This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

5797 

Vol. 74, No. 20 

Monday, February 2, 2009 

1A deposit account transaction, such as deposits, 

withdrawals, transfers and payments, causes funds 

to be debited from or credited to the account. 

2Some depository institutions operate ‘‘realtime’’ deposit systems in which some deposit 

account transactions are posted throughout the 

business day. Most depository institutions, 

however, process at least some deposit account 

transactions in a ‘‘batch mode,’’ where deposit 

account transactions presented before the cutoff 

time are posted that evening or in the early morning 

hours of the following day. With either system— 

batch or real-time—the institution calculates a 

close-of-business deposit balance for each deposit 

account on each business day. 

NUCLEAR REGULATORY 

COMMISSION 

10 CFR Chapter I 

[NRC–2006–0011] 

RIN 3150–AH84 

Notification of Impending Waiver 

Termination 

AGENCY: Nuclear Regulatory 

Commission. 

ACTION: Notice of impending waiver 

termination. 

SUMMARY: Section 651(e) of the Energy 

Policy Act of 2005 (EPAct) authorized 

the U.S. Nuclear Regulatory 

Commission (Commission or NRC) to 

issue a time-limited waiver (70 FR 

51581; August 31, 2005) to allow 

continued use and possession of 

naturally-occurring and acceleratorproduced radioactive materials (NARM) 

while the Commission developed a 

regulatory framework for regulation of 

the new byproduct material. The 

Commission has begun terminating the 

time-limited waiver in phases in 

accordance to the provisions of the 

‘‘Plan for the Transition of Regulatory 

Authority Resulting from the Expanded 

Definition of Byproduct Material’’ 

(transition plan) issued by the 

Commission on October 19, 2007 (72 FR 

59157). The first phase of waiver 

terminations occurred on November 30, 

2007 (72 FR 68043), and the second 

phase occurred on September 30, 2008 

(73 FR 14376). 

This document provides advance 

notification that on August 7, 2009, the 

Commission will terminate the timelimited waivers for all remaining nonAgreement States and Canadian licenses 

that are under NRC jurisdiction. 

Alaska, Connecticut, Hawaii, 

Michigan, New Jersey, and Virginia. 

As provided in the transition plan, for 

existing NRC licensees, NARM use 

amendments are required within 6 

months from the date of waiver 

termination. For NARM users in nonAgreement States and Canadian 

licensees without a NRC license, the 

license applications are required within 

12 months from the date waiver 

termination. 

FOR FURTHER INFORMATION CONTACT: 

Shirley Xu, Office of Federal and State 

Materials and Environmental 

Management Programs, U.S. Nuclear 

Regulatory Commission, Washington, 

DC 20555–0001, telephone (301) 415– 

7640 or e-mail Shirley.xu@nrc.gov. 

Dated at Rockville, Maryland, this 26th day 

of January 2009. 

For the Nuclear Regulatory Commission. 

Annette L. Vietti-Cook, 

Secretary of the Commission. 

[FR Doc. E9–2179 Filed 1–30–09; 8:45 am] 

BILLING CODE 7590–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 360 

RIN 3064–AD26 

Processing of Deposit Accounts in the 

Event of an Insured Depository 

Institution Failure 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Final rule. 

SUMMARY: The FDIC is adopting a final 

rule establishing the FDIC’s practices for 

determining deposit and other liability 

account balances at a failed insured 

depository institution. Except as noted, 

the FDIC practices defined in the final 

rule represent a continuation of longstanding FDIC procedures in processing 

such balances at a failed depository 

institution. The final rule also imposes 

certain disclosure requirements in 

connection with sweep accounts. The 

final rule replaces the FDIC’s interim 

rule on this subject and applies to all 

insured depository institutions. 

DATES: Effective Dates: The final rule is 

effective March 4, 2009. 

FOR FURTHER INFORMATION CONTACT: 

James Marino, Project Manager, Division 

of Resolutions and Receiverships, (202) 

898–7151 or jmarino@fdic.gov; or 

Joseph A. DiNuzzo, Counsel, Legal 

Division, (202) 898–7349 or 

jdinuzzo@fdic.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Upon the failure of an FDIC-insured 

depository institution, the FDIC must 

determine the total insured amount for 

each depositor. 12 U.S.C. 1821(f). To 

make this determination, the FDIC must 

ascertain the balances of all deposit 

accounts owned by the same depositor 

in the same ownership capacity at a 

failed institution as of the day of failure. 

A deposit account balance can be 

affected by transactions 1 presented 

during the day. A customer, a third 

party or the depository institution can 

initiate a deposit account transaction. 

All depository institutions process and 

post these deposit account transactions 

according to a predetermined set of 

rules to determine whether to include a 

deposit account transaction either in 

that day’s end-of-day ledger balances or 

in a subsequent day’s balances. These 

rules establish cutoff times that vary by 

institution and by type of deposit 

account transaction—for example, check 

clearing, Fedwire, ATM, and teller 

transactions. Institutions post 

transactions initiated before the 

respective cutoff time as part of that 

day’s business and generally post 

transactions initiated after the cutoff 

time the following business day. 

Further, institutions automatically 

execute prearranged ‘‘sweep’’ 

instructions affecting deposit and other 

liability balances at various points 

throughout the day. The cutoff rules for 

posting deposit account transactions 

and the prearranged automated 

instructions define the end-of-day 

balance for each deposit account on any 

given business day.2

In the past, the FDIC usually took over 

an institution as receiver after it had 

closed on a Friday. For institutions with 


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5798 Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 

3 73 FR 41170 (July 17, 2008). 

4 73 FR 41180 (July 17, 2008). 

5Throughout this preamble the terms ‘‘deposit’’ 

(or ‘‘domestic deposit’’), ‘‘foreign deposit’’ and 

‘‘international banking facility deposit’’ identify 

liabilities having different meanings for deposit 

insurance purposes. A ‘‘deposit’’ is used as defined 

in section 3(l) of the Federal Deposit Insurance Act 

(12 U.S.C. 1813(l)) (‘‘Section 3(l)’’). A deposit 

includes only deposit liabilities payable in the 

United States, typically those deposits maintained 

in a domestic office of an insured depository 

institution. Only deposits meeting these criteria are 

eligible for insurance coverage. Insured depository 

institutions may maintain deposit liabilities in a 

foreign branch (‘‘foreign deposits’’), but these 

liabilities are not deposits in the statutory sense (for 

insurance or depositor preference purposes) for the 

time that they are payable solely at a foreign branch 

or branches. Insured depository institutions also 

may maintain liabilities in an international banking 

facility (‘‘IBF’’). An ‘‘international banking facility 

deposit,’’ as defined by the Board of Governors of 

the Federal Reserve System in Regulation D (12 CFR 

204.8(a)(2)), also is excluded from the definition of 

‘‘deposit’’ in Section 3(l) and the depositor 

preference statute (12 U.S.C. 1821(d)(11)). 

a few branches in one state, deposit 

account transactions for the day were 

completed and determining account 

balances on that day was relatively 

straightforward. The growth of interstate 

banking and branching over the past 

two decades and the increasing 

complexity of bank products and 

practices (such as sweep accounts) has 

made the determination of end-of-day 

account balances on the day of closing 

much more complicated. 

In July 2008, the FDIC issued an 

interim rule on the ‘‘Processing of 

Deposit Accounts in the Event of an 

Insured Depository Institution Failure’’ 

(‘‘interim rule’’).3 Generally, the interim 

rule established practices for 

determining deposit and other liability 

account balances at a failed insured 

depository institution. Concurrent with 

the adoption of the interim rule, the 

FDIC issued a related final rule 

requiring the largest insured depository 

institutions to adopt mechanisms that 

would, in the event of the institution’s 

failure: Provide the FDIC with standard 

deposit account and other customer 

information; and allow the FDIC, as 

receiver, to place and release holds on 

liability accounts, including deposits 

(‘‘Large Bank Modernization Rule’’).4

The comment period on the interim 

rule ended on September 15, 2008. We 

received four comments on the interim 

rule. The comments are summarized 

below and may be viewed in their 

entirety on the FDIC’s Web site at 

http://www.fdic.gov/regulations/laws/ 

federal/2008/08comAD26.html.5

II. Summary of the Interim Rule 

Since the final rule is essentially the 

same as the interim rule, the details of 

the interim rule are provided below in 

the discussion of the final rule. In 

summary, the interim rule: (1) 

Articulated general principles 

underlying the FDIC’s existing and 

future practices and procedures for 

determining account balances in the 

event of an insured depository 

institution failure; (2) identified and 

defined the end-of-day ledger balance of 

the deposit or other liability account as 

the account balance the FDIC will use 

to make deposit insurance 

determinations in institution failures; 

(3) provided that, in an institution 

failure, the FDIC will use cutoff rules 

previously applied by the institution in 

establishing the end-of-day ledger 

balances for deposit insurance 

determination purposes, but noted the 

possibility that, if necessary, the FDIC 

might establish an FDIC Cutoff Point 

coinciding with the point at which the 

FDIC, as receiver, acts to stop deposit 

transactions which might result in 

creating new liabilities or extinguishing 

existing liabilities; (4) indicated how 

uncollected deposited checks and swept 

funds will be treated, for deposit 

insurance purposes, at failed 

institutions; and (5) imposed 

requirements, effective July 1, 2009, that 

insured depository institutions inform 

their sweep account customers of the 

nature of their swept funds and how 

those funds would be treated if the 

institution should fail. 

