By Akanksha A. Panicker
The Federal Deposit Insurance Corporation (FDIC) is one of two companies that offer deposit insurance to depositors in U.S. deposit accounts. The other is the National Credit Union Administration, which mostly oversees and protects credit unions. The FDIC is a United States government agency that insures deposits of commercial and investment institutions in the United States.
The Federal Deposit Insurance Corporation (FDIC) was established by the 1933 Banking Act, passed after the Great Depression, to rebuild confidence throughout the United States banking sector. Upwards of one-third of banks collapsed in the years preceding the establishment of the FDIC, and bank runs were normal. The insurance cap was originally set at USD 2,500 per ownership group, although it has since been raised many times.
After the Dodd-Frank Wall Street Reform Act was passed in 2011, the FDIC has insured funds in member banks up to USD 250,000, which is the cap afforded to each ownership group.
[1.0] WHERE THE FDIC DERIVES ITS AUTHORITY
The FDIC and its resources are still not provided by federal funds; the FDIC’s principal source of financing is participant bank insurance dues. Also, the FDIC has a USD 100 billion credit facility with the US Department of Treasury. The Federal Deposit Insurance Corporation (FDIC) would be an autonomous federal entity that insures deposits of United States banks and thrifts in the case of a bank collapse.
The FDIC was founded in 1933 to promote sound lending practices to preserve public confidence and stability in the financial sector. As of 2020, the FDIC will insure amounts up to USD 250,000 per depositor if the entity is a participant firm. It is important for customers to check whether or not their financial company is FDIC insured. The FDIC frequently investigates and supervises such financial entities for stability and adequacy, serves as a public advocate, and oversees receiverships of failing banks. This would require every individual group with the depositor’s money to come under the insurance limit per back. This would entail that the ownership groups and the individual depositors under these groups have individual USD 250,000 insurance caps. Cumulatively, this cap will add up based on the number of depositors in the ownership groups.
The distinct ownership categories are what help organize single accounts (accounts not falling into any other category), which would include [A.] retirement accounts like Individual Retirement Accounts (IRAs), [B.] accounts with more than one owner, and joint accounts with equal rights to withdraw, [C.] revocable trust accounts characterized by language like ‘ “Payable on death,” “In trust for,” et cetera, [D.] irrevocable trust accounts [E.] Employee Benefit Plan accounts (deposits of a pension plan) [F.] corporation or partnership or unincorporated Association accounts and [G.] government accounts
[1.1] HOW THE FDIC INSURES ITS DEPOSITORS
A certain depositor’s sums of deposits of any single ownership group at a specific bank are tallied and secured up to USD250,000. If considering the case of joint accounts, every co-owner is considered to hold the equal percentage of the account as the other co-owner (unless the account expressly specifies otherwise) (this may be the truth even if each co-owner is entitled to withdraw all funds from the account). Each depositor USD 250,000 is insured, and the total account balance is also insured based on this co-ownership.
A revocable trust account’s owner is typically insured up to USD 250,000 by each unique beneficiary (dependant on specific rules if there are more than five of these beneficiaries). Therefore, whenever a single person has an account designated as being in confidence with and in trust for the (payable on the death of, etc.) multiple additional beneficiaries, the assets in the account are guaranteed up to however many depositors have insured for the USD 250,000.
To receive this benefit, member banks must follow certain liquidity and reserve requirements. Banks are classified into five groups according to their risk-based capital ratio:
Whenever a bank appears undercapitalized, the primary regulator sends an alert to the institution. As the figure falls beneath 6%, the primary regulator has the authority to adjust governance and compel the bank to undertake further disciplinary actions. Whenever a bank continues down this path to become critically undercapitalized, the chartering authority freezes the bank and closes the institution, designating the FDIC as a receiver.
