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4000 - Advisory Opinions

Deposit Liabilities Assumed by Another Institution


October 6, 1989

Claude A. Rollin, Attorney

Thank you for your letter of September 12, 1989 inquiring about insurance coverage for certificates of deposit obtained by your bank from *** on July 22, 1985. These institutions were acquired by *** on August 19, 1988.

As you probably know, the functions of the FSLIC were transferred to the FDIC under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRRE Act"), which was enacted on August 9, 1989. With respect to deposits in savings and loan associations and other institutions that were insured by FSLIC as of August 8, 1989, the FDIC will continue to follow the FSLIC's regulations and interpretations relating to deposit insurance coverage until uniform rules are promulgated by the FDIC which apply to deposits in both banks and savings and loan institutions. The FIRRE Act requires the FDIC to prescribe such uniform rules by May 5, 1990.

An FSLIC rule (12 U.S.C. § 1728) provides that whenever the liabilities of one or more insured institutions are assumed by another insured institution, the assumed accounts will continue to be separately insured for six months after the assumption or, in the case of time certificates of deposit, until the earliest maturity date. This grace period protects depositors who, through no fault of their own, have more than $100,000 deposited in an insured institution as a direct result of a merger between two or more institutions.

The FSLIC staff believes that Congress did not intend to provide additional insurance for depositors beyond the period of time necessary for them to restructure their accounts without incurring an early withdrawal penalty. Accordingly, the separate insurance coverage is provided only for "assumed" accounts. A certificate of deposit with a fixed maturity date is an "assumed account" only until its first maturity after a merger. A certificate account that is rolled over upon its maturity no longer qualifies as an "assumed account". Therefore, the separate insurance provided for such deposits terminates immediately upon maturity.

Thus, your two certificates of deposit will be insured separately, for $100,000 each, according to the rules of the former FSLIC, until July 23, 1990 when they mature.

I trust that this has been responsive to your inquiry.

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