By Victoria McGrane
WASHINGTON--Federal Deposit Insurance Corp. officials on Tuesday
will release a proposal to help them better sort through a large,
complex bank's accounts in the event of a sudden failure.
The FDIC plan is aimed at beefing up existing requirements on
the largest banks to set up internal systems to track various
deposit accounts to help determine which depositors deserve to be
made whole. Bank deposits are governed by a complex array of rules
on whether funds are covered by government insurance or not.
FDIC officials said the proposal they are putting out for public
comment would cover 37 U.S. banks and the U.S. units of foreign
banks with a large number of deposit accounts, including banks such
as Wells Fargo & Co., J.P. Morgan Chase & Co., and Bank of
America Corp. FDIC staff proposed applying new requirements to
those banks with more than two million deposit accounts, and are
seeking feedback on whether that is the right threshold.
The proposal seeks to require those banks to improve
record-keeping and upgrade systems to maintain "substantially more
accurate and complete data" on all or a big chunk of deposit
accounts. It would require the banks to be able to calculate at the
end of each day how much each depositor has at the bank in both
insured and uninsured funds, or to do so at least for a large chunk
of accounts. The FDIC also wants the banks to be better able to
provide that data quickly to the FDIC in the case of a failure.
The FDIC Board is scheduled to vote on the proposal Tuesday
morning, putting it out for public comment for roughly three
months.
Under the law, when a bank fails the FDIC must pay insured
depositors "as soon as possible" in order to forestall panic. The
agency typically strives to do so by the next business day. Prior
to the 2008 financial crisis, most bank failures were relatively
small institutions, so FDIC officials had no problem going through
an institution's books and quickly sorting through which deposits
were insured and which were not.
Industry consolidation in the lead up to the 2008 financial
crisis prompted the FDIC to realize handling the failure of a
large, complex bank could be much harder, especially if the failure
were sudden and there was no firm to acquire all of the
deposits.
It completed a rule in the summer of 2008 that required big
banks to put in place new processes to help the FDIC sort through
its accounts. But the huge wave of failures that followed during
the crisis convinced FDIC staff that the biggest banks needed to do
more to help it prepare for the unexpected failure of a large bank,
according to the staff's memo.
"Timely access to insured deposits is critical to maintaining
public confidence in the banking system," FDIC Chairman Martin
Gruenberg said in a prepared statement.
Since the start of 2008, more than 500 banks failed, with a
combined asset value of $696 billion, the FDIC said, including a
handful of very large banks.
Moreover, several other very big banks were spared that fate
only because of extraordinary government assistance or its purchase
by another large bank, a type of rescue many industry observers
believe will be harder to come by in the next crisis.
Write to Victoria McGrane at victoria.mcgrane@wsj.com
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