Simplification of Deposit Insurance Rules
Final rule.
CFR Part: "12 CFR Part 330"
RIN Number: "RIN 3064-AF27"
Citation: "87 FR 4455"
Page Number: "4455"
"Rules and Regulations"
Agency: "
SUMMARY: The
DATES: The rule is effective on
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Simplification of Deposit Insurance Coverage Rules for Trusts
A. Policy Objectives
B. Background
1.
2. Current Rules for Coverage of Trust Deposits
C. Final Rule
D. Discussion of Comments
E. Alternatives Considered
II. Amendments to Mortgage Servicing Account Rule
A. Policy Objectives
B. Background
C. Final Rule
D. Discussion of Comments
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. Congressional Review Act
D. Paperwork Reduction Act
E.
F. Plain Language
I. Simplification of Deposit Insurance Coverage Rules for Trusts
A. Policy Objectives The
FOOTNOTE 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 that do not have an IDI as trustee. END FOOTNOTE
The amendments: (1) Provide depositors and bankers with a rule for trust account coverage that is easy to understand; and (2) facilitate the prompt payment of deposit insurance in accordance with the Federal Deposit Insurance Act (FDI Act), among other objectives.
Simplifying Insurance Coverage for Trust Deposits
The amendments simplify for depositors, bankers, and other interested parties the insurance rules and limits for trust accounts. The deposit insurance rules for trust deposits, set forth in part 330 of the
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
FOOTNOTE 2 See 73 FR 56706 (
FOOTNOTE 3 In 2008, the
Prompt Payment of
The FDI Act requires the
FOOTNOTE 4 12 U.S.C. 1821(f). END FOOTNOTE
Facilitating Resolutions
The changes will also facilitate the resolution of failed IDIs. The
Effects on the
The
B. Background
1.
The
The FDI Act establishes the key parameters of deposit insurance coverage, including the standard maximum deposit insurance amount (SMDIA), currently
FOOTNOTE 5 See 12 U.S.C. 1821(a)(1)(E). END FOOTNOTE
FOOTNOTE 6 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). END FOOTNOTE
The
FOOTNOTE 7 12 U.S.C. 1821(a)(2). END FOOTNOTE
Over the years, deposit insurance coverage has evolved to reflect both the
FOOTNOTE 8 See 12 U.S.C. 1817(i), 1821(a). END FOOTNOTE
FOOTNOTE 9 See 12 CFR 330.10, 330.13. END FOOTNOTE
2. Current Rules for Coverage of Trust Deposits
The
Revocable Trust Deposits
The revocable trust category applies to deposits for which the depositor has evidenced an intention that the deposit will 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. The
FOOTNOTE 10 12 CFR 330.10(a). In this document, the term "grantor" is used to refer to the party that creates a trust, though trust agreements also may use terms such as "settlor" or "trustor." END FOOTNOTE
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. /11/ If a named beneficiary does not qualify as a beneficiary under the rule, 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. /12/
FOOTNOTE 11 12 CFR 330.10(c). END FOOTNOTE
FOOTNOTE 12 12 CFR 330.10(d). END FOOTNOTE
Certain requirements also must be satisfied for a deposit to be insured in the revocable trust category. The grantor must intend that the funds will belong to the beneficiaries upon the depositor's death, and this intention 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. /13/
FOOTNOTE 13 12 CFR 330.10(b)(1). END FOOTNOTE
In addition, the beneficiaries of informal trusts (i.e., payable-on-death accounts) must be named in the IDI's deposit account records. /14/ Since 2004, the requirement to name beneficiaries in the IDI's deposit account records has not applied to formal revocable trusts; the
FOOTNOTE 14 12 CFR 330.10(b)(2). END FOOTNOTE
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. /15/ 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. /16/ For purposes of this calculation, a life estate interest is valued at the SMDIA. /17/
FOOTNOTE 15 12 CFR 330.10(a). END FOOTNOTE
FOOTNOTE 16 12 CFR 330.10(e). END FOOTNOTE
FOOTNOTE 17 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
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. /18/ However, if the co-owners are the only beneficiaries of the trust, the account is instead insured under the
FOOTNOTE 18 12 CFR 330.10(f)(1). END FOOTNOTE
FOOTNOTE 19 12 CFR 330.10(f)(2). END FOOTNOTE
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. /20/ 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. /21/
FOOTNOTE 20 12 CFR 330.10(h). END FOOTNOTE
FOOTNOTE 21 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. END FOOTNOTE
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
FOOTNOTE 22 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 (for example, to provide for the second beneficiary's medical needs), the first beneficiary's interest is contingent upon the trustee's discretion. END FOOTNOTE
FOOTNOTE 23 12 CFR 330.13(a). END FOOTNOTE
FOOTNOTE 24 12 CFR 330.13(b). END FOOTNOTE
The irrevocable trust rules do not apply to deposits held for a grantor's retained interest in an irrevocable trust. /25/ Such deposits are aggregated with the grantor's other single ownership deposits for purposes of applying the deposit insurance limit.