[2.0] THE FDIC’S ROLE AS A RECEIVER
A state of flux compels a bank’s chartering authority; being a state banking agency or the United States Office of the Department of the Treasury, it will be necessary to determine the entity’s insolvency consequently appoint the FDIC as a receiver. As a receiver, the FDIC is responsible for defending depositors and optimizing recovery rates for the bankrupt institution’s creditors. The FDIC operating as the receiver is technically and theoretically distinct from the FDIC acting as deposit insurer; it’s an otherwise corporate habit. Courts have long understood that these dual and distinct capabilities have distinct responsibilities, roles, and obligations.
The objectives of receivership will be to allocate a failing institution’s properties, recapitalize them, and transfer the profits to the institution’s creditors. The FDIC, as a receiver, assumes the rights, abilities, and prerogatives of the institution and its stockholders, officers, and directors. It has the authority to recover all liabilities and money owed to the organization, retain or liquidate its properties and property, and fulfill some other duty of the institution compatible with its assignment. It would have the authority to combine a collapsed entity with yet another insured depository institution and to move its assets and liabilities even without support or authorization of any other government, tribunal, or contractually entitled group. It may establish a new entity, such as a bridge bank, to assume the failed institution’s assets and liabilities, or it could transfer or pledge the failed institution’s assets to the FDIC in its corporate ability.
To fulfill its role as a receiver and resolve a closed institution, two avenues open for the FDIC. This would be either a [A.] Purchase and Assumption Agreement or [B.] deposit payoff.
- Purchase and Assumption Agreement (P&A): Under this method, an open bank assumes deposits (liabilities) while simultaneously purchasing any or more of the collapsed bank’s debts (assets). The bank’s securities that are transferred to the FDIC as receivers are marketed and auctioned off in various ways, including electronically and by consultants and contractors.
- Deposit Payoff: The FDIC is named receiver immediately after the relevant chartering authority shuts the bank or thrift. The FDIC, as a creditor, returns the entire sum of insured deposits to all depositors of the collapsed institution that used insured assets. Depositors of uninsured funds and other generalized creditors (such as retailers and service providers) of the bankrupt institution do not offer automatic or absolute recompense; rather, the FDIC acts as receivers and grants receivership certificates. A receivership certification obligates the applicant to share the receiver’s collections on the properties of the collapsed institution.
To conform with regulations, the FDIC revised its loss settlement policies in 1991 to reduce the losses to deposit insurance funds. The procedures enable the FDIC to select the best value settlement option for the deposit insurance fund among all feasible options for resolving the collapsed entity. Bids are sent to the FDIC, which reviews them and determines the lowest cost.
[3.0] AGENTS FOR SERVICE OF PROCESS
The FDIC requests that a party serve a hard copy document on the FDIC in a new matter and provide an electronic courtesy copy to their designated email account. This request is intended as a temporary aid for communicating during the response to COVID-19, considering precautions to be taken to prevent the spread of COVID-19. An emailed courtesy copy does not substitute for service of process requirements. This request does not apply to pending matters in which parties already serve the FDIC electronically.
Typically, the Secretary of State is the registered agent for a corporation. However, with the appropriate Certificate, any domestic corporation or authorized foreign corporation can appoint a registered agent in the state upon whom the process against such corporation may be served. The agent must be a natural person who resides in the state or is authorized to do business in this state. In New York, CT or the Corporation Trust Company, a wholly-owned subsidiary of Wolters Kluwer, is the registered agent for the FDIC. CT Corporation is the largest registered agent service firm globally, representing hundreds of thousands of business entities worldwide.
Service of process on the FDIC absolutely must be made upon their registered agent at their address. This is because the FDIC has numerous agents for service of process listed on their website, and service of process must be completed on the right agent to be recognized.
If the FDIC has been named in any capacity as a party to a lawsuit in federal or state court, it is imperative to remember that service of process on any of the agents listed does not, by itself, complete service of process on the FDIC. If it is necessary to serve process on the FDIC as a party to a lawsuit in either federal or state court, service must be done on one of the agents listed, specified in the appropriate jurisdiction, as well as the Attorney General of the United States in Washington, D.C., and the United States attorney for the district in which the lawsuit is brought. The service of process on the FDIC is not complete until all three of these steps are completed.
