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BNY Mellon to Exit the FDIC's Transaction Account Guarantee Program


BNY Mellon intends to opt out of the six-month extension of the Transaction Account Guarantee Program (TAGP), which guarantees full insurance coverage from the FDIC on non interest-bearing transactional accounts greater than $250,000. Participation in the current program will continue through December 31, 2009.

This decision reflects the company's strong financial position. We have repaid our TARP funding and ended the third quarter of 2009 with capital ratios — including tier 1, tier 1 common and tangible common equity — stronger than the same period a year ago.


Background and General FAQs for Current FDIC Program

 


BACKGROUND

The Emergency Economic Stabilization Act enacted in early October temporarily raised the basic limit on FDIC coverage from $100,000 to $250,000 per depositor, and in mid-October the FDIC announced the Temporary Liquidity Guarantee Program (TLGP or Program) that is designed to strengthen confidence and encourage liquidity in the banking system. All eligible entities (including certain affiliated legal entities of BNY Mellon) are covered under the TLGP unless an institution opts out by December 5, 2008 (the opt-out date has been extended from November 12, 2008) . The TLGP consists of two components — a temporary guarantee of senior unsecured debt (Debt Guarantee Program) and a temporary unlimited guarantee of funds in non-interest bearing transaction accounts at FDIC-insured institutions (Transaction Account Guarantee Program or TAG Program). The unlimited guarantee on non-interest bearing transaction accounts will continue through December 31, 2009 (assuming that an institution does not opt out of the TAG Program).

Given the details of the TAG Program currently communicated to the banking industry by the FDIC, Bank of New York Mellon has decided to participate in the TAG Program, thereby providing customers with the deposit guarantee established by the TLGP beyond November 12, 2008 (coverage for the first 30 days of the TLGP was automatically provided to Eligible Institutions until November 12, 2008) . Once details and outstanding issues regarding the TLGP have been addressed by the FDIC, Bank of New York Mellon will make a participation decision and notify appropriate parties.

Deposits Eligible for the TAG Program

All funds held in non-interest-bearing transaction accounts held in domestic offices are insured in full by the FDIC. A "non-interest-bearing transaction account" is defined as a transaction account to which interest is neither accrued nor paid and on which the bank does not reserve the right to require advance notice of an intended withdrawal. (This guarantee includes demand deposit accounts, as well as balances swept from a non-interest bearing transaction account into a non-interest bearing savings account in the sub-account sweep process.)

Deposits Not Eligible for the TAG Program

This Program does not cover interest-bearing transaction accounts or negotiable order of withdrawal (NOW) accounts, money market deposit (MMDA) accounts, or other non-transaction accounts. If the funds are swept from a non-interest bearing account into an interest-bearing account, neither account will be included in the Program. Deposits payable solely outside the United States are not guaranteed by the TAG Program.


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MAIN FACTS


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GENERAL FAQs

The following general Q&As should help you with any questions regarding the temporary unlimited guarantee of funds in non-interest bearing transaction accounts associated with the TAG Program of the TLGP and also provide information regarding coverage under the Debt Guarantee Program.

In addition, the press release announcing TLGP, along with links to related resource material, can be found at either of these links:

 

  1. What types of accounts are covered under the TAG Program component of the TLGP?

    Under the TLGP, non-interest-bearing transaction deposit accounts receive unlimited coverage.
  2. What deposit accounts are included in the definition of a "non-interest-bearing transaction account"?

    All funds in non-interest-bearing transaction deposit accounts held in domestic offices of participating FDIC-insured institutions will be fully guaranteed under the TAG component of the Program. A "non-interest-bearing transaction account" is defined as a transaction account with respect to which interest is neither accrued nor paid and on which the insured depository institution does not reserve the right to require advance notice of an intended withdrawal. This definition encompasses traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time. This definition, however, does not encompass negotiable order of withdrawal (NOW) accounts or money market deposit accounts (MMDAs).
  3. How long will the TLGP's deposit coverage last?

