August 10, 1998
Gay Lyne Tarango, Vice President/Controller
Share Plus Federal Credit Union
18333 Preston Road
Dallas, Texas 75252
Dear Ms. Tarango:
You have asked several questions regarding
the purchase of a $700,000 certificate of deposit (CD) by a federal
credit union (FCU) from a federally insured bank. On receipt
of the wired funds, the bank would distribute $100,000 to each
of seven other banks owned or otherwise controlled by it. Firstly,
you have asked whether it is permissible under NCUA's investment
regulation for the FCU to fund the transaction using only one
wire and receive from the bank only one safekeeping certificate,
which lists the seven banks that will hold the funds. 12 C.F.R.
Part 703. Secondly, you have asked whether deposit insurance
coverage provided by the Federal Deposit Insurance Corporation
(FDIC) would be in the amount of $700,000 or $100,000. Lastly,
you have asked whether FDIC insurance coverage would change in
the event any of the seven banks were later merged with another
bank.
As explained more fully below, the FCU's use
of one wire and receipt of one safekeeping certificate does not
violate NCUA regulations. Further, the FDIC has indicated that
deposit insurance would cover $700,000 if properly structured.
If a merger of one of the banks with another bank would alter
the deposit insurance coverage, the FCU would first be notified
and given an opportunity to restructure its accounts to maintain
maximum coverage.
NCUA's investment regulation requires that
an FCU "must obtain an individual confirmation statement
for each investment purchased or sold." 12 C.F.R. §703.60(b).
In this instance, our view is that the above described CD purchase
is one investment transaction for $700,000, not seven transactions
for $100,000 each. We understand the distribution of the investment
to the seven banks is to maximize deposit insurance coverage.
Accordingly, the purchase, structured as discussed above with
only one confirmation statement, would not violate §703.60(b).
If a bank deposit is not fully insured by the FDIC, including accumulated interest, the FCU must conduct and document a credit analysis of the issuing bank and/or
Gay Lyne Tarango
Page Two
investment before making the investment and
update this analysis at least annually as long as the FCU holds
the investment. 12 C.F.R. §703.40(d). Initially, $600,000
of the $700,000 wire to the bank would be uninsured, until distributed
among the other seven banks. Assuming interest is accumulated
and not paid to the FCU as it is earned, portions of the deposit
would continue to be uninsured even after it is distributed among
the seven other banks. As each $100,000 account would begin accumulating
interest, it would exceed the $100,000 per account insurance limit.
Accordingly, the FCU will need to comply with the credit analysis
requirements of §703.40(d).
With respect to your questions regarding FDIC
deposit insurance coverage, Staff Attorney Frank Kressman provided
you with preliminary answers, but suggested that it would be more
appropriate for you to contact the FDIC directly to receive that
agency's interpretation of its own regulations. I understand
that you have contacted the FDIC's regulatory compliance department
in Washington, DC and were informed that the bank to which you
will wire funds and each of the seven banks among which the deposit
is to be distributed are separately chartered and FDIC insured.
You were informed that the FDIC concluded that, if the FCU has
no other deposit accounts with any of the seven banks, each $100,000
would be covered up to the $100,000 federal deposit insurance
limit. FDIC also informed you that a merger of any of the banks
with another bank could alter the deposit insurance coverage.
However, you were informed that you would be given an opportunity
to restructure your deposit accounts to maintain maximum coverage.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/FSK:bhs
SSIC 3500
98-0625