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will make its own determination about ■ 2. Appendix I to subpart B of part 430 FEDERAL DEPOSIT INSURANCE the confidential status of the is amended by: CORPORATION information and treat it according to its ■ a. Adding an introductory note; and determination. 12 CFR Part 330 ■ b. Revising section 2.1.1; It is DOE’s policy that all comments RIN 3064–AF27 may be included in the public docket, The addition and revision read as without change and as received, follows: Simplification of Deposit Insurance including any personal information Rules provided in the comments (except Appendix I to Subpart B of Part 430— information deemed to be exempt from Uniform Test Method for Measuring the AGENCY: Federal Deposit Insurance public disclosure). Energy Consumption of Cooking Corporation. Products ACTION: Notice of proposed rulemaking. VI. Approval of the Office of the Note: Prior to [Date 180 days after Secretary SUMMARY: The Federal Deposit publication of a final rule], representations Insurance Corporation is seeking The Secretary of Energy has approved with respect to the energy use or efficiency comment on proposed amendments to publication of this supplemental notice of a microwave oven, including compliance its regulations governing deposit of proposed rulemaking. certifications, must be based on testing insurance coverage. The proposed rule List of Subjects in 10 CFR Part 430 conducted in accordance with either this appendix as it now appears or appendix I as would simplify the deposit insurance Administrative practice and it appeared at 10 CFR part 430, subpart B regulations by establishing a ‘‘trust procedure, Confidential business revised as of January 1, 2021. Beginning on accounts’’ category that would provide information, Energy conservation, [Date 180 days after publication of a final for coverage of deposits of both Household appliances, Imports, rule] representations with respect to energy revocable trusts and irrevocable trusts, Incorporation by reference, use or efficiency of a microwave oven, and provide consistent deposit Intergovernmental relations, Small including compliance certifications, must be insurance treatment for all mortgage businesses. based on testing conducted in accordance servicing account balances held to with this appendix. satisfy principal and interest obligations Signing Authority to a lender. * * * * * This document of the Department of 2.1.1 Microwave ovens, excluding any DATES: Comments will be accepted until Energy was signed on July 22, 2021, by microwave oven component of a combined October 4, 2021. Kelly Speakes-Backman, Principal cooking product. Install the microwave oven ADDRESSES: You may submit comments Deputy Assistant Secretary and Acting in accordance with the manufacturer’s on the notice of proposed rulemaking Assistant Secretary for Energy Efficiency instructions and connect to an electrical using any of the following methods: and Renewable Energy, pursuant to supply circuit with voltage as specified in • Agency Website: https:// delegated authority from the Secretary section 2.2.1 of this appendix. Install the www.fdic.gov/resources/regulations/ of Energy. That document with the microwave oven in accordance with section federal-register-publications/. Follow original signature and date is 5, paragraph 5.2 of IEC 62301 (Second the instructions for submitting maintained by DOE. For administrative Edition) (incorporated by reference; see comments on the agency website. purposes only, and in compliance with § 430.3), disregarding the provisions • Email: [email protected]. Include requirements of the Office of the Federal regarding batteries and the determination, RIN 3064–AF27 on the subject line of Register, the undersigned DOE Federal classification, and testing of relevant modes. the message. Register Liaison Officer has been If the microwave oven can communicate • Mail: James P. Sheesley, Assistant authorized to sign and submit the through a network (e.g., Bluetooth® or Executive Secretary, Attention: document in electronic format for internet connection), disable the network Comments-RIN 3064–AF27, Federal publication, as an official document of function, by means provided in the Deposit Insurance Corporation, 550 17th the Department of Energy. This manufacturer’s user manual, for the duration Street NW, Washington, DC 20429. administrative process in no way alters of testing. If the manufacturer’s user manual • Hand Delivery: Comments may be the legal effect of this document upon does not provide a means for disabling the hand delivered to the guard station at publication in the Federal Register. network function, test the microwave oven the rear of the 550 17th Street NW Signed in Washington, DC, on July 23, with the network function in the factory building (located on F Street) on 2021. default setting or in the as-shipped condition business days between 7 a.m. and 5 p.m. Treena V. Garrett, as instructed in Section 5, Paragraph 5.2 of • Public Inspection: All comments IEC 62301 (Second Edition). The clock Federal Register Liaison Officer, U.S. received, including any personal Department of Energy. display must be on, regardless of information provided, will be posted manufacturer’s instructions or default setting generally without change to https:// For the reasons stated in the or supplied setting. The clock display must preamble, DOE is proposing to amend www.fdic.gov/resources/regulations/ remain on during testing, unless the clock federal-register-publications/. part 430 of Chapter II of Title 10, Code display powers down automatically with no of Federal Regulations as set forth option for the consumer to override this FOR FURTHER INFORMATION CONTACT: below: function. Install a watt meter in the circuit James Watts, Counsel, Legal Division, that meets the requirements of section 2.6.1.1 (202) 898–6678, [email protected]; PART 430—ENERGY CONSERVATION of this appendix. Kathryn Marks, Counsel, Legal Division, PROGRAM FOR CONSUMER (202) 898–3896, [email protected]. PRODUCTS * * * * * [FR Doc. 2021–16023 Filed 8–2–21; 8:45 am] SUPPLEMENTARY INFORMATION: ■ 1. The authority citation for part 430 BILLING CODE 6450–01–P Table of Contents continues to read as follows: I. Simplification of Deposit Insurance Trust Authority: 42 U.S.C. 6291–6309; 28 U.S.C. Rules 2461 note. A. Policy Objectives

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B. Background accounts and establishes a depositors promptly following the 1. Deposit Insurance and the FDIC’s straightforward calculation to determine failure of an insured depository Statutory and Regulatory Authority coverage. The deposit insurance trust institution (IDI), enabling depositors to 2. Evolution of Insurance Coverage of Trust rules have evolved over time and can be Deposits meet their financial needs and 3. Current Rules for Coverage of Trust difficult to apply in some obligations. circumstances. The proposed Deposits Facilitating Resolutions 4. Part 370 and Recordkeeping at the amendments are intended to alleviate Largest IDIs some of the confusion that depositors The proposed changes will also 5. Need for Further Rulemaking and bankers may experience with facilitate the resolution of failed IDIs. C. Description of Proposed Rule respect to insurance coverage and The FDIC is routinely required to make D. Examples Demonstrating Coverage limits. Under the current regulations, deposit insurance determinations in Under Current and Proposed Rules there are distinct and separate sets of connection with IDI failures. In many of E. Alternatives Considered F. Request for Comment rules applicable to deposits of revocable these instances, however, deposit II. Amendments to Mortgage Servicing trusts and irrevocable trusts. Each set of insurance coverage for trust deposits is Account Rule rules has its own criteria for coverage based upon information that is not A. Policy Objectives and methods by which coverage is maintained in the failed IDI’s deposit B. Background and Need for Rulemaking calculated. Despite the FDIC’s efforts to account records. As a result, FDIC staff C. Proposed Rule simplify the revocable trust rules in work with depositors, trustees, and D. Request for Comment 2008,2 over the last 13 years FDIC other parties to obtain trust III. Regulatory Analysis deposit insurance specialists have documentation following an IDI’s failure A. Expected Effects responded to approximately 20,000 1. Simplification of Trust Rules in order to complete deposit insurance 2. Amendments to Mortgage Servicing complex insurance inquiries per year on determinations. The difficulties Account Rule average. More than 50 percent of associated with completing such a B. Regulatory Flexibility Act inquiries pertain to deposit insurance determination are exacerbated by the 1. Simplification of Trust Rules coverage for trust accounts (revocable or substantial growth in the use of formal 2. Amendments to Mortgage Servicing irrevocable). The consistently high trusts in recent decades. The proposed Account Rule volume of complex inquiries about trust amendments could reduce the time C. Paperwork Reduction Act accounts over an extended period of spent reviewing such information and D. Riegle Community Development and time suggests continued confusion provide greater flexibility to automate Regulatory Improvement Act about insurance limits. To help clarify E. Treasury and General Government deposit insurance determinations, Appropriations Act, 1999—Assessment insurance limits, the proposed thereby reducing potential delays in the of Federal Regulations and Policies on amendments would further simplify completion of deposit insurance Families insurance coverage of trust accounts determinations and payments. Timely F. Plain Language (revocable and irrevocable) by payment of deposit insurance also helps harmonizing the coverage criteria for to avoid reductions in the franchise I. Simplification of Deposit Insurance certain types of trust accounts and by Trust Rules value of failed IDIs, expanding establishing a simplified formula for resolution options and mitigating losses. A. Policy Objectives calculating coverage that would apply to Effects on the Deposit Insurance Fund The Federal Deposit Insurance these deposits. The FDIC proposes using Corporation (FDIC) is seeking comment the calculation that the FDIC first The FDIC is also mindful of the effect on proposed amendments to its adopted in 2008 for revocable trust that the proposed changes to the deposit accounts with five or fewer regulations governing deposit insurance insurance regulations could have on beneficiaries. This formula is coverage for deposits held in connection deposit insurance coverage and straightforward and is already generally with trusts.1 The proposed amendments generally on the Deposit Insurance Fund familiar to bankers and depositors.3 are intended to (1) provide depositors (DIF), which is used to pay deposit and bankers with a rule for trust account Prompt Payment of Deposit Insurance insurance in the event of an IDI’s failure. The FDIC manages the DIF coverage that is easy to understand and The FDI Act requires the FDIC to pay (2) to facilitate the prompt payment of according to parameters established by depositors ‘‘as soon as possible’’ after a Congress and continually evaluates the deposit insurance in accordance with bank failure. However, the insurance adequacy of the DIF to protect insured the Federal Deposit Insurance Act (FDI determination and subsequent payment depositors. The FDIC’s general intent is Act), among other objectives. for many trust deposits can be delayed that proposed amendments to the trust Accomplishing these objectives also when FDIC staff must review complex rules be neutral with respect to the DIF. would further the FDIC’s mission in trust agreements and apply various rules other respects, as discussed in greater for determining deposit insurance B. Background detail below. coverage. The proposed amendments 1. Deposit Insurance and the FDIC’s are intended to facilitate more timely Clarifying Insurance Coverage for Trust Statutory and Regulatory Authority Deposits deposit insurance determinations for trust accounts by reducing the amount The FDIC is an independent agency The proposed amendments would of time needed to review trust that maintains stability and public clarify for depositors, bankers, and other agreements and determine coverage. confidence in the nation’s financial interested parties the insurance rules These amendments should promote the system by: Insuring deposits; examining and limits for trust accounts. The FDIC’s ability to pay insurance to and supervising IDIs for safety and proposal both reduces the number of soundness and compliance with rules governing coverage for trust 2 See 73 FR 56706 (Sep. 30, 2008). consumer financial protection laws; and 3 In 2008, the FDIC adopted an insurance resolving IDIs, including large and 1 Trusts include informal revocable trusts calculation for revocable trusts that have five or complex financial institutions, and (commonly referred to as payable-on-death fewer beneficiaries. Under this rule, 12 CFR accounts, in-trust-for accounts, or Totten trusts), 330.10(a), each trust grantor is insured up to managing receiverships. The FDIC has formal revocable trusts, and irrevocable trusts. $250,000 per beneficiary. helped to maintain public confidence in

