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4000 - Advisory Opinions

Insurance Questions Considered in Proposed Multiple Insured Certificate of Deposit Program


August 29, 1986

Roger A. Hood, Assistant General Counsel

Your letter of July 29, 1986 describes a program pursuant to which you propose to establish a Multiple Insured Certificate of Deposit program. Under your program, you will credit accounts of affiliate and correspondent banks on your own books in the amount of CD's purchased at your offices, but which actually are liabilities of another bank. You will further issue the CD, safekeep it, and redeem it.

There are several considerations here. First, you have clearly created a deposit account at ***. That deposit account is of course subject to FDIC insurance assessment. Second, there is a serious question of whether your bank may be acting as an unauthorized branch of the bank for whom the CD is issued. Third, your advertising and your contracts, about which we know nothing, must be absolutely clear concerning where the deposit will be and concerning the fact that the customer's deposit is not with ***. Finally, *** crediting of the "receiving" banks' demand deposit accounts at *** in the amount of CD's purchased warrants real concern. Any agreement or understanding, formal or informal, to the effect that the funds would remain on deposit in the correspondent account and be withdrawn only upon presentation of the CD for payment at maturity (perhaps by ***, itself, as safe-keeping custodian of the CD) may be regarded as creating a sham transaction whereby funds which are made to appear as having been deposited in the affiliate or correspondent banks are, in fact, received by *** and used solely by it in its banking business. Such a determination and the effect thereof would be made only after a careful analysis of the facts and applicable law, and we take no position on this question at this time.

Since you are a national bank, in matters other than those which are insurance-related, the Comptroller of the Currency is your primary supervisor. For that reason, we are forwarding your letter to that office for their review. Insofar as deposit insurance is concerned, assuming the contracts and the advertising are absolutely clear and the affiliate or correspondent bank has unrestricted use of the funds which the CD represents, there appears to be no reason that deposit insurance for each of these customers would not be determined based on coverage due at each of the two banks involved. In other words, if these assumptions hold true, the customer's deposit would be at the affiliate or correspondent bank of *** and deposit insurance would be determined based on the funds held by the customer in that bank.

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