FDIC Board Proposes Rules on Temporary Unlimited Deposit Insurance Coverage for Noninterest-Bearing Transaction Accounts

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On September 27, the Federal Deposit Insurance Corporation (FDIC) Board of Directors approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010, through December 31, 2012. Under the proposal, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts. These accounts are primarily checking accounts used by businesses for payrolls, accounts payable and other purposes.

Unlike the FDIC’s voluntary Transaction Account Guarantee (TAG) Program, which will expire at the end of this year, the Dodd-Frank provision will apply at all FDIC-insured institutions, and it will cover only traditional checking accounts that do not pay interest. The proposed rule emphasizes that, starting January 1, 2011, low-interest consumer checking accounts and Interest on Lawyer Trust Accounts (IOLTAs) (currently protected under the TAG Program) will no longer be eligible for an unlimited guarantee.

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