FDIC eases requirements on deposit tracking

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WASHINGTON — The Federal Deposit Insurance Corp. voted 3-1 on Tuesday to give large banks additional time to comply with new rules that force them to keep better track of insured deposits.

The agency also unanimously approved a final rule giving banks additional ways to verify joint deposits and issued a new proposal designed to make it easier for institutions to receive a safe harbor for backing certain residential securitizations.

The FDIC had already mandated that banks with at least 2 million deposit accounts comply with heightened IT standards in order to better track insured deposits. The rule was intended to help the FDIC pay out insurance claims in the event of a bank failure. The agency initially gave institutions until April 1, 2020, to comply. But the final amendment approved Tuesday extended the compliance date by a single year so long as institutions give FDIC notice. The amendment also makes other changes designed to address concerns by affected banks.

“In the two years since the rule came into effect covered institutions have made substantial progress toward compliance,” FDIC Chairman Jelena McWilliams said at a board meeting discussing the changes. “During this time it became clear that there are features of the rule that could be improved.”

The move was opposed by former FDIC Chairman Martin Gruenberg, who remains a member of the agency's board and argued that an extension was unnecessary and the changes went too far.

Gruenberg did support a separate final rule that allows a bank additional ways of verifying the signature of each joint account holder, such as through debit card transactions, in addition to the current requirement that it be an actual “wet” signature. The change would help a bank more quickly verify that each person can qualify for up to $250,000 in deposit insurance.

“What the FDIC has done is bring the rule up to date” for all banks, said Rob Strand, senior economist at the American Bankers Association. “It doesn’t take away anything from what is in the current rule. It simply adds more updated, current means the banks can use to verify joint account owners.”

The FDIC initially proposed the amendment earlier this year and sought comment. The amendment will now take effect 30 days after it’s published in the Federal Register.

The FDIC also released a proposal meant to relieve some of the public disclosure requirements that banks need to submit in order to get a safe harbor when sponsoring certain securitized assets.

The FDIC ramped up disclosure requirements to the so-called Securitization Safe Harbor rule in 2010 in response to the financial crisis and help regulators handle such securities in the event of a bank failure.

However, banks have raised concerns that some of these securitized assets are private placements and the public disclosure requirement would put the institution at risk. They also argue the Securities and Exchange Commission has a similar disclosure requirement but only for public issuances, not private.

The FDIC is proposing to amend the requirement to focus more on residential securitized assets and be more in line with the SEC’s disclosure requirements.

Gruenberg also voted against releasing the plan, arguing that the proposal fails to make clear why there should be an easement of requirements specifically tied to residential mortgage-backed securities that were a “central cause of the financial crisis.”

But McWilliams took issue with that characterization.

“With respect to any concerns that this could lead to a repeat of practices that contributed to the financial crisis, regulatory requirements are dramatically different today,” McWilliams said during the meeting. “Furthermore, as noted, concerns related to disclosures to investors are generally best addressed by the SEC, not the FDIC.”

The FDIC said in the proposal that the proposal would ultimately help generate more residential lending in the U.S. It would also reduce the compliance burden for FDIC-insured institutions by $9.7 million, based on those banks that were involved in private asset-backed securitizations in 2017.

The proposal will have a 60-day comment period once it is posted in the Federal Register.

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