[Federal Register Volume 86, Number 146 (Tuesday, August 3, 2021)]
[Proposed Rules]
[Pages 41766-41786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15732]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AF27


Simplification of Deposit Insurance Rules

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation is seeking comment 
on proposed amendments to its regulations governing deposit insurance 
coverage. The proposed rule would simplify the deposit insurance 
regulations by establishing a ``trust accounts'' category that would 
provide for coverage of deposits of both revocable trusts and 
irrevocable trusts, and provide consistent deposit insurance treatment 
for all mortgage servicing account balances held to satisfy principal 
and interest obligations to a lender.

DATES: Comments will be accepted until October 4, 2021.

ADDRESSES: You may submit comments on the notice of proposed rulemaking 
using any of the following methods:
    <bullet> Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for 
submitting comments on the agency website.
    <bullet> Email: <a href="/cdn-cgi/l/email-protection#80e3efedede5eef4f3c0e6e4e9e3aee7eff6"><span class="__cf_email__" data-cfemail="21424e4c4c444f555261474548420f464e57">[email protected]</span></a>. Include RIN 3064-AF27 on the 
subject line of the message.
    <bullet> Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments-RIN 3064-AF27, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
    <bullet> Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street NW building (located on F 
Street) on business days between 7 a.m. and 5 p.m.
    <bullet> Public Inspection: All comments received, including any 
personal information provided, will be posted generally without change 
to https://www.fdic.gov/resources/regulations/federal-register-publications/.

FOR FURTHER INFORMATION CONTACT: James Watts, Counsel, Legal Division, 
(202) 898-6678, <a href="/cdn-cgi/l/email-protection#79130e180d0d0a391f1d101a571e160f"><span class="__cf_email__" data-cfemail="80eaf7e1f4f4f3c0e6e4e9e3aee7eff6">[email protected]</span></a>; Kathryn Marks, Counsel, Legal 
Division, (202) 898-3896, <a href="/cdn-cgi/l/email-protection#462d2b27342d350620222f2568212930"><span class="__cf_email__" data-cfemail="42292f233029310224262b216c252d34">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Simplification of Deposit Insurance Trust Rules
    A. Policy Objectives

[[Page 41767]]

    B. Background
    1. Deposit Insurance and the FDIC's Statutory and Regulatory 
Authority
    2. Evolution of Insurance Coverage of Trust Deposits
    3. Current Rules for Coverage of Trust Deposits
    4. Part 370 and Recordkeeping at the Largest IDIs
    5. Need for Further Rulemaking
    C. Description of Proposed Rule
    D. Examples Demonstrating Coverage Under Current and Proposed 
Rules
    E. Alternatives Considered
    F. Request for Comment
II. Amendments to Mortgage Servicing Account Rule
    A. Policy Objectives
    B. Background and Need for Rulemaking
    C. Proposed Rule
    D. Request for Comment
III. Regulatory Analysis
    A. Expected Effects
    1. Simplification of Trust Rules
    2. Amendments to Mortgage Servicing Account Rule
    B. Regulatory Flexibility Act
    1. Simplification of Trust Rules
    2. Amendments to Mortgage Servicing Account Rule
    C. Paperwork Reduction Act
    D. Riegle Community Development and Regulatory Improvement Act
    E. Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
    F. Plain Language

I. Simplification of Deposit Insurance Trust Rules

A. Policy Objectives

    The Federal Deposit Insurance Corporation (FDIC) is seeking comment 
on proposed amendments to its regulations governing deposit insurance 
coverage for deposits held in connection with trusts.\1\ The proposed 
amendments are intended to (1) provide depositors and bankers with a 
rule for trust account coverage that is easy to understand and (2) to 
facilitate the prompt payment of deposit insurance in accordance with 
the Federal Deposit Insurance Act (FDI Act), among other objectives. 
Accomplishing these objectives also would further the FDIC's mission in 
other respects, as discussed in greater detail below.
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    \1\ Trusts include informal revocable trusts (commonly referred 
to as payable-on-death accounts, in-trust-for accounts, or Totten 
trusts), formal revocable trusts, and irrevocable trusts.
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Clarifying Insurance Coverage for Trust Deposits
    The proposed amendments would clarify for depositors, bankers, and 
other interested parties the insurance rules and limits for trust 
accounts. The proposal both reduces the number of rules governing 
coverage for trust accounts and establishes a straightforward 
calculation to determine coverage. The deposit insurance trust rules 
have evolved over time and can be difficult to apply in some 
circumstances. The proposed amendments are intended to alleviate some 
of the confusion that depositors and bankers may experience with 
respect to insurance coverage and limits. Under the current 
regulations, there are distinct and separate sets of rules applicable 
to deposits of revocable trusts and irrevocable trusts. Each set of 
rules has its own criteria for coverage and methods by which coverage 
is calculated. Despite the FDIC's efforts to simplify the revocable 
trust rules in 2008,\2\ over the last 13 years FDIC deposit insurance 
specialists have responded to approximately 20,000 complex insurance 
inquiries per year on average. More than 50 percent of inquiries 
pertain to deposit insurance coverage for trust accounts (revocable or 
irrevocable). The consistently high volume of complex inquiries about 
trust accounts over an extended period of time suggests continued 
confusion about insurance limits. To help clarify insurance limits, the 
proposed amendments would further simplify insurance coverage of trust 
accounts (revocable and irrevocable) by harmonizing the coverage 
criteria for certain types of trust accounts and by establishing a 
simplified formula for calculating coverage that would apply to these 
deposits. The FDIC proposes using the calculation that the FDIC first 
adopted in 2008 for revocable trust accounts with five or fewer 
beneficiaries. This formula is straightforward and is already generally 
familiar to bankers and depositors.\3\
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    \2\ See 73 FR 56706 (Sep. 30, 2008).
    \3\ In 2008, the FDIC adopted an insurance calculation for 
revocable trusts that have five or fewer beneficiaries. Under this 
rule, 12 CFR 330.10(a), each trust grantor is insured up to $250,000 
per beneficiary.
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Prompt Payment of Deposit Insurance
    The FDI Act requires the FDIC to pay depositors ``as soon as 
possible'' after a bank failure. However, the insurance determination 
and subsequent payment for many trust deposits can be delayed when FDIC 
staff must review complex trust agreements and apply various rules for 
determining deposit insurance coverage. The proposed amendments are 
intended to facilitate more timely deposit insurance determinations for 
trust accounts by reducing the amount of time needed to review trust 
agreements and determine coverage. These amendments should promote the 
FDIC's ability to pay insurance to depositors promptly following the 
failure of an insured depository institution (IDI), enabling depositors 
to meet their financial needs and obligations.
Facilitating Resolutions
    The proposed changes will also facilitate the resolution of failed 
IDIs. The FDIC is routinely required to make deposit insurance 
determinations in connection with IDI failures. In many of these 
instances, however, deposit insurance coverage for trust deposits is 
based upon information that is not maintained in the failed IDI's 
deposit account records. As a result, FDIC staff work with depositors, 
trustees, and other parties to obtain trust documentation following an 
IDI's failure in order to complete deposit insurance determinations. 
The difficulties associated with completing such a determination are 
exacerbated by the substantial growth in the use of formal trusts in 
recent decades. The proposed amendments could reduce the time spent 
reviewing such information and provide greater flexibility to automate 
deposit insurance determinations, thereby reducing potential delays in 
the completion of deposit insurance determinations and payments. Timely 
payment of deposit insurance also helps to avoid reductions in the 
franchise value of failed IDIs, expanding resolution options and 
mitigating losses.
Effects on the Deposit Insurance Fund
    The FDIC is also mindful of the effect that the proposed changes to 
the deposit insurance regulations could have on deposit insurance 
coverage and generally on the Deposit Insurance Fund (DIF), which is 
used to pay deposit insurance in the event of an IDI's failure. The 
FDIC manages the DIF according to parameters established by Congress 
and continually evaluates the adequacy of the DIF to protect insured 
depositors. The FDIC's general intent is that proposed amendments to 
the trust rules be neutral with respect to the DIF.

B. Background

1. Deposit Insurance and the FDIC's Statutory and Regulatory Authority
    The FDIC is an independent agency that maintains stability and 
public confidence in the nation's financial system by: Insuring 
deposits; examining and supervising IDIs for safety and soundness and 
compliance with consumer financial protection laws; and resolving IDIs, 
including large and complex financial institutions, and managing 
receiverships. The FDIC has helped to maintain public confidence in

[[Page 41768]]

times of financial turmoil, including the period from 2008 to 2013, 
when the United States experienced a severe financial crisis, and more 
recently in 2020 during the financial stress associated with the COVID-
19 pandemic. During the more than 88 years since the FDIC was 
established, no depositor has lost a penny of FDIC-insured funds.
    The FDI Act establishes the key parameters of deposit insurance 
coverage, including the standard maximum deposit insurance amount 
(SMDIA), currently $250,000.\4\ In addition to providing deposit 
insurance coverage up to the SMDIA at each IDI where a depositor 
maintains deposits, the FDI Act also provides separate insurance 
coverage for deposits that a depositor maintains in different rights 
and capacities (also known as insurance categories) at the same IDI.\5\ 
For example, deposits in the single ownership category are separately 
insured from deposits in the joint ownership category at the same IDI.
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    \4\ See 12 U.S.C. 1821(a)(1)(E).
    \5\ See 12 U.S.C. 1821(a)(1)(C) (deposits ``maintained by a 
depositor in the same capacity and the same right'' at the same IDI 
are aggregated for purposes of the deposit insurance limit).
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    The FDIC's deposit insurance categories have been defined through 
both statute and regulation. Certain categories, such as the government 
deposit category, have been expressly defined by Congress.\6\ Other 
categories, such as joint deposits and corporate deposits, have been 
based on statutory interpretation and recognized through regulations 
issued in 12 CFR part 330 pursuant to the FDIC's rulemaking authority. 
In addition to defining the insurance categories, the deposit insurance 
regulations in part 330 provide the criteria used to determine 
insurance coverage for deposits in each category.
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    \6\ 12 U.S.C. 1821(a)(2).
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2. Evolution of Insurance Coverage of Trust Deposits
    Over the years, deposit insurance coverage has evolved to reflect 
both the FDIC's experience and changes in the banking industry. The FDI 
Act includes provisions defining the coverage for certain trust 
deposits,\7\ while coverage for other trust deposits has been defined 
by regulation.\8\ The following review of historical coverage for trust 
deposits provides context for the FDIC's proposed amendments to the 
trust rules.
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    \7\ See 12 U.S.C. 1817(i), 1821(a).
    \8\ See 12 CFR 330.10, 330.13.
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    In the FDIC's earliest years, deposit insurance coverage for trust 
deposits depended upon whether the beneficiaries of the trust were 
named in the bank's records. If the beneficiaries were named in the 
bank's records, the trust deposit was insured according to the 
beneficiaries' respective interests because the deposit was held in 
trust for the beneficiaries. If beneficiaries were not named in the 
bank's records, the grantor trustee was treated as the depositor 
instead and insured to the applicable limit (then $5,000); however, the 
trust deposit was insured separately from the trustee's other deposits, 
if any, at the same bank.\9\ If the bank itself was designated as 
trustee of the trust, deposits of the trust were insured up to the 
$5,000 limit for each trust estate pursuant to statute.\10\
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    \9\ See 1934 FDIC Annual Report at 143.
    \10\ See Banking Act of 1935, Public Law 74-305 (Aug. 23, 1935), 
section 101 (``Trust funds held by an insured bank in a fiduciary 
capacity whether held in its trust or deposited in any other 
department or in another bank shall be insured in an amount not to 
exceed $5,000 for each trust estate, and when deposited by the 
fiduciary bank in another insured bank such trust funds shall be 
similarly insured to the fiduciary bank according to the trust 
estates represented.'').
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    Over time, some states began recognizing the existence of a trust 
based on a designation in the bank's records that a deposit was held in 
trust for another person--even in the absence of a written trust 
agreement. In 1955, the FDIC's then-General Counsel concluded that if 
relevant state law recognized these ``Totten trusts'' \11\ and the 
depositor complied with the law in establishing the trust, the FDIC 
would insure these deposits separately from the depositor's other 
deposit accounts.\12\ This was the first time the FDIC insured informal 
trusts as trust deposits.
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    \11\ The name ``Totten trust'' is derived from an early New York 
court decision recognizing this form of trust, Matter of Totten, 179 
N.Y. 112 (N.Y. 1904). Many other states have recognized similar 
types of accounts, commonly known as ``payable-on-death'' accounts 
or tentative trust accounts.
    \12\ Separate Insurability of ``Totten Trust'' Accounts (June 1, 
1955), Federal Banking Law Reporter ] 92,583.
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    The FDIC further clarified insurance coverage for trust deposits in 
1967 when it issued rules defining the deposit insurance categories 
that the FDIC had recognized.\13\ These rules defined a ``testamentary 
accounts'' category that included revocable trust accounts, tentative 
or Totten trust accounts, and payable-on-death accounts and similar 
accounts evidencing an intention that the funds shall belong to another 
person upon the depositor's death. Testamentary deposits were insured 
up to the applicable limit (which Congress had raised to $15,000) for 
each named beneficiary who was the depositor's spouse, child, or 
grandchild. If the named beneficiary did not satisfy this kinship 
requirement, the deposit was aggregated with the depositor's individual 
accounts for purposes of deposit insurance coverage. The rules also 
included a separate ``trust accounts'' category for irrevocable trusts 
with coverage of up to $15,000 for each beneficiary's trust interests 
in deposit accounts established by the same grantor pursuant to a trust 
agreement. Irrevocable trust accounts were insured separately from 
other deposit accounts of the trustee, grantor, or beneficiary, 
including testamentary accounts.
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    \13\ 32 FR 10408 (July 14, 1967).
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    In 1989, Congress transferred responsibility for insuring deposits 
of savings associations from the Federal Savings and Loan Insurance 
Corporation (FSLIC) to the FDIC. As part of this transition, the FDIC 
issued uniform deposit insurance rules for the deposits of banks and 
savings associations, reconciling the differences between the FDIC and 
FSLIC insurance rules.\14\ These uniform rules redesignated the 
``testamentary accounts'' category as ``revocable trust accounts,'' and 
continued to require beneficiaries for revocable trust deposits to be 
named, but added the requirement that these beneficiaries be named in 
the failed IDI's deposit account records in order for per-beneficiary 
coverage to apply. In the notice of proposed rulemaking discussing this 
change, the FDIC explained that the change was expected to simplify the 
deposit insurance determination process for revocable trust deposits 
and expedite the payment of deposit insurance.\15\ These rules also 
redesignated the ``trust accounts'' category as ``irrevocable trust 
accounts'' and introduced a distinction between contingent interests 
and non-contingent interests in irrevocable trusts that would affect 
deposit insurance coverage. Non-contingent interests were each insured 
up to the applicable limit (then $100,000), while contingent interests 
were aggregated and insured up to $100,000 in total.\16\
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    \14\ 55 FR 20111 (May 15, 1990).
    \15\ 54 FR 52399, 52408 (Dec. 21, 1989) (notice of proposed 
rulemaking).
    \16\ 55 FR 20126 (May 15, 1990).
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    As revocable trusts increased in popularity during the late 1980s 
and early 1990s as an estate planning tool, the FDIC began receiving 
more inquiries about the revocable trust rules. Many of these inquiries 
were prompted by complex trust agreements that included numerous 
conditions prescribing whether, when, or how a named beneficiary would 
receive trust assets. FDIC staff generally interpreted the revocable 
trust rules to require

