

institution (IDI), enabling depositors to

meet their financial needs and

obligations.

Facilitating Resolutions

The proposed changes will also

facilitate the resolution of failed IDIs.

The FDIC is routinely required to make

deposit insurance determinations in

connection with IDI failures. In many of

these instances, however, deposit

insurance coverage for trust deposits is

based upon information that is not

maintained in the failed IDI’s deposit

account records. As a result, FDIC staff

work with depositors, trustees, and

other parties to obtain trust

documentation following an IDI’s failure

in order to complete deposit insurance

determinations. The difficulties

associated with completing such a

determination are exacerbated by the

substantial growth in the use of formal

trusts in recent decades

tained in the failed IDI’s deposit

account records. As a result, FDIC staff

work with depositors, trustees, and

other parties to obtain trust

documentation following an IDI’s failure

in order to complete deposit insurance

determinations. The difficulties

associated with completing such a

determination are exacerbated by the

substantial growth in the use of formal

trusts in recent decades. The proposed

amendments could reduce the time

spent reviewing such information and

provide greater flexibility to automate

deposit insurance determinations,

thereby reducing potential delays in the

completion of deposit insurance

determinations and payments. Timely

payment of deposit insurance also helps

to avoid reductions in the franchise

value of failed IDIs, expanding

resolution options and mitigating losses.

Effects on the Deposit Insurance Fund

The FDIC is also mindful of the effect

that the proposed changes to the deposit

insurance regulations could have on

deposit insurance coverage and

generally on the Deposit Insurance Fund

(DIF), which is used to pay deposit

insurance in the event of an IDI’s

failure. The FDIC manages the DIF

according to parameters established by

Congress and continually evaluates the

adequacy of the DIF to protect insured

depositors. The FDIC’s general intent is

that proposed amendments to the trust

rules be neutral with respect to the DIF.

B. Background

1. Deposit Insurance and the FDIC’s

Statutory and Regulatory Authority

The FDIC is an independent agency

that maintains stability and public

confidence in the nation’s financial

system by: Insuring deposits; examining

and supervising IDIs for safety and

soundness and compliance with

consumer financial protection laws; and

resolving IDIs, including large and

complex financial institutions, and

managing receiverships

FDIC’s

Statutory and Regulatory Authority

The FDIC is an independent agency

that maintains stability and public

confidence in the nation’s financial

system by: Insuring deposits; examining

and supervising IDIs for safety and

soundness and compliance with

consumer financial protection laws; and

resolving IDIs, including large and

complex financial institutions, and

managing receiverships. The FDIC has

helped to maintain public confidence in

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4 See 12 U.S.C. 1821(a)(1)(E).

5 See 12 U.S.C. 1821(a)(1)(C) (deposits

‘‘maintained by a depositor in the same capacity

and the same right’’ at the same IDI are aggregated

for purposes of the deposit insurance limit).

6 12 U.S.C. 1821(a)(2).

7 See 12 U.S.C. 1817(i), 1821(a).

8 See 12 CFR 330.10, 330.13.

9 See 1934 FDIC Annual Report at 143.

10 See Banking Act of 1935, Public Law 74–305

(Aug. 23, 1935), section 101 (‘‘Trust funds held by

an insured bank in a fiduciary capacity whether

held in its trust or deposited in any other

department or in another bank shall be insured in

an amount not to exceed $5,000 for each trust

estate, and when deposited by the fiduciary bank

in another insured bank such trust funds shall be

similarly insured to the fiduciary bank according to

the trust estates represented.’’).

11 The name ‘‘Totten trust’’ is derived from an

early New York court decision recognizing this

form of trust, Matter of Totten, 179 N.Y. 112 (N.Y.

1904). Many other states have recognized similar

types of accounts, commonly known as ‘‘payable-

on-death’’ accounts or tentative trust accounts.

12 Separate Insurability of ‘‘Totten Trust’’

Accounts (June 1, 1955), Federal Banking Law

Reporter ¶ 92,583.

13 32 FR 10408 (July 14, 1967).

14 55 FR 20111 (May 15, 1990).

15 54 FR 52399, 52408 (Dec

of trust, Matter of Totten, 179 N.Y. 112 (N.Y.

1904). Many other states have recognized similar

types of accounts, commonly known as ‘‘payable-

on-death’’ accounts or tentative trust accounts.

12 Separate Insurability of ‘‘Totten Trust’’

Accounts (June 1, 1955), Federal Banking Law

Reporter ¶ 92,583.

13 32 FR 10408 (July 14, 1967).

14 55 FR 20111 (May 15, 1990).

15 54 FR 52399, 52408 (Dec. 21, 1989) (notice of

proposed rulemaking).

16 55 FR 20126 (May 15, 1990).

times of financial turmoil, including the

period from 2008 to 2013, when the

United States experienced a severe

financial crisis, and more recently in

2020 during the financial stress

associated with the COVID–19

pandemic. During the more than 88

years since the FDIC was established, no

depositor has lost a penny of FDIC-

insured funds.

The FDI Act establishes the key

parameters of deposit insurance

coverage, including the standard

maximum deposit insurance amount

(SMDIA), currently $250,000.4 In

addition to providing deposit insurance

coverage up to the SMDIA at each IDI

where a depositor maintains deposits,

the FDI Act also provides separate

insurance coverage for deposits that a

depositor maintains in different rights

and capacities (also known as insurance

categories) at the same IDI.5 For

example, deposits in the single

ownership category are separately

insured from deposits in the joint

ownership category at the same IDI.

The FDIC’s deposit insurance

categories have been defined through

both statute and regulation. Certain

categories, such as the government

deposit category, have been expressly

defined by Congress.6 Other categories,

such as joint deposits and corporate

deposits, have been based on statutory

interpretation and recognized through

regulations issued in 12 CFR part 330

pursuant to the FDIC’s rulemaking

authority

urance

categories have been defined through

both statute and regulation. Certain

categories, such as the government

deposit category, have been expressly

defined by Congress.6 Other categories,

such as joint deposits and corporate

deposits, have been based on statutory

interpretation and recognized through

regulations issued in 12 CFR part 330

pursuant to the FDIC’s rulemaking

authority. In addition to defining the

insurance categories, the deposit

insurance regulations in part 330

provide the criteria used to determine

insurance coverage for deposits in each

category.

2. Evolution of Insurance Coverage of

Trust Deposits

Over the years, deposit insurance

coverage has evolved to reflect both the

FDIC’s experience and changes in the

banking industry. The FDI Act includes

provisions defining the coverage for

certain trust deposits,7 while coverage

for other trust deposits has been defined

by regulation.8 The following review of

historical coverage for trust deposits

provides context for the FDIC’s

proposed amendments to the trust rules.

In the FDIC’s earliest years, deposit

insurance coverage for trust deposits

depended upon whether the

beneficiaries of the trust were named in

the bank’s records. If the beneficiaries

were named in the bank’s records, the

trust deposit was insured according to

the beneficiaries’ respective interests

because the deposit was held in trust for

the beneficiaries

mendments to the trust rules.

In the FDIC’s earliest years, deposit

insurance coverage for trust deposits

depended upon whether the

beneficiaries of the trust were named in

the bank’s records. If the beneficiaries

were named in the bank’s records, the

trust deposit was insured according to

the beneficiaries’ respective interests

because the deposit was held in trust for

the beneficiaries. If beneficiaries were

not named in the bank’s records, the

grantor trustee was treated as the

depositor instead and insured to the

applicable limit (then $5,000); however,

the trust deposit was insured separately

from the trustee’s other deposits, if any,

at the same bank.9 If the bank itself was

designated as trustee of the trust,

deposits of the trust were insured up to

the $5,000 limit for each trust estate

pursuant to statute.10

Over time, some states began

recognizing the existence of a trust

based on a designation in the bank’s

records that a deposit was held in trust

for another person—even in the absence

of a written trust agreement. In 1955, the

FDIC’s then-General Counsel concluded

that if relevant state law recognized

these ‘‘Totten trusts’’ 11 and the

depositor complied with the law in

establishing the trust, the FDIC would

insure these deposits separately from

the depositor’s other deposit accounts.12

This was the first time the FDIC insured

informal trusts as trust deposits.

The FDIC further clarified insurance

coverage for trust deposits in 1967 when

it issued rules defining the deposit

insurance categories that the FDIC had

recognized.13 These rules defined a

‘‘testamentary accounts’’ category that

included revocable trust accounts,

tentative or Totten trust accounts, and

payable-on-death accounts and similar

accounts evidencing an intention that

the funds shall belong to another person

upon the depositor’s death

posits in 1967 when

it issued rules defining the deposit

insurance categories that the FDIC had

recognized.13 These rules defined a

‘‘testamentary accounts’’ category that

included revocable trust accounts,

tentative or Totten trust accounts, and

payable-on-death accounts and similar

accounts evidencing an intention that

the funds shall belong to another person

upon the depositor’s death.

Testamentary deposits were insured up

to the applicable limit (which Congress

had raised to $15,000) for each named

beneficiary who was the depositor’s

spouse, child, or grandchild. If the

named beneficiary did not satisfy this

kinship requirement, the deposit was

aggregated with the depositor’s

individual accounts for purposes of

deposit insurance coverage. The rules

also included a separate ‘‘trust

accounts’’ category for irrevocable trusts

with coverage of up to $15,000 for each

beneficiary’s trust interests in deposit

accounts established by the same

grantor pursuant to a trust agreement.

Irrevocable trust accounts were insured

separately from other deposit accounts

of the trustee, grantor, or beneficiary,

including testamentary accounts.

In 1989, Congress transferred

responsibility for insuring deposits of

savings associations from the Federal

Savings and Loan Insurance Corporation

(FSLIC) to the FDIC. As part of this

transition, the FDIC issued uniform

deposit insurance rules for the deposits

of banks and savings associations,

reconciling the differences between the

FDIC and FSLIC insurance rules.14

These uniform rules redesignated the

‘‘testamentary accounts’’ category as

‘‘revocable trust accounts,’’ and

continued to require beneficiaries for

revocable trust deposits to be named,

but added the requirement that these

beneficiaries be named in the failed

IDI’s deposit account records in order

for per-beneficiary coverage to apply

erences between the

FDIC and FSLIC insurance rules.14

These uniform rules redesignated the

‘‘testamentary accounts’’ category as

‘‘revocable trust accounts,’’ and

continued to require beneficiaries for

revocable trust deposits to be named,

but added the requirement that these

beneficiaries be named in the failed

IDI’s deposit account records in order

for per-beneficiary coverage to apply. In

the notice of proposed rulemaking

discussing this change, the FDIC

explained that the change was expected

to simplify the deposit insurance

determination process for revocable

trust deposits and expedite the payment

of deposit insurance.15 These rules also

redesignated the ‘‘trust accounts’’

category as ‘‘irrevocable trust accounts’’

and introduced a distinction between

contingent interests and non-contingent

interests in irrevocable trusts that would

affect deposit insurance coverage. Non-

contingent interests were each insured

up to the applicable limit (then

$100,000), while contingent interests

were aggregated and insured up to

$100,000 in total.16

As revocable trusts increased in

popularity during the late 1980s and

early 1990s as an estate planning tool,

the FDIC began receiving more inquiries

about the revocable trust rules. Many of

these inquiries were prompted by

complex trust agreements that included

numerous conditions prescribing

whether, when, or how a named

beneficiary would receive trust assets.

FDIC staff generally interpreted the

revocable trust rules to require

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inquiries were prompted by

complex trust agreements that included

numerous conditions prescribing

whether, when, or how a named

beneficiary would receive trust assets.

FDIC staff generally interpreted the

revocable trust rules to require

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17 See, e.g., Advisory Opinion 94–32, Guidelines

for Insurance Coverage of Revocable Trust Accounts

(Including ‘‘Living Trust’’ Accounts), (May 18,

1994). While the vested interest requirement

applied to both formal and informal trusts, interests

in informal trusts were generally considered to be

vested because they automatically passed to the

designated beneficiaries upon the death of the last

grantor.

18 61 FR 25596 (May 22, 1996).

19 63 FR 25750 (May 11, 1998).

20 64 FR 15653 (Apr. 1, 1999).

21 68 FR 38645 (June 30, 2003).

22 69 FR 2825 (Jan. 21, 2004).

23 69 FR 2825, 2828 (Jan. 21, 2004).

24 73 FR 56706 (Sep. 30, 2008).

25 12 CFR 330.10(a).

26 12 CFR 330.10(c).

27 12 CFR 330.10(d).

28 12 CFR 330.10(b)(1).

beneficiaries’ interests in formal and

informal revocable trusts to be vested in

order to qualify for separate insurance

coverage, meaning that, after a grantor’s

death, there was no condition attached

to the beneficiary’s interest that would

make the interest contingent (referred to

as a ‘‘defeating contingency’’).17 Staff

reasoned that only a vested trust interest

could establish a reasonable expectation

that the revocable trust deposit ‘‘shall

belong to’’ the beneficiary, as the

regulation required

ance

coverage, meaning that, after a grantor’s

death, there was no condition attached

to the beneficiary’s interest that would

make the interest contingent (referred to

as a ‘‘defeating contingency’’).17 Staff

reasoned that only a vested trust interest

could establish a reasonable expectation

that the revocable trust deposit ‘‘shall

belong to’’ the beneficiary, as the

regulation required.

In 1996, the FDIC sought public

comment on potential simplification of

the deposit insurance rules, noting that

its experience with bank and savings

association failures and a steady volume

of inquiries on deposit insurance

coverage suggested that simplification

could be beneficial.18 Among other

changes, the FDIC proposed specific

amendments to the rules for revocable

trust deposits. Certain of these changes

were finalized in 1998, when a

provision was added to the rules

defining the conditions that would

constitute a defeating contingency.19

Soon afterward, the FDIC expanded the

list of beneficiaries that would qualify

for per-beneficiary coverage to include

siblings and parents, noting that some

depositors had lost money in bank

failures because they had named non-

qualifying beneficiaries.20

In 2003, the FDIC proposed amending

the revocable trust rules, pointing to

continued confusion about the coverage

for revocable trust deposits.21

Specifically, the FDIC proposed to

eliminate the defeating contingency

provisions of the rules, with the result

that coverage would be based on the

interests of qualifying beneficiaries,

irrespective of any defeating

contingencies in the trust agreement.

The FDIC subsequently adopted this

change, noting that it more closely

aligned coverage for living trust

accounts with payable-on-death

accounts.22 Defeating contingency

provisions were not eliminated for

irrevocable trusts

rules, with the result

that coverage would be based on the

interests of qualifying beneficiaries,

irrespective of any defeating

contingencies in the trust agreement.

