Introduction: Deposit Account Insurance Coverage
Federal deposit insurance protects individuals and businesses that deposit funds in financial institutions against losses in the event that the financial institution fails. When an insured institution fails, the insurance funds are available to pay off what the institution owes its depositors.
Deposit account personnel should be familiar with the limitations of the insurance coverage. Although government officials make the actual coverage determinations in the event an institution fails, deposit account personnel are frequently asked by customers about the limits of coverage. Your institution has public relations—if not legal—interests in providing customers with accurate information with respect to insurance coverage.
Four financial institution regulatory agencies—the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the Office of the Comptroller of the Currency (OCC)—have expressed concern about the ability of institution employees to accurately state the insurance rules to customers. In an Advisory dated February 3, 1993, the agencies said: “The [agencies] are encouraging all institutions to make certain that their employees, especially those who have front-line contact with depositors, have a thorough understanding of the basic provisions of federal deposit insurance… Bank and thrift institution employees should be able to correctly explain these provisions, in detail, so as not to mislead existing and potential depositors. In addition, your institution should have a training program in place to ensure that your employees are adequately educated concerning deposit insurance rules.” (Emphasis added.) Institutions with questions about deposit insurance may contact the FDIC regional office at 877-ASKFDIC (877-275-3342).
Furthermore, the OTS has said that one of its regulations—one that generally prohibits federal and state chartered savings associations from making inaccurate representations concerning their services, contracts, investments, or financial condition—applies to representations concerning deposit insurance. The OTS went on to say: “Savings associations that violate this regulation expose themselves to a number of potential supervisory or regulatory penalties, including the possibility of formal enforcement action resulting in a cease-and-desist order, civil money penalties, financial restitution, or other appropriate corrective measures.” [OTS, 93/CC-21, September 3, 1993]
This section will explain the limits of deposit insurance coverage. We will deal with two sets of regulations: those of the Federal Deposit Insurance Corporation (FDIC) and those of the National Credit Union Administration (NCUA). The FDIC regulations apply to federally insured banks and savings associations. The NCUA regulations apply to federally insured credit unions. The regulations are largely the same, but there are some minor differences. We will point out the differences as we go along. Unless we say otherwise, you can assume that the regulations are the same on any point we discuss in this section. Citations will show the FDIC regulation first, then the NCUA regulation. You should know, however, that the level of detail is much higher in the FDIC regulation than in the NCUA version. Consequently, there are many FDIC citations for which there is no corresponding NCUA citation.
- “…enter information about an account or group of accounts at an FDIC insured institution, and receive back a report that states whether the funds are fully insured. If any funds are uninsured, EDIE will identify them and explain why the funds are not covered. A person does not need to know the deposit insurance rules in order to use EDIE. The program asks simple questions about the names (ownership) and balances of accounts, then furnishes a report. Assisting users along the way is a red-haired, green-eyed helper, “EDIE.” EDIE provides definitions of terms, examples, and other important information to make the system easy to use. To protect consumers’ privacy, no identifying information such as account numbers, Social Security numbers or bank names is asked.”
[See Your Insured Deposit—Q&A, questions and answers about your insured deposit from the Federal Deposit Insurance Corporation.]
Now we’re ready to start. We will first go over some of the basic concepts of deposit account insurance, and then we will review the actual rules of coverage as they apply to different account types.