4000 - Advisory Opinions
Insurance Coverage of Treasury Bills
August 17, 1987
Valerie P. Lane, Regional Attorney
You contacted the Legal Division on August 13, 1987 to inquire about FDIC insurance coverage of treasury bills. You also inquire about the impact insolvency has upon safekeeping arrangements.
Please be advised that the insolvency of an insured bank does not in any way affect pre-existing safekeeping arrangements. As the successor in interest to the rights and responsibilities of a failed insured institution, the FDIC assumes all safekeeping obligations in effect as of the date the bank closes.
As you no doubt are aware, the insurance provided by the FDIC extends only to deposits and not to other assets held by an insured bank for safekeeping. A deposit is broadly defined as "the unpaid balance of money or its equivalent received . . . by a bank in the usual course of business and for which it has given or is obligated to give credit . . . to a . . . checking, savings, time or thrift account . . . ." 12 U.S.C. § 1813(1). A bank customer's assets which a bank holds for safekeeping purposes cannot constitute a deposit inasmuch as the bank is not obligated to give credit for them. The bank's obligation is limited to returning the specific assets to the customer. Thus, FDIC coverage applies only to cash balances on deposit at an insured bank, not to stocks, bonds or other non-cash assets held by an insured bank as trustee, custodian or in some other fiduciary capacity. Such non-deposit assets would be returned by the FDIC as receiver to the persons entitled thereto, provided such entitlement can be established to FDIC's satisfaction by appropriate evidence.
Likewise, deposit insurance does not extend to Treasury Bills (T-Bills) by the bank on the customer's behalf. T-bills are issued only in book-entry form either by the Federal Reserve Bank or branch, acting as fiscal agent of the United States, or by the Department of the Treasury. After their original issuance, T-bills may be purchased through financial institutions, brokers, and dealers in securities. With few exceptions, T-bills are not redeemable before maturity.
Securities held by a bank in safekeeping are not aggregated with the bank's assets. This letter does not address situations where the bank is not simply holding the non-cash asset in safekeeping but has some interest in the asset (for example the asset has been pledged to the bank). At the time the FDIC reopens the failed institution to implement the payoff process, the customer would present the safekeeping receipts to the FDIC Liquidator who, in turn, would provide the customer with a release which the customer could then present to the Federal Reserve to prove ownership. Alternatively, the FDIC as Receiver could hold all T-bills as safekeeping items. If the bank's failure resulted in a payoff of insured deposits, the FDIC would make a distribution upon maturity in the same manner and extent as the closed bank would have done.
If the failure results in a purchase and assumption transaction, the new or assuming bank would make a distribution upon maturity in the same manner and extent as the closed bank would have done.
Only when a security is treated by a bank as its own asset would there ever be a problem. In that case, the customer's safekeeping claim would conflict with the bank's ownership claim.
Please be advised that the opinions expressed herein are those of the FDIC Legal Division and not of the FDIC itself. The FDIC issues formal interpretations of its rules and regulations, but only pursuant to rulemaking proceedings. The FDIC does not issue formal interpretations in the form of letters on specific cases.
I trust my comments are responsive to your inquiry.