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times of financial turmoil, including the beneficiaries of the trust were named in named beneficiary did not satisfy this period from 2008 to 2013, when the the bank’s records. If the beneficiaries kinship requirement, the deposit was United States experienced a severe were named in the bank’s records, the aggregated with the depositor’s financial crisis, and more recently in trust deposit was insured according to individual accounts for purposes of 2020 during the financial stress the beneficiaries’ respective interests deposit insurance coverage. The rules associated with the COVID–19 because the deposit was held in trust for also included a separate ‘‘trust pandemic. During the more than 88 the beneficiaries. If beneficiaries were accounts’’ category for irrevocable trusts years since the FDIC was established, no not named in the bank’s records, the with coverage of up to $15,000 for each depositor has lost a penny of FDIC- grantor trustee was treated as the beneficiary’s trust interests in deposit insured funds. depositor instead and insured to the accounts established by the same The FDI Act establishes the key applicable limit (then $5,000); however, grantor pursuant to a trust agreement. parameters of deposit insurance the trust deposit was insured separately Irrevocable trust accounts were insured coverage, including the standard from the trustee’s other deposits, if any, separately from other deposit accounts maximum deposit insurance amount at the same bank.9 If the bank itself was of the trustee, grantor, or beneficiary, (SMDIA), currently $250,000.4 In designated as trustee of the trust, including testamentary accounts. addition to providing deposit insurance deposits of the trust were insured up to In 1989, Congress transferred coverage up to the SMDIA at each IDI the $5,000 limit for each trust estate responsibility for insuring deposits of where a depositor maintains deposits, pursuant to statute.10 savings associations from the Federal the FDI Act also provides separate Over time, some states began Savings and Loan Insurance Corporation insurance coverage for deposits that a recognizing the existence of a trust (FSLIC) to the FDIC. As part of this depositor maintains in different rights based on a designation in the bank’s transition, the FDIC issued uniform and capacities (also known as insurance records that a deposit was held in trust deposit insurance rules for the deposits categories) at the same IDI.5 For for another person—even in the absence of banks and savings associations, example, deposits in the single of a written trust agreement. In 1955, the reconciling the differences between the ownership category are separately FDIC’s then-General Counsel concluded FDIC and FSLIC insurance rules.14 insured from deposits in the joint that if relevant state law recognized These uniform rules redesignated the ownership category at the same IDI. these ‘‘Totten trusts’’ 11 and the ‘‘testamentary accounts’’ category as The FDIC’s deposit insurance depositor complied with the law in ‘‘revocable trust accounts,’’ and categories have been defined through establishing the trust, the FDIC would continued to require beneficiaries for both statute and regulation. Certain insure these deposits separately from revocable trust deposits to be named, categories, such as the government the depositor’s other deposit accounts.12 but added the requirement that these deposit category, have been expressly This was the first time the FDIC insured beneficiaries be named in the failed 6 defined by Congress. Other categories, informal trusts as trust deposits. IDI’s deposit account records in order such as joint deposits and corporate The FDIC further clarified insurance for per-beneficiary coverage to apply. In deposits, have been based on statutory coverage for trust deposits in 1967 when the notice of proposed rulemaking interpretation and recognized through it issued rules defining the deposit discussing this change, the FDIC regulations issued in 12 CFR part 330 insurance categories that the FDIC had explained that the change was expected pursuant to the FDIC’s rulemaking recognized.13 These rules defined a to simplify the deposit insurance authority. In addition to defining the ‘‘testamentary accounts’’ category that determination process for revocable insurance categories, the deposit included revocable trust accounts, trust deposits and expedite the payment insurance regulations in part 330 tentative or Totten trust accounts, and of deposit insurance.15 These rules also provide the criteria used to determine payable-on-death accounts and similar redesignated the ‘‘trust accounts’’ insurance coverage for deposits in each accounts evidencing an intention that category as ‘‘irrevocable trust accounts’’ category. the funds shall belong to another person and introduced a distinction between 2. Evolution of Insurance Coverage of upon the depositor’s death. contingent interests and non-contingent Trust Deposits Testamentary deposits were insured up interests in irrevocable trusts that would to the applicable limit (which Congress affect deposit insurance coverage. Non- Over the years, deposit insurance had raised to $15,000) for each named contingent interests were each insured coverage has evolved to reflect both the beneficiary who was the depositor’s up to the applicable limit (then FDIC’s experience and changes in the spouse, child, or grandchild. If the $100,000), while contingent interests banking industry. The FDI Act includes were aggregated and insured up to provisions defining the coverage for 9 16 7 See 1934 FDIC Annual Report at 143. $100,000 in total. certain trust deposits, while coverage 10 See Banking Act of 1935, Public Law 74–305 As revocable trusts increased in for other trust deposits has been defined (Aug. 23, 1935), section 101 (‘‘Trust funds held by popularity during the late 1980s and 8 by regulation. The following review of an insured bank in a fiduciary capacity whether early 1990s as an estate planning tool, historical coverage for trust deposits held in its trust or deposited in any other department or in another bank shall be insured in the FDIC began receiving more inquiries provides context for the FDIC’s an amount not to exceed $5,000 for each trust about the revocable trust rules. Many of proposed amendments to the trust rules. estate, and when deposited by the fiduciary bank these inquiries were prompted by In the FDIC’s earliest years, deposit in another insured bank such trust funds shall be complex trust agreements that included similarly insured to the fiduciary bank according to insurance coverage for trust deposits numerous conditions prescribing depended upon whether the the trust estates represented.’’). 11 The name ‘‘Totten trust’’ is derived from an whether, when, or how a named early New York court decision recognizing this beneficiary would receive trust assets. 4 See 12 U.S.C. 1821(a)(1)(E). form of trust, Matter of Totten, 179 N.Y. 112 (N.Y. FDIC staff generally interpreted the 5 See 12 U.S.C. 1821(a)(1)(C) (deposits 1904). Many other states have recognized similar ‘‘maintained by a depositor in the same capacity types of accounts, commonly known as ‘‘payable- revocable trust rules to require and the same right’’ at the same IDI are aggregated on-death’’ accounts or tentative trust accounts. for purposes of the deposit insurance limit). 12 Separate Insurability of ‘‘Totten Trust’’ 14 55 FR 20111 (May 15, 1990). 6 12 U.S.C. 1821(a)(2). Accounts (June 1, 1955), Federal Banking Law 15 54 FR 52399, 52408 (Dec. 21, 1989) (notice of 7 See 12 U.S.C. 1817(i), 1821(a). Reporter ¶ 92,583. proposed rulemaking). 8 See 12 CFR 330.10, 330.13. 13 32 FR 10408 (July 14, 1967). 16 55 FR 20126 (May 15, 1990).

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beneficiaries’ interests in formal and account records.23 Because the FDIC deposits in each of these categories are informal revocable trusts to be vested in had to obtain and review trust described below. order to qualify for separate insurance agreements from depositors following Revocable Trust Deposits coverage, meaning that, after a grantor’s an IDI’s failure to determine the death, there was no condition attached eligibility of the beneficiaries and The revocable trust category applies to the beneficiary’s interest that would allocation of funds to each beneficiary, to deposits for which the depositor has make the interest contingent (referred to eliminating this requirement was based evidenced an intention that the deposit as a ‘‘defeating contingency’’).17 Staff on the conclusion that also requiring shall belong to one or more beneficiaries reasoned that only a vested trust interest IDIs to maintain records of trust upon his or her death. This category could establish a reasonable expectation beneficiaries, or requiring grantors to includes deposits held in connection that the revocable trust deposit ‘‘shall inform IDIs of changes in their trust with formal revocable trusts—that is, belong to’’ the beneficiary, as the agreements, was unnecessary and revocable trusts established through a regulation required. burdensome. Though the additional written trust agreement. It also includes In 1996, the FDIC sought public information might expedite deposit deposits that are not subject to a formal comment on potential simplification of insurance payments, the FDIC trust agreement, where the IDI makes the deposit insurance rules, noting that determined that removing this payment to the beneficiaries identified its experience with bank and savings recordkeeping requirement would in the IDI’s records upon the depositor’s association failures and a steady volume support ongoing efforts under the death based on account titling and of inquiries on deposit insurance Economic Growth and Regulatory applicable state law. The FDIC refers to coverage suggested that simplification Paperwork Reduction Act to eliminate these types of deposits, including Totten 18 could be beneficial. Among other unnecessary regulatory requirements. trust accounts, payable-on-death changes, the FDIC proposed specific The FDIC’s experience with making accounts, and similar accounts, as amendments to the rules for revocable deposit insurance determinations ‘‘informal revocable trusts.’’ Deposits trust deposits. Certain of these changes during the early stages of the most associated with formal and informal were finalized in 1998, when a recent financial crisis suggested that revocable trusts are aggregated for provision was added to the rules further changes to the trust rules were purposes of the deposit insurance rules; defining the conditions that would 19 necessary. In 2008, the FDIC simplified thus, deposits that will pass from the constitute a defeating contingency. the rules in several respects.24 First, it same grantor to beneficiaries are Soon afterward, the FDIC expanded the eliminated the kinship requirement for aggregated and insured up to the list of beneficiaries that would qualify revocable trust beneficiaries, instead SMDIA, currently $250,000, per for per-beneficiary coverage to include allowing any natural person, charitable beneficiary, regardless of whether the siblings and parents, noting that some organization, or non-profit, to qualify for transfer would be accomplished through depositors had lost money in bank per-beneficiary coverage. Second, a a written revocable trust or an informal failures because they had named non- simplified calculation was established if revocable trust.25 qualifying beneficiaries.20 In 2003, the FDIC proposed amending a revocable trust named five or fewer Under the current revocable trust the revocable trust rules, pointing to beneficiaries; coverage would be rules, beneficiaries include natural continued confusion about the coverage determined without regard to the persons, charitable organizations, and for revocable trust deposits.21 allocation of interests among the non-profit entities recognized as such Specifically, the FDIC proposed to beneficiaries. This eliminated the need under the Internal Revenue Code of eliminate the defeating contingency to discern and consider beneficial 1986.26 If a named beneficiary does not provisions of the rules, with the result interests in many cases. satisfy this requirement, funds held in that coverage would be based on the A different insurance calculation trust for that beneficiary are treated as interests of qualifying beneficiaries, applied to revocable trusts with more single ownership funds of the grantor irrespective of any defeating than five beneficiaries. Specifically, at and aggregated with any other single contingencies in the trust agreement. that time, the SMDIA was $100,000 and ownership accounts that the grantor The FDIC subsequently adopted this thus if more than five beneficiaries were maintains at the same IDI.27 change, noting that it more closely named in a revocable trust, coverage Certain requirements also must be aligned coverage for living trust would be the greater of: (1) $500,000; or satisfied for a deposit to be insured in accounts with payable-on-death (2) the aggregate amount of all the revocable trust category. The accounts.22 Defeating contingency beneficiaries’ interests in the trust(s), required intention that the funds shall provisions were not eliminated for limited to $100,000 per beneficiary. belong to the beneficiaries upon the irrevocable trusts. At the same time, the When the SMDIA was increased to depositor’s death must be manifested in FDIC also eliminated the requirement to $250,000, a similar adjustment was the ‘‘title’’ of the account using name the beneficiaries of a formal made from $100,000 to $250,000 for the commonly accepted terms such as ‘‘in revocable trust in the IDI’s deposit calculation of per beneficiary coverage. trust for,’’ ‘‘as trustee for,’’ ‘‘payable-on- 3. Current Rules for Coverage of Trust death to,’’ or any acronym for these 17 See, e.g., Advisory Opinion 94–32, Guidelines Deposits terms. For purposes of this requirement, for Insurance Coverage of Revocable Trust Accounts ‘‘title’’ includes the IDI’s electronic (Including ‘‘Living Trust’’ Accounts), (May 18, The FDIC currently recognizes three 1994). While the vested interest requirement deposit account records. For example, applied to both formal and informal trusts, interests different insurance categories for an IDI’s electronic deposit account in informal trusts were generally considered to be deposits held in connection with trusts: records could identify the account as a vested because they automatically passed to the (1) Revocable trusts; (2) irrevocable revocable trust account through coding designated beneficiaries upon the death of the last trusts; and (3) irrevocable trusts with an 28 grantor. or a similar mechanism. In addition, 18 61 FR 25596 (May 22, 1996). IDI as trustee. The current rules for 19 63 FR 25750 (May 11, 1998). determining insurance coverage for 25 12 CFR 330.10(a). 20 64 FR 15653 (Apr. 1, 1999). 26 12 CFR 330.10(c). 21 68 FR 38645 (June 30, 2003). 23 69 FR 2825, 2828 (Jan. 21, 2004). 27 12 CFR 330.10(d). 22 69 FR 2825 (Jan. 21, 2004). 24 73 FR 56706 (Sep. 30, 2008). 28 12 CFR 330.10(b)(1).

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the beneficiaries of informal trusts (i.e., The current revocable trust rule also governed by section 7(i) of the FDI Act, payable-on-death accounts) must be contains a provision that was intended a provision rooted in the Banking Act of named in the IDI’s deposit account to reduce confusion and the potential 1935. Section 7(i) provides that ‘‘trust records.29 Since 2004, the requirement for a decrease in deposit insurance funds held on deposit by an insured to name beneficiaries in the IDI’s coverage in the case of the death of a depository institution in a fiduciary deposit account records has not applied grantor. Specifically, if a revocable trust capacity as trustee pursuant to any to formal revocable trusts; the FDIC becomes irrevocable due to the death of irrevocable trust established pursuant to generally obtains information on the grantor, the trust’s deposit may any statute or written trust agreement beneficiaries of such trusts from continue to be insured under the shall be insured in an amount not to 35 exceed the standard maximum deposit depositors following an IDI’s failure. revocable trust rules. Absent this insurance amount . . . for each trust Therefore, if a formal revocable trust provision, the irrevocable trust rules estate.’’ 41 deposit exceeds $250,000 and the would apply following the grantor’s death, as the revocable trust becomes The FDIC’s regulations governing depositor’s IDI were to fail, this will irrevocable at that time, which could coverage for deposits held by an IDI in likely result in a hold being placed on result in a reduction in coverage.36 its capacity as trustee of an irrevocable the deposit until the FDIC can review trust are found in § 330.12. The rule the trust agreement and verify that the Irrevocable Trust Deposits provides that ‘‘trust funds’’ held by an beneficiary rules are satisfied, thereby Deposits held by an irrevocable trust IDI in its capacity as trustee of an delaying insurance determinations and that has been established either by irrevocable trust, whether held in the payments to insured depositors. written agreement or by statute are IDI’s trust department or another The calculation of deposit insurance insured in the irrevocable trust deposit department, or deposited by the coverage for revocable trust deposits insurance category. Calculating coverage fiduciary institution in another IDI, are depends upon the number of unique for deposits insured in this category insured up to the SMDIA for each owner or beneficiary represented.42 This beneficiaries named by a depositor. If requires a determination of whether coverage is separate from the coverage five or fewer beneficiaries have been beneficiaries’ interests in the trust are provided for other deposits of the named, the depositor is insured in an contingent or non-contingent. Non- contingent interests are interests that owners or the beneficiaries,43 and amount up to the total number of named may be determined without evaluation deposits held for a grantor’s retained beneficiaries multiplied by the SMDIA, of any contingencies, except for those interest are not aggregated with the and the specific allocation of interests covered by the present worth and life grantor’s single ownership deposits. among the beneficiaries is not expectancy tables and the rules for their Given the statutory basis for coverage, 30 considered. If more than five use set forth in the IRS Federal Estate the FDIC is not proposing any changes beneficiaries have been named, the Tax Regulations.37 Funds held for non- to § 330.12. depositor is insured up to the greater of: contingent trust interests are insured up 4. Part 370 and Recordkeeping at the (1) Five times the SMDIA; or (2) the to the SMDIA for each such Largest IDIs total of the interests of each beneficiary, beneficiary.38 Funds held for contingent with each such interest limited to the trust interests are aggregated and Simplification of the deposit SMDIA.31 For purposes of this insured up to the SMDIA in total.39 insurance rules would make deposit calculation, a life estate interest is The irrevocable trust rules do not insurance coverage easier to understand valued at the SMDIA.32 apply to deposits held for a grantor’s and improve the FDIC’s ability to resolve insurance claims in a timely Where a revocable trust deposit is retained interest in an irrevocable trust.40 Such deposits are aggregated manner, broadly benefiting the public jointly owned by multiple co-owners, and IDIs, and it would have particular the interests of each account owner are with the grantor’s other single ownership deposits for purposes of significance for the large IDIs that are separately insured up to the SMDIA per applying the deposit insurance limit. subject to part 370 of the FDIC’s beneficiary.33 However, if the co-owners regulations. Part 370 was adopted in are the only beneficiaries of the trust, Deposits Held by an IDI as Trustee of an 2016 to promote the timely payment of the account is instead insured under the Irrevocable Trust deposit insurance in the event of the FDIC’s joint account rule.34 For deposits held by an IDI in its failure of a large IDI.44 Its development capacity as trustee of an irrevocable was prompted by the FDIC’s goal of trust, deposit insurance coverage is ensuring a timely insurance determination in the event a large IDI 35 12 CFR 330.10(h). with a high volume of deposit accounts 36 The revocable trust rules tend to provide fails. Part 370 requires ‘‘covered greater coverage than the irrevocable trust rules institutions,’’ which generally include because contingencies are not considered for IDIs with two million or more deposit revocable trusts. In addition, where five or fewer beneficiaries are named by a revocable trust, accounts, to maintain complete and specific allocations to beneficiaries also are not accurate depositor information and to considered. configure their information technology 29 12 CFR 330.10(b)(2). 37 12 CFR 330.1(m). For example, a life estate 30 systems so as to permit the FDIC to 12 CFR 330.10(a). interest is generally non-contingent, as it may be calculate deposit insurance coverage 31 12 CFR 330.10(e). valued using the life expectancy tables. However, 32 12 CFR 330.10(g). For example, if a revocable where a trustee has discretion to divert funds from one beneficiary to another to provide for the second 41 12 U.S.C. 1817(i). trust provides a life estate for the depositor’s spouse beneficiary’s medical needs, the first beneficiary’s 42 Part 330 defines ‘‘trust funds’’ as ‘‘funds held and remainder interests for six other beneficiaries, interest is contingent upon the trustee’s discretion. by an insured depository institution as trustee the spouse’s life estate interest would be valued at 38 12 CFR 330.13(a). pursuant to any irrevocable trust established $250,000 for purposes of the deposit insurance 39 12 CFR 330.13(b). pursuant to any statute or written trust agreement.’’ calculation. 40 See 12 CFR 330.1(r) (definition of ‘‘trust 12 CFR 330.1(q). 33 12 CFR 330.10(f)(1). interest’’ does not include any interest retained by 43 12 CFR 330.12(a). 34 12 CFR 330.10(f)(2). the settlor). 44 81 FR 87734 (Dec. 5, 2016).