III. Comments on the Interim Rule 

As noted, the FDIC received four 

comments on the interim rule. Three of 

the comments were from banking 

industry trade associations and one was 

from a large commercial bank. The 

comments addressed the FDIC Cutoff 

Point, the treatment of swept funds and 

sweep account disclosures. 

FDIC Cutoff Point 

Two industry trade association 

commenters expressed concern over the 

establishment and use of the FDIC 

Cutoff Point. One suggested an FDIC 

Cutoff Point should be rarely used 

‘‘because it would create uncertainty 

and inconsistency in how accounts are 

handled in a bank failure. Each 

institution has different cutoff times 

depending on the type of transaction as 

well as geographic location. The 

associations instead support the 

proposed general approach for 

determining deposit account balances 

based on the closing ledger balances 

after the normal processes of the failed 

bank are completed for the day.’’ The 

other trade association noted ‘‘its 

concern that establishing a single cut-off 

time is problematic for financial 

institutions. From a technological 

standpoint, most operational systems at 

large banks are not capable of changing 

the current cutoff time limitations when 

immediately directed by the FDIC. 

Additionally, an arbitrary cutoff time 

may theoretically precede normal 

business days or intraday transfers by 

customers, particularly in reference to 

those accounts at international banks. 

Therefore, we once again recommend 

that the FDIC utilize the established 

cutoff times used by banks in their 

normal business hours.’’ 

Treatment of Swept Funds 

One industry trade association noted 

‘‘there is continuing uncertainty as to 

how sweep accounts will be affected, 

and how swept funds would be treated 

in a bank failure. Bankers find the term 

‘swept funds’ unclear, especially when 

applied to non-automated transactions. 

It would therefore be useful for the FDIC 

to clarify the intended scope of its 

regulation, including whether it is 

meant to apply to funds transferred 

outside the books of a bank.’’ 

Sweep Account Disclosure 

All three industry trade associations 

agreed with the FDIC’s intent to provide 

clear disclosure to sweep account 

customers. One association noted, 

however, that ‘‘all of the bankers we 

consulted on the proposal said that their 

sweep agreements currently detail for 

customers the sweep process, how 

funds are swept into specific 

investments, and that funds swept out 

of the bank are not FDIC-insured 

deposits. Thus, it is not clear what 

additional information would be 

provided as a result of an FDIC sweep 

disclosure requirement.’’ 

Two industry trade associations and 

the large bank argued that the disclosure 

requirement should not be overly 

prescriptive. These comment letters 

noted that sweep arrangements and 

their processes vary considerably across 

institutions and that specifically worded 

disclosures may be unsuitable when 

applied across the industry. One of the 

trade associations and the large bank 

argued that the FDIC should not dictate 

the specific language to be included in 

the disclosure. Alternatively, one trade 

association expressed mixed feelings 

indicating some of its members feel that 

a model disclosure form would be 

appropriate. 

All of the commenters recommended 

a one-time disclosure to the customer, 

most preferably when the account is 

opened. They noted that periodic 

disclosures would be an unnecessary 

financial and regulatory burden on 

institutions offering sweep products. 

One trade association indicated ‘‘the 

FDIC should allow banks to provide 


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Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 5799 

6This principle draws a sharp distinction 

between transactions involving the transfer of funds 

into or out of the failed institution and transactions 

intended to move funds between accounts or 

otherwise on the books and records of the failed 

institution. The receiver will act to stop the inflow 

and outflow of cash/assets at the point at which it 

takes control of the failed institution; thus, 

transactions involving the transfer of assets into or 

out of the failed institution may be blocked or 

suspended. Transactions internal to the failed 

institution’s operations initiated prior to the FDIC 

Cutoff Point—including those initiated through 

prearranged automated instructions—will still be 

conducted after the point of failure as part of a 

necessary process to arrive at the end-of-day ledger 

balances and to establish the nature of the claim 

recognized by the receiver. 

notice via several established means of 

communication, such as sweep 

contracts, client letters, transaction 

confirmation statements, and monthend statements. In addition, the final 

rule should clarify that banks will not 

be required to modify existing client 

contracts, which may have been 

negotiated years ago. This would allay 

banker concerns that changes in 

disclosure provisions will be expensive 

to implement and disruptive to sweep 

customer relationships.’’ 

Several commenters indicated that the 

potential for using the FDIC Cutoff Point 

would complicate disclosure. Since the 

institution cannot determine when the 

FDIC Cutoff Point may be established in 

the event of failure, it would be difficult 

to explain to customers how their swept 

funds would be treated. Some 

commenters also wondered whether the 

possibility of provisional holds should 

be disclosed to sweep customers. 

IV. The Final Rule 

The final rule essentially is 

unchanged from the interim rule, except 

that the preamble and the regulatory 

text provide examples of sweep 

accounts subject to the final rule and 

explain how the FDIC will treat each of 

those sweep arrangements in the event 

of an institution failure. The final rule 

also clarifies how the FDIC will treat 

repo sweeps in the event of an 

institution failure and slightly modifies 

the disclosure requirements for sweep 

products. The following is an 

explanation of the final rule. 

Underlying Principles 

The final rule describes the method 

for determining the value and nature of 

claims against a failed insured 

depository institution to be used in the 

event of failure. Upon taking control of 

a failed insured depository institution 

the receiver must construct an ending 

balance sheet for the depository 

institution (which becomes the 

beginning balance sheet for the 

receivership) and determine the value 

and nature of the claims against the 

failed institution, including claims to be 

made by depositors, general creditors, 

subordinated creditors, and 

shareholders. Those claims 

determinations will be made consistent 

with the principles described below, 

which are unchanged from the 

principles articulated in the interim rule 

and, for the most part, reflect existing 

FDIC practices and procedures used to 

determine account balances at 

institution failures. 

• In making deposit insurance 

determinations and in determining the 

value and nature of claims against the 

receivership on the institution’s date of 

failure the FDIC, as insurer and receiver, 

will treat deposits and other liabilities 

of the failed institution according to the 

ownership and nature of the underlying 

obligations based on end-of-day ledger 

balances for each account using, except 

as expressly provided otherwise in the 

final rule, the depository institution’s 

normal posting procedures. 

• In its role as receiver of a failed 

insured depository institution, in order 

to ensure the proper distribution of the 

failed institution’s assets under the FDI 

Act (12 U.S.C. 1821(d)(11)) as of the 

FDIC Cutoff Point, the FDIC will use its 

best efforts to take all steps necessary to 

stop the generation, via transactions or 

transfers coming from or going outside 

the institution, of new liabilities or 

extinguishing existing liabilities for the 

depository institution.6

• End-of-day ledger balances are 

subject to corrections for posted 

transactions that are inconsistent with 

the above principles. 

End-of-Day Ledger Balances and Cutoff 

Points 

As in the interim rule, in the final rule 

the deposit or liability account balance 

used for deposit insurance 

determination purposes is defined as 

the end-of-day ledger balance of the 

deposit or other liability on the day of 

failure. Except as noted, the FDIC will 

use the cutoff rules previously applied 

by the failed insured depository 

institution in establishing the end-ofday ledger balance for deposit insurance 

determination purposes. However, as 

under the interim rule, the final rule 

allows the FDIC to establish an FDIC 

Cutoff Point, coinciding with the point 

in time at which the receiver acts to stop 

deposit transactions which might result 

in creating new liabilities or 

extinguishing existing liabilities 

resulting from external transactions. The 

FDIC Cutoff Point will facilitate the 

orderly winding up of the institution 

and the FDIC’s final determination of 

the ledger balances of the deposit 

accounts. 

The FDIC’s intention is to complete 

internal postings of transactions 

presented or authorized prior to the 

institution’s normal cutoff rules or the 

FDIC Cutoff Point, as applicable, 

according to the depository institution’s 

normal procedures—thus, as explained 

below, the nature of the liability may 

change after the FDIC Cutoff Point. Any 

transaction—including sweep 

arrangements—would be completed for 

that day according to normal procedures 

if it involves only the movement of 

funds between accounts within the 

confines of the depository institution. 

Some sweep arrangements shift funds 

within the depository institution from a 

deposit account to ownership in a 

sweep investment vehicle. The value 

and nature of these claims will be 

determined as they rest on the books 

and records of the depository institution 

as reflected in its end-of-day ledger 

balances. 

