Federal Deposit
Insurance Corporation

Dear Mr. Feldman:

Mellon Financial Corporation, Pittsburgh, Pennsylvania, is pleased to provide the following comments on the Advance Notice of Proposed Rulemaking (the “Proposal”) issued by the Federal Deposit Insurance Corporation (FDIC) in the December 13, 2005 issue of the Federal Register. The Proposal relates to changes in the large bank deposit insurance determination process.

Mellon Financial Corporation (“Mellon”) is a global financial services company headquartered in Pittsburgh, Pennsylvania. Mellon is one of the world's leading providers of financial services for institutions, corporations and high net worth individuals, providing institutional asset management, mutual funds, private wealth management, asset servicing, and treasury services. Mellon has approximately $4.7 trillion in assets under management, administration or custody, including $781 billion under management.

Mellon believes that the Proposal’s determination process options will impose overly burdensome recordkeeping and programming requirements on depository institutions. It is our understanding that costs for programming or software purchases in response to some of the Proposal’s options will cost hundreds of thousands of dollars, with some institutions estimating costs in excess of a million dollars. The benefits of the Proposal do not readily appear to justify the aggregate compliance costs to be sustained by the banking industry, running counter to the agency’s worthwhile initiative to limit regulatory burden. In view of the fact that the Proposal seeks to transfer a traditional government function to the private sector, it may be more appropriate for the FDIC to develop the software needed by depository institutions to comply with any increased recordkeeping requirements that the FDIC may impose. Such action will also help ensure a uniform approach by all present and future entities covered by the proposal.

Mellon strongly supports the concept that any additional recordkeeping requirements contemplated by the Proposal be limited to institutions with more than 250,000 deposit accounts and total domestic deposits of at least $2 billion. We particularly believe that the asset size of an institution should play no role in the application of the additional requirements. The policy goal sought by the Proposal - more detailed deposit account information in order to facilitate the insurance determination process - has little, if any, applicability to specialized institutions, even relatively large ones in terms of asset size, that focus on asset management, asset administration, investment advice, custody, and other fee-based businesses and consequently hold relatively few deposit accounts. Insurance determinations in such institutions, regardless of their asset size, will not be materially different than determinations in institutions with significantly fewer assets but a similar number of deposit accounts. Not only do specialized institutions typically maintain a limited number of deposit accounts - at Mellon Bank, N.A., for example, there are slightly less than 45,000 deposit accounts - but virtually all of these are held by large institutional clients for whom FDIC insurance is not a factor of any significance.*

These depositors hold funds with Mellon for purposes far afield from the traditional retail customer and they are well able to assess the risk of large, uninsured deposits. They currently have no expectation that the FDIC backs these deposits and the agency should take no steps that create any such expectation.

The inclusion of specialized banks in this deposit-insurance determination process could have adverse consequences that would increase - not decrease as desired - the cost of any FDIC resolution. The more the FDIC demands from specialized banks with regard to deposit insurance, the greater the assumption of all depositors - not just those below the insurance thresholds - that they are covered by the FDIC. As you well know, this implicit backstop substantially increased the cost of the S&L crisis, as well as that related to failed bank resolutions in the late 1980s and early 1990s. Congress has since moved to limit FDIC coverage to insured deposits only, not to uninsured funds or other holdings related to an insured depositor and the FDIC should adopt no record-keeping or related policy that undermines this critical goal.

Given the relatively small number of deposit accounts they hold, specialized institutions, even when they maintain billions of dollars of assets, already maintain the ability to quickly and adequately provide adequate insurance determination information under the existing recordkeeping rules - just like the smaller institutions that will be outside of the Proposal’s coverage. Clearly, it is the number of deposit accounts, not the asset size of the institution, that is most relevant to the insurance coverage determination process.

We believe the FDIC should also consider the effect the Proposal’s options will have on public perception of the privacy of banking account information. Although the Proposal does not contemplate the transferring of this additional information to the federal government until a depository fails, we believe there is a real risk of misunderstanding by the public and a consequent fear that the government is gaining access to more and more private information. This could lead, ironically, to a decrease of public confidence in the banking system and runoff of deposits, especially with regard to larger institutions.

We thank you for the opportunity to comment on the Proposal. If you have any questions about our comments, please do not hesitate to contact me at 412-234-1537.

Sincerely,

Michael E. Bleier
General Counsel