This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

25596

Vol. 61, No. 100

Wednesday, May 22, 1996

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 330

RIN 3064–AB73

Simplification of Deposit Insurance

Rules

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: The Board of Directors of the

Federal Deposit Insurance Corporation

(FDIC) is seeking comment on whether

the deposit insurance rules (insurance

regulations) should be simplified and, if

so, how. If the Board finds

simplification to be warranted, it will

propose specific amendments on which

public comment will then be invited.

The purpose of this notice is to solicit

comments to help guide the possible

preparation of a proposed rule. This

notice presents only a general

description of the insurance

simplification options being considered

and includes no regulatory text.

DATES: Written comments must be

received by the FDIC on or before

August 20, 1996.

ADDRESSES: Written comments are to be

addressed to the Office of the Executive

Secretary, Federal Deposit Insurance

Corporation, 550 17th Street, N.W.,

Washington, D.C. 20429. Comments

may be hand-delivered to Room F–402,

1776 F Street, N.W., Washington, D.C.

20429, on business days between 8:30

a.m. and 5 p.m. (FAX number: (202)

898–3838; Internet address:

comments@FDIC.gov). Comments will

be available for inspection in the FDIC

Public Information Center, room 100,

801 17th Street, N.W., Washington, D.C.,

between 9:00 a.m. and 5:00 p.m. on

business days.

FOR FURTHER INFORMATION CONTACT:

Joseph A. DiNuzzo, Acting Senior

Counsel, Legal Division, (202) 898–

7349; Adrienne George, Attorney, Legal

Division, (202) 898–3859; Federal

Deposit Insurance Corporation, 550 17th

Street, N.W., Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

Background

One of the FDIC’s corporate operating

projects under its Strategic Plan is to

simplify the deposit insurance rules.

The purpose is to promote public

understanding of deposit insurance and

to increase financial institution and

consumer understanding of deposit

insurance. This Advance Notice of

Proposed Rulemaking (Notice) is one of

the steps in realizing the project’s goals.

This effort to simplify the FDIC’s

insurance regulations, found in 12 CFR

part 330 (part 330), also is intended to

satisfy the provisions in section 303(a)

of the Riegle Community Development

and Regulatory Improvement Act of

1994, 12 U.S.C. 4803(a), to reduce

regulatory burden and improve

efficiency.

The FDIC revised its insurance

regulations twice in the recent past. The

first time, in 1990, was necessitated by

the termination of the Federal Savings

and Loan Insurance Corporation

(FSLIC). The Financial Institutions

Reform, Recovery, and Enforcement Act

of 1989 (FIRREA) (Pub. L. 101–73, 103

Stat. 183 (1989)) required the FDIC to

issue uniform insurance regulations for

deposits in all insured depository

institutions, including those previously

insured by the FSLIC. The second set of

recent changes in the FDIC insurance

rules were made pursuant to provisions

in the Federal Deposit Insurance

Corporation Improvement Act of 1991

(FDICIA) (Pub. L. 102–242 (1991)). A

provision in FDICIA, in essence, limited

the insurance coverage of employee

benefit and retirement plans. Also, in

February 1995, the FDIC issued

disclosure requirements in connection

with the limited availability of

insurance for employee benefit plan

accounts, 60 FR 7701 (Feb. 9, 1995).

The amendments made to the

insurance rules in 1990 not only

reconciled differences between the

FSLIC insurance regulations and the

then-existing FDIC regulations, they also

revised the insurance regulations to,

among other things, better organize and

define terms used in the regulations,

convert long-standing interpretive

opinions into regulations, resolve

outstanding issues and clarify

ambiguous provisions.

Although the insurance rules were

revised relatively recently, the

Corporation believes, preliminarily, that

at least some additional modification to

and simplification of the insurance rules

would be helpful. The need for these

changes has been brought to the FDIC’s

attention in several ways, especially

through the steady receipt of letters and

phone calls on insurance questions.

Experience with bank and thrift failures

also has enabled the staff to identify

procedural aspects of the regulations

which, when applied in accordance

with the regulations, may prove unfair

to certain depositors in some situations.

