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4000 - Advisory Opinions
Insurance of Deposits Placed in Several Banks in a
Bank Holding Company System
FDIC-86-21
July 23, 1986
Douglas H. Jones, Deputy General Counsel
{{4-28-89 p.4222}}
The *** ("the Bank"), provides fully-insured deposits for
people investing large sums of money $100,000 to $5,000,000). The Bank
accepts the money, divides it into parcels of $100,000, and transmits
the parcels to various other banks ("depository banks") for
deposit. The Bank and all the depository banks belong to the same bank
holding company.
You ask how the deposits are insured. It depends on how the Bank,
its sister banks, and the customer agree to treat the funds.
So long as the Bank holds the customer's funds, the contract between
the Bank and the customer determines the question:
--The Customer may transmit the funds to the Bank for the Bank
to invest on the customer's behalf. If so, the Bank acts as the
customer's agent: the funds are "trust funds," 12 U.S.C.
§ 1813(p), and are separately insured up to $100,000. 12 U.S.C.
§ 1817(i); 12 C.F.R. §§ 330.1(c)(5) & 330.10.
--Alternatively, the customer may deposit the funds with the
Bank, and direct the Bank to redeposit the funds in its sister banks
after some (presumably brief) period. In that event the funds are
aggregated with the customer's other deposits at the Bank, and the
aggregate is insured to $100,000. 12 U.S.C. § 1821(a); 12 C.F.R.
§ 330.2(a).
Once the Bank sends the funds on to its sister banks, the insurance
depends not only on the contract between the Bank and the customer, but
also on the contracts between the various depository banks and the
customer and/or the Bank. It is certainly possible for the Bank and its
sister banks to arrange for the customer's funds to be fully
insured. 1
That can happen in at least two ways:
--The Bank may merely act as the conduit between the customer
and each depository bank. The Bank may provide accounting and other
paper-trail services for the customer, but arrange for the depository
bank to open the account in the customer's name. In that case, the
customer's deposit at the depository bank is aggregated with any other
deposits he might have at that bank in his own name, and the total sum
is insured to $100,000. 12 U.S.C. § 1821(a); 12 C.F.R. § 330.2(a).
--The Bank may act as the customer's agent in depositing the
funds: that is, the Bank may make the deposit in its own name at each
depository bank, and identify itself on the depository bank's records
as the customer's agent. In that case, the customer's deposit at the
depository bank is separately insured to a maximum of $100,000, apart
from any other funds that the customer might hold at the depository
bank in his own name. 12 U.S.C. §§ 1813(p) & 1817(i); 12 C.F.R.
§§ 330.1(c)(5) & 330.10.
Each bank is insured separately. Accordingly, the total amount of
insurance available to a single customer within a bank holding company
system is equal to $100,000 times the number of banks in the system: if
a system has 50 banks, a customer can insure up to $5,000,000.
On the other hand, it is also possible for the Bank to arrange
things so that its customers' funds are not fully protected. For
example, the Bank could accept funds from several people and commingle
the funds. Then the Bank could deposit the commingled funds in the
various depository banks in the Bank's own name (or in its nominee
name) without indicating that it was acting as the customers' agent.
The commingled funds would only be insured up to $100,000 in each
depository bank. 12 C.F.R. § 330.1(b)(1); see 12 U.S.C.
§ 1817(i). 2
1 Actually, if the initial deposit in any one bank is for
$100,000, the interest earned on the deposit will be uninsured. Go Back to Text
2 The Bank would be insured up to $100,000 in each depository
bank, and could have up to $5,000,000 of insured funds in a 50-bank BHC
system. Go Back to Text
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