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4000 - Advisory Opinions

Deposit Insurance Protection Afforded A "Pooled Collateral Certificate Of Deposit" Program


April 21, 1989

Walter P. Doyle, Counsel

Thank you for your March 30 letter inquiring as to the legality and deposit insurance protection of a "Pooled Collateral Certificate of Deposit" program apparently being operated by ***.

With certain exceptions, national banks are not permitted to pledge bank assets to secure private deposits (see enclosed ruling of Comptroller of the Currency at 12 CFR 7.7410). However, banks may generally sell assets subject to repurchase agreement. Also, they may operate as deposit broker by acting as agent for customers in purchasing certificates of deposit in other insured banks. Such deposits could be registered either in the purchasing bank's name as nominee, agent or custodian or directly in the customer's name. In either case, each customer would be covered by FDIC to $100,000 for all such customer's deposits in any one insured bank (whether owned directly or through the purchasing bank acting as agent), provided that the customer's interests in any deposits registered in a fiduciary capacity are adequately reflected in the records of the purchasing bank acting as agent.

The customer could still be at risk, however, if the purchasing bank acting as agent were to fail before placing the customer's funds in the depository bank or after receiving repayment of the funds when the deposit matures (but before remitting to the customer). The customer also incurs the risk that the purchasing (agent) bank may not do what it agrees to do as to placing the funds with another insured depository. In any such event, the customer's coverage for his cash funds held by the purchasing bank as agent at the time it fails would be limited to $100,000 in total. Beyond that amount, the customer would only have an uninsured claim against the receivership estate of the purchasing bank.

As to the legality of any activity proposed to be engaged in by a State-chartered bank in *** , I would have to refer you to appropriate *** banking authorities. On perfecting a customer's security interest, to the extent that may be applicable to a proposed program of this nature, I would have to refer you to your local counsel.

Please let me know if I can provide any further clarification on the deposit insurance aspects of this matter.

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