Division of Finance 1601 Bryan Street, Dallas, TX Deposit Compliance Analysis Section

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1 Federal Deposit Insurance Corporation Division of Finance 1601 Bryan Street, Dallas, TX Deposit Compliance Analysis Section First Quarter 2008 Dear Chief Executive Officer: The Federal Deposit Insurance Reform Act of 2005 resulted in significant statutory changes to the FDIC deposit insurance assessment program. In conjunction with the Reform Act changes, the FDIC has modified the assessable deposit reporting format; the modifications become mandatory with the March 2008 Call Report and Thrift Financial Report ( TFR ). The FDIC has updated the Interim Deposit Review Guide that was made available on FDICconnect in July The updated guide the Interim Assessable Deposit Review Guide ( the Guide ) is now available on FDICconnect. The Guide includes information on the FDIC s Deposit Review Program, which has been streamlined in approach to allow the FDIC to periodically review each institution s deposit reporting. The Guide does not create new data collection requirements; rather, it updates the FDIC s long-standing deposit validation process to reflect the reporting modifications. The most significant modifications to assessable deposit reporting are the simplification of the Call Report and TFR lines used for the assessment computation and the introduction of average deposit reporting for determining the assessment base. FDIC assessments are now based on amounts reported on Call Report Schedule RC-O items 1-6, or TFR Schedule DI lines ( assessment lines ). The focus of the new assessment lines is on deposits as defined in section 3(l) of the Federal Deposit Insurance Act ( FDI Act-defined deposits ) and deposit exclusions that are allowed to be taken for assessable deposit reporting purposes. The revisions continue to rely on the same definitions of reportable deposits that were in effect prior to the reporting format modifications. In order for your institution to accurately report and document its FDI Act -defined deposits, it should (1) identify its FDI Act-defined deposits and the systems that process these deposits; (2) inventory the systems that contain deposits; (3) record the deposit amounts; and (4) map the identified systems into your deposit reporting processes. The FDIC will periodically conduct a review of your institution s Call Report/TFR assessment lines and of the corresponding deposit systems and documentation ( Deposit Review ) for a representative quarter. Please note that Deposit Reviews will be conducted electronically through FDICconnect (the e-business portal through which your institution s quarterly assessment invoices are made available). Documents requested during a Deposit Review should be transmitted to the FDIC expeditiously; therefore, you should ensure that your institution has FDICconnect coverage at all times and has an effective contingency plan for FDICconnect coverage when there is a staff turnover or routine staff absence. If you or your staff have any suggestions for improving the content of the Guide, please send them to me at DCAS@FDIC.gov. For questions about the Guide, please contact the FDIC s Deposit Compliance Analysis Section (DCAS) by (DCAS@FDIC.gov) or by phone ( ). FDIC staff is available to assist institutions with documentation or mapping issues, on-site if necessary. Sincerely, David Wisnewski, Manager

2 It is the responsibility of insured depository institutions to accurately report assessable deposits and maintain the documentation to readily permit verification of the correctness of deposits reported for assessment purposes. It is the responsibility of the FDIC to verify the correctness of the assessable deposits reported through periodic review of supporting records and documentation. This Interim Assessable Deposit Review Guide is intended to help by assisting preparers of the Call Report or Thrift Financial Report in understanding and properly applying assessable deposit reporting standards as set forth in the Federal Deposit Insurance Act (FDI Act), the FDIC Rules and Regulation, the Call Report/Thrift Financial Report Instructions and this guide.

3 Overview Page 1 Chapter 1 Page 4 Deposit Identification and Reporting Chapter 2 Page 8 Allowable Exclusions (including Foreign Deposits) and Other Exclusions Chapter 3 Page 12 The Deposit Review Program Chapter 4 Page 18 Using the Deposit Recap and Average Summary Chapter 5 Page 29 FDICconnect and Examination File Exchange (EFE) Appendix Page 33 Sample Documentation Package

