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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
1. Simplification of Trust Rules
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Reasons Why This Action Is Being Considered As previously discussed, the rules governing deposit insurance coverage for trust deposits have been amended on several occasions, but still frequently cause confusion for depositors. Under the current regulations, there are distinct and separate sets of rules applicable to deposits of revocable trusts and irrevocable trusts. Each set of rules has its own criteria for coverage and methods by which coverage is calculated. Despite the FDICs efforts to simplify the revocable trust rules in 2008,80 over the last 10 years, FDIC
deposit insurance specialists have responded to approximately 20,000
complex insurance inquiries per year on average. More than 50 percent pertain to deposit insurance coverage for trust accounts revocable or irrevocable. The consistently high volume of complex inquiries about trust accounts over an extended period of time suggests continued confusion about insurance limits.
The FDI Act requires the FDIC to pay depositors as soon as possible after a bank failure. However, the insurance determination and subsequent payment for many trust deposits can be delayed while FDIC staff reviews complex trust agreements and apply the rules for determining deposit insurance coverage.
Moreover, in many of these instances, deposit insurance coverage for trust deposits is based upon information that is not maintained in the failed IDIs deposit account records. This requires FDIC staff to work with depositors, trustees, and other parties to obtain trust documentation following an IDIs failure in order to complete deposit insurance determinations. The difficulties associated with this are exacerbated by the substantial growth in the use of formal trusts in recent decades. For example, following the 2008 failure of IndyMac Federal Bank, FSB IndyMac, 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. As noted previously, delays in the payment of deposit insurance could be consequential, as revocable trust deposits in particular can be used by depositors to satisfy their daily financial obligations.
80 See
73 FR 56706 Sep. 30, 2008.

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Policy Objectives As discussed previously, the proposed amendments are intended to provide depositors and bankers with a rule for trust account coverage that is easy to understand, and also to facilitate the prompt payment of deposit insurance in accordance with the FDI
Act. The FDIC believes that accomplishing these objectives also would further the agencys mission in other respects. Specifically, the proposed amendments would promote depositor confidence and further the FDICs mission to maintain stability and promote public confidence in the U.S.
financial system by assisting depositors to more readily and accurately determine their insurance limits. The proposed changes will also facilitate the resolution of failed IDIs in a least costly manner. The proposed amendments could reduce the FDICs reliance on trust documentation which could be difficult to obtain in a timely manner during resolutions of IDI failures and provide greater flexibility to automate deposit insurance determinations, thereby reducing potential delays in the completion of deposit insurance determinations and payments. Finally, in proposing amendments to the trust rules, the FDICs intent is that the changes would generally be neutral with respect to the DIF.
Legal Basis The FDICs deposit insurance categories have been defined through both statute and regulation. Certain categories, such as the government deposit category, have been expressly defined by Congress.81 Other categories, such as joint deposits and corporate deposits, have been based on statutory interpretation and recognized through regulations issued in 12 CFR part 330
pursuant to the FDICs rulemaking authority. In addition to defining the insurance categories, the deposit insurance regulations in part 330
provide the criteria used to determine insurance coverage for deposits in each category. The FDIC proposes to amend 330.10 of its regulations, which currently applies only to revocable trust deposits, to establish a new trust accounts category that would include both revocable and irrevocable trust deposits. For a more detailed discussion of the proposals legal basis please refer to Section I.C entitled Description of Proposed Rule.
The Proposed Rule The FDIC is proposing to amend the rules governing deposit insurance 81 12

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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 to determine insurance coverage for deposits held by revocable and irrevocable trusts; eliminate certain requirements found in the current rules for revocable and irrevocable trusts; and amend certain recordkeeping requirements for trust accounts. For a more detailed discussion of the proposed rule please refer to Section I.C
entitled Description of Proposed Rule.
Small Entities Affected Based on the March 31, 2021 Call Report data, the FDIC insures 4,987
depository institutions,82 of which 3,431 are considered small entities for the purposes of RFA.83 Of the 3,431
small IDIs, 826 have powers granted by a state or national regulatory authority to administer accounts in a fiduciary capacity and 567 exercise those powers, comprising 24.1 percent and 16.5
percent, respectively, of small IDIs.84
However, individuals may establish trust accounts at an IDI even if that IDI
does not itself have or exercise authority to administer accounts in a fiduciary capacity, and in fact, as noted earlier, 99
percent of a sample of failed banks had trust accounts. Therefore, the FDIC
estimates that the proposed rule, if adopted, could affect between 567 and 3,431 small, FDIC-insured institutions.
As noted in the Aggregation subsection of Section I.C Description of Proposed Rule, the FDIC does not have detailed data on depositors trust arrangements for trust accounts held at small FDIC-insured institutions.
Therefore, it is difficult to accurately estimate the number of small IDIs that would be potentially affected by the proposed rule. However, the FDIC
believes that the number of small IDIs that will be directly affected by the proposal is likely to be small, given that in the agencys resolution experience only a small number of trust accounts have balances above the proposed coverage limit of $1,250,000 per grantor, per IDI for trust deposits. For example, data obtained from a sample of 249 IDIs that failed between 2010 and 2020 show that only 100 depositors out of 250,139
or 0.04 percent had trust account balances greater than $1.25 million; at small IDIs, 18 out of 34,304 depositors or 0.05 percent had trust account 82 The count of institutions includes FDICinsured U.S. branches of institutions headquartered in foreign countries.
83 FDIC Call Report data, March 31, 2021.
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