An Oct. 2 news story about the Federal Deposit Insurance Corporation's handling of the failed National Bank of Washington has led to a general misinterpretation of FDIC policy toward large bank failures. The story, based on an FDIC staff communication to a trade group, incorrectly interpreted the NBW transaction as involving a ''new policy'' of protecting deposits in overseas branches of U.S. banks.
In the case of NBW, the FDIC sold all of the bank's deposits to another bank, meaning that no depositor lost any money. This was not a new policy. In fact, the transaction was in keeping with the policy the FDIC has followed for years in the vast majority of bank failures whereby all depositors, including foreign depositors, are fully protected. The FDIC takes this approach whenever it is less costly than liquidating the bank and paying depositors up to the $100,000 limit.
While the NBW transaction represents no new policy, the FDIC board was presented with a new option proposed by the staff to deny protection to uninsured depositors in a foreign branch of NBW located in Nassau. The board decided unanimously not to single out foreign depositors among the bank's uninsured depositors, and it took this action with the concurrence of the Federal Reserve Board.
Instead of following a new path in the NBW case, the FDIC took the one most frequently traveled and the one that is the least costly to the deposit insurance fund.
ALAN J. WHITNEY Director of Communications, FDIC Washington