The FDIC subsequently adopted this

change, noting that it more closely

aligned coverage for living trust

accounts with payable-on-death

accounts.22 Defeating contingency

provisions were not eliminated for

irrevocable trusts. At the same time, the

FDIC also eliminated the requirement to

name the beneficiaries of a formal

revocable trust in the IDI’s deposit

account records.23 Because the FDIC

had to obtain and review trust

agreements from depositors following

an IDI’s failure to determine the

eligibility of the beneficiaries and

allocation of funds to each beneficiary,

eliminating this requirement was based

on the conclusion that also requiring

IDIs to maintain records of trust

beneficiaries, or requiring grantors to

inform IDIs of changes in their trust

agreements, was unnecessary and

burdensome. Though the additional

information might expedite deposit

insurance payments, the FDIC

determined that removing this

recordkeeping requirement would

support ongoing efforts under the

Economic Growth and Regulatory

Paperwork Reduction Act to eliminate

unnecessary regulatory requirements.

The FDIC’s experience with making

deposit insurance determinations

during the early stages of the most

recent financial crisis suggested that

further changes to the trust rules were

necessary. In 2008, the FDIC simplified

the rules in several respects.24 First, it

eliminated the kinship requirement for

revocable trust beneficiaries, instead

allowing any natural person, charitable

organization, or non-profit, to qualify for

per-beneficiary coverage. Second, a

simplified calculation was established if

a revocable trust named five or fewer

beneficiaries; coverage would be

determined without regard to the

allocation of interests among the

beneficiaries

liminated the kinship requirement for

revocable trust beneficiaries, instead

allowing any natural person, charitable

organization, or non-profit, to qualify for

per-beneficiary coverage. Second, a

simplified calculation was established if

a revocable trust named five or fewer

beneficiaries; coverage would be

determined without regard to the

allocation of interests among the

beneficiaries. This eliminated the need

to discern and consider beneficial

interests in many cases.

A different insurance calculation

applied to revocable trusts with more

than five beneficiaries. Specifically, at

that time, the SMDIA was $100,000 and

thus if more than five beneficiaries were

named in a revocable trust, coverage

would be the greater of: (1) $500,000; or

(2) the aggregate amount of all

beneficiaries’ interests in the trust(s),

limited to $100,000 per beneficiary.

When the SMDIA was increased to

$250,000, a similar adjustment was

made from $100,000 to $250,000 for the

calculation of per beneficiary coverage.

3. Current Rules for Coverage of Trust

Deposits

The FDIC currently recognizes three

different insurance categories for

deposits held in connection with trusts:

(1) Revocable trusts; (2) irrevocable

trusts; and (3) irrevocable trusts with an

IDI as trustee. The current rules for

determining insurance coverage for

deposits in each of these categories are

described below.

Revocable Trust Deposits

The revocable trust category applies

to deposits for which the depositor has

evidenced an intention that the deposit

shall belong to one or more beneficiaries

upon his or her death. This category

includes deposits held in connection

with formal revocable trusts—that is,

revocable trusts established through a

written trust agreement. It also includes

deposits that are not subject to a formal

trust agreement, where the IDI makes

payment to the beneficiaries identified

in the IDI’s records upon the depositor’s

death based on account titling and

applicable state law

th. This category

includes deposits held in connection

with formal revocable trusts—that is,

revocable trusts established through a

written trust agreement. It also includes

deposits that are not subject to a formal

trust agreement, where the IDI makes

payment to the beneficiaries identified

in the IDI’s records upon the depositor’s

death based on account titling and

applicable state law. The FDIC refers to

these types of deposits, including Totten

trust accounts, payable-on-death

accounts, and similar accounts, as

‘‘informal revocable trusts.’’ Deposits

associated with formal and informal

revocable trusts are aggregated for

purposes of the deposit insurance rules;

thus, deposits that will pass from the

same grantor to beneficiaries are

aggregated and insured up to the

SMDIA, currently $250,000, per

beneficiary, regardless of whether the

transfer would be accomplished through

a written revocable trust or an informal

revocable trust.25

Under the current revocable trust

rules, beneficiaries include natural

persons, charitable organizations, and

non-profit entities recognized as such

under the Internal Revenue Code of

1986.26 If a named beneficiary does not

satisfy this requirement, funds held in

trust for that beneficiary are treated as

single ownership funds of the grantor

and aggregated with any other single

ownership accounts that the grantor

maintains at the same IDI.27

Certain requirements also must be

satisfied for a deposit to be insured in

the revocable trust category. The

required intention that the funds shall

belong to the beneficiaries upon the

depositor’s death must be manifested in

the ‘‘title’’ of the account using

commonly accepted terms such as ‘‘in

trust for,’’ ‘‘as trustee for,’’ ‘‘payable-on-

death to,’’ or any acronym for these

terms. For purposes of this requirement,

‘‘title’’ includes the IDI’s electronic

deposit account records

ategory. The

required intention that the funds shall

belong to the beneficiaries upon the

depositor’s death must be manifested in

the ‘‘title’’ of the account using

commonly accepted terms such as ‘‘in

trust for,’’ ‘‘as trustee for,’’ ‘‘payable-on-

death to,’’ or any acronym for these

terms. For purposes of this requirement,

‘‘title’’ includes the IDI’s electronic

deposit account records. For example,

an IDI’s electronic deposit account

records could identify the account as a

revocable trust account through coding

or a similar mechanism.28 In addition,

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29 12 CFR 330.10(b)(2).

30 12 CFR 330.10(a).

31 12 CFR 330.10(e).

32 12 CFR 330.10(g). For example, if a revocable

trust provides a life estate for the depositor’s spouse

and remainder interests for six other beneficiaries,

the spouse’s life estate interest would be valued at

$250,000 for purposes of the deposit insurance

calculation.

33 12 CFR 330.10(f)(1).

34 12 CFR 330.10(f)(2).

35 12 CFR 330.10(h).

36 The revocable trust rules tend to provide

greater coverage than the irrevocable trust rules

because contingencies are not considered for

revocable trusts. In addition, where five or fewer

beneficiaries are named by a revocable trust,

specific allocations to beneficiaries also are not

considered.

37 12 CFR 330.1(m). For example, a life estate

interest is generally non-contingent, as it may be

valued using the life expectancy tables. However,

where a trustee has discretion to divert funds from

one beneficiary to another to provide for the second

beneficiary’s medical needs, the first beneficiary’s

interest is contingent upon the trustee’s discretion.

38 12 CFR 330.13(a).

39 12 CFR 330.13(b)

R 330.1(m). For example, a life estate

interest is generally non-contingent, as it may be

valued using the life expectancy tables. However,

where a trustee has discretion to divert funds from

one beneficiary to another to provide for the second

beneficiary’s medical needs, the first beneficiary’s

interest is contingent upon the trustee’s discretion.

38 12 CFR 330.13(a).

39 12 CFR 330.13(b).

40 See 12 CFR 330.1(r) (definition of ‘‘trust

interest’’ does not include any interest retained by

the settlor).

41 12 U.S.C. 1817(i).

42 Part 330 defines ‘‘trust funds’’ as ‘‘funds held

by an insured depository institution as trustee

pursuant to any irrevocable trust established

pursuant to any statute or written trust agreement.’’

12 CFR 330.1(q).

43 12 CFR 330.12(a).

44 81 FR 87734 (Dec. 5, 2016).

the beneficiaries of informal trusts (i.e.,

payable-on-death accounts) must be

named in the IDI’s deposit account

records.29 Since 2004, the requirement

to name beneficiaries in the IDI’s

deposit account records has not applied

to formal revocable trusts; the FDIC

generally obtains information on

beneficiaries of such trusts from

depositors following an IDI’s failure.

Therefore, if a formal revocable trust

deposit exceeds $250,000 and the

depositor’s IDI were to fail, this will

likely result in a hold being placed on

the deposit until the FDIC can review

the trust agreement and verify that the

beneficiary rules are satisfied, thereby

delaying insurance determinations and

payments to insured depositors.

The calculation of deposit insurance

coverage for revocable trust deposits

depends upon the number of unique

beneficiaries named by a depositor

o fail, this will

likely result in a hold being placed on

the deposit until the FDIC can review

the trust agreement and verify that the

beneficiary rules are satisfied, thereby

delaying insurance determinations and

payments to insured depositors.

The calculation of deposit insurance

coverage for revocable trust deposits

depends upon the number of unique

beneficiaries named by a depositor. If

five or fewer beneficiaries have been

named, the depositor is insured in an

amount up to the total number of named

beneficiaries multiplied by the SMDIA,

and the specific allocation of interests

among the beneficiaries is not

considered.30 If more than five

beneficiaries have been named, the

depositor is insured up to the greater of:

(1) Five times the SMDIA; or (2) the

total of the interests of each beneficiary,

with each such interest limited to the

SMDIA.31 For purposes of this

calculation, a life estate interest is

valued at the SMDIA.32

Where a revocable trust deposit is

jointly owned by multiple co-owners,

the interests of each account owner are

separately insured up to the SMDIA per

beneficiary.33 However, if the co-owners

are the only beneficiaries of the trust,

the account is instead insured under the

FDIC’s joint account rule.34

The current revocable trust rule also

contains a provision that was intended

to reduce confusion and the potential

for a decrease in deposit insurance

coverage in the case of the death of a

grantor

separately insured up to the SMDIA per

beneficiary.33 However, if the co-owners

are the only beneficiaries of the trust,

the account is instead insured under the

FDIC’s joint account rule.34

The current revocable trust rule also

contains a provision that was intended

to reduce confusion and the potential

for a decrease in deposit insurance

coverage in the case of the death of a

grantor. Specifically, if a revocable trust

becomes irrevocable due to the death of

the grantor, the trust’s deposit may

continue to be insured under the

revocable trust rules.35 Absent this

provision, the irrevocable trust rules

would apply following the grantor’s

death, as the revocable trust becomes

irrevocable at that time, which could

result in a reduction in coverage.36

Irrevocable Trust Deposits

Deposits held by an irrevocable trust

that has been established either by

written agreement or by statute are

insured in the irrevocable trust deposit

insurance category. Calculating coverage

for deposits insured in this category

requires a determination of whether

beneficiaries’ interests in the trust are

contingent or non-contingent. Non-

contingent interests are interests that

may be determined without evaluation

of any contingencies, except for those

covered by the present worth and life

expectancy tables and the rules for their

use set forth in the IRS Federal Estate

Tax Regulations.37 Funds held for non-

contingent trust interests are insured up

to the SMDIA for each such

beneficiary.38 Funds held for contingent

trust interests are aggregated and

insured up to the SMDIA in total.39

The irrevocable trust rules do not

apply to deposits held for a grantor’s

retained interest in an irrevocable

trust.40 Such deposits are aggregated

with the grantor’s other single

ownership deposits for purposes of

applying the deposit insurance limit

to the SMDIA for each such

beneficiary.38 Funds held for contingent

trust interests are aggregated and

insured up to the SMDIA in total.39

The irrevocable trust rules do not

apply to deposits held for a grantor’s

retained interest in an irrevocable

trust.40 Such deposits are aggregated

with the grantor’s other single

ownership deposits for purposes of

applying the deposit insurance limit.

Deposits Held by an IDI as Trustee of an

Irrevocable Trust

For deposits held by an IDI in its

capacity as trustee of an irrevocable

trust, deposit insurance coverage is

governed by section 7(i) of the FDI Act,

a provision rooted in the Banking Act of

1935. Section 7(i) provides that ‘‘trust

funds held on deposit by an insured

depository institution in a fiduciary

capacity as trustee pursuant to any

irrevocable trust established pursuant to

any statute or written trust agreement

shall be insured in an amount not to

exceed the standard maximum deposit

insurance amount . . . for each trust

estate.’’ 41

The FDIC’s regulations governing

coverage for deposits held by an IDI in

its capacity as trustee of an irrevocable

trust are found in § 330.12. The rule

provides that ‘‘trust funds’’ held by an

IDI in its capacity as trustee of an

irrevocable trust, whether held in the

IDI’s trust department or another

department, or deposited by the

fiduciary institution in another IDI, are

insured up to the SMDIA for each owner

or beneficiary represented.42 This

coverage is separate from the coverage

provided for other deposits of the

owners or the beneficiaries,43 and

deposits held for a grantor’s retained

interest are not aggregated with the

grantor’s single ownership deposits.

Given the statutory basis for coverage,

the FDIC is not proposing any changes

to § 330.12.

4

insured up to the SMDIA for each owner

or beneficiary represented.42 This

coverage is separate from the coverage

provided for other deposits of the

owners or the beneficiaries,43 and

deposits held for a grantor’s retained

interest are not aggregated with the

grantor’s single ownership deposits.

Given the statutory basis for coverage,

the FDIC is not proposing any changes

to § 330.12.

4. Part 370 and Recordkeeping at the

Largest IDIs

Simplification of the deposit

insurance rules would make deposit

insurance coverage easier to understand

and improve the FDIC’s ability to

resolve insurance claims in a timely

manner, broadly benefiting the public

and IDIs, and it would have particular

significance for the large IDIs that are

subject to part 370 of the FDIC’s

regulations. Part 370 was adopted in

2016 to promote the timely payment of

deposit insurance in the event of the

failure of a large IDI.44 Its development

was prompted by the FDIC’s goal of

ensuring a timely insurance

determination in the event a large IDI

with a high volume of deposit accounts

fails. Part 370 requires ‘‘covered

institutions,’’ which generally include

IDIs with two million or more deposit

accounts, to maintain complete and

accurate depositor information and to

configure their information technology

systems so as to permit the FDIC to

calculate deposit insurance coverage

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nerally include

IDIs with two million or more deposit

accounts, to maintain complete and

accurate depositor information and to

configure their information technology

systems so as to permit the FDIC to

calculate deposit insurance coverage

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45 See Crisis and Response: An FDIC History,

2008–2013 at 197, FN 48, Federal Deposit Insurance

Corporation 2017.

promptly in the event of the IDI’s

failure. To implement part 370, covered

institutions are updating their deposit

account records and developing systems

capable of applying the deposit

insurance rules in an automated

manner.

In addition to broadly benefiting the

public and all IDIs, simplification of the

deposit insurance rules complements

part 370 in that it would further

promote the timely payment of deposit

insurance for depositors of the largest

IDIs. For instance, neither part 370 nor

any other rule requires covered

institutions to maintain certain records

necessary to make an insurance

determination for formal trust deposits,

meaning that the FDIC would need to

obtain and review revocable and

irrevocable trust agreements following a

covered institution’s failure. Analysis of

data from part 370 covered institutions

suggest the number of revocable trusts is

significant and, if a covered institution

were to fail, processing of deposit

insurance for formal revocable trusts

would likely extend well beyond

normal FDIC payment timeframes.

