On September 12, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a final rule clarifying that deposits in foreign branches of US banks are not FDIC-insured, even though they can be deposits for purposes of the national depositor preference statute enacted in 1993. Currently, under the Federal Deposit Insurance Act, funds deposited in foreign branches of US banks are not considered deposits, unless the funds are dually payable in the United States. In response to regulatory action from the UK regulator, the Prudential Regulation Authority, it is expected that some large US banks will change their deposit agreements to make their UK branch deposits payable in both the United Kingdom and the United States to provide depositor preference to UK branch deposits in foreign branches of US banks. The final rule clarifies that these UK branch deposits are not FDIC insured.

The final rule does not affect deposits in overseas military banking facilities governed by regulations of the Department of Defense. According to the FDIC, these funds “will continue to be insured by the FDIC to the same extent that they have been.”

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