4000 - Advisory Opinions
Insurance Coverage of Brokered CDs Maintained in the Name of a Clearing Broker or Securities Depository
March 24, 1989
Gerald J. Gervino, Senior Attorney
In your letter of January 9, 1989, you have asked for confirmation of an understanding you have with respect to the insurance coverage afforded "brokered certificates of deposit" maintained in the name of a clearing broker or a securities depository where you have accounts.
Section 330.1 of our regulation provides:
(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.
All of the certificates of deposit in question actually belong to your customers, whose ownership is reflected on your own stock record.
The deposit account records of the insured bank, rather than your records alone, must disclose the existence of a relationship which might provide a basis for additional insurance. The relationship which must be disclosed in order to obtain additional coverage is that your customers rather than your firm, your clearing broker, or a securities depository are the actual beneficial owners of the deposit.
Your company has omnibus accounts at a clearing broker and at a securities depository. We assume that the names of your customers are not reflected on the books of the issuing bank. We further assume that there is nothing on the records of the issuing bank to indicate that the certificates of deposit may be owned by a customer but held in the name of the broker and that the broker maintains the securities in an account at another broker or a securities depository.
Unless the records of the issuing bank reflect the existence of a relationship pursuant to which the funds in the account are deposited and upon which a claim for insurance coverage is founded, no claim for insurance based on that relationship will be recognized. (12 CFR § 330.1(b)) Since you indicate in your letter that you use securities depositories as custodians, it would appear that this basic recordkeeping requirement may not be met. Thus, the certificates of deposit may be added to any other accounts maintained by the clearing broker, the securities depository, or any other person in the chain of transfers who is listed as the owner upon the books of the bank at the time of a bank closing. The aggregate amount listed in a single name would be insured to a maximum of $100,000, leaving any remainder uninsured.