FDIC Tells Banks to Prepare for End of Special Coverage

WASHINGTON – Although bankers want full insurance for certain deposits to be extended, the Federal Deposit Insurance Corp. encouraged institutions Monday to tell customers in advance that that insurance may expire.

Under the Dodd-Frank Act, the FDIC’s blanket coverage for noninterest-bearing transaction accounts will expire at yearend. Community banks have urged lawmakers to prolong the coverage – first introduced by the FDIC during the crisis – arguing that ending it now could spook depositors and boost liquidity at institutions with an implicit government guarantee.

Nonetheless, the FDIC called on all insured depository institutions to prepare their customers.

"Although the Dodd-Frank Act imposes no specific notice requirement for IDIs in connection with the expiration of temporary unlimited coverage for" transaction accounts, "we encourage IDIs, as a matter of prudent commercial practice, to remind their … depositors about the pending expiration and the impact that expiration will have on their deposit insurance coverage," the agency said in a letter to all banks.

The letter included model language to use for communicating that the program – known as the Transaction Account Guarantee – will end.

"IDIs may use any reasonable method of providing reminders to depositors, such as individual written notices to each [noninterest-bearing transaction account] depositor or notices on regular account statements," the agency said. "IDIs may use electronic mail for depositors who ordinarily receive account information in this manner."

The FDIC also reminded banks that, when the program does end, they must remove the notices they had posted earlier for customers to inform them of the temporary coverage.

"Because this temporary coverage will expire at year-end, IDIs should remove these notices from their main offices, branches, and Web sites, and should remove any other notices they may have made available to customers, no later than January 2, 2013," the FDIC said.

The FDIC said it will provide "additional guidance" to banks if Congress does end up modifying the coverage rules further.