Large-Bank Deposit Insurance Determination Modernization FAQs
Will the FDIC provide us with the amount of the provisional hold to be placed against each account on the day of failure?
The FDIC will provide the Covered Institution with a provisional hold account balance threshold and percentage. Provisional holds are then calculated and placed by the Covered Institution. Accounts falling below the specified threshold will be exempt from a provisional hold. Those with a balance above the threshold will be subject to a provisional hold based on the provisional hold percentage applied to the amount in the account above the threshold. The FDIC can also send Non-Monetary Transaction file(s) to a Covered Institution to add FDIC holds on deposit accounts, with specific hold amounts.
What format will the FDIC use to transmit the account thresholds and percentages used for the provisional hold process?
The account thresholds and percentages will be provided in a form similar to the attached Word document. Provisional Hold information is provided by clicking the link below:
Provisional Hold Memorandum - Word (Word Help)
When can a Covered Institution expect to receive the account thresholds and percentages used for the provisional hold process?
The FDIC will provide the information necessary to construct provisional holds at the point it takes control of the institution on the day of failure.
Will the FDIC expect a Covered Institution to reduce or increase the size of a provisional hold?
When the FDIC requests the removal of a provisional hold via a Non-Monetary Transaction file, the entire hold should be removed. If the FDIC would like to change the size of the provisional hold, it will remove the hold and replace it with another FDIC hold using a second Non-Monetary Transaction file provided at the same time to add holds.
Can an individual account have more than one provisional hold?
Yes, it is possible for a deposit account with a sweep feature to have two or more provisional holds. Sweep accounts are frequently structured so that funds in the deposit account over a targeted balance are swept into the sweep investment vehicle. Thus, at the Covered Institution’s normal end of day, funds may reside in the deposit account and the sweep investment vehicle. The deposit account is treated as any similarly situated deposit account for provisional hold purposes. Funds residing in the sweep investment vehicle also are subject to a provisional hold. The business day following failure, the funds residing in the sweep investment vehicle may be moved back to the deposit account with the hold intact. Thus, the day following failure the deposit account will have one provisional hold based on the funds left in the deposit account after the sweep occurred and a second provisional hold based on the funds that resided in the sweep investment vehicle. Sweep accounts that direct funds into multiple investment vehicles could have three or more provisional holds in effect.
How does the provisional hold process work with regard to sweep accounts covered by this rule?
Sweep arrangements covered by this rule are required to have a dual provisional hold capability. The funds remaining in the deposit account component of the sweep account should be treated as any other similarly situated deposit account, i.e., should be reported in Deposit file and Hold file. The funds residing in the sweep investment vehicle are subject to a provisional hold for that particular type of sweep investment vehicle, each of which could have a different account threshold and percentage. The sweep investment amount and sweep hold amount should be reported in the Sweep file, not in Deposit and Hold files.
Do provisional holds apply to foreign branch deposits?
Yes. Provisional holds are required on foreign branch deposits but no account balance threshold is applied; a percentage hold is applied to the entire balance. The same percentage hold is placed on all foreign branch deposits, regardless of the country in which they are housed.
Are deposit brokers subject to any requirements under this rule?
The rule does not impose any new requirements on a Covered Institution dealing with brokered deposits or on a deposit broker in the event of failure, other than the requirement for a Covered Institution to place a provisional hold on the brokered account, on the core deposit system, and report it on the Deposit file as it would any deposit account. For the typical brokered CD, the placement of a provisional hold in the event of failure may have little or no impact because, as a practical matter, the entire account balance is likely to be frozen until the FDIC receives the required data from the broker regarding the underlying owners of the funds. However, there could be implications for brokered deposits structured as savings accounts; for example, those accounts which have certain sweep arrangements with affiliated brokerage operations where the funds of an underlying owner could be withdrawn the day following failure. In that situation, the FDIC will view the broker as the depositor. Thus, it would be the broker’s responsibility to manage the withdrawal of funds from the deposit account. This could result in an exposure for the broker. In the case of a Covered Institution affiliated with a brokerage operation, the brokerage affiliate could voluntarily implement its own provisional hold program for funds swept to/from the Covered Institution. In this case the action of the brokerage affiliate to implement provisional hold functionality is beyond what is required by the rule.