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4000 - Advisory Opinions

Separate Insurance Coverage under § 8(q) of FDI Act Ceases if Bank or Customer Changes Terms of Time Deposit that Matures During Six Month Period


November 18, 1993

Jeffrey M. Kopchik, Counsel

This is in response to your letter dated October 26, 1993 concerning the extent of the separate deposit insurance coverage provided to time deposits after the merger of two insured depository institutions. You have asked whether the separate insurance coverage provided pursuant to section 8(q) of the Federal Deposit Insurance Act and Part 330.3(g) of the FDIC's regulations would cease at the end of the six month period in the case of a time deposit that matured prior to the end of the six month period and was renewed, but for a different term at the insistence of the surviving insured depository institution. You have taken the position that the separate insurance should continue to the next maturity date after the expiration of the six month period if the renewal for a different term is done at the insistence of the institution, not the customer.

My review of published FDIC Advisory Opinions did not locate any instance in which the Legal Division staff has taken a position on whether the extent of separate insurance coverage is affected by which party, the customer or the bank, initiates the different terms. Section 330.3(g) of the FDIC's regulations states:

"In the case of time deposits which mature within six months of the date such deposits are assumed and which are renewed at the same dollar amount. . .and for the same term as the original deposit, the separate insurance is applicable to the renewed deposits until the first maturity date after the six-month period. Time deposits that mature with six months of the deposit assumption and that are renewed on any other basis. . .are separately insured only until the end of the six-month period."

The regulation does not distinguish between circumstances where the customer is responsible for the change in terms as opposed to the institution. That being the case, I am of the opinion that if an insured depository institution changes the term of a time deposit which matures during the six month period, separate insurance will cease at the end of that six month period. Thus, if a customer is concerned that he/she will have certain funds on deposit which will not be insured because they will be over the $100,000 insurance limit, the customer could choose to reorganize their accounts when the time deposit matures.

I trust that this letter is responsive to your inquiry.

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