The beginning portion of 360.8(e) reads "institutions must prominently disclose in writing to sweep account customers whether their swept funds are deposits within the meaning of 12 U.S.C. 1813(l). If the funds are not deposits, the institution must further disclose the status such funds would have if the institution failed—for example, general creditor status or secured creditor status." So I don't think the notice requirement is a result of 360.8(c). That said, I think that under 330.16(c)(3) a notification to customers sweeping from noninterest-bearing to interest-bearing is required.

Can we talk a bit about some operational issues since it appears we have yet another disclsoure due to our sweep customers?

1. Say for example I have a commercial demand deposit customer sweeping $300,000 to a savings account on January 7, 2011. Do I need to send the customer a notice at that time regarding the excess amount in the account, what happens if the bank fails, etc., etc.

2. The customer does another sweep on January 28th of $60,000 to the same savings account? Do I need to review the savings account to determine if the account is still >$250,000 and send another disclosure if it is? Or is it just a one-time notice?

3. Is it permissible to simply send a 1-time disclsoure notice to all customers that have a sweep going from a non-iterest bearing account to an interest bearing account?

3. If a one-time notice is adequate would it have to be sent each year until the rules change again? (2013?)

Sidnote: I belive it will be easy enough to craft a disclosure based on the sweep-LOC and sweep-repo language we already have created. Not sure when the heck to send it and does it go to all sweep-transfer customers (non-iterest bearing to interest bearing account customers).

Thanks in advance for any responses.

I called the FDIC with several questions. They are hosting a free seminar which they hope will answer questions regarding the notice requirements. The information for their upcoming seminar is
http://www.fdic.gov/news/news/financial/2010/fil10083.html

Thanks AC,

I saw that upcoming seminar/conference call, but was unsure if sweeps would be part of the program. I see the slides for it will be available on Dec. 10th, and even if sweeps are not part of the formal presentation, you can bet they will come up during the 1/2 hour Q & A portion!

Have a great day.

John, would the notice under 360.8(e) simply state something like: Funds transferred from an interest-bearing deposit account to a non-interest-bearing deposit account continue to be deposits and are therefore insured by the Federal Deposit Insurance Corporation (FDIC)?

Since the funds are still "deposits," it seems no further disclosure is required (e.g., the change from $250,000 to unlimited).

If it's a sweep from a non-interest-bearing transaction account to an account that's not covered by the full insurance coverage detailed under §330.16, section 330.16(c)(3) is implicated, because the funds being swept won't be covered under the full insurance rules. We haven't yet heard from the FDIC whether such a notice would be a one-time deal or a transactional notice.

ABA updated its Q&A (members only access) to address some of these issues, albeit saying more than a few times that we are awaiting clarification from the FDIC. While I don't agree with how the Q&A is worded in a few places, at least the ABA has attempted to put together some answers that the FDIC ought to have provided based on the comments filed on its proposed rule.

I was really thinking about funds being transferred from interest-bearing to non-interest-bearing (like for OD coverage). It seems silly to even have to send a notice, but technically the insurance coverage is "changing" - from less to more. We're not ABA members, so I haven't seem their Q&A.

I would like to post a question that I have not seen asked. Section 330.16(c)(3) requires us to notify affected depositors if we use sweep arrangements, modify the terms of an account, or take other actions that result in funds no longer being eligible for full temporary coverage. This notice is to be used in any other circumstances that results in deposits no longer being eligible for the full temporary coverage. Based on these statements, a current customer with a demand deposit account with no interest comes in and we close that account and transfer the funds to a new a NOW account in the same name. Does this trip the requirement to provide the notice that the account will not be covered under the full temporary coverage?
Also, how about if the customer closes a demand deposit account today and we give him a check for the balance. He brings the check in the following day and we open a NOW account for him using the same check. Is the notice required?

In either case, the old non-interest DDA is closed and a new NOW account is opened.

The notice requirement only applies if the bank changes the account agreement covering one or more existing noninterest-bearing transaction accounts so that the account no longer qualifies for full deposit coverage. That would be the case, for example, if the bank starts to pay interest on DDAs on or after 7/21/11.

The notice requirement does not apply to the opening of an account that does not qualify for full coverage, regardless of where the funds come from. For such transactions, the lobby/website notice under §330.16(c)(1) is all that's needed.

Take a look at this new Thread referencing the FDIC's new Q&A. It resolves a lot of the questions in this Thread about sweeps.

John, I appreciate your response. I guess I was reading too much into the phrase "...or take other actions that result in funds no longer being eligible for full temporary coverage." I was looking at "other actions" as being closing one account and opening another. I see your point. Thanks again.

Has anyone found out if the sweep notice is a one-time notice or transactional?

Never mind. I'm participating in the FDIC seminar right now and they stated that it is a one-time notice requirement. Thank goodness!