4 Overview The Assessable Deposit Review Guide ( the Guide ) is designed to help insured institutions better understand the FDIC s longstanding reporting, documentation, and verification requirements associated with deposit reporting for FDIC assessments purposes. Insured institutions are required to accurately report deposits and to maintain supporting documentation. All institutions are subject to a periodic review by the FDIC of supporting records and documentation for the deposit amounts reported ( Deposit Review ). The Guide is intended to be a resource to help an institution identify all of its deposits, report its deposits accurately, and determine what documentation needs to be maintained to readily permit verification of the correctness of deposits reported for assessment purposes. The Guide also describes the Deposit Review process and offers insights on documentation that could help an institution successfully substantiate the deposits it reports to the FDIC for its assessment computation. Chapter 1 Deposit Identification and Reporting Chapter 1 contains information that may help an institution identify all of its deposit liabilities and the associated systems of record that maintain and document those deposits. This chapter contains insights on effective internal control procedures related to deposit reporting. The FDIC offers suggestions on how to identify deposits that may not necessarily immediately come to mind when reporting assessable deposits. This chapter also provides guidance on how to report deposits on the Call Report/Thrift Financial Report (TFR) assessments lines (Call Report Schedule RC-O items 1-6 and TFR Schedule DI lines ), including the requirements associated with quarter-end deposit reporting and average daily balance deposit reporting. This section gives specific reporting guidance to institutions that own a bank/thrift subsidiary. Chapter 2 Allowable Exclusions (including Foreign Deposits) and Other Exclusions The starting point of deposit reporting for assessment purposes is reported gross deposits (Call Report Schedule RC-O items 1 & 4, and TFR Schedule DI lines 510 & 540). However, certain deposits are excludable from the initial gross deposit total resulting in the assessable deposits for the institution. Chapter 2 provides information on the two types of exclusions--allowable Exclusions and Other Exclusions--and offers suggestions on how to effectively document and identify all exclusions to which an institution is entitled. Allowable Exclusions are types of deposits which by law or regulation are excluded from assessable deposits. One of the objectives of a Deposit Review is to verify exclusions are reported correctly and an institution has documentation to support all exclusions claimed. If exclusions are claimed, the documentation must be complete and readily available or the exclusion will not be allowed. The documentation should identify the type of deposit and support the amount of the exclusion. Other Exclusions are non-deposit amounts included as reported gross deposits on the Call Report/TFR assessment lines that can be excluded from the assessable deposit totals. Examples of Other Exclusions are credit-line accounts and institution-owned deposit accounts that are 1

5 sometimes recorded on Demand Deposit Account (DDA) systems. The documentation for any Other Exclusion should include a written explanation that describes the system from which it is derived, states the basis for exclusion from assessable deposits, and supports the amount of the exclusion. Foreign Deposits, in general, are deposits that are not payable in the United States or its territories. This chapter discusses how to report and document Foreign Deposits. Chapter 3 The Deposit Review Program Every institution, regardless of its size, will at some point be involved in a FDIC Deposit Review. Chapter 3 describes the overall objectives of the Deposit Review Program, and describes in some detail how the process works. The Deposit Review process evaluates the effectiveness of an institutions deposit reporting internal controls taking into consideration the accuracy of the amounts reported on the assessment lines, the completeness and availability of documentation, and the timeliness of Deposit Review requests for documentation. At the end of the Deposit Review, a report will be issued to the institution s CEO. By gaining an insight on how a Deposit Review works, the Deposit Review documentation requirements, and the roles of the FDIC and the institutions under review, an institution may be better able to integrate the Deposit Review requirements into its internal control processes. The Deposit Review is a structured process that considers the time necessary to provide documentation as part of the evaluation. The Deposit Review will primarily be conducted electronically through the Examination File Exchange (EFE) feature of FDICconnect. Therefore, it will be crucial for an institution to be diligent in maintaining its reporting control processes each quarter, and to make sure that its FDICconnect Coordinator and User functions are properly staffed. Special note for institutions that report daily average deposits: The FDIC recognizes the need to learn more about institutions daily average deposit reporting processes. During 2008, if an institution that reports daily average deposits is selected for a Deposit Review and is unable to produce the supporting documentation for the computation of the daily average balances for each day, it should contact DCAS. During 2008, the FDIC will work with the institution to validate their reported daily average deposits using other acceptable methods. If an institution that reports daily average deposits is selected for a Deposit Review, and has processes in place to produce the documentation to support the daily average deposits, it should submit the documentation as per the Guide. 2

6 Chapter 4 Using the Deposit Recap and Average Summary The FDIC has developed a Deposit System Control Summary Recap ( Deposit Recap ) and a Gross Total Average Deposit Reporting Summary ( Average Summary ) that may be helpful for an institution to use to compile the amounts reported on its Call Report/TFR assessment lines. These formats may also be a useful internal self assessment control tool, and may be an effective deposit inventory tool that meets the FDIC s Deposit Review expectations. Chapter 4 contains sample formats, and detailed guidance for their use. Chapter 5 FDICconnect and Examination File Exchange (EFE) Chapter 5 contains a description of the FDICconnect and Examination File Exchange (EFE) roles in the Deposit Review process. This chapter contains detailed step-by-step instructions for signing up for FDICconnect, assigning personnel EFE access, and using EFE. Appendix Sample Documentation Package The Appendix contains a narrative on how to complete the Deposit Recap and Average Summary discussed in Chapter 4. This section demonstrates how to use the formats using mock-up data that demonstrates common types of situations that an institution may encounter when reporting and documenting deposits. (The Appendix does not demonstrate every type of deposit or exclusion an institution may have) This section provides tips on how to report various types of deposits and provides suggestions for effective documentation practices. Outreach and Additional Information The FDIC conducts an outreach program that includes educational and communication initiatives applicable to deposit reporting topics of interest. The audiences for these outreach activities include individual institutions, financial industry groups, and the financial institution regulatory agencies. The FDIC also responds to assessable deposit reporting issues and questions from insured institutions through a designated and phone number: DCAS@fdic.gov or (972) We hope the following chapters and appendix help your institution understand the expectations regarding assessable deposit reporting and help facilitate your efforts to maintain sound controls and determine appropriate documentation to substantiate your reported deposits. Completing the Deposit Recap and the Average Summary is not required but could expedite a Deposit Review of your institution. Institutions that do not use the Deposit Recap and Average Summary are encouraged to develop their own formats that contain the required Deposit Review documentation elements. This Guide will be updated as needed, so we encourage all insured institutions to send us comments and suggestions for improving the content or presentation to DCAS@fdic.gov. 3

