FDIC 370 Automation Creates ‘Compliance with Benefits’ Scenario for Big Banks in Age of COVID-19

The FDIC did not have a global pandemic or the threat of a worldwide liquidity crunch in mind when it finalized Part 370 of its Rules and Regulations “Recordkeeping for Timely Deposit Insurance Determination,” back in April of 2017, but the Herculean effort that went into complying with the rule sure helped when the COVID-19 crisis emerged.

The rules were designed to protect bank deposit accounts in the event of a bank failure. They required banks with at least two million dollars in deposit accounts to be able to deliver an integrated view of their entire deposit base, including depositors, beneficiaries and third-party managed accounts across all account types, deposit systems and customer identifiers in 24 hours or less.

The FDIC 370 rules became a catalyst to instilling public confidence in the U.S. banking system during the COVID-19 crisis.Armed with this level of granularity into detailed account holdings, the FDIC would, in theory, be able to step in and facilitate rapid payment of insured deposits in the event of a bank failure.

The initial compliance date for the rules went into effect this past April and represented one of the most significant overhauls to how big banks store, process and handle account information since the financial crisis. Banks needed to be able to calculate insured and uninsured amounts, verify that all deposits include required information and ensure the accuracy of these outputs. They also needed to do this across a fragmented set of computer systems and disparate accounts that had been merged, acquired and divested over the last decade of banking industry consolidation.

It was a mammoth data sourcing, aggregation and calculation exercise, but AxiomSL’s FDIC Part 370 solution streamlined a great deal of the heavy lifting, creating a rules-based framework for automating the process. By the April compliance date, several AxiomSL clients went live with the rest taking the 1-year extension.

Daily Liquidity Reporting Enters the Equation

That day of reckoning came sooner than anyone expected. Just as the dust was settling on FDIC 370, the COVID-19 crisis ushered in a host of new liquidity reporting requirements that were put in place after the 2008 financial crisis. Among these were requirements for daily reporting of the U.S. Federal Reserve Board’s granular liquidity reporting via the FR 2052a report.

Big banks always needed to be able to report these details, but – prior to COVID-19 – most of them only needed to report them on a monthly basis. Under the looming threat of a pandemic-inspired liquidity crunch, however, 39 of the largest U.S. and International banks operating in the U.S. were required to deliver this information daily.

Thanks in part to the work that had already been done automating the data collection and reporting process for FDIC 370, banks are in better position to access and analyze their granular data needed for liquidity reporting. They are also better prepared to dig into the details of their deposit bases to evaluate the effects of changing interest rates when crisis struck.

While none of these was the intended goal of FDIC 370, the application of the rules became a catalyst to instilling public confidence in the U.S. banking system during the height of the COVID-19 crisis because it improved transparency into detailed risk exposures and codified recordkeeping processes that make it easier to track risk at a granular level going forward. Call it a fringe benefit of smart investment in regulatory compliance technology or a cosmic alignment of supply and demand, but it was more than just luck that made these banks prepared for the COVID-inspired risk reporting hustle.

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