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4000 - Advisory Opinions

Insurance Coverage of Pooled Funds Held by State Treasurer for Benefit of Local Government Entities


December 2, 1987

J. William Via, Jr., Counsel

This is in response to your letter of September 2, 1987 inquiring about deposit insurance for pooled funds held by the *** State Treasurer for the benefit of some 250 local government entities, which we assume consist of counties and municipalities and additional public units comprising their autonomous agencies, subdivisions or departments within the sense of 12 C.F.R. § 330.8(c).

To qualify as a public unit under 12 C.F.R. § 330.8(c), an agency, subdivision or department (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 non-autonomous agencies, divisions, boards, and the like, do not qualify.

Each county, municipality and additional qualified public unit is entitled to separate deposit insurance of (i) up to $100,000 for time or savings deposits and (ii) up to $100,000 for demand deposits placed in an FDIC-insured bank in its state (12 C.F.R. § 330.8(a)(2), (5)), and this coverage applies separately to each such bank. The available deposit insurance is the same whether each such public unit has its own official custodian or one person serves as the official custodian for each of them. 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).

The latter provision states, in part, that the deposit account records of a closed bank must disclose the existence of any relationship (such as custodian, agent, trustee or executor) pursuant to which funds in the account are deposited and on which a claim for insurance coverage is founded, and that otherwise no claim for insurance based on such a relationship will be recognized. Further, the details of the relationship and the ownership interests of the parties in the account must be ascertainable either from the records of the bank or from the records of the depositor, such records to be maintained in good faith and in the regular course of business.

Thus, if the State Treasurer takes $100,000 from each of, say, ten qualified public units, combines the funds and makes a time or savings deposit of $1,000,000 in an FDIC-insured bank which closes, then, assuming these ten public units own no other time or savings deposits in the same bank, the deposit account will be insured in the amount of $1,000,000 if, and only if, the deposit account records of the bank disclose the existence of the agency or custodial relationship between the Treasurer and the ten public units and if the details of the relationship and the ownership interests of each of the ten public units in the account are ascertainable from the records of the Treasurer (or from the records of the bank), such records having been maintained in good faith and in the regular course of business. If these requirements are not met, then ownership of the deposit account will be attributed to the Treasurer and the deposit will be aggregated with any other time or saving deposits owned by the Treasurer in the same bank, and the aggregated amount will be insured only up to $100,000.

To put a slightly different light on the matter, if the Treasurer establishes a deposit that is reflected on the bank's deposit account records as held on behalf of 250 public units, the actual amount in the account that is owned by each of the public units claimed to be represented must then be established by the production of existing bona fide records, as described above, in order for each such amount to be treated separately in determining deposit insurance coverage. Put another way, there is no presumption that each public unit owns 1/250 of the account, or any of it, for that matter; rather, the actual ownership interests must be established by proper records. If ownership is duly established, it makes no difference for insurance purposes whether the funds consist of principal or interest, or both, so long as the permissible insurance limit is not exceeded, of course.

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