FOOTNOTE 25 See 12 CFR 330.1(r) (definition of "trust interest" does not include any interest retained by the settlor). END FOOTNOTE
Deposits Held by an IDI as Trustee of an
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 "[t]rust 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." /26/
FOOTNOTE 26 12 U.S.C. 1817(i). END FOOTNOTE
The
FOOTNOTE 27 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). END FOOTNOTE
FOOTNOTE 28 12 CFR 330.12(a). END FOOTNOTE
C. Final Rule
In
FOOTNOTE 29 See 86 FR 41766 (
The
Merger of Revocable and Irrevocable Trust Categories
The final rule amends
As amended,
Calculation of Coverage
The
Eliminating Certain Requirements
Eligible Beneficiaries
The current 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, /30/ while the irrevocable trust rules do not establish criteria for beneficiaries. As stated in the proposed rule, the
FOOTNOTE 30 12 CFR 330.10(c). END FOOTNOTE
The final rule also excludes from the calculation of deposit insurance coverage beneficiaries that only would obtain an interest in a trust if one or more beneficiaries are deceased. This codifies existing practice to include only primary, unique beneficiaries in the deposit insurance calculation. /31/ Consistent with current treatment, naming a chain of contingent beneficiaries that would obtain trust interests only in event of a beneficiary's death will not increase deposit insurance coverage.
FOOTNOTE 31
Finally, the
FOOTNOTE 32
Retained Interests and Ineligible Beneficiaries' Interests
The current trust rules provide that in some instances, funds intended for 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 /33/ and interests of ineligible beneficiaries that do not satisfy the definition of a revocable trust "beneficiary." /34/ This adds complexity to the deposit insurance calculation, as a detailed review of a trust agreement may be required to value such interests in order to aggregate them with a grantor's single ownership funds. In order to implement the streamlined calculation for trust deposits, the
FOOTNOTE 33 See 12 CFR 330.1(r); see also
FOOTNOTE 34 12 CFR 330.10(d). END FOOTNOTE
FOOTNOTE 35 In the unlikely event a trust does not name any eligible beneficiaries, the
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 final rule clarifies 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) will not be treated as beneficiaries for purposes of the calculation under the proposed rule. Rather, the future trust(s) will be considered mechanisms for distributing trust funds, and the natural persons or organizations that receive the trust funds through the future trusts will be considered the beneficiaries for purposes of the deposit insurance calculation. This clarification is consistent with published guidance and does not represent a substantive change in deposit insurance coverage. /36/
FOOTNOTE 36
Naming of Beneficiaries in Deposit Account Records
Consistent with the current revocable trust rules, the final rule continues to require the beneficiaries of an informal revocable trust to be specifically named in the deposit account records of the IDI. /37/
FOOTNOTE 37 See 12 CFR 330.10(b)(2). END FOOTNOTE
Presumption of Ownership
Consistent with the current revocable trust rules, the final rule provides that, unless otherwise specified in an IDI's deposit account records, a deposit of a trust established by multiple grantors will be presumed to be owned in equal shares. /38/
FOOTNOTE 38 See 12 CFR 330.10(f). END FOOTNOTE
Bankruptcy Trustee Deposits
The
Deposits Covered Under Other Rules
The final rule excludes from coverage under
Effective Date
The effective date of the final rule is
