4000 - Advisory Opinions
Deposit Insurance Coverage Afforded Certain Accounts Held by or For the Department of Treasury and Other Federal Agencies
June 14, 1993
Alan J. Kaplan, Assistant General Counsel
Thank you for your letter of March 24, 1993, requesting information about the deposit insurance coverage provided by the Federal Deposit Insurance Corporation for certain types of deposit accounts held by or for the Department of the Treasury ("Treasury") and other federal agencies at depository institutions insured by the FDIC.
The first part of your letter describes four types of accounts that the Treasury maintains at insured depository institutions: Treasury General Accounts ("TGAs"); Treasury Tax and Loan ("TT&L") Accounts; Lockbox Service Clearing Accounts ("LBAs"); and Certificates of Deposits. You ask: whether these accounts are "deposits" under section 330.1(c) of the FDIC's regulations; whether funds in the accounts are time and savings deposits or demand deposits under Part 330 of the FDIC's regulations; whether there is more than one official custodian of these funds under Part 330; and the extent and scope of FDIC coverage for each type of account under Part 330. These general questions are responded to in the specific discussions of the deposit insurance implications of each of the various types of accounts.
Applicable Statute and Regulations
Section 11(a) of the Federal Deposit Insurance Act ("FDI Act") states, in pertinent part, that:
"[I]n the case of a depositor who is--
(i) an officer, employee, or agent of the United States having official custody of public funds and lawfully investing or depositing the same in time and savings deposits in an insured depository institution . . . such depositor shall, for the purpose of determining the amount of insured deposits . . ., be deemed a depositor in such custodial capacity separate and distinct from any other officer, employee, or agent of the United States or any public unit . . . and the deposit of any such depositor shall be insured in an amount not to exceed $100,000 per account." 12 U.S.C. 1821(a)(2)(A).
Section 330.14(a) of the FDIC's regulations (12 C.F.R. 330.14(a)) interprets section 11(a) of the FDI Act by providing that each official custodian of funds of the United States lawfully depositing such funds in an insured depository institution "shall be separately insured in the amount of: (i) up to $100,000 in the aggregate for all time and savings deposits; and (ii) up to $100,000 in the aggregate for all demand deposits." (Emphasis added.) Section 330.14(b) of the FDIC's regulations (Id. at 330.14(b)) provides that, in order to qualify under section 330.14(a) as an "official custodian" the custodian must have "plenary authority, including control, over funds owned by the public unit which the custodian is appointed or elected to serve. Control of public funds includes possession, as well as the authority to establish accounts for such funds in insured depository institutions and to make deposits, withdrawals, and disbursements of such funds."1
As described in your letter, TGAs are uncollateralized demand deposit accounts ("DDAs") maintained with insured depository institutions into which federal agencies deposit receipts of public monies. The institution is required to credit the TGA each business day for the total amount of daily deposits received, and to transfer the funds the next business day to the Federal Reserve Bank of New York ("FRB--NY") for credit to the Treasury's General Account at the FRB--NY. The Treasury assigns duties to a depository institution through a memorandum of understanding ("MOU") that authorizes the institution to perform the functions of a TGA depository. The MOU includes instructions governing the deposit, handling, reporting, withdrawal and transfer of funds.
Your letter indicates that the MOU for the TGAs is executed between the Treasury's Financial Management Service ("FMS") and the depository institution. You note that the FMS component that has "plenary authority" over TGA depositories is the Banking Management Division's Banking Operation Branch ("BOB") and that the MOU is executed by the Chief of Review Section ("CRS") of the BOB. Based on the information provided in your letter, we agree with the conclusion reached in your letter that, as the individual who executes the MOU with the institution and has and exercises control over the funds in the TGA, the CRS of the BOB qualifies as the official custodian of the funds in the TGAs; thus, under section 330.14 of the FDIC's regulations, the TGA deposits at each FDIC-institution would be insured up to $100,000 for all DDAs.2 Under section 330.14 of the FDIC's regulations, the deposit insurance afforded to official custodians pertains separately to each institution where the custodian maintains deposits. Thus, the TGA at each institution where the official custodian maintains deposits would be insured up to $100,000 irrespective of the insurance afforded to other TGAs held at different insured institutions.