7 Chapter 1 Deposit Identification and Reporting Throughout the history of the FDIC, insured institutions assessments have been based on total domestic deposits. The definition of the term deposit is contained in section 3(l) the Federal Deposit Insurance Act ( FDI Act ) and includes a broad range of funds held by an institution. Generally, funds held by an institution but not owned by the institution (including any interest accrued on those funds) are deposits. Commercial banks report deposits on their Call Reports and thrifts report deposits on their TFRs (Thrift Financial Report), from which the FDIC computes their quarterly assessments. Deposits reported on the Call Report/TFR are derived from the systems of record that account for each deposit by an institution at the individual depositor level. This chapter includes information on how to identify all deposits (and their systems of record) held by an institution, Call Report/TFR deposit reporting requirements, and special instructions for institutions that own another bank or thrift as a subsidiary. Deposit Identification Some deposits and their systems of record are easier to identify than others. Ensure that all deposits and their systems of record are included in deposits reported. Most funds held by an institution that meet the FDI Act definition of deposit and their associated systems of record are intuitively recognizable, but some are not as readily recognizable. For instance, funds held in checking accounts, money market accounts, NOW accounts, etc., are readily recognized as deposits, and their system of record is usually the DDA (Demand Deposit Account) system. Other examples of commonly recognized deposit items are time deposits, savings accounts, certificates of deposits (CDs), and individual retirement accounts (IRAs). The system of record for these deposits is usually a conventional deposit processing system that also includes the accrued and unpaid interest (which is also considered a deposit). On the other hand, some funds held by an institution are not as intuitively recognized as deposits. These funds can be maintained in automated systems of record not normally associated with deposits or in manual systems of record. For instance, employee withholdings meet the definition of a deposit, but may not be typically recognized as deposits because their system of record is the payroll system. Pooled deposits associated with mortgage escrows, loan servicing, stored value or credit cards, and brokered CDs, often involve multiple accounts and depositors which may not be separately recognized when reporting these funds on the Call Report/TFR. The following are some of the most common items meeting the definition of a deposit that may be overlooked: Mortgage Loan Escrows (i.e. Tax and Insurance) Official and Other Outstanding Checks Treasury Tax and Loan (TT&L) Travelers Checks & Money Orders Sold Funds held from the sale of Mutual Funds or Other Securities Backup Withholding Security Deposits Matured CDs Employee Payroll Deductions 4

8 Refundable Loan Fees Unremitted Loan Participation Payments Stale Dated Checks IPS, Moneygram, etc. Uninvested Trust Funds Credit Balances on Credit Cards Accrued and Unpaid Interest on Escrows Stored Value Cards (aka Gift Cards) When preparing its Call Report/TFR, an institution must ensure all systems that process or record items that meet the FDI Act definition of a deposit are identified, the deposits associated with each system of record are reported on the Call Report/TFR, and the amounts reported are properly documented. These systems may be a manual process or an automated deposit processing platform used to track, control, and handle inquiries from depositors about their specific account. Understanding the nature of the financial transaction with a customer is helpful in ensuring that all deposits are identified and reported correctly. A systematic approach to identifying deposits and their systems of record should be integrated into an institution s internal control processes. Some institutions include personnel from deposit operations and from other departments (i.e. trust, payroll, loans, etc.) in the deposit reporting process because they are familiar with their respective systems. External deposit servicers who are familiar with deposit systems may also be able to provide valuable assistance and support. Deposit Reporting - Quarter-end and Daily Average All institutions report their assessable deposits as of the end of the quarter. Large institutions ($1 billion or more in assets) and all institutions that became insured on or after March 31, 2007, also report their assessable deposits on a daily average basis (daily average reporting is optional for all other institutions). When an institution also reports daily average balances, the averages are used for the assessment computation. There are two components of deposit reporting for assessment purposes: Quarter-end and Daily Average reporting. All institutions are required to report quarter-end deposits. Institutions with $1 billion or more in assets as well as all new institutions (defined as those insured on or after March 31, 2007) are required to report daily average deposits in addition to quarter-end deposits effective with the March 31, 2008, Call Report/TFR. 1 An institution that has less than $1 billion in assets and is not a newly insured institution may choose to report daily average deposits, which will be used to determine its assessment base. Once an institution begins reporting daily averaging deposits, it may not revert back to reporting only quarter-end deposits. There are three reporting elements for both quarter-end reporting and daily average balance reporting: (1) total gross deposits before exclusions, (2) total allowable exclusions (including foreign deposits) and other exclusions; (3) total gross foreign deposits. For quarter-end 1 The daily averages reported in the first report a new institution files after becoming insured should include the deposit totals for the days since the institution began operations and zero for the days prior, effectively pro-rating the first quarter s assessment base. 5

