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FEDERAL regulators say deposits in foreign branches of US banks will not be covered by the government insurance fund.
The Federal Deposit Insurance Corp, on a 5-0 vote, rejected the request from the banking industry seeking to extend the insurance of up to $US250,000 ($A272,375) to US banks' deposits overseas. The FDIC estimates those deposits are worth about $US1 trillion.
If a bank that has foreign deposits fails, the account holders would become creditors of the bank and would have to apply to recover their funds. Generally depositors recover some of their money, ranging from about 40 cents on the dollar up to the full amount
Read more: US foreign deposits not insured: FDIC | News.com.au
FDIC Approves Final Rule on the Definition of Deposit at Foreign Branches of U.S. Banks to Clarify That These Deposits are Not Insured by the FDIC
FOR IMMEDIATE RELEASE
September 10, 2013
Media Contact:
David Barr (202) 898-6992
Email: dbarr@fdic.gov
The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved a final rule clarifying that deposits in foreign branches of U.S. banks are not FDIC-insured, even though they can be deposits for purposes of the national depositor preference statute enacted in 1993.
Currently, under the Federal Deposit Insurance Act, funds deposited in foreign branches of U.S. banks are not considered deposits, unless the funds are dually payable in the United States. A recent Consultation Paper by the United Kingdom's Prudential Regulation Authority (PRA), formerly Financial Services Authority, proposes that banks from non-European Economic Area countries that have depositor preference laws be prohibited from accepting deposits at their U.K. branches, unless the banks take steps to ensure that U.K. depositors are no worse off under depositor preference laws than the depositors in the home country if the bank fails. The PRA paper mentions that such efforts could include changing deposit account agreements to make U.K. branch deposits dually payable in the United States. As a result, some large U.S. banks will change their deposit agreements to make their U.K. branch deposits payable in both the United Kingdom and the United States to provide depositor preference to U.K. branch deposits. The final rule adopted today clarifies that these U.K. branch deposits are not FDIC insured.
"The final rule protects the Deposit Insurance Fund, while at the same time recognizing both the FDIC's commitment to maintaining financial stability through the prompt payment of deposit insurance and the evolving nature of the global banking system," said FDIC Chairman Martin J. Gruenberg.
The final rule does not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. These funds will continue to be insured by the FDIC to the same extent that they have been.
FDIC: Press Releases - PR-81-2013 9/10/2013