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4000 - Advisory Opinions


Separate Deposit Insurance Coverage for Multiple Accounts When the Deposit Liabilities of the Bank(s) Are Assumed by Another Bank

FDIC-89-11

March 21, 1989

Roger A. Hood, Assistant General Counsel

As you know, on March 28, 1989, all of the deposit liabilities of nineteen insolvent MBanks, which were subsidiaries of MCorp, Dallas, Texas, were assumed by The Deposit Insurance Bridge Bank, National Association, Dallas, Texas (the "Bridge Bank"), a newly chartered national bank insured by the FDIC. On the same day, the insured deposit liabilities of the insolvent MBank Abilene, N.A. were transferred to the Bridge Bank. It is my understanding that numerous persons and entities maintained deposits at more than one of the insolvent MBanks. In light of the aforementioned transactions, I have been asked to advise you of the extent to which separate deposit insurance will continue to be afforded to deposits previously maintained by the same customer(s) at more than one of the insolvent MBanks.

Section 8(q) of the Federal Deposit Insurance Act ("FDI Act") provides that whenever the deposit liabilities of one or more insured banks are assumed by another insured bank, the separate insurance of all deposits so assumed continues for a period of six months from the date of the assumption or, in the case of any time deposit (such as a certificate of deposit), the earliest maturity date after the expiration of the six month period. 12 U.S.C. § 1818(q). Under this rule, demand and savings deposits (including "NOW'' accounts) which a customer previously maintained at one of the insolvent MBanks will continue to be insured separately from deposits held by the same customer at any other insolvent MBank, for a period of six months from the date that the Bridge Bank assumed the deposit liabilities of all of the insolvent MBanks (March 28, 1989). Time deposits formerly maintained by a customer at more than one of the insolvent MBanks remain separately insured until their earliest maturity dates after the six-month period. Finally, all of the deposits assumed from the insolvent MBanks will be separately insured from any new deposits established by the same customer(s) with the Bridge Bank.

If a time deposit matures and is renewed (whether automatically or at the request of the depositor) one or more times during the six-month period, with no significant change in the original terms and conditions of the deposit (other than adding the accrued interest to the principal and adjusting the interest rate to reflect current economic conditions), the deposit will be separately insured until the first maturity date after the expiration of the six-month period. Increasing the principal amount of the deposit by more than the accrued interest, renewing the deposit for longer than its original term, or making any other significant change in the original terms and conditions of the deposit, would cause the separate insurance coverage to terminate at the end of the six-month period. For example, if a customer renews a certificate of deposit, which originally had a 90-day term, for 120 days, the separate insurance for that deposit terminates at the end of the six-month period.

The above-noted rules apply to the deposits from all of the MBanks that were assumed by the Bridge Bank but they do not apply to the deposits transferred from MBank Abilene to the Bridge Bank which were, in reality, just insurance payments from the FDIC. Section 8(q) of the FDI Act (12 U.S.C. § 1818(q)) does not apply in situations where the FDIC is making insurance payments by transferring insured deposits to another insured bank. Therefore, for insurance purposes, deposits transferred from MBank Abilene will be added to any new deposits of the same kind (for example, single ownership or joint accounts) established by the same customer(s) at the Bridge Bank, but they will still be insured separately from the deposits assumed by the Bridge Bank from the nineteen insolvent MBanks for a period of six months or, in the case of a time deposit, the earliest maturity date after the six-month period.

The following example illustrates the foregoing rules:

John Doe had deposit accounts at three different MBanks prior to March 28, 1989. The three accounts were as follows: (1) a checking account with a balance of $75,000 at MBank Houston; (2) a $150,000 certificate of deposit at MBank Dallas; and (3) a $50,000 certificate of deposit at MBank Abilene. Now that the Bridge Bank has assumed all of the deposit liabilities of MBank Houston and MBank Dallas, and the FDIC has transferred the insured deposit liabilities of MBank Abilene to the Bridge Bank, John Doe has the following deposit insurance for his accounts at the Bridge Bank: (1) the checking account with a balance of $75,000 would be insured separately from the other two accounts and also from any new accounts that John establishes at the Bridge Bank, for six months (until September 28, 1989); (2) the $150,000 certificate of deposit would be insured for only $100,000 with such insurance being separate from the insurance provided for the other two accounts (and also from any new accounts that John establishes at the Bridge Bank) until the first maturity date after September 28, 1989; and (3) a $50,000 certificates of deposit which would not be separately insured from any new accounts established by John at the Bridge Bank but that will be separately insured from the checking account until September 28, 1989 and from the other certificate of deposit until the first maturity date of that other certificate after September 28, 1989. If the $150,000 certificate of deposit had an original maturity of nine months and matured on August 1, 1989, and was renewed for an additional nine months in the same amount, or with interest added, it would continue to be separately insured from the other two deposit accounts until May 1, 1990 (the first maturity date after the expiration of the six-month period).

I trust that this will assist you in answering questions on this subject. Copies of this letter may be provided to customers, depositors and others as you deem appropriate.


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