Simplification of the deposit insurance

rules would streamline insurance

determinations for trust accounts. The

FDIC expects that capabilities

developed in accordance with part 370

will be helpful in addressing many of

the challenges involved in making

deposit insurance determinations in

connection with a very large IDI’s

failure

likely extend well beyond

normal FDIC payment timeframes.

Simplification of the deposit insurance

rules would streamline insurance

determinations for trust accounts. The

FDIC expects that capabilities

developed in accordance with part 370

will be helpful in addressing many of

the challenges involved in making

deposit insurance determinations in

connection with a very large IDI’s

failure. Simplification of the deposit

insurance rules would provide

additional benefits by reducing the

amount of time needed to collect and

process trust information after failure in

order to make use of a covered

institution’s part 370 deposit insurance

calculation capabilities. With less time

needed to calculate insurance coverage,

the FDIC would be able to make more

timely insurance payments to insured

depositors.

5. Need for Further Rulemaking

The rules governing deposit insurance

coverage for trust deposits have been

simplified on several occasions, but are

still frequently misunderstood, and can

present some implementation

challenges. For example, the current

trust rules often require detailed, time-

consuming, and resource-intensive

review of trust documentation to obtain

the information that is necessary to

calculate deposit insurance coverage.

This information is often not found in

an IDI’s records and must be obtained

from depositors after an IDI’s failure.

For example, the FDIC’s deposit

insurance determinations for depositors

of IndyMac Bank, F.S.B. (IndyMac)

following its failure in 2008 were

challenging in part because IndyMac

had a large number of trust accounts for

which deposit insurance coverage was

governed by complex deposit insurance

rules.45 FDIC claims personnel

contacted more than 10,500 IndyMac

depositors to obtain the trust

documentation necessary to complete

deposit insurance determinations for

their revocable trust and irrevocable

trust deposits. In some cases, this

process took several months

c

had a large number of trust accounts for

which deposit insurance coverage was

governed by complex deposit insurance

rules.45 FDIC claims personnel

contacted more than 10,500 IndyMac

depositors to obtain the trust

documentation necessary to complete

deposit insurance determinations for

their revocable trust and irrevocable

trust deposits. In some cases, this

process took several months. Revision of

the deposit insurance coverage rules for

trust deposits along the lines proposed

would reduce the amount of

information that must be provided by

trust depositors, as well as the

complexity of the FDIC’s review. This

revision should enable the FDIC to

complete deposit insurance

determinations more rapidly if another

IDI with a large number of trust

accounts were to fail in the future.

Delays in the payment of deposit

insurance can be consequential, as

revocable trust deposits in particular are

often used by depositors to satisfy their

daily financial obligations, and the

proposal would help to mitigate those

delays.

Several factors contribute to the

challenges of making insurance

determinations for trust deposits. First,

there are three different sets of rules

governing deposit insurance coverage

for trust deposits. Understanding the

coverage for a particular deposit

requires a threshold inquiry to

determine which set of rules to apply—

the revocable trust rules, the irrevocable

trust rules, or the rules for deposits held

by an IDI as trustee of an irrevocable

trust. This requires review of the trust

agreement to determine the type of trust

(revocable or irrevocable), and the

inquiry may be complicated by

innovations in state trust law that are

intended to increase the flexibility and

utility of trusts. In some cases, this

threshold inquiry is also complicated by

the provision of the revocable trust rules

that allows for continued coverage

under those rules where a trust becomes

irrevocable upon the grantor’s death

of trust

(revocable or irrevocable), and the

inquiry may be complicated by

innovations in state trust law that are

intended to increase the flexibility and

utility of trusts. In some cases, this

threshold inquiry is also complicated by

the provision of the revocable trust rules

that allows for continued coverage

under those rules where a trust becomes

irrevocable upon the grantor’s death.

The result of an irrevocable trust deposit

being insured under the revocable trust

rules has proven confusing for both

depositors and bankers.

Second, even after determining which

set of rules applies to a particular

deposit, it may be challenging to apply

the rules. For example, the revocable

trust rules include unique titling

requirements and beneficiary

requirements. These rules also provide

for two separate calculations to

determine insurance coverage,

depending in part upon whether there

are five or fewer trust beneficiaries or at

least six beneficiaries. In addition, for

revocable trusts that provide benefits to

multiple generations of potential

beneficiaries, the FDIC needs to evaluate

the trust agreement to determine

whether a beneficiary is a primary

beneficiary (immediately entitled to

funds when a grantor dies), contingent

beneficiary, or remainder beneficiary.

Only ‘‘eligible’’ primary beneficiaries

and remainder beneficiaries are

considered in calculating FDIC deposit

insurance coverage. The irrevocable

trust rules may require detailed review

of trust agreements to determine

whether beneficiaries’ interests are

contingent and may also require

actuarial or present value calculations.

These types of requirements complicate

the determination of insurance coverage

for trust deposits, have proven

confusing for depositors, and extend the

amount of time needed to complete a

deposit insurance determination and

insurance payment.

Third, the complexity and variety of

depositors’ trust arrangements adds to

the difficulty of determining deposit

insurance coverage

calculations.

These types of requirements complicate

the determination of insurance coverage

for trust deposits, have proven

confusing for depositors, and extend the

amount of time needed to complete a

deposit insurance determination and

insurance payment.

Third, the complexity and variety of

depositors’ trust arrangements adds to

the difficulty of determining deposit

insurance coverage. For example, trust

interests are sometimes defined through

numerous conditions and formulas, and

a careful analysis of these provisions

may be necessary in order to calculate

deposit insurance coverage under the

current rules. Arrangements involving

multiple trusts where the same

beneficiaries are named by the same

grantor(s) in different trusts add to the

difficulty of applying the trust rules.

The FDIC believes that simplification

of the deposit insurance rules also

presents an opportunity to more closely

align the coverage provided for different

types of trust deposits. For example, the

revocable trust rules generally provide

for a greater amount of coverage than

the irrevocable trust rules. This outcome

occurs because contingent interests for

irrevocable trusts are aggregated and

insured up to the SMDIA rather than

being insured up to the SMDIA per

beneficiary, while contingencies are not

considered and therefore do not limit

coverage in the same manner for

revocable trusts.

C. Description of Proposed Rule

The FDIC is proposing to amend the

rules governing deposit insurance

coverage for trust deposits. Generally,

the proposed amendments would:

Merge the revocable and irrevocable

trust categories into one category; apply

a simpler, common calculation method

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osing to amend the

rules governing deposit insurance

coverage for trust deposits. Generally,

the proposed amendments would:

Merge the revocable and irrevocable

trust categories into one category; apply

a simpler, common calculation method

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46 For example, the FDIC currently aggregates

deposits in payable-on-death accounts and deposits

of written revocable trusts for purposes of deposit

insurance coverage, despite their separate and

distinct legal mechanisms. Also, where the co-

owners of a revocable trust are also that trust’s sole

beneficiaries, the FDIC instead insures the trust’s

deposits as joint deposits, reflecting the

arrangement’s substance rather than its legal form.

47 As noted above, if a revocable trust becomes

irrevocable due to the death of the grantor, the

trust’s deposit continues to be insured under the

revocable trust rules. 12 CFR 330.10(h).

48 The death of an account owner can affect

deposit insurance coverage, often reducing the

amount of coverage that applies to a family’s

accounts. To ensure that families dealing with the

death of a family member have adequate time to

review and restructure accounts if necessary, the

FDIC insures a deceased owner’s accounts as if he

or she were still alive for a period of six months

after his or her death. 12 CFR 330.3(j).

49 For example, two co-grantors that designate

five beneficiaries are insured for up to $2,500,000

(2 × 5 × $250,000).

to determine insurance coverage for

deposits held by revocable and

irrevocable trusts; and eliminate certain

requirements found in the current rules

for revocable and irrevocable trusts

e were still alive for a period of six months

after his or her death. 12 CFR 330.3(j).

49 For example, two co-grantors that designate

five beneficiaries are insured for up to $2,500,000

(2 × 5 × $250,000).

to determine insurance coverage for

deposits held by revocable and

irrevocable trusts; and eliminate certain

requirements found in the current rules

for revocable and irrevocable trusts.

Merger of Revocable and Irrevocable

Trust Categories

As discussed above, the FDIC

historically has insured revocable trust

deposits and irrevocable trust deposits

under two separate insurance categories.

Staff’s experience has been that this

bifurcation often confuses depositors

and bankers, as it requires a threshold

inquiry to determine which set of rules

to apply to a trust deposit. Moreover,

each trust deposit must be categorized

before the aggregation of trust deposits

within each category can be completed.

The FDIC believes that trust deposits

held in connection with revocable and

irrevocable trusts are sufficiently

similar, for purposes of deposit

insurance coverage, to warrant the

merger of these two categories into one

category. Under the FDIC’s current

rules, deposit insurance coverage is

provided because the trustee maintains

the deposit for the benefit of the

beneficiaries. This is true regardless of

whether the trust is revocable or

irrevocable. Merger of the revocable and

irrevocable trust categories would better

conform deposit insurance coverage to

the substance—rather than the legal

form—of the trust arrangement. This

underlying principle of the deposit

insurance rules is particularly important

in the context of trusts, as state law

often provides flexibility to structure

arrangements in different ways to

accomplish a given purpose.46

Depositors may have a variety of reasons

for selecting a particular legal

arrangement, but that decision should

not significantly affect deposit

insurance coverage

This

underlying principle of the deposit

insurance rules is particularly important

in the context of trusts, as state law

often provides flexibility to structure

arrangements in different ways to

accomplish a given purpose.46

Depositors may have a variety of reasons

for selecting a particular legal

arrangement, but that decision should

not significantly affect deposit

insurance coverage. Importantly, the

proposed merger of the revocable trust

and irrevocable trust categories into one

category for deposit insurance purposes

would not affect the application or

operation of state trust law; this only

would affect the determination of

deposit insurance coverage for these

types of trust deposits in the event of an

IDI’s failure.

Accordingly, the FDIC is proposing to

amend § 330.10 of its regulations, which

currently applies only to revocable trust

deposits, to establish a new ‘‘trust

accounts’’ category that would include

both revocable and irrevocable trust

deposits. The proposed rule defines the

deposits that would be included in this

category: (1) Informal revocable trust

deposits, such as payable-on-death

accounts, in-trust-for accounts, and

Totten trust accounts; (2) formal

revocable trust deposits, defined to

mean deposits held pursuant to a

written revocable trust agreement under

which a deposit passes to one or more

beneficiaries upon the grantor’s death;

and (3) irrevocable trust deposits,

meaning deposits held pursuant to an

irrevocable trust established by written

agreement or by statute. Section 330.10

would not apply to deposits maintained

by an IDI in its capacity as trustee of an

irrevocable trust; these deposits would

continue to be insured separately

pursuant to section 7(i) of the FDI Act

and § 330.12 of the deposit insurance

regulations

rrevocable trust deposits,

meaning deposits held pursuant to an

irrevocable trust established by written

agreement or by statute. Section 330.10

would not apply to deposits maintained

by an IDI in its capacity as trustee of an

irrevocable trust; these deposits would

continue to be insured separately

pursuant to section 7(i) of the FDI Act

and § 330.12 of the deposit insurance

regulations.

In addition, the merger of the

revocable trust and irrevocable trust

categories eliminates the need for

§ 330.10(h)–(i) of the current revocable

trust rules, which provides that the

revocable trust rules may continue to

apply to a deposit where a revocable

trust becomes irrevocable due to the

death of one or more of the trust’s

grantors. These provisions were

intended to benefit depositors, who

sometimes were unaware that a trust

owner’s death could also trigger a

significant decrease in insurance

coverage as a revocable trust becomes

irrevocable. However, in the FDIC’s

experience, this rule has proven

complex in part because it results in

some irrevocable trusts being insured

per the revocable trust rules, while other

irrevocable trusts are insured under the

irrevocable trust rules.47 As a result, a

depositor could know a trust was

irrevocable but not know which deposit

insurance rules to apply. The proposed

rule would insure deposits of revocable

trusts and irrevocable trusts according

to a common set of rules, eliminating

the need for these provisions

(§ 330.10(h)–(i)) and simplifying

coverage for depositors. Accordingly,

the death of a revocable trust owner

would not result in a decrease in

deposit insurance coverage for the trust

know which deposit

insurance rules to apply. The proposed

rule would insure deposits of revocable

trusts and irrevocable trusts according

to a common set of rules, eliminating

the need for these provisions

(§ 330.10(h)–(i)) and simplifying

coverage for depositors. Accordingly,

the death of a revocable trust owner

would not result in a decrease in

deposit insurance coverage for the trust.

Coverage for irrevocable and revocable

trusts would fall under the same

category and deposit insurance coverage

would remain the same, even after the

expiration of the six-month grace period

following the death of a deposit

owner.48

Calculation of Coverage

The FDIC is proposing to use one

streamlined calculation to determine the

amount of deposit insurance coverage

for deposits of revocable and irrevocable

trusts. This method is already utilized

by the FDIC to calculate coverage for

revocable trusts that have five or fewer

beneficiaries and it is an aspect of the

rules that is generally well-understood

by bankers and trust depositors.

The proposed rule would provide that

a grantor’s trust deposits are insured in

an amount up to the SMDIA (currently

$250,000) multiplied by the number of

trust beneficiaries, not to exceed five

beneficiaries. The FDIC would presume

that, for deposit insurance purposes, the

trust provides for equal treatment of

beneficiaries such that specific

allocation of the funds to the respective

beneficiaries will not be relevant,

consistent with the FDIC’s current

treatment of revocable trusts with five or

fewer beneficiaries. This would, in

effect, limit coverage for a grantor’s trust

deposits at each IDI to a total of

$1,250,000; in other words, maximum

coverage would be equivalent to

$250,000 per beneficiary up to five

beneficiaries

allocation of the funds to the respective

beneficiaries will not be relevant,

consistent with the FDIC’s current

treatment of revocable trusts with five or

fewer beneficiaries. This would, in

effect, limit coverage for a grantor’s trust

deposits at each IDI to a total of

$1,250,000; in other words, maximum

coverage would be equivalent to

$250,000 per beneficiary up to five

beneficiaries. In determining deposit

insurance coverage, the FDIC would

continue to only consider beneficiaries

that are expected to receive the deposit

held by the trust in the IDI; the FDIC

would not consider beneficiaries who

are expected to receive only non-deposit

assets of the trust.

