We have a cash management agreement with some of our business customers. The cash management LOC will be automatically accessed through their business checking. As deposits are made to the business checking account, they will be swept to the cash management LOC to reduce the principal balance of the account. Conversely, as funds are needed in the business checking account, funds will be advanced against the cash management LOC back to the deposit account.

I believe this meets the definition of sweep because there can be return sweeps back to the originating deposit account. Am I right?

From ABA Guidance (see if this fits your situation):

Excess deposit account balances are used to pay down the
customer’s loan at the depository institution. In the event
of failure this transaction will be completed prior to
determining end-of-day balances.
The effect of this transaction is to simultaneously reduce
customer’s deposit and loan balance.
In the event of failure:
In a purchase and assumption transaction the sweep product
normally would be transferred to the acquiring institution.
Funds used the prior day to pay down the customer’s loan
would be available to be swept back to the customer’s account
business as usual.
In a payoff the FDIC would recognize the customer’s reduced
loan balance and pay the balance in the deposit account (as
reflected in the institution’s end-of-day on the day of failure)
according to normal insurance procedures.

I am still unclear as to the correct answer to the Business LOC sweeps? According to definitions posted earlier - not included were sweeps to pay down (amortize) loans accounts where there is no return sweep. It appears these types of situations would require disclosure as there are return sweeps.

What about loans that are just tied to an account for overdraft protection? If the checking account became negative, the loan would sweep funds in only to bring the account to a zero balance.

I don't know if this is correct or not, but we are going to give this notice as it specifically applies to our situation, with a brief intro

Loan Sweep
You are receiving this required notice because you have a “Sweep” account arrangement with ABC Bank. FDIC rules and regulations 12 CFR 360 requires this specific disclosure.

You have established a threshold balance for your deposit account at ABC Bank. When the balances falls below this established threshold in your deposit account, funds are swept from your loan account with our bank into your designated deposit account. When funds are available in the deposit account (i.e. after a deposit), funds will be swept back to the loan account. In the event of a bank failure, the FDIC will allow these regular sweeps to occur. Funds swept from the loan account to the deposit account will be FDIC insured (up to the established limits for FDIC insurance). Funds swept from the deposit account to the loan account will reduce the amount you owe ABC Bank. The funds remaining in the deposit account after a sweep to the loan will be insured under the applicable FDIC Insurance limits.



Repurchase Agreement Sweep
You are receiving this required notice because you have a “Sweep” repurchase account arrangement with ABC Bank. FDIC rules and regulations 12 CFR 360 requires this specific disclosure.

This notice is to inform you of the effect a repurchase sweep arrangement can have on the FDIC Insurance coverage of your funds. Monies moved via a sweep arrangement from a deposit account into a repurchase agreement are not eligible for the FDIC insurance guarantee. However, in the event ABC Bank fails, your funds held in the sweep repurchase account are secured by specific securities described in your sweep repurchase confirmation.

I am curious about this one, too. We have a few checking accounts tied to LOCs. When the checking account is overdrawn, we will automatically sweep $2000 over the overdraft amount into the checking account. However, no excess deposits ever sweep back to pay down the LOC. The customer has to call us to pay down - this is done manually.

If I am understanding correctly, we do not have to send notices to these customers? THANKS!!!

regarding the 3rd section within this quote. I don't see anywhere were the FDIC eludes to an HIC as being an improperly executed sweep. Can someone point me to this? We use the language contained in 17 CFR 403.5(d) which specifically spells out the requirements for when the FI retains custody of the security and a counterparty. However, I'm removing the substitution clause.

Also, the Q&A #16 eludes that the simple fact of having an HIC isn't prohibitive, so long as it's covered inthe agreement. Any arguments?

Also, what are they considering a separate account. If they are held within our entire portfolio with a correspondent, for instance, but specifically described in the daily confirmation according to the rules...what do they deem "separate"?

Does the agreement with your custodian provide for control of the securities by the repo customer in the event of your default? Without addressing the control issue, you will not have properly executed sweeps.

My understanding is that the securities used for your repo pledges must be physically housed in a separate account with your custodian. They cannot be commingled with other securities owned by your bank (even if they are somehow marked as pledged).

thanks, that's helpful. :-)

BTW, I hope you are not trying to wade through this without counsel. If you can do it, I am very impressed. I found the overlapping issues in the Government Securities Act, UCC and the FDIC guidance to be very confusing.

However, in further deciphering, it really appears that ABA's interpretation doesn't follow the recent Q&A put out by the FDIC 7-6-09.

There were also some differences relative to confirmation notice requirements. As I recall, we went back to Government Securities Act for clarification on that issue.

Can we deliver the daily confirmation notices and annual sweep disclosures via email?

Bump

Bump Bump

We don't have contracts with our sweep accounts. They are checking accounts which a local business makes the deposit into and the main office initiates a sweep through their financial insitution weekly/biweekly/monthly. We do not originate any transfers. Are we required to provide disclosures for this type of sweep account?

I'm trying to determine if OCC 2009-19 (FDIC rules that requires banks to provide notices to sweep account customers) applies to a NATIONAL TRUST COMPANY?

Is there anyone or site that can provide me with guidance? I'm trying to determine if our NATIONAL TRUST COMPANY is exempt or whether we need to comply?

If we're exempt why are we exempt?

and if we need to comply why we need to comply?

Any help is greatly appreciated! Thank you.

Do we need to send a different notice depending on the TYPE of sweep arrangement or will the same disclosure submitted by ahou suffice for all sweep customers?

Could be VERY different based on type of sweep investment and your processes.