9 reporting, these amounts are reported on a snapshot basis as of the last business day of the quarter. For daily average balance reporting, these amounts are calculated by adding the deposit totals for each calendar day during the quarter and dividing those amounts by the number of calendar days in the quarter. The use of daily average balances may provide a more representative depiction of an institution s deposits. In addition, if an institution s assessment base is growing, reporting average daily balances could result in smaller assessments. Call Report/TFR Assessment Lines FDIC assessments are based on deposits reported on Schedule RC-O of the Call Report (items 1 6) and on Schedule DI of the TFR (lines ). Other deposit-related line items are not used in the assessment computation. Reporting deposits for assessment purposes is done on the Call Report Schedule RC-O, items 1, 2 and 3 (quarter-end deposits) & 4, 5, and 6 (daily average deposits) or the TFR Schedule DI, lines 510, 520, and 530 (quarter-end deposits) & lines 540, 550, and 560 (daily average deposits) collectively referred to as the assessment lines. Normally, the amounts to report on the assessment lines are typically found within the deposit systems of record and are supported by each system s control totals. The system s control totals should be readily available for verification by the FDIC. For assessable deposit purposes, deposits should be reported at gross (i.e., no netting or reduction of deposits due to another kind of transaction). For example, overdrafts affecting DDA or trust accounts and negative escrows should not be netted against the deposit totals. The Call Report and TFR have several deposit line items that are used for various regulatory purposes, such as Call Report Schedules RC, RC-E, RC-K and TFR Schedule SC710. Since these line items are designed with other purposes in mind, an institution should not necessarily expect them to directly correlate with the amounts reported on the assessment lines of Call Report Schedule RC-O and TFR Schedule DI. The Call Report Schedule RC-O and TFR Schedule DI assessment lines are distinct from the other Call Report/TFR deposit line items. Special Instructions for Institutions that have a Bank or Thrift Subsidiary Institutions with a Bank/Thrift Subsidiary: FDIC assessments are charged to each individually chartered institution based on its own Call Report/TFR assessment lines. Combining a FDIC insured subsidiary institution s deposits with a parent institution s deposits on its assessment lines will result in double assessment of the subsidiary institution s deposits. There are a few insured banks and thrifts that own another separately chartered FDIC insured bank or thrift, and operate it as a subsidiary. In such cases the parent bank or thrift may combine the subsidiary bank or thrift s customers deposits on the parent s Call Report/TFR. Because the subsidiary institution is a separately chartered bank or thrift, it also prepares a Call 6

10 Report/TFR to report its own deposits, which results in the subsidiary bank or thrift s customers deposits being reported on two Call Reports/TFRs: its own and the parent s. Since each separately chartered institution has a unique assessment rate, the FDIC is required to assess each insured institution separately. If the subsidiary bank or thrift s customers deposits are included on the assessment lines of the parent s Call Report/TFR, the subsidiary bank s deposits would be assessed twice. In order to avoid paying duplicate assessments, both the parent institution and subsidiary bank or thrift should each report only its own deposits and allowable exclusions on the assessment lines (Call Report Schedule RC-O items 1-6 or TFR Schedule DI lines ). Chapter Summary The term deposit is defined by the FDI Act. The definition includes most funds held by an institution that do not belong to itself. When completing its Call Report/TFR assessment lines, an institution should be diligent in reporting all deposits (some deposits are more readily recognized than others). Large institutions (those with assets of $1 billion or more) and new institutions report both quarter-end deposit and daily average balances for the quarter. For all other institutions, daily average balance reporting is optional. When daily average balances are reported, they are used for the assessment computation. 7

11 Chapter 2 Allowable Exclusions (including Foreign Deposits) and Other Exclusions Certain reported gross deposits are excludable from an institution s assessable deposits. Documentation for such exclusions must be readily available for FDIC verification. When reporting total deposit liabilities before exclusions on Call Report Schedule RC-O, Items 1 & 4, or TFR Schedule DI lines 510 & 540 ( reported gross deposits ), all amounts recorded on systems of record containing deposits are included. Certain deposits are allowed to be excluded from an institution s assessable deposits by law and/or FDIC regulation; these are Allowable Exclusions. (Generally, deposits payable outside of the United States (Foreign Deposits) can be excluded from an institution s assessable deposits as Allowable Exclusions.) Non-deposit amounts that do not meet the definition of deposits per the FDI Act that were included with the reported gross deposits can also be excluded from an institution s assessable deposits; these are Other Exclusions. Supporting Documentation Supporting documentation that specifically identifies the type and nature of the exclusion must be maintained and readily available so that the exclusion(s) being reported can be verified. The inability of an institution to provide documentation to support the reported exclusion(s) may result in losing the right to the exclusion. The initial request for documentation for a Deposit Review will require that the following are identified: the control total page from the system of record from which the exclusion amount is derived, the number of accounts associated with the exclusion, and the total exclusion amount. Subsequent follow-up documentation requests may include such things as check copies, account statements, account agreements, investment contracts, pass-thru or correspondent agreements, and loan agreements, to provide additional support of a reported exclusion during a deposit review. Allowable Exclusions Any Allowable Exclusion amounts that are included with reported gross deposits on Call Schedule RC-O items 1& 4 or TFR Schedule DI lines 510 & 540, should be reported on Call Report RC-O items 2 & 5, or TFR lines DI 520 & 550. Allowable Exclusions are types of deposits which by law or regulation may be excluded from assessable deposits. Call Report Schedule RC-O item 2 and TFR Schedule DI item 520 are used to report quarter-end allowable exclusions. Daily average exclusions are reported on Call Report Schedule RC-O item 5 and TFR Schedule DI item 550. Any items eligible for exclusion must have been included with the reported gross deposits in order to be deducted from the assessment base computation. The allowable exclusions are listed and described as follows: 8