[[Page 41769]]

beneficiaries' interests in formal and informal revocable trusts to be 
vested in order to qualify for separate insurance coverage, meaning 
that, after a grantor's death, there was no condition attached to the 
beneficiary's interest that would make the interest contingent 
(referred to as a ``defeating contingency'').\17\ Staff reasoned that 
only a vested trust interest could establish a reasonable expectation 
that the revocable trust deposit ``shall belong to'' the beneficiary, 
as the regulation required.
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    \17\ See, e.g., Advisory Opinion 94-32, Guidelines for Insurance 
Coverage of Revocable Trust Accounts (Including ``Living Trust'' 
Accounts), (May 18, 1994). While the vested interest requirement 
applied to both formal and informal trusts, interests in informal 
trusts were generally considered to be vested because they 
automatically passed to the designated beneficiaries upon the death 
of the last grantor.
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    In 1996, the FDIC sought public comment on potential simplification 
of the deposit insurance rules, noting that its experience with bank 
and savings association failures and a steady volume of inquiries on 
deposit insurance coverage suggested that simplification could be 
beneficial.\18\ Among other changes, the FDIC proposed specific 
amendments to the rules for revocable trust deposits. Certain of these 
changes were finalized in 1998, when a provision was added to the rules 
defining the conditions that would constitute a defeating 
contingency.\19\ Soon afterward, the FDIC expanded the list of 
beneficiaries that would qualify for per-beneficiary coverage to 
include siblings and parents, noting that some depositors had lost 
money in bank failures because they had named non-qualifying 
beneficiaries.\20\
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    \18\ 61 FR 25596 (May 22, 1996).
    \19\ 63 FR 25750 (May 11, 1998).
    \20\ 64 FR 15653 (Apr. 1, 1999).
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    In 2003, the FDIC proposed amending the revocable trust rules, 
pointing to continued confusion about the coverage for revocable trust 
deposits.\21\ Specifically, the FDIC proposed to eliminate the 
defeating contingency provisions of the rules, with the result that 
coverage would be based on the interests of qualifying beneficiaries, 
irrespective of any defeating contingencies in the trust agreement. The 
FDIC subsequently adopted this change, noting that it more closely 
aligned coverage for living trust accounts with payable-on-death 
accounts.\22\ Defeating contingency provisions were not eliminated for 
irrevocable trusts. At the same time, the FDIC also eliminated the 
requirement to name the beneficiaries of a formal revocable trust in 
the IDI's deposit account records.\23\ Because the FDIC had to obtain 
and review trust agreements from depositors following an IDI's failure 
to determine the eligibility of the beneficiaries and allocation of 
funds to each beneficiary, eliminating this requirement was based on 
the conclusion that also requiring IDIs to maintain records of trust 
beneficiaries, or requiring grantors to inform IDIs of changes in their 
trust agreements, was unnecessary and burdensome. Though the additional 
information might expedite deposit insurance payments, the FDIC 
determined that removing this recordkeeping requirement would support 
ongoing efforts under the Economic Growth and Regulatory Paperwork 
Reduction Act to eliminate unnecessary regulatory requirements.
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    \21\ 68 FR 38645 (June 30, 2003).
    \22\ 69 FR 2825 (Jan. 21, 2004).
    \23\ 69 FR 2825, 2828 (Jan. 21, 2004).
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    The FDIC's experience with making deposit insurance determinations 
during the early stages of the most recent financial crisis suggested 
that further changes to the trust rules were necessary. In 2008, the 
FDIC simplified the rules in several respects.\24\ First, it eliminated 
the kinship requirement for revocable trust beneficiaries, instead 
allowing any natural person, charitable organization, or non-profit, to 
qualify for per-beneficiary coverage. Second, a simplified calculation 
was established if a revocable trust named five or fewer beneficiaries; 
coverage would be determined without regard to the allocation of 
interests among the beneficiaries. This eliminated the need to discern 
and consider beneficial interests in many cases.
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    \24\ 73 FR 56706 (Sep. 30, 2008).
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    A different insurance calculation applied to revocable trusts with 
more than five beneficiaries. Specifically, at that time, the SMDIA was 
$100,000 and thus if more than five beneficiaries were named in a 
revocable trust, coverage would be the greater of: (1) $500,000; or (2) 
the aggregate amount of all beneficiaries' interests in the trust(s), 
limited to $100,000 per beneficiary. When the SMDIA was increased to 
$250,000, a similar adjustment was made from $100,000 to $250,000 for 
the calculation of per beneficiary coverage.
3. Current Rules for Coverage of Trust Deposits
    The FDIC currently recognizes three different insurance categories 
for deposits held in connection with trusts: (1) Revocable trusts; (2) 
irrevocable trusts; and (3) irrevocable trusts with an IDI as trustee. 
The current rules for determining insurance coverage for deposits in 
each of these categories are described below.
Revocable Trust Deposits
    The revocable trust category applies to deposits for which the 
depositor has evidenced an intention that the deposit shall belong to 
one or more beneficiaries upon his or her death. This category includes 
deposits held in connection with formal revocable trusts--that is, 
revocable trusts established through a written trust agreement. It also 
includes deposits that are not subject to a formal trust agreement, 
where the IDI makes payment to the beneficiaries identified in the 
IDI's records upon the depositor's death based on account titling and 
applicable state law. The FDIC refers to these types of deposits, 
including Totten trust accounts, payable-on-death accounts, and similar 
accounts, as ``informal revocable trusts.'' Deposits associated with 
formal and informal revocable trusts are aggregated for purposes of the 
deposit insurance rules; thus, deposits that will pass from the same 
grantor to beneficiaries are aggregated and insured up to the SMDIA, 
currently $250,000, per beneficiary, regardless of whether the transfer 
would be accomplished through a written revocable trust or an informal 
revocable trust.\25\
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    \25\ 12 CFR 330.10(a).
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    Under the current revocable trust rules, beneficiaries include 
natural persons, charitable organizations, and non-profit entities 
recognized as such under the Internal Revenue Code of 1986.\26\ If a 
named beneficiary does not satisfy this requirement, funds held in 
trust for that beneficiary are treated as single ownership funds of the 
grantor and aggregated with any other single ownership accounts that 
the grantor maintains at the same IDI.\27\
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    \26\ 12 CFR 330.10(c).
    \27\ 12 CFR 330.10(d).
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    Certain requirements also must be satisfied for a deposit to be 
insured in the revocable trust category. The required intention that 
the funds shall belong to the beneficiaries upon the depositor's death 
must be manifested in the ``title'' of the account using commonly 
accepted terms such as ``in trust for,'' ``as trustee for,'' ``payable-
on-death to,'' or any acronym for these terms. For purposes of this 
requirement, ``title'' includes the IDI's electronic deposit account 
records. For example, an IDI's electronic deposit account records could 
identify the account as a revocable trust account through coding or a 
similar mechanism.\28\ In addition,

[[Page 41770]]

the beneficiaries of informal trusts (i.e., payable-on-death accounts) 
must be named in the IDI's deposit account records.\29\ Since 2004, the 
requirement to name beneficiaries in the IDI's deposit account records 
has not applied to formal revocable trusts; the FDIC generally obtains 
information on beneficiaries of such trusts from depositors following 
an IDI's failure. Therefore, if a formal revocable trust deposit 
exceeds $250,000 and the depositor's IDI were to fail, this will likely 
result in a hold being placed on the deposit until the FDIC can review 
the trust agreement and verify that the beneficiary rules are 
satisfied, thereby delaying insurance determinations and payments to 
insured depositors.
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    \28\ 12 CFR 330.10(b)(1).
    \29\ 12 CFR 330.10(b)(2).
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    The calculation of deposit insurance coverage for revocable trust 
deposits depends upon the number of unique beneficiaries named by a 
depositor. If five or fewer beneficiaries have been named, the 
depositor is insured in an amount up to the total number of named 
beneficiaries multiplied by the SMDIA, and the specific allocation of 
interests among the beneficiaries is not considered.\30\ If more than 
five beneficiaries have been named, the depositor is insured up to the 
greater of: (1) Five times the SMDIA; or (2) the total of the interests 
of each beneficiary, with each such interest limited to the SMDIA.\31\ 
For purposes of this calculation, a life estate interest is valued at 
the SMDIA.\32\
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    \30\ 12 CFR 330.10(a).
    \31\ 12 CFR 330.10(e).
    \32\ 12 CFR 330.10(g). For example, if a revocable trust 
provides a life estate for the depositor's spouse and remainder 
interests for six other beneficiaries, the spouse's life estate 
interest would be valued at $250,000 for purposes of the deposit 
insurance calculation.
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    Where a revocable trust deposit is jointly owned by multiple co-
owners, the interests of each account owner are separately insured up 
to the SMDIA per beneficiary.\33\ However, if the co-owners are the 
only beneficiaries of the trust, the account is instead insured under 
the FDIC's joint account rule.\34\
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    \33\ 12 CFR 330.10(f)(1).
    \34\ 12 CFR 330.10(f)(2).
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    The current revocable trust rule also contains a provision that was 
intended to reduce confusion and the potential for a decrease in 
deposit insurance coverage in the case of the death of a grantor. 
Specifically, if a revocable trust becomes irrevocable due to the death 
of the grantor, the trust's deposit may continue to be insured under 
the revocable trust rules.\35\ Absent this provision, the irrevocable 
trust rules would apply following the grantor's death, as the revocable 
trust becomes irrevocable at that time, which could result in a 
reduction in coverage.\36\
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    \35\ 12 CFR 330.10(h).
    \36\ The revocable trust rules tend to provide greater coverage 
than the irrevocable trust rules because contingencies are not 
considered for revocable trusts. In addition, where five or fewer 
beneficiaries are named by a revocable trust, specific allocations 
to beneficiaries also are not considered.
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Irrevocable Trust Deposits
    Deposits held by an irrevocable trust that has been established 
either by written agreement or by statute are insured in the 
irrevocable trust deposit insurance category. Calculating coverage for 
deposits insured in this category requires a determination of whether 
beneficiaries' interests in the trust are contingent or non-contingent. 
Non-contingent interests are interests that may be determined without 
evaluation of any contingencies, except for those covered by the 
present worth and life expectancy tables and the rules for their use 
set forth in the IRS Federal Estate Tax Regulations.\37\ Funds held for 
non-contingent trust interests are insured up to the SMDIA for each 
such beneficiary.\38\ Funds held for contingent trust interests are 
aggregated and insured up to the SMDIA in total.\39\
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    \37\ 12 CFR 330.1(m). For example, a life estate interest is 
generally non-contingent, as it may be valued using the life 
expectancy tables. However, where a trustee has discretion to divert 
funds from one beneficiary to another to provide for the second 
beneficiary's medical needs, the first beneficiary's interest is 
contingent upon the trustee's discretion.
    \38\ 12 CFR 330.13(a).
    \39\ 12 CFR 330.13(b).
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    The irrevocable trust rules do not apply to deposits held for a 
grantor's retained interest in an irrevocable trust.\40\ Such deposits 
are aggregated with the grantor's other single ownership deposits for 
purposes of applying the deposit insurance limit.
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    \40\ See 12 CFR 330.1(r) (definition of ``trust interest'' does 
not include any interest retained by the settlor).
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Deposits Held by an IDI as Trustee of an Irrevocable Trust
    For deposits held by an IDI in its capacity as trustee of an 
irrevocable trust, deposit insurance coverage is governed by section 
7(i) of the FDI Act, a provision rooted in the Banking Act of 1935. 
Section 7(i) provides that ``trust funds held on deposit by an insured 
depository institution in a fiduciary capacity as trustee pursuant to 
any irrevocable trust established pursuant to any statute or written 
trust agreement shall be insured in an amount not to exceed the 
standard maximum deposit insurance amount . . . for each trust 
estate.'' \41\
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    \41\ 12 U.S.C. 1817(i).
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    The FDIC's regulations governing coverage for deposits held by an 
IDI in its capacity as trustee of an irrevocable trust are found in 
Sec.  330.12. The rule provides that ``trust funds'' held by an IDI in 
its capacity as trustee of an irrevocable trust, whether held in the 
IDI's trust department or another department, or deposited by the 
fiduciary institution in another IDI, are insured up to the SMDIA for 
each owner or beneficiary represented.\42\ This coverage is separate 
from the coverage provided for other deposits of the owners or the 
beneficiaries,\43\ and deposits held for a grantor's retained interest 
are not aggregated with the grantor's single ownership deposits. Given 
the statutory basis for coverage, the FDIC is not proposing any changes 
to Sec.  330.12.
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    \42\ Part 330 defines ``trust funds'' as ``funds held by an 
insured depository institution as trustee pursuant to any 
irrevocable trust established pursuant to any statute or written 
trust agreement.'' 12 CFR 330.1(q).
    \43\ 12 CFR 330.12(a).
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4. Part 370 and Recordkeeping at the Largest IDIs
    Simplification of the deposit insurance rules would make deposit 
insurance coverage easier to understand and improve the FDIC's ability 
to resolve insurance claims in a timely manner, broadly benefiting the 
public and IDIs, and it would have particular significance for the 
large IDIs that are subject to part 370 of the FDIC's regulations. Part 
370 was adopted in 2016 to promote the timely payment of deposit 
insurance in the event of the failure of a large IDI.\44\ Its 
development was prompted by the FDIC's goal of ensuring a timely 
insurance determination in the event a large IDI with a high volume of 
deposit accounts fails. Part 370 requires ``covered institutions,'' 
which generally include IDIs with two million or more deposit accounts, 
to maintain complete and accurate depositor information and to 
configure their information technology systems so as to permit the FDIC 
to calculate deposit insurance coverage

[[Page 41771]]

promptly in the event of the IDI's failure. To implement part 370, 
covered institutions are updating their deposit account records and 
developing systems capable of applying the deposit insurance rules in 
an automated manner.
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    \44\ 81 FR 87734 (Dec. 5, 2016).
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    In addition to broadly benefiting the public and all IDIs, 
simplification of the deposit insurance rules complements part 370 in 
that it would further promote the timely payment of deposit insurance 
for depositors of the largest IDIs. For instance, neither part 370 nor 
any other rule requires covered institutions to maintain certain 
records necessary to make an insurance determination for formal trust 
deposits, meaning that the FDIC would need to obtain and review 
revocable and irrevocable trust agreements following a covered 
institution's failure. Analysis of data from part 370 covered 
institutions suggest the number of revocable trusts is significant and, 
if a covered institution were to fail, processing of deposit insurance 
for formal revocable trusts would likely extend well beyond normal FDIC 
payment timeframes. Simplification of the deposit insurance rules would 
streamline insurance determinations for trust accounts. The FDIC 
expects that capabilities developed in accordance with part 370 will be 
helpful in addressing many of the challenges involved in making deposit 
insurance determinations in connection with a very large IDI's failure. 
Simplification of the deposit insurance rules would provide additional 
benefits by reducing the amount of time needed to collect and process 
trust information after failure in order to make use of a covered 
institution's part 370 deposit insurance calculation capabilities. With 
less time needed to calculate insurance coverage, the FDIC would be 
able to make more timely insurance payments to insured depositors.
5. Need for Further Rulemaking
    The rules governing deposit insurance coverage for trust deposits 
have been simplified on several occasions, but are still frequently 
misunderstood, and can present some implementation challenges. For 
example, the current trust rules often require detailed, time-
consuming, and resource-intensive review of trust documentation to 
obtain the information that is necessary to calculate deposit insurance 
coverage. This information is often not found in an IDI's records and 
must be obtained from depositors after an IDI's failure. For example, 
the FDIC's deposit insurance determinations for depositors of IndyMac 
Bank, F.S.B. (IndyMac) following its failure in 2008 were challenging 
in part because IndyMac had a large number of trust accounts for which 
deposit insurance coverage was governed by complex deposit insurance 
rules.\45\ FDIC claims personnel contacted more than 10,500 IndyMac 
depositors to obtain the trust documentation necessary to complete 
deposit insurance determinations for their revocable trust and 
irrevocable trust deposits. In some cases, this process took several 
months. Revision of the deposit insurance coverage rules for trust 
deposits along the lines proposed would reduce the amount of 
information that must be provided by trust depositors, as well as the 
complexity of the FDIC's review. This revision should enable the FDIC 
to complete deposit insurance determinations more rapidly if another 
IDI with a large number of trust accounts were to fail in the future. 
Delays in the payment of deposit insurance can be consequential, as 
revocable trust deposits in particular are often used by depositors to 
satisfy their daily financial obligations, and the proposal would help 
to mitigate those delays.
---------------------------------------------------------------------------

