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#1164108 - 04/15/09 07:46 PM Sweep Disclosures
CSB98 Offline
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Posts: 1,337
Wisconsin
I received a fax today from the ABA on a webinar for the new sweep disclosures. I guess I haven't been keeping up to date with all the new rules, because I really have no idea what they are talking about. Can someone point me to some resources on this topic? We offer "sweep" accounts as a form of overdraft protection (e.g. from savings to checking, or checking to checking). Are these included or is the rule trying to target repo sweeps?

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#1164122 - 04/15/09 07:54 PM Re: Sweep Disclosures CSB98
Reads Regs Offline
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There was a final rule from the FDIC that was published in the 2/2/09 issue of the Federal Register. If you read through it you will see a requirement to make a disclosure beginning 7/1/09 and annually thereafter.

You can access the rule from this page. http://www.fdic.gov/regulations/laws/federal/final.html

Click on the PDF file link for 2/2/09. The specific requirement is found on page 11 of the PDF file.
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#1164180 - 04/15/09 08:29 PM Re: Sweep Disclosures Reads Regs
CSB98 Offline
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Wisconsin
Okay, so after reading this, I'm assuming that the transfer of funds from one account to another for ovedraft protection is NOT included in the definition of a sweeep account for disclosure purposes. Correct?

Has anyone put together a disclosure yet? I'd appreciate some samples to use in putting together our own disclosure.

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#1164410 - 04/16/09 01:54 PM Re: Sweep Disclosures CSB98
ahou Offline
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ahou
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The amount of funds in a non-interest bearing transaction account that, at the time of the failure, have actually been swept into an interest bearing account either in the institution (i.e., an MMDA) or outside the institution (i.e., a repo or money market mutual fund account) are not eligible for the transaction account guarantee. In the former case, the swept funds would be aggregated with funds in the institution owned in the same ownership category and insured up to $250,000. In the latter case, funds swept outside the institution would not be eligible for deposit insurance coverage because no deposit exists. Any funds that remain in the non-interest bearing account after the sweep do qualify for the transaction account guarantee. It only applies to automatic sweeps or transfers.

Sample disclosure:

You are receiving this required notice because you have a “Sweep” account arrangement with XXX Bank.

This notice is to inform you of the effect that this sweep arrangement can have on the FDIC Insurance coverage of your funds. A sweep arrangement that moves funds from a noninterest bearing transaction account into an interest bearing account are not eligible for the guarantee. However, these funds are subject to the temporary FDIC coverage limit of $250,000 per depositor.



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#1166598 - 04/20/09 05:51 PM Re: Sweep Disclosures ahou
tjbanker Offline
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Posts: 310
We have one repurchase agreement that is secured by a security type instrument such as an agency. The repurchase agreement states that the interest bearing account is not FDIC insured because it is collateralized by the security. The money sweeps internally to a repo account, earns its interest, and then at the "beginning of the next day processing" it is swept back into the noninterest bearing checking account. Would this type of account require the notice?

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#1166601 - 04/20/09 05:53 PM Re: Sweep Disclosures tjbanker
waldensouth Offline
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FINALLY ABOVE the gnat line
You have to tell the customer whether they are a secured or unsecured creditor of the bank if the bank should fail.
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#1167875 - 04/22/09 02:34 PM Re: Sweep Disclosures waldensouth
CSpellman Offline
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A couple of things to consider. The definition may include transfers which may not be related to a repurchase or a sweep. For instance would bill pay apply if there was a transfer between checking/savings? Would it apply to an overdraft situation automatic transfer from savings to checking?

A couple other nuggets, it would appear the loan accounts are covered so auto payments would require a disclosure. Also there is a section concerning repurchase agreements-if they are not properly executed then those accounts would be considered deposits which would mean call report issues and FDIC insurance premium issues (page 5802). Everyone should look at their agreements AND their procedures for perfecting those securities.
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#1170783 - 04/27/09 07:25 PM Re: Sweep Disclosures CSpellman
travelgirl Offline
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Posts: 223
Minnesota
I think I am more confused than ever. Back in December I notified our handful of Sweep account customers that we conduct transfers for via The Reserve. I did this notification as part of our participation in the TLGP. At that time, this was the only type of sweep arrangement I identified as needing a disclosure.

Now this posting comes out in the FR in February requiring us to send an initial disclosure to sweep clients and an annual one thereafter. It further defines the type of sweep clients which are included, but it seems to include additional types of sweep arrangements. Can anyone confirm or correct the following:

Definition: The sweeps referred to must be pre-arranged transfer of funds from a deposit account to: (1) an investment vehicle located outside the bank, or (2) another account or investment vehicle located within the bank.