If the institution’s ordinary cutoff 

time for the day’s business on the day 

of failure for any particular kind of 

transaction precedes the FDIC Cutoff 

Point, the institution’s ordinary cutoff 

time will be used. Where the 

institution’s ordinary cutoff time for an 

individual kind of transaction is later 

than the FDIC Cutoff Point, the 

institution’s cutoff time will be replaced 

by the FDIC Cutoff Point. The 

‘‘Applicable Cutoff Time’’ used for any 

kind of transaction, thus, will be the 

earlier of the institution’s ordinary 

cutoff time or the FDIC Cutoff Point. 

Different kinds of transactions may have 

different Applicable Cutoff Times. 

Transactions occurring after the 

Applicable Cutoff Time will be posted 

as a subsequent day’s business, if the 

operations of the failed institution are 

carried on by a successor institution or 

by the FDIC as receiver or insurer. 

As under the interim rule, in a 

depository institution failure where 

deposit operations are not continued by 

a successor institution, account 

transactions on the day of failure also 

will be posted to the applicable 

accounts as described above. Since there 

is no next business day in this case, 

rather than posting transactions 

occurring after the Applicable Cutoff 

Time as the next day’s business, such 

transactions will be handled depending 

on the nature of the transaction. In the 

case of a cash or other deposit occurring 

after the Applicable Cutoff Time, such 

funds—which would not be included in 

the end-of-day ledger balance used for 

claims purposes—would be disbursed to 

the account owner. If a cash or other 

withdrawal is made after the Applicable 


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5800 Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 

7A deposit account withdrawal in the form of an 

official check drawn on the failed depository 

institution would not be used by the receiver to 

satisfy the insured deposit claim. Official items are 

considered to be deposits for deposit insurance 

purposes; therefore, such official withdrawals 

would be treated differently from cash withdrawals. 

8The FDIC’s recent revisions to the FDIC’s riskbased assessment system have made an institution’s 

assessment base, which is used to determine its 

deposit insurance assessment, virtually identical 

with an institution’s deposits as defined in the 

Federal Deposit Insurance Act. The revisions 

eliminated the ‘‘float’’ deductions previously used 

to compute an institution’s assessment base; hence, 

deposits posted to a deposit account but not yet 

collected are now part of the assessment base. The 

stated rationale for eliminating the float deduction 

from the calculation of an institution’s assessment 

base was that such deductions were small and 

decreasing as a result of legal, technological and 

system payment changes. 71 FR 69720 (Nov. 30, 

2006). 

Cutoff Time, such funds—again which 

would not be included in the end-of-day 

ledger balance used for claims 

purposes—could be used by the receiver 

to satisfy a claim against the 

receivership.7

Like the interim rule, the final rule 

does not establish any new operational 

requirements for insured institutions 

relative to the FDIC Cutoff Point. Also, 

the final rule explicitly authorizes the 

FDIC, as receiver, to correct errors and 

omissions after the day of failure and 

reflect them in the end-of-day ledger 

balances. 

In response to the comments on this 

issue, FDIC reiterates that the final rule 

imposes no requirements on institutions 

to establish mechanisms or in any way 

prepare for the possibility that the FDIC 

would use its own FDIC Cutoff Point if 

the institution should fail. The FDIC 

emphasizes that it will apply the 

institution’s normal cutoff times in most 

cases, but establishing an FDIC Cutoff 

Point may be essential to efficiently 

produce end-of-day ledger balances in 

some situations. Strictly applying a 

depository institution’s pre-established 

cutoff times in all circumstances is 

inconsistent with the duties and 

responsibilities of the receiver—as 

articulated in one of the principles, 

specifically in the event of failure the 

receiver will take control of the failed 

institution and simultaneously will act 

to stop deposit or other transactions 

involving creating new liabilities or 

extinguishing existing liabilities. In 

many cases, this can be done consistent 

with the institution’s normal cutoff 

times, but in others it cannot and the 

FDIC will establish an FDIC Cutoff 

Point. If the receiver is successful in 

stopping these external transactions 

after it takes control, there will be no 

new transactions to be posted affected 

by an FDIC Cutoff Point. In this case, the 

end-of-day ledger balances on the day of 

failure will be calculated using the 

failed institution’s pre-established cutoff 

points. If the receiver is unsuccessful in 

stopping the external transactions, the 

FDIC Cutoff Point establishes a basis for 

posting these transactions the following 

day, if that is the course of action 

selected by the receiver. 

Treatment of Uncollected Deposited 

Checks 

As with the interim rule, under the 

final rule, in determining deposit 

account balances at a failed insured 

depository institution, the FDIC will 

deem all checks deposited into and 

posted to a deposit account by the 

Applicable Cutoff Time as part of the 

end-of-day ledger balance for insurance 

purposes. This treatment of uncollected 

deposited checks is warranted because: 

Depository institutions use and 

calculate the ledger balance in a more 

consistent way than other balances; it is 

consistent with the way that depository 

institutions report deposits on Call 

Reports and Thrift Financial Reports; it 

is the balance the FDIC uses to 

determine an institution’s assessment 

base for calculating the institution’s 

deposit insurance assessments; 8 it is the 

easiest balance for depositors to 

understand; and it is the most 

frequently used balance on financial 

statements provided to customers. Using 

ledger balances also is consistent with 

the definition of a deposit in the Federal 

Deposit Insurance Act (‘‘FDI Act’’), 

which includes balances both 

‘‘conditionally’’ or ‘‘unconditionally’’ 

credited to a deposit account. 12 U.S.C. 

1813(l). 

Further, especially in a large 

depository institution failure, using endof-day ledger balances may be the only 

operationally feasible means for the 

FDIC to make deposit insurance 

determinations timely and 

expeditiously. As discussed in more 

detail in the Large Bank Modernization 

Rule, the FDIC is statutorily obligated to 

pay insured deposits ‘‘as soon as 

possible’’ after an insured depository 

institution fails. 12 U.S.C. 1821(f)(1). 

The FDIC places a high priority on 

providing access to insured deposits 

promptly and, in the past, has usually 

been able to allow most depositors 

access to their deposits on the business 

day following closing. The largest 

insured institutions today are much 

bigger than any institution has been in 

the past and are growing increasingly 

complex. Providing prompt access to 

depositors if one of these institutions 

were to fail would prove difficult if 

adjustments for uncollected funds were 

necessary. 

Sweep Accounts and Their Treatment in 

the Event of an Institution Failure 

A sweep account covered by the final 

rule involves the pre-arranged transfer 

of funds from a deposit account to: (1) 

An investment vehicle located outside 

the depository institution, or (2) another 

account or investment vehicle located 

within the depository institution. The 

pre-arranged transfer of funds out of the 

deposit account typically occurs prior to 

the establishment of the depository 

institution’s normal end-of-day balances 

for the deposit account. Such 

arrangements also may call for a return 

of the transferred funds to the deposit 

account the following business day in a 

cycle that repeats itself daily. 

After funds are swept from the 

originating deposit account, the sweep 

process may involve one or more 

intermediate transfer steps before the 

funds arrive at their final destination on 

any given business day, as reflected in 

the depository institution’s end-of-day 

balances. Consistent with the general 

principles identified in the final rule 

(and discussed above), the FDIC will 

make its claims determinations based on 

deposit and other account balances 

reflected on the books and records of the 

depository institution after all normal 

end-of-day processing has been 

completed. 

In making claims determinations on 

funds swept from a deposit account, yet 

still residing within the depository 

institution at the institution’s normal 

end-of-day, the FDIC will use the 

following guidelines: 

• Ownership of the funds and the 

nature of the claim will be based on 

records established and maintained by 

the depository institution for that 

specific account or investment vehicle. 

• Depositor owned funds residing in 

a general ledger account as of the 

institution’s end-of-day will be treated 

as a deposit for insurance purposes. 

Further, in calculating deposit 

insurance, these funds will be 

aggregated with the balance in the 

deposit account from which they 

originally were swept if their ownership 

interest has not changed. If there has 

been a change in ownership, the funds 

will be aggregated with the transaction 

deposit account balances of the new 

owner. 

• The full amount of swept funds 

attributable to an individual customer 

residing in an omnibus or other 

commingled account as of the 

depository institution’s normal end-ofday will be treated as belonging to that 

customer, regardless of any netting 

practices established by the depository 

institution. 


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9The definition of ‘‘deposit’’ in the FDI Act 

expressly excludes: ‘‘any obligation of a depository 

institution which is carried on the books and 

records of an office of such bank or savings 

association located outside of any State, unless (i) 

such obligation would be a deposit if it were carried 

on the books and records of the depository 

institution, and would be payable at an office 

located in any State; and (ii) the contract evidencing 

the obligation provides by express terms, and not 

by implication, for payment at an office of the 

depository institution located in any State.’’ 12 

U.S.C. 1813(l)(5)(A). Also, the FDI Act defines IBF 

obligations as non-deposits, which are not eligible 

for deposit insurance or deposit preference status. 