The FDIC is proposing to calculate

coverage in this manner based on its

experience with the revocable trust

rules after the most recent modifications

to these rules in 2008. The FDIC has

found that the deposit insurance

calculation method for revocable trusts

with five or fewer beneficiaries has been

the most straightforward and is easy for

bankers and the public to understand.

This calculation provides for insurance

in an amount up to the total number of

unique grantor-beneficiary trust

relationships (i.e., the number of

grantors, multiplied by the total number

of beneficiaries, multiplied by the

SMDIA).49 In addition to being simpler,

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for insurance

in an amount up to the total number of

unique grantor-beneficiary trust

relationships (i.e., the number of

grantors, multiplied by the total number

of beneficiaries, multiplied by the

SMDIA).49 In addition to being simpler,

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50 Data from 2,550,001 depositors, including

249,257 trust account depositors, at 246 failed

banks from September 17, 2010–April 3, 2020. A

total of 212 out of 249,257 (.085 percent) trust

account depositors had more than $1.25 million in

deposits across all of their trust accounts. Of these

depositors, only 24 had more than five beneficiaries

named in the bank’s records. However, not all trust

accounts in the sample maintained beneficiary

records at the bank, so this likely underestimates

the number of affected depositors.

51 See 12 CFR 330.10(a) (‘‘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’’).

52 For example, if a grantor maintained both an

informal revocable trust account with three

beneficiaries and a formal revocable trust account

with three separate and unique beneficiaries, the

two accounts would be aggregated and the

maximum deposit insurance available would be

$1.25 million (1 grantor × SMDIA × number of

unique beneficiaries, limited to 5). However, if the

same three people were the beneficiaries of both

accounts, the maximum deposit insurance available

would be $750,000 (1 grantor × SMDIA × 3 unique

beneficiaries).

53 12 CFR 330.10(c)

nique beneficiaries, the

two accounts would be aggregated and the

maximum deposit insurance available would be

$1.25 million (1 grantor × SMDIA × number of

unique beneficiaries, limited to 5). However, if the

same three people were the beneficiaries of both

accounts, the maximum deposit insurance available

would be $750,000 (1 grantor × SMDIA × 3 unique

beneficiaries).

53 12 CFR 330.10(c).

54 See FDIC Financial Institution Employee’s

Guide to Deposit Insurance at 51 (‘‘Sometimes the

trust agreement will provide that if a primary

beneficiary predeceases the owner, the deceased

beneficiary’s share will pass to an alternative or

contingent beneficiary. Regardless of such language,

if the primary beneficiary is alive at the time of an

IDI’s failure, only the primary beneficiary, and not

the alternative or contingent beneficiary, is taken

into account in calculating deposit insurance

coverage.’’). Including only unique beneficiaries

means that when an owner names the same

beneficiary on multiple trust accounts, the

beneficiary will only be counted once in calculating

trust coverage. For example, if a grantor has two

trust deposit accounts and names the same

beneficiary in both trust documents, the total

deposit insurance coverage associated with that

beneficiary is limited to $250,000 in total.

this calculation has proven beneficial in

resolutions, as it leads to more prompt

deposit insurance determinations and

quicker access to insured deposits for

depositors. Accordingly, the FDIC

proposes to calculate deposit insurance

coverage for trust deposits based on the

simpler calculation currently used for

revocable trusts with five or fewer

beneficiaries.

The streamlined calculation that

would be used to determine coverage for

revocable trust deposits and irrevocable

trust deposits includes a limit on the

total amount of deposit insurance

coverage for all of a depositor’s funds in

the trust category at the same IDI

age for trust deposits based on the

simpler calculation currently used for

revocable trusts with five or fewer

beneficiaries.

The streamlined calculation that

would be used to determine coverage for

revocable trust deposits and irrevocable

trust deposits includes a limit on the

total amount of deposit insurance

coverage for all of a depositor’s funds in

the trust category at the same IDI. The

proposed rule would provide coverage

for trust deposits at each IDI up to a total

of $1,250,000 per grantor; in other

words, each grantor’s insurance limit

would be $250,000 per beneficiary up to

a maximum of five beneficiaries. The

level of five beneficiaries is an

important threshold in the current

revocable trust rules, as it defines

whether a grantor’s coverage is

determined using the simpler

calculation of the number of

beneficiaries multiplied by the SMDIA,

rather than the more complex

calculation involving the consideration

of the amount of each beneficiary’s

specific interest (which applies when

there are six or more beneficiaries). The

trust rules currently limit coverage by

tying coverage to the specific interests of

each beneficiary of an irrevocable trust

or of each beneficiary of a revocable

trust with more than five beneficiaries.

The proposed rule’s $1,250,000 per-

grantor, per-IDI limit is more

straightforward and balances the

objectives of simplifying the trust rules,

promoting timely payment of deposit

insurance, facilitating resolutions,

ensuring consistency with the FDI Act,

and limiting risk to the DIF.

The FDIC anticipates that limiting

coverage to $1,250,000 per grantor, per

IDI, for trust deposits would affect very

few depositors, as most trust deposits in

past IDI failures have had balances well

below this level

of simplifying the trust rules,

promoting timely payment of deposit

insurance, facilitating resolutions,

ensuring consistency with the FDI Act,

and limiting risk to the DIF.

The FDIC anticipates that limiting

coverage to $1,250,000 per grantor, per

IDI, for trust deposits would affect very

few depositors, as most trust deposits in

past IDI failures have had balances well

below this level. For example, data

obtained from a sample of IDI failures

from 2010–2020 suggests that only

about 0.085 percent of depositors

maintaining trust deposits might be

affected by the proposed $1,250,000

limit.50 The FDIC does not possess

sufficient information, however, to

enable it to project the effects of the

proposed limit on current depositors,

and requests that commenters provide

information that might be helpful in this

regard.

Under the proposed rule, to determine

the level of insurance coverage that

would apply to trust deposits,

depositors would still need to identify

the grantors and the eligible

beneficiaries of the trust. The level of

coverage that applies to trust deposits

would no longer be affected by the

specific allocation of trust funds to each

of the beneficiaries of the trust or by

contingencies outlined in the trust

agreement. Instead, the proposed rule

would provide that a grantor’s trust

deposits are insured up to a total of

$1,250,000 per grantor, or an amount up

to the SMDIA multiplied by the number

of eligible beneficiaries, with a limit of

no more than five beneficiaries.

Aggregation

The proposed rule also provides for

the aggregation of revocable and

irrevocable trust deposits for purposes

of applying the deposit insurance limit.

Under the current rules, deposits of

informal revocable trusts and formal

revocable trusts are aggregated for this

purpose.51 The proposed rule would

aggregate a grantor’s informal and

formal revocable trust deposits, as well

as irrevocable trust deposits

le also provides for

the aggregation of revocable and

irrevocable trust deposits for purposes

of applying the deposit insurance limit.

Under the current rules, deposits of

informal revocable trusts and formal

revocable trusts are aggregated for this

purpose.51 The proposed rule would

aggregate a grantor’s informal and

formal revocable trust deposits, as well

as irrevocable trust deposits. For

example, all informal revocable trusts,

formal revocable trusts and irrevocable

trusts held for the same grantor, at the

same IDI would be aggregated and the

grantor’s insurance limit would be

determined by how many eligible and

unique beneficiaries were identified

between all of their trust accounts.52

The deposit insurance coverage

provided in the ‘‘trust accounts’’

category would continue to remain

separate from the coverage provided for

other deposits held in a different right

and capacity at the same IDI. However,

a small number of depositors that

currently maintain both revocable trust

and irrevocable trust deposits at the

same IDI may have deposits in excess of

the insurance limit if these separate

categories are combined. The FDIC does

not have data on depositors’ trust

arrangements that would allow it to

estimate the number of depositors that

might be affected in this manner, and

requests that commenters provide

information that might be helpful in this

regard.

Eligible Beneficiaries

Currently, the revocable trust rules

provide that beneficiaries include

natural persons, charitable

organizations, and non-profit entities

recognized as such under the Internal

Revenue Code of 1986,53 while the

irrevocable trust rules do not establish

criteria for beneficiaries. The FDIC

believes that a single definition should

be used to determine whether an entity

is an ‘‘eligible’’ beneficiary for all trust

deposits, and proposes to use the

current revocable trust rule’s definition

organizations, and non-profit entities

recognized as such under the Internal

Revenue Code of 1986,53 while the

irrevocable trust rules do not establish

criteria for beneficiaries. The FDIC

believes that a single definition should

be used to determine whether an entity

is an ‘‘eligible’’ beneficiary for all trust

deposits, and proposes to use the

current revocable trust rule’s definition.

The FDIC believes that this will result

in a change in deposit insurance

coverage only in very rare cases.

The proposed rule also would exclude

from the calculation of deposit

insurance coverage beneficiaries that

only would obtain an interest in a trust

if one or more named beneficiaries are

deceased (often referred to as contingent

beneficiaries). In this respect, the

proposed rule would codify existing

practice to include only primary, unique

beneficiaries in the deposit insurance

calculation.54 This would not represent

a substantive change in coverage.

Consistent with treatment under the

current trust rules, naming a chain of

contingent beneficiaries that would

obtain trust interests only in event of a

beneficiary’s death would not increase

deposit insurance coverage.

Finally, the proposed rule would

codify a longstanding interpretation of

the trust rules where an informal

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neficiaries that would

obtain trust interests only in event of a

beneficiary’s death would not increase

deposit insurance coverage.

Finally, the proposed rule would

codify a longstanding interpretation of

the trust rules where an informal

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55 See FDIC Financial Institution Employee’s

Guide to Deposit Insurance at 71.

56 See 12 CFR 330.1(r); see also FDIC Financial

Institution Employee’s Guide to Deposit Insurance

at 87.

57 12 CFR 330.10(d).

58 In the unlikely event a trust does not name any

eligible beneficiaries, the FDIC would treat the

trust’s deposits as single ownership deposits. Such

deposits would be aggregated with any other single

ownership deposits that the grantor maintains at the

same IDI and insured up to the SMDIA of $250,000.

59 See FDIC Financial Institution Employee’s

Guide to Deposit Insurance at 74.

60 See 12 CFR 330.10(b)(2).

61 See 12 CFR 330.10(f).

revocable trust designates the

depositor’s formal trust as its

beneficiary. A formal trust generally

does not meet the definition of an

eligible beneficiary for deposit

insurance purposes, but the FDIC has

treated such accounts as revocable trust

accounts under the trust rules, insuring

the account as if it were titled in the

name of the formal trust.55

Retained Interests and Ineligible

Beneficiaries’ Interests

The current trust rules provide that in

some instances, funds corresponding to

specific beneficiaries are aggregated

with a grantor’s single ownership

deposits at the same IDI for purposes of

the deposit insurance calculation

ounts under the trust rules, insuring

the account as if it were titled in the

name of the formal trust.55

Retained Interests and Ineligible

Beneficiaries’ Interests

The current trust rules provide that in

some instances, funds corresponding to

specific beneficiaries are aggregated

with a grantor’s single ownership

deposits at the same IDI for purposes of

the deposit insurance calculation. These

instances include a grantor’s retained

interest in an irrevocable trust 56 and

interests of beneficiaries that do not

satisfy the definition of ‘‘beneficiary.’’ 57

This adds complexity to the deposit

insurance calculation, as detailed

review of a trust agreement may be

required to value such interests in order

to aggregate them with a grantor’s other

funds. In order to implement the

streamlined calculation for trust

deposits, the FDIC is proposing to

eliminate these provisions. Under the

proposed rules, the grantor and other

beneficiaries that do not satisfy the

definition of ‘‘eligible beneficiary’’

would not be included for purposes of

the deposit insurance calculation.58

Importantly, this would not in any way

limit a grantor’s ability to establish such

trust interests under State law. These

interests simply would not factor into

the calculation of deposit insurance

coverage.

Future Trusts Named as Beneficiaries

Trusts often contain provisions for the

establishment of one or more new trusts

upon the grantor’s death, and the

proposed rule also would clarify deposit

insurance coverage in these situations.

Specifically, if a trust agreement

provides that trust funds will pass into

one or more new trusts upon the death

of the grantor (or grantors), the future

trust (or trusts) would not be treated as

beneficiaries for purposes of the

calculation

shment of one or more new trusts

upon the grantor’s death, and the

proposed rule also would clarify deposit

insurance coverage in these situations.

Specifically, if a trust agreement

provides that trust funds will pass into

one or more new trusts upon the death

of the grantor (or grantors), the future

trust (or trusts) would not be treated as

beneficiaries for purposes of the

calculation. The future trust(s) instead

would be considered mechanisms for

distributing trust funds, and the natural

persons or organizations that receive the

trust funds through the future trusts

would be considered the beneficiaries

for purposes of the deposit insurance

calculation. This clarification is

consistent with published guidance and

would not represent a substantive

change in deposit insurance coverage.59

Naming of Beneficiaries in Deposit

Account Records

Consistent with the current revocable

trust rules, the proposed rule would

continue to require the beneficiaries of

an informal revocable trust to be

specifically named in the deposit

account records of the IDI.60 The FDIC

does not believe this requirement

imposes a burden on IDIs, as informal

revocable trusts by their nature require

the IDI to be able to identify the

individuals or entities to which a

deposit would be paid upon the

depositor’s death.

Presumption of Ownership

The proposed rule also would state

that, unless otherwise specified in an

IDI’s deposit account records, a deposit

of a trust established by multiple

grantors is presumed to be owned in

equal shares. This presumption is

consistent with the current revocable

trust rules.61

Bankruptcy Trustee Deposits

The proposed rule would continue

the current treatment of deposits placed

at an IDI by a bankruptcy trustee. If

funds of multiple bankruptcy estates

were commingled in a single account at

the IDI, each estate would be separately

insured up to the SMDIA

esumed to be owned in

equal shares. This presumption is

consistent with the current revocable

trust rules.61

Bankruptcy Trustee Deposits

The proposed rule would continue

the current treatment of deposits placed

at an IDI by a bankruptcy trustee. If

funds of multiple bankruptcy estates

were commingled in a single account at

the IDI, each estate would be separately

insured up to the SMDIA.

Deposits Covered Under Other Rules

The proposed rule would exclude

from coverage under § 330.10 certain

trust deposits that are covered by other

sections of the deposit insurance

regulations. For example, employee

benefit plan deposits are insured

pursuant to § 330.14, and investment

company deposits are insured as

corporate deposits pursuant to § 330.11.

Deposits held by an insured depository

institution in its capacity as trustee of

an irrevocable trust are insured

pursuant to § 330.12. In addition, if the

co-owners of an informal or formal

revocable trust are the trust’s sole

beneficiaries, deposits held in

connection with the trust would be

treated as joint deposits under § 330.9.

