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4000 - Advisory Opinions

Deposit Insurance Coverage of Multi-Bank Depository Program


December 11, 1987

Jules Bernard, Senior Attorney

In your letter of October 29, 1987, you ask how the FDIC insures deposits made pursuant to a multi-bank depository program involving several banks that are owned by one holding company.

Multi-bank depository programs present special problems in the computation of deposit-insurance coverage. To be sure, FDIC insurance is provided separately for each depository bank; and it makes no difference whether the banks are affiliated with each other. But the insurance coverage available at each bank depends on the circumstances in which the deposit has been made at that bank.

You describe the program as follows:

John and Jane Doe send $600,000 to a local bank . . . . [T]he local bank deposits $100,000 in Mr. John Doe's name, $100,000 in Mrs. Jane Doe's name, and $100,000 in Mr. or Mrs. John Doe's name. Then, the local bank sends $300,000 to an affiliate bank which styles three accounts the same as the local bank which received the original $600,000 deposit. . . .

This is the simplest kind of program to analyze, because all the deposits are made in the names of the depositors themselves. Each deposit belongs directly to the depositor; accordingly, in each case the FDIC would pay the insurance directly to the depositor.

Federal deposit insurance is based on the concept of the "right and capacity" in which the depositor holds the account. There are three basic "rights and capacities" in which a depositor may directly own a deposit: as an individual, as a joint tenant, and as the owner of a "payable-on-death" account (sometimes called a "living trust" or "Totten trust" account).

All deposits that a depositor holds in one "right and capacity" are separately insured from deposits that the depositor holds in any other "right and capacity." In the case you present, the deposits that Mr. John Doe and Mrs. Jane Doe each own in their right and capacity as individuals are both insured separately from the deposit that Mr. and Mrs. Doe own jointly (and of course Mr. John Doe's deposit is insured separately from Mrs. Jane Doe's deposit).

All the deposits that a depositor holds in any given right and capacity in a single bank are aggregated for the purpose of computing the insurance. For example, if Mr. and Mrs. John Doe already have a joint deposit of $50,000 in the affiliate bank, that deposit would be added to the $100,000 joint deposit that they placed through the local bank, and the aggregate amount ($150,000) would only be insured up to a maximum of $100,000.

I should point out that it makes no difference whether an account is held in the form of a time deposit, a savings deposit, or a demand deposit. From the FDIC's point of view, once the bank has failed, all deposits are simply depository debts that the bank owes to the depositor. The FDIC treats all deposits the same for the purpose of computing deposit insurance.

Some multi-bank depository programs are not so easy to analyze, however. For example, sometimes the local bank makes the deposit in its own name "as agent" for the customer; and sometimes the intermediary is not a bank at all, but rather is a nonbanking company that is part of the bank holding company system.

If the certificate is issued in the name of the local bank or the non-banking company, the customer is the insured party only if (1) the depository bank's records disclose that the nominal depositor holds the funds "as agent" for the customer and (2) the details of the agency relationship, and the customer's interest in the account, are ascertainable from the depository bank's records or from the records of the nominal depositor maintained in good faith and in the regular course of business.

In computing insurance on deposits placed through agents, it makes a difference whether the agent is a bank in its own right--and by "bank" I mean an FDIC- insured bank--or otherwise:

--If the agent is a bank, the deposit is aggregated with other funds that the customer has placed at the depository bank through the same agent (i.e., through the same bank). The aggregate is insured to $100,000. This insurance is separate from any the insurance that is provided on deposits that the customer has placed with the depository bank directly, or through any other agent (including any other bank).

--If the agent is not a bank, the deposit is treated as having been made in the customer's own name. The deposit is aggregated with any deposits the customer has placed directly at the same depository bank in his own name or through another non-bank agent. (If another agent is a bank, the bank-as-agent rule comes into play.) The aggregate is insured to $100,000.

If the certificate is issued to the nominal depositor without a qualifying phrase like "as agent," and if the depository bank's records do not disclose the existence of the agency relationship between the nominal depositor and the customer, or if the details of the relationship and/or the customer's interest in the account cannot be determined adequately, the nominal depositor--not the customer--is the insured party. The customer is not entitled to any insurance.

The contractual relationships among the customer, the customer's agent (the lead bank or the non-banking company), and the ultimate depository bank may all differ from one program to the next. Moreover, even within any particular program, some participants may pay more or less attention to the important details of record-keeping than others. Accordingly, I am unable to provide you blanket assurance that every such program will afford full deposit insurance coverage.

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