SUMMARY: The FDIC is amending its regulations governing the insurance
coverage of joint ownership accounts and revocable trust (or payable-
on-death) accounts. The amendments are almost identical to the
amendments proposed by the FDIC in July 1998; they supplement other
revisions that became effective in July. The purpose of the amendments
is to increase the public's understanding of the insurance rules
The final rule makes three changes to the deposit insurance
regulations. First, it eliminates step one of the two-step process for
determining the insurance coverage of joint accounts. Second, it
changes the insurance coverage of ``payable-on-death'' accounts by
adding parents and siblings to the list of ``qualifying
beneficiaries''. Third, it makes certain technical amendments to the
FDIC's rules regarding the coverage of accounts held by agents or
DATES: Effective April 1, 1999.
FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, (202)
898-8839, or Joseph A. DiNuzzo, Counsel, (202) 898-7349, Legal
Division, Federal Deposit Insurance Corporation, 550 17th Street, NW,
Washington, DC 20429.
I. Simplifying the Insurance Regulations
Federal deposit insurance plays a critical role in assuring
stability and public confidence in the nation's financial system.
Deposit insurance cannot play this role, however, unless the rules
governing the application of the $100,000 insurance limit are
understood by depositors. Misunderstandings can lead to a loss of
depositors' funds with a resulting loss of public confidence.
Unfortunately, some of the FDIC's insurance rules have been widely
misunderstood. See 63 FR 38521 (July 17, 1998). This confusion prompted
the FDIC to initiate a simplification effort. As a result of that
effort, the FDIC issued
a final rule, effective July 1, 1998, to ``clarify and simplify'' the
FDIC's deposit insurance regulations. See 63 FR 25750 (May 11, 1998).
The final rule made numerous technical and substantive amendments to
the insurance regulations, including the use of plainer language and
examples. To further simplify and clarify the deposit insurance rules,
in July 1998, the FDIC published a proposed rule to amend the
regulations dealing with joint accounts and ``payable-on-death'' (or
POD) accounts. See 63 FR 38521 (July 17, 1998). The proposed rule is
described in detail below.
II. The Proposed Rule
A. Joint Accounts
Under the FDIC's insurance rules, qualifying joint accounts are
insured separately from any single ownership accounts maintained by the
co-owners at the same insured depository institution. See 12 CFR
330.9(a). A joint account is a ``qualifying'' joint account if it
satisfies certain requirements: (1) The co-owners must be natural
persons; (2) each co-owner must personally sign a deposit account
signature card; and (3) the withdrawal rights of the co-owners must be
equal. See 12 CFR 330.9(c)(1). The requirement involving signature
cards is inapplicable if the account at issue is a certificate of
deposit, a deposit obligation evidenced by a negotiable instrument, or
an account maintained for the co-owners by an agent or custodian. See
12 CFR 330.9(c)(2).
Assuming these requirements are satisfied, the current rules (i.e.,
the rules in effect prior to the effective date of this final rule)
provide that the $100,000 insurance limit shall be applied in a two-
step process. First, all joint accounts owned by the same combination
of persons at the same insured depository institution are added
together and insured to a limit of $100,000. Second, the interests of
each person in all joint accounts, whether owned by the same or some
other combination of persons, are added together and insured to a limit
of $100,000. See 12 CFR 330.9(b).
The two-step process for insuring joint accounts has been
misunderstood by bank employees as well as depositors. This widespread
confusion has resulted in the loss by some depositors of significant
sums of money. For example, at one failed depository institution, three
individuals held three joint accounts (and no other types of accounts).
The interest of each individual was less than $100,000. The individuals
chose to place all of their funds in joint accounts so that each of
them would have access to the money in the event of an emergency or
sudden illness. When the institution failed, step one of the two-step
process required the aggregation of the three joint accounts. The
amount in excess of $100,000 was uninsured.
In this example, all of the funds owned by the three joint owners
could have been insured if the funds had been held in individual
accounts as opposed to joint accounts. Thus, the depositors did not
suffer a loss because they placed too much money in a single depository
institution that failed. Rather, they suffered a loss simply because
they misunderstood the FDIC's regulations. See also Sekula v. FDIC, 39
F.3d 448 (3d Cir. 1994).
In order to simplify the coverage of joint accounts, the FDIC
proposed to eliminate the first step of the two-step process.
