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4000 - Advisory Opinions

Securities Repurchase Agreement


October 27, 1989

Gerald J. Gervino, Senior Attorney

Mr. Terry G. Youngblood, Regional Attorney in our Dallas, Texas office, has asked us to respond to your letter with respect to a securities repurchase program in use by your bank.

As we understand the program, the bank is selling securities to some of its customers subject to an agreement on the part of the bank to repurchase the securities on the next day or perhaps at a later fixed date. The transaction leaves the bank in debt to its customer. We regard the debt as a borrowing rather than as a deposit. This is illustrated in the Instructions-Consolidated Reports of Condition and Income (Reporting Forms FFIEC 031,032,033, or 034), Item 14 and Glossary.

The customer is not entitled to our deposit insurance, but would have a common creditor's claim and might have an interest in the securities "sold" (collateral) if the customer is vested with a perfected security interest at the time of the closing of the bank. We would look to State law with respect to the question of whether the customer's security interest were perfected. Accordingly, we refer you to the opinion of local counsel, which you have already obtained.

On the other hand, we realize that the master repurchase agreement which you have furnished to us includes language that would allow its use for the purchase of securities by the bank from a third party. Concurrently, the third party would be committed to repurchase the securities from the bank. The transaction would constitute a loan from the bank to the third party. Instructions--Consolidated Reports of Condition and Income (Reporting Forms FFIEC 031, 032, 033, or 034), Item 3 and Glossary.

The perfection of a security interest in the securities purchased would thus become a factor in the classification of the loan by our examiners.

If you have any further questions, feel free to write or call me at (202) 898-3723.

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