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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions

Relationship Between FDIC's Regulations (Part 332) and the Florida Security for Public Deposits Act


March 4, 1982

Thomas A. Brooks, General Counsel

As you know, we have been considering the applicability of section 332.1(d) of the FDIC rules and regulations (12 C.F.R. § 332.1(d)) to the Florida Security for Public Deposits Act. On its face, the regulation would prohibit a state nonmember bank from guaranteeing the obligations of other banks in the manner the Florida statute requires for a bank to become a public depository. The regulation was promulgated because guaranteeing the obligations of another is, as a general rule, an unsafe or unsound banking activity.

The FDIC has allowed two limited exceptions to this regulation. One of the exceptions covers the case in which a bank has a "substantial interest" in the performance of the transaction covered by the guarantee. The "substantial interest" test balances the unsafe and unsound aspects of the guarantee with the benefits derived from the transaction. Heretofore this has been applied only to transactions on the asset side of the ledger.

We have determined that it is appropriate to include the situation created by the requirements of the Florida Security for Public Deposits Act within the "substantial interest" exception to our regulation. A bank must enter into the guarantee agreement in order to become a public depository. Since accepting deposits is an integral part of the banking business, there is a substantial interest in the transaction. A state nonmember bank would be subject to a great competitive disadvantage if it is not able to accept public deposits in the same manner as thrifts, state member and national banks.

Although we have felt compelled to arrive at the foregoing conclusion with respect to the relationship between our regulation and the requirements of the Florida Security for Public Deposits Act, we note that we are concerned about the Florida statute from the standpoint of public policy. This agency has long been an opponent of attempts to increase deposit insurance coverage to 100 percent. The effect of the Florida program is to provide 100 percent deposit insurance for public funds, which we believe will tend to further undermine the discipline of the marketplace.

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