B. POD Accounts
Under the current rules (i.e., the rules in effect prior to the
effective date of this final rule), qualifying revocable trust (or POD)
accounts are insured separately from any other types of accounts
maintained by either the owner or the beneficiaries at the same insured
depository institution. See 12 CFR 330.10(a).
A POD account is a ``qualifying'' POD account if it satisfies
certain requirements: (1) The beneficiaries must be the spouse,
children or grandchildren of the owner; (2) the beneficiaries must be
specifically named in the deposit account records; (3) the title of the
account must include a term such as ``in trust for'' or ``payable-on-
death to'' (or any acronym therefor); and (4) the intention of the
owner of the account (as evidenced by the account title or any
accompanying revocable trust agreement) must be that the funds shall
belong to the named beneficiaries upon the owner's death. If the
account has been opened pursuant to a formal ``living trust''
agreement, the fourth requirement means that the agreement must not
place any conditions upon the interests of the beneficiaries that might
prevent the beneficiaries (or their estates or heirs) from receiving
the funds following the death of the owner. Such conditions are known
as ``defeating contingencies''.
Assuming these requirements are satisfied, the $100,000 insurance
limit is not applied on a ``per owner'' basis. Rather, the $100,000
insurance limit is applied on a ``per beneficiary'' basis to all POD
accounts owned by the same person at the same insured depository
institution. For example, a POD account owned by one person would be
insured up to $500,000 if the account names five qualifying
If one of the named beneficiaries of a POD account is not a
qualifying beneficiary, the funds corresponding to that beneficiary are
treated for insurance purposes as single ownership funds of the owner
(i.e., the account holder). In other words, they are aggregated with
any funds in any single ownership accounts of the owner and insured to
a limit of $100,000. See 12 CFR 330.10(b).
On a number of occasions, depositors have lost money upon the
failure of an insured depository institution because they believed that
POD accounts are insured on a simple ``per beneficiary'' or ``per
family member'' basis. They did not understand the difference between
qualifying beneficiaries and non-qualifying beneficiaries. Typically,
in such cases, the named beneficiary has been a parent or sibling. In
the absence of a qualifying beneficiary, the POD account has been
aggregated with the owner's single ownership accounts.
In response to such cases, the FDIC proposed adding siblings and
parents to the list of qualifying beneficiaries. The purpose of this
proposal was to protect most depositors who misunderstand the rules
governing POD accounts without abandoning the basic concept that
insurance for such accounts is provided up to $100,000 on a ``per
qualifying beneficiary'' basis.
III. The Final Rule
The FDIC received forty-one comments on the proposed rule. The
commenters can be divided into five categories: depository institutions
(25); banking trade associations (9); bank holding companies (3);
individuals (3); and other (1) (a computer software company). Of these
comments, the vast majority supported the proposed amendments. Only two
comments were critical of the proposed amendments.
The typical comment on the joint account revision praised the FDIC
for proposing to eliminate the ``most confusing and misunderstood''
part of the current insurance regulations. The most pervasive comment
on the POD account revision was that the amendment to add parents and
siblings as qualified beneficiaries has been ``long overdue''.
Of the two critical comments, one suggested that the FDIC lacks the
authority to eliminate step one of the two-step process for insuring
joint accounts. In the commenter's opinion, the elimination of step one
would violate the statutory mandate that the FDIC--in applying the
$100,000 insurance limit--must ``aggregate the amounts of all deposits
in the insured
depository institution which are maintained by a depositor in the same
capacity and the same right for the benefit of the depositor * * *.''
12 U.S.C. 1821(a)(1)(C). Specifically, the commenter argued that an
account held by a particular combination of co-owners represents a
single ``right and capacity''. In other words, under this argument, the
combinations of co-owners--and not the individual persons--are the
``depositors'' of joint accounts. Therefore, such an account cannot be
insured for more than the statutory insurance limit of $100,000 (as
prescribed by step one).
The argument above is consistent with the FDIC's approach toward
insuring joint accounts prior to 1967. It is inconsistent, however,
with the FDIC's creation in 1967 of step two of the two-step process.
See 32 FR 10408 (July 14, 1967). Under step two, the FDIC has treated
the individual persons as the ``depositors''. Nothing in the Federal
Deposit Insurance Act precludes this longstanding interpretation.