D. Discussion of Comments
The
Some commenters also offered suggestions that relate primarily to other parts of the
Institutional Trusts
Three trade associations raised a concern about the coverage that would apply to certain institutional trusts under the proposed rule, including common trust funds, collective investment funds, indenture bonds, and securitization trusts. The commenters explained that these types of irrevocable trusts are sometimes established by entities other than insured depository institutions--such as uninsured limited purpose nationally-chartered banks, limited purpose state-chartered banks, and state-chartered trust companies--to collectively invest funds, issue bonds, or form securitized investments. The commenters asserted that deposits of such trusts potentially fall within the scope of the existing irrevocable trust category and would experience a reduction in coverage under the proposed rule because per-beneficiary coverage would be provided only for up to five eligible beneficiaries. The commenters urged the
Pass-through insurance coverage applies to deposits of specific types of institutional trusts under the current rules, and this coverage would not be affected by the rule. The commenters noted that collective trust funds are established for the purpose of investing assets of retirement, pension, profit sharing, stock bonus or other employee benefit trusts. Deposits of employee benefit plans are insured on a pass-through basis pursuant to statute and regulation. /39/ Moreover,
FOOTNOTE 39 See 12 U.S.C. 1821(a)(1)(D); 12 CFR 330.14. END FOOTNOTE
Pass-through insurance coverage generally does not apply to deposits of other types of investment trusts, such as mutual funds or other investment company structures. /40/ While some institutional trusts (similarly to some individual trusts) may experience a reduction in deposit insurance coverage under this final rule, the
FOOTNOTE 40 Under the current deposit insurance rules, deposits maintained by trusts or other business arrangements that are subject to certain securities laws are insured for up to
Per-Grantor Coverage Limit
Two individuals submitted comment letters questioning the elimination of coverage for a grantor's trust deposits exceeding
Educational Materials
A trade association suggested that the
*
* Bankers' seminars: The
* Electronic Deposit Insurance Estimator (EDIE): A tool on the
* Published guidance and materials relating to deposit insurance coverage intended to assist the covered institutions subject to part 370
As part of its implementation of the final rule by the effective date of
Comments Focused on Part 370
Commenters also addressed various aspects of the
Beneficiaries of Future Trusts
Several trade associations argued that the proposed rule's treatment of beneficiaries of future trusts would add considerable burden to compliance with part 370 and urged the
FOOTNOTE 41 12 U.S.C. 1821(a)(1)(C). END FOOTNOTE
Multiple Beneficiaries Across Multiple Trust Accounts
Three trade associations recommended that any final rulemaking for trust coverage simplification should include a specific example to explain part 370 recordkeeping requirements when there are more than five beneficiaries associated with more than one trust account established by the same grantor. According to the example recommended by commenters, when a grantor has established both an informal trust account (e.g., a payable-on-death (POD) account) and a formal trust that also has accounts at the same covered institution, the covered institution would be required to identify the beneficiary(ies) only for the informal trust account in the deposit account records.
