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4000 - Advisory Opinions

Insurability of Certificates of Deposit Held in Two FDIC-Insured Depository Institutions Upon Their Merger


September 20, 1994

Dirck A. Hargraves, Attorney

This letter is in response to your July 20, 1994 letter wherein you inquire as to how the FDIC insures certificates of deposits ("CDs") held in two FDIC-insured depository institutions upon their merger.

You state in your letter that ABC Bank will merge with XYZ Savings Bank. You want to know whether the CDs held at both depository institutions would be separately insured for up to $100,000 of FDIC coverage subsequent to the merger. You indicate that the CDs will mature in 1995 and 1996, respectively, and will exceed $100,000 after the merger.

As you may be aware, Section 8(q) of the Federal Deposit Insurance Act (the "FDIA"), 12 U.S.C. § 1818(q), provides that whenever the liabilities of an insured depository institution are assumed by another insured depository institution, the insured status of the institution whose deposits are assumed shall terminate on the date that the FDIC receives satisfactory evidence of that assumption. The section further provides that the deposits which are assumed as a result of this transaction shall be separately insured from the deposits of the assuming institution for: 1) six months from the date of assumption for all demand deposits and 2) the earliest maturity date after the six-month period in the case of time deposits. The FDIC insurance regulations restate the provisions of section 8(q), 12 C.F.R. § 330.3(g). Depositors who may have deposits with different insured depository institutions are thus provided with an opportunity to rearrange their deposits and retain full insurance coverage if those institutions should merge.

Thus, the FDIC would extend up to $100,000 of separate insurance coverage for your CDs held at the two depository institutions that merge, until the maturity date of those deposits. If the maturity date of the merged bank CDs should occur before the end of the six-month period from the date of the merger and you decide to renew the CDs at the same terms and rates, the CDs would continue to be separately insured until the new maturity date. If you fail to renew the CDs or renew the CDs with different terms and rates, the CDs would still be separately insured, but only until six months after the date of the merger.

You next ask whether the FDIC has a provision for a waiver of the penalty for early withdrawal when a bank merger no longer provides full FDIC insurance coverage of merged CD accounts that exceed $100,000. The FDIC has no such provisions within its rules and regulations. Since, however, the FDIC would separately insure the CDs held at both ABC and XYZ until the maturity date of your deposits, there should be no need for the waiver of the premature withdrawal penalty.

In summary, the CDs held at ABC and XYZ would be separately insured for up to $100,000 until the earliest maturity date six months after the date of the merger.

I hope this is fully responsive to your questions. If not, or if you have additional questions or comments, feel free to call me at (202) 898-7049.

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