ARLINGTON, Va. (9/12/13)--The Federal Deposit Insurance Corp. (FDIC) adopted a rule this week to make it clear that its insurance fund does not cover deposit by foreigners in overseas branches of American banks.
The FDIC called its action a "clarification" and noted that it applies even if the deposits are also payable at an office within the United States.
The agency action was sparked by a pending proposal by the United Kingdom's Prudential Regulation Authority (U.K. PRA) that the FDIC said has made it more likely that large U.S. banks will change their U.K. foreign branch agreements give "dual payability," making their U.K. deposits payable in both the U.S. and U.K.
"This action (by the U.K. PRA) has the potential to expose the (FDIC's) Deposit Insurance Fund to expanded deposit insurance liability and create operational complexities if these types of deposits were treated as insured," the FDIC noted in its final rule.
The clarification will protect the DIF against the liability that it "would otherwise face as a potential global deposit insurer, preserve confidence in the FDIC deposit insurance system, and ensure that the FDIC can effectively carry out its critical deposit insurance functions," it also noted.
The final rule does not affect the operations of overseas military banking facilities, which are established under statutory authority separate from state and federal laws that govern the broader banking industry.