12 Reciprocal balances Reciprocal balances result when two depository institutions maintain deposit accounts with each other. In this relationship a reporting institution has both due to and due from accounts with another depository institution. An institution may exclude any demand deposit balance due from or cash item in the process of collection due from any depository institution (not including a private depository institution, a foreign depository institution, a foreign office of another U.S. depository institution, or a U.S. branch of a foreign depository institution) up to the total of the amount of deposit balances due to and cash items in the process of collection due to the other depository institution. Drafts drawn on other depository institutions Any outstanding drafts drawn on funds held in another institution (not to include a Federal Reserve Bank or Federal Home Loan Bank) by the reporting financial institution can be excluded from an institution s assessable deposits. For example some institutions issue drafts (checks) drawn on their account at a larger correspondent bank. Pass-through reserve balances Reserve balances passed through to the Federal Reserve, by the reporting institution, that are reflected as deposit liabilities of the reporting institution. This exclusion is not applicable to an institution that does not act as a correspondent bank in a passthrough reserve balance relationship. A state nonmember bank generally cannot act as a passthrough correspondent unless it maintains an account for its own reserve balances directly with the Federal Reserve. Depository institution investment contracts Liabilities arising from depository institution investment contracts that are not treated as insured deposits under section 11(a)(5) of the Federal Deposit Insurance Act (12 U.S.C (a)(5)). A Depository Institution Investment Contract is a separate negotiated agreement between an employee benefit plan and an insured institution that guarantees a specified rate for all deposits made over a prescribed period and expressly permits benefit responsive withdrawals or transfers. Hypothecated deposits Deposits accumulated for the payment of personal loans that are assigned or pledged to assure payment of the loans at maturity. If carried as a deposit liability and included in the reported deposit totals, they qualify as an exclusion. Deposits that simply serve as collateral for loans are not allowable exclusions. Unposted Items - For the purposes of deposit and exclusion reporting, unposted items are defined as those deposit account transactions or items where no attempt to post to the associated deposit account(s) has been made. These items are typically cleared the next business day and normally do not materially affect the assessment base. Unposted debits should not reduce assessable deposits and unposted credits should not increase assessable deposits. Other Exclusions Any Other Exclusion amounts that are included with reported gross deposits should be reported on Call Report RC-O items 2 & 5, or TFR lines DI 520 &

13 Other Exclusions are non-deposit amounts that have been included with reported gross deposits and can be excluded from an institution s assessment base. Other Exclusions usually are a result of non-deposit items being processed and accounted for on a deposit system. Examples of Other Exclusions are credit line accounts and institution-owned deposit accounts that are sometimes recorded on DDA systems. The documentation for any Other Exclusion must include a written explanation within a Deposit Review documentation package that describes the system used for non-deposit purposes and states the basis for exclusion from reported assessable deposits. Foreign Deposits Foreign Deposits that are included with reported gross deposits should be reported on Call Report RC-O, items 2 and 3 & items 5 and 6, or TFR lines DI 520 and 530 & DI lines 550 and 560. Foreign Deposits as defined in Section 3(l) (5) of the FDI Act (Federal Deposit Insurance Act) can be excluded from an institution s assessable deposits. Foreign Deposits are included with Allowable Exclusions, and also reported separately on their own Call Report/TFR lines (Call Report Schedule RC-O items 3 & 6, and TFR Schedule DI lines 530 & 560). Section 3(l) of the FDI Act states that the following shall not be a deposit: (A) any obligation of a depository institution which is carried on the books and records of an office of such bank or savings association located outside of any state, unless (i) such obligation would be a deposit if it were carried on the books and records of the depository institution, and would be payable at, an office located in any state; and (ii) the contract evidencing the obligation provides by express terms, and not by implication, for payment at an office of the depository institution located in any State... Section 7(a)(4) of the FDI Act states that each institution: shall report the total amount of the liability of the depository institution for deposits in the main office and in any branch located in any State of the United States, the District of Columbia, any Territory of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, or the Virgin Islands... If an institution is affiliated with a foreign bank but does not own the foreign bank, that foreign bank s deposits would not be included with the institution s reported gross deposits, and would not be included with allowable exclusions reported on Call Report Schedule RC-O, items 2 & 5 or TFR Schedule DI-530 & 550, nor would they be separately reported on Call Report Schedule RC-O, items 3 & 6, or TFR Schedule DI lines 530 & 560. International Banking Facility (IBF) deposits are also treated as Foreign Deposits, including IBF time deposits. An IBF is a set of asset and liability accounts segregated on an institution s books 10

