4000 - Advisory Opinions
Insurance of Deposits Placed in Several Affiliated Banks
August 11, 1986
In your letter of July 22, 1986, you describe the following arrangement for spreading a customer's funds among several affiliated banks:
The customer has on deposit $500,000.00 at his local *** bank ("Local Bank"). The customer informs the local bank that he desires to distribute $400,000.00 of that amount to four other *** banks ("Participating Banks") in order to gain FDIC insurance coverage for the full $500,000.00. The customer is presented with an agency agreement by the local bank whereby he authorizes the local bank, as his agent, to distribute the $400,000.00 to four designated Participating Banks. The Agreement provides that a Certificate of Deposit will be issued at each Participating Bank and that the interest rate, interest payments and renewal terms will be handled on an individual basis with each Participating Bank. The customer advises the local bank as to which Participating Bank he desires to place his funds and so indicates in the agency agreement. These instructions are then conveyed to a "Coordinating Bank" (probably ***) which serves as a liaison between the local bank and the Participating Banks. Through a series of electronic debits and credits, the customer's $400,000.00 is transferred to the four Participating Banks in increments of $100,000.00. Each Participating Bank establishes a time deposit on its books in the name of the Customer. A certificate of deposit receipt then is routed from the participating bank through the Coordinating bank back to the local bank. The local bank will either hold the receipt or send such to the customer, depending upon the customer's request. Interest payments will be forwarded by the Participating bank through similar channels. The payments will be credited directly to the customer's checking account at the local bank or to the credit of the local bank, which in turn would issue a check to the customer. Shortly before the Certificate of Deposit matures, the Coordinating Bank will notify the local bank which, in turn, notifies the Customer and requests instructions as to renewal, transfer or liquidation. The Local Bank, as agent for the customer, conveys these instructions to the Coordinating Bank and on to the Participating Bank which performs accordingly.
In my judgment, this program effectively establishes a direct depository relationship between the Customer and the "Participating Bank." Therefore, the deposit--subject to aggregation of other deposits--would qualify for FDIC insurance. Please advise me if you share this conclusion.
Based on your description of the program, I am inclined to do so.
You specify that each deposit is recorded on each Participating Bank's books in the customer's own name (as opposed to recording it in the name of the local bank as the customer's agent). Accordingly, the FDIC would regard each such deposit as belonging to the customer. The FDIC would insure the deposit, after aggregating it with any other deposits the customer may have placed directly with that same Participating Bank, up to a maximum of $100,000.