In each of these cases, the FDIC is not

proposing to change the current rule.

Conforming Changes

The proposed simplification of the

calculation for insurance coverage for

trust deposits also would permit the

elimination of certain definitions from

§ 330.1 of the regulations. Specifically,

§ 330.1 defines ‘‘trust interest’’ and

‘‘non-contingent trust interest,’’ terms

that are used in connection with the

current irrevocable trust rules. Because

the proposed rule would eliminate the

evaluation of contingencies in

determining coverage for trust deposits,

the FDIC is proposing to remove these

definitions from the regulation.

Enhancements to Claims Processes

The FDIC is also considering

enhancements to its claims processes to

further promote prompt insurance

determinations for trust deposits

current irrevocable trust rules. Because

the proposed rule would eliminate the

evaluation of contingencies in

determining coverage for trust deposits,

the FDIC is proposing to remove these

definitions from the regulation.

Enhancements to Claims Processes

The FDIC is also considering

enhancements to its claims processes to

further promote prompt insurance

determinations for trust deposits. For

example, the FDIC may be able to

establish enhanced processes and

systems for reaching out to depositors

and obtaining trust documentation

following an IDI’s failure. The claims

process enhancements adopted by the

FDIC will likely depend upon the

amendments to the deposit insurance

rules, if any, that are adopted through

this rulemaking.

D. Examples Demonstrating Coverage

Under Current and Proposed Rules

To assist commenters, the FDIC is

providing examples demonstrating how

the proposed rule would apply to

determine deposit insurance coverage

for trust deposits. These examples are

not intended to be all-inclusive; they

merely address a few possible scenarios

involving trust deposits. The FDIC

expects that for the vast majority of

depositors, insurance coverage would

not change under the proposed rule.

The examples here specifically highlight

a few instances where coverage could be

reduced to ensure that commenters are

aware of them. In addition, in any

instances where a trust is established,

the examples assume that the trustee is

not an IDI.

Example 1: Payable-on-Death Account

Depositor A establishes a payable-on-

death account at an FDIC-insured bank.

A has designated three beneficiaries for

this deposit—B, C, and D—who will

receive the funds upon her death, and

listed all three on a form provided to the

bank. The only other deposit account

that A maintains at the same bank is a

checking account with no designated

beneficiaries

ple 1: Payable-on-Death Account

Depositor A establishes a payable-on-

death account at an FDIC-insured bank.

A has designated three beneficiaries for

this deposit—B, C, and D—who will

receive the funds upon her death, and

listed all three on a form provided to the

bank. The only other deposit account

that A maintains at the same bank is a

checking account with no designated

beneficiaries. What is the maximum

amount of deposit insurance coverage

for A’s deposits at the bank?

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Under the proposed rule, Depositor

A’s payable-on-death account represents

an informal revocable trust and would

be insured in the trust accounts

category. The maximum coverage for

this deposit would be equal to the

SMDIA (currently $250,000) multiplied

by the number of grantors (in this case,

one because A established the account

herself) multiplied by the number of

beneficiaries, up to a maximum of five

(here three, the number of beneficiaries,

is less than five). A’s payable-on-death

account would be insured for up to:

($250,000) × (1) × (3) = $750,000.

The coverage for A’s payable-on-death

account is separate from the coverage

provided for A’s checking account,

which would be insured in the single

ownership category because she has not

named any beneficiaries for that

account. The single ownership checking

account would be insured up to the

SMDIA, $250,000. A’s total insurance

coverage for her deposits at the bank

would be: $750,000 + $250,000 =

$1,000,000. Notably, this level of

coverage is the same as that provided by

the current deposit insurance rules.

Example 2: Formal Revocable Trust and

Informal Revocable Trust

Depositors E and F jointly establish a

payable-on-death account at an FDIC-

insured bank

insured up to the

SMDIA, $250,000. A’s total insurance

coverage for her deposits at the bank

would be: $750,000 + $250,000 =

$1,000,000. Notably, this level of

coverage is the same as that provided by

the current deposit insurance rules.

Example 2: Formal Revocable Trust and

Informal Revocable Trust

Depositors E and F jointly establish a

payable-on-death account at an FDIC-

insured bank. E and F have designated

three beneficiaries for this deposit—G,

H and I—who will receive the funds

after both E and F are deceased. They

list these beneficiaries on a form

provided to the bank. E and F also

jointly establish an account titled in the

name of the ‘‘E and F Living Trust’’ at

the same bank. E and F are the grantors

of the living trust, a formal revocable

trust that includes the same three

beneficiaries, G, H, and I. The grantors,

E and F, do not maintain any other

deposit accounts at this same bank.

What is the maximum amount of

deposit insurance coverage for E and F’s

deposits?

Under the proposed rule, E and F’s

payable-on-death account represents an

informal revocable trust and would be

insured in the trust accounts category. E

and F’s living trust account constitutes

a formal revocable trust and also would

be insured in the trust accounts

category. To the extent these deposits

would pass from the same grantor (E or

F) to beneficiaries (G, H, and I), they

would be aggregated for purposes of

applying the deposit insurance limit. As

under the current rules, it would be

irrelevant that the grantors’ deposits are

divided between the payable-on-death

account and the living trust account.

The maximum coverage for E and F’s

deposits would be equal to the SMDIA

($250,000) multiplied by the number of

grantors (two, because E and F are the

grantors with respect to both deposits)

multiplied by the number of unique

beneficiaries, up to a maximum of five

(here three, the number of beneficiaries,

is less than five)

etween the payable-on-death

account and the living trust account.

The maximum coverage for E and F’s

deposits would be equal to the SMDIA

($250,000) multiplied by the number of

grantors (two, because E and F are the

grantors with respect to both deposits)

multiplied by the number of unique

beneficiaries, up to a maximum of five

(here three, the number of beneficiaries,

is less than five). Therefore, the

coverage for E and F’s trust deposits

would be: ($250,000) × (2) × (3) =

$1,500,000. This level of coverage is the

same as that provided by the current

deposit insurance rules.

Example 3: Two-Owner Trust and a

One-Owner Trust

Depositors J and K jointly establish a

payable-on-death account at an FDIC-

insured bank. J and K have designated

three beneficiaries for this deposit—L,

M and N—who will receive the funds

after both J and K are deceased. They

list these beneficiaries on a form

provided to the bank. At the same FDIC-

insured bank, J establishes a payable-on-

death account and designates K as the

beneficiary upon J’s death. What is the

maximum amount of coverage for J and

K’s deposits?

Under the proposed rule, both

accounts would be insured under the

trust account category. To the extent

these deposits would pass from the

same grantor (J or K) to beneficiaries

(such as L, M, and N), they would be

aggregated for purposes of applying the

deposit insurance limit. For example, K

identified three beneficiaries (L, M and

N), and therefore, K’s insurance limit is

$750,000 (or 1 × 3 × SMDIA). K would

be fully insured as long as one-half

interest of the co-owned trust account

was $750,000 or less, which is the same

level of coverage provided under

current rules.

In this example, J’s situation differs

from K because J has a second trust

account, but the insurance calculation

remains the same. Specifically, J has

two trust accounts and identified four

unique beneficiaries (L, M, N, and K);

therefore, J’s insurance limit is

$1,000,000 (or 1 × 4 × SMDIA)

account

was $750,000 or less, which is the same

level of coverage provided under

current rules.

In this example, J’s situation differs

from K because J has a second trust

account, but the insurance calculation

remains the same. Specifically, J has

two trust accounts and identified four

unique beneficiaries (L, M, N, and K);

therefore, J’s insurance limit is

$1,000,000 (or 1 × 4 × SMDIA). J would

remain fully insured as long as J’s trust

deposits—equal to one-half of the co-

owned trust account plus J’s personal

trust account—total no more than

$1,000,000. This methodology and level

of coverage is the same as that provided

by the current deposit insurance rules.

Example 4: Revocable and Irrevocable

Trusts

Depositor O establishes a deposit

account at an FDIC-insured bank titled

the ‘‘O Living Trust’’. O is the grantor

of this living trust, a formal revocable

trust that includes three beneficiaries—

P, Q, and R. The grantor, O, also

establishes an irrevocable trust for the

benefit of the same three beneficiaries.

The trustee of the irrevocable trust

maintains a deposit account at the same

bank as the living trust account, titled

in the name of the irrevocable trust.

Neither O nor the trustee maintains

other deposit accounts at the same bank.

What is the insurance coverage for these

deposits?

Under the proposed rule, the living

trust account is a deposit of a formal

revocable trust and would be insured in

the trust accounts category. The deposit

of the irrevocable trust also would be

insured in the trust accounts category.

To the extent these deposits would pass

from the same grantor (O) to

beneficiaries (P, Q, or R), they would be

aggregated for purposes of applying the

deposit insurance limit. It would be

irrelevant that the deposits are divided

between the living trust account and the

irrevocable trust account

ry. The deposit

of the irrevocable trust also would be

insured in the trust accounts category.

To the extent these deposits would pass

from the same grantor (O) to

beneficiaries (P, Q, or R), they would be

aggregated for purposes of applying the

deposit insurance limit. It would be

irrelevant that the deposits are divided

between the living trust account and the

irrevocable trust account. The maximum

coverage for these deposits would be

equal to the SMDIA ($250,000)

multiplied by the number of grantors

(one, because O is the grantor with

respect to both deposits) multiplied by

the number of beneficiaries, up to a

maximum of five (here three, the

number of beneficiaries, is less than

five). Therefore, the maximum coverage

for the trust deposits would be:

($250,000) × (1) × (3) = $750,000.

This is one of the isolated instances

where the proposed rule may provide a

reduced amount of coverage as a result

of the aggregation of revocable and

irrevocable trust deposits, depending on

the structure of the trust agreement.

Under the current rules, O would be

insured for up to $750,000 for revocable

trust deposits and separately insured for

up to $750,000 for irrevocable trust

deposits (assuming non-contingent

beneficial interests), resulting in

$1,500,000 in total coverage. If that were

the case, current coverage would exceed

that provided by the proposed rule.

However, the terms of irrevocable trusts

sometimes lead to less coverage than

depositors might expect. FDIC staff’s

experience is that irrevocable trust

deposits are often insured only up to

$250,000 under the current rules due to

contingencies in the trust agreement,

but determining this with certainty

often requires careful consideration of

the trust agreement’s contingency

provisions. Under the current rule, if

contingencies existed, current coverage

would exceed that provided by the

proposed rule, as O would be insured

up to $1,000,000; $750,000 for his

revocable trust and $250,000 for his

irrevocable trust

o

contingencies in the trust agreement,

but determining this with certainty

often requires careful consideration of

the trust agreement’s contingency

provisions. Under the current rule, if

contingencies existed, current coverage

would exceed that provided by the

proposed rule, as O would be insured

up to $1,000,000; $750,000 for his

revocable trust and $250,000 for his

irrevocable trust. In the FDIC’s view,

one of the key benefits of the proposed

rule versus the current rule would be

greater clarity and predictability in

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62 For example, if all of the beneficiaries’ interests

were equal, coverage would be: $250,000 × (7

beneficiaries) = $1,750,000. This is the maximum

coverage possible under the current rule.

Conversely, if a few beneficiaries had a large

interest in the trust, the total of all beneficiaries’

interests (limited to the SMDIA per beneficiary)

could be less than $1,250,000, in which case the

current rule would provide a minimum of

$1,250,000 in coverage. Depending upon the precise

allocation of interests, the amount of coverage

provided would fall somewhere within this range.

deposit insurance coverage because

whether contingencies exist would no

longer be a factor that could affect

deposit insurance.

Example 5: Many Beneficiaries Named

Depositor S establishes a deposit

account at an FDIC-insured bank titled

in the name of the ‘‘S Living Trust’’.

This trust is a revocable trust naming

seven beneficiaries—T, U, V, W, X, Y,

and Z. The grantor, S, does not maintain

any other deposits at the same bank.

What is the coverage for this deposit?

Under the proposed rule, the living

trust account is a deposit of a formal

revocable trust and would be insured in

the trust accounts category

ed bank titled

in the name of the ‘‘S Living Trust’’.

This trust is a revocable trust naming

seven beneficiaries—T, U, V, W, X, Y,

and Z. The grantor, S, does not maintain

any other deposits at the same bank.

What is the coverage for this deposit?

Under the proposed rule, the living

trust account is a deposit of a formal

revocable trust and would be insured in

the trust accounts category. The

maximum coverage for this deposit

would be equal to the SMDIA

($250,000) multiplied by the number of

grantors (one, because S is the sole

grantor) multiplied by the number of

beneficiaries, up to a maximum of five.

Here the number of named beneficiaries

(seven) exceeds the maximum (five) so

insurance is calculated using the

maximum (five). Coverage for the

deposit would be: ($250,000) × (1) × (5)

= $1,250,000.

This is another limited instance

where the proposed rule may provide

for less coverage than the current rule.

Under the current rule, because more

than five beneficiaries are named, the

deposit is insured up to the greater of:

(1) Five times the SMDIA; or (2) the

total of the interests of each beneficiary,

with each such interest limited to the

SMDIA. Determining coverage requires

review of the trust agreement to

ascertain each beneficiary’s interest.

Each such insurable interest is limited

to the SMDIA, and the total of all of

these interests is compared with

$1,250,000 (five times the SMDIA). The

current rule provides coverage in the

greater of these two amounts. The result

would fall into a range from $1,250,000

to $1,750,000, depending on the precise

allocation of trust interests among the

beneficiaries.62 In the FDIC’s view, one

of the key benefits of the proposed rule

versus the current rule would be greater

clarity and predictability in deposit

insurance coverage because a single

formula would be used to determine

maximum coverage, and this formula

would not depend upon the specific

allocation of funds among beneficiaries.

E

cise

allocation of trust interests among the

beneficiaries.62 In the FDIC’s view, one

of the key benefits of the proposed rule

versus the current rule would be greater

clarity and predictability in deposit

insurance coverage because a single

formula would be used to determine

maximum coverage, and this formula

would not depend upon the specific

allocation of funds among beneficiaries.

E. Alternatives Considered

The FDIC has considered a number of

alternatives to the proposed rule that

could meet its objectives in this

rulemaking. Some of these alternatives

are described below.

Insuring Revocable Trust Deposits up to

$250,000 per Grantor and Irrevocable

Trust Deposits up to $250,000 per Trust

The FDIC considered limiting the

total amount of deposit insurance

coverage for revocable trust deposits to

the SMDIA (currently $250,000) for each

grantor and irrevocable trust deposits up

to $250,000 per trust. This would

dramatically simplify the trust rules

because the determination of coverage

would no longer require the review of

trust agreements or the consideration of

beneficiaries’ interests. This alternative

would therefore provide significant

benefits in terms of supporting the

timely payment of deposit insurance.