As the commenters note, accounts held in connection with a formal trust that are insured under
Need To Provide Trust Documentation Upon Bank Failure
A deposit solutions provider submitted a comment letter describing its operation of a sweep program and the method by which it allocates trust deposits among several banks. The commenter indicated that if the depositor's originating bank does not provide information on trust beneficiaries, only up to
The deposit solutions provider's methodology for allocating the trust deposits is intended to ensure that the total corpus of trust funds would be eligible for deposit insurance (because the amount placed at each receiving bank would not exceed the SMDIA for each beneficial owner of the deposits). That methodology, however, would not necessarily provide the
Although it may be uncommon for an individual depositor participating in the commenter's program to maintain other deposit accounts at a bank holding the swept trust funds, the
FOOTNOTE 42 12 CFR 330.10(c) provides that "[f]or purposes of this section, a beneficiary includes a natural person as well as a charitable organization and other non-profit entity recognized as such under the Internal Revenue Code of 1986, as amended." END FOOTNOTE
The part 370 recordkeeping requirements for informal revocable trust accounts closely track the recordkeeping requirements set forth in 12 CFR 330.10, as amended. For example,
FOOTNOTE 43 See SEC 330.10(b)(2) which requires "[f]or informal revocable trust accounts, the beneficiaries must be specifically named in the deposit account records of the insured depository institution." END FOOTNOTE
Implementation of Part 370 Capabilities
Three trade associations urged the
FOOTNOTE 44 Although SEC 370.10(d) provides that "[a] covered institution will not be considered to be in violation of this part 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 Testing of Part 370 Capabilities
Several trade associations suggested that the
Comments Outside the Scope of This Rulemaking
Finally, commenters recommended certain changes to part 370 requirements. Three trade associations suggested that the
FOOTNOTE 45 12 CFR 370.10(a). END FOOTNOTE
Among the comments related solely to part 370, a trade association requested that the
FOOTNOTE 46 84 FR 37020, 37029 (
FOOTNOTE 47 Id. The
FOOTNOTE 48 Id., discussing trust deposits insured pursuant to 12 CFR 330.13, which coverage is now combined under revised 12 CFR 330.10. END FOOTNOTE
Trade association commenters also recommended that the
The
E. Alternatives Considered
The
FOOTNOTE 49 See 86 FR 41766, 41776 (
II. Amendments to Mortgage Servicing Account Rule
A. Policy Objectives
The
The
FOOTNOTE 50 Certain funds collected from mortgagors and held by a bank may not be "deposits" under the FDI Act, and thus fall outside the scope of deposit insurance coverage. For example, funds received by a bank that are immediately applied to reduce the debt owed to that bank are specifically excluded from the statutory definition of "deposit." 12 U.S.C. 1813(l)(3). END FOOTNOTE
B. Background
The
In 2008, however, the
FOOTNOTE 51 See 73 FR 61658, 61658-59 (
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 under some mortgage servicing arrangements. Covered institutions identified challenges to implementing certain recordkeeping requirements with respect to MSA deposit balances as a result of the ways in which servicer advances are administered and accounted. /52/
FOOTNOTE 52 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. END FOOTNOTE
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, deposits into an MSA by a servicer for the purpose of making an advance 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
C. Final Rule
In
FOOTNOTE 53 See 86 FR 41766 (
FOOTNOTE 54 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. END FOOTNOTE
The
Under the final rule, 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 obligations to the lender. These funds will be insured up to the limit of the SMDIA per mortgagor.
The
D. Discussion of Comments
The proposed rule provided that balances in mortgage servicing accounts that were paid into the account by either the borrower or another party would be insurable if they were held to satisfy the principal and interest obligations of a mortgagor. The comment was supportive of this change, noting that the allocations provided would allow for more stability in these types of accounts in periods of turmoil. The
Three trade associations, through a joint comment letter, specifically requested additional clarity on the coverage that would be provided for three specific types of funds placed into mortgage servicing accounts by the servicer--interest shortfall payments, funds from distressed homeowner programs, and funds used to satisfy buyout or repurchase obligations.
