2/23/2013 3:21:00 AM,
Philip A. Janquart
WASHINGTON (CN) - The Federal Deposit Insurance Corporation has proposed a change to its regulations on deposits made in foreign branches of U.S. banks.
The proposed rule would "explicitly state that an obligation of an insured depository institution that is carried on the books and records of a foreign branch shall not be an insured deposit for the purpose of the deposit insurance regulations, even if the obligation is payable both at an office within the United States and outside the United States. This would ensure that the FDIC will be able to carry out its critical mission in the United States, and the DIF will be protected from potential global liability."
More specifically, the proposed rule would address several key concerns, including "(1) maintaining public confidence in federal deposit insurance; (2) protecting the DIF; (3) ensuring that, in the event of an insolvency, the FDIC is in a position to administer the resulting receivership effectively and fairly; and (4) enhancing international cooperation."
In sum, if a bank fails, the FDIC has no assurance it will have access to its foreign branches or their records. The access could be subject to local law or the local foreign regulatory authorities, which would hinder the FDIC's promise to pay deposit insurance "as soon as possible."
According to the FDIC, "the overwhelming majority of the deposits in these foreign branches of United States Banks are payable only outside the United States."
Foreign branch deposits have doubled since 2001, totaling about $1 trillion, a significant percentage of those deposits located in the United Kingdom, according to the FDIC.