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4000 - Advisory Opinions
Whether a pledge of assets by a bank to secure a deposit by a
nonprofit organization would be legally enforceable in the event of the
appointment of the FDIC as receiver or conservator for the institution
FDIC--97--1
January 6, 1997
Robert C. Fick, Counsel
Your letter to the FDIC dated October 7, 1996 has been forwarded to
me for reply. You stated in that letter that your client is a nonprofit
organization under IRC § 501(c)(6), but not a municipality, and you
asked that we confirm that "securities pledged by a bank to secure a
deposit are only valid as to municipalities." We understand your
question to be whether a pledge of assets by a bank to secure a deposit
by a nonprofit organization would be legally enforceable in the event
of the appointment of the FDIC as receiver or conservator for the
institution.
Your letter states that the institution is a bank, but does not
specify whether it is a national bank or a state bank. The
determination of whether the security interest is legally enforceable
may vary based upon this factor.
National banks are prohibited from collateralizing private deposits.
Texas & Pacific Railway Co. v. Pottorff, 291 U.S. 245, 54
S. Ct. 416 (1934). Consequently, any attempt by a national bank to
secure private deposits would not be legally enforceable. However,
Federal law authorizes national banks to secure deposits made by a
State, political subdivision thereof, or any agency or other
governmental instrumentality of a State or political subdivision
thereof, but only to the extent, and with the same kind of security,
that State law authorizes for State banks. 12 U.S.C. § 90. Your
client which you describe as a "non-profit organization, [under]
IRC Section 501(c)(6)," does not appear to qualify as a one of the
listed public entities. See, e.g., Bossier Bank and
Trust Co. v. FDIC, 753 F.2d 847 (10th Cir. 1985). Therefore, a
pledge of assets by a national bank to secure your client's deposits
would not be legally enforceable.
If the bank in this case is a State bank as opposed to a national
bank, applicable State law would need to be consulted to determine
whether, and under what circumstances, State-chartered banks are
authorized to secure deposits. To the extent that (1) State law
authorizes State-chartered banks to secure deposits, and (2) the
security interest otherwise complies with applicable State and Federal
law, the FDIC would generally not seek to avoid such a security
interest. 1
It is important to note, however, that while the foregoing represents
our current view of this matter, the FDIC is currently studying this
particular issue and may issue regulations or promulgate policies that
alter the analysis and conclusion set forth in this paragraph.
The opinions expressed herein are the views of the FDIC Legal
Division staff and, like all staff opinions, are not binding upon the
FDIC or its Board of Directors. Moreover, the opinions expressed herein
are based upon the facts as you have presented them and any change in
those facts might result in different conclusions.
If you have any further questions about this matter, please feel
free to contact me at
202--898--8962.
1Pursuant to section 24 of the Federal Deposit Insurance Act,
12 U.S.C. § 1831a, State
banks are required to obtain the FDIC's approval prior to
collateralizing any deposits. Go Back to Text
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