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4000 - Advisory Opinions

Whether Interests of Bondholders in CDs Issued by S&Ls to Secure Repayment of Mortgage Revenue Bonds Continue to be Insured Pursuant to FSLIC Regulations Until First Maturity Date of CDs


January 17, 1991

Mark A. Mellon, Attorney

This is in response to your letter of December 19, 1990 pertaining to federal deposit insurance.

Based on your letter and our telephone conversations, it is my understanding that you wish to ascertain whether the interests of bondholders in certificates of deposit ("CDs") issued by savings and loan associations to secure the repayment of certain mortgage revenue bonds will continue to be insured by the FDIC as they would have been insured by the Federal Savings and Loan Insurance Corporation (the "FSLIC"), the entity which originally provided federal deposit insurance for the CDs, now abolished pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (the "FIRREA").

The bonds in question were issued in two series pursuant to separate trust indentures by the ***. CDs were issued by two savings and loan associations, *** and *** to secure repayment of the bonds. The first association has been put into conservatorship by the Resolution Trust Corporation while the second has been merged into another savings and loan association, [*** Thrift]. You state in your letter that, to this date, both the Resolution Trust Corporation and [***Thrift] have made monthly interest payments on the CDs pursuant to the trust indentures.

If the bonds were issued pursuant to a trust indenture which created an irrevocable express trust for the benefit of a bondholder which was valid under state law, the interests of the bondholders in CDs issued by savings and loan associations to secure repayment of the bonds were insured as trust estates by the FSLIC pursuant to 12 C.F.R. §564.10, redesignated as 12 C.F.R. §386.10, subject to compliance with the recordkeeping requirements of 12 C.F.R. §564.2, redesignated as 12 C.F.R. §386.2. Accordingly, the interest of each bondholder in the CDs was separately insured by the FSLIC as a trust estate up to $100,000.

Pursuant to Section 402(c)(3) of the FIRREA, the FDIC has promulgated uniform deposit insurance regulations for deposits in all insured depository institutions, including savings and loan associations which were formerly insured by the FSLIC. The effective date for these regulations is July 29, 1990. The new regulations provide that any time deposits issued by an insured depository institution on or before the effective date of the new regulations are entitled to the insurance protection provided by the regulations which previously applied until the first maturity date of those time deposits. 12 C.F.R. §330.16(b). This means that the interests of the holders of the bonds in the CDs issued by the savings and loan associations will continue to be insured pursuant to the FSLIC regulations until the first maturity date of the CDs.

I hope that this letter is responsive to your inquiry. If you have any further questions on this or any other matter, please contact me.

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