I don't think the following fall under the defintion of Sweep in this case:1 - automatic transfers from deposit-to-deposit accounts within the bank - like zero balance accounts
2 - reserve sweeps - those where sub-accounts are created behind the scenes to reduce your reserve requirements

I think the following are considered sweep accounts and disclosure is required. For most of them, I don't really even know what they are or if we have them, but if we do, I will disclose:
1 - Eurodollar and IBF sweeps
2 - Repo Sweep Accounts
3 - Money market fund sweeps
4 - Fed Funds Sweeps
5 - Holding Company commercial paper sweeps
6 - Loan Sweep accounts

this is what I'm not sure about:
1 - would automatic, pre-arranged transfers going from a checking account into a savings account at our bank be a covered sweep? I think so, but I am not sure how we could notify just these clients initially and annually without a lot of work. Could we just provide a statement message or insert to everyone indicating if they have a sweep arrangement, some swept funds might only be insured to $250,000 or not insured at all once they are swept?
2 - I know the current "Reserve" sweep clients we have are covered. I've already sent them a notice in December which pretty much already told them their insurance limits. Do I have to tell them again or will the annual notice (and any new ones opened after 7/1/09) be sufficient?

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#1171473 - 04/28/09 05:57 PM Re: Sweep Disclosures travelgirl
Jerseygirl Offline
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We have several customers who receive their pay direct deposited into checking and then have money sweep automatically by a third party usually via ACH but sometines with a paper debit into an account at another bank or investment firm - are these "sweep" arrangements - if so, does anyone have any thoughts on how to identify these accounts.

In Dec we notified our Sweep program customers as well as customers who prearranged transfers from a checking into another account at the bank a sweep notice noting the FDIC limitations - do we need to send something again?

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#1171815 - 04/28/09 09:58 PM Re: Sweep Disclosures Jerseygirl
CSB98 Offline
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Wisconsin
For all of you that have questions on this (such as I do), the ABA is presenting a webinar on this topic on May 21.

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#1172149 - 04/29/09 03:16 PM Re: Sweep Disclosures CSB98
travelgirl Offline
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Posts: 223
Minnesota
Yes, I know the ABA is having a webinar in May. Unfortunately, I have limited dollars to spend on training this year and that money is being used for the Reg Z and RESPA changes.

That's why I'm trying to find alternate resources.

What I mainly am trying to find out is this:

1) are customers who have automatic transfers set up from their checking account to their internal savings account considered a covered sweep - therefore notification would be required? This would probably mean disclosing to all customers since pinpointing just those with auto transfers would be very cost prohibitive.

2) Do I have to re-disclose to the same sweep customers I disclosed to back on December - I know these customers are covered - it just seems silly to send something else that says pretty much the same thing.

Thanks for suggesting the ABA webinar. Didn't mean to sound short. I just don't have an unlimited training budget and I need to use the money on higher risk changes.

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#1175033 - 05/04/09 01:25 PM Re: Sweep Disclosures travelgirl
travelgirl Offline
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Posts: 223
Minnesota
Bump

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#1175351 - 05/04/09 07:22 PM Re: Sweep Disclosures travelgirl
Dorothy W Offline
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Upstate SC
Look at the DEFINITION you included in your 4/27/09 post - you've already answered your question about sweeps between internal accounts.

I think you need to be able to separate in your mind the sweep disclosures required for deposit accounts with sweeps to external funds and this FDIC insurance coverage change. The daily sweep account disclosures are not required for interal account to account transfers. The new FDIC disclosure is required when funds are moving inhouse from non-interest bearing accounts to interst-bearing, as well as when a sweep results in funds exiting the bank's books (repos and mutual funds).

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#1175791 - 05/05/09 03:21 PM Re: Sweep Disclosures Dorothy W
BrendaC Offline
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Sweet Home AL
From Final Rule:

The disclosure rules also do not apply to arrangements where transfers are within a single account (to a sub-account), such as may be the case with retail or reserve sweeps. In addition, the disclosure rules do not apply to other deposit-to-deposit
sweeps, such as ZBAs, unless the sweep results in a change in the customer’s insurance coverage. In the deposit-to deposit
sweep arrangements of which the FDIC is aware, the sweep does not
change the insurance coverage available to the customer.
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#1179844 - 05/08/09 09:21 PM Re: Sweep Disclosures BrendaC
Cher Offline
Member
Joined: Oct 2003
Posts: 98
Florida, USA
So if we have repo sweeps and also od protection sweeps that may result in funds going from non-interest bearing to interest bearing, that would mean we need to have two different disclosures with language pertaining to each situation?