The FDIC must be mindful of the

applicable statutory parameters in

considering whether and to what extent

to modify the insurance regulations. The

general statutory basis for and guidance

on deposit insurance is found in section

11(a) of the Federal Deposit Insurance

Act (FDI Act), 12 U.S.C. 1821(a), which

provides, in relevant part, that deposits

are insured up to $100,000 based on the

‘‘right’’ and ‘‘capacity’’ in which the

deposits are maintained. The FDIC

interprets the ‘‘right-and-capacity’’

criterion as essentially meaning

ownership. Thus, the rules provide

‘‘separate’’ insurance coverage for

different types of accounts which are

owned in different ways. For example,

accounts owned by an individual are

not added to joint accounts in which

that same individual has an ownership

interest. ‘‘Separate’’ insurance means

that each category of account in which

a person has an ownership interest is

covered for up to $100,000 separately

insured from the funds in other

categories of accounts.

Possible Areas of Simplification

Preliminarily, the Board believes that

certain technical and moderate

substantive revisions to the deposit

insurance rules may be warranted.

Technical revisions would entail

rewriting ambiguous provisions of the

rules and generally making the rules

easier to understand. Moderate

substantive revisions would entail

making some substantive changes to the

rules (and statute) but the FDIC intends

to retain the principles that insurance is

based on deposit ownership and that

separate insurance coverage within the

same institution depends upon the

different ‘‘rights and capacities’’ in

which deposits can be held.
Federal Register / Vol. 61, No. 100 / Wednesday, May 22, 1996 / Proposed Rules 25597

The FDIC has identified the following

possible revisions to the insurance

regulations and laws:

1. Rewrite certain parts of the rules to

make them clearer and easier to

understand. Ambiguous and potentially

ambiguous provisions of the rules

would be rewritten and part 330 might

be reordered and reorganized.

2. Eliminate step one of the two steps

involved in determining insurance

coverage for joint accounts. Joint

ownership is one of the account

categories that qualifies for separate

insurance coverage. 12 CFR 330.7. Thus,

an individual who has an individual

deposit and interests in joint accounts at

the same insured bank or thrift would

be insured for up to $100,000 per

category of account. Currently deposit

insurance for joint accounts is

determined by a two-step process: first,

all joint accounts that are identically

owned (i.e., held by the same

combination of individuals) are added

together and the combined total is

insurable up to the $100,000 maximum;

second, each person’s interests in joint

accounts involving different

combinations of individuals are

combined and the total is insured up to

the $100,000 maximum.

One option to simplify the current

joint account rules is to eliminate the

first step of the two-step process. Under

this alternative, all funds held in joint

accounts would be allocated among the

owners and each owner’s interests in all

joint accounts (held at the same

depository institution) would be added

and insured up to $100,000 in the

aggregate.

3. Revise the recordkeeping rules

allowing the FDIC more flexibility (for

the benefit of depositors) in determining

the ownership of deposits held in a

custodial or fiduciary capacity. The

insurance regulations impose specific

recordkeeping requirements as a

precondition for insuring parties other

than those whose names appear on the

depository institution’s deposit account

records. 12 CFR 330.4. For example, if

A is acting as an agent for B, C, and D

and places funds belonging to them in

an insured bank or thrift, the

institution’s deposit account records

must show that A is holding the account

as an agent in order for the FDIC to

recognize the ownership interests of B,

C and D. The FDIC will then insure the

account as if it were held directly by B,

C, and D (the owners of the account) as

long as the institution’s deposit account

records or the agent’s records

(maintained in ‘‘good faith and in the

regular course of business’’) evidence B,

C and D’s ownership interests in the

account. In this context, we say that the

insurance ‘‘passes-through’’ the agent to

the owner(s) of the account.

The recordkeeping requirements

intentionally limit the FDIC’s ability to

consider evidence outside the deposit

account records of an insured

institution in determining the

ownership of deposits. They establish a

presumption that deposited funds are

actually owned in the manner indicated

on the account records. Those records

are binding on the depositor if they are

‘‘clear and unambiguous’’. The FDIC has

the discretion, however, to decide

whether records are clear and

unambiguous. If the FDIC determines

that the records are unclear or

ambiguous, then it may consider

evidence other than the deposit account

records. The question is whether this

discretion provides the FDIC with

sufficient flexibility to recognize

beneficial and/or multiple ownership of

accounts when such ownership is not

reflected on the bank or thrift’s deposit

account records.

The objective in amending the

recordkeeping requirements would be to

allow the FDIC staff more flexibility to

consider the actual ownership interests

in deposit accounts and thereby prevent

possible hardships. The proper balance

must be struck, however, to avoid fraud

in post-failure situations and to enable

the FDIC to reasonably and

expeditiously calculate the insured

deposits at failing institutions. One

option would be to amend the rules to

allow the FDIC to look beyond the

deposit accounts records of the

depository institution where account

titles are indicative of a fiduciary

relationship. Two examples would be

accounts held by attorneys and those

held by entities such as title companies,

who commonly hold funds for others.

