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4000 - Advisory Opinions


Deposit Insurance Coverage of Corporate Accounts

FDIC--95--14

August 23, 1995

Adrienne George, Attorney

Your letter to Joseph A. DiNuzzo, Acting Senior Counsel of our Regulation and Legislation Section, has been forwarded to me for response.

In your letter, you write that you have questions involving the FDIC's deposit insurance coverage of corporate accounts. Your company is a registered investment adviser that has recently begun to work with an individual who has investments in a joint account with his wife. In addition, he is the sole owner of several corporations, each with a separate tax ID number, which were established several years ago for the purpose of developing tract housing. The corporations have completed this work and are now essentially inactive. However, they are now the repositories of certain assets, and their owner wishes to invest in certificates of deposits (CDs) to be held in the name of these corporations. Specifically, XYZ, acting for the corporations' owner, would like to place the funds of several of the client's corporations in CDs at a single insured depository institution as long as each corporation would be entitled to $100,000 of FDIC insurance coverage at that institution.

In light of this goal, you ask the following three questions. First, does the current inactive nature of your client's corporations, originally established to develop tract housing, in any way make those corporations ineligible for the normal $100,000 insurance coverage per corporation? Secondly, does the fact that the corporations are solely owned by the same individual, even though each corporation has a separate tax ID number, or the fact that they are not now actively engaged in the original activities for which they were established, preclude each corporation from entitlement to its own separate $100,000 insurance coverage? Third, if four or five of these corporations each held a $99,000 CD in the same insured depository institution, would each corporation be covered for up to $100,000 if the institution failed?

First, the current inactive nature of your client's corporations would not make them ineligible for the normal $100,000 insurance coverage per corporation, provided that they exhibit "independent activity." According to the FDIC's deposit insurance regulations, "The deposit accounts of a corporation engaged in any independent activity shall be added together and insured up to $100,000 in the aggregate." 12 C.F.R. § 330.9 (a). (If a corporation has divisions or units which are not separately incorporated, the deposit accounts of those divisions or units shall be added to any other deposit accounts of the corporation.) A corporation shall be deemed to be engaged in an independent activity, for purposes of this section, "if the entity is operated primarily for some purpose other than to increase deposit insurance." 12 C.F.R. § 330.9(d). From your letter, it appears that at first these corporations were operated to develop tract housing; thereafter, they were operated to hold assets. In both cases, they were engaged in independent activity; that is, they were (and continue to be) operated primarily for some purpose other than to increase deposit insurance.

Second, the fact that the corporations are solely owned by the same individual does not preclude each from entitlement to its own separate $100,000 insurance coverage, as long as each corporation is separately chartered and is engaged in the independent activity referred to above. Nor does the fact that the corporations are not now engaged in the original activities for which they were established preclude each corporation from entitlement to its own separate $100,000 insurance coverage. (The fact that each corporation has its own tax ID number is not dispositive as to whether each corporation is separately chartered and is engaged in independent activity.) Thus, provided that these corporations are separately chartered and engaged in independent activity, if four or five of these corporations each held a $99,000 CD in the same institution, each would be covered for up to $100,000 if that institution failed.

I should caution you, however, that if your company will be holding these CDs as a fiduciary or agent for one or more of these corporations at a given insured depository institution, you must comply with the recordkeeping requirements of 12 C.F.R. § 330.4. I am enclosing a copy of this section for your reference. In summary, you must title the account correctly--for example, "XYZ as Agent for Various Corporations"--and the details of the fiduciary relationship and the interests of the various parties (i.e., the corporations) in the account must be ascertainable either from the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor (i.e., XYZ) or by some person or entity that has undertaken to maintain such records for the depositor. 12 C.F.R. § 330.4 (b).

I hope that this information will prove useful to you. If I can be of any further help, I can be reached at (202) 898-3859.


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