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4000 - Advisory Opinions

FDIC Insurance of Public Unit Deposits


April 11, 1985

Roger A. Hood, Assistant General Counsel

Our records show that the FDIC Legal Division has previously responded to an inquiry from you concerning deposit insurance coverage for public unit accounts. By an opinion letter of March 19, 1985, the Legal Division rescinded a 1979 opinion that had concluded that multiple custodians of public funds appointed pursuant to a Colorado statute were "official custodians" for FDIC insurance purposes and entitled to separate deposit insurance. We inform you directly of the new interpretation because of your earlier inquiry and because the new interpretation may conflict with the advice previously furnished to you and have significance for your handling of deposits of public funds.

More particularly, the legal Division's opinion Letter of March 19, 1985 concluded that multiple custodians of public funds appointed pursuant to section 24-36-109 of the Colorado Revised Statutes are not "official custodians" for FDIC insurance purposes (12 C.F.R. § 330.8) and are not entitled to separate deposit insurance. The 1985 opinion found that the multiple custodians exercised no control over public funds and were not, therefore, custodians in fact, and appeared to have been appointed solely in an effort to increase deposit insurance coverage.

The rationale of the 1985 opinion implies that, to qualify as an "official custodian" under 12 C.F.R. § 330.8, a designee must have plenary authority (which includes control) over funds allocated to the public unit which the custodian is appointed to serve. Control of public funds includes possession, as well as the authority to establish accounts for such funds in insured banks and to make deposits, withdrawals and disbursements. The deposit insurance available to a public unit cannot be increased merely by fragmentizing such authority over that unit's funds among several putative official custodians. Similarly, if the exercise of authority or control over the funds of a public unit requires action by or the consent of two or more putative official custodians, then they will be treated as one "official custodian" with respect to such funds for the purposes of 12 C.F.R. § 330.8.

In order to accommodate those who may have deposited public funds in FDIC-insured banks in reliance on the 1979 opinion, the FDIC Board of Directors ordered that the new ruling be phased-in. Specifically, the Board ordered that any deposit in an FDIC-insured bank that was made by a public unit through multiple custodians appointed under the Colorado statute in question, or appointed under any similar state or local law, and which deposit was made, renewed, or extended on or before April 5, 1985 (March 19, 1985 for deposits made by the Colorado State Treasurer), will be insured under the 1979 interpretation, and those made, renewed, or extended after that date will be insured under the 1985 interpretation. A copy of the April 4, 1985 press release explaining the Board's action is enclosed.

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