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promptly in the event of the IDI’s following its failure in 2008 were requirements. These rules also provide failure. To implement part 370, covered challenging in part because IndyMac for two separate calculations to institutions are updating their deposit had a large number of trust accounts for determine insurance coverage, account records and developing systems which deposit insurance coverage was depending in part upon whether there capable of applying the deposit governed by complex deposit insurance are five or fewer trust beneficiaries or at insurance rules in an automated rules.45 FDIC claims personnel least six beneficiaries. In addition, for manner. contacted more than 10,500 IndyMac revocable trusts that provide benefits to In addition to broadly benefiting the depositors to obtain the trust multiple generations of potential public and all IDIs, simplification of the documentation necessary to complete beneficiaries, the FDIC needs to evaluate deposit insurance rules complements deposit insurance determinations for the trust agreement to determine part 370 in that it would further their revocable trust and irrevocable whether a beneficiary is a primary promote the timely payment of deposit trust deposits. In some cases, this beneficiary (immediately entitled to insurance for depositors of the largest process took several months. Revision of funds when a grantor dies), contingent IDIs. For instance, neither part 370 nor the deposit insurance coverage rules for beneficiary, or remainder beneficiary. any other rule requires covered trust deposits along the lines proposed Only ‘‘eligible’’ primary beneficiaries institutions to maintain certain records would reduce the amount of and remainder beneficiaries are necessary to make an insurance information that must be provided by considered in calculating FDIC deposit determination for formal trust deposits, trust depositors, as well as the insurance coverage. The irrevocable meaning that the FDIC would need to complexity of the FDIC’s review. This trust rules may require detailed review obtain and review revocable and revision should enable the FDIC to of trust agreements to determine irrevocable trust agreements following a complete deposit insurance whether beneficiaries’ interests are covered institution’s failure. Analysis of determinations more rapidly if another contingent and may also require data from part 370 covered institutions IDI with a large number of trust actuarial or present value calculations. suggest the number of revocable trusts is accounts were to fail in the future. These types of requirements complicate significant and, if a covered institution Delays in the payment of deposit the determination of insurance coverage were to fail, processing of deposit insurance can be consequential, as for trust deposits, have proven insurance for formal revocable trusts revocable trust deposits in particular are confusing for depositors, and extend the would likely extend well beyond often used by depositors to satisfy their amount of time needed to complete a normal FDIC payment timeframes. daily financial obligations, and the deposit insurance determination and Simplification of the deposit insurance proposal would help to mitigate those insurance payment. rules would streamline insurance delays. Third, the complexity and variety of determinations for trust accounts. The Several factors contribute to the depositors’ trust arrangements adds to FDIC expects that capabilities challenges of making insurance the difficulty of determining deposit developed in accordance with part 370 determinations for trust deposits. First, insurance coverage. For example, trust will be helpful in addressing many of there are three different sets of rules interests are sometimes defined through the challenges involved in making governing deposit insurance coverage numerous conditions and formulas, and deposit insurance determinations in for trust deposits. Understanding the a careful analysis of these provisions connection with a very large IDI’s coverage for a particular deposit may be necessary in order to calculate failure. Simplification of the deposit requires a threshold inquiry to deposit insurance coverage under the insurance rules would provide determine which set of rules to apply— current rules. Arrangements involving additional benefits by reducing the the revocable trust rules, the irrevocable multiple trusts where the same amount of time needed to collect and trust rules, or the rules for deposits held beneficiaries are named by the same process trust information after failure in by an IDI as trustee of an irrevocable grantor(s) in different trusts add to the order to make use of a covered trust. This requires review of the trust difficulty of applying the trust rules. institution’s part 370 deposit insurance agreement to determine the type of trust The FDIC believes that simplification calculation capabilities. With less time (revocable or irrevocable), and the of the deposit insurance rules also needed to calculate insurance coverage, inquiry may be complicated by presents an opportunity to more closely the FDIC would be able to make more innovations in state trust law that are align the coverage provided for different timely insurance payments to insured intended to increase the flexibility and types of trust deposits. For example, the depositors. utility of trusts. In some cases, this revocable trust rules generally provide for a greater amount of coverage than 5. Need for Further Rulemaking threshold inquiry is also complicated by the provision of the revocable trust rules the irrevocable trust rules. This outcome The rules governing deposit insurance that allows for continued coverage occurs because contingent interests for coverage for trust deposits have been under those rules where a trust becomes irrevocable trusts are aggregated and simplified on several occasions, but are irrevocable upon the grantor’s death. insured up to the SMDIA rather than still frequently misunderstood, and can The result of an irrevocable trust deposit being insured up to the SMDIA per present some implementation being insured under the revocable trust beneficiary, while contingencies are not challenges. For example, the current rules has proven confusing for both considered and therefore do not limit trust rules often require detailed, time- depositors and bankers. coverage in the same manner for consuming, and resource-intensive Second, even after determining which revocable trusts. review of trust documentation to obtain set of rules applies to a particular C. Description of Proposed Rule the information that is necessary to deposit, it may be challenging to apply The FDIC is proposing to amend the calculate deposit insurance coverage. the rules. For example, the revocable rules governing deposit insurance This information is often not found in trust rules include unique titling coverage for trust deposits. Generally, an IDI’s records and must be obtained requirements and beneficiary from depositors after an IDI’s failure. the proposed amendments would: For example, the FDIC’s deposit 45 See Crisis and Response: An FDIC History, Merge the revocable and irrevocable insurance determinations for depositors 2008–2013 at 197, FN 48, Federal Deposit Insurance trust categories into one category; apply of IndyMac Bank, F.S.B. (IndyMac) Corporation 2017. a simpler, common calculation method

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to determine insurance coverage for deposits, to establish a new ‘‘trust following the death of a deposit deposits held by revocable and accounts’’ category that would include owner.48 irrevocable trusts; and eliminate certain both revocable and irrevocable trust Calculation of Coverage requirements found in the current rules deposits. The proposed rule defines the for revocable and irrevocable trusts. deposits that would be included in this The FDIC is proposing to use one category: (1) Informal revocable trust streamlined calculation to determine the Merger of Revocable and Irrevocable deposits, such as payable-on-death amount of deposit insurance coverage Trust Categories accounts, in-trust-for accounts, and for deposits of revocable and irrevocable As discussed above, the FDIC Totten trust accounts; (2) formal trusts. This method is already utilized historically has insured revocable trust revocable trust deposits, defined to by the FDIC to calculate coverage for deposits and irrevocable trust deposits mean deposits held pursuant to a revocable trusts that have five or fewer under two separate insurance categories. written revocable trust agreement under beneficiaries and it is an aspect of the Staff’s experience has been that this which a deposit passes to one or more rules that is generally well-understood bifurcation often confuses depositors beneficiaries upon the grantor’s death; by bankers and trust depositors. and bankers, as it requires a threshold and (3) irrevocable trust deposits, The proposed rule would provide that inquiry to determine which set of rules meaning deposits held pursuant to an a grantor’s trust deposits are insured in to apply to a trust deposit. Moreover, irrevocable trust established by written an amount up to the SMDIA (currently each trust deposit must be categorized agreement or by statute. Section 330.10 $250,000) multiplied by the number of before the aggregation of trust deposits would not apply to deposits maintained trust beneficiaries, not to exceed five within each category can be completed. by an IDI in its capacity as trustee of an beneficiaries. The FDIC would presume The FDIC believes that trust deposits irrevocable trust; these deposits would that, for deposit insurance purposes, the held in connection with revocable and continue to be insured separately trust provides for equal treatment of irrevocable trusts are sufficiently pursuant to section 7(i) of the FDI Act beneficiaries such that specific similar, for purposes of deposit and § 330.12 of the deposit insurance allocation of the funds to the respective insurance coverage, to warrant the regulations. beneficiaries will not be relevant, merger of these two categories into one In addition, the merger of the consistent with the FDIC’s current category. Under the FDIC’s current revocable trust and irrevocable trust treatment of revocable trusts with five or rules, deposit insurance coverage is categories eliminates the need for fewer beneficiaries. This would, in provided because the trustee maintains § 330.10(h)–(i) of the current revocable effect, limit coverage for a grantor’s trust the deposit for the benefit of the trust rules, which provides that the deposits at each IDI to a total of beneficiaries. This is true regardless of revocable trust rules may continue to $1,250,000; in other words, maximum whether the trust is revocable or apply to a deposit where a revocable coverage would be equivalent to $250,000 per beneficiary up to five irrevocable. Merger of the revocable and trust becomes irrevocable due to the beneficiaries. In determining deposit irrevocable trust categories would better death of one or more of the trust’s insurance coverage, the FDIC would conform deposit insurance coverage to grantors. These provisions were continue to only consider beneficiaries the substance—rather than the legal intended to benefit depositors, who that are expected to receive the deposit form—of the trust arrangement. This sometimes were unaware that a trust held by the trust in the IDI; the FDIC underlying principle of the deposit owner’s death could also trigger a would not consider beneficiaries who insurance rules is particularly important significant decrease in insurance are expected to receive only non-deposit in the context of trusts, as state law coverage as a revocable trust becomes assets of the trust. often provides flexibility to structure irrevocable. However, in the FDIC’s The FDIC is proposing to calculate arrangements in different ways to experience, this rule has proven coverage in this manner based on its accomplish a given purpose.46 complex in part because it results in experience with the revocable trust some irrevocable trusts being insured Depositors may have a variety of reasons rules after the most recent modifications per the revocable trust rules, while other for selecting a particular legal to these rules in 2008. The FDIC has irrevocable trusts are insured under the arrangement, but that decision should found that the deposit insurance irrevocable trust rules.47 As a result, a not significantly affect deposit calculation method for revocable trusts depositor could know a trust was insurance coverage. Importantly, the with five or fewer beneficiaries has been irrevocable but not know which deposit proposed merger of the revocable trust the most straightforward and is easy for insurance rules to apply. The proposed and irrevocable trust categories into one bankers and the public to understand. rule would insure deposits of revocable category for deposit insurance purposes This calculation provides for insurance trusts and irrevocable trusts according would not affect the application or in an amount up to the total number of to a common set of rules, eliminating operation of state trust law; this only unique grantor-beneficiary trust the need for these provisions would affect the determination of relationships (i.e., the number of (§ 330.10(h)–(i)) and simplifying deposit insurance coverage for these grantors, multiplied by the total number coverage for depositors. Accordingly, types of trust deposits in the event of an of beneficiaries, multiplied by the IDI’s failure. the death of a revocable trust owner SMDIA).49 In addition to being simpler, Accordingly, the FDIC is proposing to would not result in a decrease in deposit insurance coverage for the trust. amend § 330.10 of its regulations, which 48 The death of an account owner can affect currently applies only to revocable trust Coverage for irrevocable and revocable deposit insurance coverage, often reducing the trusts would fall under the same amount of coverage that applies to a family’s 46 For example, the FDIC currently aggregates category and deposit insurance coverage accounts. To ensure that families dealing with the deposits in payable-on-death accounts and deposits would remain the same, even after the death of a family member have adequate time to of written revocable trusts for purposes of deposit review and restructure accounts if necessary, the insurance coverage, despite their separate and expiration of the six-month grace period FDIC insures a deceased owner’s accounts as if he distinct legal mechanisms. Also, where the co- or she were still alive for a period of six months owners of a revocable trust are also that trust’s sole 47 As noted above, if a revocable trust becomes after his or her death. 12 CFR 330.3(j). beneficiaries, the FDIC instead insures the trust’s irrevocable due to the death of the grantor, the 49 For example, two co-grantors that designate deposits as joint deposits, reflecting the trust’s deposit continues to be insured under the five beneficiaries are insured for up to $2,500,000 arrangement’s substance rather than its legal form. revocable trust rules. 12 CFR 330.10(h). (2 × 5 × $250,000).

