In the final rule, Sec. 370.5(h)(4)(ii) states "If the institution uses sweep arrangements or takes other actions that result in funds being transferred to an account that is not guaranteed under the transaction guarantee program, for example, an interest bearing account, the institition must disclose those actions to the affected customers and clearly advise them, in writing, that such actions will void the FDIC's guarantee with respect to the swept, transferred, or reclassified funds.

We don't offer sweeps in the tradional sense, but it seems for purposes of this disclosure a sweep includes any written account transfer agreement if funds are moving from a guaranteed account to a non-guaranteed account. Do I have that right?

Needless to say, managment isn't crazy about this requirement. I'm curious how others are planning to provide this disclose?

Sweeps include automatic transfers based on a target balance for the control account (the noninterest-bearing transaction account in this case). They also include the practice of reclassifying transaction account balances as savings balances to control reserve requirements. They don't, IMO, include periodic transfers to club accounts, loan account payments, junior's college fund or other similar preauthorized transfers.

Another way to view sweeps is to look at the "other account" as a temporary parking spot for the customer's funds. That "parking" may be designed to provide the customer a yield on temporarily excess funds, or to reclassify funds as savings balances with 0% reserve requirements. It is intended that the funds will return to the swept account as needed.

Contrast that with transfers to a savings or club account, or to Junior's college account, or to a loan account. In none of those cases is it anticipated that the funds will return "home" (particularly the money for Junior).

Question about the retail sweep accounts. We offer NOW accounts (less than 50 basis points) that are restructured into two sub accounts to manage our reserve requirement. This is a traditional Retail Sweep Arrangement. The NOW account would otherwise qualify for coverage under TAGP if not for the restructuring or sweep of some of the funds to the savings sub account. If the savings sub account was noninterest bearing there would be no problem since sweeps from a NOW account to another noninterest bearing account qualifies for an exception and would still qualify for the guarantee. However, I don’t know if the savings account would be considered noninterest bearing. We calculate and pay interest based on the full balance in the master NOW account – and interest is only credited to the master NOW account not the subaccounts. So my initial thought is that retail sweeps of this type would qualify for the “noninterest bearing account sweep to a noninterest bearing account” exception and be guaranteed under the program.

Many banks operate the same program. How are other banks treating Retail Sweeps for purposes of TAGP or how should they be treated? We are trying to avoid sending out a sweep disclosure to all of our NOW account customers.

Interesting. That's one you're going to have to run up the flagpole at the FDIC to see what they think. You may actually have a good loophole there, but I can't speak for the FDIC (nor would I want to!)

Our sweep accounts are strictly repos (so not FDIC covered anyway). Do we just need to redisclose this fact in the disclosures that we send to our sweep acct customers?

Fortunately, the FDIC's FAQ on the TLGP has been updated with an entry that hits the question about reclassification right on the head. Take a look at the deposit section of the FAQ. The added questions are down the page.