    The coverage will last through December 31, 2009.
  4. Can an eligible institution change its mind about participating in the TLGP?

    No. While an institution can choose to participate in one or both components of the TLGP (or choose not to participate at all), the decision to participate is irrevocable once it is made.
  5. Can some, but not all, eligible affiliates of BNY Mellon decide to participate in the TLGP?

    No. The decision whether or not to participate is made at the holding company level and binds all eligible affiliates under the holding company structure.
  6. Are foreign deposits (including Eurodollars) guaranteed?

    Deposits payable solely outside the United States (including Eurodollar deposits) are not guaranteed under the TAG component of the TLGP. However, deposits at an international banking facility of an insured depository institution standing to the credit of a bank (owed to a bank) and Eurodollar deposits standing to the credit of a bank (owed to a bank) are eligible under the Debt Guarantee Program. (In this context, the term "bank" means a depository institution regulated by a U.S. or foreign bank supervisory agency.)
  7. How does the guarantee on non-interest-bearing transaction deposit accounts affect a customer's insurance coverage for other types of accounts?

    The insurance coverage on non-interest-bearing transaction deposit accounts is over and above the $250,000 in coverage provided to a customer already. For example, if a customer has $500,000 in a non-interest-bearing transaction deposit account and $250,000 in a certificate of deposit, the FDIC would fully insure the entire $750,000.
  8. Does the full deposit insurance coverage for non-interest bearing deposit transaction accounts cover all such accounts in the bank regardless of ownership? Does it include municipal or government deposits?

    Yes, coverage for non-interest bearing transaction accounts covers all accounts in the bank regardless of ownership, including municipal and government deposits.
  9. Are accounts that waive fees or provide fee reducing credits eligible to be considered "non-interest bearing" under the TLGP?

    Yes. Such account features do not prevent an account from qualifying under the Transaction Account Guarantee Program as a non-interest-bearing transaction account, as long as the account otherwise satisfies the definition.
  10. Will funds swept out of a non-interest-bearing transaction account be insured under the transaction account component of the Program?

    The FDIC will treat funds in sweep accounts in accordance with the usual rules and procedures for determining sweep balances at a failed depository institution. Under these procedures, funds may be swept or transferred from a non-interest-bearing transaction account to another type of deposit or nondeposit account. The FDIC will treat the funds as being in the account to which the funds were transferred.

    An exception will exist, however, for funds swept from a non-interest-bearing transaction account to a non-interest-bearing savings account (sub account sweep process). Such swept funds will be treated as being in a non-interest-bearing transaction account. As a result of this treatment, such swept funds will be insured under the TAG component of the TLGP.

    The treatment of funds swept from a non-interest-bearing transaction account out of an insured institution, such as a sweep to a mutual fund (that is, the wiring of funds from the deposit account to an account maintained by the mutual fund at another insured depository institution), will be treated differently. Under the FDIC's interim rule published in July 2008, external sweeps would not be considered by the FDIC to be complete in the event the insured depository institution fails. Thus, these funds would be insured under the TAG component of the Program.
  11. What is the coverage level for Eurodollar sweeps?

    The funds in Eurodollar accounts after the completion of a sweep are not covered by the FDIC's general deposit insurance regulations or the TAG component of the TLGP. Rather, the customer will be treated as a general unsecured creditor. (Eurodollar accounts — except for Eurodollar accounts that stand to the credit of a bank — also do not qualify as senior unsecured debt and, thus, will not be guaranteed under the Debt Guarantee Program).
  12. What is the coverage level for repurchase sweeps?

    In July 2008 the FDIC issued an Interim Rule establishing the FDIC's practices for determining deposit and other liability account balances at a failed depositary institution. Under the Interim Rule, the FDIC will recognize the customer's ownership interest in securities to the extent that a repo sweep customer is the legal owner of identified securities subject to the repurchase agreement. If the customer is not the legal owner of identified securities, the customer's rights will depend upon the nature of the customer's account. Assuming that the account is a non-interest-bearing transaction deposit account, the customer's funds will be fully protected under the TAG component of the Program.
  13. What is the coverage level for uncompleted external sweeps?