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this calculation has proven beneficial in sufficient information, however, to a small number of depositors that resolutions, as it leads to more prompt enable it to project the effects of the currently maintain both revocable trust deposit insurance determinations and proposed limit on current depositors, and irrevocable trust deposits at the quicker access to insured deposits for and requests that commenters provide same IDI may have deposits in excess of depositors. Accordingly, the FDIC information that might be helpful in this the insurance limit if these separate proposes to calculate deposit insurance regard. categories are combined. The FDIC does coverage for trust deposits based on the Under the proposed rule, to determine not have data on depositors’ trust simpler calculation currently used for the level of insurance coverage that arrangements that would allow it to revocable trusts with five or fewer would apply to trust deposits, estimate the number of depositors that beneficiaries. depositors would still need to identify might be affected in this manner, and The streamlined calculation that the grantors and the eligible requests that commenters provide would be used to determine coverage for beneficiaries of the trust. The level of information that might be helpful in this revocable trust deposits and irrevocable coverage that applies to trust deposits regard. trust deposits includes a limit on the would no longer be affected by the Eligible Beneficiaries total amount of deposit insurance specific allocation of trust funds to each coverage for all of a depositor’s funds in of the beneficiaries of the trust or by Currently, the revocable trust rules the trust category at the same IDI. The contingencies outlined in the trust provide that beneficiaries include proposed rule would provide coverage agreement. Instead, the proposed rule natural persons, charitable for trust deposits at each IDI up to a total would provide that a grantor’s trust organizations, and non-profit entities of $1,250,000 per grantor; in other deposits are insured up to a total of recognized as such under the Internal 53 words, each grantor’s insurance limit $1,250,000 per grantor, or an amount up Revenue Code of 1986, while the would be $250,000 per beneficiary up to to the SMDIA multiplied by the number irrevocable trust rules do not establish a maximum of five beneficiaries. The of eligible beneficiaries, with a limit of criteria for beneficiaries. The FDIC level of five beneficiaries is an no more than five beneficiaries. believes that a single definition should important threshold in the current be used to determine whether an entity revocable trust rules, as it defines Aggregation is an ‘‘eligible’’ beneficiary for all trust whether a grantor’s coverage is The proposed rule also provides for deposits, and proposes to use the determined using the simpler the aggregation of revocable and current revocable trust rule’s definition. calculation of the number of irrevocable trust deposits for purposes The FDIC believes that this will result beneficiaries multiplied by the SMDIA, of applying the deposit insurance limit. in a change in deposit insurance rather than the more complex Under the current rules, deposits of coverage only in very rare cases. The proposed rule also would exclude calculation involving the consideration informal revocable trusts and formal from the calculation of deposit of the amount of each beneficiary’s revocable trusts are aggregated for this insurance coverage beneficiaries that specific interest (which applies when purpose.51 The proposed rule would only would obtain an interest in a trust there are six or more beneficiaries). The aggregate a grantor’s informal and if one or more named beneficiaries are trust rules currently limit coverage by formal revocable trust deposits, as well deceased (often referred to as contingent as irrevocable trust deposits. For tying coverage to the specific interests of beneficiaries). In this respect, the example, all informal revocable trusts, each beneficiary of an irrevocable trust proposed rule would codify existing formal revocable trusts and irrevocable or of each beneficiary of a revocable practice to include only primary, unique trusts held for the same grantor, at the trust with more than five beneficiaries. beneficiaries in the deposit insurance same IDI would be aggregated and the The proposed rule’s $1,250,000 per- calculation.54 This would not represent grantor, per-IDI limit is more grantor’s insurance limit would be a substantive change in coverage. straightforward and balances the determined by how many eligible and Consistent with treatment under the objectives of simplifying the trust rules, unique beneficiaries were identified 52 current trust rules, naming a chain of promoting timely payment of deposit between all of their trust accounts. contingent beneficiaries that would insurance, facilitating resolutions, The deposit insurance coverage obtain trust interests only in event of a ensuring consistency with the FDI Act, provided in the ‘‘trust accounts’’ beneficiary’s death would not increase and limiting risk to the DIF. category would continue to remain deposit insurance coverage. The FDIC anticipates that limiting separate from the coverage provided for Finally, the proposed rule would coverage to $1,250,000 per grantor, per other deposits held in a different right codify a longstanding interpretation of IDI, for trust deposits would affect very and capacity at the same IDI. However, the trust rules where an informal few depositors, as most trust deposits in past IDI failures have had balances well records at the bank, so this likely underestimates 53 12 CFR 330.10(c). the number of affected depositors. below this level. For example, data 54 See FDIC Financial Institution Employee’s 51 See 12 CFR 330.10(a) (‘‘all funds that a Guide to Deposit Insurance at 51 (‘‘Sometimes the obtained from a sample of IDI failures depositor holds in both living trust accounts and from 2010–2020 suggests that only trust agreement will provide that if a primary payable-on-death accounts, at the same FDIC- beneficiary predeceases the owner, the deceased about 0.085 percent of depositors insured institution and naming the same beneficiary’s share will pass to an alternative or maintaining trust deposits might be beneficiaries, are aggregated for insurance contingent beneficiary. Regardless of such language, purposes’’). if the primary beneficiary is alive at the time of an affected by the proposed $1,250,000 52 50 For example, if a grantor maintained both an IDI’s failure, only the primary beneficiary, and not limit. The FDIC does not possess informal revocable trust account with three the alternative or contingent beneficiary, is taken beneficiaries and a formal revocable trust account into account in calculating deposit insurance 50 Data from 2,550,001 depositors, including with three separate and unique beneficiaries, the coverage.’’). Including only unique beneficiaries 249,257 trust account depositors, at 246 failed two accounts would be aggregated and the means that when an owner names the same banks from September 17, 2010–April 3, 2020. A maximum deposit insurance available would be beneficiary on multiple trust accounts, the total of 212 out of 249,257 (.085 percent) trust $1.25 million (1 grantor × SMDIA × number of beneficiary will only be counted once in calculating account depositors had more than $1.25 million in unique beneficiaries, limited to 5). However, if the trust coverage. For example, if a grantor has two deposits across all of their trust accounts. Of these same three people were the beneficiaries of both trust deposit accounts and names the same depositors, only 24 had more than five beneficiaries accounts, the maximum deposit insurance available beneficiary in both trust documents, the total named in the bank’s records. However, not all trust would be $750,000 (1 grantor × SMDIA × 3 unique deposit insurance coverage associated with that accounts in the sample maintained beneficiary beneficiaries). beneficiary is limited to $250,000 in total.

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revocable trust designates the distributing trust funds, and the natural In each of these cases, the FDIC is not depositor’s formal trust as its persons or organizations that receive the proposing to change the current rule. beneficiary. A formal trust generally trust funds through the future trusts Conforming Changes does not meet the definition of an would be considered the beneficiaries eligible beneficiary for deposit for purposes of the deposit insurance The proposed simplification of the insurance purposes, but the FDIC has calculation. This clarification is calculation for insurance coverage for treated such accounts as revocable trust consistent with published guidance and trust deposits also would permit the accounts under the trust rules, insuring would not represent a substantive elimination of certain definitions from the account as if it were titled in the change in deposit insurance coverage.59 § 330.1 of the regulations. Specifically, name of the formal trust.55 § 330.1 defines ‘‘trust interest’’ and Naming of Beneficiaries in Deposit ‘‘non-contingent trust interest,’’ terms Retained Interests and Ineligible Account Records that are used in connection with the Beneficiaries’ Interests Consistent with the current revocable current irrevocable trust rules. Because The current trust rules provide that in trust rules, the proposed rule would the proposed rule would eliminate the some instances, funds corresponding to continue to require the beneficiaries of evaluation of contingencies in specific beneficiaries are aggregated an informal revocable trust to be determining coverage for trust deposits, with a grantor’s single ownership specifically named in the deposit the FDIC is proposing to remove these deposits at the same IDI for purposes of account records of the IDI.60 The FDIC definitions from the regulation. the deposit insurance calculation. These does not believe this requirement Enhancements to Claims Processes instances include a grantor’s retained imposes a burden on IDIs, as informal interest in an irrevocable trust 56 and revocable trusts by their nature require The FDIC is also considering interests of beneficiaries that do not the IDI to be able to identify the enhancements to its claims processes to satisfy the definition of ‘‘beneficiary.’’ 57 individuals or entities to which a further promote prompt insurance This adds complexity to the deposit deposit would be paid upon the determinations for trust deposits. For insurance calculation, as detailed depositor’s death. example, the FDIC may be able to review of a trust agreement may be establish enhanced processes and required to value such interests in order Presumption of Ownership systems for reaching out to depositors to aggregate them with a grantor’s other The proposed rule also would state and obtaining trust documentation funds. In order to implement the that, unless otherwise specified in an following an IDI’s failure. The claims streamlined calculation for trust IDI’s deposit account records, a deposit process enhancements adopted by the deposits, the FDIC is proposing to of a trust established by multiple FDIC will likely depend upon the eliminate these provisions. Under the grantors is presumed to be owned in amendments to the deposit insurance proposed rules, the grantor and other equal shares. This presumption is rules, if any, that are adopted through beneficiaries that do not satisfy the consistent with the current revocable this rulemaking. definition of ‘‘eligible beneficiary’’ trust rules.61 would not be included for purposes of D. Examples Demonstrating Coverage the deposit insurance calculation.58 Bankruptcy Trustee Deposits Under Current and Proposed Rules Importantly, this would not in any way The proposed rule would continue To assist commenters, the FDIC is limit a grantor’s ability to establish such the current treatment of deposits placed providing examples demonstrating how trust interests under State law. These at an IDI by a bankruptcy trustee. If the proposed rule would apply to interests simply would not factor into funds of multiple bankruptcy estates determine deposit insurance coverage the calculation of deposit insurance were commingled in a single account at for trust deposits. These examples are coverage. the IDI, each estate would be separately not intended to be all-inclusive; they merely address a few possible scenarios Future Trusts Named as Beneficiaries insured up to the SMDIA. involving trust deposits. The FDIC Trusts often contain provisions for the Deposits Covered Under Other Rules expects that for the vast majority of establishment of one or more new trusts The proposed rule would exclude depositors, insurance coverage would upon the grantor’s death, and the from coverage under § 330.10 certain not change under the proposed rule. proposed rule also would clarify deposit trust deposits that are covered by other The examples here specifically highlight insurance coverage in these situations. sections of the deposit insurance a few instances where coverage could be Specifically, if a trust agreement regulations. For example, employee reduced to ensure that commenters are provides that trust funds will pass into benefit plan deposits are insured aware of them. In addition, in any one or more new trusts upon the death pursuant to § 330.14, and investment instances where a trust is established, of the grantor (or grantors), the future company deposits are insured as the examples assume that the trustee is trust (or trusts) would not be treated as corporate deposits pursuant to § 330.11. not an IDI. beneficiaries for purposes of the Deposits held by an insured depository calculation. The future trust(s) instead Example 1: Payable-on-Death Account institution in its capacity as trustee of would be considered mechanisms for an irrevocable trust are insured Depositor A establishes a payable-on- pursuant to § 330.12. In addition, if the death account at an FDIC-insured bank. 55 See FDIC Financial Institution Employee’s co-owners of an informal or formal A has designated three beneficiaries for Guide to Deposit Insurance at 71. this deposit—B, C, and D—who will 56 revocable trust are the trust’s sole See 12 CFR 330.1(r); see also FDIC Financial receive the funds upon her death, and Institution Employee’s Guide to Deposit Insurance beneficiaries, deposits held in at 87. connection with the trust would be listed all three on a form provided to the 57 12 CFR 330.10(d). treated as joint deposits under § 330.9. bank. The only other deposit account 58 In the unlikely event a trust does not name any that A maintains at the same bank is a eligible beneficiaries, the FDIC would treat the checking account with no designated trust’s deposits as single ownership deposits. Such 59 See FDIC Financial Institution Employee’s deposits would be aggregated with any other single Guide to Deposit Insurance at 74. beneficiaries. What is the maximum ownership deposits that the grantor maintains at the 60 See 12 CFR 330.10(b)(2). amount of deposit insurance coverage same IDI and insured up to the SMDIA of $250,000. 61 See 12 CFR 330.10(f). for A’s deposits at the bank?

