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4000 - Advisory Opinions

Acquiring Depository Institution is Required to Honor Failed Depository Institution's Certificate of Deposit Interest Rate for 14 Days


October 30, 1990

J. William Via, Jr., Counsel

This is in response to your letter, addressed to our Office of Consumer Affairs, concerning your rights as a deposit holder in an insured institution which, it appears, failed before the maturity date of the certificate of deposit that you purchased.

As you know, a deposit is a contract between a depository institution and its customer. However, when the institution becomes insolvent it can, ipso facto, no longer fulfill its obligations under the contract, which in effect is terminated by operation of law. In such case, the obligation of the FDIC under the law (12 U.S.C. §1821 (f)) is to pay you the net amount due to you as an insured depositor as of the date the institution failed, and this may be done by a direct payment to you or by making available to you a deposit in another insured depository institution. In the latter case, the institution in which your deposit insurance payment is deposited is typically required by its agreement with the FDIC to pay interest on such deposit at the rate set by the terms of your deposit contract with the failed institution for a period of not less than fourteen days and to advise you that you have the right either to withdraw your deposit without penalty or to enter into your own deposit contract with the institution.

Put another way, the institution in which the FDIC makes available to you your deposit insurance payment does not assume the deposit contract that the failed institution had with you and it has no obligation to offer you a deposit contract with the same terms and conditions; if the terms and conditions offered are not satisfactory to you, then you are entitled to withdraw your money and place it elsewhere. The law does not insure full performance of your deposit contract; it simply requires that you be paid the net amount due to you as an insured depositor, as of the date the institution fails, if failure occurs.

We regret your inconvenience, and trust that this explanation will clarify the matter for you.

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