    \45\ See Crisis and Response: An FDIC History, 2008-2013 at 197, 
FN 48, Federal Deposit Insurance Corporation 2017.
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    Several factors contribute to the challenges of making insurance 
determinations for trust deposits. First, there are three different 
sets of rules governing deposit insurance coverage for trust deposits. 
Understanding the coverage for a particular deposit requires a 
threshold inquiry to determine which set of rules to apply--the 
revocable trust rules, the irrevocable trust rules, or the rules for 
deposits held by an IDI as trustee of an irrevocable trust. This 
requires review of the trust agreement to determine the type of trust 
(revocable or irrevocable), and the inquiry may be complicated by 
innovations in state trust law that are intended to increase the 
flexibility and utility of trusts. In some cases, this threshold 
inquiry is also complicated by the provision of the revocable trust 
rules that allows for continued coverage under those rules where a 
trust becomes irrevocable upon the grantor's death. The result of an 
irrevocable trust deposit being insured under the revocable trust rules 
has proven confusing for both depositors and bankers.
    Second, even after determining which set of rules applies to a 
particular deposit, it may be challenging to apply the rules. For 
example, the revocable trust rules include unique titling requirements 
and beneficiary requirements. These rules also provide for two separate 
calculations to determine insurance coverage, depending in part upon 
whether there are five or fewer trust beneficiaries or at least six 
beneficiaries. In addition, for revocable trusts that provide benefits 
to multiple generations of potential beneficiaries, the FDIC needs to 
evaluate the trust agreement to determine whether a beneficiary is a 
primary beneficiary (immediately entitled to funds when a grantor 
dies), contingent beneficiary, or remainder beneficiary. Only 
``eligible'' primary beneficiaries and remainder beneficiaries are 
considered in calculating FDIC deposit insurance coverage. The 
irrevocable trust rules may require detailed review of trust agreements 
to determine whether beneficiaries' interests are contingent and may 
also require actuarial or present value calculations. These types of 
requirements complicate the determination of insurance coverage for 
trust deposits, have proven confusing for depositors, and extend the 
amount of time needed to complete a deposit insurance determination and 
insurance payment.
    Third, the complexity and variety of depositors' trust arrangements 
adds to the difficulty of determining deposit insurance coverage. For 
example, trust interests are sometimes defined through numerous 
conditions and formulas, and a careful analysis of these provisions may 
be necessary in order to calculate deposit insurance coverage under the 
current rules. Arrangements involving multiple trusts where the same 
beneficiaries are named by the same grantor(s) in different trusts add 
to the difficulty of applying the trust rules.
    The FDIC believes that simplification of the deposit insurance 
rules also presents an opportunity to more closely align the coverage 
provided for different types of trust deposits. For example, the 
revocable trust rules generally provide for a greater amount of 
coverage than the irrevocable trust rules. This outcome occurs because 
contingent interests for irrevocable trusts are aggregated and insured 
up to the SMDIA rather than being insured up to the SMDIA per 
beneficiary, while contingencies are not considered and therefore do 
not limit coverage in the same manner for revocable trusts.

C. Description of Proposed Rule

    The FDIC is proposing to amend the rules governing deposit 
insurance coverage for trust deposits. Generally, the proposed 
amendments would: Merge the revocable and irrevocable trust categories 
into one category; apply a simpler, common calculation method

[[Page 41772]]

to determine insurance coverage for deposits held by revocable and 
irrevocable trusts; and eliminate certain requirements found in the 
current rules for revocable and irrevocable trusts.
Merger of Revocable and Irrevocable Trust Categories
    As discussed above, the FDIC historically has insured revocable 
trust deposits and irrevocable trust deposits under two separate 
insurance categories. Staff's experience has been that this bifurcation 
often confuses depositors and bankers, as it requires a threshold 
inquiry to determine which set of rules to apply to a trust deposit. 
Moreover, each trust deposit must be categorized before the aggregation 
of trust deposits within each category can be completed.
    The FDIC believes that trust deposits held in connection with 
revocable and irrevocable trusts are sufficiently similar, for purposes 
of deposit insurance coverage, to warrant the merger of these two 
categories into one category. Under the FDIC's current rules, deposit 
insurance coverage is provided because the trustee maintains the 
deposit for the benefit of the beneficiaries. This is true regardless 
of whether the trust is revocable or irrevocable. Merger of the 
revocable and irrevocable trust categories would better conform deposit 
insurance coverage to the substance--rather than the legal form--of the 
trust arrangement. This underlying principle of the deposit insurance 
rules is particularly important in the context of trusts, as state law 
often provides flexibility to structure arrangements in different ways 
to accomplish a given purpose.\46\ Depositors may have a variety of 
reasons for selecting a particular legal arrangement, but that decision 
should not significantly affect deposit insurance coverage. 
Importantly, the proposed merger of the revocable trust and irrevocable 
trust categories into one category for deposit insurance purposes would 
not affect the application or operation of state trust law; this only 
would affect the determination of deposit insurance coverage for these 
types of trust deposits in the event of an IDI's failure.
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    \46\ For example, the FDIC currently aggregates deposits in 
payable-on-death accounts and deposits of written revocable trusts 
for purposes of deposit insurance coverage, despite their separate 
and distinct legal mechanisms. Also, where the co-owners of a 
revocable trust are also that trust's sole beneficiaries, the FDIC 
instead insures the trust's deposits as joint deposits, reflecting 
the arrangement's substance rather than its legal form.
---------------------------------------------------------------------------

    Accordingly, the FDIC is proposing to amend Sec.  330.10 of its 
regulations, which currently applies only to revocable trust deposits, 
to establish a new ``trust accounts'' category that would include both 
revocable and irrevocable trust deposits. The proposed rule defines the 
deposits that would be included in this category: (1) Informal 
revocable trust deposits, such as payable-on-death accounts, in-trust-
for accounts, and Totten trust accounts; (2) formal revocable trust 
deposits, defined to mean deposits held pursuant to a written revocable 
trust agreement under which a deposit passes to one or more 
beneficiaries upon the grantor's death; and (3) irrevocable trust 
deposits, meaning deposits held pursuant to an irrevocable trust 
established by written agreement or by statute. Section 330.10 would 
not apply to deposits maintained by an IDI in its capacity as trustee 
of an irrevocable trust; these deposits would continue to be insured 
separately pursuant to section 7(i) of the FDI Act and Sec.  330.12 of 
the deposit insurance regulations.
    In addition, the merger of the revocable trust and irrevocable 
trust categories eliminates the need for Sec.  330.10(h)-(i) of the 
current revocable trust rules, which provides that the revocable trust 
rules may continue to apply to a deposit where a revocable trust 
becomes irrevocable due to the death of one or more of the trust's 
grantors. These provisions were intended to benefit depositors, who 
sometimes were unaware that a trust owner's death could also trigger a 
significant decrease in insurance coverage as a revocable trust becomes 
irrevocable. However, in the FDIC's experience, this rule has proven 
complex in part because it results in some irrevocable trusts being 
insured per the revocable trust rules, while other irrevocable trusts 
are insured under the irrevocable trust rules.\47\ As a result, a 
depositor could know a trust was irrevocable but not know which deposit 
insurance rules to apply. The proposed rule would insure deposits of 
revocable trusts and irrevocable trusts according to a common set of 
rules, eliminating the need for these provisions (Sec.  330.10(h)-(i)) 
and simplifying coverage for depositors. Accordingly, the death of a 
revocable trust owner would not result in a decrease in deposit 
insurance coverage for the trust. Coverage for irrevocable and 
revocable trusts would fall under the same category and deposit 
insurance coverage would remain the same, even after the expiration of 
the six-month grace period following the death of a deposit owner.\48\
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    \47\ As noted above, if a revocable trust becomes irrevocable 
due to the death of the grantor, the trust's deposit continues to be 
insured under the revocable trust rules. 12 CFR 330.10(h).
    \48\ The death of an account owner can affect deposit insurance 
coverage, often reducing the amount of coverage that applies to a 
family's accounts. To ensure that families dealing with the death of 
a family member have adequate time to review and restructure 
accounts if necessary, the FDIC insures a deceased owner's accounts 
as if he or she were still alive for a period of six months after 
his or her death. 12 CFR 330.3(j).
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Calculation of Coverage
    The FDIC is proposing to use one streamlined calculation to 
determine the amount of deposit insurance coverage for deposits of 
revocable and irrevocable trusts. This method is already utilized by 
the FDIC to calculate coverage for revocable trusts that have five or 
fewer beneficiaries and it is an aspect of the rules that is generally 
well-understood by bankers and trust depositors.
    The proposed rule would provide that a grantor's trust deposits are 
insured in an amount up to the SMDIA (currently $250,000) multiplied by 
the number of trust beneficiaries, not to exceed five beneficiaries. 
The FDIC would presume that, for deposit insurance purposes, the trust 
provides for equal treatment of beneficiaries such that specific 
allocation of the funds to the respective beneficiaries will not be 
relevant, consistent with the FDIC's current treatment of revocable 
trusts with five or fewer beneficiaries. This would, in effect, limit 
coverage for a grantor's trust deposits at each IDI to a total of 
$1,250,000; in other words, maximum coverage would be equivalent to 
$250,000 per beneficiary up to five beneficiaries. In determining 
deposit insurance coverage, the FDIC would continue to only consider 
beneficiaries that are expected to receive the deposit held by the 
trust in the IDI; the FDIC would not consider beneficiaries who are 
expected to receive only non-deposit assets of the trust.
    The FDIC is proposing to calculate coverage in this manner based on 
its experience with the revocable trust rules after the most recent 
modifications to these rules in 2008. The FDIC has found that the 
deposit insurance calculation method for revocable trusts with five or 
fewer beneficiaries has been the most straightforward and is easy for 
bankers and the public to understand. This calculation provides for 
insurance in an amount up to the total number of unique grantor-
beneficiary trust relationships (i.e., the number of grantors, 
multiplied by the total number of beneficiaries, multiplied by the 
SMDIA).\49\ In addition to being simpler,

[[Page 41773]]

this calculation has proven beneficial in resolutions, as it leads to 
more prompt deposit insurance determinations and quicker access to 
insured deposits for depositors. Accordingly, the FDIC proposes to 
calculate deposit insurance coverage for trust deposits based on the 
simpler calculation currently used for revocable trusts with five or 
fewer beneficiaries.
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    \49\ For example, two co-grantors that designate five 
beneficiaries are insured for up to $2,500,000 (2 x 5 x $250,000).
---------------------------------------------------------------------------

    The streamlined calculation that would be used to determine 
coverage for revocable trust deposits and irrevocable trust deposits 
includes a limit on the total amount of deposit insurance coverage for 
all of a depositor's funds in the trust category at the same IDI. The 
proposed rule would provide coverage for trust deposits at each IDI up 
to a total of $1,250,000 per grantor; in other words, each grantor's 
insurance limit would be $250,000 per beneficiary up to a maximum of 
five beneficiaries. The level of five beneficiaries is an important 
threshold in the current revocable trust rules, as it defines whether a 
grantor's coverage is determined using the simpler calculation of the 
number of beneficiaries multiplied by the SMDIA, rather than the more 
complex calculation involving the consideration of the amount of each 
beneficiary's specific interest (which applies when there are six or 
more beneficiaries). The trust rules currently limit coverage by tying 
coverage to the specific interests of each beneficiary of an 
irrevocable trust or of each beneficiary of a revocable trust with more 
than five beneficiaries. The proposed rule's $1,250,000 per-grantor, 
per-IDI limit is more straightforward and balances the objectives of 
simplifying the trust rules, promoting timely payment of deposit 
insurance, facilitating resolutions, ensuring consistency with the FDI 
Act, and limiting risk to the DIF.
    The FDIC anticipates that limiting coverage to $1,250,000 per 
grantor, per IDI, for trust deposits would affect very few depositors, 
as most trust deposits in past IDI failures have had balances well 
below this level. For example, data obtained from a sample of IDI 
failures from 2010-2020 suggests that only about 0.085 percent of 
depositors maintaining trust deposits might be affected by the proposed 
$1,250,000 limit.\50\ The FDIC does not possess sufficient information, 
however, to enable it to project the effects of the proposed limit on 
current depositors, and requests that commenters provide information 
that might be helpful in this regard.
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    \50\ Data from 2,550,001 depositors, including 249,257 trust 
account depositors, at 246 failed banks from September 17, 2010-
April 3, 2020. A total of 212 out of 249,257 (.085 percent) trust 
account depositors had more than $1.25 million in deposits across 
all of their trust accounts. Of these depositors, only 24 had more 
than five beneficiaries named in the bank's records. However, not 
all trust accounts in the sample maintained beneficiary records at 
the bank, so this likely underestimates the number of affected 
depositors.
---------------------------------------------------------------------------

    Under the proposed rule, to determine the level of insurance 
coverage that would apply to trust deposits, depositors would still 
need to identify the grantors and the eligible beneficiaries of the 
trust. The level of coverage that applies to trust deposits would no 
longer be affected by the specific allocation of trust funds to each of 
the beneficiaries of the trust or by contingencies outlined in the 
trust agreement. Instead, the proposed rule would provide that a 
grantor's trust deposits are insured up to a total of $1,250,000 per 
grantor, or an amount up to the SMDIA multiplied by the number of 
eligible beneficiaries, with a limit of no more than five 
beneficiaries.
Aggregation
    The proposed rule also provides for the aggregation of revocable 
and irrevocable trust deposits for purposes of applying the deposit 
insurance limit. Under the current rules, deposits of informal 
revocable trusts and formal revocable trusts are aggregated for this 
purpose.\51\ The proposed rule would aggregate a grantor's informal and 
formal revocable trust deposits, as well as irrevocable trust deposits. 
For example, all informal revocable trusts, formal revocable trusts and 
irrevocable trusts held for the same grantor, at the same IDI would be 
aggregated and the grantor's insurance limit would be determined by how 
many eligible and unique beneficiaries were identified between all of 
their trust accounts.\52\ The deposit insurance coverage provided in 
the ``trust accounts'' category would continue to remain separate from 
the coverage provided for other deposits held in a different right and 
capacity at the same IDI. However, a small number of depositors that 
currently maintain both revocable trust and irrevocable trust deposits 
at the same IDI may have deposits in excess of the insurance limit if 
these separate categories are combined. The FDIC does not have data on 
depositors' trust arrangements that would allow it to estimate the 
number of depositors that might be affected in this manner, and 
requests that commenters provide information that might be helpful in 
this regard.
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    \51\ See 12 CFR 330.10(a) (``all funds that a depositor holds in 
both living trust accounts and payable-on-death accounts, at the 
same FDIC-insured institution and naming the same beneficiaries, are 
aggregated for insurance purposes'').
    \52\ For example, if a grantor maintained both an informal 
revocable trust account with three beneficiaries and a formal 
revocable trust account with three separate and unique 
beneficiaries, the two accounts would be aggregated and the maximum 
deposit insurance available would be $1.25 million (1 grantor x 
SMDIA x number of unique beneficiaries, limited to 5). However, if 
the same three people were the beneficiaries of both accounts, the 
maximum deposit insurance available would be $750,000 (1 grantor x 
SMDIA x 3 unique beneficiaries).
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Eligible Beneficiaries
    Currently, the revocable trust rules provide that beneficiaries 
include natural persons, charitable organizations, and non-profit 
entities recognized as such under the Internal Revenue Code of 
1986,\53\ while the irrevocable trust rules do not establish criteria 
for beneficiaries. The FDIC believes that a single definition should be 
used to determine whether an entity is an ``eligible'' beneficiary for 
all trust deposits, and proposes to use the current revocable trust 
rule's definition. The FDIC believes that this will result in a change 
in deposit insurance coverage only in very rare cases.
---------------------------------------------------------------------------