12 U.S.C. 1813(l)(5)(B). 

In the case of sweeps out of the 

depository institution into deposits or 

investment vehicles not residing on the 

books of the depository institution, in 

the event of failure the swept funds also 

will be treated consistent with their 

status in the end-of-day ledger balances 

of the depository institution and the 

external entity. If an expected transfer to 

the external sweep investment vehicle is 

not completed prior to the FDIC Cutoff 

Point, coinciding with the time the FDIC 

as receiver takes control of the failed 

institution, the external investment will 

not be purchased and the funds will 

remain in the account identified on the 

end-of-day ledger balance. 

Most sweep arrangements involve a 

transactional deposit account. Under the 

final rule, the FDIC will treat deposits 

and other liabilities of the failed 

institution according to the ownership 

and nature of the underlying obligations 

based on end-of-day ledger balances for 

each account using the depository 

institution’s normal posting procedures, 

except that, in its role as receiver of a 

failed insured depository institution, the 

FDIC will use its best efforts to take all 

steps necessary to stop the generation, 

via transactions or transfers coming 

from or going outside the institution, of 

new liabilities or extinguishing existing 

liabilities for the depository institution. 

In other words, at the point the FDIC as 

receiver takes control of the failed 

institution, it will use its best efforts to 

stop funds from flowing into or out of 

the depository institution (e.g., blocking 

wire transactions). The final rule does 

not require a depository institution to 

adjust its systems, policies or 

procedures to accommodate the 

receiver’s responsibility in this regard. 

If, after taking control of the failed 

depository institution, the receiver is 

successful in stopping funds from 

flowing into or out of the depository 

institution, the end-of-day balances 

generated from the depository 

institution’s normal posting processes 

will be used for insurance purposes. 

Only if the receiver cannot stop funds 

from flowing into or out of the 

depository institution will adjustments 

be necessary. Thus, the treatment of 

swept funds may vary from the 

depository institution’s normal end-ofday balances if the receiver cannot stop 

all funds from flowing into or out of the 

depository institution. 

The following is a discussion of how, 

under the final rule, the FDIC will treat 

funds associated with various sweep 

products in the event of failure. 

Deposit-to-deposit sweeps. A depositto-deposit sweep moves funds between 

two deposit accounts within the same 

insured depository institution (‘‘internal 

sweep’’). Deposit-to-deposit sweeps 

include ‘‘zero balance accounts’’ 

(‘‘ZBAs’’) where funds are moved 

between a master demand deposit 

account (‘‘parent’’) and various 

subsidiary demand deposit accounts 

(‘‘child’’), typically leaving a zero 

balance in the subsidiary accounts at the 

institution’s end-of-day. ZBAs allow a 

customer to have multiple demand 

deposit accounts, each with a different 

business purpose, while permitting an 

automatic movement of funds between 

accounts necessary to fund deposit 

transactions. Under the final rule, the 

FDIC will treat for insurance purposes 

each account as it is determined at the 

institution’s normal end-of-day for each 

account. Since ZBA arrangements 

typically call for all child accounts to 

have a zero balance at the institution’s 

end-of-day, then all child accounts 

associated with a ZBA will have been 

reduced to zero with all of the 

customer’s funds residing in the parent 

account. 

Many depository institutions have 

established ‘‘retail sweep’’ or ‘‘reserve 

sweep’’ products where a single account 

is divided into two sub-accounts—a 

transaction account and a money market 

deposit account (‘‘MMDA’’). Retail 

sweep accounts are established for the 

purpose of lowering required reserves. 

The amount and frequency of sweeps 

are determined by the depository 

institution using an algorithm designed 

to minimize required reserves yet still 

honor the limit of six transactions per 

month imposed on MMDAs. The 

customer may be unaware that this 

sweep mechanism is in place, as it may 

not be indicated in the original account 

agreement signed by the customer. For 

statement purposes the customer sees 

all deposit balances as being in the 

transaction account; the MMDA is not 

indicated. Under the final rule a sweep 

account involves the pre-arranged 

transfer of funds from a deposit account 

to another account or investment 

vehicle. In the case of retail or reserve 

sweep accounts only a single deposit 

account has been established; thus, 

under the final rule retail or reserve 

sweep arrangements would not be 

treated as a sweep account, rather as a 

single account as viewed by the 

customer. 

An alternative arrangement with a 

single account, also not considered to be 

a sweep product under the final rule, 

involves a MMDA with a linked NOW 

account (sub-account). The customer 

only is aware of the MMDA, as all funds 

reported on statements are listed as 

MMDA balances. Any transactions 

presented against this account are 

cleared using the NOW sub-account. 

The depository institution uses an 

algorithm for transferring funds from the 

MMDA to the NOW sub-account to 

ensure the NOW sub-account has the 

necessary funds to clear transactions yet 

honor the limit of six monthly 

transactions from the MMDA. 

Eurodollar and IBF sweep accounts. 

Eurodollar and IBF accounts also are 

two examples of internal sweep 

investment vehicles. As indicated in the 

account agreement, funds in the deposit 

account above a specified threshold are 

swept into the Eurodollar or IBF 

account owned by the same customer. 

Thus, at the end of the business day, the 

customer’s funds in excess of the preestablished threshold are reported as 

residing in a Eurodollar account 

(typically associated with the 

institution’s branch in the Cayman 

Islands or Bahamas) or an IBF account. 

At the start of the next business day, the 

depository institution will sweep the 

balance back into the domestic deposit 

account. The cycle typically repeats 

itself daily. 

In the case of Eurodollar and IBF 

sweep accounts the FDIC will, for 

insurance purposes, use deposit and 

account balances as they are reflected as 

of the institution’s normal end-of-day. 

Thus, funds remaining in the domestic 

deposit account (below the preestablished threshold) will be treated as 

a deposit for insurance purposes. Funds 

that have been swept into the Eurodollar 

or IBF account, as reflected on the 

institution’s end-of-day records, will be 

treated as unsecured general creditor 

claims against the receivership. Usually 

the underlying contract for a Eurodollar 

sweep specifies that the obligation at the 

foreign branch is not payable in the 

United States and, hence, is not a 

deposit,9 for deposit insurance and 

depositor preference purposes. Upon an 

institution’s failure, amounts in a 

Eurodollar account in a foreign branch 

of the failed institution are treated as 

unsecured, non-deposit liabilities and 

are not eligible for insurance or 

depositor preference status. The same 

treatment will apply to sweeps to IBFs, 

which by statutory definition are not 


dwashington3 on PROD1PC60 with RULES
5802 Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 

10This assumes the assets of the money market 

mutual fund are sufficient to maintain a $1.00 share 

price. If the value of the money market share price 

is compromised below $1.00 the sweep customer’s 

interests will reflect this loss in value. The 

customer is not eligible to file a claim against the 

receiver to recover the loss in value of the money 

market mutual fund shares as such shares are not 

part of the receivership estate. 

deposits. Eurodollar and IBF 

accountholders will thus be accorded 

general creditor status in the 

receivership estate. 

Repo sweep accounts. Repo sweep 

arrangements typically are conducted 

via internal transfers on the institution’s 

books. As with Eurodollar and IBF 

sweep accounts, repo sweep 

arrangements move funds out of a 

deposit account as of the depository 

institution’s end-of-day. The swept 

funds could be processed differently 

depending on the institution’s particular 

sweep mechanism. 

In a properly executed repo sweep 

arrangement, as of the depository 

institution’s normal end-of-day, the 

sweep customer either becomes the 

legal owner of identified assets 

(typically government securities) subject 

to a repurchase agreement or obtains a 

perfected security interest in those 

assets. In such cases, where the sweep 

customer either owns or possesses a 

perfected security interest in the 

identified securities, upon an institution 

failure, the FDIC will recognize the 

customer’s ownership or security 

interest in the securities. If the value of 

the securities at least equals the dollar 

amount of funds swept from the 

customer’s account, the customer’s 

swept funds will be fully protected in 

the event of failure. After failure, the 

disposition of the swept funds invested 

in securities will depend on the nature 

of the transaction structured by the 

FDIC. In a purchase and assumption 

transaction, the securities and the 

underlying repo arrangement will be 

transferred to an acquiring institution, 

which could include a bridge 

institution. Under this transaction 

structure, the funds normally would be 

swept back into the customer’s deposit 

account on the business day following 

failure, thus giving the customer full 

access to these funds at that point. In a 

payoff of insured deposits, the customer 

would receive a check or other payment 

from the FDIC to reacquire the 

customer’s interest in the securities 

according to the FDIC normal 

procedures. 

The FDIC has observed that some 

institutions’ repo arrangements are not 

properly executed. In those situations, 

the sweep customer obtains neither an 

ownership interest nor a perfected 

security interest in the applicable 

securities. A common example is where 

a customer’s swept funds rest (as of the 

institution’s end-of-day) in an account 

in which a pool of securities are also 

transferred, but where the customer has 

neither an ownership interest or a 

perfected security interest in any 

identified security(ies). In such cases, 

upon an institution failure, under the 

final rule the FDIC will treat the swept 

funds as if they had not left the deposit 

account from which they originated. 

