4000 - Advisory Opinions
Recordkeeping Requirements for Deposit Insurance of Bearer Certificates of Deposit Held as Agent or Trustee
June 3, 1986
Robert E. Feldman, Attorney
This memorandum sets forth the Legal Division's interpretation of the recordkeeping requirements applicable to the first holder of a bearer certificate of deposit when the holder seeks deposit insurance in excess of $100,000 based on a relationship such as trustee or agent. Section 330.11 of the FDIC's regulations, which affords an exception from the recordkeeping requirements to the owners of negotiable instruments upon proof that the instrument was in fact negotiated to such owners prior to the date of the bank's closing, is inapplicable to the first holder of a bearer CD (or, for that matter, a CD payable to order) because the Uniform Commercial Code distinguishes between the act of issuance ("issue" defined in UCC § 3-102(a)) and the act of negotiation (defined in UCC § 3-202(1)). Therefore, the first holder of a bearer CD (person to whom the bearer CD was first delivered) must comply with the routine recordkeeping requirements of section 330.1(b)(2) of the regulations in order to claim insurance as an agent, trustee, or as a holder in any other capacity that would afford insurance beyond $100,000.
Section 330.1(b)(2) of the regulations provides that:
[i]f 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.
Certificates of deposit payable to order ordinarily meet the first step of the regulation's requirements by disclosing the agency or trust nature of the CD on the face of the certificate itself. By its very nature, such disclosure is impossible on the face of a bearer CD. We interpret the regulation to allow the disclosure test to be met if the bank's deposit account records disclose any relationship pursuant to which the bearer CD is held in any reasonable manner. As we further view the regulation, there are two elements involved in determining reasonableness. The first involves the location of the record when the face of the deposit instrument itself reveals no relationship upon which additional insurance can be based. Any writing related to the nature of a bearer (CD) must be kept in a location where one would ordinarily expect to find records related to deposit accounts. A file containing the bank's copy of the bearer CD would be the best possible placement for such a writing. At the other extreme, it would be unacceptable for the purposes of complying with section 330.1(b)(2) for the record to be maintained in, e.g., a loan department file.
The second element of reasonableness involves the form of the disclosure. The record should simply be in the nature of a brief letter or memorandum to the bank or a bank officer, referencing the number of the bearer CD and its date of issuance or maturity, identifying the owner of the CD and stating that it is being held in a trust or agency capacity. In the case of multiple or recurring purchases of bearer CDs, a single master letter or memorandum would suffice if it indicated that all bearer CDs to be purchased within a particular time frame are to be held in an agency or trust capacity.
In a related matter, please be advised that the Federal Home Loan Bank Board recently deleted from its regulations the requirement that, in connection with a trust account, the account records of an institution must disclose the name of both the settlor (grantor) and trustee of the trust and contain an account signature card executed by the trustee. 51 Fed. Reg. 12,122 (Apr. 9, 1986). The Bank Board predicated its action upon "recognition that the pension and retirement industry has changed markedly since 1967, when the requirement was initially promulgated" and that present IRS and ERISA requirements make the signature card requirement unnecessary as a guard against post-default creation of relationships. The Legal Division intends to initiate a parallel amendment to section 330.1(b)(3) of the FDIC's regulations in the near future.