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4000 - Advisory Opinions
Technical Questions About Deposit Insurance for
Public Unit Deposits
FDIC-85-24
October 27, 1985
John C. Murphy, General Counsel
Your letter of September 6, 1985 to Chairman Isaac, raising several
technical questions about deposit insurance, has been referred to the
Legal Division.
The official custodian of the funds of a state is entitled to
separate deposit insurance of (i) up to $100,000 for time or savings
deposits and (ii) of up to $100,000 for demand deposits placed in an
insured bank in that State (per 12 C.F.R. § 330.8(a)(2),(5)), and
this coverage applies separately to each such bank. If the state has
autonomous agencies, subdivisions or departments within the sense of 12
C.F.R. § 330.8(c) (discussed below), then each such additional public
unit is entitled to separate deposit insurance for its funds in the
amounts specified in the preceding sentence. The available deposit
insurance is the same whether each such public unit has its own
official custodian or the State Treasurer serves as the official
custodian for each, as well as for the State. See 12 C.F.R.
§ 330.8(a)(6). 1
Of course, in all cases the custodial nature of an account and the
ownership interests in the deposit funds must be ascertainable from
proper records, pursuant to 12 C.F.R. § 330.1(b)(1),(2) (per 12
U.S.C. § 1822(c)).
To qualify as a public unit under 12 C.F.R. § 330.8(c), an agency
(i) must have been created pursuant to express State statutory
authority, (ii) must have some functions of government delegated to it
by state statute, and (iii) must have funds allocated to it by statute
or ordinance for its exclusive use and control. Subordinate or
nonautonomous agencies, divisions, boards, and the like, do not
qualify.
Thus, if an agency is a bona fide public unit,
deposits of its funds (i.e., those allocated for its
exclusive use and control) will not be combined for insurance purposes
with deposits of
{{4-28-89 p.4193}}state funds by the State Treasurer in
the same insured bank. If, however, an agency, even though itself a
bona fide public unit, collects State funds on behalf of the
State Treasurer for deposit, the ownership of such deposit is properly
attributable to the State Treasurer and thus the deposit will be
combined for insurance purposes with other deposits of the same kind
(i.e., demand deposits or time and savings deposits, as the
case may be) owned by the State in the same insured bank.
The funds under a qualified deferred compensation plan (per 26
U.S.C. § 457) are required by federal statute to be the exclusive
property of the employer. This fact precludes individual, or
"pass-through", insurance for the employee-participants in the
deposits made by such plans since an ownership interest by them is a
prerequisite to such insurance under the Federal Deposit Insurance Act
and the implementing regulation. The fact of employer ownership also
requires that deposits of the funds of such plans be combined for
deposit insurance purposes with other deposits the employer has in the
same insured bank. The use by the employer of more than one
representative, or "custodian", for placing the deposits does not
change this result. Thus, since the funds in the State of *** Deferred
Compensation Plan (a qualified plan) belong to the State of ***,
deposits of such funds are combined for insurance purposes with other
deposits of like kind (i.e., demand deposits or time and
savings deposits, as the case may be) owned by the State in the same
bank.
We trust that we have responded adequately to the concerns expressed
in your letter. If questions remain, however, please specify them for
us and we will undertake to answer them for
you.
1 The deposit insurance available to a public unit cannot be
increased by fragmentizing authority or control over that unit's funds
among several putative official custodians. Similarly, if the exercise
of authority or control over the funds of a public unit requires action
by or the consent of two or more "custodians", they will be
treated as one official custodian for the purpose of deposit
insurance. Go Back to Text
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