Insured Accounts - What Has Changed?

Ms. Brandi M. Gregg
Senior Vice President and Director of
Compliance, Sterling Bank

Over the last several months, the Federal Reserve and U.S. Treasury have initiated tremendous changes in the banking industry. The most significant, but least likely understood by business owners, are the changes in insurance coverage for bank accounts.

In a conversation with Ms. Brandi M. Gregg, Sterling Bank's senior vice president and Director of Compliance, she outlined what has changed and how it affects individual and business account holders.

Question: Before we talk about insured accounts, can you tell me what you, as Director of Compliance, do?

Answer: As the bank's Compliance Officer, I am responsible for ensuring that the bank is properly discharging all the federal and state regulations, most of which are consumer protection in nature. Among other things, I am charged with monitoring changes in federal and state laws and regulations, developing policies and procedures to comply with such changes, and performing periodic audits or self assessments to make certain that our policies and procedures are adequate and are being correctly followed by our employees.

Question: Tell us what has changed recently about insured accounts?

Answer: The recent turmoil in the financial markets has led to numerous changes.specifically the Emergency Economic Stabilization Act that expanded the FDIC's insurance on bank accounts. As a result, we have seen more significant changes with respect to FDIC deposit insurance in the past two months than we have seen in the previous 10 years combined.

Question: Why did the FDIC make these changes?

Answer: The changes in deposit insurance coverage are designed to reassure customers about the stability of the overall financial system and security of their individual accounts.

Question: What did the Act change?

Answer: Several things have changed. However, one change that affects all customers was the increase of deposit insurance from $100,000 to $250,000. This change applies across the board to all categories of deposit insurance as well as all types of insured deposit accounts. But, unless it is renewed, this increased insurance will expire on December 31, 2009.

Question: What types of accounts qualify for deposit insurance coverage?

Answer: The FDIC provides separate insurance coverage for deposit accounts held in different categories of insurance. As a result, a customer may qualify for more than $250,000 in coverage at one insured bank if he or she owns deposit accounts in different ownership categories.

Currently, deposit insurance rules recognize eight separate categories of account ownership. The first is a single ownership (individual) account, which is an account owned by one person and titled in that person's name only. The second is a joint ownership account, which is owned by two or more people. The third category applies to certain retirement accounts (such as an IRA, 457 deferred compensation plan accounts, self-directed contribution plans, and self-directed Keogh plans). The fourth is a revocable trust account such as a payable-on-death (POD) account or a living trust account. Under this category, the FDIC insures the interest of each beneficiary up to $250,000 for each account owner if certain conditions are met. The fifth type is an irrevocable trust account, which is a deposit account held by an irrevocable trust established by statute or written trust agreement. Under this category, the non-contingent interest of a beneficiary is insured for up to $250,000 if certain conditions are met.

The sixth type of insured account is an employee benefit plan, such as a defined contribution plan (non-self-directed 401(k)s, defined benefit plans, employee welfare plans or welfare benefit plans, and Keogh plans that are not self-directed). Seventh are business entity accounts, which are deposit accounts owned by corporations, partnerships, limited liability companies, or unincorporated associations. The last category of deposit insurance is a government or public unit account, which generally includes deposit accounts of the United States, and any state, county or municipality thereof.

Accounts opened and held in the same ownership category are added together and insured to the limits provided in the appropriate ownership category. Each of these ownership categories has specific requirements that must be met in order to receive separate insurance under the category.

Question: The changes discussed thus far apply to all deposit accounts. Are there any changes that affect only a segment of deposit accounts?

Answer: Yes. In September 2008, the FDIC announced changes simplifying coverage for revocable trust accounts. In short, the concept of familial-based "qualifying beneficiaries" was eliminated. Consequently, coverage under this category is no longer limited to beneficiaries that are the spouse, child, grandchild, parent or sibling of the grantor. Rather, coverage is now available to any beneficiary as long as the beneficiary is an individual, charity or other non-profit organization.

Also, on October 23, 2008, the FDIC announced rules related to the Temporary Liquidity Guarantee Program (TLGP). Among other things, the TLGP provides for a temporary unlimited guarantee of the coverage of funds in non-interest bearing accounts. In other words, deposits in non-interest-bearing accounts are fully insured - regardless of the amount. Although all customers are eligible for the additional coverage, it is widely believed that business depositors will benefit the most. Customers should be aware that for an initial 30-day period, all banks are eligible for the additional coverage related to non-interest-bearing accounts. However, after such time, banks may choose to "opt out" of participating in the program. If a bank opts out, this increased insurance for the non- interest-bearing accounts drops back to a maximum of $250,000 on that date. Therefore, it is important that customers concerned about deposit insurance inquire as to whether their bank has chosen to participate in the TLGP.

Sterling Bank has chosen to participate in the TLGP. As a result all non interest-bearing transactional deposit accounts at Sterling, including all personal and business checking deposit accounts that do not earn interest, are fully insured for the entire amount in the deposit account. This new coverage is effective immediately, and continues until December 31, 2009.

Question: That's a lot of information to digest. If individuals have additional questions, where can they go for answers?

Answer: We would be happy to answer any questions our customers have. They can just call their local banking centers and speak to one of our banking center officers. A good general source of information is: www.fdic.gov. Specifics about the increased insurance coverage are at: http://www.fdic.gov/regulations/resources/TLGP/index.html