However, this would substantially

reduce deposit insurance coverage for

many trust deposits that currently

exceed $250,000. The FDIC therefore

declined to pursue this proposal.

Provide Per-Beneficiary Coverage Where

Beneficiary Information Is Maintained at

the IDI

The FDIC considered changing the

trust rules to provide coverage of

$250,000 per beneficiary for trust

deposits only where the trust

documentation necessary to determine

insurance coverage is maintained in an

IDI’s deposit account records. This

would promote the timely payment of

deposit insurance and simplify

insurance determinations, as the

information required to calculate

coverage would be immediately

available to the FDIC following the

failure of an IDI

000 per beneficiary for trust

deposits only where the trust

documentation necessary to determine

insurance coverage is maintained in an

IDI’s deposit account records. This

would promote the timely payment of

deposit insurance and simplify

insurance determinations, as the

information required to calculate

coverage would be immediately

available to the FDIC following the

failure of an IDI. However, such a

requirement could prove burdensome

and difficult to comply with for IDIs and

depositors. Furthermore, even if

depositors were to provide the

necessary documentation to IDIs, they

could be unaware as to whether the IDIs

are maintaining that information in their

records. Accordingly, the FDIC believes

that this alternative may not promote

depositor confidence in the level of

coverage for their deposits.

Retain Separate Trust Categories,

Harmonize Rules

The FDIC also considered

harmonizing the rules for calculating

coverage for revocable and irrevocable

trusts while maintaining these two

categories as separate for deposit

insurance purposes. The use of common

rules would reduce complexity to some

extent. However, so long as these

categories remain separate, determining

the level of coverage for a trust deposit

would require the threshold inquiry as

to whether the trust is revocable or

irrevocable. This is because the deposits

in each category would still be

aggregated within each deposit

insurance category for purposes of

applying the insurance limit. The FDIC

believes that the proposed rule provides

greater benefits than this alternative.

Status Quo

The FDIC is proposing amendments to

the trust rules to advance the objectives

discussed above, including making the

rules more understandable for the

public and depositors, promoting the

timely payment of deposit insurance,

and facilitating the administration of

resolutions. The FDIC considered the

status quo alternative to not amend the

existing trust rules and not propose the

amendments

he FDIC is proposing amendments to

the trust rules to advance the objectives

discussed above, including making the

rules more understandable for the

public and depositors, promoting the

timely payment of deposit insurance,

and facilitating the administration of

resolutions. The FDIC considered the

status quo alternative to not amend the

existing trust rules and not propose the

amendments. However, for reasons

previously stated in Section I.B entitled

‘‘Background,’’ the FDIC considers the

proposed rule to be a more appropriate

alternative.

F. Request for Comment

The FDIC is requesting comment on

all aspects of the proposed rule,

including the alternatives presented.

Comment is specifically invited with

respect to the following questions:

• Would the proposed amendments

to the deposit insurance rules make

insurance coverage for trust deposits

easier to understand for bankers and the

public?

• The FDIC believes that depositors

generally would have the information

necessary to readily calculate deposit

insurance coverage for their trust

deposits under the proposed rule,

allowing them to better understand

insurance coverage for their trust

deposits. Are there instances where a

depositor would not likely have the

necessary information?

• Are there any other types of trusts

not described in this proposal whose

deposits would be affected by the

proposed rule if adopted? What types of

trusts are those and how would they be

impacted?

• While the FDIC has substantial

experience regarding trust

arrangements, the FDIC does not possess

sufficiently detailed information on

depositors’ existing trust arrangements

to allow the FDIC to project the

proposed rule’s effects on current

depositors. Are there any other sources

of empirical information that the FDIC

should consider that may be helpful in

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formation on

depositors’ existing trust arrangements

to allow the FDIC to project the

proposed rule’s effects on current

depositors. Are there any other sources

of empirical information that the FDIC

should consider that may be helpful in

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63 See 73 FR 61658, 61658–59 (Oct. 17, 2008).

64 In order to fulfill their contractual obligations

with investors, covered institutions maintain

mortgage principal and interest balances at a pool

level and remittances, advances, advance

reimbursement and excess funds applications that

affect pool-level balances are not allocated back to

individual borrowers.

understanding the effects of the

proposed rule? The FDIC also

encourages commenters to provide such

information, if possible.

• Grandfathering of the deposit

insurance rules would result in

significantly greater complexity for the

period of time during which two sets of

rules could apply to deposits—

especially in conducting resolutions.

Therefore, the FDIC is not inclined to

consider allowing grandfathering, but

rather rely on a delayed implementation

date to allow stakeholders to make

necessary adjustments as a result of the

new rules. However, the FDIC

recognizes there are instances, such as

trusts holding time deposits or other

deposit relationships, which may not be

easily restructured without adverse

consequences to the depositor

FDIC is not inclined to

consider allowing grandfathering, but

rather rely on a delayed implementation

date to allow stakeholders to make

necessary adjustments as a result of the

new rules. However, the FDIC

recognizes there are instances, such as

trusts holding time deposits or other

deposit relationships, which may not be

easily restructured without adverse

consequences to the depositor. Are there

fact patterns where grandfathering the

current rules may be appropriate?

Would grandfathering be appropriate

with respect to the proposed rule’s

coverage limit of $1,250,000 per IDI for

a depositor’s trust deposits?

• Are the examples provided clear

and understandable? Are there other

common trust deposit scenarios that

would benefit from an example being

provided?

• Would any of the alternatives

described above better meet the FDIC’s

objectives in connection with this

rulemaking? Are there any other

alternatives that would better meet

those objectives? Are there any other

amendments to the deposit insurance

rules applicable to trusts that the FDIC

should consider?

• For the covered institutions subject

to part 370, what cost and time frame

might be required to update information

technology systems and deposit account

records to be capable of calculating

insurance coverage under the proposed

rule? The FDIC also seeks any

supporting information that commenters

might be able to provide on this topic.

II. Amendments to Mortgage Servicing

Account Rule

A. Policy Objectives

The FDIC’s regulations governing

deposit insurance coverage include

specific rules on deposits maintained at

IDIs by mortgage servicers. These rules

are intended to be easy to understand

and apply in determining the amount of

deposit insurance coverage for a

mortgage servicer’s deposits. The FDIC

also seeks to avoid uncertainty

concerning the extent of deposit

insurance coverage for such deposits, as

deposits in mortgage servicing accounts

(MSAs) provide a source of funding for

IDIs

ntained at

IDIs by mortgage servicers. These rules

are intended to be easy to understand

and apply in determining the amount of

deposit insurance coverage for a

mortgage servicer’s deposits. The FDIC

also seeks to avoid uncertainty

concerning the extent of deposit

insurance coverage for such deposits, as

deposits in mortgage servicing accounts

(MSAs) provide a source of funding for

IDIs.

The FDIC is proposing an amendment

to its rules governing insurance

coverage for deposits maintained at IDIs

by mortgage servicers that consist of

mortgagors’ principal and interest

payments. The proposed rule is

intended to address a servicing

arrangement that is not specifically

addressed in the current rules.

Specifically, some servicing

arrangements may permit or require

servicers to advance their own funds to

the lenders when mortgagors are

delinquent in making principal and

interest payments, and servicers might

commingle such advances in the MSA

with principal and interest payments

collected directly from mortgagors. This

may be required, for example, under

certain mortgage securitizations. The

FDIC believes that the factors that

motivated the FDIC to establish its

current rules for mortgage servicing

accounts, described below, argue for

treating funds advanced by a mortgage

servicer in order to satisfy mortgagors’

principal and interest obligations to the

lender as if such funds were collected

directly from borrowers.

B. Background and Need for

Rulemaking

The FDIC’s rules governing coverage

for mortgage servicing accounts were

adopted in 1990 following the transfer

of responsibility for insuring deposits of

savings associations from the FSLIC to

the FDIC. Under the rules adopted in

1990, funds representing payments of

principal and interest were insured on

a pass-through basis to mortgagees,

investors, or security holders

for

Rulemaking

The FDIC’s rules governing coverage

for mortgage servicing accounts were

adopted in 1990 following the transfer

of responsibility for insuring deposits of

savings associations from the FSLIC to

the FDIC. Under the rules adopted in

1990, funds representing payments of

principal and interest were insured on

a pass-through basis to mortgagees,

investors, or security holders. In

adopting this rule, the FDIC focused on

the fact that principal and interest funds

were generally owned by investors, on

whose behalf the servicer, as agent,

accepted principal and interest

payments. By contrast, payments of

taxes and insurance were insured to the

mortgagors or borrowers on a pass-

through basis because the borrower

owns such funds until tax and

insurance bills are paid by the servicer.

In 2008, however, the FDIC

recognized that securitization methods

and vehicles for mortgages had become

more complex, exacerbating the

difficulty of determining the ownership

of deposits consisting of principal and

interest payments by mortgagors and

extending the time required to make a

deposit insurance determination for

deposits of a mortgage servicer in the

event of an IDI’s failure.63 The FDIC

expressed concern that a lengthy

insurance determination could lead to

continuous withdrawal of deposits of

principal and interest payments from

IDIs and unnecessarily reduce a funding

source for such institutions. The FDIC

therefore amended its rules to provide

coverage to lenders based on each

mortgagor’s payments of principal and

interest into the mortgage servicing

account, up to the SMDIA (currently

$250,000) per mortgagor. The FDIC did

not amend the rule for coverage of tax

and insurance payments, which

continued to be insured to each

mortgagor on a pass-through basis and

aggregated with any other deposits

maintained by each mortgagor at the

same IDI in the same right and capacity

r’s payments of principal and

interest into the mortgage servicing

account, up to the SMDIA (currently

$250,000) per mortgagor. The FDIC did

not amend the rule for coverage of tax

and insurance payments, which

continued to be insured to each

mortgagor on a pass-through basis and

aggregated with any other deposits

maintained by each mortgagor at the

same IDI in the same right and capacity.

The 2008 amendments to the rules for

mortgage servicing accounts did not

provide for the fact that servicers may

be required to advance their own funds

to make payments of principal and

interest on behalf of delinquent

borrowers to the lenders. However, this

is required of mortgage servicers in

some instances. For example, insured

depository institutions covered by 12

CFR part 370, the FDIC’s rule requiring

recordkeeping and information

technology capabilities for deposit

insurance purposes (covered

institutions), identified challenges to

implementing certain recordkeeping

requirements with respect to MSA

deposit balances as a result of the way

in which servicer advances are

administered and accounted.64

The current rule provides coverage for

principal and interest funds only to the

extent ‘‘paid into the account by the

mortgagors’’; it does not provide

coverage for funds paid into the account

from other sources, such as the

servicer’s own operating funds, even if

those funds satisfy mortgagors’ principal

and interest payments. As a result,

advances are not provided the same

level of coverage as other deposits in a

mortgage servicing account consisting of

principal and interest payments directly

from the borrower, which are insured

up to the SMDIA for each borrower.

Instead, the advances are aggregated and

insured to the servicer as corporate

funds for a total of $250,000

agors’ principal

and interest payments. As a result,

advances are not provided the same

level of coverage as other deposits in a

mortgage servicing account consisting of

principal and interest payments directly

from the borrower, which are insured

up to the SMDIA for each borrower.

Instead, the advances are aggregated and

insured to the servicer as corporate

funds for a total of $250,000. The FDIC

is concerned that this inconsistent

treatment of principal and interest

amounts could result in financial

instability during times of stress, and

could further complicate the insurance

determination process, a result that is

inconsistent with the FDIC’s policy

objective.

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65 Servicers’ advances may have been insured

under the rule that applied to mortgage servicing

account deposits prior to 2008. Prior to 2008,

mortgage servicing deposits were insured on a pass-

through basis. Under the pass-through insurance

rules, the identity of the party that pays funds into

a deposit account does not generally factor into

insurance coverage. In this sense, the proposed rule

can be viewed as restoring coverage to the previous

level.

66 The count of institutions includes FDIC-

insured U.S. branches of institutions headquartered

in foreign countries.

67 FDIC Call Report data, March 31, 2021.

68 Data on failed banks comes from the FDIC’s

Claims Administration System, which contains data

on depositors’ funds from every failed IDI since

September 2010.

C

ed rule

can be viewed as restoring coverage to the previous

level.

66 The count of institutions includes FDIC-

insured U.S. branches of institutions headquartered

in foreign countries.

67 FDIC Call Report data, March 31, 2021.

68 Data on failed banks comes from the FDIC’s

Claims Administration System, which contains data

on depositors’ funds from every failed IDI since

September 2010.

C. Proposed Rule

The FDIC is proposing to amend the

rules governing coverage for deposits in

mortgage servicing accounts to provide

consistent deposit insurance treatment

for all MSA deposit balances held to

satisfy principal and interest obligations

to a lender, regardless of whether those

funds are paid into the account by

borrowers, or paid into the account by

another party (such as the servicer) in

order to satisfy a periodic obligation to

remit principal and interest due to the

lender. Under the proposed rule,

accounts maintained by a mortgage

servicer in an agency, custodial, or

fiduciary capacity, which consist of

payments of principal and interest,

would be insured for the cumulative

balance paid into the account in order

to satisfy principal and interest

obligations to the lender, whether paid

directly by the borrower or by another

party, up to the limit of the SMDIA per

mortgagor. Mortgage servicers’ advances

of principal and interest funds on behalf

of delinquent borrowers would therefore

be insured up to the SMDIA per

mortgagor, consistent with the coverage

rules for payments of principal and

interest collected directly from

borrowers.65

The composition of an MSA

attributable to principal and interest

payments would also include

collections by a servicer, such as

foreclosure proceeds, that are used to

satisfy a borrower’s principal and

interest obligation to the lender. In some

cases, foreclosure proceeds may not be

paid directly by a mortgagor

for payments of principal and

interest collected directly from

borrowers.65

The composition of an MSA

attributable to principal and interest

payments would also include

collections by a servicer, such as

foreclosure proceeds, that are used to

satisfy a borrower’s principal and

interest obligation to the lender. In some

cases, foreclosure proceeds may not be

paid directly by a mortgagor. The

current rule does not address whether

foreclosure collections represent

payments of principal and interest by a

mortgagor. Under the proposed rule,

foreclosure proceeds used to satisfy a

borrower’s principal and interest

obligation would be insured up to the

limit of the SMDIA per mortgagor.