[4.0] HOW TO SERVE A SUBPOENA ON THE FDIC
Any subpoena or other legal process to obtain information maintained by the FDIC shall be duly issued by a court having jurisdiction over the FDIC. This subpoena is served upon either the Executive Secretary (or their designee) or the Regional Director or Regional Manager of the FDIC reg. The legal action from which the subpoena or process was issued is pending. This would also include the agent designated to receive the process in the jurisdiction in which any insured depository institution is located.
Identification of the designated agent in the state can be made by consulting the Executive Secretary or the General Counsel’s Office. The Executive Secretary, Regional Director, or designated agent must promptly forward any subpoena or legal document to the General Counsel. The corporation is entitled to charge some amount of fee for the depiction of these records.
If any current or former employee of the Corporation is served with a subpoena for their attendance as an official witness or for production of any exempt record of the Corporation, it is necessary to intimate the General Counsel of such service to determine if they are authorized to testify, or the records should be produced. Without written authorization to disclose the requested information, any employee compelled to respond to the subpoena will attend the proceeding but decline the record production or giving of testimony,
In the context of the authorization of the disclosure of information, the General Counsel, or designee, may disclose or authorize the disclosure of any exempt record or testimony by an employee of the Corporation in conjunction with any proceeding or investigation without the service of a judicial subpoena. This is based on their discretion and dependent on whether they determine that the records or testimony are not prohibited by Federal statute. Customer financial records are not disclosed to any federal agency unless the records are sought under the Federal Rules of Civil or Criminal Procedure.
Alluding to its past and evolution, the FDIC has been a key player in ensuring bank deposits against bank failure. It has amassed a fund that it assumes will indemnify borrowers against anticipated bank defaults by calculating premiums based on bank reserves and expected probability of failure.
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1. The Banking Act of 1933 (Pub.L. 73–66, 48 Stat. 162, enacted June 16, 1933)
2. Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd-Frank Pub.L. 111–203)
3. The Categories are:
Well capitalized: 10% or higher
Adequately capitalized: 8% or higher
Undercapitalized: less than 8%
Significantly undercapitalized: less than 6%
Critically undercapitalized: less than 2%
5. N.Y. Bus. Corp. Law § 306
Service of process on the secretary of state as an agent of a domestic or authorized foreign corporation shall be made by personally delivering to and leaving with the secretary of state or a deputy, or with any person authorized by the secretary of state to receive such service, at the office of the department of state in the city of Albany, duplicate copies of such process together with the statutory fee, which fee shall be a taxable disbursement. Service of process on such corporation shall be complete when the secretary of state is so served. The secretary of state shall promptly send one of such copies by certified mail, return receipt requested, to such corporation, at the post office address, on file in the department of state, specified for the purpose. If a domestic or authorized foreign corporation has no such address on file in the department of state, the secretary of state shall so mail such copy, in the case of a domestic corporation, in care of any director named in its certificate of incorporation at the director’s address stated therein or, in the case of an authorized foreign corporation, to such corporation at the address of its office within this state on file in the department.
6. A multi-national information services company based in the Netherlands with operations in over 35 countries.
7. New York Address:
CT Corporation System
28 Liberty Street
New York, New York 1000
8. DISCLOSURE OF INFORMATION 5 U.S.C. 552; 12 U.S.C. 1819 “Seventh” and “Tenth
9. FDIC, 550 17th Street, N.W., Washington, D.C. 20429
10. A list of the FDIC’s regional offices is available from the Office of Public Affairs, FDIC, 550 17th Street, N.W., Washington, D.C. 20429 (telephone 202-898-6996).
11. A list of the FDIC’s regional offices is available from the Office of Public Affairs, FDIC, 550 17th Street, N.W., Washington, D.C. 20429 (telephone 202-898-6996)..”