Interest shortfall payments are funded by the servicer when a loan is refinanced or paid off before the end of a month. The associations noted that servicers are generally required to fund the interest that would have accrued during the month, just as if the borrower had continued the payment stream as agreed. Because these payments are traceable at the loan level and held to satisfy the interest obligation of the mortgagor, they are covered under the mortgage servicing account rule. Federal, state, and local governments have created various programs during emergencies that provide funds to borrowers who are having difficulties paying their home mortgages. While the most recent iterations of these programs were spurred by the COVID-19 pandemic, these types of programs can result from other types of emergencies as well (e.g., natural disasters) and can vary in duration. While each program would need to be evaluated on its individual terms, the
With respect to servicer-funded buyouts and repurchases of loans, it is common for the servicer to be requested to repurchase or substitute a loan in a securitization if the loan is defective or in a specific delinquency status. Although the amount of unpaid principal balance plus the accrued but unpaid interest on that loan is the price paid to repurchase the loan from the pool, the repurchase of the loan from the investor pool does not satisfy the borrower's principal and interest obligation, and thus, falls outside the scope of the rule.
Alternatively, the associations suggested that the
III. Regulatory Analysis
A. Expected Effects
1. Simplification of Trust Rules
Generally, the 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
Effects on Deposit Insurance Coverage
The final rule would affect deposit insurance coverage for deposits held in connection with trusts. According to
FOOTNOTE 55 The count of institutions includes
FOOTNOTE 56 FDIC Call Report data,
The
FOOTNOTE 57 Data on failed banks comes from the
FOOTNOTE 58 There were approximately 812 million deposit accounts reported by
FOOTNOTE 59 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
The
The
FOOTNOTE 60 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. END FOOTNOTE
In limited instances, the 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 final 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. /61/ However, the
FOOTNOTE 61 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. END FOOTNOTE
FOOTNOTE 62 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
FOOTNOTE 63 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
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
FOOTNOTE 64 To estimate the numbers of trust account depositors and trust accounts affected, the
Clarification of Insurance Rules
The merger of certain revocable and irrevocable trust categories is intended to simplify 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 final 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
Prompt Payment of
The
Deposit Insurance Fund Impact
As discussed above, the final 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
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 final rule, 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
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 final 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 those systems continue to be capable of applying the deposit insurance rules as part 370 requires.
The
Other Potential Effects
Although the
2. Amendments to Mortgage Servicing Account Rule
The final 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
FOOTNOTE 65 The count of institutions includes
The
The final rule directly affects the level of deposit insurance coverage provided for some MSAs. Under the 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 insured under the rules for MSA deposits, but instead are insured to the servicer as corporate funds up to the SMDIA. Therefore, the final rule expands 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.
The final 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 rule 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
Further, the final 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 rule could marginally increase the stability of MSA deposits from such servicers, thereby increasing the general stability of funding.
Finally, the
Effects on Part 370 Covered Institutions
Part 370 covered institutions may bear some costs in recognizing the expanded coverage for servicer advances and foreclosure proceeds. However, part 370 covered institutions already are responsible for calculating coverage for MSA accounts based on each borrower's payments. Therefore, the
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), requires that, in connection with a final rulemaking, an agency prepare and make available for public comment a regulatory flexibility analysis that describes the impact of the final rule on small entities. /66/ 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
FOOTNOTE 66 5 U.S.C.
