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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
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proposed rule would eliminate the need to consider the specific allocation of interests among the beneficiaries of revocable trusts with six or more beneficiaries, as well as contingencies established in irrevocable trusts. The merger of the categories also would eliminate the need for current 330.10h and i, which allows for the continued application of the revocable trust rules to the account of a revocable trust that becomes irrevocable due to the death of the trusts owner. As previously discussed, these provisions of the current trust rules have proven confusing as illustrated by the numerous inquiries that are consistently submitted to the FDIC on these topics.
FDIC-insured depository institutions will incur some regulatory costs associated with making necessary changes to internal processes and systems and bank personnel training in order to accommodate the proposed rules definition of trust accounts and attendant deposit insurance coverage terms, if adopted. There also may be some initial cost for institutions to become familiar with the proposed changes to the trust insurance coverage rules in order to be able to explain them to potential trust customers, counterbalanced to some extent by the fact that the proposed rules should be simpler for institutions to understand and explain going forward. As the business impacts and costs associated with operationalizing the proposed changes to the trust rules may vary significantly across IDIs, the FDIC
would welcome industry comments in this regard.
Prompt Payment of Deposit Insurance The FDIC also expects that simplification of the trust rules would promote the timely payment of deposit insurance in the event of an IDIs failure. The FDICs experience has been that the current trust rules often require detailed, time-consuming, and resourceintensive 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 the IDIs failure. The proposed rule would ameliorate the operational challenge of calculating deposit insurance coverage, which could be particularly acute in the case of a failure of a large IDI with a large number of trust accounts. The proposed rule would streamline the review of trust documents required to make a deposit insurance determination, promoting more prompt payment of deposit insurance. Timely payment of deposit insurance also can
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help to facilitate the transfer of depositor relationships to a failed banks acquirer, potentially expand resolution options, potentially reduce the FDICs resolution costs, and support greater confidence in the banking system.
Deposit Insurance Fund Impact As discussed above, the proposed rule is expected to have mixed effects on the level of insurance coverage provided for trust deposits. Coverage for some irrevocable trust deposits would be expected to increase, but in the FDICs experience, irrevocable trust deposits are not nearly as common as revocable trust deposits. The level of coverage for some trust deposits would be expected to decrease due to the proposed rules simplified calculation of coverage and its aggregation of revocable and irrevocable trust deposits. As noted above, the FDIC does not have detailed data on depositors trust arrangements to allow it to precisely project the quantitative effects of the proposed rule on deposit insurance coverage.
Indirect Effects A change in the level of deposit insurance coverage does not necessarily result in a direct economic impact, as deposit insurance is only paid to depositors in the event of an IDIs failure. However, changes in deposit insurance coverage may prompt depositors to take actions with respect to their deposits. In response to changes in the level of coverage under the proposed rules, trust depositors could maximize coverage relative to the coverage under the current rule by transferring some of their trust deposits to other types of accounts that provide similar or higher amounts of coverage or by amending the terms of their trusts.
Parties affected could include IDIs, depositors, and other firms in the financial services marketplace e.g., deposit brokers. Any costs borne by the depositor in moving a portion of the funds to a different IDI to stay under the insurance limit would be accompanied by benefits, such as more prompt deposit insurance determinations, and quicker access to insured deposits for depositors during the resolution process. The FDIC cannot estimate these effects because it does not have information on the individual costs of each action that confronts each depositor, their ability to amend their trust structure or move funds, and their subjective risk preference with respect to holding insured and uninsured deposits.

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Part 370 Covered Institutions As discussed previously, institutions covered by part 370 must maintain deposit account records and systems capable of applying the deposit insurance rules in an automated manner. The proposed rule would change certain aspects of how coverage is determined for trust deposits. This could require covered institutions to reprogram certain systems to ensure that they continue to be capable of applying the deposit insurance rules as part 370
requires. A covered institution is not considered to be in violation of part 370
as a result of a change in law that alters the availability or calculation of deposit insurance for such period as specified by the FDIC following the effective date of such change.76
The FDIC expects that the proposed rule would make the deposit insurance status of a trust account generally clearer. Moreover, since part 370
requires covered institutions to develop and maintain the capacity to calculate deposit insurance for its deposits, the proposed rule could make compliance with part 370 relatively less burdensome. This is because the underlying rules that would be applied to most trust deposits would be simplified. In particular, the proposed rule would require the aggregation of revocable and irrevocable trust deposits, categories that are currently separated for purposes of part 370s recordkeeping provisions. The FDIC does not expect that the proposed rule would require significant changes with respect to covered institutions treatment of informal revocable trust deposits.
Moreover, many deposits of formal revocable trusts and irrevocable trusts currently fall within the scope of part 370s alternative recordkeeping provisions, meaning that covered institutions are not required to maintain all of the records necessary to calculate the maximum amount of deposit insurance coverage available for these deposits. These factors may diminish the impact of the proposed rule on the part 370 covered institutions, but the FDIC does not have sufficient information on covered institutions systems and records to quantify this.
Although the FDIC does not have sufficient information to determine the time that might be required to reprogram systems, it believes that a two-year period of time may be reasonable. The FDIC requests comment on this proposal, including any information that commenters may be able to provide to support their views 76 See
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