Can I open a sweep account for a non-business customer that is backed by pledged securities and a repurchase agreement?

This type service is generally reserved for non-consumers because it simply isn't attractive for consumers. We can pay whatever interest rate we want to pay to a consumer and the account(s) are usually FDIC insured. Why would a consumer want money swept off the books to earn interest on a non-FDIC insured investment vehicle? Do they fully understand the transaction?

Before the unlimited FDIC insurance, under TAGP (if opted-in), this was a method not unknown to basically provide insured deposits while also providing interest on the funds. Not very profitable to do so in todays environment, typically.

Even though the swept funds are not FDIC insured, doesn't the customer have partial ownership in the securities that are pledged? If the bank fails, can the bonds (in this case FHLB Bonds) be sold and the proceeds be given to the customer? My bank has a customer with several million dollars in deposits and we want to assure him that those deposits are safe in the event of a bank closure. (Our bank is very strong and profitable, this customer is just very risk sensitive) I want to make sure I am not violating any regulations or laws by opening a sweep account and pledging securities for a consumer account.

You might want to start here:

http://www.fdic.gov/regulations/laws/rules/5000-2100.html#fdic5000federalfinani