FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Combination of Deposit Account Held by Paraguayan Corporation for Insurance Purposes
November 18, 1987
Roger A. Hood, Assistant General Counsel
This is to advise, in response to your query of October 1, 1987, that, in my opinion, the deposit account held by the Paraguayan corporation, ***, should be combined for insurance purposes with the deposit account held in the same bank by its branch office.
The familiar rule is that a corporation is entitled to deposit insurance of $100,000 for its funds (separate and apart from the insurance accorded the funds of its shareholders), provided it is engaged in an "independent activity", that is an activity other than one directed solely at increasing insurance coverage. Otherwise, the funds are treated for insurance purposes as owned, pro rata, by the shareholders. 12 C.F.R. §§ 330.5; 330.7. If the "independent activity'' test is met, then a corporation and its wholly-owned subsidiary corporation (being two bona fide separate legal entities) qualify for separate deposit insurance. There is no provision, however, that confers separate and additional deposit insurance, on the basis of an "independent activity" test or otherwise, for a corporation's funds that are deposited by a branch office, division, or other of its components, and this is so because ownership of the funds necessarily remains in the same legal entity (i.e., the corporation).
The case you put brings Paraguayan law into play which, as I understand your memorandum, confers on a branch office (at least of a foreign exchange company) a status (apparently in furtherance of regulatory objectives) that is unusual by the standards of American law. Thus, for example, the branch office of the kind here involved can be independently sanctioned by its Paraguayan regulator, files its own tax returns, can sue and be sued in its own name, makes its own labor contracts and purportedly "has its own capital which, although usually contributed by the main office, may also be contributed by third parties."1 However, such a branch office, which you say is "definitely not a separate corporation [de jure]," has no separate directorate, and the "main office" is liable for its debts (albeit, secondarily). It also follows, I take it, that the assets attributed to such a branch office are in fact the assets of no other legal entity than the "main office" corporation (and this is so even if, as may be the case, the assets attributed to the branch are subject first to the claims of creditors who deal directly with the branch). Accordingly, there is no basis for concluding that a deposit account held by the branch office is not an asset of the "main office" corporation.
1 Presumably, such a third-party contributor would receive shares in the "main office" corporation. Go back to Text