14 and records that includes only IBF time deposits and IBF extensions of credit. IBF time deposits and IBF extensions of credit are narrowly defined and restricted by the Board of Governors of the Federal Reserve System. An institution may establish an IBF as long as it is legal in the location in which it is established. An establishing institution must notify the Federal Reserve bank of the district in which the IBF is going to be established beforehand, and must state that it will comply with IBF restrictions and recordkeeping and accounting requirements. For an IBF s deposits to be eligible as an Allowable Exclusion, the IBF must comply with all of the requirements set forth in the Federal Reserve System s Regulation D. Chapter Summary Certain amounts included in reported gross deposits are excludable from an institution s assessment calculation. Allowable Exclusions (including Foreign Deposits), and Other Exclusions, are reported on separate Call Report/TFR lines that are then deducted when the FDIC computes an institution s quarterly assessment. All exclusion amounts must be substantiated by supporting documentation. 11

15 Chapter 3 Deposit Review Program Each institution s assessable deposit reporting is periodically validated by the FDIC through a Deposit Review. Periodically, an institution s assessable deposit reporting will be validated by the FDIC s Deposit Compliance Analysis Section (DCAS) for a selected quarter through the Deposit Review Program (a Deposit Review ). Typically, a Deposit Review will occur after the Call Report/TFR under review has been filed and the assessment payment for the period associated with that Call Report/TFR has been collected. (For instance, under most circumstances an institution s March Call Report/TFR would not be subject to a Deposit Review until after June 30.) At the end of the Deposit Review, a written report is issued to the institution s Chief Executive Officer (CEO) that conveys the FDIC s opinion on the effectiveness of the institution s deposit related internal control and reporting practices by evaluating the level of deposit reporting compliance with (1) the statutory definition of deposits as contained in Section 3(l) of the FDI Act, (2) the assessment regulations contained in Part 327 of the FDIC s Rules and Regulations, (3) the Call Report/TFR Instructions, and (4) the Interim Assessable Deposit Review Guide. Deposit Reviews are conducted electronically through FDICconnect. Deposit Review Elements The goal of the Deposit Review Program is to improve deposit reporting industry-wide by monitoring reported deposits, ensuring uniform compliance with deposit reporting requirements, and confirming the adequacy of internal controls relative to deposit and exclusion documentation and reporting. Accurate reporting ensures deposit insurance premiums--assessments--are correct. Through the Review Program DCAS evaluates the performance of an institution s deposit-related internal control and reporting practices by reviewing the following elements: The accuracy of the assessment lines reported on a specific quarter s Call Report/TFR. The validity of the total number of accounts associated with the amounts reported on the assessment lines. The validity of all deposit exclusions. The availability and completeness of supporting documentation. The timeliness of providing documentation through FDICconnect and EFE. 2 DCAS periodically tests the effectiveness of an institution s deposit-related internal control and reporting practices by reviewing the accuracy of deposits reported for one selected quarter. Basically, the Deposit Review process compares an institution s Call Report/TFR reported gross deposits and exclusions to the documentation from the deposits specific systems of record. (A deposit s system of record is the system, automated or otherwise, that accounts for the 2 EFE (Examination File Exchange) is a FDICconnect based secure electronic format for institutions and the FDIC to exchange information and documentation. 12

16 deposit at the individual depositor level.) The documentation is examined to determine if all assessable deposits are being routinely included in an institution s assessable deposits. Deposit Reviews are conducted electronically through FDICconnect with documentation being submitted or shared through the EFE (Examination File Exchange) feature of FDICconnect. When notified of a Deposit Review, an institution will be asked to transmit to the FDIC the documentation that substantiates amounts reported on its Call Report/TFR assessment lines (Call Report Schedule RC-O, item 1 6, and TFR Schedule DI lines ). The FDIC does not mandate the method an institution uses to accumulate, reconcile, and control the assessable deposit amounts reported on the assessment lines. However, an institution s chosen method for reporting assessable deposits should be fully supported by the deposit amounts as summarized in the associated systems of record. Deposit Review Process Deposit Reviews are conducted electronically through FDICconnect. Every institution should have an active FDICconnect coordinator and FDICconnect authorized users that know how to use EFE. The Deposit Review is a fairly structured process accomplished by exchanging information between an institution and the FDIC through the EFE component of FDICconnect. An institution should have an active FDICconnect Coordinator and a succession plan for prompt replacement of the designated Coordinator. In addition, an institution should have at least one FDICconnect user that is able to use EFE. The FDIC expects the FDICconnect Coordinator to facilitate and monitor the Deposit Review activities within the institution. Every institution is responsible for maintaining continuous FDICconnect and EFE coverage. See Chapter 5 for more information on FDICconnect and EFE. An institution will be asked to submit three specific documentation elements to the FDIC at the onset of the Deposit Review. (Institutions that report daily average deposits will be asked to submit four elements.) An engagement letter will be transmitted to an institution via FDICconnect that will ask for supporting documentation for amounts reported on the assessment lines. To fulfill this request, an institution should initially transmit the following: An inventory listing (similar to the Deposit Recap described in Chapter 4) of each system of record that contains deposits and exclusions if any included in the Call Report/TFR assessment lines, and contains the following information for each system (including subsystems) of record: (1) total gross deposits (2) the number of accounts (3) accrued and unpaid interest (4) overdrafts. 13