4. Consider changing the rules on

‘‘payable upon death’’ accounts. The

insurance rules provide for separate

coverage for funds owned by an

individual and deposited into any

account commonly referred to as a

‘‘payable-on-death’’ account, tentative

or ‘‘Totten’’ trust account, revocable

trust account, or similar account (POD

accounts). 12 CFR 330.8. The account

must evidence an intention that upon

the death of the owner the funds shall

belong to certain qualifying

beneficiaries. The qualifying

beneficiaries are limited to the owner’s

spouse, children and grandchildren.

The owner is insured up to $100,000 as

to each such named qualifying

beneficiary, separately from any other

accounts of the owner or the

beneficiaries. Thus, if the individual

names his spouse, three children and

two grandchildren as beneficiaries, the

account would be insured up to

$600,000.

The FDI Act does not expressly

require that POD accounts receive

separate insurance coverage. The

purpose of the POD separate insurance

rule is to track state laws that allow for

the so-called ‘‘poor-man’s will’’ in

which deposit account balances can be

transmitted upon the death of the

account owner to beneficiaries named in

the account without an underlying trust

document or will. It is support for this

will-substitute that underlies the

separate insurance for POD accounts.

The FDIC limits the qualifying

beneficiaries to the spouse, children and

grandchildren of the account owner

because it believes that such limitation

strikes a reasonable balance between

providing separate coverage to those

most likely to be named as beneficiaries

of a POD account while not overly

expanding this category of deposit

insurance coverage.

In the context of simplifying the

insurance regulations, the question

arises whether the FDIC should consider

revising the POD rules on qualifying

degrees of kinship. The FDIC, therefore,

requests comments on whether and, if

so, how the POD insurance rules should

be revised.

5. Consider modifying the way the

FDIC insures certain types of accounts

upon the death of the owner(s) of the

accounts. The ownership interest of a

deposit account often changes upon the

death of the owner of the account. If the

beneficiaries/executor of the decedent

do not act immediately after the

decedent’s death to change the nature of

the account, insurance coverage may be

decreased, sometimes significantly. For

example, if a husband and wife hold a

joint account, a payable-upon-death

account and two individual accounts in

their respective names, the death of one

spouse would result in the surviving

spouse becoming the sole owner of the

joint account and the payable-upondeath account. Thus, the accounts

would be aggregated with the surviving

spouse’s individual account, possibly

resulting in a substantial reduction in

insurance coverage.

The former FSLIC, as a matter of

policy, allowed a grace period of six

months following the death of a

depositor for the decedent’s deposits to

be restructured. If an insured thrift

failed during the grace period and

additional insurance would be available

if the decedent had not died, the FSLIC

insured the account(s) based on the

account ownership shown on the

institution’s records as if the decedent

were still living. The reason for the

FSLIC policy was to ‘‘lessen the
25598 Federal Register / Vol. 61, No. 100 / Wednesday, May 22, 1996 / Proposed Rules

hardship’’ that might be caused

otherwise. In the course of revising the

FDIC insurance regulations in 1990 (in

conjunction with FSLIC’s termination)

the FDIC decided against adopting the

FSLIC’s grace-period policy because of

the questionable underlying legal basis.

The argument is that insurance coverage

is based on the ownership of the

deposits. If under the applicable state

law the ownership of an account

changes immediately upon the account

owner’s death, then the FDIC should

recognize that change immediately.

The FDIC has limited flexibility to

amend its regulations on the insurance

of accounts upon an owner’s death. That

is because, as indicated above, deposit

insurance is statutorily based on deposit

ownership. If the ownership of a

particular deposit changes automatically

under the applicable state law upon the

owner’s death, then the insurance

coverage may change also. That is the

FDIC’s long-standing position on the

issue. Although the FDIC has concerns

about whether a sound legal basis exists

for providing a ‘‘grace period’’ (for

insurance purposes) on accounts owned

by a person who dies, the FDIC

welcomes comments on this issue.

6. Recommend that the FDI Act be

amended to change the way employee

benefit plans are insured. Under an

amendment to the FDI Act made by

FDICIA, pass-through insurance

coverage is not available to employee

benefit plan deposits that are accepted

by an insured bank or thrift when the

institution does not meet prescribed

capital requirements. 12 U.S.C.