Through the elimination of step one, the regulations provide a
simple $100,000 insurance limit for the interest of each person (a
depositor) in all joint accounts (an ownership right and capacity). The
FDIC believes that this result will be consistent with the statutory
limit of $100,000 for ``the amounts of all deposits in the insured
depository institution which are maintained by a depositor in the same
capacity and the same right * * *.'' 12 U.S.C. 1821(a)(1)(C). Moreover,
as recognized by the vast majority of commenters, this result will be
much easier to understand than the two-step process. Accordingly, the
Board has decided to adopt the proposed elimination of step one.
As a result of this final rule, the maximum insurance coverage of a
particular joint account (or group of joint accounts owned by the same
combination of persons) will no longer be $100,000. In the case of a
joint account of $200,000 owned by two persons, for example, the
maximum coverage will increase from $100,000 to $200,000 (or $100,000
for the interest of each owner). The maximum coverage that any one
person can obtain for his/her interests in all qualifying joint
accounts, however, will remain $100,000.
The second critical comment argued that the proposed amendments
would not accomplish the objective of simplifying the regulations. In
the case of the elimination of step one of the two-step process for
insuring joint accounts (discussed above), this argument is unfounded.
As recognized by the vast majority of commenters, a one-step process is
simpler than a two-step process. In the case of the POD account
amendment, the argument is stronger because the amendment will not
eliminate the concept of ``qualifying beneficiaries''. By adding
parents and siblings to the list of ``qualifying beneficiaries'',
however, the amendment will reduce the number of cases in which a
depositor's confusion results in a loss of funds. In other words, the
amendment may not eliminate confusion but will protect most depositors
from the negative consequences of such confusion. For this reason, the
Board has decided to adopt the proposed amendment. Unlike the proposed
rule, the final rule defines the terms ``parents'', ``brothers'' and
The subject of ``living trust'' accounts should be mentioned. A
``living trust'' account is a POD account opened pursuant to a formal
``living trust'' agreement. By expanding the list of ``qualifying
beneficiaries'', the final rule will not remove the complicated
methodology for determining the insurance coverage of such accounts.
This methodology requires a determination as to whether the interest of
each beneficiary is subject to any conditions or contingencies
(referred to by the FDIC as defeating contingencies) that might prevent
the beneficiary from receiving his/her share of funds following the
death of the owner. Most ``living trust'' agreements include defeating
contingencies. As a result, most ``living trust'' accounts are
classified by the FDIC for insurance purposes as single ownership
accounts. In other words, the account is aggregated with any single
ownership accounts of the owner at the same depository institution and
insured to a limit of only $100,000. See 12 CFR 330.10(f).
IV. Technical Amendments
Under the FDIC's rules regarding the insurance coverage of accounts
held by agents or fiduciaries, the funds in such accounts are insured
to the same extent as if deposited in the names of the principals. See
12 CFR 330.7(a). In other words, the insurance coverage ``passes
through'' the agent or custodian to the principal or actual owner. The
account will not be entitled to such ``pass-through'' coverage,
however, unless the agency or fiduciary relationship is disclosed in
the deposit account records. See 12 CFR 330.5(b).
The necessity of disclosing fiduciary relationships in the account
records has been referred to as a ``recordkeeping requirement'' in the
insurance regulations. The term ``recordkeeping requirement'' may
suggest to some depository institutions that they possess an
affirmative duty to collect information regarding fiduciary
relationships. In fact, no such duty exists. For this reason, the FDIC
has decided to rephrase certain sections of the regulations.
The final rule removes ``recordkeeping requirements'' from the
section heading at 12 CFR 330.5 and the paragraph headings at 12 CFR
330.5(b) and 12 CFR 330.5(b)(4). Also, the term is removed from 12 CFR
The paragraph at 12 CFR 330.5(b)(1) provides that no claim for
insurance coverage based on a fiduciary relationship will be recognized
unless the fiduciary relationship is disclosed in the account records.
The final rule revises this paragraph so as to remove any suggestion
that depository institutions are subject to reporting requirements with
respect to accounts held by agents or fiduciaries. Specifically, the
final rule changes language resembling a command directed at depository
institutions (``[t]he `deposit account records' * * * of an insured
depository institution must expressly disclose * * * the existence of
any fiduciary relationship'') to a statement describing the
consequences of failing to disclose a fiduciary relationship (``[t]he
FDIC will recognize a claim for insurance coverage based on a fiduciary
relationship only if the relationship is expressly disclosed * * *'').
