FDIC Coverage Changes Effective Jan. 1

As of Jan. 1, the federal government will not provide unlimited FDIC coverage for any type of bank account.
(Published Dec 19, 2012)

Due to the expiration of certain provisions of federal law, cities will need to re-evaluate whether their official depositories are supplying enough collateral to cover funds not covered by the Federal Deposit Insurance Corporation (FDIC).

Deposits received at a bank insured by the FDIC are insured dollar-for-dollar for each depositor up to a coverage limit. The coverage limits at an insured bank within the state are $250,000 per depositor for all time and savings accounts and $250,000 per depositor for all “demand” deposits (accounts that can be withdrawn without advance notice). The coverage for out-of-state insured banks is limited to $250,000 per depositor for all accounts regardless of type.

Under state law, for any funds held by a bank that exceeds the FDIC coverage amount, cities must require the bank to furnish certain types of collateral security and/or a corporate surety bond. In most cases, the amount of this collateral must be “at least 10 percent more than the amount on deposit at the close of the financial institution’s banking day.”

A few years ago, as part of banking law reform, the federal government gave unlimited FDIC coverage for certain noninterest-bearing deposits (for example, checking accounts). As a result, any FDIC-insured bank holding a city’s noninterest-bearing deposit did not have to supply collateral to cover that deposit, whether or not it exceeded $250,000. This will change beginning Jan. 1, 2013, and the rule will be the following:

  • As of Jan. 1, 2013, all time and savings deposits owned by a public unit and held by the same official custodian in an insured depository institution within the state in which the public unit is located are added together and insured up to $250,000. Separately, all demand deposits owned by a public unit and held by the same official custodian in an insured depository institution within the state in which the public unit is located are added together and insured up to $250,000. No unlimited coverage for noninterest-bearing demand deposit accounts.
  • If the depository institution is located outside the state in which the public unit is located, all deposits owned by the public unit and held by the same official custodian are added together and insured up to $250,000. Time and savings deposits are not insured separately from demand deposits. No unlimited coverage for noninterest-bearing demand deposit accounts.

Since it’s the city’s job to require the added security from banks for any amount beyond the FDIC coverage, cities are encouraged to contact their banks or the city auditor to ensure the collateral level provided by the bank is sufficient.

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