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4000 - Advisory Opinions

Insurance Coverage of Public Unit Accounts Held by Custodian


August 23, 1988

Walter P. Doyle, Counsel

By letter of August 9, Mr. *** Chief, U.S. Army Banking and Investment Fund ("ABIF"), requested us to provide you with "the current status of insurance coverage for instruments held by the ABIF as NAFI custodian as of September 30, 1987 and through the date of your response."

This will confirm that the principles set out in our June 19, 1985 letter to Colonel *** of the U.S. Army Community and Family Support Center regarding FDIC insurance coverage of nonappropriated funds placed in a pooled deposit in an insured bank pursuant to the Army's NAF Investment Program remain in full force and effect. This Program is a vehicle administered by the Army to consolidate the investment of funds held by various nonappropriated fund instrumentalities (NAFI's) and is similar to comparable programs of other military departments. Insurance under these programs is based on the proportionate interests of the various participating NAFI's.

The critical factor in these circumstances is that the treasurer of each individual NAFI must be an official custodian of the funds of that individual unit. Also, the bank's records must indicate the custodial nature of the account, and the records of the bank or of the custodial depositor must show the proportionate interest attributable to each NAFI and must be maintained in good faith in the regular course of business. Each official custodian is then eligible for up to $100,000 of coverage for time and savings deposits in any one insured bank and up to $100,000 separate coverage for demand deposits. The maximum potential coverage for such pooled funds invested in time and savings deposits in any one insured bank is equal to the total number of official NAFI custodians having interests therein multiplied by $100,000. The maximum potential coverage for funds placed in demand deposits is also equal to the total number of such custodians times $100,000.

It should be particularly noted, however, that if an "official custodian" of NAFI funds should place a deposit in a given insured bank which is also a depository bank for the Army's NAF Investment Program, then the portion of the funds in the latter account that is attributable to that particular NAFI custodian would be combined with the amount deposited directly by such custodian in determining deposit insurance coverage. However, because of the separate deposit insurance coverage for demand deposits (12 C.F.R. § 330.8(a)(2), (5)), a demand deposit placed in an insured bank by such an "official custodian'' would not be aggregated for insurance purposes with funds placed by the custodian in a time or savings deposit in the same bank under the NAF Investment Program.

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