4000 - Advisory Opinions
Deposit Insurance Coverage of Participation Interests in Brokered Certificates of Deposit
August 22, 1986
We are in receipt of your letter of August 14th regarding the deposit insurance coverage of participation interests in brokered certificates of deposit ("CD"). You are correct in your statement that a beneficial owner of a participated CD is insured separately to $100,000 for his or her interest.
Under existing FDIC regulations, funds placed by a deposit broker in an insured bank on behalf of a third party are not subject to any limitations on insurance coverage by virtue of that relationship. Current recordkeeping regulations provide that the deposit account records of an insured bank are conclusive as to the existence of any relationship pursuant to which funds in the bank are deposited. 12 C.F.R. § 330.1(b)(1). If the account records disclose an agency, trustee, or other custodial relationship, the details of the relationship and the beneficial interest of the owner(s) of the funds must be ascertainable from bank records or the depositor's records maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2). Insurance coverage flows through the deposit broker acting as agent or custodian of an investor's funds as long as the issuing bank's records reflect the existence of the agency relationship and either the bank's or the agent's records disclose the details and interest of the true owner of the funds.
It should be noted that if an individual investor owns any other account in his or her name at the issuing bank, then the funds in such account will be aggregated with his or her share in the participated CD and insured to $100,000.