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4000 - Advisory Opinions

Custodial Accounts Held by X Corporation on Behalf of Banks and Other Customers


June 19, 1989

J. William Via, Jr., Counsel

This is in response to your letter of June 2 inquiring, in effect, about the records requirements for "pass-through," or pro-rata, deposit insurance for accounts held in a representative capacity.

In order to qualify for "pass-through" deposit insurance, the deposit account records of the bank must disclose the existence of any relationship, such as trustee, agent or custodian, pursuant to which the funds are deposited and on which a claim for deposit insurance is founded. 12 C.F.R. § 330.1(b)(1). In addition, the records of either the depositor or of the bank, maintained in good faith and in the regular course of business, must reveal the details of the relationship and the (ascertainable and vested) ownership interests of other parties in the account. 12 C.F.R. § 330.1(b)(2). If the depositor holds the account in a respresentative capacity, for orders who are also acting in a representative capacity, then each such tier must be revealed on the bank's deposit account records ( e.g., as "agent for trustees"). See 12 C.F.R. § 330.1(b)(1).

The records requirements of 12 C.F.R. § 330.1(b)(1) are affected in some circumstances by 12 C.F.R. § 330.11, which provides that the owner of a certificate of deposit acquired by negotiation prior to the date of the closing of the issuing bank "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." This provision has, by staff interpretation, been construed to mean that such owner will also be recognized in a representative capacity for these purposes. In short, one who acquires a certificate of deposit by negotiation (prior to the closing of the issuing bank) need not comply with the records requirements of § 330.1(b)(1). Note well, however, that the purchaser of a certificate of deposit from the issuing bank does not take the instrument by "negotiation" and therefore § 330.11 does not apply. Thus, the initial purchaser must comply with § 330.1(b)(1) in order to claim insurance in a representative capacity (e.g., as "agent for trustees"). If the initial purchaser receives from the bank a certificate of deposit that is payable to "bearer," acceptable disclosure for the purposes of § 330.1(b)(1) can be effected by a writing kept in the bank's deposit account records.

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