United States: Structured Thoughts: Volume 7, Issue 4 - March 31, 2016

FDIC Proposals Could Alter Recordkeeping Requirements For Issuers And Distributors Of Brokered CDs

In February 2016, the FDIC released proposed rules that were designed to facilitate the payment of insured deposits when large insured banks fail. The proposal would require insured banks with two million or more deposit accounts to maintain complete data on each depositor's ownership interest by right and capacity for all of its deposit accounts. These banks would also be required to develop the capability to calculate the insured and uninsured amounts for each deposit owner; the FDIC would use this data to make deposit insurance determinations in the event of a failure.

In this article, we discuss how these proposed rules would change the current allocation of responsibility for record keeping between issuers and distributors of brokered CDs. The full proposal may be found at the following link:


The Proposed Rule, in a Nutshell

The proposed rule, 12 C.F.R. 370, would apply to banks with two million or more deposit accounts ("covered institutions"). Each such bank would be required to:

  • collect the information needed to allow the FDIC to determine promptly the deposit insurance coverage for each owner of funds on deposit at the covered institution; and
  • ensure that its IT system is capable of calculating the deposit insurance available to each owner of funds on deposit in accordance with the FDIC's deposit insurance rules set forth in 12 C.F.R. 330.

The bank's IT systems would need to facilitate the FDIC's deposit insurance determination by calculating deposit insurance coverage for each deposit account and adjusting account balances within 24 hours after the appointment of the FDIC as receiver.

A covered institution could apply for:

  • an extension of the implementation deadlines;
  • an exception from the information collection requirements for certain deposit accounts under certain limited circumstances;
  • an exemption from the proposed rule's requirements if all the deposits it takes are fully insured; or
  • a release from all of the new requirements when it no longer meets the definition of a "covered institution.

(We discuss several of these exceptions, including their potential application to brokered deposits, in more detail below.)

Covered institutions would be required to certify compliance on an annual basis. A failure to satisfy the rules' requirements would result in enforcement action under the FDI Act.

Purpose of the Proposals

The FDIC is concerned that the size and complexity of large banks justify imposing more specific data requirements, so that the FDIC can make prompt deposit insurance determinations in the event of a failure. Larger banks often use multiple deposit systems, which may complicate the FDIC's deposit insurance determination. Obtaining the necessary information could significantly delay the availability of funds when information is incomplete for millions of accounts.

Additionally, the FDIC believes that larger banks rely on credit-sensitive funding more than smaller banks, which makes the larger banks more likely to suffer a liquidity-induced failure. This could increase the risk that the FDIC would have less time to prepare for administering deposit claims as part of a resolution. In addition, to establish a bridge depository institution, which is the likely resolution strategy for large institutions, the FDIC must generally have the ability to determine rapidly the amount of insured and uninsured deposits that are held by the predecessor failed bank.

Current Rules and Practice

In July 2008, the FDIC enacted its Rule 12 C.F.R. 360.9, which applies to certain large banks. These banks must be able to provide the FDIC with standard deposit account information, which can be used if the bank fails. The rule sets forth the structure for the data files that these banks must provide to the FDIC. However, banks are permitted to populate the data fields by using only preexisting data elements. If the bank does not maintain the information to complete a particular data field, then a null value can be used in that field. As a result of this approach, banks' standard data files can be incomplete. Accordingly, the FDIC believes that if a large bank failed, additional measures would be needed to ensure the prompt and accurate payment of deposit insurance to the relevant depositors.

In the area of brokered deposits, current FDIC rules allow the relevant account identification information to be maintained off-site in the records of the applicable deposit broker or other agent. In the event of a failure, these intermediaries would submit the required depositor information to the FDIC in a standard format within a certain time frame. The FDIC's claims agents would then review the depositor information provided and make a deposit insurance determination. (The FDIC views this process as labor-intensive and will generally require depositors' access to these funds to be temporarily restricted.)

Accordingly, under the present legal regime, deposit brokers maintain the necessary information about the identity of the depositors. The relevant agreements between the issuer and the brokers (or the agreements between the brokers and any "sub-distributors") set forth this requirement. In the case of brokered CDs, the issuer will rarely know the identity of the relevant account holders or the amount that they have on deposit.

Potential Impact of the New Rules

If the proposed rules are adopted in their present form, access to account information will change significantly. Issuing banks will need to obtain this information from their brokers, in the format required under the rules. Any sub-distributors used by the brokers will need to furnish this information up the distribution chain, so that it can reach the issuing bank.

Historically, many distributors of brokered CDs have been reluctant to share purchaser information with other brokerdealers and banks. For example, sharing this information could provide valuable competitive information to other market participants. If the new rules become effective as proposed, brokers would be likely to agree to share this information with other brokers and banks only under an agreement that limits its use to the purposes of the rules and restricts access to the information from bank personnel who might use it in order to seek new customers for their own products.

Available Exemptions?

The proposed rules set forth a number of potential exceptions. However, these exceptions may not be viable alternatives for many or most brokered deposits.