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

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deposit insurance coverage because would not depend upon the specific insurance purposes. The use of common whether contingencies exist would no allocation of funds among beneficiaries. rules would reduce complexity to some longer be a factor that could affect extent. However, so long as these E. Alternatives Considered deposit insurance. categories remain separate, determining The FDIC has considered a number of the level of coverage for a trust deposit Example 5: Many Beneficiaries Named alternatives to the proposed rule that would require the threshold inquiry as Depositor S establishes a deposit could meet its objectives in this to whether the trust is revocable or account at an FDIC-insured bank titled rulemaking. Some of these alternatives irrevocable. This is because the deposits in the name of the ‘‘S Living Trust’’. are described below. in each category would still be This trust is a revocable trust naming Insuring Revocable Trust Deposits up to aggregated within each deposit seven beneficiaries—T, U, V, W, X, Y, insurance category for purposes of and Z. The grantor, S, does not maintain $250,000 per Grantor and Irrevocable Trust Deposits up to $250,000 per Trust applying the insurance limit. The FDIC any other deposits at the same bank. believes that the proposed rule provides What is the coverage for this deposit? The FDIC considered limiting the greater benefits than this alternative. Under the proposed rule, the living total amount of deposit insurance trust account is a deposit of a formal coverage for revocable trust deposits to Status Quo revocable trust and would be insured in the SMDIA (currently $250,000) for each The FDIC is proposing amendments to the trust accounts category. The grantor and irrevocable trust deposits up the trust rules to advance the objectives maximum coverage for this deposit to $250,000 per trust. This would discussed above, including making the would be equal to the SMDIA dramatically simplify the trust rules rules more understandable for the ($250,000) multiplied by the number of because the determination of coverage public and depositors, promoting the grantors (one, because S is the sole would no longer require the review of timely payment of deposit insurance, grantor) multiplied by the number of trust agreements or the consideration of and facilitating the administration of beneficiaries, up to a maximum of five. beneficiaries’ interests. This alternative resolutions. The FDIC considered the Here the number of named beneficiaries would therefore provide significant status quo alternative to not amend the (seven) exceeds the maximum (five) so benefits in terms of supporting the existing trust rules and not propose the insurance is calculated using the timely payment of deposit insurance. amendments. However, for reasons maximum (five). Coverage for the However, this would substantially previously stated in Section I.B entitled deposit would be: ($250,000) × (1) × (5) reduce deposit insurance coverage for ‘‘Background,’’ the FDIC considers the = $1,250,000. many trust deposits that currently proposed rule to be a more appropriate This is another limited instance exceed $250,000. The FDIC therefore alternative. where the proposed rule may provide declined to pursue this proposal. for less coverage than the current rule. F. Request for Comment Under the current rule, because more Provide Per-Beneficiary Coverage Where The FDIC is requesting comment on than five beneficiaries are named, the Beneficiary Information Is Maintained at all aspects of the proposed rule, deposit is insured up to the greater of: the IDI including the alternatives presented. (1) Five times the SMDIA; or (2) the The FDIC considered changing the Comment is specifically invited with total of the interests of each beneficiary, trust rules to provide coverage of respect to the following questions: with each such interest limited to the $250,000 per beneficiary for trust • Would the proposed amendments SMDIA. Determining coverage requires deposits only where the trust to the deposit insurance rules make review of the trust agreement to documentation necessary to determine insurance coverage for trust deposits ascertain each beneficiary’s interest. insurance coverage is maintained in an easier to understand for bankers and the Each such insurable interest is limited IDI’s deposit account records. This public? to the SMDIA, and the total of all of would promote the timely payment of • The FDIC believes that depositors these interests is compared with deposit insurance and simplify generally would have the information $1,250,000 (five times the SMDIA). The insurance determinations, as the necessary to readily calculate deposit current rule provides coverage in the information required to calculate insurance coverage for their trust greater of these two amounts. The result coverage would be immediately deposits under the proposed rule, would fall into a range from $1,250,000 available to the FDIC following the allowing them to better understand to $1,750,000, depending on the precise failure of an IDI. However, such a insurance coverage for their trust allocation of trust interests among the requirement could prove burdensome deposits. Are there instances where a beneficiaries.62 In the FDIC’s view, one and difficult to comply with for IDIs and depositor would not likely have the of the key benefits of the proposed rule depositors. Furthermore, even if necessary information? versus the current rule would be greater depositors were to provide the • Are there any other types of trusts clarity and predictability in deposit necessary documentation to IDIs, they not described in this proposal whose insurance coverage because a single could be unaware as to whether the IDIs deposits would be affected by the formula would be used to determine are maintaining that information in their proposed rule if adopted? What types of maximum coverage, and this formula records. Accordingly, the FDIC believes trusts are those and how would they be that this alternative may not promote impacted? • 62 For example, if all of the beneficiaries’ interests depositor confidence in the level of While the FDIC has substantial were equal, coverage would be: $250,000 × (7 coverage for their deposits. experience regarding trust beneficiaries) = $1,750,000. This is the maximum arrangements, the FDIC does not possess coverage possible under the current rule. Retain Separate Trust Categories, sufficiently detailed information on Conversely, if a few beneficiaries had a large Harmonize Rules interest in the trust, the total of all beneficiaries’ depositors’ existing trust arrangements interests (limited to the SMDIA per beneficiary) The FDIC also considered to allow the FDIC to project the could be less than $1,250,000, in which case the harmonizing the rules for calculating proposed rule’s effects on current current rule would provide a minimum of depositors. Are there any other sources $1,250,000 in coverage. Depending upon the precise coverage for revocable and irrevocable allocation of interests, the amount of coverage trusts while maintaining these two of empirical information that the FDIC provided would fall somewhere within this range. categories as separate for deposit should consider that may be helpful in

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understanding the effects of the The FDIC is proposing an amendment principal and interest payments from proposed rule? The FDIC also to its rules governing insurance IDIs and unnecessarily reduce a funding encourages commenters to provide such coverage for deposits maintained at IDIs source for such institutions. The FDIC information, if possible. by mortgage servicers that consist of therefore amended its rules to provide • Grandfathering of the deposit mortgagors’ principal and interest coverage to lenders based on each insurance rules would result in payments. The proposed rule is mortgagor’s payments of principal and significantly greater complexity for the intended to address a servicing interest into the mortgage servicing period of time during which two sets of arrangement that is not specifically account, up to the SMDIA (currently rules could apply to deposits— addressed in the current rules. $250,000) per mortgagor. The FDIC did especially in conducting resolutions. Specifically, some servicing not amend the rule for coverage of tax Therefore, the FDIC is not inclined to arrangements may permit or require and insurance payments, which consider allowing grandfathering, but servicers to advance their own funds to continued to be insured to each rather rely on a delayed implementation the lenders when mortgagors are mortgagor on a pass-through basis and date to allow stakeholders to make delinquent in making principal and aggregated with any other deposits necessary adjustments as a result of the interest payments, and servicers might maintained by each mortgagor at the new rules. However, the FDIC commingle such advances in the MSA same IDI in the same right and capacity. recognizes there are instances, such as with principal and interest payments The 2008 amendments to the rules for trusts holding time deposits or other collected directly from mortgagors. This mortgage servicing accounts did not deposit relationships, which may not be may be required, for example, under provide for the fact that servicers may easily restructured without adverse certain mortgage securitizations. The be required to advance their own funds consequences to the depositor. Are there FDIC believes that the factors that to make payments of principal and fact patterns where grandfathering the motivated the FDIC to establish its interest on behalf of delinquent current rules may be appropriate? current rules for mortgage servicing borrowers to the lenders. However, this Would grandfathering be appropriate accounts, described below, argue for is required of mortgage servicers in with respect to the proposed rule’s treating funds advanced by a mortgage some instances. For example, insured coverage limit of $1,250,000 per IDI for servicer in order to satisfy mortgagors’ depository institutions covered by 12 a depositor’s trust deposits? principal and interest obligations to the CFR part 370, the FDIC’s rule requiring • Are the examples provided clear lender as if such funds were collected recordkeeping and information and understandable? Are there other directly from borrowers. technology capabilities for deposit common trust deposit scenarios that insurance purposes (covered B. Background and Need for institutions), identified challenges to would benefit from an example being Rulemaking provided? implementing certain recordkeeping • Would any of the alternatives The FDIC’s rules governing coverage requirements with respect to MSA described above better meet the FDIC’s for mortgage servicing accounts were deposit balances as a result of the way objectives in connection with this adopted in 1990 following the transfer in which servicer advances are 64 rulemaking? Are there any other of responsibility for insuring deposits of administered and accounted. alternatives that would better meet savings associations from the FSLIC to The current rule provides coverage for those objectives? Are there any other the FDIC. Under the rules adopted in principal and interest funds only to the amendments to the deposit insurance 1990, funds representing payments of extent ‘‘paid into the account by the rules applicable to trusts that the FDIC principal and interest were insured on mortgagors’’; it does not provide a pass-through basis to mortgagees, should consider? coverage for funds paid into the account • For the covered institutions subject investors, or security holders. In from other sources, such as the to part 370, what cost and time frame adopting this rule, the FDIC focused on servicer’s own operating funds, even if might be required to update information the fact that principal and interest funds those funds satisfy mortgagors’ principal were generally owned by investors, on technology systems and deposit account and interest payments. As a result, whose behalf the servicer, as agent, records to be capable of calculating advances are not provided the same accepted principal and interest insurance coverage under the proposed level of coverage as other deposits in a payments. By contrast, payments of rule? The FDIC also seeks any mortgage servicing account consisting of taxes and insurance were insured to the supporting information that commenters principal and interest payments directly mortgagors or borrowers on a pass- might be able to provide on this topic. from the borrower, which are insured through basis because the borrower up to the SMDIA for each borrower. II. Amendments to Mortgage Servicing owns such funds until tax and Instead, the advances are aggregated and Account Rule insurance bills are paid by the servicer. insured to the servicer as corporate In 2008, however, the FDIC A. Policy Objectives funds for a total of $250,000. The FDIC recognized that securitization methods is concerned that this inconsistent The FDIC’s regulations governing and vehicles for mortgages had become treatment of principal and interest deposit insurance coverage include more complex, exacerbating the amounts could result in financial specific rules on deposits maintained at difficulty of determining the ownership instability during times of stress, and IDIs by mortgage servicers. These rules of deposits consisting of principal and could further complicate the insurance are intended to be easy to understand interest payments by mortgagors and determination process, a result that is and apply in determining the amount of extending the time required to make a inconsistent with the FDIC’s policy deposit insurance coverage for a deposit insurance determination for objective. mortgage servicer’s deposits. The FDIC deposits of a mortgage servicer in the also seeks to avoid uncertainty event of an IDI’s failure.63 The FDIC 64 In order to fulfill their contractual obligations concerning the extent of deposit expressed concern that a lengthy with investors, covered institutions maintain insurance coverage for such deposits, as insurance determination could lead to mortgage principal and interest balances at a pool level and remittances, advances, advance deposits in mortgage servicing accounts continuous withdrawal of deposits of reimbursement and excess funds applications that (MSAs) provide a source of funding for affect pool-level balances are not allocated back to IDIs. 63 See 73 FR 61658, 61658–59 (Oct. 17, 2008). individual borrowers.

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C. Proposed Rule as tax and insurance payments are level of deposit insurance coverage The FDIC is proposing to amend the disbursed by the servicer on the provided to some depositors with trust rules governing coverage for deposits in borrower’s behalf. Under the proposed deposits. In some cases, which the FDIC mortgage servicing accounts to provide rule, such deposits would continue to expects are rare, the proposed consistent deposit insurance treatment be insured based on the ownership amendments could reduce deposit for all MSA deposit balances held to interest of each mortgagor in the insurance coverage; for the vast majority satisfy principal and interest obligations account and aggregated with other of depositors, the FDIC expects the to a lender, regardless of whether those deposits maintained by the mortgagor at coverage level to be unchanged. The funds are paid into the account by the same IDI in the same capacity and FDIC has also considered the impact of borrowers, or paid into the account by right. any changes in the deposit insurance rules on the DIF and on the covered another party (such as the servicer) in D. Request for Comment order to satisfy a periodic obligation to institutions that are subject to part 370. The FDIC is requesting comment on remit principal and interest due to the Finally, the FDIC describes other all aspects of the proposed rule. lender. Under the proposed rule, potential effects of the proposal, such as Comment is specifically invited with accounts maintained by a mortgage the effects on information technology respect to the following questions: servicer in an agency, custodial, or (IT) service providers to the institutions • Would the proposed amendments fiduciary capacity, which consist of that could be affected by the proposed to the rules governing coverage for payments of principal and interest, rule. These effects are discussed in mortgage servicing accounts adequately would be insured for the cumulative greater detail below. address servicers’ practices with respect balance paid into the account in order to these accounts, as described above? Effects on Deposit Insurance Coverage to satisfy principal and interest Are there any other funds representing The proposed rule would affect obligations to the lender, whether paid principal and interest that are deposit insurance coverage for deposits directly by the borrower or by another commingled with borrowers’ payments held in connection with trusts. party, up to the limit of the SMDIA per that the FDIC should take into account According to the March 31, 2021 Call mortgagor. Mortgage servicers’ advances in the deposit insurance calculation, Report data, the FDIC insures 4,987 of principal and interest funds on behalf consistent with its policy objectives? depository institutions 66 that report of delinquent borrowers would therefore • Would deposit insurance coverage holding approximately 641 million be insured up to the SMDIA per of servicer principal and interest deposit accounts. Additionally, 1,573 mortgagor, consistent with the coverage advances help to promote financial IDIs have powers granted by a state or rules for payments of principal and stability in the financial system? If the national regulatory authority to interest collected directly from FDIC does not amend the rule as administer accounts in a fiduciary 65 borrowers. proposed, how would mortgage capacity (i.e., trust powers) and 1,167 The composition of an MSA servicers react if their insured exercise those powers, comprising 31.5 attributable to principal and interest depository institution, or the banking percent and 23.4 percent, respectively, payments would also include industry as a whole, appears stressed? If of all IDIs.67 However, individual collections by a servicer, such as so, how would funding arrangements or depositors may establish a trust account foreclosure proceeds, that are used to deposit relationships change? at an IDI even if that IDI does not itself satisfy a borrower’s principal and • Does the proposed rule reduce the have or exercise trust powers, and in interest obligation to the lender. In some compliance burden for part 370 covered fact, as discussed below, 99 percent of cases, foreclosure proceeds may not be institutions? a sample of failed banks had trust paid directly by a mortgagor. The • Are there any alternatives to the accounts. Therefore, the FDIC estimates current rule does not address whether proposed rule that would better achieve that the proposed rule, if adopted, could foreclosure collections represent the FDIC’s policy objectives in affect between 1,167 and 4,987 IDIs. payments of principal and interest by a connection with this rulemaking? Are The FDIC does not have detailed data mortgagor. Under the proposed rule, there any other amendments to the on depositors’ trust arrangements that foreclosure proceeds used to satisfy a deposit insurance rules applicable to would allow the FDIC to precisely borrower’s principal and interest MSAs that the FDIC should consider? estimate the number of trust accounts obligation would be insured up to the that are currently held by FDIC-insured III. Regulatory Analysis limit of the SMDIA per mortgagor. institutions. However, the FDIC The proposed rule would make no A. Expected Effects estimated the number of trust accounts change to the deposit insurance 1. Simplification of Trust Rules and trust account depositors utilizing coverage provided for mortgage data from failed banks. Based on data servicing accounts comprised of Generally, the proposed from 249 failed banks 68 between 2010 payments from mortgagors of taxes and simplification of the trust rules is and 2020, 335,657 deposit accounts— insurance premiums. Such aggregate expected to have benefits including owned by 250,139 distinct depositors— escrow accounts are held separately clarifying depositors’ and bankers’ were trust accounts (revocable or from the principal and interest MSAs understanding of the insurance rules, irrevocable), out of a total of 3,013,575 and the deposits therein are held in promoting the timely payment of deposit accounts. Thus, about 11.14 trust for the mortgagors until such time deposit insurance following an IDI’s percent of the deposit accounts at the failure, facilitating the transfer of 249 failed banks were trust accounts. Of 65 Servicers’ advances may have been insured deposit relationships to failed bank under the rule that applied to mortgage servicing account deposits prior to 2008. Prior to 2008, acquirers (thereby potentially reducing 66 The count of institutions includes FDIC- mortgage servicing deposits were insured on a pass- the FDIC’s resolution costs), and insured U.S. branches of institutions headquartered through basis. Under the pass-through insurance addressing differences in the treatment in foreign countries. rules, the identity of the party that pays funds into of revocable trust deposits and 67 FDIC Call Report data, March 31, 2021. a deposit account does not generally factor into 68 Data on failed banks comes from the FDIC’s insurance coverage. In this sense, the proposed rule irrevocable trust deposits contained in Claims Administration System, which contains data can be viewed as restoring coverage to the previous the current rules. The proposed on depositors’ funds from every failed IDI since level. amendments would directly affect the September 2010.

