Bank Deposits Abroad Are|Not Insured, FDIC Says

WASHINGTON (CN) - The Federal Deposit Insurance Corporation (FDIC) amended its regulations to clarify that money deposited in bank branches outside the U.S. is not FDIC-insured.

The FDIC said the reason for the change is to protect the Deposit Insurance Fund (DIF) from losses stemming from bank failures in other countries whose deposit insurance limits and regulations are different from those in the U.S.

"Many U.S. banks currently operate through branches in foreign countries, often to provide banking, foreign currency and payment services to multinational corporations. Foreign branch deposits have doubled since 2001 and total approximately $1 trillion today. In many cases, these branches do not engage in retail deposit taking or other retail banking services. Often, their typical depositors are large businesses that choose to bank in a foreign branch of a U.S. bank under deposit agreements governed by non-U.S. law to take advantage of a large bank's multi-country branch network, which allows the transfer of funds to and from branch offices located in different countries and in different time zones," the agency's background statement said.

Until recently, deposits in non-U.S. branches were usually payable only in the country in which the branch was located, the FDIC said. However, proposed changes in the United Kingdom have increased the likelihood that more banks will allow "dually payable" deposits, which could be withdrawn from either the foreign branch or the U.S. branch of a multinational bank, according to the FDIC.

"Absent this rulemaking, the extension of deposit insurance to foreign branch deposits could potentially compromise the DIF, and by implication, the U.S. Government, which provides full faith and credit backing to the deposit insurance guarantee. This threat is aggravated by the higher deposit insurance limits the FDIC provides in contrast with the deposit insurance systems of many other countries. There is no indication that Congress ever intended the DIF to have global liability," the FDIC stated.

The new regulation takes effect on Oct. 15.

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