17 A control total page for each system of record on the inventory listing (for example, a DDA system control summary report or a Trust Cash Trial Balance recap report). If depositors names are on the control pages, the names can be redacted. An unconsolidated general ledger balance sheet for the date being reviewed. A listing that documents the computation of the daily average reported gross deposits for each day of the calendar quarter if the institution reports gross daily average deposits (similar to the Average Summary described in Chapter 4). If an institution does not report average deposits this listing is not applicable. Note: If an institution selected for review has processes in place to produce the required supporting documentation of the daily average reported gross deposits, they should submit the documentation as per the Guide. The FDIC recognizes the need to learn more about daily average reporting processes. During 2008, if an institution selected for review is unable to produce the supporting documentation for the computation of the daily average balances for each day requested, they should contact DCAS. During 2008, the FDIC will work with the institution to validate their reported average balances using other acceptable methods. For example, officials at one institution informed the FDIC that they will use their general ledger process to identify their systems and sub-systems that contain deposit amounts; they also informed the FDIC that supporting documentation was more readily available for the quarter-end date than the intervening business days of the quarter. Deposit Review Steps Step 1: The review begins with an notice from the FDIC to an institution s assigned FDICconnect Coordinator advising the institution that a Deposit Review engagement letter has been posted on FDICconnect. Step 2: The Coordinator downloads the Deposit Review engagement letter. This letter states that the institution has been selected for a deposit review to verify the deposits reported on the Call Report/TFR for the selected quarter. The letter requests that a Designated Contact(s) be identified and directs the institution to the Guide (Interim Assessable Deposit Review Guide) for complete instructions for responding to the Deposit Review. A sample engagement letter is shown on page 17 (Exhibit A) Step 3: The Coordinator quickly identifies who will be the institution point(s) of contact ( Designated Contact ) for the review and makes certain that the Designated Contact(s) is an established user on FDICconnect and has been given EFE transaction authority within 14

18 FDICconnect. The Coordinator advises DCAS via of the institution s Designated Contact(s) for the review. Step 4: Once notified of the Designated Contact(s), the FDIC establishes an EFE communication session within FDICconnect to facilitate the secure exchange of documentation with the institution. Step 5: The FDIC sends an notice to the Designated Contact(s) advising that files containing the Deposit Recap and Average Summary are available on EFE for download by the institution to use as an inventory/documentation tool if it so wishes. Step 6: The Designated Contact(s) coordinates the preparation and transmittal of the requested documentation to the FDIC. The documentation should be assembled and returned through EFE within seven (7) business days after the electronic engagement letter is made available for download. The documentation requested in the engagement letter should be compiled from the daily systems of record control summaries routinely used each day by an institution to balance and reconcile deposit activities. A deposit review will typically occur after the Call Report/TFR under review has been filed and the assessment payment for the period associated with that Call Report/TFR has been collected; therefore, an institution s reported deposits will have already been subjected to its internal control and verification processes. Since an institution with strong internal control and verification procedures routinely obtains and reviews the information being requested to ensure its reporting process is working as intended, meeting the seven day standard should not be a problem. In some cases DCAS may request additional documentation and clarification in support of the Deposit Review. If full documentation (both deposit amount totals and supporting system control sheets) is not submitted during a Deposit Review, an institution will be asked to correct their submission. Therefore, supporting documentation should be sufficiently detailed to avoid the need to make subsequent requests for additional information. Step 7: DCAS staff will complete the review and issue a final report to the institution s CEO, which will describe the deficiencies, if any. The final report will identify the institution s overall compliance with assessable deposit reporting requirements, including the timeliness of the response(s) to any documentation requests, the use of FDICconnect and the EFE, and any reporting issues. If deposit reporting deficiencies and recommendations are brought to the attention of an institution s management and detailed in the final report, DCAS will conduct a follow-up review to ensure that the deposit reporting issues identified were resolved in a timely and appropriate manner. Follow-up reviews will generally occur four to eight quarters after the initial deposit review has been completed. When material deposit reporting deficiencies or errors are identified, an institution may be required to review additional quarters Call Report/TFR assessment lines to determine if similar errors occurred, and amend the assessment lines for those quarters. 15