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the 249 institutions, 247 (99 percent) require the identification and trusts have either five or fewer reported having trust accounts at time of aggregation of contingent interests often beneficiaries, less than $1,250,000 per failure. Of the 247 failed banks that apply due to the inclusion of grantor on deposit at the same IDI, or are reported trust accounts, 212 reported contingencies in such trusts.71 Thus, structured in a manner that results in not having trust powers as of their last even where an irrevocable trust names only $1,250,000 in coverage under the Call Report. Assuming the percentage of multiple beneficiaries, the current trust current rules. The FDIC estimates that trust accounts at failed banks is rules often provide a total of only approximately 21,268 trust account representative of the percentage of trust $250,000 in deposit insurance coverage. depositors and approximately 28,539 accounts among all FDIC-insured The proposed rule would not consider trust accounts could be directly affected institutions, the FDIC estimates, for such contingencies in the calculation of by this aspect of the proposed rule, purposes of this analysis, that there are coverage, and per-beneficiary coverage representing about 0.04 percent of both approximately 71.4 million trust would apply. the estimated number of trust account accounts in existence at FDIC-insured In limited instances, the proposed depositors and the estimated number of institutions.69 Additionally, based on merger of the revocable trust and trust accounts.75 The actual number of the observed number of trust account irrevocable trust categories may trust depositors and trust accounts depositors per trust account in the decrease coverage for depositors. impacted will likely differ, as the population of 249 failed banks, the FDIC Deposits of revocable trusts and estimates rely on data from failed banks, estimates, for purposes of this analysis, deposits of irrevocable trusts are and failed banks may differ from other that there are approximately 53.2 currently insured separately. The institutions in their percentages of trust million trust depositors.70 These proposed rule would require aggregation depositors or trust accounts. It is also estimates are subject to considerable for purposes of applying the deposit possible depositors may restructure uncertainty, since the percentage of insurance limit, thereby increasing the their deposits in response to changes to deposit accounts that are trust accounts likelihood of the combined trust the rule, thus mitigating the potential and the number of depositors per trust account balances exceeding the effects on deposit insurance coverage. account for all FDIC insured institutions 72 insurance limit. However, the FDIC’s Clarification of Insurance Rules may differ from what was observed at experience is that irrevocable trust the 249 failed banks. The FDIC does not deposits comprise a relatively small The proposed merger of certain have information that would shed light share of the average IDI’s deposit base,73 revocable and irrevocable trust on whether or how the numbers of trust and that it is rare for IDIs to hold categories is intended to clarify deposit accounts and trust depositors at failed deposits in connection with irrevocable insurance coverage for trust accounts. banks differs from the corresponding and revocable trusts established by the Specifically, the merger of these numbers for other FDIC-insured same grantor(s).74 Individual grantors’ categories would mostly eliminate the institutions. trust deposits held for the benefit of up need to distinguish revocable and The FDIC also does not have detailed to five different beneficiaries would irrevocable trusts currently required to data on depositors’ trust arrangements continue to be separately insured. determine coverage for a particular trust that would allow the FDIC to precisely With respect to revocable and deposit. The benefit of the common set estimate the quantitative effects of the irrevocable trusts, depositors who have of rules would likely be particularly proposed rule on deposit insurance designated more than five beneficiaries significant for depositors that have coverage. Thus, the effects of the and structured their trust accounts in a established arrangements involving proposed changes to the insurance rules manner that provides for more than multiple trusts, as they would no longer are outlined qualitatively below. The $1,250,000 in coverage per grantor, per need to apply two different sets of rules FDIC expects that most depositors IDI under the current rules would to determine the level of deposit would experience no change in the experience a reduction in coverage. The insurance coverage that would apply to coverage for their deposits under the FDIC’s experience suggests that the their deposits. For example, the proposed rule. However, some $1,250,000 maximum coverage amount 75 depositors that maintain trust deposits per grantor, per IDI would not affect the To estimate the numbers of trust account would experience a change in their depositors and trust accounts affected, the FDIC vast majority of trust depositors, as most performed the following calculation. First, based on insurance coverage under the proposed data from 249 failed banks between 2010 and 2020, rule. 71 As discussed above, the provisions relating to the FDIC determined that there were 335,657 trust The FDIC anticipates that deposit contingent interests may not apply when a trust has accounts out of 3,013,575 deposit accounts (trust insurance coverage for some irrevocable become irrevocable due to the death of one or more account share). Second, the FDIC determined the number of trust accounts per trust depositor trust deposits would increase under the grantors. In such instances, the revocable trust rules continue to apply. (335,657/250,139). The FDIC then estimated the proposed rule. The FDIC’s experience number of trust accounts by multiplying the trust 72 As discussed above, deposits maintained by an account share (335,657/3,013,575) by the number of suggests that the provisions of the IDI as trustee of an irrevocable trust would not be deposit accounts across all IDIs (640,918,226) current irrevocable trust rules that included in this aggregation, and would remain according to March 31, 2021, Call Report data. This separately insured pursuant to section 7(i) of the step yielded an estimate of 71,386,539 trust FDI Act and 12 CFR 330.12. 69 There were approximately 641 million deposit accounts. Based on the estimated number of trust 73 accounts reported by FDIC-insured institutions as of Data obtained in connection with IDI failures accounts per trust depositor from the failed bank March 31, 2021, based on Call Report data. during the recent financial crisis suggests that data, the FDIC estimated the total number of trust Assuming that 11.14 percent of accounts are trust irrevocable trust deposits comprise less than one depositors to be 53,198,823. Using failed bank data, accounts, then there are an estimated 71.4 million percent of trust deposits. However, as discussed 100 out of 250,139 trust depositors had balances in trust accounts as of March 31, 2021. above, the FDIC does not possess sufficient excess of $1.25 million in their trust accounts. 70 Using the data from failed banks, 250,139 information to enable it to estimate the effects of the Thus, the FDIC estimated that, of the approximately distinct depositors held 335,657 revocable or proposed rule on trust account depositors at all 53.2 million trust depositors, (100/250,139) of irrevocable trust accounts, or there were 0.745 trust IDIs. them—approximately 21,268—had balances in account depositors per trust account (250,139 74 In the data obtained in connection with IDI excess of $1.25 million in their trust accounts, and divided by 335,657). The estimated number of trust failures during the recent financial crisis, only 51 therefore could be directly affected by the proposal. depositors at FDIC-insured institutions (53.2 out of 250,139 depositors with trust accounts had These estimated 21,268 trust depositors are million) is obtained by multiplying the estimated both revocable and irrevocable types. Of these 51 associated with an estimated 28,539 trust accounts, number of trust accounts by the number of trust depositors, nine had total trust account balances based on the observed number of trust accounts per account depositors per trust account (71.4 million greater than $250,000, and only one had a total trust trust depositor from the data from 249 failed banks multiplied by 0.745). balance of more than $1.25 million. between 2010 and 2020.

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

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on the time necessary to attain insured up to the SMDIA per mortgagor, Effects on Part 370 Covered Institutions compliance with part 370 if the consistent with the coverage for proposed rule is adopted. payments of principal and interest Institutions subject to the enhanced collected directly from borrowers. requirements of part 370 may bear some Other Potential Effects Under the current rules, principal and costs in recognizing the expanded Although the FDIC expects that interest funds advanced by a servicer to coverage for servicer advances and coverage for most trust depositors cover delinquencies, and foreclosure foreclosure proceeds. However, would be unchanged under the proceeds collected by servicers, are not institutions subject to the requirements proposal, and that the proposed changes be insured under the rules for MSA of part 370 already are responsible for simplify the FDIC’s insurance rules for deposits, but instead are insured to the determining coverage for MSA accounts trust accounts, the proposal may have servicer as corporate funds up to the based on each borrower’s payments. other potential effects. For example, the SMDIA. Therefore, the proposed rule Therefore, the FDIC does not believe the institutions affected by the proposal would expand deposit insurance impact of the proposal on part 370 may rely on third-party IT service coverage in instances where an account covered IDIs will be significant. providers to perform insurance coverage maintained by a mortgage servicer estimates for their trust depositors. The contains principal and interest funds B. Regulatory Flexibility Act proposal may lead such IT service advanced by the servicer in order to The Regulatory Flexibility Act (RFA), satisfy the obligations of delinquent providers to revise their systems to requires that, in connection with a account for the proposal’s changes. borrowers to the lender, or foreclosure notice of proposed rulemaking, an proceeds collected by the servicers; and agency prepare and make available for 2. Amendments to Mortgage Servicing where the funds in such instances Account Rule exceed the mortgage servicer’s SMDIA. public comment an initial regulatory The proposed rule would affect the If enacted, the proposed rule is likely flexibility analysis that describes the deposit insurance coverage for certain to benefit a servicer compelled by the impact of the proposed rule on small 78 principal and interest payments within terms of a pooling and servicing entities. However, a regulatory MSA deposits maintained at IDIs by agreement to advance principal and flexibility analysis is not required if the mortgage servicers. According to the interest funds to note holders when a agency certifies that the rule will not March 31, 2021 Call Report data, the borrower is delinquent, and therefore have a significant economic impact on FDIC insures 4,987 IDIs.77 Of the 4,987 the servicer has not received such funds a substantial number of small entities IDIs, 1,167 IDIs (23.4 percent) report from the borrower. In the event that the and publishes its certification and a holding mortgage servicing assets, IDI hosting the MSA for the servicer short explanatory statement in the which indicates that they service fails, the proposal reduces the Federal Register together with the rule. mortgage loans and could thus be likelihood that the funds advanced by The Small Business Administration affected by the proposed rule. In the servicer are uninsured, and thereby (SBA) has defined ‘‘small entities’’ to addition, mortgage servicing accounts facilitates access to, and helps avoids include banking organizations with total may be maintained at IDIs that do not losses of, those funds. As previously assets of less than or equal to $600 themselves service mortgage loans. The discussed, the FDIC does not have million.79 Generally, the FDIC considers FDIC does not know how many IDIs are detailed data on MSAs held at IDIs, a significant effect to be a quantified recipients of mortgage servicing account pooling and servicing agreements for effect in excess of 5 percent of total deposits, but believes that most IDIs are outstanding mortgage loans, or servicer annual salaries and benefits per not. Therefore, the FDIC estimates that payments into MSAs that would allow institution, or 2.5 percent of total the number of IDIs potentially affected the FDIC to reliably estimate the number noninterest expenses. The FDIC believes by the proposed rule, if adopted, would of, and volume of funds within, MSAs that effects in excess of these thresholds be greater than 1,167 and substantially maintained at IDIs that would be typically represent significant effects for less than 4,987. affected by the proposed rule. small entities. The FDIC does not The FDIC does not have detailed data Further, the proposed rule is likely to believe that the proposed rule, if benefit an IDI who is hosting an MSA on MSAs that would allow the FDIC to adopted, will have a significant for a servicer that is compelled by the reliably estimate the number of MSAs economic effect on a substantial number terms of a pooling and servicing maintained at IDIs that would be of small entities. However, some agreement to advance principal and affected by the proposed rule, or any expected effects of the proposed rule are potential change in the total amount of interest funds to note holders on behalf of delinquent borrowers by increasing difficult to assess or accurately quantify insured deposits. Thus, the potential given current information, therefore the effects of the proposed amendments the volume of insured funds. In the event that the IDI enters into a troubled FDIC has included an Initial Regulatory regarding governing deposit insurance Flexibility Act Analysis in this section. coverage for MSAs are outlined condition, the proposed rule could qualitatively below. marginally increase the stability of MSA 78 5 U.S.C. 601 et seq. The proposed rule would directly deposits from such servicers, thereby increasing the general stability of 79 The SBA defines a small banking organization affect the level of deposit insurance as having $600 million or less in assets, where ‘‘a coverage provided for some MSAs. funding. financial institution’s assets are determined by Finally, the FDIC believes that the Under the proposed rule, the averaging the assets reported on its four quarterly proposed rule, if enacted, would pose financial statements for the preceding year.’’ See 13 composition of an MSA attributable to general benefits to parties that provide CFR 121.201 (as amended by 84 FR 34261, effective mortgage servicers’ advances of or utilize financial services related to August 19, 2019). ‘‘SBA counts the receipts, principal and interest funds on behalf of employees, or other measure of size of the concern mortgage products by amending an delinquent borrowers and collections whose size is at issue and all of its domestic and inconsistency in the deposit insurance foreign affiliates.’’ See 13 CFR 121.103. Following such as foreclosure proceeds would be treatment for principal and interest these regulations, the FDIC uses a covered entity’s affiliated and acquired assets, averaged over the 77 The count of institutions includes FDIC- payments made by the borrower and preceding four quarters, to determine whether the insured U.S. branches of institutions headquartered such payments made by the servicer on FDIC-supervised institution is ‘‘small’’ for the in foreign countries. behalf of the borrower. purposes of RFA.

