FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Technical Questions About Deposit Insurance for Public Unit Deposits
October 27, 1985
John C. Murphy, General Counsel
Your letter of September 6, 1985 to Chairman Isaac, raising several technical questions about deposit insurance, has been referred to the Legal Division.
The official custodian of the funds of a state is entitled to separate deposit insurance of (i) up to $100,000 for time or savings deposits and (ii) of up to $100,000 for demand deposits placed in an insured bank in that State (per 12 C.F.R. § 330.8(a)(2),(5)), and this coverage applies separately to each such bank. If the state has autonomous agencies, subdivisions or departments within the sense of 12 C.F.R. § 330.8(c) (discussed below), then each such additional public unit is entitled to separate deposit insurance for its funds in the amounts specified in the preceding sentence. The available deposit insurance is the same whether each such public unit has its own official custodian or the State Treasurer serves as the official custodian for each, as well as for the State. See 12 C.F.R. § 330.8(a)(6).1 Of course, in all cases the custodial nature of an account and the ownership interests in the deposit funds must be ascertainable from proper records, pursuant to 12 C.F.R. § 330.1(b)(1),(2) (per 12 U.S.C. § 1822(c)).
To qualify as a public unit under 12 C.F.R. § 330.8(c), an agency (i) must have been created pursuant to express State statutory authority, (ii) must have some functions of government delegated to it by state statute, and (iii) must have funds allocated to it by statute or ordinance for its exclusive use and control. Subordinate or nonautonomous agencies, divisions, boards, and the like, do not qualify.
Thus, if an agency is a bona fide public unit, deposits of its funds (i.e., those allocated for its exclusive use and control) will not be combined for insurance purposes with deposits of state funds by the State Treasurer in the same insured bank. If, however, an agency, even though itself a bona fide public unit, collects State funds on behalf of the State Treasurer for deposit, the ownership of such deposit is properly attributable to the State Treasurer and thus the deposit will be combined for insurance purposes with other deposits of the same kind (i.e., demand deposits or time and savings deposits, as the case may be) owned by the State in the same insured bank.
The funds under a qualified deferred compensation plan (per 26 U.S.C. § 457) are required by federal statute to be the exclusive property of the employer. This fact precludes individual, or "pass-through", insurance for the employee-participants in the deposits made by such plans since an ownership interest by them is a prerequisite to such insurance under the Federal Deposit Insurance Act and the implementing regulation. The fact of employer ownership also requires that deposits of the funds of such plans be combined for deposit insurance purposes with other deposits the employer has in the same insured bank. The use by the employer of more than one representative, or "custodian", for placing the deposits does not change this result. Thus, since the funds in the State of *** Deferred Compensation Plan (a qualified plan) belong to the State of ***, deposits of such funds are combined for insurance purposes with other deposits of like kind (i.e., demand deposits or time and savings deposits, as the case may be) owned by the State in the same bank.
We trust that we have responded adequately to the concerns expressed in your letter. If questions remain, however, please specify them for us and we will undertake to answer them for you.
1 The deposit insurance available to a public unit cannot be increased by fragmentizing authority or control 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 "custodians", they will be treated as one official custodian for the purpose of deposit insurance. Go back to Text