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4000 - Advisory Opinions
Combination of Deposit Account Held by Paraguayan
Corporation for Insurance Purposes
FDIC-87-38
November 18, 1987
Roger A. Hood, Assistant General Counsel
This is to advise, in response to your query of October 1, 1987,
that, in my opinion, the deposit account held by the Paraguayan
corporation, ***, should be combined for insurance purposes with the
deposit account held in the same bank by its branch office.
The familiar rule is that a corporation is entitled to deposit
insurance of $100,000 for its funds (separate and apart from the
insurance accorded the funds of its shareholders), provided it is
engaged in an "independent activity", that is an activity other
than one directed solely at increasing insurance coverage. Otherwise,
the funds are treated for insurance purposes as owned, pro rata, by the
shareholders. 12 C.F.R. §§ 330.5; 330.7. If the "independent
activity'' test is met, then a corporation and its wholly-owned
subsidiary corporation (being two bona fide separate legal entities)
qualify for separate deposit insurance. There is no provision, however,
that confers separate and additional deposit insurance, on the basis of
an "independent activity" test or otherwise, for a corporation's
funds that are deposited by a branch office, division, or other of its
components, and this is so because ownership of the funds necessarily
remains in the same legal entity (i.e., the corporation).
The case you put brings Paraguayan law into play which, as I
understand your memorandum, confers on a branch office (at least of a
foreign exchange company) a status
{{4-28-89 p.4279}}(apparently in furtherance of
regulatory objectives) that is unusual by the standards of American
law. Thus, for example, the branch office of the kind here involved can
be independently sanctioned by its Paraguayan regulator, files its own
tax returns, can sue and be sued in its own name, makes its own labor
contracts and purportedly "has its own capital which, although
usually contributed by the main office, may also be contributed by
third parties." 1
However, such a branch office, which you say is "definitely not a
separate corporation [de jure]," has no separate
directorate, and the "main office" is liable for its debts
(albeit, secondarily). It also follows, I take it, that the assets
attributed to such a branch office are in fact the assets of no other
legal entity than the "main office" corporation (and this is so
even if, as may be the case, the assets attributed to the branch are
subject first to the claims of creditors who deal directly with the
branch). Accordingly, there is no basis for concluding that a deposit
account held by the branch office is not an asset of the "main
office" corporation.
1 Presumably, such a third-party contributor would receive
shares in the "main office" corporation. Go Back to Text
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