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1. Simplification of Trust Rules Policy Objectives coverage for trust deposits. Generally, the proposed amendments would: Reasons Why This Action Is Being As discussed previously, the Merge the revocable and irrevocable Considered proposed amendments are intended to provide depositors and bankers with a trust categories into one category; apply As previously discussed, the rules rule for trust account coverage that is a simpler, common calculation method governing deposit insurance coverage easy to understand, and also to facilitate to determine insurance coverage for for trust deposits have been amended on the prompt payment of deposit deposits held by revocable and several occasions, but still frequently insurance in accordance with the FDI irrevocable trusts; eliminate certain cause confusion for depositors. Under Act. The FDIC believes that requirements found in the current rules the current regulations, there are accomplishing these objectives also for revocable and irrevocable trusts; and distinct and separate sets of rules would further the agency’s mission in amend certain recordkeeping applicable to deposits of revocable other respects. Specifically, the requirements for trust accounts. For a more detailed discussion of the trusts and irrevocable trusts. Each set of proposed amendments would promote proposed rule please refer to Section I.C rules has its own criteria for coverage depositor confidence and further the entitled ‘‘Description of Proposed Rule.’’ and methods by which coverage is FDIC’s mission to maintain stability and calculated. Despite the FDIC’s efforts to promote public confidence in the U.S. Small Entities Affected simplify the revocable trust rules in financial system by assisting depositors to more readily and accurately Based on the March 31, 2021 Call 2008,80 over the last 10 years, FDIC determine their insurance limits. The Report data, the FDIC insures 4,987 deposit insurance specialists have 82 proposed changes will also facilitate the depository institutions, of which responded to approximately 20,000 resolution of failed IDIs in a least costly 3,431 are considered small entities for complex insurance inquiries per year on manner. The proposed amendments the purposes of RFA.83 Of the 3,431 average. More than 50 percent pertain to could reduce the FDIC’s reliance on small IDIs, 826 have powers granted by deposit insurance coverage for trust trust documentation (which could be a state or national regulatory authority accounts (revocable or irrevocable). The difficult to obtain in a timely manner to administer accounts in a fiduciary consistently high volume of complex during resolutions of IDI failures) and capacity and 567 exercise those powers, inquiries about trust accounts over an provide greater flexibility to automate comprising 24.1 percent and 16.5 extended period of time suggests deposit insurance determinations, percent, respectively, of small IDIs.84 continued confusion about insurance thereby reducing potential delays in the However, individuals may establish limits. completion of deposit insurance trust accounts at an IDI even if that IDI The FDI Act requires the FDIC to pay determinations and payments. Finally, does not itself have or exercise authority depositors ‘‘as soon as possible’’ after a in proposing amendments to the trust to administer accounts in a fiduciary bank failure. However, the insurance rules, the FDIC’s intent is that the capacity, and in fact, as noted earlier, 99 percent of a sample of failed banks had determination and subsequent payment changes would generally be neutral with trust accounts. Therefore, the FDIC for many trust deposits can be delayed respect to the DIF. estimates that the proposed rule, if while FDIC staff reviews complex trust Legal Basis adopted, could affect between 567 and agreements and apply the rules for The FDIC’s deposit insurance 3,431 small, FDIC-insured institutions. determining deposit insurance coverage. categories have been defined through As noted in the Aggregation sub- Moreover, in many of these instances, both statute and regulation. Certain section of Section I.C ‘‘Description of deposit insurance coverage for trust categories, such as the government Proposed Rule,’’ the FDIC does not have deposits is based upon information that deposit category, have been expressly detailed data on depositors’ trust is not maintained in the failed IDI’s defined by Congress.81 Other categories, arrangements for trust accounts held at deposit account records. This requires such as joint deposits and corporate small FDIC-insured institutions. FDIC staff to work with depositors, deposits, have been based on statutory Therefore, it is difficult to accurately trustees, and other parties to obtain trust interpretation and recognized through estimate the number of small IDIs that documentation following an IDI’s failure regulations issued in 12 CFR part 330 would be potentially affected by the in order to complete deposit insurance pursuant to the FDIC’s rulemaking proposed rule. However, the FDIC determinations. The difficulties authority. In addition to defining the believes that the number of small IDIs associated with this are exacerbated by insurance categories, the deposit that will be directly affected by the the substantial growth in the use of insurance regulations in part 330 proposal is likely to be small, given that formal trusts in recent decades. For provide the criteria used to determine in the agency’s resolution experience example, following the 2008 failure of insurance coverage for deposits in each only a small number of trust accounts IndyMac Federal Bank, FSB (IndyMac), category. The FDIC proposes to amend have balances above the proposed FDIC claims personnel contacted more § 330.10 of its regulations, which coverage limit of $1,250,000 per grantor, than 10,500 IndyMac depositors to currently applies only to revocable trust per IDI for trust deposits. For example, obtain the trust documentation deposits, to establish a new ‘‘trust data obtained from a sample of 249 IDIs necessary to complete deposit insurance accounts’’ category that would include that failed between 2010 and 2020 show determinations for their revocable trust both revocable and irrevocable trust that only 100 depositors out of 250,139 and irrevocable trust deposits. As noted deposits. For a more detailed discussion (or 0.04 percent) had trust account previously, delays in the payment of of the proposal’s legal basis please refer balances greater than $1.25 million; at to Section I.C entitled ‘‘Description of deposit insurance could be small IDIs, 18 out of 34,304 depositors Proposed Rule.’’ consequential, as revocable trust (or 0.05 percent) had trust account deposits in particular can be used by The Proposed Rule depositors to satisfy their daily financial 82 The count of institutions includes FDIC- The FDIC is proposing to amend the insured U.S. branches of institutions headquartered obligations. rules governing deposit insurance in foreign countries. 83 FDIC Call Report data, March 31, 2021. 80 See 73 FR 56706 (Sep. 30, 2008). 81 12 U.S.C. 1821(a)(2). 84 Id.

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balances greater than $1.25 million.85 Alternatives Considered Policy Objectives The data from failed banks suggest small The FDIC has considered a number of As discussed previously, the FDIC’s IDIs could be affected by the proposal alternatives to the proposed rule that regulations governing deposit insurance roughly in proportion to the share of could meet its objectives in this coverage include specific rules on trust depositors with account balances rulemaking. However, for reasons deposits maintained at IDIs by mortgage greater than $1.25 million at IDIs of all previously stated in Section I.E servicers. With the proposed sizes which failed between 2010 and ‘‘Alternatives Considered,’’ the FDIC amendments, the FDIC seeks to address 2020. considers the proposed rule to be a more an inconsistency concerning the extent Expected Effects appropriate alternative. of deposit insurance coverage for such The FDIC also considered the status The proposed simplification of the deposits, as in the event of an IDI’s quo alternative to not amend the deposit insurance rules for trust failure the current rules could result in existing trust rules. However, for deposits is expected to have a variety of delayed access to certain funds in a reasons previously stated in Section I.E effects. The proposed amendments mortgage servicing account (MSA) that ‘‘Alternatives Considered,’’ the FDIC would directly affect the level of deposit have been aggregated and insured to a insurance coverage provided to some considers the proposed rule to be a more mortgage servicer, or to the extent that depositors with trust deposits. In appropriate alternative. aggregated funds insured to a servicer addition, simplification of the rules is Other Statutes and Federal Rules exceed the insurance limit, loss of such expected to have benefits in terms of funds. The FDIC has not identified any likely The proposed rule is intended to promoting the timely payment of duplication, overlap, and/or potential deposit insurance following a small address a servicing arrangement that is conflict between this proposal and any not specifically addressed in the current IDI’s failure, facilitating the transfer of other federal rule. deposit relationships to failed bank rules. Specifically, some servicing The FDIC invites comments on all arrangements may permit or require acquirers with consequent potential aspects of the supporting information reductions to the FDIC’s resolution servicers to advance their own funds to provided in this RFA section. In the lenders when mortgagors are costs, and addressing differences in the particular, would the proposal have any treatment of revocable trust deposits delinquent in making principal and significant effects on small entities that interest payments, and servicers might and irrevocable trust deposits contained the FDIC has not identified? in the current rules. The FDIC has also commingle such advances in the MSA considered the impact of any changes in 2. Amendments to Mortgage Servicing with principal and interest payments the deposit insurance rules on the DIF Account Rule collected directly from mortgagors. This and other potential effects.86 These may be required, for example, under Reasons Why This Action Is Being certain mortgage securitizations. The effects are discussed in greater detail in Considered Section III.A entitled ‘‘Expected FDIC believes that the factors that Effects.’’ As previously discussed, the FDIC motivated the FDIC to establish its Overall, due to the fact that the FDIC provides coverage, up to the SMDIA for current rules for MSAs, described expects most small IDIs to have only a each borrower, for principal and interest previously, argue for treating funds small number of trust accounts with funds in MSAs only to the extent ‘‘paid advanced by a mortgage servicer in balances above the proposed coverage into the account by the mortgagors,’’ order to satisfy mortgagors’ principal limit of $1,250,000 per grantor, per IDI and does not provide coverage for funds and interest obligations to the lender as for trust deposits, effects on the deposit paid into the account from other if such funds were collected directly insurance coverage of small entities’ sources, such as the servicer’s own from borrowers. customers are likely to be small. There operating funds, even if those funds Legal Basis also may be some initial cost for small satisfy mortgagors’ principal and entities to become familiar with the interest payments under the current The FDIC’s deposit insurance proposed changes to the trust insurance rules. The advances are aggregated and categories have been defined through coverage rules in order to be able to insured to the servicer as corporate both statute and regulation. Certain explain them to potential trust funds for a total of $250,000. Under categories, such as the government customers, counterbalanced to some some servicing arrangements, however, deposit category, have been expressly extent by the fact that the proposed mortgage servicers may be required to defined by Congress. Other categories, rules should be simpler to understand advance their own funds to make such as joint deposits and corporate and explain going forward. As the payments of principal and interest on deposits, have been based on statutory business impacts and costs associated behalf of delinquent borrowers to the interpretation and recognized through with operationalizing the proposed lenders in certain circumstances. Thus, regulations issued in 12 CFR part 330 changes to the trust rules may vary under the current rules, such advances pursuant to the FDIC’s rulemaking significantly across IDIs, the FDIC are not provided the same level of authority. In addition to defining the would welcome industry comments in coverage as other deposits in a mortgage insurance categories, the deposit this regard. servicing account comprised of insurance regulations in part 330 principal and interest payments directly provide the criteria used to determine 85 Whether a failed IDI is considered small is from the borrower. This could result in insurance coverage for deposits in each based on data from its four quarterly Call Reports delayed access to certain funds in an category. The FDIC proposes to amend prior to failure. MSA, or to the extent that aggregated § 330.7(d) of its regulations, which 86 The FDIC has also considered the impact of any currently applies only to cumulative changes in the deposit insurance rules on the advances insured to the servicer exceed covered institutions that are subject to part 370. As the insurance limit, loss of such funds, balance paid by the mortgagors into an described previously, part 370 affects IDIs with two in the event of an IDI’s failure. The FDIC MSA maintained by a mortgage servicer, million or more deposit accounts. Based on Call is therefore proposing to amend its rules to include balances paid in to the Report data as of March 31, 2021, the FDIC does not account to satisfy mortgagors’ principal insure any institutions with two million or more governing coverage for deposits in deposit accounts that are also considered small mortgage servicing accounts to address or interest obligations to the lender. For entities. this inconsistency. a more detailed discussion of the

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proposal’s legal basis please refer to allow the FDIC to reliably estimate the alternative. Were the FDIC to not Section II.C, entitled ‘‘Proposed Rule.’’ number of MSAs maintained at IDIs that propose the revisions, then in the event would be affected by the proposed rule, of an IDI’s failure the current rules The Proposed Rule or any potential change in the total could result in delayed access to certain The FDIC is proposing to amend the amount of insured deposits. Therefore, funds in an MSA that have been rules governing deposit insurance it is difficult to accurately estimate the aggregated and insured to a mortgage coverage for deposits maintained at IDIs number of small IDIs that would be servicer, or to the extent that aggregated by mortgage servicers. Generally, the potentially affected by the proposed funds insured to a servicer exceed the proposed amendment would provide rule. insurance limit, loss of such funds. consistent deposit insurance treatment for all MSA deposit balances held to Expected Effects Other Statutes and Federal Rules satisfy principal and interest obligations The proposed rule would directly The FDIC has not identified any likely to a lender, regardless of whether those affect the level of deposit insurance duplication, overlap, and/or potential funds are paid into the account by coverage for certain funds within MSAs. conflict between this proposal and any borrowers, or paid into the account by If enacted, the proposed rule is likely to other federal rule. another party (such as the servicer) in benefit a servicer compelled by the The FDIC invites comments on all order to satisfy a periodic obligation to terms of a pooling and servicing aspects of the supporting information remit principal and interest due to the agreement to advance principal and provided in this RFA section. In lender. The composition of an MSA interest funds to note holders when a particular, would the proposal have any attributable to principal and interest borrower is delinquent, and therefore significant effects on small entities that payments would include mortgage the servicer has not received such funds the FDIC has not identified? from the borrower. In the event that the servicers’ advances of principal and C. Paperwork Reduction Act interest funds on behalf of delinquent IDI hosting the MSA for the servicer borrowers, and collections by a servicer fails, the proposal reduces the The Paperwork Reduction Act of 1995 such as foreclosure proceeds. The likelihood that the funds advanced by (44 U.S.C. 3501–3521) states that no proposed rule would make no change to the servicer are uninsured, and thereby agency may conduct or sponsor, nor is the deposit insurance coverage provided facilitates access to, and helps avoids the respondent required to respond to, for mortgage servicing accounts losses of, those funds. As previously an information collection unless it comprised of payments from mortgagors discussed, the FDIC does not have displays a currently valid Office of of taxes and insurance premiums. For a detailed data on MSAs held at IDIs, Management and Budget (OMB) control more detailed discussion of the pooling and servicing agreements for number. The FDIC has determined that proposed rule please refer to Section outstanding mortgage loans, or servicer this proposed rule does not create any II.C, entitled ‘‘Proposed Rule.’’ payments into MSAs that would allow new, or revise any existing, collections the FDIC to reliably estimate the number of information under section 3504(h) of Small Entities Affected of, and volume of funds within, MSAs the Paperwork Reduction Act (PRA). Based on the March 31, 2021 Call maintained at IDIs that would be Consequently, no information collection Report data, the FDIC insures 4,987 affected by the proposed rule. request will be submitted to the OMB depository institutions, of which 3,431 Further, the proposed rule is likely to for review. The FDIC invites comment are considered small entities for the benefit a small IDI who is hosting an on its PRA determination. purposes of RFA. Of the 3,431 small MSA for a servicer that is compelled by D. Riegle Community Development and IDIs, 491 IDIs (14.3 percent) report the terms of a pooling and servicing Regulatory Improvement Act holding mortgage servicing assets, agreement to advance principal and which indicates that they service interest funds to note holders on behalf Section 302 of the Riegle Community mortgage loans and could thus be of delinquent borrowers by increasing Development and Regulatory affected by the proposed rule. However, the volume of insured funds. In the Improvement Act of 1994 (RCDRIA) mortgage servicing accounts may be event that the small IDI enters into a requires that the Federal banking maintained at small IDIs that do not troubled condition, the proposed rule agencies, including the FDIC, in themselves service mortgage loans. The could marginally increase the stability determining the effective date and FDIC does not know how many IDIs that of MSA deposits from such servicers, administrative compliance requirements are small entities are recipients of thereby increasing the general stability of new regulations that impose mortgage servicing account deposits, but of funding. additional reporting, disclosure, or other believes that most such entities are not Based on the preceding information requirements on insured depository because there are relatively few the FDIC believes that the proposed institutions, consider, consistent with mortgage servicers.87 Therefore, the rule, if enacted, is unlikely to have a principles of safety and soundness and FDIC estimates that the number of small significant economic effect on a the public interest, any administrative IDIs potentially affected by the proposed substantial number of small entities. burdens that such regulations would place on depository institutions, rule, if adopted, would be between 491 Alternatives Considered and 3,431, but believes that the number including small depository institutions, is close to the lower end of the range. The FDIC is proposing revisions to the and customers of depository As noted in Section III.A, titled deposit insurance rules for MSAs to institutions, as well as the benefits of ‘‘Expected Effects,’’ the FDIC does not advance the objectives discussed above. such regulations.88 Subject to certain have detailed data on MSAs that would The FDIC considered the status quo exceptions, new regulations and alternative to not revise the existing amendments to regulations prescribed 87 According to the U.S. Census Bureau within rules for MSAs and not propose the by a Federal banking agency which the ‘‘Other Activities Related to Credit revisions. However, for reasons impose additional reporting, Intermediation’’ (NAICS 522390) national industry previously stated in Section II.B, disclosures, or other new requirements where mortgage servicers are captured there were 3,595 firms in 2018, relative to the 37,627 firms in entitled ‘‘Background and Need for on insured depository institutions shall the Credit Intermediation and Related Activities Rulemaking,’’ the FDIC considers the subsector (NAICS 522). proposed rule to be a more appropriate 88 12 U.S.C. 4802(a).