As explained in your letter, TT&L Accounts are collateralized DDAs maintained with insured depository institutions into which corporate taxpayers make tax payments.3 There are two classifications of TT&L Accounts: the "Note Option" and the "Remittance Option." The Note Option is where funds are debited from the TT&L Account and invested in open-end interest bearing notes of the depository institution on the business day following the date of deposit. The Remittance Option is where funds equal to the amounts credited by the depository institution to the TT&L Account are withdrawn immediately by the applicable Federal Reserve Bank ("FRB") upon receipt of notice from the institution of such credits. The withdrawals usually are made on the business day following the date of deposit.
As explained in your letter, the FRB, acting as a fiscal agent of the United States, executes the contract for the TT&L Accounts with the depository institution. You note that, in that capacity, the FRB has oversight responsibility and control of funds on deposit with TT&L depositories by virtue of its authority to establish the TT&L Account, to permit the deposit of funds into the account, to withdraw funds from the account, and to transfer the funds to the Treasury's General Account at the FRB.
As acknowledged in your letter, funds in the Note Option are non-deposit obligations of the depository institution; thus, they are not eligible for FDIC insurance. Based on the information provided in your letter about the authority and control of the funds in the TT&L Accounts and the accompanying copy of a sample MOU between an insured depository institution and the applicable FRB, we agree that the applicable FRB (or, more specifically, the authorized official of the FRB who executes the MOU with the insured institution) is the official custodian of the funds in the TT&L Remittance Account. As such, the official custodian of the funds would be insured up to $100,000 per insured institution where the DDAs are held.4
As described in your letter, LBAs are uncollateralized DDAs maintained with insured depository institutions for federal agency units into which persons make payments. The LBAs form the Treasury Automated Lockbox Network comprised of depository institutions designated by FMS to provide lockbox remittance services for federal agency units. Lockbox processing was adopted as a means of accelerating deposits to the Treasury's General Account at the FRB--NY. Agency units instruct remitters to mail payments directly to a Treasury designated lockbox depository. The institution assigns a unique lockbox post office box number to facilitate receipt and collections processing for each agency unit. The institution collects remittances from the various post office boxes, processes remittances, and deposits the funds into the appropriate LBA. The next day the funds are transferred to the FRB--NY for credit to the Treasury's General Account.
As noted in your letter, LBAs are established by means of a three-party MOU among the insured depository institution, FMS, and the federal program agency. The MOU is generally comprised of a General MOU ("GMOU") and a Supplemental MOU ("SMOU"). The GMOU specifies the procedures for the collection of mail from the depository institution's post office boxes, the processing of all such collected mail, the handling and deposit of all funds received into the appropriate federal agency unit's LBA, and the transfer of funds to the FRB--NY. The FMS component that has authority over the GMOU is the Bank Review Branch ("BRB") whose Manager executes the GMOU. The SMOU, which incorporates by reference the GMOU, sets up the post office box number and provides more specific processing requirements tailored to the federal agency unit's needs. SMOUs are executed by the depository institution, the federal agency, and FMS--specifically, the Manager of the Program Implementation Branch (PIB), which is a component of the Product Management Division of FMS. The establishment of individual federal agency unit accounts must be requested by the federal agency through FMS' PIB, which has exclusive authority to contract for such lockbox services.
Section 330.14(b)(3) of the FDIC's regulations (12 C.F.R. 330.14(b)(3)) provides, in essence, that, if the exercise of authority or control over public unit funds requires action or consent of two or more officers, employees or agents of a public unit, then those officials will be treated as one official custodian of the funds for insurance purposes. Because, as indicated in your letter, the FMS officials and the official of the federal program agency are the parties who execute the GMOU and the SMOU, we believe the combination of those parties constitute the single official custodian of funds in the LBA(s) established for each respective federal program agency. As indicated in your letter, the GMOU specifies, among other things, the handling of all funds received in the institution's post office boxes, the deposit of all funds received into the appropriate federal agency's LBA and the transfer of funds to the FRB--NY. The SMOU, among other things, provides more specific processing requirements tailored to the federal agency's needs. We believe the authority (and exercise of the authority) to execute the GMOU and the SMOU is indicative of the exclusive authority and control of the public funds in the LBAs. As such, we deem the combination of the parties executing the GMOU and the SMOU to be the official custodian of the funds in the LBAs.
