Client Alert

1. What is the FDIC? The Federal Deposit Insurance Corporation (“FDIC”) is a United States government corporation formed during the Great Depression as a result of numerous bank failures at that time. The FDIC insures depositors against loss of their deposits if an insured bank or insured savings association¹ fails. The FDIC insurance is backed by the full faith and credit of the United States government.

2. Does the FDIC insure deposits in credit unions? What insurance coverage rules apply to credit unions? The FDIC does not insure deposits in accounts at credit unions. However, insurance for deposits at insured credit unions is provided by The National Credit Union Share Insurance Fund (“NCUSIF”), which was established by Congress and is backed by the full faith and credit of the United States government. The rules discussed in this guide applicable to FDIC insurance coverage are the same as those applied by NCUSIF to deposit insurance coverage for credit unions, except that NCUSIF does not provide full insurance for non-interest bearing deposit transaction accounts. For further discussion of non-interest bearing deposit transaction accounts, see Question 5 below.

3. How do I know if my bank or savings association is insured? Most banks and savings associations are insured. To check whether your bank or savings association is insured, (a) call the FDIC at (877) 275-3342; (b) use “Bank Find” online at www.fdic.gov/deposit/index.html; or (c) look for the FDIC sign in your bank’s teller window or for an online bank a graphic indicating membership on the homepage of the bank. Insured banks are required to display an official sign at each teller window or station at which deposits are regularly received.

4. What does the FDIC insure? The FDIC insures deposits at insured banks. The deposits insured include savings and checking accounts, NOW accounts, money market deposit accounts and time deposits, including certificates of deposit (“CDs”). FDIC insurance is not provided for mutual funds², stocks, bonds, annuities, municipal securities or life insurance policies, even if you purchased them from an insured bank.

5. What is the insurance limit? The basic insurance limit for all insured Bank’s deposit accounts, except for non-interest bearing deposit transaction accounts³, is $250,000 per depositor for each insured bank in which the depositor has a deposit⁴. All NBDT accounts³, however, are fully insured, effective October 14, 2008, for a period of 30 days. The full coverage of NBDT accounts continues until December 31, 2009, for those insured banks who do not opt out of such coverage within the initial 30-day period⁵. Certain retirement accounts such as self-directed Individual Retirement Accounts (“IRAs”) are insured up to $250,000 per depositor for each insured bank in which the depositor has an IRA.⁶

6. What if I have multiple deposit accounts in my name only at an insured bank? What if one of those accounts is a retirement account such as an IRA? All single deposit accounts owned by you at the same insured bank, except NBDT Accounts and certain retirement accounts such as IRAs, are aggregated, and the total is insured up to $250,000⁴. All NBDT Accounts are fully insured.⁷ Certain retirement accounts such as IRAs, while being aggregated with other similar retirement accounts for coverage up to $250,000, are not aggregated with other non-retirement deposit accounts at the same bank for FDIC insurance coverage purposes.

7. Are my separate business accounts also covered by FDIC insurance? Yes. Your NBDT Accounts are fully insured.⁷ Your other separate business accounts are covered up to the $250,000⁴ limit, so long as the business is a separate legal entity. However, if you operate your business as a sole proprietorship, the deposit accounts (other than NBDT Accounts⁷) of the sole proprietorship are treated as if they are personal accounts and aggregated with your other personal accounts at the same insured bank, with the total being insured up to $250,000.⁴

8. May I spread my deposit accounts out with several unrelated insured banks and receive FDIC insurance for my account at each insured bank? Yes. You could, for example, keep $250,000⁴ in single owner accounts with three unrelated insured banks and have $250,000⁴ coverage for each account (or a total coverage of $750,000). However, you would not receive such coverage if your deposits were with separate branches of the same insured bank. Again, your NBDT Accounts would be fully covered whether in one or several banks.⁷

9. What should I do if I have more than $250,0004 to deposit? There are several options you might consider in order to have each of your deposit accounts (other than NBDT Accounts, which are fully covered⁷) covered by the $250,000⁴ FDIC insurance:

(i) You could limit your deposits with each insured bank to $250,000⁴ and spread your deposit accounts among several banks;

(ii) You could choose to open multiple accounts with different “owners” at the same insured bank. The accounts must be held in different categories of ownership. These categories include single accounts, self-directed retirement accounts, joint accounts, and revocable trust accounts. For example, if you are married, you could choose to open accounts in each spouse’s name and in the joint names. Additionally, coverage for some trust accounts will be determined based on the number of beneficial owners under a form of “pass-through” coverage where the insurance coverage passes through the trustee to each beneficiary’s interest in the trust. Be very careful, however. This area can be very tricky. You want to avoid having common ownership so that the accounts become aggregated for FDIC insurance purposes. Seek qualified advice if you are unsure; and

(iii) You might use the services of the Certificate of Deposit Account Registry Service (“CDARS”) at CDARS.com to spread your large deposits among separate banking institutions without further effort on your part. Utilizing the services of CDARS.com will, due to the added costs of the services, usually result in lower interest rates than you may obtain directly from any specific insured bank.

10. What happens if I have a deposit account in an insured bank that fails? Your troubled bank may be purchased by a healthy one, in which case you would become a depositor in the healthy bank. If, however, that does not occur, the FDIC pays off depositors as quickly as possible. The payoff of insured accounts usually occurs within a few days after the failure.

