The Federal Deposit Insurance Corp. is looking to head off costly U.S.-U.K. tension over deposits after examining a 1993 budget legislation.

Many say the policy discriminates against foreign depositors of U.S. banks. As a result of the legislation, the U.S. practices "depositor preference", a policy held by a handful of nations that put a bank's domestic depositors in a better class than those in overseas branches when receiving payouts after a bank failure.

"The FDIC may be trying to come up with a way to satisfy everybody. I don't know what that solution would be, but that could very well be what they're talking about," said Bradley Sabel, a partner at Shearman & Sterling LLP.

The FDIC is expected to address the issue in a proposal to be considered by the agency's board of directors at a meeting on Tuesday.

"Some observers said preventing the conversion of U.S.-owned branches to subsidiaries in the U.K. would also avoid a potential snag in the FDIC's development of a new facility under the Dodd-Frank Act to resolve systemically-important companies. The FDIC and Bank of England lately have been united in harmonizing their resolution approaches. In December, Bank of England Deputy Governor Paul Tucker told an FDIC advisory committee that the U.K. would not interfere in resolutions of U.S.-owned entities," writes American Banker's Joe Adler.

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