    \53\ 12 CFR 330.10(c).
---------------------------------------------------------------------------

    The proposed rule also would exclude from the calculation of 
deposit insurance coverage beneficiaries that only would obtain an 
interest in a trust if one or more named beneficiaries are deceased 
(often referred to as contingent beneficiaries). In this respect, the 
proposed rule would codify existing practice to include only primary, 
unique beneficiaries in the deposit insurance calculation.\54\ This 
would not represent a substantive change in coverage. Consistent with 
treatment under the current trust rules, naming a chain of contingent 
beneficiaries that would obtain trust interests only in event of a 
beneficiary's death would not increase deposit insurance coverage.
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    \54\ See FDIC Financial Institution Employee's Guide to Deposit 
Insurance at 51 (``Sometimes the trust agreement will provide that 
if a primary beneficiary predeceases the owner, the deceased 
beneficiary's share will pass to an alternative or contingent 
beneficiary. Regardless of such language, if the primary beneficiary 
is alive at the time of an IDI's failure, only the primary 
beneficiary, and not the alternative or contingent beneficiary, is 
taken into account in calculating deposit insurance coverage.''). 
Including only unique beneficiaries means that when an owner names 
the same beneficiary on multiple trust accounts, the beneficiary 
will only be counted once in calculating trust coverage. For 
example, if a grantor has two trust deposit accounts and names the 
same beneficiary in both trust documents, the total deposit 
insurance coverage associated with that beneficiary is limited to 
$250,000 in total.
---------------------------------------------------------------------------

    Finally, the proposed rule would codify a longstanding 
interpretation of the trust rules where an informal

[[Page 41774]]

revocable trust designates the depositor's formal trust as its 
beneficiary. A formal trust generally does not meet the definition of 
an eligible beneficiary for deposit insurance purposes, but the FDIC 
has treated such accounts as revocable trust accounts under the trust 
rules, insuring the account as if it were titled in the name of the 
formal trust.\55\
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    \55\ See FDIC Financial Institution Employee's Guide to Deposit 
Insurance at 71.
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Retained Interests and Ineligible Beneficiaries' Interests
    The current trust rules provide that in some instances, funds 
corresponding to specific beneficiaries are aggregated with a grantor's 
single ownership deposits at the same IDI for purposes of the deposit 
insurance calculation. These instances include a grantor's retained 
interest in an irrevocable trust \56\ and interests of beneficiaries 
that do not satisfy the definition of ``beneficiary.'' \57\ This adds 
complexity to the deposit insurance calculation, as detailed review of 
a trust agreement may be required to value such interests in order to 
aggregate them with a grantor's other funds. In order to implement the 
streamlined calculation for trust deposits, the FDIC is proposing to 
eliminate these provisions. Under the proposed rules, the grantor and 
other beneficiaries that do not satisfy the definition of ``eligible 
beneficiary'' would not be included for purposes of the deposit 
insurance calculation.\58\ Importantly, this would not in any way limit 
a grantor's ability to establish such trust interests under State law. 
These interests simply would not factor into the calculation of deposit 
insurance coverage.
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    \56\ See 12 CFR 330.1(r); see also FDIC Financial Institution 
Employee's Guide to Deposit Insurance at 87.
    \57\ 12 CFR 330.10(d).
    \58\ In the unlikely event a trust does not name any eligible 
beneficiaries, the FDIC would treat the trust's deposits as single 
ownership deposits. Such deposits would be aggregated with any other 
single ownership deposits that the grantor maintains at the same IDI 
and insured up to the SMDIA of $250,000.
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Future Trusts Named as Beneficiaries
    Trusts often contain provisions for the establishment of one or 
more new trusts upon the grantor's death, and the proposed rule also 
would clarify deposit insurance coverage in these situations. 
Specifically, if a trust agreement provides that trust funds will pass 
into one or more new trusts upon the death of the grantor (or 
grantors), the future trust (or trusts) would not be treated as 
beneficiaries for purposes of the calculation. The future trust(s) 
instead would be considered mechanisms for distributing trust funds, 
and the natural persons or organizations that receive the trust funds 
through the future trusts would be considered the beneficiaries for 
purposes of the deposit insurance calculation. This clarification is 
consistent with published guidance and would not represent a 
substantive change in deposit insurance coverage.\59\
---------------------------------------------------------------------------

    \59\ See FDIC Financial Institution Employee's Guide to Deposit 
Insurance at 74.
---------------------------------------------------------------------------

Naming of Beneficiaries in Deposit Account Records
    Consistent with the current revocable trust rules, the proposed 
rule would continue to require the beneficiaries of an informal 
revocable trust to be specifically named in the deposit account records 
of the IDI.\60\ The FDIC does not believe this requirement imposes a 
burden on IDIs, as informal revocable trusts by their nature require 
the IDI to be able to identify the individuals or entities to which a 
deposit would be paid upon the depositor's death.
---------------------------------------------------------------------------

    \60\ See 12 CFR 330.10(b)(2).
---------------------------------------------------------------------------

Presumption of Ownership
    The proposed rule also would state that, unless otherwise specified 
in an IDI's deposit account records, a deposit of a trust established 
by multiple grantors is presumed to be owned in equal shares. This 
presumption is consistent with the current revocable trust rules.\61\
---------------------------------------------------------------------------

    \61\ See 12 CFR 330.10(f).
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Bankruptcy Trustee Deposits
    The proposed rule would continue the current treatment of deposits 
placed at an IDI by a bankruptcy trustee. If funds of multiple 
bankruptcy estates were commingled in a single account at the IDI, each 
estate would be separately insured up to the SMDIA.
Deposits Covered Under Other Rules
    The proposed rule would exclude from coverage under Sec.  330.10 
certain trust deposits that are covered by other sections of the 
deposit insurance regulations. For example, employee benefit plan 
deposits are insured pursuant to Sec.  330.14, and investment company 
deposits are insured as corporate deposits pursuant to Sec.  330.11. 
Deposits held by an insured depository institution in its capacity as 
trustee of an irrevocable trust are insured pursuant to Sec.  330.12. 
In addition, if the co-owners of an informal or formal revocable trust 
are the trust's sole beneficiaries, deposits held in connection with 
the trust would be treated as joint deposits under Sec.  330.9. In each 
of these cases, the FDIC is not proposing to change the current rule.
Conforming Changes
    The proposed simplification of the calculation for insurance 
coverage for trust deposits also would permit the elimination of 
certain definitions from Sec.  330.1 of the regulations. Specifically, 
Sec.  330.1 defines ``trust interest'' and ``non-contingent trust 
interest,'' terms that are used in connection with the current 
irrevocable trust rules. Because the proposed rule would eliminate the 
evaluation of contingencies in determining coverage for trust deposits, 
the FDIC is proposing to remove these definitions from the regulation.
Enhancements to Claims Processes
    The FDIC is also considering enhancements to its claims processes 
to further promote prompt insurance determinations for trust deposits. 
For example, the FDIC may be able to establish enhanced processes and 
systems for reaching out to depositors and obtaining trust 
documentation following an IDI's failure. The claims process 
enhancements adopted by the FDIC will likely depend upon the amendments 
to the deposit insurance rules, if any, that are adopted through this 
rulemaking.

D. Examples Demonstrating Coverage Under Current and Proposed Rules

    To assist commenters, the FDIC is providing examples demonstrating 
how the proposed rule would apply to determine deposit insurance 
coverage for trust deposits. These examples are not intended to be all-
inclusive; they merely address a few possible scenarios involving trust 
deposits. The FDIC expects that for the vast majority of depositors, 
insurance coverage would not change under the proposed rule. The 
examples here specifically highlight a few instances where coverage 
could be reduced to ensure that commenters are aware of them. In 
addition, in any instances where a trust is established, the examples 
assume that the trustee is not an IDI.
Example 1: Payable-on-Death Account
    Depositor A establishes a payable-on-death account at an FDIC-
insured bank. A has designated three beneficiaries for this deposit--B, 
C, and D--who will receive the funds upon her death, and listed all 
three on a form provided to the bank. The only other deposit account 
that A maintains at the same bank is a checking account with no 
designated beneficiaries. What is the maximum amount of deposit 
insurance coverage for A's deposits at the bank?

[[Page 41775]]

    Under the proposed rule, Depositor A's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. The maximum coverage for this deposit would be 
equal to the SMDIA (currently $250,000) multiplied by the number of 
grantors (in this case, one because A established the account herself) 
multiplied by the number of beneficiaries, up to a maximum of five 
(here three, the number of beneficiaries, is less than five). A's 
payable-on-death account would be insured for up to: ($250,000) x (1) x 
(3) = $750,000.
    The coverage for A's payable-on-death account is separate from the 
coverage provided for A's checking account, which would be insured in 
the single ownership category because she has not named any 
beneficiaries for that account. The single ownership checking account 
would be insured up to the SMDIA, $250,000. A's total insurance 
coverage for her deposits at the bank would be: $750,000 + $250,000 = 
$1,000,000. Notably, this level of coverage is the same as that 
provided by the current deposit insurance rules.
Example 2: Formal Revocable Trust and Informal Revocable Trust
    Depositors E and F jointly establish a payable-on-death account at 
an FDIC-insured bank. E and F have designated three beneficiaries for 
this deposit--G, H and I--who will receive the funds after both E and F 
are deceased. They list these beneficiaries on a form provided to the 
bank. E and F also jointly establish an account titled in the name of 
the ``E and F Living Trust'' at the same bank. E and F are the grantors 
of the living trust, a formal revocable trust that includes the same 
three beneficiaries, G, H, and I. The grantors, E and F, do not 
maintain any other deposit accounts at this same bank. What is the 
maximum amount of deposit insurance coverage for E and F's deposits?
    Under the proposed rule, E and F's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. E and F's living trust account constitutes a 
formal revocable trust and also would be insured in the trust accounts 
category. To the extent these deposits would pass from the same grantor 
(E or F) to beneficiaries (G, H, and I), they would be aggregated for 
purposes of applying the deposit insurance limit. As under the current 
rules, it would be irrelevant that the grantors' deposits are divided 
between the payable-on-death account and the living trust account.
    The maximum coverage for E and F's deposits would be equal to the 
SMDIA ($250,000) multiplied by the number of grantors (two, because E 
and F are the grantors with respect to both deposits) multiplied by the 
number of unique beneficiaries, up to a maximum of five (here three, 
the number of beneficiaries, is less than five). Therefore, the 
coverage for E and F's trust deposits would be: ($250,000) x (2) x (3) 
= $1,500,000. This level of coverage is the same as that provided by 
the current deposit insurance rules.
Example 3: Two-Owner Trust and a One-Owner Trust
    Depositors J and K jointly establish a payable-on-death account at 
an FDIC-insured bank. J and K have designated three beneficiaries for 
this deposit--L, M and N--who will receive the funds after both J and K 
are deceased. They list these beneficiaries on a form provided to the 
bank. At the same FDIC-insured bank, J establishes a payable-on-death 
account and designates K as the beneficiary upon J's death. What is the 
maximum amount of coverage for J and K's deposits?
    Under the proposed rule, both accounts would be insured under the 
trust account category. To the extent these deposits would pass from 
the same grantor (J or K) to beneficiaries (such as L, M, and N), they 
would be aggregated for purposes of applying the deposit insurance 
limit. For example, K identified three beneficiaries (L, M and N), and 
therefore, K's insurance limit is $750,000 (or 1 x 3 x SMDIA). K would 
be fully insured as long as one-half interest of the co-owned trust 
account was $750,000 or less, which is the same level of coverage 
provided under current rules.
    In this example, J's situation differs from K because J has a 
second trust account, but the insurance calculation remains the same. 
Specifically, J has two trust accounts and identified four unique 
beneficiaries (L, M, N, and K); therefore, J's insurance limit is 
$1,000,000 (or 1 x 4 x SMDIA). J would remain fully insured as long as 
J's trust deposits--equal to one-half of the co-owned trust account 
plus J's personal trust account--total no more than $1,000,000. This 
methodology and level of coverage is the same as that provided by the 
current deposit insurance rules.
Example 4: Revocable and Irrevocable Trusts
    Depositor O establishes a deposit account at an FDIC-insured bank 
titled the ``O Living Trust''. O is the grantor of this living trust, a 
formal revocable trust that includes three beneficiaries--P, Q, and R. 
The grantor, O, also establishes an irrevocable trust for the benefit 
of the same three beneficiaries. The trustee of the irrevocable trust 
maintains a deposit account at the same bank as the living trust 
account, titled in the name of the irrevocable trust. Neither O nor the 
trustee maintains other deposit accounts at the same bank. What is the 
insurance coverage for these deposits?
    Under the proposed rule, the living trust account is a deposit of a 
formal revocable trust and would be insured in the trust accounts 
category. The deposit of the irrevocable trust also would be insured in 
the trust accounts category. To the extent these deposits would pass 
from the same grantor (O) to beneficiaries (P, Q, or R), they would be 
aggregated for purposes of applying the deposit insurance limit. It 
would be irrelevant that the deposits are divided between the living 
trust account and the irrevocable trust account. The maximum coverage 
for these deposits would be equal to the SMDIA ($250,000) multiplied by 
the number of grantors (one, because O is the grantor with respect to 
both deposits) multiplied by the number of beneficiaries, up to a 
maximum of five (here three, the number of beneficiaries, is less than 
five). Therefore, the maximum coverage for the trust deposits would be: 
($250,000) x (1) x (3) = $750,000.
    This is one of the isolated instances where the proposed rule may 
provide a reduced amount of coverage as a result of the aggregation of 
revocable and irrevocable trust deposits, depending on the structure of 
the trust agreement. Under the current rules, O would be insured for up 
to $750,000 for revocable trust deposits and separately insured for up 
to $750,000 for irrevocable trust deposits (assuming non-contingent 
beneficial interests), resulting in $1,500,000 in total coverage. If 
that were the case, current coverage would exceed that provided by the 
proposed rule. However, the terms of irrevocable trusts sometimes lead 
to less coverage than depositors might expect. FDIC staff's experience 
is that irrevocable trust deposits are often insured only up to 
$250,000 under the current rules due to contingencies in the trust 
agreement, but determining this with certainty often requires careful 
consideration of the trust agreement's contingency provisions. Under 
the current rule, if contingencies existed, current coverage would 
exceed that provided by the proposed rule, as O would be insured up to 
$1,000,000; $750,000 for his revocable trust and $250,000 for his 
irrevocable trust. In the FDIC's view, one of the key benefits of the 
proposed rule versus the current rule would be greater clarity and 
predictability in