The FDIC notes that, in cases where 

repo sweeps are improperly executed 

(so that the customer obtains neither an 

ownership interest or perfected security 

interest in the applicable securities), 

institutions should report the swept 

funds as deposits in their Call or Thrift 

Financial Reports, for assessment and 

other purposes. 

Money market mutual fund sweep 

accounts. Money market mutual fund 

sweeps are structured in a variety of 

ways. In some cases the money market 

mutual fund shares are held directly in 

the name of the sweep account holder, 

but in other cases the money market 

mutual fund account is either in the 

name of the depository institution or in 

the name of the transfer agent for the 

mutual fund. Shares are sold or 

allocated to the individual sweep 

customer depending on the particulars 

of the sweep arrangement. Some money 

market mutual fund sweep 

arrangements result in a ‘‘same-day’’ 

purchase of fund shares while ‘‘nextday’’ sweeps delay the purchase of fund 

shares by the customer until the day 

following the investment decision. In 

some cases the depository institution 

will wire funds to the money market 

mutual fund in payment for shares 

purchased, while in other cases the 

money market mutual fund will 

maintain an account at the depository 

institution for the purpose of accepting 

new purchases. Under the final rule, the 

FDIC will treat funds swept to a money 

market mutual fund depending on 

whether it is a same-day or next-day 

sweep arrangement, and whether the 

money market mutual fund maintains 

an account at the depository institution 

used for share purchases. These 

different variations of money market 

fund sweep arrangements and the 

FDIC’s treatment of them in the event of 

an institution failure are discussed 

below. 

The first type of account is a sameday money market mutual fund sweep 

where the mutual fund does not 

maintain an account at the depository 

institution. The investment decision on 

funds to be swept from a customer’s 

account typically is made in the early 

afternoon. Funds are wired to the 

money market mutual fund prior to a 

pre-established cutoff point that same 

afternoon, usually by 4 p.m. Most failed 

depository institutions are closed after 4 

p.m. If this is the case, on the day of 

failure, funds associated with same-day 

money market mutual fund sweeps will 

already have been wired outside the 

depository institution prior to the 

failure. In this case, the sweep 

transaction will be deemed as 

completed and the customer’s deposit 

account will reflect the sweep before 

arriving at the end-of-day balance for 

that day. In a purchase and assumption 

transaction, the customer’s deposit 

account associated with the sweep 

product normally would be transferred 

to the acquiring institution, which could 

include a bridge bank. Under this 

arrangement, the funds held with the 

money market mutual fund would be 

available to be swept back into the 

customer’s deposit account on the 

business day following failure.10 In a 

payoff the sweep customer will receive 

a check or other means of payment for 

the value of the ownership interest in 

the money market mutual fund. 

For same-day money market mutual 

fund sweeps, the depository institution 

may be closed prior to completion of the 

transmission of funds to the money 

market mutual fund. In this case, the 

FDIC as receiver will use its best efforts 

to stop this transmission. If the 

transmission of funds is blocked, the 

sweep transaction will not be completed 

and the customer’s deposit account will 

not reflect the sweep before arriving at 

the end-of-day balance for that day. In 

this case, for insurance purposes, the 

funds swept on the day of failure will 

be treated as if they had not left the 

originating deposit account. 

The second type of arrangement is a 

next-day money market mutual fund 

sweep where the mutual fund does not 

maintain an account at the depository 

institution. The investment decision on 

funds to be swept from a customer’s 

account typically is made after the day’s 

transactions are posted against the 

deposit account, usually in the late 

evening or early the following morning. 

Funds above the pre-established 

threshold are swept from the deposit 

account into a temporary holding 

account, which could be an omnibus 

account, where they reside as of the 

institution’s normal end-of-day. The 

transaction with the money market 

mutual fund to complete the purchase 

of shares is made the following business 

day, usually in the morning. For 

insurance purposes the FDIC will use 

end-of-day ledger balances on the day of 

failure. In this case, on the day of 


dwashington3 on PROD1PC60 with RULES
Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 5803 

11 Deposits owned by a mutual fund are insured 

under the FDIC’s insurance rules as funds owned 

by a corporation. 12 CFR 330.11. 

failure, funds associated with next-day 

money market mutual fund sweeps for 

that day will not have left the 

depository institution, but will reside in 

the omnibus account. In this case, for 

insurance purposes, the funds swept on 

the day of failure will be treated as if 

they had not left the originating deposit 

account. Funds already residing in the 

money market mutual fund resulting 

from prior day sweeps will be treated as 

described above for fully completed 

same-day money market mutual fund 

sweeps. 

Under the next-day sweep 

arrangement, on any given day the 

deposit account balance could fall 

below the pre-established threshold, 

thus triggering a sweep of funds from 

the money market mutual fund to the 

deposit account. In this case, prior to 

the depository institution’s normal endof-day, the deposit account will be 

credited for the shortfall below the preestablished threshold and the omnibus 

account used by the institution for this 

next-day money market mutual fund 

sweep product will receive an offsetting 

debit entry. As of the depository 

institution’s normal end-of-day, the 

next-day money market mutual fund 

omnibus account will consist of a series 

of debit entries (reflecting instances 

where funds are to be moved from the 

money market mutual fund to a deposit 

account) and credit entries (where funds 

are to be moved from a deposit account 

to the money market mutual fund). For 

claims purposes, the FDIC will not net 

the debits and credit entries in the 

omnibus account. In effect, as discussed 

in the previous paragraph, the sweep 

transaction with the money market 

mutual fund will not have occurred as 

of the depository institution’s end-ofday—and the FDIC will regard the funds 

as remaining in the money market 

mutual fund. Thus, the debit entry in 

the omnibus account will be used to 

offset the corresponding credit to the 

originating deposit account to determine 

account balances for insurance 

purposes. 

A variation of the next-day money 

market mutual fund sweep does not 

involve the use of a temporary holding 

account such as an omnibus account. 

Under this structure the investment 

decision on funds to be swept from a 

customer’s account still is made after 

the day’s transactions are posted against 

the deposit account, but excess funds 

are not debited from the deposit account 

until the following morning, after endof-day balances have been determined. 

Funds are wired to the money market 

mutual fund the following business day 

as well. For insurance purposes, the 

FDIC will use end-of-day ledger 

balances on the day of failure. In this 

case, on the day of failure, funds 

associated with next-day money market 

mutual fund sweeps for that day will 

not have been removed from the deposit 

account; thus the sweep will not have 

occurred on the day of failure and all 

funds will reside in the deposit account. 

Funds already residing in the money 

market mutual fund resulting from prior 

day sweeps will be treated in the event 

of failure as described above for fully 

completed same-day money market 

mutual fund sweeps. 

The third type of account is a money 

market mutual fund sweep where the 

mutual fund maintains an account with 

the depository institution for the 

purpose of accepting new share 

purchases. Under this arrangement 

funds swept out of a customer’s deposit 

account are credited, either directly or 

through a series of intermediate 

transactions, to an account owned solely 

by the money market mutual fund. The 

structure does not require that funds be 

wired to the money market mutual fund 

in order to purchase new shares. The 

movement of funds from the customer’s 

deposit account into another account at 

the depository institution, in this case 

one owned by the money market mutual 

fund, constitutes an internal deposit 

transaction. Accordingly, in the event of 

failure, the FDIC as receiver would 

process all internal transactions prior to 

arriving at end-of-day balances used for 

insurance purposes. If the depository 

institution’s ownership records 

establish the money market mutual fund 

as the actual owner of the swept 

funds,11 these sweep transactions would 

be deemed to be completed. In the event 

of failure the funds residing in the 

money market mutual fund would be 

treated as described earlier, depending 

on whether the FDIC engages in a 

purchase and assumption or payoff 

transaction to resolve the institution. If 

the depository institution’s ownership 

records establish the depositors as the 

actual owners of the swept funds, such 

as if the money market mutual fund’s 

account was established for the benefit 

of the sweep customers, then the swept 

funds would be deemed to be owned by 

the sweep customers. In this case, for 

insurance purposes, the funds swept on 

the day of failure will be treated as if 

they had not left the deposit account. 

Fed Funds sweep accounts. A Fed 

Funds account is another example of an 

internal sweep investment vehicle. 

These sweep arrangements function 

similarly to a Eurodollar or IBF sweep. 

Thus, at the end of the business day, the 

customer’s funds in excess of the preestablished threshold are swept to a Fed 

Funds account, a liability of the 

depository institution. At the start of the 

next business day, the depository 

institution will sweep the balance back 

to the deposit account. The cycle 

typically repeats itself daily. 

