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4000 - Advisory Opinions

Insurance Coverage of Municipal Accounts


December 23, 1987

Claude A. Rollin, Attorney

This is in response to your letter of December 11, 1987 (copy enclosed) by which you requested an opinion concerning the extent to which federal deposit insurance would be afforded to the funds of the Village of *** deposited at ***, an FDIC-insured institution, in the following accounts:

1.  Village General Checking Account

2.  Village of ***  --Electrical (CD)

3.  Village of ***  --Water (CD)

4.  Village of ***  --Fire Department (CD)

5.  Village of ***  --Cemetery (CD)

6.  Village of ***  --Endowment (CD)

7.  Village of ***  --V.P. II (CD)

Section 330.8(a) of the FDIC's regulations, 12 C.F.R. § 330.8(a), provides that each official custodian of the funds of a state, county, municipality or political subdivision thereof (hereinafter "public unit") is entitled to separate deposit insurance of: (1) up to $100,000 in the aggregate for all time and savings deposits placed in an insured bank in the same state; (2) up to $100,000 in the aggregate for all demand deposits placed in an insured bank in the same state; and (3) up to $100,000 in the aggregate for deposits of any type placed in an insured bank outside the state. If a public unit has autonomous subdivisions or departments in the sense of 12 C.F.R. § 330.8(c) (discussed below) then each such additional public unit is entitled to separate deposit insurance for its funds in the amounts specified in the preceding sentence. The available deposit insurance is the same whether each public unit has its own official custodian or one person serves as the official custodian for all such public units. 12 C.F.R. § 330.8(a)(6). In other words, a person may serve as the official custodian or more than one public unit and, in that case, he or she would be separately insured as to the funds of each public unit. It is important to note, however, that in all cases the custodial nature of the accounts and the ownership interests in the deposited funds must be ascertainable from proper records. 12 C.F.R. § 330.1(b)(1) and (2) (per 12 U.S.C. § 1822(c)).

In your letter, you do not indicate whether the "Village General Checking Account" is a regular checking account, a NOW account or a Money Market Deposit Account ("MMDA"). If it is a regular checking account, then it would be classified as a demand deposit and, as such, would be insured separately, up to $100,000, from all of the certificates of deposit held by the Village in the same bank. On the other hand, if it is a NOW or MMDA account (which are classified as time and savings deposits) then it would not be insured separately from the Village's certificates of deposit.

With respect to the certificates of deposit, the issue raised by your letter is whether those accounts would be insured separately, up to $100,000 each, or whether they would be aggregated and insured up to $100,000 in toto. The answer to that question requires an analysis of whether the funds in those accounts are owned by the Village itself or by a political subdivision/principal department of the Village. In order to qualify as a political subdivision or principal department entitled to public unit status, an entity (1) must have been expressly created or authorized by state statute; (2) must have some functions of government delegated to it by state statute; and (3) must have funds allocated to it by statute or ordinance for its exclusive use and control. 12 C.F.R. § 330.8(c). The term "political subdivision'' includes drainage, irrigation, navigation, improvement, levee, sanitary, school or power districts, and bridge or port authorities and other special districts created by state statute or compacts between the states. 12 C.F.R. § 330.8(c).

Based upon the information that you provided in your letter, it seems that all of the certificates of deposit are owned by the Village of ***, and not by autonomous political subdivisions or principal departments thereof. The certificates are all in the name of the Village of ***, and they are distinguished only by the purpose for which the funds are used, i.e. water, electrical. None of the certificates appear to be owned by autonomous subdivisions or principal departments of the Village which would qualify for public unit status. Therefore, all of the certificates of deposit would be added together and the total would be insured up to $100,000. If, however, any of the certificates are in fact owned by an entity which satisfies the above-noted test for public unit status, then they would be insured separately from the certificates owned by the Village itself.

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