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4000 - Advisory Opinions

How "Grandfathering" Rules Apply to "Benefit-Responsive" BICs Entered into Prior to December 19, 1993


October 19, 1993

Joseph A. DiNuzzo, Senior Attorney

Thank you for your letter of September 20, 1993, requesting our views on whether bank investment contract ("BICs") entered into prior to December 19, 1993, would be covered by the "grandfather" provisions in section 330.16 of the revised insurance regulations issued by the Federal Deposit Insurance Corporation on May 25, 1993 (58 Fed. Reg. 29,952).

Section 330.16 of the revised regulations provides that any time deposits made before December 19, 1991 (the enactment date of the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub. L. 102--242, 105 Stat. 2236 ("FDICIA")) that do not mature until after December 19, 1993 (the effective date of the insurance provisions of FDICIA requiring that BICs which expressly permit "benefit-responsive" withdrawals or transfers not be treated as insured deposits) shall be subject to the rules as they existed on the date the deposits were made. Section 330.16 also provides that deposits made after December 19, 1991, but before December 19, 1993, are subject to the deposit insurance rules as they existed on the date the deposits were made. The preamble to the revised insurance rules explains that the rules in effect at the time the deposit is made would govern until the first maturity date after December 19, 1993 (58 Fed. Reg. 59,963).

Your question is whether these general grandfathering rules for time deposits would apply to "benefit-responsive" BICs that are entered into before December 19, 1993. We believe the answer is yes. The first category of grandfathered coverage is specifically provided for in section 311(c) of FDICIA. That provision states, in pertinent part, that "amendments made by subsections (a) and (b) [of section 311] shall not apply to any time deposit which--(i) was made before . . . [December 19, 1991]; and (ii) matures after . . . [December 19, 1993]." "Subsection (a)" of section 311 of FDICIA is the provision eliminating the insurance coverage of benefit-responsive BICs. The grandfathering issue involving time deposits made after December 19, 1991, and before December 19, 1993, is not specifically addressed in FDICIA, but, as noted above, section 330.16 of the revised insurance regulations provides that such deposits will be insured under the insurance rules applicable at the time the deposits are made.

Currently, in general, all BICs (including benefit-responsive ones) are eligible for deposit insurance coverage, subject to the applicable recordkeeping requirements. Benefit-responsive BICs will not become ineligible for insurance coverage until December 19, 1993. Because all BICs entered into between December 19, 1991, and December 19, 1993, are insurable "deposits" under section 311 of FDICIA and the FDIC's regulations (in that the insurance rule applicable during that time is that BICs are eligible for insurance coverage), we believe the grandfathering rules of section 330.16 should be fully applicable to them. We know of no legislative history of FDICIA or other policy factor that would contradict this interpretation. As correctly stated in your letter, the purpose of the grandfather provision is to give depositors time to adjust to the new rules as well as to promote depositor confidence and stability of deposits. We believe this conclusion is in furtherance of those objectives.

Feel free to contact us if you have any additional questions or comments.

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