[[Page 41776]]

deposit insurance coverage because whether contingencies exist would no 
longer be a factor that could affect deposit insurance.
Example 5: Many Beneficiaries Named
    Depositor S establishes a deposit account at an FDIC-insured bank 
titled in the name of the ``S Living Trust''. This trust is a revocable 
trust naming seven beneficiaries--T, U, V, W, X, Y, and Z. The grantor, 
S, does not maintain any other deposits at the same bank. What is the 
coverage for this deposit?
    Under the proposed rule, the living trust account is a deposit of a 
formal revocable trust and would be insured in the trust accounts 
category. The maximum coverage for this deposit would be equal to the 
SMDIA ($250,000) multiplied by the number of grantors (one, because S 
is the sole grantor) multiplied by the number of beneficiaries, up to a 
maximum of five. Here the number of named beneficiaries (seven) exceeds 
the maximum (five) so insurance is calculated using the maximum (five). 
Coverage for the deposit would be: ($250,000) x (1) x (5) = $1,250,000.
    This is another limited instance where the proposed rule may 
provide for less coverage than the current rule. Under the current 
rule, because more than five beneficiaries are named, the deposit is 
insured up to the greater of: (1) Five times the SMDIA; or (2) the 
total of the interests of each beneficiary, with each such interest 
limited to the SMDIA. Determining coverage requires review of the trust 
agreement to ascertain each beneficiary's interest. Each such insurable 
interest is limited to the SMDIA, and the total of all of these 
interests is compared with $1,250,000 (five times the SMDIA). The 
current rule provides coverage in the greater of these two amounts. The 
result would fall into a range from $1,250,000 to $1,750,000, depending 
on the precise allocation of trust interests among the 
beneficiaries.\62\ In the FDIC's view, one of the key benefits of the 
proposed rule versus the current rule would be greater clarity and 
predictability in deposit insurance coverage because a single formula 
would be used to determine maximum coverage, and this formula would not 
depend upon the specific allocation of funds among beneficiaries.
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    \62\ For example, if all of the beneficiaries' interests were 
equal, coverage would be: $250,000 x (7 beneficiaries) = $1,750,000. 
This is the maximum coverage possible under the current rule. 
Conversely, if a few beneficiaries had a large interest in the 
trust, the total of all beneficiaries' interests (limited to the 
SMDIA per beneficiary) could be less than $1,250,000, in which case 
the current rule would provide a minimum of $1,250,000 in coverage. 
Depending upon the precise allocation of interests, the amount of 
coverage provided would fall somewhere within this range.
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E. Alternatives Considered

    The FDIC has considered a number of alternatives to the proposed 
rule that could meet its objectives in this rulemaking. Some of these 
alternatives are described below.
Insuring Revocable Trust Deposits up to $250,000 per Grantor and 
Irrevocable Trust Deposits up to $250,000 per Trust
    The FDIC considered limiting the total amount of deposit insurance 
coverage for revocable trust deposits to the SMDIA (currently $250,000) 
for each grantor and irrevocable trust deposits up to $250,000 per 
trust. This would dramatically simplify the trust rules because the 
determination of coverage would no longer require the review of trust 
agreements or the consideration of beneficiaries' interests. This 
alternative would therefore provide significant benefits in terms of 
supporting the timely payment of deposit insurance. However, this would 
substantially reduce deposit insurance coverage for many trust deposits 
that currently exceed $250,000. The FDIC therefore declined to pursue 
this proposal.
Provide Per-Beneficiary Coverage Where Beneficiary Information Is 
Maintained at the IDI
    The FDIC considered changing the trust rules to provide coverage of 
$250,000 per beneficiary for trust deposits only where the trust 
documentation necessary to determine insurance coverage is maintained 
in an IDI's deposit account records. This would promote the timely 
payment of deposit insurance and simplify insurance determinations, as 
the information required to calculate coverage would be immediately 
available to the FDIC following the failure of an IDI. However, such a 
requirement could prove burdensome and difficult to comply with for 
IDIs and depositors. Furthermore, even if depositors were to provide 
the necessary documentation to IDIs, they could be unaware as to 
whether the IDIs are maintaining that information in their records. 
Accordingly, the FDIC believes that this alternative may not promote 
depositor confidence in the level of coverage for their deposits.
Retain Separate Trust Categories, Harmonize Rules
    The FDIC also considered harmonizing the rules for calculating 
coverage for revocable and irrevocable trusts while maintaining these 
two categories as separate for deposit insurance purposes. The use of 
common rules would reduce complexity to some extent. However, so long 
as these categories remain separate, determining the level of coverage 
for a trust deposit would require the threshold inquiry as to whether 
the trust is revocable or irrevocable. This is because the deposits in 
each category would still be aggregated within each deposit insurance 
category for purposes of applying the insurance limit. The FDIC 
believes that the proposed rule provides greater benefits than this 
alternative.
Status Quo
    The FDIC is proposing amendments to the trust rules to advance the 
objectives discussed above, including making the rules more 
understandable for the public and depositors, promoting the timely 
payment of deposit insurance, and facilitating the administration of 
resolutions. The FDIC considered the status quo alternative to not 
amend the existing trust rules and not propose the amendments. However, 
for reasons previously stated in Section I.B entitled ``Background,'' 
the FDIC considers the proposed rule to be a more appropriate 
alternative.

F. Request for Comment

    The FDIC is requesting comment on all aspects of the proposed rule, 
including the alternatives presented. Comment is specifically invited 
with respect to the following questions:
    <bullet> Would the proposed amendments to the deposit insurance 
rules make insurance coverage for trust deposits easier to understand 
for bankers and the public?
    <bullet> The FDIC believes that depositors generally would have the 
information necessary to readily calculate deposit insurance coverage 
for their trust deposits under the proposed rule, allowing them to 
better understand insurance coverage for their trust deposits. Are 
there instances where a depositor would not likely have the necessary 
information?
    <bullet> Are there any other types of trusts not described in this 
proposal whose deposits would be affected by the proposed rule if 
adopted? What types of trusts are those and how would they be impacted?
    <bullet> While the FDIC has substantial experience regarding trust 
arrangements, the FDIC does not possess sufficiently detailed 
information on depositors' existing trust arrangements to allow the 
FDIC to project the proposed rule's effects on current depositors. Are 
there any other sources of empirical information that the FDIC should 
consider that may be helpful in

[[Page 41777]]

understanding the effects of the proposed rule? The FDIC also 
encourages commenters to provide such information, if possible.
    <bullet> Grandfathering of the deposit insurance rules would result 
in significantly greater complexity for the period of time during which 
two sets of rules could apply to deposits--especially in conducting 
resolutions. Therefore, the FDIC is not inclined to consider allowing 
grandfathering, but rather rely on a delayed implementation date to 
allow stakeholders to make necessary adjustments as a result of the new 
rules. However, the FDIC recognizes there are instances, such as trusts 
holding time deposits or other deposit relationships, which may not be 
easily restructured without adverse consequences to the depositor. Are 
there fact patterns where grandfathering the current rules may be 
appropriate? Would grandfathering be appropriate with respect to the 
proposed rule's coverage limit of $1,250,000 per IDI for a depositor's 
trust deposits?
    <bullet> Are the examples provided clear and understandable? Are 
there other common trust deposit scenarios that would benefit from an 
example being provided?
    <bullet> Would any of the alternatives described above better meet 
the FDIC's objectives in connection with this rulemaking? Are there any 
other alternatives that would better meet those objectives? Are there 
any other amendments to the deposit insurance rules applicable to 
trusts that the FDIC should consider?
    <bullet> For the covered institutions subject to part 370, what 
cost and time frame might be required to update information technology 
systems and deposit account records to be capable of calculating 
insurance coverage under the proposed rule? The FDIC also seeks any 
supporting information that commenters might be able to provide on this 
topic.

II. Amendments to Mortgage Servicing Account Rule

A. Policy Objectives

    The FDIC's regulations governing deposit insurance coverage include 
specific rules on deposits maintained at IDIs by mortgage servicers. 
These rules are intended to be easy to understand and apply in 
determining the amount of deposit insurance coverage for a mortgage 
servicer's deposits. The FDIC also seeks to avoid uncertainty 
concerning the extent of deposit insurance coverage for such deposits, 
as deposits in mortgage servicing accounts (MSAs) provide a source of 
funding for IDIs.
    The FDIC is proposing an amendment to its rules governing insurance 
coverage for deposits maintained at IDIs by mortgage servicers that 
consist of mortgagors' principal and interest payments. The proposed 
rule is intended to address a servicing arrangement that is not 
specifically addressed in the current rules. Specifically, some 
servicing arrangements may permit or require servicers to advance their 
own funds to the lenders when mortgagors are delinquent in making 
principal and interest payments, and servicers might commingle such 
advances in the MSA with principal and interest payments collected 
directly from mortgagors. This may be required, for example, under 
certain mortgage securitizations. The FDIC believes that the factors 
that motivated the FDIC to establish its current rules for mortgage 
servicing accounts, described below, argue for treating funds advanced 
by a mortgage servicer in order to satisfy mortgagors' principal and 
interest obligations to the lender as if such funds were collected 
directly from borrowers.

B. Background and Need for Rulemaking

    The FDIC's rules governing coverage for mortgage servicing accounts 
were adopted in 1990 following the transfer of responsibility for 
insuring deposits of savings associations from the FSLIC to the FDIC. 
Under the rules adopted in 1990, funds representing payments of 
principal and interest were insured on a pass-through basis to 
mortgagees, investors, or security holders. In adopting this rule, the 
FDIC focused on the fact that principal and interest funds were 
generally owned by investors, on whose behalf the servicer, as agent, 
accepted principal and interest payments. By contrast, payments of 
taxes and insurance were insured to the mortgagors or borrowers on a 
pass-through basis because the borrower owns such funds until tax and 
insurance bills are paid by the servicer.
    In 2008, however, the FDIC recognized that securitization methods 
and vehicles for mortgages had become more complex, exacerbating the 
difficulty of determining the ownership of deposits consisting of 
principal and interest payments by mortgagors and extending the time 
required to make a deposit insurance determination for deposits of a 
mortgage servicer in the event of an IDI's failure.\63\ The FDIC 
expressed concern that a lengthy insurance determination could lead to 
continuous withdrawal of deposits of principal and interest payments 
from IDIs and unnecessarily reduce a funding source for such 
institutions. The FDIC therefore amended its rules to provide coverage 
to lenders based on each mortgagor's payments of principal and interest 
into the mortgage servicing account, up to the SMDIA (currently 
$250,000) per mortgagor. The FDIC did not amend the rule for coverage 
of tax and insurance payments, which continued to be insured to each 
mortgagor on a pass-through basis and aggregated with any other 
deposits maintained by each mortgagor at the same IDI in the same right 
and capacity.
---------------------------------------------------------------------------

    \63\ See 73 FR 61658, 61658-59 (Oct. 17, 2008).
---------------------------------------------------------------------------

    The 2008 amendments to the rules for mortgage servicing accounts 
did not provide for the fact that servicers may be required to advance 
their own funds to make payments of principal and interest on behalf of 
delinquent borrowers to the lenders. However, this is required of 
mortgage servicers in some instances. For example, insured depository 
institutions covered by 12 CFR part 370, the FDIC's rule requiring 
recordkeeping and information technology capabilities for deposit 
insurance purposes (covered institutions), identified challenges to 
implementing certain recordkeeping requirements with respect to MSA 
deposit balances as a result of the way in which servicer advances are 
administered and accounted.\64\
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    \64\ In order to fulfill their contractual obligations with 
investors, covered institutions maintain mortgage principal and 
interest balances at a pool level and remittances, advances, advance 
reimbursement and excess funds applications that affect pool-level 
balances are not allocated back to individual borrowers.
---------------------------------------------------------------------------

    The current rule provides coverage for principal and interest funds 
only to the extent ``paid into the account by the mortgagors''; it does 
not provide coverage for funds paid into the account from other 
sources, such as the servicer's own operating funds, even if those 
funds satisfy mortgagors' principal and interest payments. As a result, 
advances are not provided the same level of coverage as other deposits 
in a mortgage servicing account consisting of principal and interest 
payments directly from the borrower, which are insured up to the SMDIA 
for each borrower. Instead, the advances are aggregated and insured to 
the servicer as corporate funds for a total of $250,000. The FDIC is 
concerned that this inconsistent treatment of principal and interest 
amounts could result in financial instability during times of stress, 
and could further complicate the insurance determination process, a 
result that is inconsistent with the FDIC's policy objective.

[[Page 41778]]

C. Proposed Rule

    The FDIC is proposing to amend the rules governing coverage for 
deposits in mortgage servicing accounts to provide consistent deposit 
insurance treatment for all MSA deposit balances held to satisfy 
principal and interest obligations to a lender, regardless of whether 
those funds are paid into the account by borrowers, or paid into the 
account by another party (such as the servicer) in order to satisfy a 
periodic obligation to remit principal and interest due to the lender. 
Under the proposed rule, accounts maintained by a mortgage servicer in 
an agency, custodial, or fiduciary capacity, which consist of payments 
of principal and interest, would be insured for the cumulative balance 
paid into the account in order to satisfy principal and interest 
obligations to the lender, whether paid directly by the borrower or by 
another party, up to the limit of the SMDIA per mortgagor. Mortgage 
servicers' advances of principal and interest funds on behalf of 
delinquent borrowers would therefore be insured up to the SMDIA per 
mortgagor, consistent with the coverage rules for payments of principal 
and interest collected directly from borrowers.\65\
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    \65\ Servicers' advances may have been insured under the rule 
that applied to mortgage servicing account deposits prior to 2008. 
Prior to 2008, mortgage servicing deposits were insured on a pass-
through basis. Under the pass-through insurance rules, the identity 
of the party that pays funds into a deposit account does not 
generally factor into insurance coverage. In this sense, the 
proposed rule can be viewed as restoring coverage to the previous 
level.
---------------------------------------------------------------------------

    The composition of an MSA attributable to principal and interest 
payments would also include collections by a servicer, such as 
foreclosure proceeds, that are used to satisfy a borrower's principal 
and interest obligation to the lender. In some cases, foreclosure 
proceeds may not be paid directly by a mortgagor. The current rule does 
not address whether foreclosure collections represent payments of 
principal and interest by a mortgagor. Under the proposed rule, 
foreclosure proceeds used to satisfy a borrower's principal and 
interest obligation would be insured up to the limit of the SMDIA per 
mortgagor.
    The proposed rule would make no change to the deposit insurance 
coverage provided for mortgage servicing accounts comprised of payments 
from mortgagors of taxes and insurance premiums. Such aggregate escrow 
accounts are held separately from the principal and interest MSAs and 
the deposits therein are held in trust for the mortgagors until such 
time as tax and insurance payments are disbursed by the servicer on the 
borrower's behalf. Under the proposed rule, such deposits would 
continue to be insured based on the ownership interest of each 
mortgagor in the account and aggregated with other deposits maintained 
by the mortgagor at the same IDI in the same capacity and right.

D. Request for Comment

    The FDIC is requesting comment on all aspects of the proposed rule. 
Comment is specifically invited with respect to the following 
questions:
    <bullet> Would the proposed amendments to the rules governing 
coverage for mortgage servicing accounts adequately address servicers' 
practices with respect to these accounts, as described above? Are there 
any other funds representing principal and interest that are commingled 
with borrowers' payments that the FDIC should take into account in the 
deposit insurance calculation, consistent with its policy objectives?
    <bullet> Would deposit insurance coverage of servicer principal and 
interest advances help to promote financial stability in the financial 
system? If the FDIC does not amend the rule as proposed, how would 
mortgage servicers react if their insured depository institution, or 
the banking industry as a whole, appears stressed? If so, how would 
funding arrangements or deposit relationships change?
    <bullet> Does the proposed rule reduce the compliance burden for 
part 370 covered institutions?
    <bullet> Are there any alternatives to the proposed rule that would 
better achieve the FDIC's policy objectives in connection with this 
rulemaking? Are there any other amendments to the deposit insurance 
rules applicable to MSAs that the FDIC should consider?

