FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Deposit Insurance for Each Public Unit Pooling Funds in Official Custodian Local Government Investment Trust
June 4, 1985
Roger A. Hood, Assistant General Counsel
This is in response to your letter of May 2, 1985 inquiring whether the *** Local Government Investment Trust (***) is an "official custodian" for deposit insurance purposes (12 C.F.R. § 330.8) for each of the public units for which it pools public funds and makes deposits in FDIC insured banks. In our February 2, 1981 response to a similar inquiry from your firm, we stated in effect that if the governing body of each participating public unit designated the Trustees of *** as the "official custodian" of the public funds invested by that public unit in *** and if these designations were valid under state law, then *** would be recognized as an "official custodian" for each such public unit for deposit insurance purposes. The Legal Division reconsidered the "official custodian" question in the context of multiple (or additional) custodians for public unit accounts appointed by Colorado's State Treasurer pursuant to a state statute, and it was our resulting March 19, 1985 opinion letter, concluding that such appointees should not be recognized as "official custodians", that prompted your present inquiry. That opinion found that the multiple custodians exercised no control over public funds and that control in fact remained in the state treasurer, the "official custodian."
While the facts of the Colorado multiple custodians case enabled us to have the March 1985 opinion turn on the narrow issue of control, we have, as anticipated, subsequently had occasion to opine in broader scope on the requirements for recognition as an "official custodian." While provisions of state law are germane to this issue, it is clear that the ultimate question is one of Federal law.
We have concluded that, in order to qualify as an "official custodian" under 12 C.F.R. § 330.8, a designee, whether an officer, employee or agent, must have plenary authority (which includes control) of funds allocated to the public unit which the custodian is appointed to serve. Control over 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.
We are of the opinion that the foregoing meaning of "official custodian" is compelled by due regard for the principle that the language of a statute must not be construed so as to render it ineffective, or a nullity, in terms of its purpose. The Federal Deposit Insurance Act speaks of an "officer, employee, or agent" having "official custody" of public funds (12 U.S.C. §§ 1813(m), 1821(a)) without defining these terms, leaving that task to the FDIC (12 U.S.C. § 1813(m)(1)). Similarly, our regulation (12 C.F.R. § 330.8) uses the term "official custodian'' without defining it. We are confident that the construction we have given the term is proper and that it would be approved by our Board of Directors. To hold otherwise, that is to hold that a public unit can increase the deposit insurance available to it by the mere conferring of a title or by fragmentizing the authority over its funds among several putative official custodians, whether they be officers, employees or agents, would result in the virtual nullification of the statutory provisions limiting deposit insurance for public funds and is, therefore, impermissible.
We conclude, therefore, that *** is not, for purposes of the FDI Act and our regulation, an "official custodian." This does not, of course, affect the use by "official custodians" of *** public units of *** as custodian and agent (in the generic sense) for the highly circumscribed purpose of commingling public funds and placing them as deposits in insured banks. Assuming compliance with our records keeping requirements (12 C.F.R. § 330.1(b)), the funds owned by the participating public units in a deposit account so established would be separately insured, pro rata. That is to say, the deposit insurance coverage would pass through *** to the owners of the funds, the public units. Of course, if the "official custodian" of a public unit should place a deposit of public funds in a given insured bank which is also a depository bank for *** as custodian and agent, then the portion of the funds in the latter account that is owned by the public unit would be combined with the public unit's direct deposit in determining deposit insurance coverage. As you know, however, an "official custodian" of a *** public unit is entitled to separate deposit insurance of up to $100,000 in toto for time or savings deposits and of up to $100,000 in toto for demand deposits placed in the same insured bank in ***. See 12 C.F.R. § 330.8(a)(2), (5). Thus, for example, a demand deposit placed in an insured bank by an "official custodian" of a public unit would not be aggregated for insurance purposes with funds owned by that public unit and placed in a time or savings deposit in the same bank by ***, as custodian and agent.