1821(a)(1)(D). If an institution accepts

employee benefit plan deposits at a time

when it is not sufficiency capitalized,

such deposits are insured only up to

$100,000 per plan (as opposed to

$100,000 per participant or beneficiary).

The FDICIA-originated provision is the

only one in the FDI Act and regulations

to base insurance coverage on the

capital sufficiency of the insured

institution where the deposits are

placed. The statute is complex and very

difficult for the industry and the public

to understand. Moreover, if deposits are

made with an insured bank or thrift that

does not meet the prescribed capital

requirements, there is no disadvantage

to the institution. The depositor is the

disadvantaged party.

The FDIC believes Congress should

replace the employee benefit plan

provision with a general prohibition

against insured institutions accepting

employee benefit plan deposits when

they are not sufficiently capitalized.

This would be consistent with the

statute pertaining to brokered deposits

and, thus, would prevent the

disadvantage to depositors if an insured

institution provides incorrect

information about its capital condition.

Comments are requested on whether the

FDIC should recommend this statutory

amendment to the Congress.

7. Consider revising the rules on living

trust accounts. A ‘‘living trust’’ is a

formal trust in which the owner retains

control of the trust assets during his or

her lifetime and designates the

beneficiaries of the assets upon his or

her death. The owner may revoke or

change the terms of the trust during his

or her lifetime. In 1993 the FDIC Legal

Division prepared guidelines on the

insurance of revocable accounts, with

an emphasis on living trusts. The

guidelines are very detailed and

somewhat complex. At the same time

the Legal Division prepared the

guidelines on living trusts, the FDIC

also adopted an informal policy not to

review complex living trust documents

to determine POD coverage but, instead,

to recommend that persons inquiring

about such coverage consult with the

lawyer who drafted the living trust.

Despite the availability of the FDIC

guidelines on living trusts and the

existence of the FDIC’s current policy

not to review trust documents, the FDIC

still receives numerous questions about

the insurance of POD accounts held in

connection with living trusts.

One possibility in simplifying the

insurance rules on living trusts is to

limit the scope of the POD regulation to

accounts which name qualifying

beneficiaries without reference to any

underlying trust documents. The rule

would apply only to the traditional POD

account intended as a free-standing will

substitute and would not apply to any

other type of revocable trust extraneous

to the POD account itself. This

interpretation of the POD provision

would be consistent with the original

rationale for extending separate

insurance coverage for this category of

account and revise the coverage rules

for the formal type of revocable account

which has added unintended

complexity and caused expansion to

this category of coverage.

Request for Comment

The Board of Directors of the FDIC is

seeking comment on all of the abovementioned possible means of

simplifying the deposit insurance rules,

including the likely effect of such

changes on consumers and the banking

industry. The Board also is seeking

suggestions on any other ways that the

rules might be streamlined, simplified

and clarified.

By order of the Board of Directors.

Dated at Washington, D.C., this 14th day of

May, 1996.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 96–12780 Filed 5–21–96; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 95–NM–158–AD]

RIN 2120–AA64

Airworthiness Directives; de Havilland

Model DHC–7 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes the

adoption of a new airworthiness

directive (AD) that is applicable to all de

Havilland Model DHC–7 series

airplanes. This proposal would require

certain structural inspections, and

repair, if necessary. This proposal is

prompted by a structural re-evaluation,

which identified certain significant

structural items to inspect for fatigue

cracking as these airplanes approach

and exceed the manufacturer’s original

design life. The actions specified by the

proposed AD are intended to prevent

fatigue cracking in these areas which, if

not detected and corrected in a timely

manner, could reduce the structural

integrity of these airplanes.

DATES: Comments must be received by

July 1, 1996.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–103,

Attention: Rules Docket No. 95–NM–

158–AD, 1601 Lind Avenue, SW.,

Renton, Washington 98055–4056.

Comments may be inspected at this

location between 9:00 a.m. and 3:00

p.m., Monday through Friday, except

Federal holidays.

The service information referenced in

the proposed rule may be obtained from

de Havilland, Inc., Garratt Boulevard,

Downsview, Ontario M3K 1Y5, Canada.

This information may be examined at

the FAA, Transport Airplane

Directorate, 1601 Lind Avenue, SW.,

Renton, Washington.

FOR FURTHER INFORMATION CONTACT: Sol

Maroof, Aerospace Engineer, Airframe

and Propulsion Branch, ANE–171, FAA,