Large-Bank Deposit Insurance Determination Modernization FAQs
Removal of Provisional Holds
When and how will provisional holds be removed?
A provisional hold can be removed using a Non-Monetary Transaction file provided by the FDIC, or it may be removed manually, at the direction of the FDIC. A Covered Institution must have in place a manual process for removing a provisional hold on a case-by-case basis. A limited number of provisional holds could be removed shortly after they have been placed, if necessary. Most provisional holds will be removed in batch using a Non-Monetary Transaction file provided by the FDIC. Provisional holds will be removed in stages through a process that may take place over several weeks. However, the vast majority of provisional holds will be removed through the first several Non-Monetary Transaction files provided by the FDIC in the days following the bank’s failure.
When the FDIC provides a Non-Monetary Transaction file directing the removal of provisional holds will it always also provide a companion Debit/Credit file?
A Non-Monetary Transaction file generally, but not always, is accompanied by a companion Debit/Credit file.
If the FDIC finds uninsured funds in an account, we understand why it will want to debit funds from the account, but why would the FDIC credit a deposit account as part of this process?
Before closing, the FDIC will determine the approximate provisional hold threshold percentages based on the situation. These transactions are illustrated by the following example.
A depositor has $350,000 in a deposit account. Assume the FDIC provisional hold threshold is $150,000 and the hold percentage is 60%.
- A $120,000 provisional hold is put on this account, calculated as ($350,000 - $150,000)*60% = $120,000. The account’s current balance (ledger balance) is still $350,000. The available balance for the account at this time is $350,000 – $120,000 = $230,000. The bank is open on the next business day pending FDIC deposit insurance determination.
- Assume this depositor withdraws the entire available balance of $230,000 from this account. The available balance now is $0.
- FDIC completes insurance determination. Let us assume this is the only account this depositor has at the bank thus the insured amount is $250,000 and uninsured amount is $100,000.
- FDIC will send the bank a non-monetary transaction file to remove the provisional hold of $120,000. The available balance now is $120,000.
- FDIC will then send the bank a debit file to debit uninsured amount of $100,000. The available balance now is $120,000 - $100,000 = $20,000.
- Assume FDIC estimates an advance dividend of 55% can be paid (by liquidating the failed bank’s assets), then a credit of $100,000*55% = $55,000 representing advance dividend will be sent in the credit file. The new available balance is $20,000 + $55,000 = $75,000 for the depositor to withdraw.
- In total, the depositor withdrew $230,000 + $75,000 = $305,000. This is exactly the same amount as $350,000 - $100,000 + $55,000 = $305,000.
In practice, the FDIC may implement these two transactions in reverse order to avoid the potential for a negative account balance, thus first crediting the account for $55,000 and then debiting it for $100,000. To facilitate this process, the FDIC will provide two separate monetary transaction files, one containing the credit transactions and the second having the debit transactions.
Will the net debit to the account always equal the amount of the provisional hold?
No. The provisional hold will be an approximation of the loss expected on the uninsured funds in the account. Once the deposit insurance determination is completed for the depositor, the actual amount of this loss will be available. The net debit to the account likely will be the same as the provisional hold or a lesser amount.
If funds are removed from a deposit account what is the offsetting entry on our books?
The Covered Institution should establish a “Due To/Due From the FDIC” account on its General Ledger to house the offsetting entries to deposit and other accounts. The FDIC will provide detailed instruction on this account at the time of failure.
At what point during the day can the Covered Institution expect to receive a set of Non-Monetary Transaction and Debit/Credit files?
The FDIC will be in contact with the Covered Institution to determine how early in the day files must be sent to the Covered Institution to be included in that day’s processing cycle. If the FDIC cannot meet this deadline, the files should be processed the following business day.
Would the FDIC ever request to replace a provisional hold on an account with another FDIC hold of a different amount?
Yes. 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.
Several days after failure, could the FDIC still add an FDIC hold to an account which had not previously had a provisional hold?
Yes. The FDIC could request the placement of an FDIC hold on a new account which did not previously have a provisional hold. The FDIC recognizes, however, that the funds may have left the account by that point and therefore, there may not be funds available that could be subject to the hold.
What are the FDIC’s expectations regarding the processing of the provisional hold removals and the net debit to the account?
Once the provisional hold is removed, these released funds must be available for the net debit to the account. Funds released by the provisional holds should not be used to satisfy other transactions until the net debit is posted. If the FDIC provides a second Non-Monetary Transaction file that includes a new hold against the account, this hold should be placed immediately to capture the funds released by the provisional hold.
What to do if Debit/Credit cannot be posted due to account restrictions?
The FDIC debit and credit should be force posted regardless of any existing account restrictions.
What to do with Debit/Credit for IRA accounts?
As part of the deposit insurance determination process, deposit accounts that are determined to be in excess of the deposit insurance limit may have both a debit and credit transaction. The debit represents funds in the account considered to be uninsured, while the credit represents an advance dividend that is paid to uninsured depositors. The FDIC debit and credit for IRA accounts should be force posted. For IRS reporting purposes, the debit and credit transactions should be viewed as an FDIC seizure of funds that will not trigger retirement account reporting that would otherwise generally be associated with typical retirement account activity.