4000 - Advisory Opinions
Insurance Coverage of CDs Invested Through Deposit Broker
January 12, 1988
Claude A. Rollin, Attorney
This is in response to your letter of December 18, 1987, in which you request information concerning the proof necessary to establish a claim for deposit insurance.
In your letter, you indicate that your bank intends to pool its customers' funds and invest those funds, through an independent deposit broker, in certificates of deposit issued by other FDIC-insured banks. You state that the funds would be sent by Federal Reserve Bank wire transfer to a deposit broker, that the broker would then invest the funds in CDs issued by various FDIC-insured banks and that those issuing banks would then send safekeeping receipts directly to your bank at some later date. You ask whether safekeeping receipts or wire transfer receipts (in the event your bank has not received a safekeeping receipt by the time an issuing bank is closed) would be sufficient to establish your bank's claim for deposit insurance. You further ask whether the amount of deposit insurance payable to your bank would be affected by the fact that the safekeeping or wire transfer receipts would be in the bank's name, rather than in the names of the individual customers, and in an amount in excess of $100,000.
Please be advised that the FDIC considers each claim for deposit insurance on a case-by-case basis, considering all the facts and circumstances surrounding each claim. In determining whether a deposit exists, the FDIC reviews the records of the closed bank and any evidence submitted by a depositor to substantiate the claim. There is no fixed rule as to the type or amount of proof that is necessary to establish that a deposit exists. Therefore, I am unable to provide you with definitive answers to the questions you pose in your letter.
You should be aware, however, of the definition of "deposit" which appears in section 3(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(1). In that section, the term "deposit" is defined, in part, as:
The unpaid balance of money or its equivalent received or held by a bank in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to a commercial checking, savings, time or thrift account, or which is evidenced by its certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar name, or a check or draft drawn against a deposit account and certified by the bank, or a letter of credit or a traveler's check on which the bank is primarily liable . . .
Under this definition, if your safekeeping or wire transfer receipts and/or the records of the closed bank indicate that your bank was transferring money to the closed bank for the purpose of making payments on a loan or for some purpose other than making a deposit, then there is no "deposit" within the meaning of 12 U.S.C § 1813(1).
You should also be aware of section 330.1(b) of the FDIC rules and regulations, 12 C.F.R. § 330.1(b), which provides, in part, as follows:
(b) Records. (1) The deposit account records of the insured bank shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded. Examples would be trustee, agent, custodian or executor. No claim for insurance based on such a relationship will be recognized in the absence of such disclosure.
(2) If the deposit account records of an insured bank disclose the existence of a relationship which may provide a basis for additional insurance, the details of the relationship and the interests of other parties in the account must be ascertainable either from the records of the bank or the records of the depositor maintained in good faith and in the regular course of business.
Based upon the foregoing provisions, I would advise you to make certain that (1) the records of the banks that issue the CDs reflect the fact that your bank is purchasing the CDs as agent on behalf of various customers, and (2) the records of either the issuing banks or your bank, maintained in good faith and in the regular course of business, indicate the interests of each of your bank's customers in the CDs. With respect to the second recordkeeping requirement, records maintained by a third party in some contractual or agency capacity with the depositor (e.g. by a CD broker) will suffice. Assuming there is adequate proof of the existence of the deposits, compliance with these recordkeeping requirements would provide the FDIC with a basis for insuring each CD for an amount in excess of $100,000.