III. Regulatory Analysis

A. Expected Effects

1. Simplification of Trust Rules
    Generally, the proposed simplification of the trust rules is 
expected to have benefits including clarifying depositors' and bankers' 
understanding of the insurance rules, promoting the timely payment of 
deposit insurance following an IDI's failure, facilitating the transfer 
of deposit relationships to failed bank acquirers (thereby potentially 
reducing the FDIC's resolution costs), and addressing differences in 
the treatment of revocable trust deposits and irrevocable trust 
deposits contained in the current rules. The proposed amendments would 
directly affect the level of deposit insurance coverage provided to 
some depositors with trust deposits. In some cases, which the FDIC 
expects are rare, the proposed amendments could reduce deposit 
insurance coverage; for the vast majority of depositors, the FDIC 
expects the coverage level to be unchanged. The FDIC has also 
considered the impact of any changes in the deposit insurance rules on 
the DIF and on the covered institutions that are subject to part 370. 
Finally, the FDIC describes other potential effects of the proposal, 
such as the effects on information technology (IT) service providers to 
the institutions that could be affected by the proposed rule. These 
effects are discussed in greater detail below.
Effects on Deposit Insurance Coverage
    The proposed rule would affect deposit insurance coverage for 
deposits held in connection with trusts. According to the March 31, 
2021 Call Report data, the FDIC insures 4,987 depository institutions 
\66\ that report holding approximately 641 million deposit accounts. 
Additionally, 1,573 IDIs have powers granted by a state or national 
regulatory authority to administer accounts in a fiduciary capacity 
(i.e., trust powers) and 1,167 exercise those powers, comprising 31.5 
percent and 23.4 percent, respectively, of all IDIs.\67\ However, 
individual depositors may establish a trust account at an IDI even if 
that IDI does not itself have or exercise trust powers, and in fact, as 
discussed below, 99 percent of a sample of failed banks had trust 
accounts. Therefore, the FDIC estimates that the proposed rule, if 
adopted, could affect between 1,167 and 4,987 IDIs.
---------------------------------------------------------------------------

    \66\ The count of institutions includes FDIC-insured U.S. 
branches of institutions headquartered in foreign countries.
    \67\ FDIC Call Report data, March 31, 2021.
---------------------------------------------------------------------------

    The FDIC does not have detailed data on depositors' trust 
arrangements that would allow the FDIC to precisely estimate the number 
of trust accounts that are currently held by FDIC-insured institutions. 
However, the FDIC estimated the number of trust accounts and trust 
account depositors utilizing data from failed banks. Based on data from 
249 failed banks \68\ between 2010 and 2020, 335,657 deposit accounts--
owned by 250,139 distinct depositors--were trust accounts (revocable or 
irrevocable), out of a total of 3,013,575 deposit accounts. Thus, about 
11.14 percent of the deposit accounts at the 249 failed banks were 
trust accounts. Of

[[Page 41779]]

the 249 institutions, 247 (99 percent) reported having trust accounts 
at time of failure. Of the 247 failed banks that reported trust 
accounts, 212 reported not having trust powers as of their last Call 
Report. Assuming the percentage of trust accounts at failed banks is 
representative of the percentage of trust accounts among all FDIC-
insured institutions, the FDIC estimates, for purposes of this 
analysis, that there are approximately 71.4 million trust accounts in 
existence at FDIC-insured institutions.\69\ Additionally, based on the 
observed number of trust account depositors per trust account in the 
population of 249 failed banks, the FDIC estimates, for purposes of 
this analysis, that there are approximately 53.2 million trust 
depositors.\70\ These estimates are subject to considerable 
uncertainty, since the percentage of deposit accounts that are trust 
accounts and the number of depositors per trust account for all FDIC 
insured institutions may differ from what was observed at the 249 
failed banks. The FDIC does not have information that would shed light 
on whether or how the numbers of trust accounts and trust depositors at 
failed banks differs from the corresponding numbers for other FDIC-
insured institutions.
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    \68\ Data on failed banks comes from the FDIC's Claims 
Administration System, which contains data on depositors' funds from 
every failed IDI since September 2010.
    \69\ There were approximately 641 million deposit accounts 
reported by FDIC-insured institutions as of March 31, 2021, based on 
Call Report data. Assuming that 11.14 percent of accounts are trust 
accounts, then there are an estimated 71.4 million trust accounts as 
of March 31, 2021.
    \70\ Using the data from failed banks, 250,139 distinct 
depositors held 335,657 revocable or irrevocable trust accounts, or 
there were 0.745 trust account depositors per trust account (250,139 
divided by 335,657). The estimated number of trust depositors at 
FDIC-insured institutions (53.2 million) is obtained by multiplying 
the estimated number of trust accounts by the number of trust 
account depositors per trust account (71.4 million multiplied by 
0.745).
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    The FDIC also does not have detailed data on depositors' trust 
arrangements that would allow the FDIC to precisely estimate the 
quantitative effects of the proposed rule on deposit insurance 
coverage. Thus, the effects of the proposed changes to the insurance 
rules are outlined qualitatively below. The FDIC expects that most 
depositors would experience no change in the coverage for their 
deposits under the proposed rule. However, some depositors that 
maintain trust deposits would experience a change in their insurance 
coverage under the proposed rule.
    The FDIC anticipates that deposit insurance coverage for some 
irrevocable trust deposits would increase under the proposed rule. The 
FDIC's experience suggests that the provisions of the current 
irrevocable trust rules that require the identification and aggregation 
of contingent interests often apply due to the inclusion of 
contingencies in such trusts.\71\ Thus, even where an irrevocable trust 
names multiple beneficiaries, the current trust rules often provide a 
total of only $250,000 in deposit insurance coverage. The proposed rule 
would not consider such contingencies in the calculation of coverage, 
and per-beneficiary coverage would apply.
---------------------------------------------------------------------------

    \71\ As discussed above, the provisions relating to contingent 
interests may not apply when a trust has become irrevocable due to 
the death of one or more grantors. In such instances, the revocable 
trust rules continue to apply.
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    In limited instances, the proposed merger of the revocable trust 
and irrevocable trust categories may decrease coverage for depositors. 
Deposits of revocable trusts and deposits of irrevocable trusts are 
currently insured separately. The proposed rule would require 
aggregation for purposes of applying the deposit insurance limit, 
thereby increasing the likelihood of the combined trust account 
balances exceeding the insurance limit.\72\ However, the FDIC's 
experience is that irrevocable trust deposits comprise a relatively 
small share of the average IDI's deposit base,\73\ and that it is rare 
for IDIs to hold deposits in connection with irrevocable and revocable 
trusts established by the same grantor(s).\74\ Individual grantors' 
trust deposits held for the benefit of up to five different 
beneficiaries would continue to be separately insured.
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    \72\ As discussed above, deposits maintained by an IDI as 
trustee of an irrevocable trust would not be included in this 
aggregation, and would remain separately insured pursuant to section 
7(i) of the FDI Act and 12 CFR 330.12.
    \73\ Data obtained in connection with IDI failures during the 
recent financial crisis suggests that irrevocable trust deposits 
comprise less than one percent of trust deposits. However, as 
discussed above, the FDIC does not possess sufficient information to 
enable it to estimate the effects of the proposed rule on trust 
account depositors at all IDIs.
    \74\ In the data obtained in connection with IDI failures during 
the recent financial crisis, only 51 out of 250,139 depositors with 
trust accounts had both revocable and irrevocable types. Of these 51 
depositors, nine had total trust account balances greater than 
$250,000, and only one had a total trust balance of more than $1.25 
million.
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    With respect to revocable and irrevocable trusts, depositors who 
have designated more than five beneficiaries and structured their trust 
accounts in a manner that provides for more than $1,250,000 in coverage 
per grantor, per IDI under the current rules would experience a 
reduction in coverage. The FDIC's experience suggests that the 
$1,250,000 maximum coverage amount per grantor, per IDI would not 
affect the vast majority of trust depositors, as most trusts have 
either five or fewer beneficiaries, less than $1,250,000 per grantor on 
deposit at the same IDI, or are structured in a manner that results in 
only $1,250,000 in coverage under the current rules. The FDIC estimates 
that approximately 21,268 trust account depositors and approximately 
28,539 trust accounts could be directly affected by this aspect of the 
proposed rule, representing about 0.04 percent of both the estimated 
number of trust account depositors and the estimated number of trust 
accounts.\75\ The actual number of trust depositors and trust accounts 
impacted will likely differ, as the estimates rely on data from failed 
banks, and failed banks may differ from other institutions in their 
percentages of trust depositors or trust accounts. It is also possible 
depositors may restructure their deposits in response to changes to the 
rule, thus mitigating the potential effects on deposit insurance 
coverage.
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    \75\ To estimate the numbers of trust account depositors and 
trust accounts affected, the FDIC performed the following 
calculation. First, based on data from 249 failed banks between 2010 
and 2020, the FDIC determined that there were 335,657 trust accounts 
out of 3,013,575 deposit accounts (trust account share). Second, the 
FDIC determined the number of trust accounts per trust depositor 
(335,657/250,139). The FDIC then estimated the number of trust 
accounts by multiplying the trust account share (335,657/3,013,575) 
by the number of deposit accounts across all IDIs (640,918,226) 
according to March 31, 2021, Call Report data. This step yielded an 
estimate of 71,386,539 trust accounts. Based on the estimated number 
of trust accounts per trust depositor from the failed bank data, the 
FDIC estimated the total number of trust depositors to be 
53,198,823. Using failed bank data, 100 out of 250,139 trust 
depositors had balances in excess of $1.25 million in their trust 
accounts. Thus, the FDIC estimated that, of the approximately 53.2 
million trust depositors, (100/250,139) of them--approximately 
21,268--had balances in excess of $1.25 million in their trust 
accounts, and therefore could be directly affected by the proposal. 
These estimated 21,268 trust depositors are associated with an 
estimated 28,539 trust accounts, based on the observed number of 
trust accounts per trust depositor from the data from 249 failed 
banks between 2010 and 2020.
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Clarification of Insurance Rules
    The proposed merger of certain revocable and irrevocable trust 
categories is intended to clarify deposit insurance coverage for trust 
accounts. Specifically, the merger of these categories would mostly 
eliminate the need to distinguish revocable and irrevocable trusts 
currently required to determine coverage for a particular trust 
deposit. The benefit of the common set of rules would likely be 
particularly significant for depositors that have established 
arrangements involving multiple trusts, as they would no longer need to 
apply two different sets of rules to determine the level of deposit 
insurance coverage that would apply to their deposits. For example, the

[[Page 41780]]

proposed rule would eliminate the need to consider the specific 
allocation of interests among the beneficiaries of revocable trusts 
with six or more beneficiaries, as well as contingencies established in 
irrevocable trusts. The merger of the categories also would eliminate 
the need for current Sec.  330.10(h) and (i), which allows for the 
continued application of the revocable trust rules to the account of a 
revocable trust that becomes irrevocable due to the death of the 
trust's owner. As previously discussed, these provisions of the current 
trust rules have proven confusing as illustrated by the numerous 
inquiries that are consistently submitted to the FDIC on these topics.
    FDIC-insured depository institutions will incur some regulatory 
costs associated with making necessary changes to internal processes 
and systems and bank personnel training in order to accommodate the 
proposed rule's definition of ``trust accounts'' and attendant deposit 
insurance coverage terms, if adopted. There also may be some initial 
cost for institutions to become familiar with the proposed changes to 
the trust insurance coverage rules in order to be able to explain them 
to potential trust customers, counterbalanced to some extent by the 
fact that the proposed rules should be simpler for institutions to 
understand and explain going forward. As the business impacts and costs 
associated with operationalizing the proposed changes to the trust 
rules may vary significantly across IDIs, the FDIC would welcome 
industry comments in this regard.
Prompt Payment of Deposit Insurance
    The FDIC also expects that simplification of the trust rules would 
promote the timely payment of deposit insurance in the event of an 
IDI's failure. The FDIC's experience has been that the current trust 
rules often require detailed, time-consuming, and resource-intensive 
review of trust documentation to obtain the information that is 
necessary to calculate deposit insurance coverage. This information is 
often not found in an IDI's records and must be obtained from 
depositors after the IDI's failure. The proposed rule would ameliorate 
the operational challenge of calculating deposit insurance coverage, 
which could be particularly acute in the case of a failure of a large 
IDI with a large number of trust accounts. The proposed rule would 
streamline the review of trust documents required to make a deposit 
insurance determination, promoting more prompt payment of deposit 
insurance. Timely payment of deposit insurance also can help to 
facilitate the transfer of depositor relationships to a failed bank's 
acquirer, potentially expand resolution options, potentially reduce the 
FDIC's resolution costs, and support greater confidence in the banking 
system.
Deposit Insurance Fund Impact
    As discussed above, the proposed rule is expected to have mixed 
effects on the level of insurance coverage provided for trust deposits. 
Coverage for some irrevocable trust deposits would be expected to 
increase, but in the FDIC's experience, irrevocable trust deposits are 
not nearly as common as revocable trust deposits. The level of coverage 
for some trust deposits would be expected to decrease due to the 
proposed rule's simplified calculation of coverage and its aggregation 
of revocable and irrevocable trust deposits. As noted above, the FDIC 
does not have detailed data on depositors' trust arrangements to allow 
it to precisely project the quantitative effects of the proposed rule 
on deposit insurance coverage.
Indirect Effects
    A change in the level of deposit insurance coverage does not 
necessarily result in a direct economic impact, as deposit insurance is 
only paid to depositors in the event of an IDI's failure. However, 
changes in deposit insurance coverage may prompt depositors to take 
actions with respect to their deposits. In response to changes in the 
level of coverage under the proposed rules, trust depositors could 
maximize coverage relative to the coverage under the current rule by 
transferring some of their trust deposits to other types of accounts 
that provide similar or higher amounts of coverage or by amending the 
terms of their trusts. Parties affected could include IDIs, depositors, 
and other firms in the financial services marketplace (e.g., deposit 
brokers). Any costs borne by the depositor in moving a portion of the 
funds to a different IDI to stay under the insurance limit would be 
accompanied by benefits, such as more prompt deposit insurance 
determinations, and quicker access to insured deposits for depositors 
during the resolution process. The FDIC cannot estimate these effects 
because it does not have information on the individual costs of each 
action that confronts each depositor, their ability to amend their 
trust structure or move funds, and their subjective risk preference 
with respect to holding insured and uninsured deposits.
Part 370 Covered Institutions
    As discussed previously, institutions covered by part 370 must 
maintain deposit account records and systems capable of applying the 
deposit insurance rules in an automated manner. The proposed rule would 
change certain aspects of how coverage is determined for trust 
deposits. This could require covered institutions to reprogram certain 
systems to ensure that they continue to be capable of applying the 
deposit insurance rules as part 370 requires. A covered institution is 
not considered to be in violation of part 370 as a result of a change 
in law that alters the availability or calculation of deposit insurance 
for such period as specified by the FDIC following the effective date 
of such change.\76\
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    \76\ See 12 CFR 370.10(d).
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    The FDIC expects that the proposed rule would make the deposit 
insurance status of a trust account generally clearer. Moreover, since 
part 370 requires covered institutions to develop and maintain the 
capacity to calculate deposit insurance for its deposits, the proposed 
rule could make compliance with part 370 relatively less burdensome. 
This is because the underlying rules that would be applied to most 
trust deposits would be simplified. In particular, the proposed rule 
would require the aggregation of revocable and irrevocable trust 
deposits, categories that are currently separated for purposes of part 
370's recordkeeping provisions. The FDIC does not expect that the 
proposed rule would require significant changes with respect to covered 
institutions' treatment of informal revocable trust deposits. Moreover, 
many deposits of formal revocable trusts and irrevocable trusts 
currently fall within the scope of part 370's alternative recordkeeping 
provisions, meaning that covered institutions are not required to 
maintain all of the records necessary to calculate the maximum amount 
of deposit insurance coverage available for these deposits. These 
factors may diminish the impact of the proposed rule on the part 370 
covered institutions, but the FDIC does not have sufficient information 
on covered institutions' systems and records to quantify this.
    Although the FDIC does not have sufficient information to determine 
the time that might be required to reprogram systems, it believes that 
a two-year period of time may be reasonable. The FDIC requests comment 
on this proposal, including any information that commenters may be able 
to provide to support their views