This analysis differs from that offered in your letter, but our conclusions are the same for insurance purposes. You note that the two managers of the FMS should be deemed the official custodian of the funds in the LBAs because they have the exclusive authority to contract for such lockbox services. Although authority to do so is a relevant indication of control over the funds in the LBAs, we believe the more important and telling indication of control is the exercise of the authority to enter into the GMOU and the SMOU with the respective depository institutions. The GMOU and the SMOU are the controlling documents on how the funds in the LBAs are treated and transferred to the FRB--NY. Without the participation of the official of the respective federal program agency, the authority to contract for lockbox services for that agency would not be meaningful and no such account could be established. We agree with your conclusion, however, that the funds in the LBA(s) established by and for each such federal program agency would be insured up to $100,000 per (the three-party) official custodian of the agency.5
Certificates of Deposit
Your letter also notes that the Treasury is considering depositing $95,000 with each insured minority depository institution in uncollateralized six-month certificates of deposit in furtherance of the Minority Bank Deposit Program ("MBDP"). There are approximately 139 depository institutions currently involved in the MBDP, resulting in the possibility of total deposits of $13,205,000. A specific depository agreement would be executed with each eligible depository institution specifying the terms and uses of the deposited funds.
Based on the information provided in your letter, these deposits would be insured as public unit deposits of the United States. Thus, based on section 11(a) of the FDI Act and section 330.14(a) of the FDIC's regulations, the official custodian of the funds would be insured up to $100,000 for the time deposits at each institution where such funds are deposited. This insurance coverage would, as usual, depend on whether the official custodian had on deposit with the same institution other funds for which he or she was acting as official custodian in the same custodial capacity.
Response to Hypothetical
Your letter also poses the following hypothetical:
"Bank X is a minority-owned depository institution. It maintains one TGA, one TT&L remittance option account, and three LBAs for three distinct federal agency units. Treasury has also deposited $95,000 in a six-month certificate of deposit with Bank X to further the MBDP. Bank X is required to use the $95,000 to make community loans. Two of the LBAs are for receivables arising out of programs administered by two separate divisions or units of Agency Y's Office of Information Audits (OIA); specifically, the Information Collection and Management Division (ICMD) and the Audit Division (AD). The third LBA is for the collection of enrollment fees arising out of a program administered by the Agency Z unit responsible for licensing certain practitioners to appear before it.
"The TGA MOU was executed by the Chief of the Review Section of the BOB. The TT&L contract was executed by a FRB official. The LBA GMOU was executed by FMS' BRB Manager and each of the three SMOUs were executed by FMS' PIB Manager.
"Bank X receives $100,000 in cash deposits for the TGA account, the TT&L Account, and each of the three LBA accounts. Immediately after each of the accounts is credited with $100,000, the FDIC permanently closes Bank X."
Based on the discussion above on the deposit insurance that would be provided for TGAs, TT&L Accounts, LBAs and the MBPD certificates of deposit, we believe the deposit insurance afforded to the accounts held at Bank X would be as follows: (1) the CRS of BOB would be deemed the official custodian of the TGA and that individual would be insured up to $100,000 for the DDA funds in the TGA held at the Bank; (2) the FRB official would be considered the official custodian of the TT&L DDA funds and, as such, would be entitled to $100,000 insurance with respect to those funds; (3) the official custodian of the MBPD certificate of deposit would be insured up to $100,0006 ; (4) the LBAs would be insured per (three-party) official custodian of the respective federal program agency funds up to $100,000 for each such account with a different official custodian. Thus, if the LBAs for the ICMD and the AD of Agency Y's OIA each has a different official custodian, then the LBA for the ICMD and the AD would be insured separately; if, however, the official custodian of the LBAs is the same, insurance would be limited to $100,000 for all Agency Y's LBAs; and (5) the three-party official custodian of the LBA maintained for Agency Z would be insured separately up to $100,000.
