4000 - Advisory Opinions
Insurance Coverage of Deposits Maintained in Colorado Trust Companies
October 23, 1988
Alan J. Kaplan, Counsel
Our Dallas Regional Office has forwarded your October 14 letter to Washington and has asked us to respond. Your letter asks whether proposed amendments to the Colorado Trust Company Act (Colo. Rev. Stat. §§ 11-23-101 et seq. (1987)) that would grant trust companies in Colorado the power to accept non-fiduciary savings and time deposits from the general public would make Colorado trust companies eligible to apply for FDIC insurance. Specifically, the proposed amendments would define the terms "time deposit," "savings deposit," and "transaction account;" authorize Colorado trust companies to "receive and maintain savings deposits, time deposits and certificates of deposit and other accounts for which a trust company is empowered to act under this article;" prohibit Colorado trust companies from receiving and maintaining "transaction deposit accounts;" require all Colorado trust companies to apply for FDIC insurance by July 1, 1990; and prohibit any Colorado trust company that has not obtained FDIC insurance by July 1, 1991 from continuing to accept or hold savings and time deposits.
Section 5(a) of the Federal Deposit Insurance Act ("FDI Act") (12 U.S.C. § 1815(a)) provides in part that "any State nonmember bank, upon application to and examination by the Corporation and approval by the Board of Directors [of the FDIC], may become an insured bank." Section 3(b) of the FDI Act (12 U.S.C. § 1813(b)) defines "state nonmember bank'' to mean "any State bank which is not a member of the Federal Reserve System." Section 3(a) of the FDI Act (12 U.S.C. § 1813(a)) defines "State bank'' to mean "any bank, banking association, trust company, savings bank, industrial bank or similar financial institution . . . or other banking institution which is engaged in the business of receiving deposits, other than trust funds as . . . defined [in Section 3(p) of the FDI Act], and which is incorporated under the laws of any State . . . ." (Underscoring added.) Section 3(p) of the FDI Act (12 U.S.C. § 1813(p)) defines "trust funds'' to mean "funds held by an insured bank in a fiduciary capacity and includes, without being limited to, funds held as trustee, executor, administrator, guardian, or agent."
Thus, an institution which is chartered and regulated as a trust company by the state in which it is incorporated and which is "engaged in the business of receiving deposits, other than trust funds" is eligible for FDIC insurance. The authority to accept "deposits other than trust funds" must be expressly granted by state law; inasmuch as the authority to receive deposits is not a generally recognized implied power of a corporation, the FDIC will not infer such authority in the absence of an express statutory grant.
On several previous occasions, the FDIC's Legal Division has determined that, under the current Colorado Trust Company Act, trust companies in Colorado are ineligible to apply for FDIC insurance. This is because the present language of the statute authorizes Colorado trust companies to "maintain savings deposits, time deposits, and certificates of deposit for the investment of fiduciary funds and other accounts for which a trust company is empowered to act under this article," (Colo. Rev. Stat. § 11-23-103(1)(d) (1987) (emphasis added)), language which clearly limits deposit-taking activities of Colorado trust companies to "trust funds" (as defined in the FDI Act) and thus, under the provisions of the FDI Act cited above, precludes them from seeking to obtain FDIC insurance.
The proposed amendments would, among other things, delete the phrase "for the investment of fiduciary funds" from § 11-23-103(1)(d), with the apparent result that the authority of Colorado trust companies to receive and maintain time and savings deposits would no longer be limited to trust funds. Rather, these amendments would appear to permit Colorado trust companies to receive time and savings deposits (but not demand deposits or other "transaction accounts"), on a simple debtor-creditor basis, from individuals, corporations, partnerships, and other eligible entities, acting in their respective rights and capacities as such and not as fiduciaries. Moreover, the proposed amendments place no limitations on the universe of persons or entities from whom a trust company may receive deposits, and thus would appear to permit the acceptance of deposits from the general public. Based on these understandings, I would conclude that the exercise by a Colorado trust company of the deposit-taking authority to be conferred by the proposed amendments would constitute being "engaged in the business of receiving deposits, other than trust funds."
In my view, then, the proposed amendments authorizing Colorado trust companies to accept non-fiduciary time and savings deposits from the general public would make Colorado trust companies eligible to apply for FDIC insurance.
Of course, as you are no doubt aware, eligibility is just a threshold question, and the FDIC will grant deposit insurance to a particular trust company only if the factors enumerated in section 6 of the FDI Act (12 U.S.C. § 1816) are favorably resolved. Those factors are: the financial history and condition of the bank; the adequacy of its capital structure; its future earnings prospects; the general character of its management; the convenience and needs of the community to be served by the bank; and whether or not its corporate powers are consistent with the purposes of the FDI Act. An applicant which, although eligible to make application to become an insured bank, is determined by the FDIC, upon consideration of the foregoing statutory factors, to constitute an unacceptable risk to the federal deposit insurance fund will be denied deposit insurance.
In addition, I should point out that any Colorado trust company that applies for FDIC insurance would be expected to show that it is actually exercising, or intends to exercise, the general non-fiduciary deposit-taking powers granted to it. If the non-fiduciary deposit-taking activities of a particular trust company are so circumscribed as not to constitute being " engaged in the business of receiving deposits" (e.g., where the trust company limits its deposit-taking activities to accepting deposits from its own employees or trust business customers), then the FDIC may find that particular trust company to be ineligible to obtain FDIC insurance. Likewise, should the FDIC determine that a trust company which has been granted FDIC insurance has ceased to be "engaged in the business of receiving deposits, other than trust funds," section 8(p) of the FDI Act (12 U.S.C. § 1818(p)) requires the FDIC to terminate the insured status of the institution.
I hope the views expressed in this letter have been of assistance to you. Since your October 14 letter inquired only about the effect of the proposed amendments on the eligibility of Colorado trust companies to apply for FDIC insurance, my comments have been limited to that question. Should you require any further information, please let me know.