In the case of Fed Funds sweep 

accounts the FDIC will for insurance 

purposes use deposit and account 

balances as they are reflected as of the 

institution’s normal end-of-day. Thus, 

funds remaining in the domestic deposit 

account (below the pre-established 

threshold) will be treated as a deposit 

for insurance purposes. Funds having 

been swept to the Fed Funds account, 

as reflected on the institution’s end-ofday records, will be treated as other 

similarly situated Fed Funds liabilities. 

Upon an institution’s failure, amounts 

in a Fed Funds account in a failed 

institution generally are treated as 

unsecured, non-deposit liabilities and 

are not eligible for insurance or 

depositor preference status. 

Holding company commercial paper 

sweep account. Under this arrangement 

the investment decision on funds to be 

swept from a customer’s account 

typically is made after the day’s 

transactions are posted against the 

deposit account, usually in the late 

evening or early the following morning. 

The customer’s funds in excess of the 

pre-established threshold are swept out 

of the deposit account to a general 

ledger account on the depository 

institution’s books. The depository 

institution, acting as agent for its 

holding company, will book the 

commercial paper on the holding 

company’s books. The treatment of the 

swept funds in the event of failure will 

depend on the ownership of the general 

ledger account into which the funds are 

swept. If the general ledger account is 

held for the benefit of the sweep 

customers, then a purchase of 

commercial paper will not have been 

completed. Thus, the swept funds will 

be treated as if they had not left the 

deposit account. If the general ledger 

account is owned solely by the holding 

company, then a purchase of 

commercial paper will have been 

completed. Thus, the swept funds will 

be treated as having purchased the 

holding company commercial paper. 

If the swept funds have purchased the 

holding company commercial paper, in 

the event of the depository institution’s 

failure the ability of the sweep customer 

to redeem the commercial paper the day 

following failure will depend upon a 

number of factors, including the holding 

company’s liquidity position and 


dwashington3 on PROD1PC60 with RULES
5804 Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 

12Specifically, the FDIC asked for information on 

what disclosures are currently made in connection 

with sweep account arrangements which allow 

sweep customers to ascertain the treatment of such 

funds if the institution should fail? Also, what form 

the disclosures take, when they are provided and 

what is their frequency? In addition, the FDIC asked 

if the disclosures are consistent with how such 

funds are reported in Call and Thrift Financial 

Reports. 

whether it enters bankruptcy. In a 

purchase and assumption transaction, 

the FDIC as receiver normally will seek 

to recover the swept funds, but the 

ability of the sweep customer to access 

these funds, and the ultimate recovery 

of these funds, may depend on factors 

outside the control of the receivership. 

In the event of a payoff, the sweep 

customer’s recovery of swept funds will 

likewise be limited by the same factors 

outside the control of the receivership. 

Loan sweep account. A loan sweep 

account uses a customer’s excess 

deposit balances to automatically pay 

down a loan or other credit account 

balance at the depository institution. 

This is another example of an internal 

sweep transaction. In this case excess 

balances in a customer’s deposit 

account, above a pre-established 

threshold, are swept out of the deposit 

account and used to pay down a loan at 

the depository institution. In the event 

of failure this transaction will be 

completed prior to determining end-ofday deposit and account balances. Thus, 

the funds will have been swept out of 

the deposit account and used to reduce 

the loan balance. For insurance 

purposes the FDIC would treat the funds 

residing in the deposit account, those 

below the pre-established threshold, as 

a deposit account. 

Disclosure Requirements 

The interim rule imposed certain 

disclosure requirements in connection 

with sweep accounts, effective July 1, 

2009. In particular, institutions must 

prominently disclose in all sweep 

account contracts and account 

statements reflecting sweep account 

balances whether swept funds are 

deposits (as defined in 12 U.S.C. 

1813(l)). If the funds are not deposits, 

the institution must further disclose the 

status such funds would have if the 

institution failed. In addition, the 

interim rule required that the 

disclosures be consistent with how the 

institution reports such funds on its Call 

Reports or Thrift Financial Reports. In 

issuing the interim rule, the FDIC asked 

for comments on specific issues 

associated with the sweep account 

disclosure requirements.12

As discussed below, based on 

comments received, the final rule 

reflects modifications to the disclosure 

requirements in the interim rule. Under 

the final rule, effective July 1, 2009, 

institutions must prominently disclose 

in writing to sweep account customers 

whether their swept funds are deposits 

within the meaning of 12 U.S.C. 1813(l): 

(1) Within sixty days after July 1, 2009, 

and no less than annually thereafter, (2) 

in all new sweep account contracts, and 

(3) in renewals of existing sweep 

account contracts. If the funds are not 

deposits, the institution must further 

disclose the status such funds would 

have if the institution failed—for 

example, general creditor status or 

secured creditor status. Such 

disclosures must be consistent with how 

the institution reports such funds on its 

Call Reports or Thrift Financial Reports. 

The disclosure requirements do not 

apply to sweep accounts where: The 

transfers are within a single account, or 

a sub-account; or the sweep account 

involves only deposit-to-deposit 

sweeps, such as zero-balance accounts, 

unless the sweep results in a change in 

the customer’s insurance coverage. 

As noted in the comment summary, 

the three industry trade associations 

that commented on this issue agreed 

with the FDIC’s intent to have 

institutions provide clear disclosures to 

sweep account customers. In response 

to the comment that institutions already 

provide adequate disclosures to sweep 

account customers, the FDIC notes that 

under the final rule (as under the 

interim rule) no change to such 

preexisting disclosures would be 

required as long as they indicate: (1) 

Whether the swept funds are deposits; 

and (2) if the swept funds are not 

deposits, how they would be treated if 

the institution should fail. 

Several commenters asked for greater 

clarity regarding which sweep products 

would be subject to the disclosure 

requirement. Under the final rule a 

sweep account involves the prearranged transfer of funds from a 

deposit account to: (1) An investment 

vehicle located outside the depository 

institution, or (2) another account or 

investment vehicle located within the 

depository institution. The transaction 

must be pre-arranged according to the 

terms of the account agreement which 

specifies rules governing the automated 

transfer of funds out of and into the 

deposit account. Further, the funds 

must be transferred from a deposit 

account to an account or investment 

vehicle, either located within or outside 

the depository institution. Under the 

final rule, the disclosure requirements 

do not apply to arrangements where the 

customer initiates transfers through 

instructions provided to the depository 

institution, which could be on a daily 

basis, to move funds from a deposit 

account to another account or 

investment vehicle. The disclosure rules 

also do not apply to arrangements where 

transfers are within a single account (to 

a sub-account), such as may be the case 

with retail or reserve sweeps. In 

addition, the disclosure rules do not 

apply to other deposit-to-deposit 

sweeps, such as ZBAs, unless the sweep 

results in a change in the customer’s 

insurance coverage. In the deposit-todeposit sweep arrangements of which 

the FDIC is aware, the sweep does not 

change the insurance coverage available 

to the customer. 

The FDIC agrees with the commenters 

who stated that the disclosure 

requirements should not be overly 

prescriptive and, specifically, should 

not require that specific language be 

included in the disclosures. Hence, the 

final rule does not impose specific 

disclosure language, allowing 

institutions to fashion their own 

disclosures, as long as they satisfy the 

disclosure requirements. 

Despite the comment that the 

disclosures should be required to be 

provided just one time to sweep account 

customers, the FDIC continues to 

believe that, in order for the disclosure 

requirements to be meaningful and 

effective, they must be provided at the 

initiation of a new sweep account 

agreement between the institution and 

the customer, in all agreement renewals 

and on a periodic basis, but not less 

than annually. 

The FDIC agrees with the trade 

association that suggested flexibility in 

communicating the disclosure 

requirements to sweep customers. 

Hence, in complying with the final rule, 

institutions need not modify their 

existing contracts with sweep 

customers, but the disclosures should be 

made in all new agreements and 

agreement renewals. Also, an institution 

may comply with the requirement for 

the initial and periodic disclosures 

through, for example, client letters, 

transaction confirmation statements or 

account statements. The requirement in 

the interim rule that such disclosures be 

provided in account statements, 

therefore, is not part of the final rule. 

The FDIC agrees with the comments 

that the potential, under the final rule, 

for the FDIC using the FDIC Cutoff Point 

(instead of the institution’s ordinary 

cutoff point) upon the institution failure 

complicates the disclosure 

requirements. As discussed above, for 

internal sweep arrangements, it would 

not matter whether the FDIC uses the 

institution’s ordinary cutoff point or an 

FDIC Cutoff Point, the sweep would still 

be completed as of the failure date; thus, 


dwashington3 on PROD1PC60 with RULES
Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 5805 

the status of the swept funds would be 

the same under either cutoff point. For 

external sweep arrangements (for 

example, external money market mutual 

fund sweeps), the required disclosures 

should indicate the possibility that, if 

the institution should fail, the 

applicable funds might not be swept to 

the source outside the institution and 

should indicate how the funds would be 

treated in that situation—for example, 

they would be treated as deposits and 

insured under the applicable insurance 

rules and limits. 