Separate Federal Agency Accounts
You also note that some federal agencies have authority both to hold public money outside of the cash account of the Treasury, and to deposit such funds in agency depository accounts with eligible depository institutions. For example, investigative agencies, like Agency B, have DDAs with local depositories. The public money is used by Agency B Special Agents to pay informants and purchase contraband in the course of law enforcement operations. You note that the official custodian of such funds is generally the Special Agent In Charge ("SAIC") of the regional Agency B office. The SAIC arranges the deposit of funds into the account, and has authority both to withdraw the funds and to transfer such funds to his or her Special Agents for law enforcement purposes.
Your letter states that the Treasury is concerned that federal agency DDAs may dilute the FDIC coverage for Treasury accounts. Accordingly, you request our views on the extent and scope of FDI coverage on such agency accounts and on whether these separate agency accounts dilute FDIC insurance coverage for Treasury TGAs, LBAs and TT&L Accounts.
As noted above, the official custodian of public unit deposits is the depositor entitled to deposit insurance under section 11 of the FDI Act and Part 330 of the FDIC's regulations. As long as the funds of the separate federal agency described in your letter are deposited by the official custodian of those funds, they would be insured separately from other deposits maintained by other official custodians of other public unit deposits. Based on the description in your letter of the control by the SAIC of the funds in issue, it is likely that the SAIC would be deemed the official custodian of the deposit accounts for insurance purposes. In such case, there would be no "dilution" of coverage otherwise afforded to, for example, the Treasury-related accounts discussed above.7
We hope this letter responds fully to your request. Please note that the conclusions reached in this letter are subject to the accuracy and completeness of the facts presented to us. Different facts may yield different deposit insurance results. Feel free to call either Joe DiNuzzo (898-7349) or me (898-3734) with any other comments or questions.
1As noted in your letter, the "rules relating to official custodians" in section 330.14(b)(1) of the FDIC's regulations might be deemed inapplicable to official custodians of funds of the United States because that provision encompasses funds controlled by a "public unit" and the United States is not characterized either in section 11(a) or section 330.14(a) as a public unit. As also noted in your letter, however, the introductory clause of section 330.14(b)(1) indicates that the "rules" provided in section 330.14(b) for qualifying as an official custodian apply to section 330.14(a), which includes the provision applicable to funds of the United States. Although admittedly not the model of clarity, section 330.14(b)(1) was intended to apply to official custodians of funds of the United States as well as public unit deposits of other governmental entities covered under section 330.14(a). Go back to Text
2Your letter indicates that TGAs are maintained in DDAs. Under section 330.14(a), DDAs would be insured up to $100,000. If TGAs were held in time and savings deposits also, then such deposits would be insured separately to an aggregate of $100,000. Go back to Text
3Detailed information on TT&L Accounts is provided in Part 203 of the Treasury's regulations (31 C.F.R. Part 203). Go back to Text
4Footnote 2 on separate insurance for time and savings deposits applies here also. Go back to Text
5The point made in footnote 2 applies here also. Go back to Text
6Because the certificate of deposit is the only "time and savings" deposit maintained by the United States at the Bank, this deposit would be insured up to $100,000, irrespective of whether the official custodian of this deposit had DDAs at the same institution. As noted above, under section 330.14(a) of the FDIC's regulations $100,000 insurance is afforded for time and savings deposits and a separate $100,000 for DDAs. As described in your letter and noted above, all the other accounts in question are DDAs. Go back to Text
7Please note that we are assuming here that the funds in issue are "deposits" under the FDI Act. Specific currency placed by government agents at insured depository institutions for safekeeping purposes to be used, for example, as evidence at a trial likely would not be deposits eligible for FDIC insurance coverage. Go back to Text