4000 - Advisory Opinions
Are Deposits in Financial Institutions Guaranteed Directly by the Federal Government or by the FDIC and its Resources
January 22, 1990
Jules Bernard, Attorney
In your letter of November 30, 1989, you ask whether deposits in financial institutions are guaranteed directly by the federal government or merely by the FDIC and its resources.
Although the law is not absolutely clear on this point, my own view is that the guarantee is backed by the full faith and credit of the United States, and not merely by the FDIC's resources.
Subsection 901(b) of the Competitive Equality Banking Act of 1987, Pub. Law. 100-86, says:
In view of the findings and declarations contained in subsection (a), it is the sense of the Congress that it should reaffirm that deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.
To be sure, a provision setting forth the sense of Congress is not the same thing as positive law. Nevertheless, referring to this language, the United States District Court for the District Of Columbia in Massachusetts Credit Union Share Ins. Corp. v. Nat'l. Credit Union Admin., 693 F.Supp. 1225 (D.D.C. 1988), said with respect to deposits held in NCUA-insured credit unions (which are backed by the National Credit Union Share Insurance Fund):
The Court concludes that it was the clear and unambiguous intention of the Congress to guarantee the resources of federal depository institutions1 with the full faith and credit of the United States. Having explicitly done so, it need not either authorize or appropriate funds for this purpose until it deems it necessary.
The Court's decision did not actually turn on this point, and speaking strictly it does not represent a precedent for later courts to follow. But the Court did spend some time explaining its reasons: later courts may well find them persuasive. The Court's reasoning would apply just as well to deposits held in FDIC-insured banks and savings associations (which are backed by the Bank Insurance Fund and the Savings Association Insurance Fund, respectively) as it does to deposits held in NCUA-insured credit unions.
The Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), Pub. L. 101-73, provides further support for my view. Section 221 of the FIRREA amends the Federal Deposit Insurance Act to read as follows:
(a) INSURANCE LOGO--
(1) INSURED SAVINGS ASSOCIATIONS--Each insured savings association shall display at each place of business maintained by such association a sign containing only the following items:
(A) A statement that insured deposits are backed by the full faith and credit of the United States Government.
(B) A statement that deposits are federally insured to $100,000.
(C) The symbol of an eagle.
The sign shall not contain any reference to a Government agency and shall accord each item substantially equal prominence.
(2) INSURED BANKS--Not later than 30 days after the date of enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, each insured bank shall display at each place of business maintained by such bank one of the following:
(A) The sign required to be displayed by insured banks under regulations prescribed by the Corporation in effect on January 1, 1989.
(B) The sign prescribed under paragraph (1).
12 U.S.C. 1828(a)
This passage says that insured savings associations are required to tell the public that deposits are backed by the full faith and credit of the United States, and also says that insured banks may tell the same thing to the public if they choose to do so.
Accordingly, I do not believe there is any real possibility that Federal insurance for deposits would be cut off if the resources of the insurance funds that the FDIC administers were to be exhausted.
I trust that this has been responsive to your inquiry. If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.
1Sic. Judging from the Court's usage elsewhere in the case, this phrase should be "federally insured depository institutions". Go back to Text