USA Law and Practice Contributed by: Edward P. O’Keefe, Neil T. Bloomfield, John A. Stoker and Kathryn (Kate) G. Wellman, Moore & Van Allen, PLLC
• government accounts. In instances involving bank failures that may pose a systemic risk to the financial system, the FDIC and the Federal Reserve Board may seek invocation of an exception from applying the insurance coverage limits. This exception was utilised in March of 2023 when the failure of sev - eral large banks led to concerns that their failure could trigger further instability and bank failures. Treatment of Fiduciary Accounts Funds deposited by a fiduciary on behalf of an owner in a deposit account are insured as depos - its of the funds’ owner if the fiduciary nature of the account is disclosed in the bank’s deposit account records. The name and ownership inter - est of each owner must be ascertainable either from the deposit account records at the bank or from records maintained by the agent. The FDIC aggregates an owner’s funds deposited by the fiduciary along with other deposits of the owner in the same ownership category at the bank for purposes of determining the aggregate dollar amount of insured deposits. What Happens to Insured Deposits When the Bank Fails When an insured bank fails, the FDIC may find another bank that is willing to purchase and assume its deposits. In this case, the insured depositors of the failed bank become depositors of the purchasing bank. To the extent a depositor otherwise already has deposit accounts at the purchasing bank, the new deposits are sepa - rately insured for a temporary period to allow the depositor time to move or otherwise restructure how or where their deposits are held. If a bank cannot be found to purchase the deposits, the FDIC closes the institution and pays depositors their applicable deposit insur -
ance amount. The FDIC also acts as the receiver of the failed institution by collecting and sell - ing the institution’s assets to settle its debts, which include claims by depositors for deposit amounts that exceeded the insurance limit. Funding Deposit Insurance The FDIC’s Deposit Insurance Fund (DIF) is fund - ed through assessments on insured banks and interest earned on these assessments through investments in US government obligations. Insured banks are assessed by multiplying the bank’s assessment rate by its assessment base. The assessment rate for each bank considers financial and risk-based measures. A bank’s assessment base is its average consolidated total assets minus its average tangible equity. If a systemic risk exception is invoked during a bank failure, the FDIC recovers losses to the deposit insurance fund through special assessments. 7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements The United States is a participating member of the Basel Committee on Banking Supervision (BCBS). In 2013, US Federal Bank regulators adopted requirements for depository institutions and their holding companies (collectively, “bank - ing organisations” or “organisations”) that are considered generally consistent with the 2010 BCBS Basel III framework. Regulators have adjusted the US Basel III requirements, including tailoring the most stringent requirements to sub - sets of the largest banking organisations (those with USD100 billion or more of total assets). The failure of several large banks in March of 2023 and efforts to amend the US Basel III capital rules to align them with BCBS Basel III reforms resulted in a 2023 proposal for significant chang -
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