As the end of the year approaches and preparations begin for 2011, now is a good time to become familiar with how the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as the Dodd-Frank Act) will affect deposit insurance coverage.
But first, a little background.
In October 2008, the Federal Deposit Insurance Corporation (FDIC) temporarily raised deposit insurance coverage from $100,000 to $250,000 per depositor. This extended coverage would have expired on December 31st of this year, until FDIC officials stepped in a second time and extended it through 2013.
Also in October of 2008, the FDIC announced the creation of the Transaction Account Guarantee Program (TAG). Under TAG, which remains in affect until the end of this year, all non-interest-bearing transaction accounts, interest on lawyers trust accounts (IOLTA) and negotiable order of withdrawal accounts (NOW) paying no more than 25 basis points are fully guaranteed for the entire amount in the account. Banks electing to participate in the program must pay a special assessment fee to the FDIC.
On July 21st, President Obama signed the Dodd-Frank Act into law. Under the Act, FDIC deposit insurance permanently increased from $100,000 to $250,000 per depositor. Additionally, the Act provides unlimited FDIC insurance coverage all for non-interest-bearing transaction accounts in banks effective December 31st of this year through 2012.
In its current form, TAG is not changed by the Dodd-Frank Act. Instead, the new law picks up where the program leaves off. However, there are two important changes to the coverage.
For starters, banks do not have to opt into this program. In fact, they don’t have a choice as they are simply required to participate. In addition, the extra coverage the Dodd-Frank Act provides in 2011 and 2012 includes only transaction accounts that pay no interest. In other words, after the first of the year interest-bearing NOW accounts and IOLTAs will not receive the unlimited coverage provided by the current TAG program.
As you can imagine, bankers and their legal counsel are busy addressing and planning for the impact of the new regulations. Disclosures must be amended and staff must be trained. With more than 5,000 pages of new regulations, the Dodd-Frank Act is a complex piece of legislation that will take several months – if not years – to absorb. In the meantime, it’s important for consumers to understand the changes in federal deposit insurance. There are many resources available for individuals looking for more information. A good place to start is the FDIC’s website at www.fdic.gov or by speaking with your banker.
Kristy Weaver is a senior vice president and business development team leader for Pacific Continental Bank. For additional information, visit therightbank.com or call (360) 695-3204.