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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
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promptly in the event of the IDIs failure. To implement part 370, covered institutions are updating their deposit account records and developing systems capable of applying the deposit insurance rules in an automated manner.
In addition to broadly benefiting the public and all IDIs, simplification of the deposit insurance rules complements part 370 in that it would further promote the timely payment of deposit insurance for depositors of the largest IDIs. For instance, neither part 370 nor any other rule requires covered institutions to maintain certain records necessary to make an insurance determination for formal trust deposits, meaning that the FDIC would need to obtain and review revocable and irrevocable trust agreements following a covered institutions failure. Analysis of data from part 370 covered institutions suggest the number of revocable trusts is significant and, if a covered institution were to fail, processing of deposit insurance for formal revocable trusts would likely extend well beyond normal FDIC payment timeframes.
Simplification of the deposit insurance rules would streamline insurance determinations for trust accounts. The FDIC expects that capabilities developed in accordance with part 370
will be helpful in addressing many of the challenges involved in making deposit insurance determinations in connection with a very large IDIs failure. Simplification of the deposit insurance rules would provide additional benefits by reducing the amount of time needed to collect and process trust information after failure in order to make use of a covered institutions part 370 deposit insurance calculation capabilities. With less time needed to calculate insurance coverage, the FDIC would be able to make more timely insurance payments to insured depositors.
5. Need for Further Rulemaking The rules governing deposit insurance coverage for trust deposits have been simplified on several occasions, but are still frequently misunderstood, and can present some implementation challenges. For example, the current trust rules often require detailed, timeconsuming, and resource-intensive review of trust documentation to obtain the information that is necessary to calculate deposit insurance coverage.
This information is often not found in an IDIs records and must be obtained from depositors after an IDIs failure.
For example, the FDICs deposit insurance determinations for depositors of IndyMac Bank, F.S.B. IndyMac
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following its failure in 2008 were challenging in part because IndyMac had a large number of trust accounts for which deposit insurance coverage was governed by complex deposit insurance rules.45 FDIC claims personnel contacted more than 10,500 IndyMac depositors to obtain the trust documentation necessary to complete deposit insurance determinations for their revocable trust and irrevocable trust deposits. In some cases, this process took several months. Revision of the deposit insurance coverage rules for trust deposits along the lines proposed would reduce the amount of information that must be provided by trust depositors, as well as the complexity of the FDICs review. This revision should enable the FDIC to complete deposit insurance determinations more rapidly if another IDI with a large number of trust accounts were to fail in the future.
Delays in the payment of deposit insurance can be consequential, as revocable trust deposits in particular are often used by depositors to satisfy their daily financial obligations, and the proposal would help to mitigate those delays.
Several factors contribute to the challenges of making insurance determinations for trust deposits. First, there are three different sets of rules governing deposit insurance coverage for trust deposits. Understanding the coverage for a particular deposit requires a threshold inquiry to determine which set of rules to apply the revocable trust rules, the irrevocable trust rules, or the rules for deposits held by an IDI as trustee of an irrevocable trust. This requires review of the trust agreement to determine the type of trust revocable or irrevocable, and the inquiry may be complicated by innovations in state trust law that are intended to increase the flexibility and utility of trusts. In some cases, this threshold inquiry is also complicated by the provision of the revocable trust rules that allows for continued coverage under those rules where a trust becomes irrevocable upon the grantors death.
The result of an irrevocable trust deposit being insured under the revocable trust rules has proven confusing for both depositors and bankers.
Second, even after determining which set of rules applies to a particular deposit, it may be challenging to apply the rules. For example, the revocable trust rules include unique titling requirements and beneficiary 45 See Crisis and Response: An FDIC History, 20082013 at 197, FN 48, Federal Deposit Insurance Corporation 2017.

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requirements. These rules also provide for two separate calculations to determine insurance coverage, depending in part upon whether there are five or fewer trust beneficiaries or at least six beneficiaries. In addition, for revocable trusts that provide benefits to multiple generations of potential beneficiaries, the FDIC needs to evaluate the trust agreement to determine whether a beneficiary is a primary beneficiary immediately entitled to funds when a grantor dies, contingent beneficiary, or remainder beneficiary.
Only eligible primary beneficiaries and remainder beneficiaries are considered in calculating FDIC deposit insurance coverage. The irrevocable trust rules may require detailed review of trust agreements to determine whether beneficiaries interests are contingent and may also require actuarial or present value calculations.
These types of requirements complicate the determination of insurance coverage for trust deposits, have proven confusing for depositors, and extend the amount of time needed to complete a deposit insurance determination and insurance payment.
Third, the complexity and variety of depositors trust arrangements adds to the difficulty of determining deposit insurance coverage. For example, trust interests are sometimes defined through numerous conditions and formulas, and a careful analysis of these provisions may be necessary in order to calculate deposit insurance coverage under the current rules. Arrangements involving multiple trusts where the same beneficiaries are named by the same grantors in different trusts add to the difficulty of applying the trust rules.
The FDIC believes that simplification of the deposit insurance rules also presents an opportunity to more closely align the coverage provided for different types of trust deposits. For example, the revocable trust rules generally provide for a greater amount of coverage than the irrevocable trust rules. This outcome occurs because contingent interests for irrevocable trusts are aggregated and insured up to the SMDIA rather than being insured up to the SMDIA per beneficiary, while contingencies are not considered and therefore do not limit coverage in the same manner for revocable trusts.
C. Description of Proposed Rule The FDIC is proposing to amend the rules governing deposit insurance coverage for trust deposits. Generally, the proposed amendments would:
Merge the revocable and irrevocable trust categories into one category; apply a simpler, common calculation method
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