19 Chapter Summary Interim Assessable Deposit Review Guide The Deposit Review evaluates an institution s assessable deposit reporting for a particular quarter, including the accuracy of the amounts reported on the assessment lines. In general, the amounts reported on an institution s assessment lines for the selected quarter will be compared to the deposit amounts contained on the inventory listing and supporting systems of record. If the amounts reported on the assessment lines are inaccurate, an institution may be requested to amend the Call Report/TFR under review, as well as previous Call Reports/TFRs if the error is likely to have also occurred in previous quarters. Deposit Reviews are conducted using the EFE component of FDICconnect. At the end of the review, a final report will be issued to the institution s CEO. 16

20 Exhibit A Sample Deposit Review Engagement Letter FDIC Federal Deposit Insurance Corporation Deposit Compliance Analysis Section (Date) Chief Executive Officer Bank Name Location Deposit Compliance Review Engagement The Deposit Compliance Analysis Section ( DCAS ) of the Federal Deposit Insurance Corporation ( FDIC ) has selected your institution for a compliance review to verify deposits reported on the Call Report/Thrift Financial Report, as reflected on your invoice as follows: REPORT OF CONDITION DATA Assessment Period: 1 st Quarter 2007 Report Date: March 31, 2007 Schedule Line Item Description Amount RC-O / DI 1 / 510 Quarter End Total Gross Deposits 520,153,000 RC-O / DI 2 / 520 Quarter End Total Exclusions 100,000 RC-O / DI 3 / 530 Quarter End Total Foreign Deposits 50,000 RC-O / DI 4 / 540 Qtly Avg Total Gross Deposits 505,590,000 RC-O / DI 5 / 550 Qtly Avg Total Exclusions 95,000 RC-O / DI 6 / 560 Qtly Avg Total Foreign Deposits 45,000 Your institution s first step is to send the name of the contact(s) for this review to the FDIC so that we may establish the Electronic File Exchange session to facilitate a secure exchange of the documentation. Your institution s designated contact(s) with FDIC is expected to send supporting documentation for deposits reported on the Call Report/Thrift Financial Report, as reflected on your invoice, within seven (7) business days from the date of this engagement letter. FDIC has previously provided you with an Interim Assessable Deposit Review Guide ( the Guide ) that fully explains this review process. Refer to the Guide for further guidance and assistance in completing this request for documentation. If you do not have a copy of the Guide, you may use FDICconnect to download a new copy. Upon completion of the deposit review, FDIC will issue a final report which will describe deficiencies, if any. If you have questions about completing this Deposit Compliance Review request for supporting documentation, or if you cannot provide the documentation within the seven days, please contact DCAS@fdic.gov or call (972) Sincerely, David Wisnewski, Manager, DCAS 17

21 Chapter 4 Using the Deposit Recap and Average Summary The FDIC has developed the Deposit System Control Summary Recap ( Deposit Recap ) and the Gross Total Average Deposit Reporting Summary ( Average Summary ) to aid institutions in compiling their assessable deposits, and to use as a format for Deposit Review documentation. The FDIC developed the Deposit Recap and the Average Summary with three purposes in mind: (1) to use as a tool when compiling the amounts to report on the Call Report/TFR assessment lines (2) to use as a self assessment internal control tool, and (3) to use as an inventory listing that would satisfy Deposit Review requests for documentation. An institution should decide how to integrate the Deposit Review documentation needs into its internal control procedures and automated systems. The FDIC offers the use of the Deposit Recap and Average Summary as an effective format for meeting Deposit Review documentation requirements. For an institution that elects to develop its own formats, the FDIC encourages it to develop formats that meet its unique circumstances yet fully captures the required information. The FDIC believes that having the Deposit Review information on hand every quarter will save an institution time and eliminate the need for multiple submissions to the FDIC during a Deposit Review. If full documentation (both deposit amount totals and supporting system control sheets) are not submitted during a Deposit Review, an institution will be required to correct their submission. This chapter contains step-by-step guidelines for completing the Deposit Recap and the Average Summary. An institution that elects to use the Deposit Recap and Average Summary will gain a working knowledge of how to complete these listings and generally may result in more accurate and complete assessable deposit documentation. An institution that develops its own formats in support of their assessable deposit reporting will gain a conceptual understanding of the FDIC s expectations for Deposit Review documentation by reviewing this chapter, and can use the FDIC s formats as a blueprint for developing their own. There is a sample of the Deposit Recap and the Average Summary at the end of this chapter: Exhibit B Deposit Recap, Exhibit C - Average Summary. The Deposit Recap The Deposit Recap supports the reporting on Call Report Schedule RC-O items 1, 2, and 3, or TFR Schedule DI lines 510, 520, and 530. The Deposit Recap is an inventory of deposit systems that contains three parts corresponding to the three Call Report/TFR quarter-end assessment lines. Each part summarizes the documentation and detail information used to help an institution ensure that all deposits and exclusions have been accurately reported and adequately documented. Careful preparation of the Deposit Recap will ensure that complete documentation will be readily available to transmit to the FDIC during a Deposit Review. An institution that develops its own formats should ensure 18