Termination of Insurance

FDIC Deposit Insurance

Voluntary Termination

A voluntary termination of deposit insurance is not an Enforcement Action per se, since it requires a completely voluntary action on the institution's part

Any insured depository institution which is not

A national member bank;
A State member bank;
A Federal branch;
A Federal savings association; or
An insured branch which is required to be insured under 12 USC 3104(b) [federal branch of foreign bank accepting deposits of less than $100,000] or 12 USC 3104(c) [foreign bank branch in a state in which state banks must be insured
May terminate it's status as an insured depository institution if it provides written notice to the FDIC of the it's intent to terminate such status not less than 90 days before the effective date of such termination

See 12 USC 1818(a)(1) (Section 8(a) of the FDIA)

Termination of Insurance for Lack of Deposits

Whenever the FDIC determines that an insured depository institution is not engaged in the business of receiving deposits, other than trust funds, its insured status will terminate at the expiration of the first full semiannual assessment period following FDIC notice

A finding by the FDIC is conclusive

See 12 USC 1818(p). (Section 8(p) of the FDIA)

Being "engaged in the business . . ." requires one or more non-trust accounts aggregating $500,000 or more

Automatic bye for first year of business
Must fail to meet minimum for two consecutive call report dates

See 12 CFR Part 303, section 303.14

Termination of Insurance by Assumption of Liabilities

When the deposits of an insured depository institution have been assumed by another insured depository institution(s), whether by way of merger, consolidation, or other statutory assumption, or pursuant to contract

The insured status of the depository institution whose liabilities are so assumed shall terminate on the date of receipt by the Corporation of satisfactory evidence of such assumption;
The separate insurance of all such deposits terminates at the end of six months from the date of such assumption or, in the case of any time deposit, the earliest maturity date after the six-month period.

See 12 USC 1818(q). (Section 8(q) of the FDIA)

Involuntary Termination

Requires notice by FDIC to institution's primary federal regulator and, for state banks, the state bank regulator

In general, the FDIC may involuntarily terminate an institution's deposit insurance under 12 USC 1818(e) if it finds that the institution has:

Engaged in or is engaging in unsafe or unsound practices in conducting its business;
Is in an unsafe or unsound condition to continue its operations as an insured institution;
Has violated any applicable law, regulation, order or condition imposed in writing by the FDIC in connection with an approval of any application or other request by the depository institution, or written agreement entered into between the depository institution and the FDIC

If an insured state depository institution is convicted of violations of 18 USC 1956 or 1957 involving money laundering or engaging in monetary transactions or property derived from specified unlawful activity, the FDIC shall revoke its deposit insurance pursuant to 12 USC 1818(w)(1)(A)

If an insured state depository institution is convicted of violations of 31 USC 5322 or 5324 involving reporting of monetary transactions or structuring transactions to avoid reporting, the FDIC may terminate its deposit insurance pursuant to 12 USC 1818(w)(1)(B)

In either event, title 18 or title 31 violations, the FDIC shall take into account in determining whether to terminate deposit insurance the extent to which:

Directors or senior executive officers of the depository institution knew of, or were involved in, the commission of the money laundering offense of which the institution was found guilty
The offense occurred despite the existence of policies and procedures within the depository institution which were designed to prevent the occurrence of any such offense.
The depository institution has fully cooperated with law enforcement authorities with respect to the investigation of the money laundering offense of which the institution was found guilty
The depository institution has implemented additional internal controls (since the commission of the offense of which the depository institution was found guilty) to prevent the occurrence of any other money laundering offense
The interest of the local community in having adequate deposit and credit services available would be threatened by the termination of insurance

Requires notice to institution and hearing pursuant to the Administrative Procedure Act

If the institution does not appear for the hearing, it is deemed to have consented to the termination

After Order of Termination, insurance may continue for 6 months to 2 years (FDIC discretion) on existing deposits, but not on new deposits. 12 USC 1818(b)(7)

Termination of insurance orders appealable to US circuit court of appeals under Administrative Procedure Act

See 12 CFR Part308, Subpart F

NCUA Share Insurance

Voluntary Termination

Federal credit unions may not voluntarily terminate their share insurance.

Non-federal credit unions may voluntarily their share insurance by

notice to the agency of the affirmative vote of a majority of its members within one year prior to the giving of such notice
obtaining a new certificate of insurance from a corporation authorized and duly licensed to insure member accounts

See 12 USC 1786(a)

Involuntary Termination

NCUA may involuntarily terminate the insured status of a credit union if it finds that the institution or

Is engaging or has engaged in unsafe or unsound practices in conducting the business of such credit union
Is in an unsafe or unsound condition to continue operations as an insured credit union
Is violating or has violated an applicable law, rule, regulation, order, or any condition imposed in writing by the Board in connection with the granting of any application or other request by the credit union, or
Is violating or has violated any written agreement entered into with the Board

For detailed procedures, notice requirements, temporary continuation of insurance, judicial review and other matters associated with involuntary termination of share insurance (which are very similar to the FDIC procedures detailed above), see 12 USC 1786(b)

See also NCUA enforcement regulations at 12 CFR Part 747, Subpart C

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