The proposed rule would make no

change to the deposit insurance

coverage provided for mortgage

servicing accounts comprised of

payments from mortgagors of taxes and

insurance premiums. Such aggregate

escrow accounts are held separately

from the principal and interest MSAs

and the deposits therein are held in

trust for the mortgagors until such time

as tax and insurance payments are

disbursed by the servicer on the

borrower’s behalf. Under the proposed

rule, such deposits would continue to

be insured based on the ownership

interest of each mortgagor in the

account and aggregated with other

deposits maintained by the mortgagor at

the same IDI in the same capacity and

right.

D. Request for Comment

The FDIC is requesting comment on

all aspects of the proposed rule

re

disbursed by the servicer on the

borrower’s behalf. Under the proposed

rule, such deposits would continue to

be insured based on the ownership

interest of each mortgagor in the

account and aggregated with other

deposits maintained by the mortgagor at

the same IDI in the same capacity and

right.

D. Request for Comment

The FDIC is requesting comment on

all aspects of the proposed rule.

Comment is specifically invited with

respect to the following questions:

• Would the proposed amendments

to the rules governing coverage for

mortgage servicing accounts adequately

address servicers’ practices with respect

to these accounts, as described above?

Are there any other funds representing

principal and interest that are

commingled with borrowers’ payments

that the FDIC should take into account

in the deposit insurance calculation,

consistent with its policy objectives?

• Would deposit insurance coverage

of servicer principal and interest

advances help to promote financial

stability in the financial system? If the

FDIC does not amend the rule as

proposed, how would mortgage

servicers react if their insured

depository institution, or the banking

industry as a whole, appears stressed? If

so, how would funding arrangements or

deposit relationships change?

• Does the proposed rule reduce the

compliance burden for part 370 covered

institutions?

• Are there any alternatives to the

proposed rule that would better achieve

the FDIC’s policy objectives in

connection with this rulemaking? Are

there any other amendments to the

deposit insurance rules applicable to

MSAs that the FDIC should consider?

III. Regulatory Analysis

A. Expected Effects

1

• Does the proposed rule reduce the

compliance burden for part 370 covered

institutions?

• Are there any alternatives to the

proposed rule that would better achieve

the FDIC’s policy objectives in

connection with this rulemaking? Are

there any other amendments to the

deposit insurance rules applicable to

MSAs that the FDIC should consider?

III. Regulatory Analysis

A. Expected Effects

1. Simplification of Trust Rules

Generally, the proposed

simplification of the trust rules is

expected to have benefits including

clarifying depositors’ and bankers’

understanding of the insurance rules,

promoting the timely payment of

deposit insurance following an IDI’s

failure, facilitating the transfer of

deposit relationships to failed bank

acquirers (thereby potentially reducing

the FDIC’s resolution costs), and

addressing differences in the treatment

of revocable trust deposits and

irrevocable trust deposits contained in

the current rules. The proposed

amendments would directly affect the

level of deposit insurance coverage

provided to some depositors with trust

deposits. In some cases, which the FDIC

expects are rare, the proposed

amendments could reduce deposit

insurance coverage; for the vast majority

of depositors, the FDIC expects the

coverage level to be unchanged. The

FDIC has also considered the impact of

any changes in the deposit insurance

rules on the DIF and on the covered

institutions that are subject to part 370.

Finally, the FDIC describes other

potential effects of the proposal, such as

the effects on information technology

(IT) service providers to the institutions

that could be affected by the proposed

rule. These effects are discussed in

greater detail below.

Effects on Deposit Insurance Coverage

The proposed rule would affect

deposit insurance coverage for deposits

held in connection with trusts

ly, the FDIC describes other

potential effects of the proposal, such as

the effects on information technology

(IT) service providers to the institutions

that could be affected by the proposed

rule. These effects are discussed in

greater detail below.

Effects on Deposit Insurance Coverage

The proposed rule would affect

deposit insurance coverage for deposits

held in connection with trusts.

According to the March 31, 2021 Call

Report data, the FDIC insures 4,987

depository institutions 66 that report

holding approximately 641 million

deposit accounts. Additionally, 1,573

IDIs have powers granted by a state or

national regulatory authority to

administer accounts in a fiduciary

capacity (i.e., trust powers) and 1,167

exercise those powers, comprising 31.5

percent and 23.4 percent, respectively,

of all IDIs.67 However, individual

depositors may establish a trust account

at an IDI even if that IDI does not itself

have or exercise trust powers, and in

fact, as discussed below, 99 percent of

a sample of failed banks had trust

accounts. Therefore, the FDIC estimates

that the proposed rule, if adopted, could

affect between 1,167 and 4,987 IDIs.

The FDIC does not have detailed data

on depositors’ trust arrangements that

would allow the FDIC to precisely

estimate the number of trust accounts

that are currently held by FDIC-insured

institutions. However, the FDIC

estimated the number of trust accounts

and trust account depositors utilizing

data from failed banks. Based on data

from 249 failed banks 68 between 2010

and 2020, 335,657 deposit accounts—

owned by 250,139 distinct depositors—

were trust accounts (revocable or

irrevocable), out of a total of 3,013,575

deposit accounts. Thus, about 11.14

percent of the deposit accounts at the

249 failed banks were trust accounts. Of

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ccounts—

owned by 250,139 distinct depositors—

were trust accounts (revocable or

irrevocable), out of a total of 3,013,575

deposit accounts. Thus, about 11.14

percent of the deposit accounts at the

249 failed banks were trust accounts. Of

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69 There were approximately 641 million deposit

accounts reported by FDIC-insured institutions as of

March 31, 2021, based on Call Report data.

Assuming that 11.14 percent of accounts are trust

accounts, then there are an estimated 71.4 million

trust accounts as of March 31, 2021.

70 Using the data from failed banks, 250,139

distinct depositors held 335,657 revocable or

irrevocable trust accounts, or there were 0.745 trust

account depositors per trust account (250,139

divided by 335,657). The estimated number of trust

depositors at FDIC-insured institutions (53.2

million) is obtained by multiplying the estimated

number of trust accounts by the number of trust

account depositors per trust account (71.4 million

multiplied by 0.745).

71 As discussed above, the provisions relating to

contingent interests may not apply when a trust has

become irrevocable due to the death of one or more

grantors. In such instances, the revocable trust rules

continue to apply.

72 As discussed above, deposits maintained by an

IDI as trustee of an irrevocable trust would not be

included in this aggregation, and would remain

separately insured pursuant to section 7(i) of the

FDI Act and 12 CFR 330.12.

73 Data obtained in connection with IDI failures

during the recent financial crisis suggests that

irrevocable trust deposits comprise less than one

percent of trust deposits

iscussed above, deposits maintained by an

IDI as trustee of an irrevocable trust would not be

included in this aggregation, and would remain

separately insured pursuant to section 7(i) of the

FDI Act and 12 CFR 330.12.

73 Data obtained in connection with IDI failures

during the recent financial crisis suggests that

irrevocable trust deposits comprise less than one

percent of trust deposits. However, as discussed

above, the FDIC does not possess sufficient

information to enable it to estimate the effects of the

proposed rule on trust account depositors at all

IDIs.

74 In the data obtained in connection with IDI

failures during the recent financial crisis, only 51

out of 250,139 depositors with trust accounts had

both revocable and irrevocable types. Of these 51

depositors, nine had total trust account balances

greater than $250,000, and only one had a total trust

balance of more than $1.25 million.

75 To estimate the numbers of trust account

depositors and trust accounts affected, the FDIC

performed the following calculation. First, based on

data from 249 failed banks between 2010 and 2020,

the FDIC determined that there were 335,657 trust

accounts out of 3,013,575 deposit accounts (trust

account share). Second, the FDIC determined the

number of trust accounts per trust depositor

(335,657/250,139). The FDIC then estimated the

number of trust accounts by multiplying the trust

account share (335,657/3,013,575) by the number of

deposit accounts across all IDIs (640,918,226)

according to March 31, 2021, Call Report data. This

step yielded an estimate of 71,386,539 trust

accounts. Based on the estimated number of trust

accounts per trust depositor from the failed bank

data, the FDIC estimated the total number of trust

depositors to be 53,198,823. Using failed bank data,

100 out of 250,139 trust depositors had balances in

excess of $1.25 million in their trust accounts

ing to March 31, 2021, Call Report data. This

step yielded an estimate of 71,386,539 trust

accounts. Based on the estimated number of trust

accounts per trust depositor from the failed bank

data, the FDIC estimated the total number of trust

depositors to be 53,198,823. Using failed bank data,

100 out of 250,139 trust depositors had balances in

excess of $1.25 million in their trust accounts.

Thus, the FDIC estimated that, of the approximately

53.2 million trust depositors, (100/250,139) of

them—approximately 21,268—had balances in

excess of $1.25 million in their trust accounts, and

therefore could be directly affected by the proposal.

These estimated 21,268 trust depositors are

associated with an estimated 28,539 trust accounts,

based on the observed number of trust accounts per

trust depositor from the data from 249 failed banks

between 2010 and 2020.

the 249 institutions, 247 (99 percent)

reported having trust accounts at time of

failure. Of the 247 failed banks that

reported trust accounts, 212 reported

not having trust powers as of their last

Call Report. Assuming the percentage of

trust accounts at failed banks is

representative of the percentage of trust

accounts among all FDIC-insured

institutions, the FDIC estimates, for

purposes of this analysis, that there are

approximately 71.4 million trust

accounts in existence at FDIC-insured

institutions.69 Additionally, based on

the observed number of trust account

depositors per trust account in the

population of 249 failed banks, the FDIC

estimates, for purposes of this analysis,

that there are approximately 53.2

million trust depositors.70 These

estimates are subject to considerable

uncertainty, since the percentage of

deposit accounts that are trust accounts

and the number of depositors per trust

account for all FDIC insured institutions

may differ from what was observed at

the 249 failed banks

49 failed banks, the FDIC

estimates, for purposes of this analysis,

that there are approximately 53.2

million trust depositors.70 These

estimates are subject to considerable

uncertainty, since the percentage of

deposit accounts that are trust accounts

and the number of depositors per trust

account for all FDIC insured institutions

may differ from what was observed at

the 249 failed banks. The FDIC does not

have information that would shed light

on whether or how the numbers of trust

accounts and trust depositors at failed

banks differs from the corresponding

numbers for other FDIC-insured

institutions.

The FDIC also does not have detailed

data on depositors’ trust arrangements

that would allow the FDIC to precisely

estimate the quantitative effects of the

proposed rule on deposit insurance

coverage. Thus, the effects of the

proposed changes to the insurance rules

are outlined qualitatively below. The

FDIC expects that most depositors

would experience no change in the

coverage for their deposits under the

proposed rule. However, some

depositors that maintain trust deposits

would experience a change in their

insurance coverage under the proposed

rule.

The FDIC anticipates that deposit

insurance coverage for some irrevocable

trust deposits would increase under the

proposed rule. The FDIC’s experience

suggests that the provisions of the

current irrevocable trust rules that

require the identification and

aggregation of contingent interests often

apply due to the inclusion of

contingencies in such trusts.71 Thus,

even where an irrevocable trust names

multiple beneficiaries, the current trust

rules often provide a total of only

$250,000 in deposit insurance coverage.

The proposed rule would not consider

such contingencies in the calculation of

coverage, and per-beneficiary coverage

would apply.

In limited instances, the proposed

merger of the revocable trust and

irrevocable trust categories may

decrease coverage for depositors

names

multiple beneficiaries, the current trust

rules often provide a total of only

$250,000 in deposit insurance coverage.

The proposed rule would not consider

such contingencies in the calculation of

coverage, and per-beneficiary coverage

would apply.

In limited instances, the proposed

merger of the revocable trust and

irrevocable trust categories may

decrease coverage for depositors.

Deposits of revocable trusts and

deposits of irrevocable trusts are

currently insured separately. The

proposed rule would require aggregation

for purposes of applying the deposit

insurance limit, thereby increasing the

likelihood of the combined trust

account balances exceeding the

insurance limit.72 However, the FDIC’s

experience is that irrevocable trust

deposits comprise a relatively small

share of the average IDI’s deposit base,73

and that it is rare for IDIs to hold

deposits in connection with irrevocable

and revocable trusts established by the

same grantor(s).74 Individual grantors’

trust deposits held for the benefit of up

to five different beneficiaries would

continue to be separately insured.

With respect to revocable and

irrevocable trusts, depositors who have

designated more than five beneficiaries

and structured their trust accounts in a

manner that provides for more than

$1,250,000 in coverage per grantor, per

IDI under the current rules would

experience a reduction in coverage. The

FDIC’s experience suggests that the

$1,250,000 maximum coverage amount

per grantor, per IDI would not affect the

vast majority of trust depositors, as most

trusts have either five or fewer

beneficiaries, less than $1,250,000 per

grantor on deposit at the same IDI, or are

structured in a manner that results in

only $1,250,000 in coverage under the

current rules

reduction in coverage. The

FDIC’s experience suggests that the

$1,250,000 maximum coverage amount

per grantor, per IDI would not affect the

vast majority of trust depositors, as most

trusts have either five or fewer

beneficiaries, less than $1,250,000 per

grantor on deposit at the same IDI, or are

structured in a manner that results in

only $1,250,000 in coverage under the

current rules. The FDIC estimates that

approximately 21,268 trust account

depositors and approximately 28,539

trust accounts could be directly affected

by this aspect of the proposed rule,

representing about 0.04 percent of both

the estimated number of trust account

depositors and the estimated number of

trust accounts.75 The actual number of

trust depositors and trust accounts

impacted will likely differ, as the

estimates rely on data from failed banks,

and failed banks may differ from other

institutions in their percentages of trust

depositors or trust accounts. It is also

possible depositors may restructure

their deposits in response to changes to

the rule, thus mitigating the potential

effects on deposit insurance coverage.

Clarification of Insurance Rules

The proposed merger of certain

revocable and irrevocable trust

categories is intended to clarify deposit

insurance coverage for trust accounts.

Specifically, the merger of these

categories would mostly eliminate the

need to distinguish revocable and

irrevocable trusts currently required to

determine coverage for a particular trust

deposit. The benefit of the common set

of rules would likely be particularly

significant for depositors that have

established arrangements involving

multiple trusts, as they would no longer

need to apply two different sets of rules

to determine the level of deposit

insurance coverage that would apply to

their deposits. For example, the

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tors that have

established arrangements involving

multiple trusts, as they would no longer

need to apply two different sets of rules

to determine the level of deposit

insurance coverage that would apply to

their deposits. For example, the

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76 See 12 CFR 370.10(d).

proposed rule would eliminate the need

to consider the specific allocation of

interests among the beneficiaries of

revocable trusts with six or more

beneficiaries, as well as contingencies

established in irrevocable trusts. The

merger of the categories also would

eliminate the need for current

§ 330.10(h) and (i), which allows for the

continued application of the revocable

trust rules to the account of a revocable

trust that becomes irrevocable due to the

death of the trust’s owner. As previously

discussed, these provisions of the

current trust rules have proven

confusing as illustrated by the

numerous inquiries that are consistently

submitted to the FDIC on these topics.

