4000 - Advisory Opinions
Insurance Coverage for Certain Deposit Notes
Roger A. Hood, Assistant General Counsel
This is in response to your inquiry concerning the deposit insurance that would be provided by the FDIC for certain "Deposit Notes" issued by ***.
In response to numerous inquiries on this subject, FDIC staff contacted the bank to request more information about the nature of these obligations. We were advised that the bank issued a total of $500,000,000 of Deposit Notes during the period of October, 1988 to February, 1989, in minimum denominations of $250,000. We were also advised that no Deposit Notes have been issued by the bank since that time. Based on these assertions and the information we have received from various individuals, we have reason to believe that these instruments are now being sold/transferred by broker/dealers in the secondary market.
The FDIC has received a sample Deposit Note from the bank. The sample Deposit Note indicates that it is a negotiable fixed-rate instrument and the following language appears on its face:
THE DEPOSIT NOTE IS AN UNSECURED AND
UNSUBORDINATED OBLIGATION OF THE BANK AND
EVIDENCES A DEPOSIT THAT IS INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION TO THE
EXTENT PROVIDED BY THE LAW. . . . .
In addition, attorneys for *** have represented that the bank has been including all of the Deposit Notes as deposits on the bank's quarterly Reports of Condition and Income ("Call Reports") and thus has been paying FDIC insurance assessments.
Based upon our review of the sample "Deposit Note" and the representations from the bank's attorneys, it is our opinion that the Deposit Notes issued by *** come within the meaning of the term "deposit," as it is defined in section 3(l) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(l).
Consequently, it is our opinion that they would be insured by the FDIC to the extent provided under the Federal Deposit Insurance Act and the regulations promulgated thereunder (12 C.F.R. Part 330 and 331).
We are, however, unable to determine the extent to which these Deposit Notes would be insured (i.e., whether any particular Deposit Note would be insured up to $100,000 or in an amount which exceeds $100,000). This is because the extent to which deposits are insured is based on the "rights and capacities" in which the funds are owned.
The information that we have received concerning the sale or transfer of the *** Deposit Notes is not sufficient for us to determine whether or not the persons who ultimately acquire these deposits do, in fact, obtain ownership interests in the deposits (i.e. that the negotiable instruments have been properly negotiated) upon which insurance coverage could be based. It appears that these Deposit Notes are being sold or transferred by numerous parties in a variety of ways and thus we are unable to make any generalizations about the extent to which these deposits would be insured.
Persons considering the acquisition or purchase of these Deposit Notes may wish to seek the advice of their own legal counsel on the issue of the extent to which any particular deposits would be insured.