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FDIC Insurance & Sweep Accounts

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The Temporary Liquidity Guarantee Program offers unlimited non-interest bearing accounts. What about our sweep accounts that sweep nightly into or out of an interest bearing account? Do only the funds held in checking accounts have unlimited coverage and interest bearing accounts have the $250,000 coverage?

At the time a bank fails, if the funds are in an interest-bearing account they will be subject to the standard FDIC insurance rules in 12 CFR Part 330, subject to the SMDIA (currently $250,000) limits. If, on the other hand, they are in a non-interest bearing savings account (often used by banks in arrangements to limit their reserve requirements), they will be considered to be in the non-interest bearing transaction account and covered by the Transaction Account Guarantee Program. The FDIC also has some special rules on how to determine how to treat funds involved in a sweep that was uncompleted at the time of bank failure. The exception for sweeps into non-interest savings accounts is found in subsection 370.4(c) of the TLGP regulations at 12 CFR Part 370.

First published on 1/05/09

First published on 01/05/2009

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