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take effect on the first day of a calendar proposes to amend part 330 of title 12 otherwise insured as described in quarter which begins on or after the date of the Code of Federal Regulations as § 330.12. on which the regulations are published follows: (b) Calculation of coverage—(1) in final form.89 General calculation. Each grantor’s trust The proposed rule would not impose PART 330—DEPOSIT INSURANCE deposits are insured in an amount up to additional reporting or disclosure COVERAGE the SMDIA multiplied by the total requirements on insured depository number of beneficiaries identified by institutions, including small depository ■ 1. The authority citation for part 330 the grantor, up to a maximum of 5 institutions, or on the customers of continues to read as follows: beneficiaries. depository institutions. Accordingly, Authority: 12 U.S.C. 1813(l), 1813(m), (2) Aggregation for purposes of section 302 of RCDRIA does not apply. 1817(i), 1818(q), 1819(a)(Tenth), 1820(f), insurance limit. Trust deposits that pass Nevertheless, the requirements of 1820(g), 1821(a), 1821(d), 1822(c). from the same grantor to beneficiaries are aggregated for purposes of RCDRIA will be considered as part of § 330.1 [Amended] the overall rulemaking process, and the determining coverage under this ■ FDIC invites comments that will further 2. Amend § 330.1 by removing and section, regardless of whether those inform its consideration of RCDRIA. reserving paragraphs (m) and (r). deposits are held in connection with an ■ 3. Revise § 330.7(d) to read as follows: informal revocable trust, formal E. Treasury and General Government § 330.7 Accounts held by an agent, revocable trust, or irrevocable trust. Appropriations Act, 1999—Assessment (3) Separate insurance coverage. The of Federal Regulations and Policies on nominee, guardian, custodian or conservator. deposit insurance coverage provided Families * * * * * under this section is separate from The FDIC has determined that the (d) Mortgage servicing accounts. coverage provided for other deposits at proposed rule will not affect family Accounts maintained by a mortgage the same insured depository institution. (4) Equal allocation presumed. Unless well-being within the meaning of servicer, in a custodial or other otherwise specified in the deposit section 654 of the Treasury and General fiduciary capacity, which are comprised account records of the insured Government Appropriations Act, of payments of principal and interest, depository institution, a deposit held in enacted as part of the Omnibus shall be insured for the cumulative connection with a trust established by Consolidated and Emergency balance paid into the account by multiple grantors is presumed to have Supplemental Appropriations Act of mortgagors, or in order to satisfy 90 been owned or funded by the grantors 1999. mortgagors’ principal or interest in equal shares. obligations to the lender, up to the limit F. Plain Language (c) Number of beneficiaries. For of the SMDIA per mortgagor. Accounts Section 722 of the Gramm-Leach- purposes only of determining the total maintained by a mortgage servicer, in a Bliley Act 91 requires the Federal number of beneficiaries for a trust custodial or other fiduciary capacity, banking agencies to use plain language deposit under paragraph (b) of this which are comprised of payments by in all proposed and final rulemakings section: published in the Federal Register after mortgagors of taxes and insurance (1) Eligible beneficiaries. Subject to January 1, 2000. The FDIC invites your premiums shall be added together and paragraph (c)(2) of this section, comments on how to make this proposal insured in accordance with paragraph beneficiaries include natural persons, as easier to understand. For example: (a) of this section for the ownership well as charitable organizations and • Has the FDIC organized the material interest of each mortgagor in such other non-profit entities recognized as to suit your needs? If not, how could the accounts. such under the Internal Revenue Code material be better organized? * * * * * of 1986, as amended. • Are the requirements in the ■ 4. Revise § 330.10 to read as follows: (2) Ineligible beneficiaries. proposed regulation clearly stated? If Beneficiaries do not include: § 330.10 Trust accounts. not, how could the regulation be stated (i) The grantor of a trust; or more clearly? (a) Scope and definitions. This section (ii) A person or entity that would only • Does the proposed regulation governs coverage for deposits held in obtain an interest in the deposit if one contain language or jargon that is connection with informal revocable or more named beneficiaries are unclear? If so, which language requires trusts, formal revocable trusts, and deceased. clarification? irrevocable trusts not covered by (3) Future trust(s) named as • Would a different format (grouping § 330.12 (‘‘trust accounts’’). For beneficiaries. If a trust agreement and order of sections, use of headings, purposes of this section: provides that trust funds will pass into paragraphing) make the regulation (1) Informal revocable trust means a one or more new trusts upon the death easier to understand? trust under which a deposit passes of the grantor(s), the future trust(s) are directly to one or more beneficiaries List of Subjects in 12 CFR Part 330 not treated as beneficiaries of the trust; upon the depositor’s death without a rather, the future trust(s) are viewed as Bank deposit insurance, Reporting written trust agreement, commonly mechanisms for distributing trust funds, and recordkeeping requirements, referred to as a payable-on-death and the beneficiaries are the natural Savings associations. account, in-trust-for account, or Totten persons or organizations that shall Authority and Issuance trust account. receive the trust funds through the (2) Formal revocable trust means a future trusts. For the reasons stated above, the revocable trust established by a written (4) Informal trust account payable to Federal Deposit Insurance Corporation trust agreement under which a deposit depositor’s formal trust. If an informal passes to one or more beneficiaries upon revocable trust designates the 89 12 U.S.C. 4802(b). the grantor’s death. depositor’s formal trust as its 90 Public Law 105–277, 112 Stat. 2681 (Oct. 21, 1998). (3) Irrevocable trust means an beneficiary, the informal revocable trust 91 Public Law 106–102, 113 Stat. 1338, 1471 (Nov. irrevocable trust established by statute account will be treated as if titled in the 12, 1999). or a written trust agreement and not name of the formal trust.

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(d) Deposit account records—(1) DEPARTMENT OF TRANSPORTATION information on the availability of this Informal revocable trusts. The material at the FAA, call (816) 329– beneficiaries of an informal revocable Federal Aviation Administration 4148. trust must be specifically named in the Examining the AD Docket deposit account records of the insured 14 CFR Part 39 depository institution. You may examine the AD docket at [Docket No. FAA–2021–0602; Project https://www.regulations.gov by (2) Formal revocable trusts. The title Identifier 2019–CE–022–AD] of a formal trust account must include searching for and locating Docket No. terminology sufficient to identify the RIN 2120–AA64 FAA–2021–0602; or in person at Docket account as a trust account, such as Operations between 9 a.m. and 5 p.m., Airworthiness Directives; Diamond Monday through Friday, except Federal ‘‘family trust’’ or ‘‘living trust,’’ or must Aircraft Industries GmbH Airplanes otherwise be identified as a holidays. The AD docket contains this testamentary trust in the account AGENCY: Federal Aviation NPRM, the MCAI, any comments records of the insured depository Administration (FAA), DOT. received, and other information. The street address for Docket Operations is institution. If eligible beneficiaries of ACTION: Notice of proposed rulemaking listed above. such formal revocable trust are (NPRM). specifically named in the deposit FOR FURTHER INFORMATION CONTACT: account records of the insured SUMMARY: The FAA proposes to adopt a Penelope Trease, Aviation Safety depository institution, the FDIC shall new airworthiness directive (AD) for all Engineer, General Aviation & Rotorcraft presume the continued validity of the Diamond Aircraft Industries GmbH Section, International Validation named beneficiary’s interest in the trust Models DA 42, DA 42 NG, and DA 42 Branch, FAA, 26805 E. 68th Avenue, consistent with § 330.5(a). M–NG airplanes. This proposed AD was Denver, CO 80249; phone: (303) 342– (e) Commingled deposits of prompted by mandatory continuing 1094; email: [email protected]. bankruptcy trustees. If a bankruptcy airworthiness information (MCAI) SUPPLEMENTARY INFORMATION: trustee appointed under title 11 of the originated by an aviation authority of Comments Invited United States Code commingles the another country to identify and correct The FAA invites you to send any funds of various bankruptcy estates in an unsafe condition on an aviation written relevant data, views, or the same account at an insured product. The MCAI describes the unsafe arguments about this proposal. Send depository institution, the funds of each condition as failure of the nose landing your comments to an address listed title 11 bankruptcy estate will be added gear (NLG) actuator attachment lever under ADDRESSES. Include ‘‘Docket No. together and insured up to the SMDIA, and detachment from the NLG leg. This FAA–2021–0602; Project Identifier separately from the funds of any other proposed AD would require repetitively inspecting the NLG actuator attachment 2019–CE–022–AD’’ at the beginning of such estate. your comments. The most helpful (f) Deposits excluded from coverage lever for cracks and damage and taking any necessary corrective actions. The comments reference a specific portion of under this section—(1) Revocable trust the proposal, explain the reason for any co-owners that are sole beneficiaries of FAA is proposing this AD to address the unsafe condition on these products. recommended change, and include a trust. If the co-owners of an informal supporting data. The FAA will consider DATES: or formal revocable trust are the trust’s The FAA must receive comments all comments received by the closing sole beneficiaries, deposits held in on this NPRM by September 17, 2021. date and may amend this proposal connection with the trust are treated as ADDRESSES: You may send comments, because of those comments. joint ownership deposits under § 330.9. using the procedures found in 14 CFR Except for Confidential Business (2) Employee benefit plan deposits. 11.43 and 11.45, by any of the following Information (CBI) as described in the Deposits of employee benefit plans, methods: following paragraph, and other even if held in connection with a trust, • Federal eRulemaking Portal: Go to information as described in 14 CFR are treated as employee benefit plan https://www.regulations.gov. Follow the 11.35, the FAA will post all comments deposits under § 330.14. instructions for submitting comments. received, without change, to https:// (3) Investment company deposits. • Fax: (202) 493–2251. www.regulations.gov, including any This section shall not apply to deposits • Mail: U.S. Department of personal information you provide. The of trust funds belonging to a trust Transportation, Docket Operations, M– agency will also post a report classified as a corporation under 30, West Building Ground Floor, Room summarizing each substantive verbal § 330.11(a)(2). W12–140, 1200 New Jersey Avenue SE, contact received about this NPRM. (4) Insured depository institution as Washington, DC 20590. Confidential Business Information trustee of an irrevocable trust. Deposits • Hand Delivery: Deliver to Mail held by an insured depository address above between 9 a.m. and 5 CBI is commercial or financial institution in its capacity as trustee of p.m., Monday through Friday, except information that is both customarily and an irrevocable trust are insured as Federal holidays. actually treated as private by its owner. provided in § 330.12. For service information identified in Under the Freedom of Information Act this AD, contact Diamond Aircraft (FOIA) (5 U.S.C. 552), CBI is exempt § 330.13 [Removed and Reserved] Industries GmbH, N.A. Otto-Stra+e 5, from public disclosure. If your ■ 5. Remove and reserve § 330.13. A–2700 Wiener Neustadt, Austria; comments responsive to this NPRM Federal Deposit Insurance Corporation. phone: +43 2622 26700; fax: +43 2622 contain commercial or financial 26780; email: [email protected]; information that is customarily treated By order of the Board of Directors. website: https:// as private, that you actually treat as Dated at Washington, DC, on July 20, 2021. www.diamondaircraft.com. You may private, and that is relevant or James P. Sheesley, view this service information at the responsive to this NPRM, it is important Assistant Executive Secretary. FAA, Airworthiness Products Section, that you clearly designate the submitted [FR Doc. 2021–15732 Filed 8–2–21; 8:45 am] Operational Safety Branch, 901 Locust comments as CBI. Please mark each BILLING CODE 6714–01–P St, Kansas City, MO 64106. For page of your submission containing CBI

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