FOOTNOTE 67 The SBA defines a small banking organization as having
1. Simplification of Trust Rules
Reasons Why This Action Is Being Considered
As previously discussed, the rules governing deposit insurance coverage for trust deposits have been amended on several occasions, but still frequently cause confusion for depositors. 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
FOOTNOTE 68 See 73 FR 56706 (
The FDI Act requires the
Policy Objectives
As discussed previously, the changes adopted by the final rule are intended to provide depositors and bankers with a rule for trust account coverage that is easy to understand, and also to facilitate the prompt payment of deposit insurance in accordance with the FDI Act. The
Legal Basis
The
FOOTNOTE 69 12 U.S.C. 1821(a)(2). END FOOTNOTE
The Final Rule
The
Small Entities Affected
Based on the
FOOTNOTE 70 The count of institutions includes
FOOTNOTE 71 FDIC Call Report data,
FOOTNOTE 72 Id. END FOOTNOTE
As noted above, the
FOOTNOTE 73 Whether a failed IDI is considered small is based on data from its four quarterly Call Reports prior to failure. END FOOTNOTE
Expected Effects
The simplification of the deposit insurance rules for trust deposits is expected to have a variety of effects. The changes will directly affect the level of deposit insurance coverage provided to some depositors with trust deposits. In addition, simplification of the rules is expected to have benefits in terms of promoting the timely payment of deposit insurance following a small IDI's failure, facilitating the transfer of deposit relationships to failed bank acquirers with consequent potential reductions to the
FOOTNOTE 74 The
Overall, due to the fact that the
Alternatives Considered
The
The
Other Statutes and Federal Rules
The
2. Amendments to Mortgage Servicing Account Rule
Reasons Why This Action Is Being Considered
As previously discussed, the
Policy Objectives
As discussed previously, the
The final rule also addresses 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
Legal Basis
The
The Final Rule
The
Small Entities Affected
Based on the
FOOTNOTE 75 According to the
As noted in section III.A, titled "Expected Effects," the
Expected Effects
The final rule would directly affect the level of deposit insurance coverage for certain funds within MSAs. The 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 final rule 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
Further, the final rule is likely to benefit a small 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 small 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.
Based on the preceding information the
Alternatives Considered
The
Other Statutes and Federal Rules
The
C. Congressional Review Act
For purposes of the Congressional Review Act, the
The Congressional Review Act defines a "major rule" as any rule that the Administrator of the
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid OMB control number. The final rule does not create any new, or revise any existing, collections of information under section 3504(h) of the Paperwork Reduction Act. Consequently, no information collection request will be submitted to the OMB for review.
E.
Section 302 of the
FOOTNOTE 76 12 U.S.C. 4802(a). END FOOTNOTE
FOOTNOTE 77 12 U.S.C. 4802(b). END FOOTNOTE
The final rule does not impose additional reporting or disclosure requirements on insured depository institutions, including small depository institutions, or on the customers of depository institutions. However, it may require part 370 covered institutions to update their reporting or recordkeeping to reflect the revised deposit insurance rules. Accordingly, the
F. Plain Language
Section 722 of the Gramm-Leach-Bliley Act /78/ requires the Federal banking agencies to use plain language in all proposed and final rulemakings published in the
FOOTNOTE 78 Public Law 106-102, section 722, 113 Stat. 1338, 1471 (1999), 12 U.S.C. 4809. END FOOTNOTE
List of Subjects in 12 CFR Part 330 Bank deposit insurance, Reporting and recordkeeping requirements, Savings associations.
Authority and Issuance
For the reasons stated above, the Board of Directors of the
PART 330--DEPOSIT INSURANCE COVERAGE
1. The authority citation for part 330 continues to read as follows:
Authority:12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c).
2. Amend
3. Revise
*****
(d) Mortgage servicing accounts. Accounts maintained by a mortgage servicer, in a custodial or other fiduciary capacity, which are comprised of payments of principal and interest, shall be insured for the cumulative balance paid into the account by mortgagors, or in order to satisfy mortgagors' principal or interest obligations to the lender, up to the limit of the SMDIA per mortgagor. Accounts maintained by a mortgage servicer, in a custodial or other fiduciary capacity, which are comprised of payments by mortgagors of taxes and insurance premiums shall be added together and insured in accordance with paragraph (a) of this section for the ownership interest of each mortgagor in such accounts.
*****
4. Revise
(a) Scope and definitions. This section governs coverage for deposits held in connection with informal revocable trusts, formal revocable trusts, and irrevocable trusts not covered by
(1) Informal revocable trust means a trust under which a deposit passes directly to one or more beneficiaries upon the depositor's death without a written trust agreement, commonly referred to as a payable-on-death account, in-trust-for account, or Totten trust account.