FDIC-insured depository institutions

will incur some regulatory costs

associated with making necessary

changes to internal processes and

systems and bank personnel training in

order to accommodate the proposed

rule’s definition of ‘‘trust accounts’’ and

attendant deposit insurance coverage

terms, if adopted. There also may be

some initial cost for institutions to

become familiar with the proposed

changes to the trust insurance coverage

rules in order to be able to explain them

to potential trust customers,

counterbalanced to some extent by the

fact that the proposed rules should be

simpler for institutions to understand

and explain going forward

deposit insurance coverage

terms, if adopted. There also may be

some initial cost for institutions to

become familiar with the proposed

changes to the trust insurance coverage

rules in order to be able to explain them

to potential trust customers,

counterbalanced to some extent by the

fact that the proposed rules should be

simpler for institutions to understand

and explain going forward. As the

business impacts and costs associated

with operationalizing the proposed

changes to the trust rules may vary

significantly across IDIs, the FDIC

would welcome industry comments in

this regard.

Prompt Payment of Deposit Insurance

The FDIC also expects that

simplification of the trust rules would

promote the timely payment of deposit

insurance in the event of an IDI’s

failure. The FDIC’s experience has been

that the current trust rules often require

detailed, time-consuming, and resource-

intensive review of trust documentation

to obtain the information that is

necessary to calculate deposit insurance

coverage. This information is often not

found in an IDI’s records and must be

obtained from depositors after the IDI’s

failure. The proposed rule would

ameliorate the operational challenge of

calculating deposit insurance coverage,

which could be particularly acute in the

case of a failure of a large IDI with a

large number of trust accounts. The

proposed rule would streamline the

review of trust documents required to

make a deposit insurance

determination, promoting more prompt

payment of deposit insurance. Timely

payment of deposit insurance also can

help to facilitate the transfer of

depositor relationships to a failed bank’s

acquirer, potentially expand resolution

options, potentially reduce the FDIC’s

resolution costs, and support greater

confidence in the banking system.

Deposit Insurance Fund Impact

As discussed above, the proposed rule

is expected to have mixed effects on the

level of insurance coverage provided for

trust deposits

p to facilitate the transfer of

depositor relationships to a failed bank’s

acquirer, potentially expand resolution

options, potentially reduce the FDIC’s

resolution costs, and support greater

confidence in the banking system.

Deposit Insurance Fund Impact

As discussed above, the proposed rule

is expected to have mixed effects on the

level of insurance coverage provided for

trust deposits. Coverage for some

irrevocable trust deposits would be

expected to increase, but in the FDIC’s

experience, irrevocable trust deposits

are not nearly as common as revocable

trust deposits. The level of coverage for

some trust deposits would be expected

to decrease due to the proposed rule’s

simplified calculation of coverage and

its aggregation of revocable and

irrevocable trust deposits. As noted

above, the FDIC does not have detailed

data on depositors’ trust arrangements

to allow it to precisely project the

quantitative effects of the proposed rule

on deposit insurance coverage.

Indirect Effects

A change in the level of deposit

insurance coverage does not necessarily

result in a direct economic impact, as

deposit insurance is only paid to

depositors in the event of an IDI’s

failure. However, changes in deposit

insurance coverage may prompt

depositors to take actions with respect

to their deposits. In response to changes

in the level of coverage under the

proposed rules, trust depositors could

maximize coverage relative to the

coverage under the current rule by

transferring some of their trust deposits

to other types of accounts that provide

similar or higher amounts of coverage or

by amending the terms of their trusts.

Parties affected could include IDIs,

depositors, and other firms in the

financial services marketplace (e.g.,

deposit brokers)

ed rules, trust depositors could

maximize coverage relative to the

coverage under the current rule by

transferring some of their trust deposits

to other types of accounts that provide

similar or higher amounts of coverage or

by amending the terms of their trusts.

Parties affected could include IDIs,

depositors, and other firms in the

financial services marketplace (e.g.,

deposit brokers). Any costs borne by the

depositor in moving a portion of the

funds to a different IDI to stay under the

insurance limit would be accompanied

by benefits, such as more prompt

deposit insurance determinations, and

quicker access to insured deposits for

depositors during the resolution

process. The FDIC cannot estimate these

effects because it does not have

information on the individual costs of

each action that confronts each

depositor, their ability to amend their

trust structure or move funds, and their

subjective risk preference with respect

to holding insured and uninsured

deposits.

Part 370 Covered Institutions

As discussed previously, institutions

covered by part 370 must maintain

deposit account records and systems

capable of applying the deposit

insurance rules in an automated

manner. The proposed rule would

change certain aspects of how coverage

is determined for trust deposits. This

could require covered institutions to

reprogram certain systems to ensure that

they continue to be capable of applying

the deposit insurance rules as part 370

requires. A covered institution is not

considered to be in violation of part 370

as a result of a change in law that alters

the availability or calculation of deposit

insurance for such period as specified

by the FDIC following the effective date

of such change.76

The FDIC expects that the proposed

rule would make the deposit insurance

status of a trust account generally

clearer

art 370

requires. A covered institution is not

considered to be in violation of part 370

as a result of a change in law that alters

the availability or calculation of deposit

insurance for such period as specified

by the FDIC following the effective date

of such change.76

The FDIC expects that the proposed

rule would make the deposit insurance

status of a trust account generally

clearer. Moreover, since part 370

requires covered institutions to develop

and maintain the capacity to calculate

deposit insurance for its deposits, the

proposed rule could make compliance

with part 370 relatively less

burdensome. This is because the

underlying rules that would be applied

to most trust deposits would be

simplified. In particular, the proposed

rule would require the aggregation of

revocable and irrevocable trust deposits,

categories that are currently separated

for purposes of part 370’s recordkeeping

provisions. The FDIC does not expect

that the proposed rule would require

significant changes with respect to

covered institutions’ treatment of

informal revocable trust deposits.

Moreover, many deposits of formal

revocable trusts and irrevocable trusts

currently fall within the scope of part

370’s alternative recordkeeping

provisions, meaning that covered

institutions are not required to maintain

all of the records necessary to calculate

the maximum amount of deposit

insurance coverage available for these

deposits. These factors may diminish

the impact of the proposed rule on the

part 370 covered institutions, but the

FDIC does not have sufficient

information on covered institutions’

systems and records to quantify this.

Although the FDIC does not have

sufficient information to determine the

time that might be required to

reprogram systems, it believes that a

two-year period of time may be

reasonable

se factors may diminish

the impact of the proposed rule on the

part 370 covered institutions, but the

FDIC does not have sufficient

information on covered institutions’

systems and records to quantify this.

Although the FDIC does not have

sufficient information to determine the

time that might be required to

reprogram systems, it believes that a

two-year period of time may be

reasonable. The FDIC requests comment

on this proposal, including any

information that commenters may be

able to provide to support their views

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77 The count of institutions includes FDIC-

insured U.S. branches of institutions headquartered

in foreign countries.

78 5 U.S.C. 601 et seq.

79 The SBA defines a small banking organization

as having $600 million or less in assets, where ‘‘a

financial institution’s assets are determined by

averaging the assets reported on its four quarterly

financial statements for the preceding year.’’ See 13

CFR 121.201 (as amended by 84 FR 34261, effective

August 19, 2019). ‘‘SBA counts the receipts,

employees, or other measure of size of the concern

whose size is at issue and all of its domestic and

foreign affiliates.’’ See 13 CFR 121.103. Following

these regulations, the FDIC uses a covered entity’s

affiliated and acquired assets, averaged over the

preceding four quarters, to determine whether the

FDIC-supervised institution is ‘‘small’’ for the

purposes of RFA.

on the time necessary to attain

compliance with part 370 if the

proposed rule is adopted.

Other Potential Effects

Although the FDIC expects that

coverage for most trust depositors

would be unchanged under the

proposal, and that the proposed changes

simplify the FDIC’s insurance rules for

trust accounts, the proposal may have

other potential effects

is ‘‘small’’ for the

purposes of RFA.

on the time necessary to attain

compliance with part 370 if the

proposed rule is adopted.

Other Potential Effects

Although the FDIC expects that

coverage for most trust depositors

would be unchanged under the

proposal, and that the proposed changes

simplify the FDIC’s insurance rules for

trust accounts, the proposal may have

other potential effects. For example, the

institutions affected by the proposal

may rely on third-party IT service

providers to perform insurance coverage

estimates for their trust depositors. The

proposal may lead such IT service

providers to revise their systems to

account for the proposal’s changes.

2. Amendments to Mortgage Servicing

Account Rule

The proposed rule would affect the

deposit insurance coverage for certain

principal and interest payments within

MSA deposits maintained at IDIs by

mortgage servicers. According to the

March 31, 2021 Call Report data, the

FDIC insures 4,987 IDIs.77 Of the 4,987

IDIs, 1,167 IDIs (23.4 percent) report

holding mortgage servicing assets,

which indicates that they service

mortgage loans and could thus be

affected by the proposed rule. In

addition, mortgage servicing accounts

may be maintained at IDIs that do not

themselves service mortgage loans. The

FDIC does not know how many IDIs are

recipients of mortgage servicing account

deposits, but believes that most IDIs are

not. Therefore, the FDIC estimates that

the number of IDIs potentially affected

by the proposed rule, if adopted, would

be greater than 1,167 and substantially

less than 4,987.

The FDIC does not have detailed data

on MSAs that would allow the FDIC to

reliably estimate the number of MSAs

maintained at IDIs that would be

affected by the proposed rule, or any

potential change in the total amount of

insured deposits. Thus, the potential

effects of the proposed amendments

regarding governing deposit insurance

coverage for MSAs are outlined

qualitatively below

,987.

The FDIC does not have detailed data

on MSAs that would allow the FDIC to

reliably estimate the number of MSAs

maintained at IDIs that would be

affected by the proposed rule, or any

potential change in the total amount of

insured deposits. Thus, the potential

effects of the proposed amendments

regarding governing deposit insurance

coverage for MSAs are outlined

qualitatively below.

The proposed rule would directly

affect the level of deposit insurance

coverage provided for some MSAs.

Under the proposed rule, the

composition of an MSA attributable to

mortgage servicers’ advances of

principal and interest funds on behalf of

delinquent borrowers and collections

such as foreclosure proceeds would be

insured up to the SMDIA per mortgagor,

consistent with the coverage for

payments of principal and interest

collected directly from borrowers.

Under the current rules, principal and

interest funds advanced by a servicer to

cover delinquencies, and foreclosure

proceeds collected by servicers, are not

be insured under the rules for MSA

deposits, but instead are insured to the

servicer as corporate funds up to the

SMDIA. Therefore, the proposed rule

would expand deposit insurance

coverage in instances where an account

maintained by a mortgage servicer

contains principal and interest funds

advanced by the servicer in order to

satisfy the obligations of delinquent

borrowers to the lender, or foreclosure

proceeds collected by the servicers; and

where the funds in such instances

exceed the mortgage servicer’s SMDIA.

If enacted, the proposed rule is likely

to benefit a servicer compelled by the

terms of a pooling and servicing

agreement to advance principal and

interest funds to note holders when a

borrower is delinquent, and therefore

the servicer has not received such funds

from the borrower

eeds collected by the servicers; and

where the funds in such instances

exceed the mortgage servicer’s SMDIA.

If enacted, the proposed rule is likely

to benefit a servicer compelled by the

terms of a pooling and servicing

agreement to advance principal and

interest funds to note holders when a

borrower is delinquent, and therefore

the servicer has not received such funds

from the borrower. In the event that the

IDI hosting the MSA for the servicer

fails, the proposal reduces the

likelihood that the funds advanced by

the servicer are uninsured, and thereby

facilitates access to, and helps avoids

losses of, those funds. As previously

discussed, the FDIC does not have

detailed data on MSAs held at IDIs,

pooling and servicing agreements for

outstanding mortgage loans, or servicer

payments into MSAs that would allow

the FDIC to reliably estimate the number

of, and volume of funds within, MSAs

maintained at IDIs that would be

affected by the proposed rule.

Further, the proposed rule is likely to

benefit an IDI who is hosting an MSA

for a servicer that is compelled by the

terms of a pooling and servicing

agreement to advance principal and

interest funds to note holders on behalf

of delinquent borrowers by increasing

the volume of insured funds. In the

event that the IDI enters into a troubled

condition, the proposed rule could

marginally increase the stability of MSA

deposits from such servicers, thereby

increasing the general stability of

funding.

Finally, the FDIC believes that the

proposed rule, if enacted, would pose

general benefits to parties that provide

or utilize financial services related to

mortgage products by amending an

inconsistency in the deposit insurance

treatment for principal and interest

payments made by the borrower and

such payments made by the servicer on

behalf of the borrower

general stability of

funding.

Finally, the FDIC believes that the

proposed rule, if enacted, would pose

general benefits to parties that provide

or utilize financial services related to

mortgage products by amending an

inconsistency in the deposit insurance

treatment for principal and interest

payments made by the borrower and

such payments made by the servicer on

behalf of the borrower.

Effects on Part 370 Covered Institutions

Institutions subject to the enhanced

requirements of part 370 may bear some

costs in recognizing the expanded

coverage for servicer advances and

foreclosure proceeds. However,

institutions subject to the requirements

of part 370 already are responsible for

determining coverage for MSA accounts

based on each borrower’s payments.

Therefore, the FDIC does not believe the

impact of the proposal on part 370

covered IDIs will be significant.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA),

requires that, in connection with a

notice of proposed rulemaking, an

agency prepare and make available for

public comment an initial regulatory

flexibility analysis that describes the

impact of the proposed rule on small

entities.78 However, a regulatory

flexibility analysis is not required if the

agency certifies that the rule will not

have a significant economic impact on

a substantial number of small entities

and publishes its certification and a

short explanatory statement in the

Federal Register together with the rule.

The Small Business Administration

(SBA) has defined ‘‘small entities’’ to

include banking organizations with total

assets of less than or equal to $600

million.79 Generally, the FDIC considers

a significant effect to be a quantified

effect in excess of 5 percent of total

annual salaries and benefits per

institution, or 2.5 percent of total

noninterest expenses. The FDIC believes

that effects in excess of these thresholds

typically represent significant effects for

small entities

anizations with total

asse

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