Large-Bank Deposit Insurance Determination Modernization FAQs
What sweep accounts are covered by the rule?
For the purposes of the rule, a sweep account involves the pre-arranged movement of funds from a deposit account to an investment vehicle located on the books of the Covered Institution. The most prevalent sweep investment vehicles are repurchase agreements and Eurodollars (typically funds swept to a Cayman Island branch deposit), but others may include, e.g., fed funds and holding company commercial paper. For these sweep arrangements the deposit account component should be reported on the Deposit file 42. DP_Sweep_Code with value “Y” and, for provisional hold purposes, treated as any other similarly situated deposit account. The funds resting in the sweep investment vehicle are subject to a separate provisional hold mechanism and should be reported on the Sweep/Automated Credit Account file. See, Appendix D to 12 CFR 360.9.
Any sweep arrangement which moves funds from one domestic deposit account to another in the same Covered Institution, is not considered to be a sweep account for the purposes of this rule. These deposit-to-deposit sweeps include zero-balance accounts (involving a parent deposit account connected with several child deposit accounts, which typically maintain a zero balance at the institution’s normal end of day) and reserve (or retail) sweep products (which move funds from a transaction account into a money market deposit account, which may be structured as a sub-account, for the purposes of reducing required reserves). The accounts involved in a deposit-to-deposit sweep should be reported on the Deposit file and are subject to provisional holds as any similarly situated deposit account would be. Further, deposit-to-deposit sweep arrangements should not be designated as a sweep account on the Deposit file.
How should money market mutual fund sweep arrangements be treated under this rule?
A money market mutual fund sweep moves funds from a deposit account to an investment vehicle outside the depository institution. There are two common types of money market mutual fund sweep arrangements: same-day and next-day. In a same-day arrangement sweep funds are transmitted to the money market mutual fund prior to its daily cutoff time, usually 4 p.m. Since customer funds have left the institution prior to its normal end of day, these funds are not included in end-of-day ledger balances. For a same-day arrangement the deposit account connected with the sweep is reported on the Deposit file and subject to provisional holds as a similarly situated deposit account. Customer funds held by the money market mutual fund are not reported on the data file extract nor are they subject to the provisional hold process.
A next-day money market mutual fund sweep moves funds from the customer’s deposit account after the day’s deposit transactions are processed. Since by this point it is too late to transfer the customer’s funds to the money market mutual fund, they are held in an omnibus account as of the end of day. It is not until the following business day that the funds are transferred to the money market mutual fund. The funds remaining in the omnibus account are a deposit for insurance purposes. If the omnibus account is housed on the general ledger these funds should not be reported on the Deposit file or be subject to a provisional hold. In the event of failure, the FDIC would need a report showing the individual account interests making up the omnibus account. This report should include the account number from which the funds originated, the account name, and the amount (which could be positive or negative). If the omnibus account rests on a deposit application, however, the balance in the account should be reported in the Deposit file, but this account is not subject to the provisional hold requirement. In the event of failure the FDIC also would ask for a report on the underlying owners of this omnibus account.
How do I report Sweep Investment Vehicle Products?
We have discovered that in certain instances sweep investment vehicle balances may not have been properly identified and as a result are not being accounted for accurately both in the provisional hold process or in the data extracts. It is the Covered Institution’s responsibility to assess the extent to which sweep investment vehicles are used and to ensure that they are treated in accordance with 12 CFR 360.9 provisions. If an institution uses its core deposit technology service provider (TSP) processing system to house sweep investment vehicles, including repurchase agreements, Euro, Cayman, Fed Funds and other sweep products, the TSP needs to be aware of this use and either provide a solution within the core application or the Covered Institution should make other arrangements. Sweep investment vehicles are subject to different provisional hold thresholds and percentages than insurance-eligible deposit accounts. Sweep investment vehicle data should be reported separately in the Sweep/Automated Credit File Structure found in Appendix D to 12 CFR 360.9.
What is an automated credit account?
An automated credit account is an arrangement where the customer directs funds to be placed in an investment vehicle and then at a future point, which could be the following day, the funds are automatically credited to the customer’s deposit account. Automated credit accounts are similar to a sweep account, except the customer directs the investment rather than the investment being calculated by a pre-determined set of rules established by the account agreement. The process of returning the funds to the customer’s account could be the same as a sweep account, which is why the FDIC requires treatment similar to a sweep product.