These amendments are technical. Their sole purpose is
clarification. For this reason, the Board finds ``good cause'' for
adopting these amendments without the rulemaking procedures generally
required by the Administrative Procedure Act. See 5 U.S.C. 553.
Inasmuch as this amendment will have no effect upon the operation of
the insurance regulations, these procedures are unnecessary.
V. Effective Date
The Administrative Procedure Act generally requires the publication
of a substantive rule at least thirty days before its effective date.
One of the exceptions is for ``good cause''. 5 U.S.C. 553(d). In the
case of this final rule, the Board finds ``good cause'' to make the
amendments effective immediately upon publication in the Federal
Register. ``Good cause'' exists because the amendments will not
prejudice any depositor or depository institution. On the contrary, the
amendments will result in increased insurance coverage for some
depositors who may misunderstand the current rules (for
example, two individuals with a qualifying joint account of $200,000;
or an individual who has named a sibling as the beneficiary of a POD
account). By making the amendments effective immediately, the Board
will protect depositors of any FDIC-insured institutions that may fail
within the thirty-day period following publication.
With certain exceptions, the Riegle Community Development and
Regulatory Improvement Act of 1994 (Public Law 103-325) provides that
the federal banking agencies may not impose new regulatory reporting
requirements on insured depository institutions except on the first day
of a calendar quarter after the date of publication. See 12 U.S.C.
4802(b). This rule is inapplicable because the final rule imposes no
reporting, disclosure or other new requirements on insured depository
VI. Paperwork Reduction Act
The final rule will simplify the FDIC's deposit insurance
regulations governing joint accounts and POD accounts. It will not
involve any collections of information under the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.). Consequently, no information has been
submitted to the Office of Management and Budget for review.
VII. Regulatory Flexibility Act
The final rule will not have a significant impact on a substantial
number of small businesses within the meaning of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.). The amendments to the deposit
insurance rules will apply to all FDIC-insured depository institutions
and will impose no new reporting, recordkeeping or other compliance
requirements upon those entities. Accordingly, the Act's requirements
relating to an initial and final regulatory flexibility analysis are
VIII. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined that the final
rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC
will file the appropriate reports with Congress and the General
Accounting Office so that the final rule may be reviewed.
List of Subjects in 12 CFR Part 330
Bank deposit insurance, Banks, banking, Reporting and recordkeeping
requirements, Savings and loan associations, Trusts and trustees.
The Board of Directors of the Federal Deposit Insurance Corporation
hereby amends part 330 of chapter III of title 12 of the Code of
Federal Regulations as follows:
PART 330--DEPOSIT INSURANCE COVERAGE
1. The authority citation for part 330 continues to read as
2. In Sec. 330.3, paragraph (h) is revised to read as follows:
Sec. 330.3 General principles.
* * * * *
(h) Application of state or local law to deposit insurance
determinations. In general, deposit insurance is for the benefit of the
owner or owners of funds on deposit. However, while ownership under
state law of deposited funds is a necessary condition for deposit
insurance, ownership under state law is not sufficient for, or decisive
in, determining deposit insurance coverage. Deposit insurance coverage
is also a function of the deposit account records of the insured
depository institution and of the provisions of this part, which, in
the interest of uniform national rules for deposit insurance coverage,
are controlling for purposes of determining deposit insurance coverage.
* * * * *
3. In Sec. 330.5, the section heading and paragraphs (b)(1), (b)(4)
heading, and (b)(4)(i) are revised to read as follows:
Sec. 330.5 Recognition of deposit ownership and fiduciary
* * * * *
(b) Fiduciary relationships--(1) Recognition. The FDIC will
recognize a claim for insurance coverage based on a fiduciary
relationship only if the relationship is expressly disclosed, by way of
specific references, in the ``deposit account records'' (as defined in
Sec. 330.1(e)) of the insured depository institution. Such
relationships include, but are not limited to, relationships involving
a trustee, agent, nominee, guardian, executor or custodian pursuant to
which funds are deposited. The express indication that the account is
held in a fiduciary capacity will not be necessary, however, in
instances where the FDIC determines, in its sole discretion, that the
titling of the deposit account and the underlying deposit account
records sufficiently indicate the existence of a fiduciary
relationship. This exception may apply, for example, where the deposit
account title or records indicate that the account is held by an escrow
agent, title company or a company whose business is to hold deposits
and securities for others.
