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4000 - Advisory Opinions


Insurance Coverage Afforded Deposits Made by Revocable Trust Established by Official Custodians of State Park Districts and Deposits Made by Individual Custodians Under the Trust's Certificate of Deposit Placement Program

FDIC-92-13

March 27, 1992

Walter P. Doyle, Counsel

Your March 19, 1992 letter regarding separate insurance of deposits made by the [State] Park District Liquid Asset Fund Plus ("Fund") and deposits made under the Fund's Certificate of Deposit Placement Program ("Program") has been referred to me for reply.

It is my understanding that the Fund is a revocable common law trust set up by official custodians of park districts to centralize investment of funds on their behalf. It is operated by trustees elected by participating official custodians. The Program is sponsored by Fund trustees and assists such official custodians in directly placing additional park district funds in insured bank certificates of deposit. The issue you raise is whether a Fund participant is separately insured as to that participant's interest in a deposit at the same insured institution where such participant has purchased a certificate of deposit under the Program. You suggest that the Fund trustees would be "official custodian" as to Fund deposits in such institution and that the park district official custodian would be a separate "official custodian" as to deposits made under the Program.

As you indicate, § 330.14(b)(1) of our regulation states that an "official custodian . . . must have plenary authority, including control, over funds owned by the public unit which the custodian is appointed or elected to serve." The term "elected" was not intended, in my opinion, to cover an election of trustees under a common law trust arrangement, but rather a governmental election authorized by a statutory or constitutional provision. If one or more official custodians can "elect" others to act on their behalf so as to achieve separate deposit insurance coverage, then such a custodian could also "appoint" his secretary or administrative assistant (or anyone else for that matter) for the same purpose and multiply insurance coverage ad infinitum--a result exactly contrary to what the definition was designed to achieve.

For this reason I must conclude that the Fund trustees as a group are not a separate "official custodian" but that they instead function as an "agent" for the official custodians participating in the Fund. Therefore, § 330.6 of our regulation would require that each official custodian's interest in Fund deposits at a particular insured institution be combined with any Program certificate of deposit purchased directly by such official custodian at the same institution, except for the fact that an insured institution is acting in this case as custodian of Fund assets. In fact, to conclude that the Fund trustees as a group are a separate "official custodian" would limit coverage of all Fund deposits at any one insured institution to $100,000 in total, rather than affording coverage up to $100,000 for the interest therein of each participating official custodian of a park district.

As alluded to in the previous paragraph, however, the passing reference at the end of the third paragraph on page 3 of your letter to the fact that [bank] "currently acts as the custodian for the Fund's assets" raises the possibility that under § 330.10 of our regulation each park district official custodian's interest in Fund deposits at a particular insured institution would be separately insured from such custodian's Program deposits at the same institution if the records of each insured depository institution at which Fund deposits are placed designate [bank] as the depositor in a custodial capacity for persons who may, in turn, also be acting as fiduciary (see § 330.4(b)).

You may want to consider the facts of your case in light of these regulatory provisions. Do not hesitate to let us know if you have further questions in this regard.


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