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4000 - Advisory Opinions


Insurance Coverage of Brokered Deposits

FDIC-88-56

August 31, 1988

Claude A. Rollin, Attorney

This is in response to your letter of June 29, 1988, concerning the insurance coverage that would be afforded to certain brokered deposits.

In your letter, you describe a plan under which *** obtains large-denomination certificates of deposit ("CDs") from FDIC-insured banks (the "issuing banks") on behalf of *** customers. You ask us to assume that any number of levels of agents, nominees, custodians, trustees or other fiduciaries, may be interposed between *** (the nominee holder of the CDs) and the beneficial owners of the CDs. Moreover, you indicate that the names of the beneficial owners of the CDs would not appear on the records of the issuing banks, but that: (a) the issuing banks' records "would disclose, in a general manner, the existence of all relationships pursuant to which a claim for additional deposit insurance might be made"; and (b) "records will be maintained at each of the levels of agency relationships to establish the details upon which such claims for additional deposit insurance are based." You ask me to confirm your understanding of the methods by which the FDIC's recordkeeping requirements (12 C.F.R. § 330.1(b)) can be satisfied so as to provide pass-through insurance coverage for the beneficial owners of the CDs in question.

FDIC 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 fiduciary relationship, the details of the relationship and the beneficial interest(s) of the owner(s) of the funds must be ascertainable either from records of the bank or those of the depositor, maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2).

When there are multiple levels of fiduciary relationships, there are two alternative methods for satisfying these recordkeeping requirements so as to obtain pass-through insurance coverage for the interests of the beneficial owners of the CDs. One method is to expressly indicate, on the deposit account records of the depository bank, the possible existence of all levels of fiduciary relationships. In your letter you suggest that the CDs could be registered on the records of the depository bank as follows:

*** Incorporated, acting as custodian, agent, nominee, guardian, personal representative executor, administrator and/or trustee for its customers who may themselves be acting as custodian, agent, nominee, guardian, personal representative, executor, administrator and/or trustee for their customers, who may also be acting as custodian, agent, nominee, guardian, personal representative, executor, administrator and/or trustee for the beneficial owners of the deposit account.

It is my opinion that your suggested designation would satisfy the requirements of 12 C.F.R. § 330.1(b)(1). Therefore, so long as the names and interests of the beneficial owners of the CDs can be determined by following the chain of records (from *** records to the records at each subsequent level) the FDIC would provide pass-through insurance coverage for the beneficial owners of the CDs.

Another alternative for satisfying 12 C.F.R. § 330.1(b)(1) is to: (1) expressly indicate on the deposit account records of the depository bank that *** is acting in a fiduciary capacity for its customers who may, in turn, be acting in a fiduciary capacity for others; and (2) disclose the existence of additional fiduciary relationships in records at subsequent levels. This would have to be accomplished in a manner which prohibits persons in the chain from claiming that they are acting in fiduciary capacities when the possible existence of such fiduciary relationships are not revealed at a previous (higher) level in the chain. For example, the depository bank's records and the records at each subsequent level could expressly provide as follows:

1.  Bank's Records: *** acting as custodian, agent, nominee, guardian, personal representative, executor, administrator and/or trustee for its customers, who may also be acting as custodian, agent, nominee, guardian, personal representative, executor, administrator and/or trustee for their customers.

2.  Records: *** as agent for A as custodian for others.

3.  A's Records: A as custodian for X as custodian for others, for Y as agent, and for Z as executor.

4.  X's Records: X as custodian for L, M. O. Y's Records: Y as agent for P, Q. R. Z's Records: Z as executor for the Estate of S.

It is my opinion that this series of records would satisfy 12 C.F.R. § 330.1(b)(1). Therefore, so long as the names and interests of the beneficial owners can be determined by following the chain of records, the FDIC would provide pass-through insurance coverage for the beneficial owners of the CDs. In the above-noted example, the interests of L, M, O, P, Q, R and the Estate of S would each be insured, up to $100,000, for a total of up to $700,000. However, in the above example, if A's records simply provided "A as custodian for its customers, X, Y, Z" with no indication that those customers were acting in a representative capacity on behalf of the true beneficial owners of the accounts, then the interests of L, M, O, P, Q, R and the Estate of S would not be separately insured up to $100,000 each; rather, X, Y and Z would each be limited to an aggregate maximum of $100,000 in deposit insurance.

Please be advised that the opinions expressed herein represent the current thinking of the FDIC Legal Division staff and are not, in any way, binding upon the FDIC or its Board of Directors. In addition, the opinions expressed herein relate to the specific factual context in which they were given and thus should not be applied in other factual contexts.


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