The FDIC has issued a final rule to clarify that deposits in overseas branches of U.S. banks are not FDIC-insured if they are dually payable both at the branch outside the U.S. and within the U.S. The rule is intended to prevent U.S. banks from being forced to convert branches in the United Kingdom into subsidiaries, to establish “trusts” to protect U.K. depositors or, should this not be feasible, to convert these funds into insured deposits that would increase the amount of deposits protected by the FDIC. The final approach has broad international impact, addressing growing concerns not limited to the U.K. about U.S. depositor-preference procedures. While the final rule may prevent ring-fencing of host- from home-country banking operations, the “dually-payable” approach will require significant changes in deposit contracts at U.S. branches, perhaps limiting the degree to which U.S. banks will be able to continue their current operations as intended by the FDIC.

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