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4000 - Advisory Opinions

Insurance Coverage of Deposits from Non-U.S. Persons Through Foreign Branch or Office of U.S. Banking Institution Acting as Custodian


October 10, 1986

Roger A. Hood, Assistant General Counsel

In your September 19, letter to John C. Murphy, Jr. you described a deposit program whereby the sixty-three subsidiary banks of *** will receive deposits from non-U.S. persons through a foreign branch or office of a U.S. banking institution acting as custodian. The custodian will distribute the funds equally among the sixty-three participating banks and will hold the certificates of deposit which will be issued to evidence the receipt of its deposits. Under the plan, the funds of each depositor will be distributed among the participating banks so that no depositor will have a deposit in excess of $100,000 in any participating bank. The custodian will maintain records disclosing the details of its agency relationship with the various depositors and the deposit account records of each participating bank will disclose the existence of the custodian's relationship to the depositors.

Based on the facts outlined in your letter, you ask that we confirm that each of the participating banks will be treated as a separate insured institution for FDIC insurance purposes and that each depositor's interests will constitute insured deposits in the participating banks up to the aggregate of $100,000 per depositor per bank.

In your letter, you cited section 330.2(b) of FDIC's regulations (12 C.F.R. § 330.2(b)) relating to funds held by agents and nominees deposited in insured banks. Such funds are recognized as the funds of the principal and are added to any other deposits of the principal (whether deposited directly by the principal or by other agents of nominees on behalf of the principal) and insured up to $100,000 in the aggregate. The $100,000 limit is applicable with respect to each insured bank. Accordingly, deposits by or on behalf of a depositor held in the same right and capacity in the same insured bank will be insured to the $100,000 maximum without regard to deposits of that same depositor in other insured banks. Separately chartered banks are separately insured without regard to their affiliation through ownership by a common bank holding company, or individual stockholder.

You did not state whether the U.S. banks which would act as custodians under the program would be FDIC-insured banks, although I assume that would be the case. With respect to trust funds held by an insured bank in a fiduciary capacity, section 7(i) of the Federal Deposit Insurance Act (12 U.S.C. 1817(i)) provides that such funds, whether held in the trust department, deposited in any other department of the bank or deposited in another insured bank shall be insured in an amount not to exceed $100,000 per trust estate. Such insurance is separate from, and in addition to, other deposits of the owners of such trust funds. The term "trust funds" is defined in section 3(p) of the FDI Act (12 U.S.C. 1813(p)) to include funds held by an insured bank in a fiduciary capacity including funds held as trustee, executor, administrator, guardian or agent. The FDIC has historically interpreted "trust estate" to include separate beneficial interests. The result is that funds held by an insured bank as agent, when deposited by the agent bank into another insured bank, are separately insured to the principal separate and apart from any deposits which the principal may have made directly in the same bank, and the aggregation of deposits made directly by a principal with deposits made indirectly by a principal through an agent, required by section 330.2(b) FDIC Regulations (12 CFR § 330.2(b)), is not applicable when the agent is an FDIC-insured bank. In such cases, Section 7(i) controls.

In conclusion, I confirm your determination that each of the *** would be treated as a separate insured institution for FDIC insurance purpose and that each depositor's interests in the master certificates of deposit described in your letter would constitute an insured deposit in the *** up to an aggregate of $100,000 per depositor per bank so long as each certificate of deposit or other deposit record discloses the existence of the Agent's relationship and the Agent's records accurately disclose the details of the agency relationship as required by section 330.1(b)(1) and (2).

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