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4000 - Advisory Opinions

Deposit Insurance Coverage for FSLIC-Backed Bonds


March 11, 1991

Mark A. Mellon, Attorney

This is in response to your memorandum of February 14, 1991 pertaining to the deposit insurance coverage of certain CDs of the *** which were issued to secure the repayment of industrial development bonds. You state in your memorandum that you wish to ascertain whether the records of the trustee for the bondholders who acted as nominal accountholder may be looked to for purposes of determining insurance coverage of the CDs. You also state that you want to know whether aggregation will occur if a beneficiary has interests in different series of bonds from one issuer.

Pursuant to section 402(c) of the FIRREA, uniform deposit insurance regulations were promulgated by the FDIC for the deposits of all insured depository institutions to include thrifts formerly insured by the FSLIC. The new regulations provide that any time deposits issued by an insured depository institution on or before the effective date of the new regulations (July 29, 1990) 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). It is my assumption that these CDs are subject to the FSLIC regulations because the deposit agreements specifically refer to FSLIC deposit insurance. See section 5.6.

12 C.F.R. §564.2, redesignated as 12 C.F.R. §386.2, provides that the deposit account records of the insured depository institution must disclose that funds are held pursuant to a fiduciary relationship if a claim for deposit insurance is to be made based on that relationship. If this relationship is disclosed in the deposit account records, the regulation further provides that the details of the relationship and the interests of other parties in the account may be ascertained either from the records of the insured institution or from the records of the account holder. You therefore are correct in your understanding that the records of the trustee may be relied upon in determining insurance coverage, provided that the deposit account records of security disclose that the trustee held the CDs in a fiduciary capacity.

To address your second point, bondholders are to be insured up to $100,000 in the aggregate for all bonds issued by the same issuer, regardless of whether there may be different series involved. The basis for this rule is that the issuer is considered to be the grantor of the express irrevocable trust of which bondholders are pro rata beneficiaries, and bonds in separate series of the same bond issue are considered trust estates established by the same grantor which must be aggregated under 12 C.F.R. §564.10, redesignated as 12 C.F.R. §386.10.

I hope that this memorandum is responsive to your queries. If you have any questions about this or any other matter, please call me at (202) 898-3854.

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