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4000 - Advisory Opinions
Timing and Method of Paying Insured Deposits When
FDIC-Insured Bank Fails
FDIC-88-80
December 16, 1988
Roger A. Hood, Assistant General Counsel
This is in response to your letter, dated December 6, 1988,
inquiring about the timing and method by which the FDIC pays insured
deposits when an FDIC-insured bank fails.
In your letter, you describe a program for placing deposits in one
or more banking subsidiaries of *** (each an ***). The deposit program
includes multi-tiered fiduciary relationships involving ***, the ***,
*** various securities brokers and their customers. Your letter does
not request an opinion concerning the extent to which deposit insurance
would be afforded to any accounts maintained pursuant to the deposit
program described in your letter and thus this letter does not address
that issue. Instead, you ask us to confirm your understandings with
regard to the timing and method by which the FDIC pays insured deposits
when an FDIC-insured bank fails.
Section 11(f) of the Federal Deposit Insurance Act provides that,
upon the failure of an FDIC-insured bank, payment of the insured
deposits therein shall be made "as soon as possible," either by
cash or by making available to each depositor a transferred deposit in
another bank in an amount equal to the insured deposit of such
depositor. 12 U.S.C. § 1821(f). This obligation is, however, subject
to the provision that the FDIC may require proof of claims to be filed
before paying the insured deposits and that, in certain cases, the FDIC
may withhold payment on a claim until the claim has been litigated and
judgment thereon has been rendered. 12 U.S.C. § 1821(f).
When an insured bank fails and the FDIC is appointed receiver or
when an insured bank is in danger of failing, the FDIC has several
options for meeting its obligations to the depositors of the bank. The
four options mentioned in your letter are: (1) deposit payoff; (2)
insured deposit transfer; (3) purchase and assumption transaction; and
(4) open bank assistance transaction. You are correct that the FDIC
often engages in one of these four transactions.
The "deposit payoff" is a procedure whereby the FDIC issues
checks directly to the depositor for the insured amounts of their
deposit accounts. The extent to which the accounts are insured is
determined in accordance with the rules stated in 12 C.F.R. Part 330,
including the provision in 12 C.F.R. § 330.15 which states that the
amount of an insured deposit includes both principal and interest
accrued at the contract rate until the bank is closed. In a deposit
payoff, the FDIC generally begins to issue deposit insurance checks
within three to five calendar days after the bank is
closed. 1
Of course, this is the time frame within which payments begin, not when
they are completed. The length of time it takes to make all payments in
a deposit payoff depends on such factors as the size of the bank, the
condition of its records and the level of cooperation by its
depositors. Moreover, all depositors must provide evidence of deposit
ownership and fill out claim forms as a prerequisite to receiving the
amount of their insured deposits.
An "insured deposit transfer" is a procedure whereby the FDIC
transfers the insured deposits of a failed bank to an agent bank, which
makes those funds available to the customers of the failed bank. The
insurance on the accounts of the failed bank (which equals the amount
transferred to the agent bank) is determined in accordance with the
rules stated in 12 C.F.R. Part 330. The agent bank generally makes the
funds available to the
{{4-28-89 p.4381}}customers of the failed bank on the
next business day after the failed bank closes. See,
footnote 1.
A "purchase and assumption transaction" is a procedure whereby
both the insured and uninsured deposits of a failed bank are assumed by
another insured bank, which receives financial assistance from the
FDIC. All of the deposit liabilities of the failed bank become deposit
liabilities of the assuming bank, on the same terms and conditions
(including interest rate and maturity as they were in the failed bank.
The assuming bank generally makes the demand and savings deposits
available to the depositors of the failed bank on the first business
day after the purchase and assumption transaction is consummated.
See, footnote 1.
An "open bank assistance transaction", unlike the other
transactions described above, is completed in anticipation of a bank
failure. In such a transaction, the FDIC provides financial assistance
in order to prevent an insured bank from failing. The insured bank
remains operative, with no interruption in service, and the deposits
therein continued to be available on the same terms and conditions as
existed prior to the FDIC's grant of open bank assistance.
For your further reference, I have enclosed a pamphlet entitled
"When a Bank Fails," which answers many of the most frequently
asked questions about the procedures followed by the FDIC when a bank
fails.
1 This statement is based on my knowledge of the FDIC's past
experience in handling such transactions. It is not based on any
empirical data and I do not believe that any such data has been
compiled by the FDIC. Go Back to Text
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