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4000 - Advisory Opinions

Insurance Coverage of "Subordinated Deposits" in the Amount of $200,000 Made Prior to Bank Failure


August 15, 1988

Roger A. Hood, Assistant General Counsel

Your letter of July 20, 1988, requested a determination by the FDIC as to the insured status of a so-called "subordinated deposit" in the amount of $200,000 made by *** prior to the failure of that bank.

It seems clear from the deposit agreement and surrounding circumstances that this "deposit" was actually in the nature of capital. As you know, the statute which defines "deposit" for purposes of insurance coverage, 12 U.S.C. § 1813(1), provides that a deposit is, inter alia, "money received or held by a bank . . . in the usual course of business." We concur in your conclusion that *** subordinated deposit was outside the usual course of business. As you note, there is no case law directly on point. However, in F.D.I.C. v. Continental Illinois National Bank and Trust Co., 245 F.2d 567 (7th Cir. 1957), it was held that where only a small percentage of banks carry a certain type of deposit account, that account cannot be considered part of the usual business of banking, id. at 571. See also, F.D.I.C. v. European American Bank and Trust Co., 576 F. Supp. 950, 956 (S.D.N.Y. 1983).

If we can be of any further assistance to you, please do not hesitate to contact me or Nancy Spence of my staff.

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