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4000 - Advisory Opinions


Whether Funds Deposited by Trust Company Subsidiary in Savings Association Are Entitled to Separate Deposit Insurance Coverage Under 12 C.F.R. § 330.10

FDIC 91-38 April 29, 1991 Mark A. Mellon, Attorney

This is in response to your letter of March 20, 1991. Based on your letter, it is my understanding that you represent a savings and loan association with a wholly owned trust company subsidiary. The savings and loan association was formerly a commercial bank and the trust company subsidiary was formerly an independent savings and loan association. In 1984 a conversion was conducted under the auspices of the Federal Home Loan Bank Board in which the savings and loan association and the trust company took on their present forms and the trust company became a subsidiary of the savings and loan association. Pursuant to the terms of the conversion, the trust company subsidiary cannot take deposits. The trust company instead uses the savings and loan association as a depository for funds. You state that the trust company subsidiary continues the trust activities which were formerly handled by the trust department of the commercial bank prior to its conversion.

You wish to ascertain whether the funds of the trust company, when deposited with the savings and loan association, would receive the separate deposit insurance coverage accorded to funds held by depository institutions in a fiduciary capacity pursuant to 12 C.F.R. § 330.10 under the theory that the trust company is acting as the trust department of the savings and loan association. The answer to your query is that such funds would not receive this coverage under our regulations.

You cite to a regulation of the Federal Reserve Board pertaining to the purchase of the stock of subsidiaries by member banks and argue that, since subsidiaries and divisions of a corporation are deemed to be interchangeable for the purposes of this regulation, that the FDIC should adopt a similar interpretation for purposes of deposit insurance. This regulation has no bearing, however, on the amount of coverage provided for insured deposits. This is a question which must be resolved under the insurance regulations of the FDIC.

Our insurance regulations provide separate insurance coverage for funds held in a fiduciary capacity by an insured depository institution. 12 C.F.R. § 330.10(a). The regulation implements section 7(i) of the Federal Deposit Insurance Act. Neither the regulation nor the statute provides separate insurance for funds held in a fiduciary capacity by a separately incorporated entity on deposit with an insured depository institution when that separately incorporated entity is not itself an insured depository institution. This holds true even if it is conceded that the separately incorporated entity is acting as the functional equivalent of the insured depository institution's trust department. An interpretation of the regulation which would extend separate insurance coverage to such an entity would contravene the plain meaning of the regulation and of the statute.

I hope that this letter is responsive to your inquiry. Please do not hesitate to contact me if you have any questions on this or any other matter.


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