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4000 - Advisory Opinions

Whether Insurance Coverage Continues When 50 Affiliated Banks Which Issued GRID CDs Consolidate into Six Banks


March 7, 1991

Gerald J. Gervino, Senior Attorney

You have asked about the insurance coverage afforded certificates of deposit issued by fifty affiliated banks and purchased by your company in the form of a "GRID" evidencing your interest in the deposits of all fifty affiliated banks. As you indicated in your letter and in our subsequent telephone conversation, your deposit of $90,000 in the fifty affiliated banks is combined in your Grid deposits now equaling $4,500,000.

The fifty banks have now consolidated into six banks, but your deposits are still represented by the same GRID certificates. These deposits all mature on August 4, 1992. You ask if your maximum insurance coverage is $100,000 for each of the original fifty banks, or is now limited to coverage for the resulting six banks.

You have furnished us a copy of an Information Memorandum dated March 1987 with respect to similar GRIDS placed with depositors by a third party bank acting as placement agent and paid by the affiliated banks. A third party registrar, issuing agent, paying agent, and calculation agent will treat investors such as your bank as owners for all purposes, if you are the original registered owner or a transferee appearing on its registration books. The GRID contains a composite printing of reduced size certificates of the deposits of all the affiliate bank issuers and is meant to evidence the deposit obligations to the registered owner of all the issuing bank. Provision is made for the transfer of a GRID upon payment of a $10 transfer fee or a $105 transfer fee if the individual certificates of deposit are split from the GRID. The formality of this arrangement would appear to meet our recordkeeping requirements with respect to deposit insurance coverage.

Your basic question concerns the continued insurance coverage of your company's deposits now that the 50 affiliated banks have reorganized into six banks. §8(q) of the Federal Deposit Insurance Act, 12 USC 1818(q), provides that, whenever the deposit liabilities of an insured bank have been assumed by another bank in a merger or consolidation, the separate insurance of all assumed deposits shall terminate at the end of six months from the date the assumption takes effect or, in the case of any time deposit, the earliest maturity date after the six-month period. Since you have stated that the only maturity date for your GRID deposits is August 4, 1992, the deposits formerly made in the fifty affiliated banks would continue to be insured as fifty separate deposits to the registered owner of the GRID until that maturity or one of the very limited events that may allow withdrawals under the deposit contract.

You also ask if your insurance coverage would be grandfathered until maturity under current legislation introduced to alter deposit insurance coverage. We are not in a position to speculate as to any pending legislation that may have been introduced in Congress. We anticipate that any changes in insurance coverage will be preceded by notice to depositors with ample opportunity for depositors to rearrange their affairs in order to best meet any changes that may affect their interests.

If we have not completely answered your inquiry or you have any further questions, please write or call us.

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