[[Page 41781]]

on the time necessary to attain compliance with part 370 if the 
proposed rule is adopted.
Other Potential Effects
    Although the FDIC expects that coverage for most trust depositors 
would be unchanged under the proposal, and that the proposed changes 
simplify the FDIC's insurance rules for trust accounts, the proposal 
may have other potential effects. For example, the institutions 
affected by the proposal may rely on third-party IT service providers 
to perform insurance coverage estimates for their trust depositors. The 
proposal may lead such IT service providers to revise their systems to 
account for the proposal's changes.
2. Amendments to Mortgage Servicing Account Rule
    The proposed rule would affect the deposit insurance coverage for 
certain principal and interest payments within MSA deposits maintained 
at IDIs by mortgage servicers. According to the March 31, 2021 Call 
Report data, the FDIC insures 4,987 IDIs.\77\ Of the 4,987 IDIs, 1,167 
IDIs (23.4 percent) report holding mortgage servicing assets, which 
indicates that they service mortgage loans and could thus be affected 
by the proposed rule. In addition, mortgage servicing accounts may be 
maintained at IDIs that do not themselves service mortgage loans. The 
FDIC does not know how many IDIs are recipients of mortgage servicing 
account deposits, but believes that most IDIs are not. Therefore, the 
FDIC estimates that the number of IDIs potentially affected by the 
proposed rule, if adopted, would be greater than 1,167 and 
substantially less than 4,987.
---------------------------------------------------------------------------

    \77\ The count of institutions includes FDIC-insured U.S. 
branches of institutions headquartered in foreign countries.
---------------------------------------------------------------------------

    The FDIC does not have detailed data on MSAs that would allow the 
FDIC to reliably estimate the number of MSAs maintained at IDIs that 
would be affected by the proposed rule, or any potential change in the 
total amount of insured deposits. Thus, the potential effects of the 
proposed amendments regarding governing deposit insurance coverage for 
MSAs are outlined qualitatively below.
    The proposed rule would directly affect the level of deposit 
insurance coverage provided for some MSAs. Under the proposed rule, the 
composition of an MSA attributable to mortgage servicers' advances of 
principal and interest funds on behalf of delinquent borrowers and 
collections such as foreclosure proceeds would be insured up to the 
SMDIA per mortgagor, consistent with the coverage for payments of 
principal and interest collected directly from borrowers. Under the 
current rules, principal and interest funds advanced by a servicer to 
cover delinquencies, and foreclosure proceeds collected by servicers, 
are not be insured under the rules for MSA deposits, but instead are 
insured to the servicer as corporate funds up to the SMDIA. Therefore, 
the proposed rule would expand deposit insurance coverage in instances 
where an account maintained by a mortgage servicer contains principal 
and interest funds advanced by the servicer in order to satisfy the 
obligations of delinquent borrowers to the lender, or foreclosure 
proceeds collected by the servicers; and where the funds in such 
instances exceed the mortgage servicer's SMDIA.
    If enacted, the proposed rule is likely to benefit a servicer 
compelled by the terms of a pooling and servicing agreement to advance 
principal and interest funds to note holders when a borrower is 
delinquent, and therefore the servicer has not received such funds from 
the borrower. In the event that the IDI hosting the MSA for the 
servicer fails, the proposal reduces the likelihood that the funds 
advanced by the servicer are uninsured, and thereby facilitates access 
to, and helps avoids losses of, those funds. As previously discussed, 
the FDIC does not have detailed data on MSAs held at IDIs, pooling and 
servicing agreements for outstanding mortgage loans, or servicer 
payments into MSAs that would allow the FDIC to reliably estimate the 
number of, and volume of funds within, MSAs maintained at IDIs that 
would be affected by the proposed rule.
    Further, the proposed rule is likely to benefit an IDI who is 
hosting an MSA for a servicer that is compelled by the terms of a 
pooling and servicing agreement to advance principal and interest funds 
to note holders on behalf of delinquent borrowers by increasing the 
volume of insured funds. In the event that the IDI enters into a 
troubled condition, the proposed rule could marginally increase the 
stability of MSA deposits from such servicers, thereby increasing the 
general stability of funding.
    Finally, the FDIC believes that the proposed rule, if enacted, 
would pose general benefits to parties that provide or utilize 
financial services related to mortgage products by amending an 
inconsistency in the deposit insurance treatment for principal and 
interest payments made by the borrower and such payments made by the 
servicer on behalf of the borrower.
Effects on Part 370 Covered Institutions
    Institutions subject to the enhanced requirements of part 370 may 
bear some costs in recognizing the expanded coverage for servicer 
advances and foreclosure proceeds. However, institutions subject to the 
requirements of part 370 already are responsible for determining 
coverage for MSA accounts based on each borrower's payments. Therefore, 
the FDIC does not believe the impact of the proposal on part 370 
covered IDIs will be significant.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), requires that, in connection 
with a notice of proposed rulemaking, an agency prepare and make 
available for public comment an initial regulatory flexibility analysis 
that describes the impact of the proposed rule on small entities.\78\ 
However, a regulatory flexibility analysis is not required if the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities and publishes its 
certification and a short explanatory statement in the Federal Register 
together with the rule. The Small Business Administration (SBA) has 
defined ``small entities'' to include banking organizations with total 
assets of less than or equal to $600 million.\79\ Generally, the FDIC 
considers a significant effect to be a quantified effect in excess of 5 
percent of total annual salaries and benefits per institution, or 2.5 
percent of total noninterest expenses. The FDIC believes that effects 
in excess of these thresholds typically represent significant effects 
for small entities. The FDIC does not believe that the proposed rule, 
if adopted, will have a significant economic effect on a substantial 
number of small entities. However, some expected effects of the 
proposed rule are difficult to assess or accurately quantify given 
current information, therefore the FDIC has included an Initial 
Regulatory Flexibility Act Analysis in this section.
---------------------------------------------------------------------------

    \78\ 5 U.S.C. 601 et seq.
    \79\ The SBA defines a small banking organization as having $600 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended by 84 FR 34261, effective August 19, 2019). 
``SBA counts the receipts, employees, or other measure of size of 
the concern whose size is at issue and all of its domestic and 
foreign affiliates.'' See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the FDIC-supervised institution is ``small'' for 
the purposes of RFA.

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[[Page 41782]]

1. Simplification of Trust Rules
Reasons Why This Action Is Being Considered
    As previously discussed, the rules governing deposit insurance 
coverage for trust deposits have been amended on several occasions, but 
still frequently cause confusion for depositors. Under the current 
regulations, there are distinct and separate sets of rules applicable 
to deposits of revocable trusts and irrevocable trusts. Each set of 
rules has its own criteria for coverage and methods by which coverage 
is calculated. Despite the FDIC's efforts to simplify the revocable 
trust rules in 2008,\80\ over the last 10 years, FDIC deposit insurance 
specialists have responded to approximately 20,000 complex insurance 
inquiries per year on average. More than 50 percent pertain to deposit 
insurance coverage for trust accounts (revocable or irrevocable). The 
consistently high volume of complex inquiries about trust accounts over 
an extended period of time suggests continued confusion about insurance 
limits.
---------------------------------------------------------------------------

    \80\ See 73 FR 56706 (Sep. 30, 2008).
---------------------------------------------------------------------------

    The FDI Act requires the FDIC to pay depositors ``as soon as 
possible'' after a bank failure. However, the insurance determination 
and subsequent payment for many trust deposits can be delayed while 
FDIC staff reviews complex trust agreements and apply the rules for 
determining deposit insurance coverage. Moreover, in many of these 
instances, deposit insurance coverage for trust deposits is based upon 
information that is not maintained in the failed IDI's deposit account 
records. This requires FDIC staff to work with depositors, trustees, 
and other parties to obtain trust documentation following an IDI's 
failure in order to complete deposit insurance determinations. The 
difficulties associated with this are exacerbated by the substantial 
growth in the use of formal trusts in recent decades. For example, 
following the 2008 failure of IndyMac Federal Bank, FSB (IndyMac), FDIC 
claims personnel contacted more than 10,500 IndyMac depositors to 
obtain the trust documentation necessary to complete deposit insurance 
determinations for their revocable trust and irrevocable trust 
deposits. As noted previously, delays in the payment of deposit 
insurance could be consequential, as revocable trust deposits in 
particular can be used by depositors to satisfy their daily financial 
obligations.
Policy Objectives
    As discussed previously, the proposed amendments are intended to 
provide depositors and bankers with a rule for trust account coverage 
that is easy to understand, and also to facilitate the prompt payment 
of deposit insurance in accordance with the FDI Act. The FDIC believes 
that accomplishing these objectives also would further the agency's 
mission in other respects. Specifically, the proposed amendments would 
promote depositor confidence and further the FDIC's mission to maintain 
stability and promote public confidence in the U.S. financial system by 
assisting depositors to more readily and accurately determine their 
insurance limits. The proposed changes will also facilitate the 
resolution of failed IDIs in a least costly manner. The proposed 
amendments could reduce the FDIC's reliance on trust documentation 
(which could be difficult to obtain in a timely manner during 
resolutions of IDI failures) and provide greater flexibility to 
automate deposit insurance determinations, thereby reducing potential 
delays in the completion of deposit insurance determinations and 
payments. Finally, in proposing amendments to the trust rules, the 
FDIC's intent is that the changes would generally be neutral with 
respect to the DIF.
Legal Basis
    The FDIC's deposit insurance categories have been defined through 
both statute and regulation. Certain categories, such as the government 
deposit category, have been expressly defined by Congress.\81\ Other 
categories, such as joint deposits and corporate deposits, have been 
based on statutory interpretation and recognized through regulations 
issued in 12 CFR part 330 pursuant to the FDIC's rulemaking authority. 
In addition to defining the insurance categories, the deposit insurance 
regulations in part 330 provide the criteria used to determine 
insurance coverage for deposits in each category. The FDIC proposes to 
amend Sec.  330.10 of its regulations, which currently applies only to 
revocable trust deposits, to establish a new ``trust accounts'' 
category that would include both revocable and irrevocable trust 
deposits. For a more detailed discussion of the proposal's legal basis 
please refer to Section I.C entitled ``Description of Proposed Rule.''
---------------------------------------------------------------------------

    \81\ 12 U.S.C. 1821(a)(2).
---------------------------------------------------------------------------

The Proposed Rule
    The FDIC is proposing to amend the rules governing deposit 
insurance coverage for trust deposits. Generally, the proposed 
amendments would: Merge the revocable and irrevocable trust categories 
into one category; apply a simpler, common calculation method to 
determine insurance coverage for deposits held by revocable and 
irrevocable trusts; eliminate certain requirements found in the current 
rules for revocable and irrevocable trusts; and amend certain 
recordkeeping requirements for trust accounts. For a more detailed 
discussion of the proposed rule please refer to Section I.C entitled 
``Description of Proposed Rule.''
Small Entities Affected
    Based on the March 31, 2021 Call Report data, the FDIC insures 
4,987 depository institutions,\82\ of which 3,431 are considered small 
entities for the purposes of RFA.\83\ Of the 3,431 small IDIs, 826 have 
powers granted by a state or national regulatory authority to 
administer accounts in a fiduciary capacity and 567 exercise those 
powers, comprising 24.1 percent and 16.5 percent, respectively, of 
small IDIs.\84\ However, individuals may establish trust accounts at an 
IDI even if that IDI does not itself have or exercise authority to 
administer accounts in a fiduciary capacity, and in fact, as noted 
earlier, 99 percent of a sample of failed banks had trust accounts. 
Therefore, the FDIC estimates that the proposed rule, if adopted, could 
affect between 567 and 3,431 small, FDIC-insured institutions.
---------------------------------------------------------------------------

    \82\ The count of institutions includes FDIC-insured U.S. 
branches of institutions headquartered in foreign countries.
    \83\ FDIC Call Report data, March 31, 2021.
    \84\ Id.
---------------------------------------------------------------------------

    As noted in the Aggregation sub-section of Section I.C 
``Description of Proposed Rule,'' the FDIC does not have detailed data 
on depositors' trust arrangements for trust accounts held at small 
FDIC-insured institutions. Therefore, it is difficult to accurately 
estimate the number of small IDIs that would be potentially affected by 
the proposed rule. However, the FDIC believes that the number of small 
IDIs that will be directly affected by the proposal is likely to be 
small, given that in the agency's resolution experience only a small 
number of trust accounts have balances above the proposed coverage 
limit of $1,250,000 per grantor, per IDI for trust deposits. For 
example, data obtained from a sample of 249 IDIs that failed between 
2010 and 2020 show that only 100 depositors out of 250,139 (or 0.04 
percent) had trust account balances greater than $1.25 million; at 
small IDIs, 18 out of 34,304 depositors (or 0.05 percent) had trust 
account

[[Page 41783]]

balances greater than $1.25 million.\85\ The data from failed banks 
suggest small IDIs could be affected by the proposal roughly in 
proportion to the share of trust depositors with account balances 
greater than $1.25 million at IDIs of all sizes which failed between 
2010 and 2020.
---------------------------------------------------------------------------

    \85\ Whether a failed IDI is considered small is based on data 
from its four quarterly Call Reports prior to failure.
---------------------------------------------------------------------------

Expected Effects
    The proposed simplification of the deposit insurance rules for 
trust deposits is expected to have a variety of effects. The proposed 
amendments would directly affect the level of deposit insurance 
coverage provided to some depositors with trust deposits. In addition, 
simplification of the rules is expected to have benefits in terms of 
promoting the timely payment of deposit insurance following a small 
IDI's failure, facilitating the transfer of deposit relationships to 
failed bank acquirers with consequent potential reductions to the 
FDIC's resolution costs, and addressing differences in the treatment of 
revocable trust deposits and irrevocable trust deposits contained in 
the current rules. The FDIC has also considered the impact of any 
changes in the deposit insurance rules on the DIF and other potential 
effects.\86\ These effects are discussed in greater detail in Section 
III.A entitled ``Expected Effects.''
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    \86\ The FDIC has also considered the impact of any changes in 
the deposit insurance rules on the covered institutions that are 
subject to part 370. As described previously, part 370 affects IDIs 
with two million or more deposit accounts. Based on Call Report data 
as of March 31, 2021, the FDIC does not insure any institutions with 
two million or more deposit accounts that are also considered small 
entities.
---------------------------------------------------------------------------

