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4000 - Advisory Opinions

Deposit Insurance for Unemployment Insurance Escrow Accounts Held at an Insured Savings & Loan Association


September 26, 1989

Gerald J. Gervino, Senior Attorney

You have asked three questions concerning FDIC insurance coverage with respect to your association's deposits maintained at an insured savings and loan association.

Your association is a non-profit corporation organized to represent hospitals and the health care industry and to advocate public health policy at the state and federal level. Your membership is composed of hospitals and other health care entities located in your state who pay annual membership dues. The association invests its member contributions in short-term certificates of deposit issued by insured banks and savings and loans until the funds are needed for the association's operations.

One of the programs offered by your association is a joint unemployment insurance program. It is limited to nonprofit hospitals that are members of the association. Currently about 135 hospitals participate in the program. These hospitals make quarterly payments that are deposited in a trust account established at an insured savings and loan association and are used to pay unemployment insurance claims incurred by these member hospitals. The association maintains a separate set of books to account for all transactions of each participating hospital. The total amount on deposit has varied between $500,000 and $1,700,000.

You possess legal opinions from private counsel to the effect that FSLIC insurance extends to each hospital participating in the trust fund. Thus, insurance coverage for the current 135 hospitals participating in the trust could total a maximum of $13,500,000.

You ask three questions, which are set forth below.

1.  Since the FSLIC will no longer exist, what agency will insure the trust account funds invested at a formerly FSLIC-insured savings and loan?

The formerly FSLIC-insured savings and loan association will be an insured depository institution whose deposits will be insured by the FDIC.

2.  Does the $100,000 insurance limit apply to the aggregate amount in the trust rate account or does the limit apply separately to each of the 135 participating hospitals?

Paragraph 17 of the agreement which you have furnished apparently provides that the association stands in the relationship of agent with respect to the payment of funds in the account to the state unemployment fund. Since this seems to be the destination of all funds in the account, except for withdrawals which are returnable to the hospitals, the interest of each hospital would be separately insured as a separate principal if certain requirements are met.

First, the records of the depository institution must disclose the existence of the agency relationship. Second, the details of the relationship and the interests of the participating hospitals in the account must be ascertainable from the records of the depository institution or from the records of the depositing association maintained in good faith and in the ordinary course of business.

If these requirements are met, each hospital's interest in the account would be separately insured to a maximum of $100,000.

3.  What role will the Resolution Trust Corporation play, if any, with respect to insurance of funds invested in banks and savings and loans?

None.  The Resolution Trust Corporation disposes of assets of failed institutions, while the FDIC meets the insurance claims of depositors of failed institutions.

If you have any further questions, please write or call at (202) 898-3723.

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