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4000 - Advisory Opinions

Split-Dollar Insurance Arrangement Insuring Employee of Bank But Naming Bank's Holding Company as Beneficiary Violates Section 23B of the Federal Reserve Act


June 18, 1992

Gerald J. Gervino, Senior Attorney

In your letters dated June 2 and 10, 1992, which were addressed to Mr. Stephen G. Pfeifer, Examination Specialist in our Division of Supervision, you furnish further information with respect to a bank's split dollar insurance arrangement, which our examiners have characterized as an apparent violation of § 23B of the Federal Reserve Act, 12 U.S.C. § 371c--1(1988)("§ 23B''). We had previously received two legal opinions, which were issued by counsel at the request of bank holding companies, indicating that a split dollar insurance arrangement insuring an employee of a bank, but naming the bank's holding company as the beneficiary, is not subject to § 23B.

Both opinions rely on the lack of a "covered transaction" under the definition contained in § 23B(d)(3). Whether or not this is correct, their analysis overlooks the scope of "Transactions Covered" in § 23B(a)(2). "Covered transactions'' are only one of five categories of "Transactions Covered'' by § 23B(a)(2). The use of this intermediate term is for the purposes of cross-referencing to the term as defined in § 23A of the Federal Reserve Act, 12 U.S.C. § 371c, (1988) ("§ 23A'').

"Transactions Covered" defines the types of transactions to which the restrictions of § 23B apply. One of these types is § 23B(a)(2)(E), which extends coverage of § 23B to:

"(E) Any transaction or series of transactions with a third party . . . (ii) if an affiliate is a participant in such transaction or series of transactions.".

The bank holding companies which were the subject of the two legal opinions were affiliates of the bank and participants in the split dollar insurance transactions. The transactions were "Transactions Covered" for purposes of § 23B.

We have not received information that would lead us to alter our examiners determination that the transactions fail to meet the standards of § 23B(a)(1). Nor have we determined whether any debt is owed by the holding company, for § 23A purposes, arising from any excess payment to or on behalf of the bank holding company in this sort of transaction. FDIC Statement of Policy, "Income Tax Remittance by Banks to Holding Company Affiliates", FDIC Looseleaf Service 5045, 43 Fed. Reg. 22241 (May 24, 1978).

If you have any further questions or would like further explanation of our letter, please write or call us at (202) 898-3723.

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