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4000 - Advisory Opinions


An Electric Cooperative is Eligible to Hold a NOW Account Under Revised Federal Reserve Board Regulation (12 C.F.R. § 204.130)

FDIC-91-79 September 27, 1991 Claude A. Rollins, Counsel

This memorandum responds to your request for an opinion concerning the eligibility of an electric cooperative to hold a NOW account due to an inconsistency between an advisory opinion which I wrote dated December 1, 1987 (FDIC-87-43) and the Federal Reserve Board's regulations governing NOW accounts, which became effective December 16, 1987.

The facts are as follows. The FDIC conducted a compliance examination of *** ("Bank") on March 15, 1991, during which the Bank was cited for a violation of section 329.1(b)(3) of the FDIC's regulations (12 C.F.R. § 329.1(b)(3)) by allowing *** ("[Electric Cooperative]") to deposit and hold funds at the Bank in a NOW account.

The FDIC's Dallas Regional Office originally determined that [Electric Cooperative] did not qualify as an eligible organization under 12 U.S.C. § 1832(a)(2) upon the basis of FDIC advisory opinion 87--43, in which I found a rural electric association cooperative ineligible to hold funds in a NOW account. However, the Bank and [Electric Cooperative] have subsequently submitted information to the FDIC asserting that [Electric Cooperative] should be considered a qualified organization eligible to hold a NOW account pursuant to section 204.130(c) of the Federal Reserve Board's regulations (12 C.F.R. § 204.130(c)).

The Federal Reserve Board's regulations governing eligibility for NOW accounts apply to member banks. As you know, the FDIC has not issued similar regulations for state non-member banks. Although the Federal Reserve Board's regulations apply only to member banks, the FDIC generally defers to their interpretations with respect to NOW accounts.

As previously noted, section 204.130 ("Eligibility for NOW accounts") was promulgated by the Federal Reserve Board subsequent to the issuance of my advisory opinion. Section 204.130(c)(1) provides, in relevant part: "[a] nonprofit organization that is operated primarily for religious, philanthropic, charitable, educational, political or other similar purposes may maintain a NOW account." 12 C.F.R. § 204.130(c)(1) (emphasis added). The rule goes on to describe the kinds of organizations the Board considers eligible for NOW accounts under this standard, one of which includes tax-exempt organizations "described in section 501(c)(3) through (13), and (19) of the Internal Revenue Code. . . ." § 204.130(c)(1)(i).

Under Texas law, [Electric Cooperative], as an electric cooperative corporation, is required to operate as a non-profit corporation. Tex. Rev. Civ. Stat. Ann. art. 1528b, §§ 3, 25 (Vernon 1980). In addition, [Electric Cooperative]'s status as a cooperative would appear to fall within the "operated primarily for. . .other similar purposes" language of section 204.130(c)(1). Therefore, [Electric Cooperative] appears to meet the first requirement of section 204.130(c)(1).

Section 501(c)(12)(A) of the Internal Revenue Code grants a tax-exempt status to, inter alia, "mutual or cooperative telephone companies, or like organizations. . . ." 26 U.S.C. § 501(c)(12)(A) (emphasis added). Subparagraph (C) of the same subsection specifically mentions a "mutual or cooperative electric company" in connection with exclusion of rental income or loan prepayment in applying subsection (A). § 501(c)(12)(C). Furthermore, the letter dated August 7, 1991 from ***, General Manager of [Electric Cooperative], to ***, President of the Bank, indicates that [Electric Cooperative] has received approval from the I.R.S. as a tax-exempt organization under § 501(c)(12) for many years. These factors cumulatively indicate that meets the second requirement of section 204.130(c)(1) as being a qualifying organization.

In conclusion, the facts and circumstances involving [Electric Cooperative] are distinguishable from those considered in FDIC-87-43 because of the subsequent revision to the Federal Reserve Board's regulations governing eligibility for NOW accounts. Under the Federal Reserve Board's regulation, [Electric Cooperative] appears to qualify as a non-profit, tax-exempt organization eligible to hold a NOW account pursuant to 12 C.F.R. § 204.130(c)(1). As noted above, for NOW account eligibility questions we generally defer to the Federal Reserve Board, which is chiefly responsible for the implementation of monetary policy. Therefore, it is my opinion that the Bank is not in violation of the FDIC's regulation prohibiting a corporation, partnership or association from maintaining an interest-bearing account (12 C.F.R. § 329.1(b)(3)).


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