As to the question raised in the 

comments about this issue, the final rule 

does not require institutions to disclose 

to customers the possibility that the 

FDIC would impose provisional holds 

on their deposits if the institution 

should fail. 

VIII. Plain Language 

Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113 

Stat. 1338, 1471 (Nov. 12, 1999), 

requires the Federal banking agencies to 

use plain language in all proposed and 

final rules published after January 1, 

2000. No commenters suggested that the 

interim rule was unclear, and the final 

rule is substantively similar to the 

interim rule. 

IX. Paperwork Reduction Act 

OMB Number: New Collection. 

Frequency of Response: On occasion. 

Affected Public: Insured depository 

institutions offering sweep account 

products. 

Estimated Number of Respondents: 

1,170 to 1,970. 

Estimated Time per Response: 25–43 

hours per respondent. 

Estimated Total Annual Burden: 

28,870–84,400 hours. 

Background/General Description of 

Collection: The final rule contains a 

collection of information pursuant to 

the Paperwork Reduction Act (44 U.S.C. 

3501 et seq.) (‘‘PRA’’). In particular, the 

final rule requires, subject to a delayed 

effective date, depository institutions 

offering sweep products to disclose 

whether the swept funds are deposits 

for insurance purposes and, if not, how 

these funds would be treated in the 

event of failure. In accordance with the 

requirements of the Paperwork 

Reduction Act of 1995, the FDIC may 

not conduct or sponsor, and 

respondents are not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (‘‘OMB’’) 

control number. The FDIC submitted the 

information collection contained in this 

rule to OMB for review. No collection of 

information will be made until OMB 

approval has been obtained. 

Estimated costs: Compliance with the 

disclosure requirement will require 

insured depository institutions offering 

sweep products, which do not currently 

provide adequate disclosures, to modify 

their sweep account documentation to 

include new language indicating 

whether swept funds are a deposit for 

insurance purposes and, if not, how 

such funds would be treated in the 

event of failure. Further, additional 

documentation may be provided to 

sweep customers as part of a statement 

or other mailing. Implementation cost 

will be mitigated by the delayed 

effective date of this requirement. 

Sweep account documents must be 

reprinted periodically in any case, and 

the cost of including the disclosure 

requirement should be minimal. 

Further, most insured depository 

institutions already make certain 

disclosures to customers, and the new 

requirements would simply replace or 

supplement these disclosures. After 

implementation, on-going cost should 

be negligible. Future printings of sweep 

account documentation will have to be 

conducted in any case to replenish 

stock, and the disclosure requirement 

should not add to the cost of such 

printings given its brief nature. 

Customer account statements would 

continue to be provided according to 

normal business practices. Further, staff 

training must be conducted 

periodically, and the disclosure 

requirement should not materially add 

to the length or complexity of this 

training. 

The exact number of insured 

depository institutions offering sweep 

products is unknown. It is the FDIC’s 

experience that the vast majority of large 

institutions offer some sweep 

arrangement as part of their cash 

management services. The prevalence of 

sweep offerings among smaller 

community banks is far less prevalent. 

The FDIC’s analysis assumes that all 

insured depository institutions with 

total assets of at least $2 billion offer at 

least one sweep product (370 

institutions). It is further assumed that 

between 10 and 20 percent of the 

remaining 8,000 insured institutions 

also offer a sweep product (800 to 1,600 

institutions). The total number of 

respondents is estimated to be between 

1,170 and 1,970. The FDIC estimates 

that the hourly burden will range from 

25 hours per institution to 43 hours per 

institution. The total hours are 

estimated to be from 28,870 hours to 

84,400 hours. 

Request for Comment 

Comments are invited on: (a) Whether 

the collection of information is 

necessary for the proper performance of 

the FDIC’s functions, including whether 

the information has practical utility; (b) 

the accuracy of the estimates of the 

burden of the information collection, 

including the validity of the 

methodology and assumptions used; (c) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (d) ways to minimize the 

burden of the information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

All comments will become a matter of 

public record. 

ADDRESSES: Interested parties are 

invited to submit written comments to 

the FDIC concerning the Paperwork 

Reduction Act implications of this 

proposal. Such comments should refer 

to ‘‘Processing of Deposit Accounts, 

3064–AD26,’’ in the subject line of the 

message. Comments may be submitted 

by any of the following methods: 

• Agency Web Site: http:// 

www.FDIC.gov/regulations/laws/federal. 

Follow instructions for submitting 

comments on the agency Web site. 

• E-mail: comments@FDIC.gov. 

Include ‘‘Processing of Deposit 

Accounts,’’ 3064–AD26’’ in the subject 

line of the message. 

• Mail: Executive Secretary, 

Attention: Comments, FDIC, 550 17th 

St., NW., Room F–1066, Washington, 

DC 20429. 

• Hand Delivery/Courier: Comments 

may be hand-delivered to the guard 

station at the rear of the 550 17th Street 

Building (located on F Street), on 

business days between 7 a.m. and 5 p.m. 

(EST). 

• A copy of the comments may also 

be submitted to the OMB desk officer for 

the FDIC, Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, New 

Executive Office Building, Room 3208, 

Washington, DC 20503. 

Public Inspection: All comments 

received will be posted without change 

to http://www.fdic.gov/regulations/laws/ 

federal including any personal 

information provided. 

X. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires a federal agency 

publishing a notice of proposed 

rulemaking to prepare and make 

available for public comment an initial 

regulatory flexibility analysis that 

describes the impact of the proposed 

rule on small entities. 5 U.S.C. 603(a). 


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5806 Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 

As defined in regulations issued by the 

Small Business Administration (13 CFR 

121.201), a ‘‘small entity’’ includes a 

bank holding company, commercial 

bank or savings association with assets 

of $165 million or less (collectively, 

small banking organizations). The RFA 

provides that an agency is not required 

to prepare and publish a regulatory 

flexibility analysis if the agency certifies 

that the proposed rule would not have 

a significant impact on a substantial 

number of small entities. 5 U.S.C. 

605(b). 

In publishing the interim rule the 

FDIC certified that the interim rule 

would not have a significant economic 

impact on a substantial number of small 

entities. The rationale for this 

certification was that the interim rule 

would establish the FDIC’s practice for 

determining deposit account balances at 

a failed insured depository institution 

and would impose no requirements on 

insured depository institutions. 

The final rule imposes a disclosure 

requirement on all insured depository 

institutions offering one or more sweep 

account products. This requirement is 

subject to a delayed effective date. The 

FDIC believes the disclosure 

requirement in the final rule will not 

have a substantial impact on a 

substantial number of small banking 

organizations, mainly because such 

entities are much less likely than larger 

insured depository institutions to offer 

sweep account products. Such products 

are typically offered by insured 

depository institutions serving large 

commercial and institutional customers. 

The FDIC received no comments on 

whether and, if so, to what extent small 

banking organizations will be affected 

by the disclosure requirement in the 

final rule rule. 

XI. The Treasury and General 

Government Appropriations Act, 

1999—Assessment of Federal 

Regulations and Policies on Families 

The FDIC has determined that the 

final rule will not affect family wellbeing within the meaning of section 654 

of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681). 

List of Subjects in 12 CFR Part 360 

Banks, Banking, Savings associations. 

■ For the reasons stated above, the 

Board of Directors of the Federal 

Deposit Insurance Corporation hereby 

amends part 360 of title 12 of the Code 

of Federal Regulations as follows: 

PART 360—RESOLUTION AND 

RECEIVERSHIP RULES 

■ 1. The authority citation for part 360 

continues to read as follows: 

Authority: 12 U.S.C. 1819(a) Tenth, 

1821(d)(1), 1821(d)(10)(c), 1821(d)(11), 

1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 

1823(e)(2); Sec. 401(h), Public Law 101–73, 

103 Stat. 357. 

■ 2. Section 360.8 is revised to read as 

follows: 

§ 360.8 Method for determining deposit 

and other liability account balances at a 

failed insured depository institution. 

(a) Purpose. The purpose of this 

section is to describe the process the 

FDIC will use to determine deposit and 

other liability account balances for 

insurance coverage and receivership 

purposes at a failed insured depository 

institution. 

(b) Definitions—(1) The FDIC Cutoff 

Point means the point in time the FDIC 

establishes after it has been appointed 

receiver of a failed insured depository 

institution and takes control of the 

failed institution. 

(2) The Applicable Cutoff Time for a 

specific type of deposit account 

transaction means the earlier of either 

the failed institution’s normal cutoff 

time for that specific type of transaction 

or the FDIC Cutoff Point. 

(3) Close-of-Business Account Balance 

means the closing end-of-day ledger 

balance of a deposit or other liability 

account on the day of failure of an 

insured depository institution 

determined by using the Applicable 

Cutoff Times. This balance may be 

adjusted to reflect steps taken by the 

receiver to ensure that funds are not 

received by or removed from the 

institution after the FDIC Cutoff Point. 

