The Federal Deposit Insurance Corporation has issued a final rule adopting with virtually no change its proposed approach to depositor preference for deposits payable at foreign offices of US banks. While the rule will provide guidance for US banks responding to international efforts to require equal treatment of local branch deposits with home-country deposits in insolvency, it does not address several outstanding issues. US banks will have to tread carefully.

The proposed rule from last April was intended to deal with international efforts, and primarily one led by the United Kingdom, to protect depositors of local branches of US banks. Those branches are not covered by the US deposit insurance scheme. The FDIC was concerned that an insured bank with a London branch would cause the branch’s deposits to be equally payable at either the London branch or the US head office; these would effectively be “dual-office” deposits. The advantage of making them payable at the head office is that the deposits thereby become insured deposits under Federal law and FDIC regulations, and a US bank its Londonbranch into a subsidiary bank.

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