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4000 - Advisory Opinions

Insurance Coverage of Negotiable Certificates of Deposits


December 23, 1988

Claude A. Rollin, Attorney

This is in response to your letter of December 2, 1988 inquiring about the deposit insurance that would be afforded by the FDIC to certain certificates of deposit issued by ***.

In your letter and our subsequent telephone conversation, you described a program through which *** obtains negotiable certificates of deposit from third parties (foreign investors) and sells portions thereof to some of its customers. The negotiable certificates of deposit ("CDs") are issued directly to the foreign investors by ***. *** obtains the CDs by negotiation from the foreign investors and then provides some of its customers with an ownership interest in the CDs. With respect to the CDs, you ask the following questions:

1.  *** hold certificates in nominee name representing ownership for customers unrelated to original purchaser and still have FDIC protection up to $100,000 per customer?

2.  Does the certificate have to be exchanged into $100,000 denominations?

3.  Does the certificate have to be re-registered?

The answer to your first question is yes so long as the CDs are properly negotiated to ***. For negotiable certificates of deposit that have been properly negotiated prior to a bank failure, an FDIC regulation dictates that ". . .the owner of such deposit obligation will be recognized for all purposes of claim for insured deposits to the same extent as if his name and interest were disclosed on the records of the bank . . . ." 12 C.F.R. 330.11. Under this provision, once a CD has been properly negotiated to *** there is no need to alter the issuing bank's records to disclose the fact that the CD has been negotiated to *** or that *** may be holding the CD in some representative or fiduciary capacity on behalf of its customers (the beneficial owners). The interests of *** customers in the CD will be recognized, for deposit insurance purposes, so long as *** records disclose the names and interests of such customers. The FDIC will provide pass-through insurance coverage for the interests of *** customers notwithstanding the fact that *** name, and the names and interests of its customers, are not ascertainable from the records of the issuing bank.

In answer to your second question, the CDs need not be exchanged for CDs in smaller denominations (of less than $100,000 each) to obtain the insurance coverage described in the preceding paragraph.

In answer to your third question, the CDs need not be re-registered in the names of *** customers because, as explained above, the names of *** customers need not be reflected on the records of the depository bank so long as the CDs are properly negotiated to ***.

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