    Sweeps from an account of an insured institution to another institution, such as a sweep to a mutual fund, will not be considered as completed by the FDIC in the event an insured depository institution fails. As such, the result will depend upon whether the customer's deposit account is an interest-bearing account as opposed to a non-interest bearing transaction account. Assuming that the deposit account is a non-interest bearing transaction account, the customer's funds will be fully protected under the TAG component of the TLGP.
  14. Are cashier's checks and money orders covered under the TAG component of the TLGP?

    Cashier's checks and money orders issued by an insured depository institution are "deposits" as defined in the Federal Deposit Insurance Act. In addition, these instruments are "demand deposits" and therefore "transaction accounts" as defined in Regulation D. Being "deposits" as well as "transaction accounts," these funds will be protected in full under the TAG component of the Program.
  15. How will a depositor know if a transaction account is fully guaranteed under the TAG component of the TLGP?

    The FDIC will maintain and will post on its website a list of those institutions that have opted out of the TAG component of the TLGP. Beginning December 19, 2008, every insured depository institution must post a prominent notice in the lobby of its main office and each deposit-taking branch clearly indicating whether the institution is participating or not participating in the TAG component of the Program. If the institution is participating in the TAG component of the Program, the notice must also state that funds held in non-interest-bearing transaction accounts at the entity are insured in full by the FDIC. These disclosures must be provided in simple, readily understandable text. If the institution uses sweep arrangements or takes other actions that result in funds being transferred or reclassified to an interest-bearing account or non-transaction account, the institution must disclose those actions to the affected customers and clearly advise them, in writing, that such actions will void the FDIC's guarantee. Until December 19, 2008, firms are expected to provide in a commercially reasonable manner adequate disclosures of the substance of these required disclosures.
  16. How will an investor know that a debt instrument is guaranteed under the Debt Guarantee Program?

    The FDIC will maintain and will post on its website a list of those eligible entities that have opted out of the debt guarantee component of the Program. Beginning December 19, 2008, if an eligible entity does not opt out of the Debt Guarantee Program, it must clearly identify, in writing and in a commercially reasonable manner, to any interested lender or creditor whether the newly issued debt it is offering is guaranteed or not. Until December 19, 2008, the institution should provide in a commercially reasonable manner adequate disclosures of the substance of these required disclosures.
  17. Are escrow accounts covered under the TLGP? What is the amount of coverage on the title company's account at the bank if a depository institution opts out?

    Escrow accounts are fully covered under the TLGP if they are non-interest-bearing transaction deposit accounts. If a bank opts out of the TAG component of the Program, coverage of a title company's account would be $250,000, unless the account meets the requirements for pass through coverage. To receive pass-through coverage:
    1. the deposit account records generally must indicate the account's custodial or fiduciary nature; and
    2. the details of the relationship and the interests of other parties in the account must be ascertainable from the deposit account records or from records maintained in good faith and in the regular course of business by the depositor or by some person or entity that maintains such records for the depositor.
    In its deposit insurance coverage regulations, the FDIC has indicated that an account held by an escrow agent or title company may by its terms indicate the existence of a fiduciary relationship. If the account receives pass-through coverage, then each owner of funds in the account is insured for his or her share in the account up to $250,000 including any other funds held by or for the owner at the same insured institution.
  18. What are the results for different types of sweeps?

    The funds in Eurodollar accounts after the completion of a sweep will not be protected for any amount under the FDIC's general deposit insurance regulations or TAG component of the TLGP. Rather, the customer will be treated as a general unsecured creditor. (Eurodollar accounts — other than Eurodollar accounts that stand to the credit of a bank — also do not qualify as senior unsecured debt and, thus, will not be guaranteed under the Debt Guarantee Program). In the case of a repurchase sweep, see Question #12.


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