4000 - Advisory Opinions
Insurance of Deposits Placed in Several Affiliated Banks
August 15, 1986
Jules Bernard, Senior Attorney
Thank you for your letter of August 1, 1986. You ask how the FDIC insures deposits made pursuant to multi-bank depository programs.
In program of this kind, a lead bank accepts funds from a customer, and then transmits the funds to other banks--usually ones affiliated with the lead bank--for deposit. The lead bank does not send more than $100,000 to any given depository bank.
Upon receiving the funds, the depository bank issues a certificate of deposit. The certificate is made out in the customer's name, or in the name of the lead bank "as agent" for the customer. The depository bank sends the certificate to the lead bank for safekeeping.
The *** would like a letter from you regarding package investing programs . . . and the FDIC's position on insuring each of our deposits of up to $100,000 in each of the subsidiary banks. Such a letter in our files would give us the additional comfort we need to ensure that investments made through a package investment program are acceptable under our organization's investment criteria.
The FDIC's insurance is provided separately for each individual bank. That is to say, if the customer holds $100,000 in one bank and $100,000 in a second bank, and the two banks fail simultaneously, each deposit is fully insured. It makes no difference whether the banks are affiliated with each other.
That still leaves two questions open: to whom does the FDIC owe the insurance; and how does the FDIC compute the insurance when a depositor has more than one account at a failed bank?
Who is insured: In order for the customer to be insured, the certificate must be issued in the customer's name, or in the name of an entity (such as the lead bank) that is designated on the depository bank's records as the customer's agent.
If neither the certificate nor the depository bank's records show that the customer is the owner of the deposit, the deposit will not be insured to the customer. Instead, the deposit will be insured to whoever is shown as the owner on the depository bank's records.
For example, suppose a lead bank placed a customer's funds with a depository bank, and instructed the depository bank to record the deposit simply in the name of the lead bank rather than in the name of the lead bank "as agent" for the customer. In that case the lead bank itself--and not the customer--would be insured.
How insurance is computed: If the deposit is recorded on the books of the depository bank in the customer's own name, the FDIC aggregates the deposit with any other deposits the customer may have placed directly with that same depository bank, and insures the aggregate funds up to $100,000.
If the deposit is recorded on the depository bank's books in the name of some other person "as agent" for the customer, it makes a difference whether the agent is a bank itself (e.g., the lead bank) or is some other entity (e.g., a nonbanking company belonging to the holding-company system). In either case, the deposit is insured to the customer. But the rules for aggregating the deposits are different.
If the agent is not a bank, the deposit is treated as having been made in the customer's own name: the deposit is aggregated with any deposits the customer has placed directly with the bank in his own name, and the aggregate is insured up to $100,000. If the agent is a bank, however, the deposit only aggregated with other deposits that are recorded as having been made by that same bank as agent for the customer. All such deposits are insured in the aggregate up to $100,000, and are insured separately from any deposits that the depositor may have placed directly with the depository bank.
Finally, if the lead bank places the deposit in its own name, but fails to instruct the depository bank to show that the lead bank has made the deposit "as agent" for the customer, the FDIC insures the deposit to the lead bank. If the lead bank has several such deposits with the depository bank (perhaps representing funds of several customers), all the deposits are aggregated, and the entire amount is insured up to a maximum of $100,000.
I must point out that the contractual relationships among the lead bank, the depository bank, and the customer may differ from one multi-bank depository program to the next. Moreover, even within any particular program, some participants may pay more or less attention to the important details of record-keeping than others. Accordingly, I am unable to provide you blanket assurance that every such program will afford you full deposit insurance coverage.