    Overall, due to the fact that the FDIC expects most small IDIs to 
have only a small number of trust accounts with balances above the 
proposed coverage limit of $1,250,000 per grantor, per IDI for trust 
deposits, effects on the deposit insurance coverage of small entities' 
customers are likely to be small. There also may be some initial cost 
for small entities to become familiar with the proposed changes to the 
trust insurance coverage rules in order to be able to explain them to 
potential trust customers, counterbalanced to some extent by the fact 
that the proposed rules should be simpler to understand and explain 
going forward. As the business impacts and costs associated with 
operationalizing the proposed changes to the trust rules may vary 
significantly across IDIs, the FDIC would welcome industry comments in 
this regard.
Alternatives Considered
    The FDIC has considered a number of alternatives to the proposed 
rule that could meet its objectives in this rulemaking. However, for 
reasons previously stated in Section I.E ``Alternatives Considered,'' 
the FDIC considers the proposed rule to be a more appropriate 
alternative.
    The FDIC also considered the status quo alternative to not amend 
the existing trust rules. However, for reasons previously stated in 
Section I.E ``Alternatives Considered,'' the FDIC considers the 
proposed rule to be a more appropriate alternative.
Other Statutes and Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflict between this proposal and any other federal rule.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would the 
proposal have any significant effects on small entities that the FDIC 
has not identified?
2. Amendments to Mortgage Servicing Account Rule
Reasons Why This Action Is Being Considered
    As previously discussed, the FDIC provides coverage, up to the 
SMDIA for each borrower, for principal and interest funds in MSAs only 
to the extent ``paid into the account by the mortgagors,'' and does not 
provide coverage for funds paid into the account from other sources, 
such as the servicer's own operating funds, even if those funds satisfy 
mortgagors' principal and interest payments under the current rules. 
The advances are aggregated and insured to the servicer as corporate 
funds for a total of $250,000. Under some servicing arrangements, 
however, mortgage servicers may be required to advance their own funds 
to make payments of principal and interest on behalf of delinquent 
borrowers to the lenders in certain circumstances. Thus, under the 
current rules, such advances are not provided the same level of 
coverage as other deposits in a mortgage servicing account comprised of 
principal and interest payments directly from the borrower. This could 
result in delayed access to certain funds in an MSA, or to the extent 
that aggregated advances insured to the servicer exceed the insurance 
limit, loss of such funds, in the event of an IDI's failure. The FDIC 
is therefore proposing to amend its rules governing coverage for 
deposits in mortgage servicing accounts to address this inconsistency.
Policy Objectives
    As discussed previously, the FDIC's regulations governing deposit 
insurance coverage include specific rules on deposits maintained at 
IDIs by mortgage servicers. With the proposed amendments, the FDIC 
seeks to address an inconsistency concerning the extent of deposit 
insurance coverage for such deposits, as in the event of an IDI's 
failure the current rules could result in delayed access to certain 
funds in a mortgage servicing account (MSA) that have been aggregated 
and insured to a mortgage servicer, or to the extent that aggregated 
funds insured to a servicer exceed the insurance limit, loss of such 
funds.
    The proposed rule is intended to address a servicing arrangement 
that is not specifically addressed in the current rules. Specifically, 
some servicing arrangements may permit or require servicers to advance 
their own funds to the lenders when mortgagors are delinquent in making 
principal and interest payments, and servicers might commingle such 
advances in the MSA with principal and interest payments collected 
directly from mortgagors. This may be required, for example, under 
certain mortgage securitizations. The FDIC believes that the factors 
that motivated the FDIC to establish its current rules for MSAs, 
described previously, argue for treating funds advanced by a mortgage 
servicer in order to satisfy mortgagors' principal and interest 
obligations to the lender as if such funds were collected directly from 
borrowers.
Legal Basis
    The FDIC's deposit insurance categories have been defined through 
both statute and regulation. Certain categories, such as the government 
deposit category, have been expressly defined by Congress. Other 
categories, such as joint deposits and corporate deposits, have been 
based on statutory interpretation and recognized through regulations 
issued in 12 CFR part 330 pursuant to the FDIC's rulemaking authority. 
In addition to defining the insurance categories, the deposit insurance 
regulations in part 330 provide the criteria used to determine 
insurance coverage for deposits in each category. The FDIC proposes to 
amend Sec.  330.7(d) of its regulations, which currently applies only 
to cumulative balance paid by the mortgagors into an MSA maintained by 
a mortgage servicer, to include balances paid in to the account to 
satisfy mortgagors' principal or interest obligations to the lender. 
For a more detailed discussion of the

[[Page 41784]]

proposal's legal basis please refer to Section II.C, entitled 
``Proposed Rule.''
The Proposed Rule
    The FDIC is proposing to amend the rules governing deposit 
insurance coverage for deposits maintained at IDIs by mortgage 
servicers. Generally, the proposed amendment would provide consistent 
deposit insurance treatment for all MSA deposit balances held to 
satisfy principal and interest obligations to a lender, regardless of 
whether those funds are paid into the account by borrowers, or paid 
into the account by another party (such as the servicer) in order to 
satisfy a periodic obligation to remit principal and interest due to 
the lender. The composition of an MSA attributable to principal and 
interest payments would include mortgage servicers' advances of 
principal and interest funds on behalf of delinquent borrowers, and 
collections by a servicer such as foreclosure proceeds. The proposed 
rule would make no change to the deposit insurance coverage provided 
for mortgage servicing accounts comprised of payments from mortgagors 
of taxes and insurance premiums. For a more detailed discussion of the 
proposed rule please refer to Section II.C, entitled ``Proposed Rule.''
Small Entities Affected
    Based on the March 31, 2021 Call Report data, the FDIC insures 
4,987 depository institutions, of which 3,431 are considered small 
entities for the purposes of RFA. Of the 3,431 small IDIs, 491 IDIs 
(14.3 percent) report holding mortgage servicing assets, which 
indicates that they service mortgage loans and could thus be affected 
by the proposed rule. However, mortgage servicing accounts may be 
maintained at small IDIs that do not themselves service mortgage loans. 
The FDIC does not know how many IDIs that are small entities are 
recipients of mortgage servicing account deposits, but believes that 
most such entities are not because there are relatively few mortgage 
servicers.\87\ Therefore, the FDIC estimates that the number of small 
IDIs potentially affected by the proposed rule, if adopted, would be 
between 491 and 3,431, but believes that the number is close to the 
lower end of the range.
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    \87\ According to the U.S. Census Bureau within the ``Other 
Activities Related to Credit Intermediation'' (NAICS 522390) 
national industry where mortgage servicers are captured there were 
3,595 firms in 2018, relative to the 37,627 firms in the Credit 
Intermediation and Related Activities subsector (NAICS 522).
---------------------------------------------------------------------------

    As noted in Section III.A, titled ``Expected Effects,'' the FDIC 
does not have detailed data on MSAs that would allow the FDIC to 
reliably estimate the number of MSAs maintained at IDIs that would be 
affected by the proposed rule, or any potential change in the total 
amount of insured deposits. Therefore, it is difficult to accurately 
estimate the number of small IDIs that would be potentially affected by 
the proposed rule.
Expected Effects
    The proposed rule would directly affect the level of deposit 
insurance coverage for certain funds within MSAs. If enacted, the 
proposed rule is likely to benefit a servicer compelled by the terms of 
a pooling and servicing agreement to advance principal and interest 
funds to note holders when a borrower is delinquent, and therefore the 
servicer has not received such funds from the borrower. In the event 
that the IDI hosting the MSA for the servicer fails, the proposal 
reduces the likelihood that the funds advanced by the servicer are 
uninsured, and thereby facilitates access to, and helps avoids losses 
of, those funds. As previously discussed, the FDIC does not have 
detailed data on MSAs held at IDIs, pooling and servicing agreements 
for outstanding mortgage loans, or servicer payments into MSAs that 
would allow the FDIC to reliably estimate the number of, and volume of 
funds within, MSAs maintained at IDIs that would be affected by the 
proposed rule.
    Further, the proposed rule is likely to benefit a small IDI who is 
hosting an MSA for a servicer that is compelled by the terms of a 
pooling and servicing agreement to advance principal and interest funds 
to note holders on behalf of delinquent borrowers by increasing the 
volume of insured funds. In the event that the small IDI enters into a 
troubled condition, the proposed rule could marginally increase the 
stability of MSA deposits from such servicers, thereby increasing the 
general stability of funding.
    Based on the preceding information the FDIC believes that the 
proposed rule, if enacted, is unlikely to have a significant economic 
effect on a substantial number of small entities.
Alternatives Considered
    The FDIC is proposing revisions to the deposit insurance rules for 
MSAs to advance the objectives discussed above. The FDIC considered the 
status quo alternative to not revise the existing rules for MSAs and 
not propose the revisions. However, for reasons previously stated in 
Section II.B, entitled ``Background and Need for Rulemaking,'' the FDIC 
considers the proposed rule to be a more appropriate alternative. Were 
the FDIC to not propose the revisions, then in the event of an IDI's 
failure the current rules could result in delayed access to certain 
funds in an MSA that have been aggregated and insured to a mortgage 
servicer, or to the extent that aggregated funds insured to a servicer 
exceed the insurance limit, loss of such funds.
Other Statutes and Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflict between this proposal and any other federal rule.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would the 
proposal have any significant effects on small entities that the FDIC 
has not identified?

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) states 
that no agency may conduct or sponsor, nor is the respondent required 
to respond to, an information collection unless it displays a currently 
valid Office of Management and Budget (OMB) control number. The FDIC 
has determined that this proposed rule does not create any new, or 
revise any existing, collections of information under section 3504(h) 
of the Paperwork Reduction Act (PRA). Consequently, no information 
collection request will be submitted to the OMB for review. The FDIC 
invites comment on its PRA determination.

D. Riegle Community Development and Regulatory Improvement Act

    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA) requires that the Federal banking 
agencies, including the FDIC, in determining the effective date and 
administrative compliance requirements of new regulations that impose 
additional reporting, disclosure, or other requirements on insured 
depository institutions, consider, consistent with principles of safety 
and soundness and the public interest, any administrative burdens that 
such regulations would place on depository institutions, including 
small depository institutions, and customers of depository 
institutions, as well as the benefits of such regulations.\88\ Subject 
to certain exceptions, new regulations and amendments to regulations 
prescribed by a Federal banking agency which impose additional 
reporting, disclosures, or other new requirements on insured depository 
institutions shall

[[Page 41785]]

take effect on the first day of a calendar quarter which begins on or 
after the date on which the regulations are published in final 
form.\89\
---------------------------------------------------------------------------

    \88\ 12 U.S.C. 4802(a).
    \89\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

    The proposed rule would not impose additional reporting or 
disclosure requirements on insured depository institutions, including 
small depository institutions, or on the customers of depository 
institutions. Accordingly, section 302 of RCDRIA does not apply. 
Nevertheless, the requirements of RCDRIA will be considered as part of 
the overall rulemaking process, and the FDIC invites comments that will 
further inform its consideration of RCDRIA.

E. Treasury and General Government Appropriations Act, 1999--Assessment 
of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule will not affect 
family well-being 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.\90\
---------------------------------------------------------------------------

    \90\ Public Law 105-277, 112 Stat. 2681 (Oct. 21, 1998).
---------------------------------------------------------------------------

F. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \91\ requires the Federal 
banking agencies to use plain language in all proposed and final 
rulemakings published in the Federal Register after January 1, 2000. 
The FDIC invites your comments on how to make this proposal easier to 
understand. For example:
---------------------------------------------------------------------------

    \91\ Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999).
---------------------------------------------------------------------------

    <bullet> Has the FDIC organized the material to suit your needs? If 
not, how could the material be better organized?
    <bullet> Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be stated more clearly?
    <bullet> Does the proposed regulation contain language or jargon 
that is unclear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand?

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Reporting and recordkeeping requirements, 
Savings associations.

Authority and Issuance

    For the reasons stated above, the Federal Deposit Insurance 
Corporation proposes to amend part 330 of title 12 of the Code of 
Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 continues to read as follows:

    Authority:  12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 
1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c).


Sec.  330.1  [Amended]

0
2. Amend Sec.  330.1 by removing and reserving paragraphs (m) and (r).
0
3. Revise Sec.  330.7(d) to read as follows:


Sec.  330.7  Accounts held by an agent, nominee, guardian, custodian or 
conservator.

* * * * *
    (d) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments of principal and interest, shall be insured for 
the cumulative balance paid into the account by mortgagors, or in order 
to satisfy mortgagors' principal or interest obligations to the lender, 
up to the limit of the SMDIA per mortgagor. Accounts maintained by a 
mortgage servicer, in a custodial or other fiduciary capacity, which 
are comprised of payments by mortgagors of taxes and insurance premiums 
shall be added together and insured in accordance with paragraph (a) of 
this section for the ownership interest of each mortgagor in such 
accounts.
* * * * *
0
4. Revise Sec.  330.10 to read as follows:


Sec.  330.10  Trust accounts.

    (a) Scope and definitions. This section governs coverage for 
deposits held in connection with informal revocable trusts, formal 
revocable trusts, and irrevocable trusts not covered by Sec.  330.12 
(``trust accounts''). For purposes of this section:
    (1) Informal revocable trust means a trust under which a deposit 
passes directly to one or more beneficiaries upon the depositor's death 
without a written trust agreement, commonly referred to as a payable-
on-death account, in-trust-for account, or Totten trust account.
    (2) Formal revocable trust means a revocable trust established by a 
written trust agreement under which a deposit passes to one or more 
beneficiaries upon the grantor's death.
    (3) Irrevocable trust means an irrevocable trust established by 
statute or a written trust agreement and not otherwise insured as 
described in Sec.  330.12.
    (b) Calculation of coverage--(1) General calculation. Each 
grantor's trust deposits are insured in an amount up to the SMDIA 
multiplied by the total number of beneficiaries identified by the 
grantor, up to a maximum of 5 beneficiaries.
    (2) Aggregation for purposes of insurance limit. Trust deposits 
that pass from the same grantor to beneficiaries are aggregated for 
purposes of determining coverage under this section, regardless of 
whether those deposits are held in connection with an informal 
revocable trust, formal revocable trust, or irrevocable trust.
    (3) Separate insurance coverage. The deposit insurance coverage 
provided under this section is separate from coverage provided for 
other deposits at the same insured depository institution.
    (4) Equal allocation presumed. Unless otherwise specified in the 
deposit account records of the insured depository institution, a 
deposit held in connection with a trust established by multiple 
grantors is presumed to have been owned or funded by the grantors in 
equal shares.
    (c) Number of beneficiaries. For purposes only of determining the 
total number of beneficiaries for a trust deposit under paragraph (b) 
of this section:
    (1) Eligible beneficiaries. Subject to paragraph (c)(2) of this 
section, beneficiaries include natural persons, as well as charitable 
organizations and other non-profit entities recognized as such under 
the Internal Revenue Code of 1986, as amended.
    (2) Ineligible beneficiaries. Beneficiaries do not include:
    (i) The grantor of a trust; or
    (ii) A person or entity that would only obtain an interest in the 
deposit if one or more named beneficiaries are deceased.
    (3) Future trust(s) named as beneficiaries. If a trust agreement 
provides that trust funds will pass into one or more new trusts upon 
the death of the grantor(s), the future trust(s) are not treated as 
beneficiaries of the trust; rather, the future trust(s) are viewed as 
mechanisms for distributing trust funds, and the beneficiaries are the 
natural persons or organizations that shall receive the trust funds 
through the future trusts.
    (4) Informal trust account payable to depositor's formal trust. If 
an informal revocable trust designates the depositor's formal trust as 
its beneficiary, the informal revocable trust account will be treated 
as if titled in the name of the formal trust.

[[Page 41786]]

    (d) Deposit account records--(1) Informal revocable trusts. The 
beneficiaries of an informal revocable trust must be specifically named 
in the deposit account records of the insured depository institution.
    (2) Formal revocable trusts. The title of a formal trust account 
must include terminology sufficient to identify the account as a trust 
account, such as ``family trust'' or ``living trust,'' or must 
otherwise be identified as a testamentary trust in the account records 
of the insured depository institution. If eligible beneficiaries of 
such formal revocable trust are specifically named in the deposit 
account records of the insured depository institution, the FDIC shall 
presume the continued validity of the named beneficiary's interest in 
the trust consistent with Sec.  330.5(a).
    (e) Commingled deposits of bankruptcy trustees. If a bankruptcy 
trustee appointed under title 11 of the United States Code commingles 
the funds of various bankruptcy estates in the same account at an 
insured depository institution, the funds of each title 11 bankruptcy 
estate will be added together and insured up to the SMDIA, separately 
from the funds of any other such estate.
    (f) Deposits excluded from coverage under this section--(1) 
Revocable trust co-owners that are sole beneficiaries of a trust. If 
the co-owners of an informal or formal revocable trust are the trust's 
sole beneficiaries, deposits held in connection with the trust are 
treated as joint ownership deposits under Sec.  330.9.
    (2) Employee benefit plan deposits. Deposits of employee benefit 
plans, even if held in connection with a trust, are treated as employee 
benefit plan deposits under Sec.  330.14.
    (3) Investment company deposits. This section shall not apply to 
deposits of trust funds belonging to a trust classified as a 
corporation under Sec.  330.11(a)(2).
    (4) Insured depository institution as trustee of an irrevocable 
trust. Deposits held by an insured depository institution in its 
capacity as trustee of an irrevocable trust are insured as provided in 
Sec.  330.12.


Sec.  330.13  [Removed and Reserved]

0
5. Remove and reserve Sec.  330.13.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on July 20, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-15732 Filed 8-2-21; 8:45 am]
BILLING CODE 6714-01-P


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