(4) A sweep account is an account 

held pursuant to a contract between an 

insured depository institution and its 

customer involving the pre-arranged, 

automated transfer of funds from a 

deposit account to either another 

account or investment vehicle located 

within the depository institution 

(internal sweep account), or an 

investment vehicle located outside the 

depository institution (external sweep 

account). 

(c) Principles—(1) In making deposit 

insurance determinations and in 

determining the value and nature of 

claims against the receivership on the 

institution’s date of failure, the FDIC, as 

insurer and receiver, will treat deposits 

and other liabilities of the failed 

institution according to the ownership 

and nature of the underlying obligations 

based on end-of-day ledger balances for 

each account using, except as expressly 

provided otherwise in this section, the 

depository institution’s normal posting 

procedures. 

(2) In its role as receiver of a failed 

insured depository institution, in order 

to ensure the proper distribution of the 

failed institution’s assets under the FDI 

Act (12 U.S.C. 1821(d)(11)) as of the 

FDIC Cutoff Point, the FDIC will use its 

best efforts to take all steps necessary to 

stop the generation, via transactions or 

transfers coming from or going outside 

the institution, of new liabilities or 

extinguishing existing liabilities for the 

depository institution. 

(3) End-of-day ledger balances are 

subject to corrections for posted 

transactions that are inconsistent with 

the above principles. 

(d) Determining closing day 

balances—(1) In determining account 

balances for insurance coverage and 

receivership purposes at a failed insured 

depository institution, the FDIC will use 

Close-of-Business Account Balances. 

(2) A check posted to the Close-ofBusiness Account Balance but not 

collected by the depository institution 

will be included as part of the balance, 

subject to the correction of errors and 

omissions and adjustments for 

uncollectible items that the FDIC may 

make in its role as receiver of the failed 

depository institution. 

(3) In determining Close-of-Business 

Account Balances involving sweep 

accounts: 

(i) For internal sweep accounts, the 

FDIC will determine the ownership of 

the funds and the nature of the 

receivership claim based on the records 

established and maintained by the 

institution for that specific account or 

investment vehicle as of the closing day 

end-of-day ledger balance. (For 

example, if a sweep account entails the 

daily transfer of funds from a demand 

deposit account to a Eurodollar account 

at a foreign branch of the insured 

depository institution, if the institution 

should fail on that day, the FDIC would 

treat the funds swept to the Eurodollar 

account, as reflected on the institution’s 

end-of-day records, as an unsecured 

general creditor’s claim against the 

receivership.); 

(ii) For external sweep accounts, the 

FDIC will treat swept funds consistent 

with their status in the end-of-day 

ledger balances of the depository 

institution and the external entity, as 

long as the transfer of funds is 

completed prior to the Applicable 

Cutoff Time. (For example, if funds held 

in connection with a money market 

sweep account are wired from a 

customer’s deposit account at the 

insured depository institution to the 

mutual fund prior to the Applicable 


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Federal Register / Vol. 74, No. 20 / Monday, February 2, 2009 / Rules and Regulations 5807 

Cutoff Time, if the institution should 

fail on that day, the FDIC would 

recognize that sweep transaction as 

completed for claims and receivership 

purposes.); 

(iii) For repurchase agreement sweep 

accounts, where, as a result of the sweep 

transaction, the customer becomes 

either the legal owner of identified 

assets subject to repurchase or obtains a 

perfected security interest in those 

assets, the FDIC will recognize, for 

receivership purposes, the customer’s 

ownership interest or security interest 

in the assets. 

(4) For deposit insurance and 

receivership purposes in connection 

with the failure of an insured depository 

institution, the FDIC will determine the 

rights of the depositor or other liability 

holder as of the point the Close-ofBusiness Account Balance is calculated. 

(e) Disclosure requirements. 

Beginning July 1, 2009, in all new 

sweep account contracts, in renewals of 

existing sweep account contracts and 

within sixty days after July 1, 2009, and 

no less than annually thereafter, 

institutions must prominently disclose 

in writing to sweep account customers 

whether their swept funds are deposits 

within the meaning of 12 U.S.C. 1813(l). 

If the funds are not deposits, the 

institution must further disclose the 

status such funds would have if the 

institution failed—for example, general 

creditor status or secured creditor 

status. Such disclosures must be 

consistent with how the institution 

reports such funds on its quarterly 

Consolidated Reports of Condition and 

Income or Thrift Financial Reports. The 

disclosure requirements imposed under 

this provision do not apply to sweep 

accounts where: The transfers are 

within a single account, or a subaccount; or the sweep account involves 

only deposit-to-deposit sweeps, such as 

zero-balance accounts, unless the sweep 

results in a change in the customer’s 

insurance coverage. 

By order of the Board of Directors. 

Dated at Washington, DC, this 27th day of 

January, 2009. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. E9–2113 Filed 1–30–09; 8:45 am] 

BILLING CODE 6714–01–P 

SOCIAL SECURITY ADMINISTRATION 

20 CFR Part 404 

[Docket No. SSA–2008–0070] 

RIN 0960–AG93 

Expiration Date Extension for 

Musculoskeletal Body System Listings 

AGENCY: Social Security Administration. 

ACTION: Final rule. 

SUMMARY: This final rule extends for 2 

years the date on which the 

Musculoskeletal System Listing of 

Impairments will no longer be effective. 

We use the body system listings at the 

third step of the sequential evaluation 

process when we evaluate your claim 

for benefits based on disability under 

title II and title XVI of the Social 

Security Act. Other than extending the 

effective date of the listings, we have 

not revised the musculoskeletal listings. 

This extension will ensure that we 

continue to have the medical evaluation 

criteria in the listings to adjudicate 

disability claims involving disorders of 

the musculoskeletal body system at the 

third step of the sequential evaluation 

process. 

DATES: This final rule is effective on 

February 2, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Cheryl A. Williams, Acting Director, 

Office of Medical Listings 

Improvements, 6401 Security 

Boulevard, Baltimore, MD 21235–6401. 

Call (410) 966–4163 for further 

information about this final rule. For 

information on eligibility or filing for 

benefits, call our national toll-free 

number, 1–800–772–1213 or TTY 1– 

800–325–0778, or visit our Internet site, 

Social Security Online, at http:// 

www.socialsecurity.gov. 

SUPPLEMENTARY INFORMATION: 

Electronic Version 

The electronic file of this document is 

available on the date of publication in 

the Federal Register at http:// 

www.gpoaccess.gov/fr/index.html. 

Background 

We use the Listing of Impairments 

(the listings) at the third step of the 

sequential evaluation process to 

evaluate claims filed by adults and 

children for benefits based on disability 

under the title II and title XVI programs. 

We divide the listings into two parts: 

Part A for adults and part B for children. 

If you are age 18 or over, we apply the 

listings in part A when we assess your 

claim. If you are under age 18, we first 

use the criteria in part B of the listings. 

If the criteria in part B do not apply, we 

may use the criteria in part A when 

those criteria give appropriate 

consideration to the effects of the 

impairment(s) in children. (See 

§§ 404.1525 and 416.925.) 

Explanation of Changes 

In this final rule, we are extending 

until February 18, 2011, the date on 

which the Musculoskeletal System (1.00 

and 101.00) listings will no longer be 

effective. We periodically review and 

update the listings in light of medical 

advances in disability evaluation and 

treatment and our program experience. 

We last updated the medical criteria for 

the Musculoskeletal System listings on 

November 19, 2001. 66 FR 58010. While 

we intend to publish proposed and final 

rules to update the Musculoskeletal 

System listings as quickly as possible, 

we cannot publish final rules revising 

these listings by February 19, 2009, the 

current expiration date. 

Regulatory Procedures 

Justification for Final Rule 

We follow the Administrative 

Procedure Act (APA) rulemaking 

procedures specified in 5 U.S.C. 553 

when developing regulations. 42 U.S.C. 

902(a)(5). The APA provides exceptions 

to its notice and public comment 

procedures when an agency finds there 

is good cause for dispensing with such 

procedures on the basis that they are 

impracticable, unnecessary, or contrary 

to the public interest. We have 

determined that, under 5 U.S.C. 

553(b)(B), good cause exists for 

dispensing with the notice and public 

comment procedures for this rule. Good 

cause exists because this final rule only 

extends the date on which the 

musculoskeletal body system listings 

will no longer be effective. It makes no 

substantive changes to the listings. The 

current regulations expressly provide 

that we may extend, revise, or repromulgate the listings. Therefore, we 

have determined that opportunity for 

prior comment is unnecessary, and we 

are issuing this regulation as a final rule. 

In addition, we find good cause for 

dispensing with the 30-day delay in the 

effective date of a substantive rule 

provided by 5 U.S.C. 553(d)(3). As 

explained above, we are not making any 

substantive changes in the body system 

listings. Without an extension of the 

expiration dates for these listings, we 

will lack the medical evaluation criteria 

needed for assessing impairments in 

this body system at the third step of the 

sequential evaluation process. In order 

to ensure that we continue to have these 

listings in our rules, we find that it is 


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