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#1188741 - 05/21/09 08:10 PM Re: Sweep Disclosures CSB98
mzachau, CRCM Offline
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Posts: 470
San Francisco
A sweep account involves the pre-arranged transfer of funds from a deposit account to: (1) an investment vehicle located outside the depository institution or (2) another account or investment vehicle located within the depository institution.

Excluded from this definition are:
customer initiated transactions
Transactions used to amortize a loan
Deposit to deposit sweeps (including zero balance accounts and reserve sweeps)
Transactions which periodically transfer funds from one customer to another
bill-paying arrangements

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#1189123 - 05/22/09 02:21 PM Re: Sweep Disclosures mzachau, CRCM
Jerseygirl Offline
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Jersey Shore
Wondered if anyone came away from the ABA Webinar with a clearer understanding of accounts covered and if we previously discloses in Nov do we need to do again and since the unlimited coverage ends in Dec is an annual disclosure needed?

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#1189204 - 05/22/09 03:22 PM Re: Sweep Disclosures Jerseygirl
John Burnett Offline
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Cape Cod
You are confusing two separate requirements. The requirement in 12 CFR Part 360, section 360.8, applies to affected sweep arrangements and calls for an initial and annual disclosure. The sweep information you disclosed in November concerns your bank's participation in the Transaction Account Guarantee program under the FDIC's TLGP, which does, in fact, expire 12/31/09.

They are two separate rules calling for two separate disclosures. When the TLGP goes away, the requirements of section 360.8 will still be there.
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#1189253 - 05/22/09 04:01 PM Re: Sweep Disclosures Jerseygirl
BSAguy Offline
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Joined: Aug 2007
Posts: 298
Kansas
I thought the ABA webinar was pretty informative. The types of covered sweep vehicles that are covered include the following:

Eurodollar and International Banking Facility (IBF) deposits
Repo agreements
Money market mutual funds
Fed Funds
Holding Company commercial paper
customer loans

A few things to keep in mind. First, the following types of transactions are excluded: customer initiated transactions, transfers to AMORTIZE a loan (different from a sweep of excess funds to pay down a line of credit), bill paying arrangements, transactions that periodically transfer funds from one customer to another. Second, the bank's call report should be consistent with whether or not these funds are considered deposits for these disclosures. A key determinant is knowing exactly when the swept funds leave the bank and where they reside at the end-of-day. Money market mutual fund sweep arrangements could either be considered deposits or not considered deposits depending on when they get swept.

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#1189258 - 05/22/09 04:04 PM Re: Sweep Disclosures John Burnett
Ann Offline
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Joined: Jul 2001
Posts: 564
South Carolina
Thank you, John, for your clear-headed response to a confusing thread. I was dissapointed in the ABA call yesterday - too many complex questions about sweep topics that had nothing to do with the topic at hand - the matter of disclosure. I am trying to understand the types of sweeps our Bank offers and how the funds will be treated for insurance purposes at end of day processing. Some model language would be helpful.

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#1189324 - 05/22/09 04:59 PM Re: Sweep Disclosures Ann
waldensouth Offline
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waldensouth
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FINALLY ABOVE the gnat line
I gained a lot from the ABA call yesterday - it clarified which of our products would be considered sweeps under this rule which helps to know which ones really need the disclosures. Our corporate counsel listened as well so we could determine if our repurchase customers were truely secured creditors - which has to be part of the sweep disclosure.

They did not cover required content of the disclosures - although the securities attorney provided some things that needed to be in repurchase disclosures in order to correct agreement language.
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#1189611 - 05/22/09 09:50 PM Re: Sweep Disclosures waldensouth
tjbanker Offline
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If you wouldn't mind sharing, when is it considered a secured creditor? I was unable to sit in on the conference call. We have a repurchase agreement secured by a FHLB security.

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#1189757 - 05/26/09 12:28 PM Re: Sweep Disclosures tjbanker
waldensouth Offline
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waldensouth
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I would be very hesitant to do that, tjbanker, because it is a matter of securities law and was rather complex. There were a number of variables/scenarios.
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#1190282 - 05/26/09 08:48 PM Re: Sweep Disclosures waldensouth
Tesla Offline
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Please don't pummel me for asking this, but deposit to deposit accounts are not automatically exempted right? I read this to mean only if the transfer does not affect their insurance insurance. Did I miss something?
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#1190378 - 05/27/09 12:19 PM Re: Sweep Disclosures Tesla
waldensouth Offline
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FINALLY ABOVE the gnat line
If the only transfer is from an unlimited DDA to a limited to $250,000 savings, then this doesn't apply - that falls under the TARP rules. This was specifically addressed during the seminar.
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