Deposits of Less than the Maximum Insured Deposit Amount. Proposed Section 370.4(a) would permit banks to apply for an exemption if they can demonstrate that they will not take deposits from account holders which, when aggregated, would exceed $250,000 (or any future maximum insured deposit limitation). This exemption will likely not be available in the case of brokered deposits, as the relevant brokers cannot necessarily control (or know about) how much a particular investor may have on account with a particular bank through multiple accounts (or multiple deposit brokers). Moreover, in the case of structured CDs, some investors are sufficiently attracted to a particular instrument that they may seek to invest an amount that causes their total deposits to exceed the maximum.

Legal Restriction. Proposed Section 370.4(c)(1)(ii) would permit an exception to be made if the bank provides a reasoned legal opinion that the relevant information is protected from disclosure under applicable law. This provision is not expected to apply to most brokered deposits.

Frequent Changes. Proposed Section 370.4(c)(1)(iii) would permit an exception to be made if the bank can demonstrate that the information required to be disclosed "changes frequently and updating the information on a continual basis is neither cost effective nor technologically practicable." To the extent that most brokered CDs do not change hands frequently, this may not be an appropriate basis for claiming an exception.

Refusal to Provide Information. Proposed Section 370.4(c)(1)(ii) would permit an exception to be made if the bank has requested the information from the account holder and certifies that the account holder has refused to provide the information or has not responded. This exemption seems particularly relevant to brokered CDs, where one dealer refuses to provide information about its customers to other distributors or to the issuing bank. In fact, in the proposal, the FDIC indicated that a community bank might be able to apply for this exception, due to the relevant competitive concerns. That being said, under the proposal, the FDIC's grant of an application for an exception may or may not be granted, and it may be subject to conditions imposed by the FDIC. It remains to be seen whether an exception would be granted in a situation where the bank or a distributor wishes to continue to offer brokered CDs through a broker that refuses to provide this information, whether due to potential competition or other concerns.


The FDIC is soliciting comments from the industry and the general public about the proposal. Comments are due in May 2016.

Accounting Standards Update 2016-06: Contingent Call And Put Options In Debt Instruments

In March 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update, ASU 2016-06 (the "Update"),1 to provide new guidelines on how to account for certain call and put options that can accelerate the repayment of principal on a debt instrument. In particular, the Update clarifies how companies should make the "clearly and closely related" determination under ASC Topic 815 "Derivatives and Hedging," in an effort to reconcile the current diversity in accounting practice. The Update also helps ease the reporting burden on banks and other companies that hold these types of instruments by decreasing the likelihood that a contingent option will require the complex treatment of bifurcation under generally accepted accounting principles (GAAP).

Divergent Approaches in Practice

Under ASC Topic 815, embedded derivatives are to be accounted for separately from their host contracts if the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract. For contingent call and put options (the "embedded derivative") in debt instruments (the "host contract"), ASC Topic 815 states that the clearly and closely related criteria is met if the event that triggers the ability to exercise the option is indexed only to interest rates or credit risk. This guidance lent itself to multiple interpretations, and further guidance put forth by the FASB's former Derivatives and Implementation Group (the "DIG") led to the development of two divergent approaches, one which relied solely on the DIG's guidance and another that combined the DIG's guidance in addition to a separate assessment of whether the triggering event is indexed only to interest rates or credit risk. These two approaches permitted different conclusions about whether a contingent call or put option was clearly and closely related to its debt instrument host and, thus, resulted in different conclusions about whether the options should be bifurcated and accounted for separately as derivatives under GAAP.

FASB Solution

In issuing this Update, the FASB endorses the first approach of utilizing only the four-step analysis put forth by the DIG to determine whether a contingent call or put option meets the "clearly and closely related" test. The DIG's four-step analysis requires an entity to consider whether (a) the payoff is adjusted on the basis of changes in an index, (b) the payoff is based on an underlying index that is something other than interest rates or credit risk, (c) the debt involves a substantial premium or discount, and (d) the call or put option is contingently exercisable. An assessment of whether the event that triggers the ability to exercise a call or put option is related to interest rates or credit risk is not required. According to a comment letter by the American Bankers Association and the Clearing House Association2, this approach should decrease the number of contingent options that require bifurcation under ASC Topic 815. The process of bifurcation, or accounting for such options separately from the underlying debt instrument, can be complex. Therefore, by requiring fewer options to be bifurcated, this Update is expected to ease accounting and reporting requirements for holders of these debt instruments.

Scope and Date of Effectiveness

The Update will be effective for public company financial statements with fiscal years beginning after December 15, 2016, as well as interim periods within those fiscal years. For non-public companies, the Update is effective for fiscal years beginning after December 15, 2017, as well as interim periods within fiscal years beginning after December 15, 2018. Early application is permitted, including adoption during an interim period. The Update should be applied on a modified retrospective basis to existing debt instruments; if adoption takes place in an interim period, any adjustment should be reflected as of the beginning of that fiscal year.

To continue reading this newsletter, please click here


1 ASU 2016-06 is available at: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167971876&acceptedDisclaimer=true.

2 The comment letter is available at: http://www.aba.com/Advocacy/commentletters/Documents/ABA-TCH-Comments-Contingent-Put-Call-102015.pdf.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Anna Pinedo
Bradley Berman
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.