11. What about my deposits in my employee benefit plan (pension plans, profit-sharing plan and other employee benefit plans that are not self directed) account? Employee benefit plan deposits are insured up to $250,000⁴ for each participant’s non-contingent interest in the plan. This coverage is called “pass-through” coverage because the insurance coverage passes through the plan administrator to each participant’s share to insure such participant’s share up to the FDIC insurance limit. For more specific information about your plan, you should consult your plan administrator.

12. Are deposits of corporations, limited liability companies and other business organizations covered by FDIC Insurance? Yes, so long as the business is not a sole proprietorship (in which case the deposits of the business are considered those of the sole proprietor), and so long as the entity was formed to conduct an independent activity and not for the purpose of increasing FDIC insurance coverage. All accounts of the corporation or other entity at a particular insured bank, regardless of whether designated for separate business purposes, are aggregated for FDIC insurance purposes and the total amount is insured up to the FDIC limits. Again, all NBDT Accounts are fully insured.⁷

13. What if my business is a corporation, limited liability company or partnership with multiple shareholders, members or partners, respectively? Is the FDIC coverage limit increased because of multiple owners of the business? No. The deposit accounts of the business at an insured bank are separately FDIC insured regardless of the number of shareholders, members or partners. In other words, those deposit accounts are insured separately from the personal accounts of the entity’s shareholders, partners or members.

14. I also own stock in an insured bank in which I have FDIC insured deposit accounts. Am I treated differently? You are protected as a depositor of the insured bank for FDIC insurance purposes but you have no protection from the FDIC as a stockholder.

15. What happens to my FDIC insurance if two insured banks in which I have deposit accounts merge? When two insured banks merge, the deposit accounts of the assumed bank continue to be insured separately for at least six months after the merger, giving you an opportunity to restructure your deposit accounts, if you choose. Time deposits such as CDs are insured until their earliest maturity date after the end of such six month grace period. If your time deposit matures during the six month grace period and are renewed for the same term and in the same dollar amount (with or without accrued interest), the renewed time deposit will continue to be insured until the first maturity date after the six month period. If the CD matures during the six month grace period and is renewed on any other basis, the CD will be separately insured only until the end of the six month grace period. Again, all NBDT Accounts are fully insured whether before or after merger.⁷

16. How safe is the FDIC? The FDIC enjoys the full faith and credit of the United States Government. No depositor has ever suffered a loss of an insured deposit. The FDIC insurance fund is well funded. Additionally, it constantly receives premium income from FDIC insured banks. If necessary, the FDIC will increase premiums payable by insured banks to replenish the fund. Moreover, if needed, the FDIC may access longstanding credit lines with the United States Treasury Department in order to satisfy its insurance obligations. Any funds borrowed by the FDIC from the U.S. Treasury would expect to be paid back as the FDIC receives premium income and liquidates assets of failed insured banks.

The information in this summary is not intended to be a legal interpretation of the FDIC’s rules and regulations. Instead, it is being offered only as a general guide to some commonly asked questions about FDIC deposit insurance. The topic of discussion is quite technical, and you are urged to read further or seek counsel for your specific situation.

You may also read more about FDIC insurance coverage online at http://www.fdic.gov/deposit. You may calculate insurance coverage using the FDIC’s online Electronic Deposit Insurance Estimator at http://www2.fdic.gov/edie. You may send questions by e-mail using the FDIC’s online Customer Assistance Form at: http://www2.fdic.gov/starsmail; or you may mail questions to:

FDIC
Division of Supervision and Consumer Protection
Attn: Deposit Insurance Outreach
550 17th Street, NW
Washington, DC 20429-9990.

If we can provide specific guidance in this area, please Ken Moser at (336) 721-3504 or one of our other Womble Carlyle banking and finance professionals.

Notes
¹ For convenience, references in subsequent questions and answers to “insured bank” shall mean both insured savings associations and insured banks.

² Although the FDIC does not insure mutual funds, the US Treasury announced on September 19, 2008, a temporary guarantee for “money market funds” that sign up for the program. For purposes of this temporary guarantee, a “money market fund” is one which is regulated under Rule 2a-7 of the Investment Company Act of 1940, is publicly offered, is registered with the Securities and Exchange Commission and maintains a stable share price of $1.00. A money market fund must decide to participate in the program. Investors should contact their money market fund directly to determine if it is a participant in the program. If the fund participates in the program, the investor’s investment in the fund will be fully covered up to the investor’s investment amount in such fund as of September 19, 2008. The program is effective through December 19, 2008, subject to extension by the Treasury Department until September 18, 2009.

³ For convenience, references in subsequent questions and answers to “NBDT accounts” shall mean non-interest bearing deposit transaction accounts. NBDT accounts are mainly used by businesses for payroll and other operational purposes.

⁴ On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008, which temporarily raises the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The temporary increase in deposit insurance coverage became effective immediately upon the President’s signature. The legislation provides that the basic deposit insurance limit will return to $100,000 on December 31, 2009.

⁵ Depositors of NBDT accounts concerned about full coverage for their NBDT accounts after the 30-day period should confirm that their insured bank has not opted out of such coverage during the 30-day period.

⁶ The $250,000 coverage amount for certain retirement accounts was not changed by the Emergency Economic Stabilization Act of 2008 and remains $250,000, even after December 31, 2009.

⁷ See Question 5 above.