(2) Formal revocable trust means a revocable trust established by a written trust agreement under which a deposit passes to one or more beneficiaries upon the grantor's death.
(3) Irrevocable trust means an irrevocable trust established by statute or a written trust agreement, except as described in paragraph (f) of this section.
(b) Calculation of coverage--(1) General calculation. Trust deposits are insured in an amount up to the SMDIA multiplied by the total number of beneficiaries identified by each grantor, up to a maximum of 5 beneficiaries.
(2) Aggregation for purposes of insurance limit. Trust deposits that pass from the same grantor to beneficiaries are aggregated for purposes of determining coverage under this section, regardless of whether those deposits are held in connection with an informal revocable trust, formal revocable trust, or irrevocable trust.
(3) Separate insurance coverage. The deposit insurance coverage provided under this section is separate from coverage provided for other deposits at the same insured depository institution.
(4) Equal allocation presumed. Unless otherwise specified in the deposit account records of the insured depository institution, a deposit held in connection with a trust established by multiple grantors is presumed to have been owned or funded by the grantors in equal shares.
(c) Number of beneficiaries. The total number of beneficiaries for a trust deposit under paragraph (b) of this section will be determined as follows:
(1) Eligible beneficiaries. Subject to paragraph (c)(2) of this section, beneficiaries include natural persons, as well as charitable organizations and other non-profit entities recognized as such under the Internal Revenue Code of 1986, as amended.
(2) Ineligible beneficiaries. Beneficiaries do not include:
(i) The grantor of a trust; or
(ii) A person or entity that would only obtain an interest in the deposit if one or more identified beneficiaries are deceased.
(3) Future trust(s) named as beneficiaries. If a trust agreement provides that trust funds will pass into one or more new trusts upon the death of the grantor(s) ("future trusts"), the future trust(s) are not treated as beneficiaries of the trust; rather, the future trust(s) are viewed as mechanisms for distributing trust funds, and the beneficiaries are the natural persons or organizations that shall receive the trust funds through the future trusts.
(4) Informal trust account payable to depositor's formal trust. If an informal revocable trust designates the depositor's formal trust as its beneficiary, the informal revocable trust account will be treated as if titled in the name of the formal trust.
(d) Deposit account records--(1) Informal revocable trusts. The beneficiaries of an informal revocable trust must be specifically named in the deposit account records of the insured depository institution.
(2) Formal revocable trusts. The title of a formal trust account must include terminology sufficient to identify the account as a trust account, such as "family trust" or "living trust," or must otherwise be identified as a testamentary trust in the account records of the insured depository institution. If eligible beneficiaries of such formal revocable trust are specifically named in the deposit account records of the insured depository institution, the
(e) Commingled deposits of bankruptcy trustees. If a bankruptcy trustee appointed under title 11 of the United States Code commingles the funds of various bankruptcy estates in the same account at an insured depository institution, the funds of each title 11 bankruptcy estate will be added together and insured up to the SMDIA, separately from the funds of any other such estate.
(f) Deposits excluded from coverage under this section--(1) Revocable trust co-owners that are sole beneficiaries of a trust. If the co-owners of an informal or formal revocable trust are the trust's sole beneficiaries, deposits held in connection with the trust are treated as joint ownership deposits under
(2) Employee benefit plan deposits. Deposits of employee benefit plans, even if held in connection with a trust, are treated as employee benefit plan deposits under
(3) Investment company deposits. This section shall not apply to deposits of trust funds belonging to a trust classified as a corporation under
(4) Insured depository institution as trustee of an irrevocable trust. Deposits held by an insured depository institution in its capacity as trustee of an irrevocable trust are insured as provided in
5. Remove and reserve
By order of the Board of Directors.
Dated at
Assistant Executive Secretary.
[FR Doc. 2022-01607 Filed 1-27-22;
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