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5500 - General Counsel's Opinions
{{6-28-93 p.5521}}
FEDERAL DEPOSIT INSURANCE CORPORATION
GENERAL COUNSEL'S
OPINIONS
DEPOSITS SUPPORTING MUNICIPAL BOND ISSUES
General Counsel's Opinion No. 2
The FDIC's Legal Division has received a number of requests for an
interpretation of 12 CFR
330.1(b) which sets forth the Legal Division's position on how
the FDIC's recordkeeping requirements can be satisfied so as to provide
pass-through insurance coverage for the owners of municipal bonds which
are supported by deposits in FDIC-insured banks ("deposit-backed
bonds"). It is the position of the Legal Division that there are
alternative methods by which the FDIC's recordkeeping requirements can
be satisfied so as to provide pass-through insurance coverage for the
beneficial owners of deposit-backed bonds and those methods are
outlined below.
The Legal Division has become aware that certain deposits in
FDIC-insured banks support municipal bond issues in that they serve as
the principal source for the payment of interest, and the repayment of
principal, on the bonds. These deposits are commonly registered on the
deposit account records of the depository bank as being owned by an
FDIC-insured bank as trustee for the bondholders listed on the records
of the trustee (the "registered bondholders"). The trustee's
records often indicate that one or more financial institutions (i.e.,
securities broker/dealers, securities depositories, securities
registration/transfer agents, FDIC-insured banks and other types of
financial institutions) are registered bondholders. The FDIC recognizes
that such financial institutions often register securities in
"street name" when they are holding the securities as agent,
nominee, custodian, trustee, or in some other fiduciary capacity, on
behalf of their customers (who are the true beneficial owners of the
bonds). This General Counsel's Opinion provides the Legal Division's
position on how the FDIC's recordkeeping requirements can be satisfied
so as to provide insurance coverage, on a pass-through basis, to those
true beneficial owners of municipal bonds, given the manner in which
the deposits supporting those bonds are commonly registered.
Section 330.1(b)(1) of the FDIC rules and regulations,
12 CFR 330.1(b)(1),
provides as follows:
(b) Records. (1) The deposit account records of
the insured bank shall be conclusive as to the existence of any
relationship pursuant to which the funds in the account are deposited
and on which a claim for insurance coverage is founded. Examples would
be trustee, agent, custodian or executor. No claim for insurance based
on such a relationship will be recognized in the absence of such
disclosure.
Section 330.1(b)(2) of the FDIC rules and regulations, 12 CFR
330.1(b)(2), provides as follows:
If the deposit account records of an insured bank disclose
the existence of a relationship which may provide a basis for
additional insurance, the details of the relationship and the interests
of other parties in the account must be ascertainable either from the
records of the bank or the records of the depositor maintained in good
faith and in the regular course of business.
The Legal Division believes that these recordkeeping requirements
would be satisfied if: (1) The deposit account records of the
depository bank expressly indicate that the depositor (bond trustee) is
acting in a fiduciary capacity (as trustee for the registered
bondholders) and that the registered bondholders may be holding the
bonds for their own accounts or as agents, nominees, custodians,
trustees or in some other fiduciary capacity, on behalf of others; and
(2) the records of the registered bondholders, maintained in good faith
and in the regular course of business, expressly indicate the name(s)
and interest(s) of the true beneficial owner(s) of the bonds. In the
event there are additional levels of fiduciary relationships, then the
possible existence of each such level must be reflected on the deposit
account records of the depository bank. For example, when a bank serves
as trustee for the
{{6-28-93 p.5522}}bondholders listed on its
records (the "registered bondholders"), and the registered
bondholders may be holding the bonds for themselves and/or in some
fiduciary capacity for others, who may, in turn, be holding the bonds
for themselves or in some fiduciary capacity on behalf of the true
beneficial owners of the bonds, the following designation would be
sufficient to identify the possible existence of each of the
aforementioned levels of fiduciary relationships and to provide
pass-through insurance coverage for the true beneficial owners of the
municipal bonds:
ABC Bank, as trustee for the holders of the XYZ Municipal
Bonds who are listed on the records of the trustee, each for itself and
as agent, nominee, custodian or trustee for others, who may themselves
be acting as agent, nominee, custodian, trustee, guardian, personal
representative, executor or administrator for the beneficial owners of
the XYZ Municipal Bonds.
The above-noted designation must appear on the face of a
certificate of deposit, in correspondence maintained by the depository
bank as part of its deposit account records or elsewhere in the deposit
account records of the depository bank. In addition, the records at
each of the various levels, maintained by the parties in good faith and
in the regular course of business, must identify the party or parties
for whom they are holding the bonds and must indicate their interest(s)
therein.
The Legal Division believes that, in the alternative,
+bb 330.1(b)(1) and (2) of our regulations, 12 CFR 330.1(b)(1) and
(2), would be satisfied if (1) the deposit account records of the
depository bank expressly indicate that the depositor (bond trustee) is
acting in a fiduciary capacity (as trustee for the registered
bondholders); and (2) the depositor's (bond trustee's) records
expressly indicate that the registered bondholders may be holding the
bonds for their own accounts or as agents, nominees, trustees,
custodians or in some other fiduciary capacity, on behalf of others;
and (3) the records of the registered bondholders, maintained in good
faith and in the regular course of business, expressly indicate the
name(s) and interest(s) of the true beneficial owner(s) of the bonds.
If there are additional levels of fiduciary relationships, then the
possible existence of each such level must be expressly noted on the
depositor's (bond trustee's) records, which are deemed to include any
correspondence maintained by the depositor in the regular course of
business. In addition, the records at each of the various levels,
maintained by the parties in good faith and in the regular course of
business, must identify the party or parties for whom they are holding
the bonds and must indicate their interest(s) therein. Assuming that
these requirements are satisfied, the FDIC will follow the chain of
records through each level to determine the name(s) and interest(s) of
the true beneficial owner(s) of the bonds.
The foregoing represents the Legal Division's interpretation of 12
CFR 330.1(b) as it applies to deposits supporting municipal bonds. The
opinions expressed above are applicable only in the specific factual
context in which they were given and should not be applied in any other
context.
[Source: 53 Fed. Reg. 38785, October 3,
1988]
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