The FDIC released a Financial Institution Letter (FIL) entitled, "Deposit Insurance Notice Requirement Regarding the Payment of Interest on Demand Deposit Accounts yesterday, and also released its most recent "Quarterly Banking Profile" earlier this week. The FIL says, "Under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), insured depository institutions (IDIs) may pay interest on demand deposit accounts (DDAs) starting July 21, 2011. Under another section of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for noninterest-bearing transaction accounts through December 31, 2012. The purpose of this Financial Institution Letter (FIL) is to remind IDIs that if on or after July 21, 2011, an IDI modifies the terms of a DDA so that the account may pay interest, the IDI must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account."

The letter's "Highlights" include: "Section 343 of the Dodd-Frank Act provides unlimited insurance coverage for noninterest-bearing transaction accounts at all IDIs from December 31, 2010 through December 31, 2012. Section 627 of the Dodd-Frank Act permits IDIs to pay interest on DDAs starting July 21, 2011. If on or after July 21, 2011, an IDI modifies the terms of a DDA so that the account may pay interest, the IDI must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account. This notice requirement does not apply to DDAs modified after December 31, 2012. As of January 1, 2013, noninterest bearing transaction accounts are insured subject to the standard maximum deposit insurance amount of $250,000." According to the FDIC's latest statistics (see below), $1.75 trillion is held in noninterest-bearing deposits, over $1.0 trillion of this in noninterest-bearing transaction accounts larger than $250,000.

The FDIC's latest "Quarterly Banking Profile" says, "Deposit Growth Remains Strong. Deposits at FDIC-insured institutions increased by $178.8 billion (1.9 percent), as deposits in foreign offices rose by $61.4 billion (4 percent), and domestic office deposits grew by $117.4 billion (1.5 percent). Noninterest-bearing deposits in domestic offices increased by $58.3 billion (3.5 percent), while interest-bearing deposits were up by $59.1 billion (1 percent). Nondeposit liabilities fell by $101.1 billion (4.2 percent), with Fed funds purchased declining by $44.6 billion (37.5 percent), and FHLB advances falling by $28.6 billion (7.4 percent)."

It explains, "Total assets of the nation's 7,574 FDIC-insured commercial banks and savings institutions increased by 0.7 percent ($94.7 billion) during the first quarter of 2011. Total deposits increased by 1.9 percent ($178.8 billion), domestic office deposits increased by 1.5 percent ($117.4 billion), and foreign office deposits increased by 4.0 percent ($61.4 billion). Domestic noninterest-bearing deposits increased by 3.5 percent ($58.3 billion) and domestic interest-bearing deposits increased by 1.0 percent ($59.1 billion). For the 12 months ending March 31, total domestic deposits grew by 3.9 percent ($298.2 billion), as interest-bearing deposits increased by 1.2 percent ($76.8 billion) and non-interest-bearing deposits rose by 14.5 percent ($221.3 billion)."

The FDIC quarterly continues, "Brokered deposits decreased by 1.7 percent ($9.8 billion) during the first quarter. At the end of the first quarter of 2011, 42 percent (3,215) of FDIC-insured banks and thrifts used brokered deposits and 798 of these institutions had brokered deposits that exceeded 10 percent of their domestic deposits. Reciprocal brokered deposits spread among 1,471 institutions totaled $28.6 billion, representing 5.1 percent of total outstanding brokered deposits. Data newly provided in quarterly financial reports on deposits that institutions obtained through listing services indicate that 1,359 institutions held such deposits, which in aggregate amounted to $40.8 billion."

It adds, "The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), enacted on July 21, 2010, provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts from December 31, 2010, through December 31, 2012, regardless of the balance in the account and the ownership capacity of the funds. The unlimited coverage is available to all depositors, including consumers, businesses and government entities. The coverage is separate from, and in addition to, the insurance coverage provided for a depositor's other accounts held at an FDIC-insured bank."

It says, "Insured commercial banks and savings institutions had $1.75 trillion in domestic noninterest-bearing deposits on March 31, 2011, 60 percent ($1.05 trillion) of which was in noninterest-bearing transaction accounts larger than $250,000. Of this total, $894 billion exceeded the basic coverage limit of $250,000 per account, but was fully insured by the temporary unlimited coverage. Banks with under $10 billion in assets funded 3.3 percent of their assets with deposits receiving the temporary unlimited coverage. Banks with more than $10 billion in assets had deposits receiving temporary coverage equal to 7.6 percent of assets. The following table shows the distribution of accounts receiving unlimited coverage on noninterest-bearing transaction accounts by institution asset size."

Finally, the Quarterly comments, "Total estimated insured deposits increased by 1.4 percent in the quarter ending March 31, 2011, and rose by a total of 16.7 percent over the past four quarters. The large four-quarter increase was primarily attributable to the additional temporary coverage of non-interest bearing transaction accounts authorized by the Dodd-Frank Act. For institutions existing at the start and the end of the most recent quarter, insured deposits increased during the quarter at 5,114 institutions (68 percent), decreased at 2,427 institutions (32 percent), and remained unchanged at 32 institutions. The condition of the Deposit Insurance Fund (DIF) continues to improve. The DIF increased by $6.3 billion during the first quarter of 2011 to negative $1.0 billion (unaudited), the fifth consecutive quarterly increase. Assessment income at $3.5 billion and a $3.1 billion negative provision for insurance losses were the primary contributors to the improvement in the DIF balance. Interest earnings, combined with unrealized gains on available-for-sale securities and other net revenue, increased the fund by another $151 million. Operating expenses reduced the fund balance by $395 million."

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