* * * * *
(4) Exceptions--(i) Deposits evidenced by negotiable instruments.
If any deposit obligation of an insured depository institution is
evidenced by a negotiable certificate of deposit, negotiable draft,
negotiable cashier's or officer's check, negotiable certified check,
negotiable traveler's check, letter of credit or other negotiable
instrument, the FDIC will recognize the owner of such deposit
obligation for all purposes of claim for insured deposits to the same
extent as if his or her name and interest were disclosed on the records
of the insured depository institution; provided, that the instrument
was in fact negotiated to such owner prior to the date of default of
the insured depository institution. The owner must provide affirmative
proof of such negotiation, in a form satisfactory to the FDIC, to
substantiate his or her claim. Receipt of a negotiable instrument
directly from the insured depository institution in default shall, in
no event, be considered a negotiation of said instrument for purposes
of this provision.
* * * * *
4. In Sec. 330.9, paragraph (b) is revised to read as follows:
Sec. 330.9 Joint ownership accounts.
* * * * *
(b) Determination of insurance coverage. The interests of each co-
owner in all qualifying joint accounts shall be added together and the
total shall be insured up to $100,000. (Example: ``A&B'' have a
qualifying joint account with a balance of $60,000; ``A&C'' have a
qualifying joint account with a balance of $80,000; and ``A&B&C'' have
a qualifying joint account with a balance of $150,000. A's combined
ownership interest in all qualifying joint accounts would be $120,000
($30,000 plus $40,000 plus $50,000); therefore, A's interest would be
insured in the amount of $100,000 and uninsured in the amount of
$20,000. B's combined ownership interest in all qualifying joint
accounts would be $80,000 ($30,000 plus $50,000); therefore, B's
interest would be fully insured. C's combined ownership interest in all
qualifying joint accounts would be $90,000 ($40,000 plus $50,000);
therefore, C's interest would be fully insured.)
* * * * *
5. In Sec. 330.10, paragraphs (a) and (e) are revised to read as
Sec. 330.10 Revocable trust accounts.
(a) General rule. Funds owned by an individual and deposited into
an account with respect to which the owner evidences an intention that
upon his or her death the funds shall belong to one or more qualifying
beneficiaries shall be insured in the amount of up to $100,000 in the
aggregate as to each such named qualifying beneficiary, separately from
any other accounts of the owner or the beneficiaries. For purposes of
this provision, the term ``qualifying beneficiaries'' means the owner's
spouse, child/children, grandchild/grandchildren, parent/parents,
brother/brothers or sister/sisters. (Example: If A establishes a
qualifying account payable upon death to his spouse, sibling and two
children, assuming compliance with the rules of this provision, the
account would be insured up to $400,000 separately from any other
different types of accounts either A or the beneficiaries may have with
the same depository institution.) Accounts covered by this provision
are commonly referred to as tentative or ``Totten trust'' accounts,
``payable-on-death'' accounts, or revocable trust accounts.
* * * * *
(e) Definition of ``children'', ``grandchildren'', ``parents'',
``brothers'' and ``sisters''. For the purpose of establishing the
qualifying degree of kinship identified in paragraph (a) of this
section, the term ``children'' includes biological, adopted and step-
children of the owner. The term ``grandchildren'' includes biological,
adopted and step-children of any of the owner's children. The term
``parents'' includes biological, adoptive and step-parents of the
owner. The term ``brothers'' includes full brothers, half brothers,
brothers through adoption and step-brothers. The term ``sisters''
includes full sisters, half sisters, sisters through adoption and step-
* * * * *
6. In Sec. 330.14, paragraph (a) is revised to read as follows:
Sec. 330.14 Retirement and other employee benefit plan accounts.
(a) ``Pass-through'' insurance. Except as provided in paragraph (b)
of this section, any deposits of an employee benefit plan or of any
eligible deferred compensation plan described in section 457 of the
Internal Revenue Code of 1986 (26 U.S.C. 457) in an insured depository
institution shall be insured on a ``pass-through'' basis, in the amount
of up to $100,000 for the non-contingent interest of each plan
participant, provided that the rules prescribed in Sec. 330.5 are
* * * * *
By order of the Board of Directors.
Dated at Washington, D.C., this 23rd day of March, 1999.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
[FR Doc. 99-7736 Filed 3-31-99; 8:45 am]
BILLING CODE 6714-01-P