The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


 

STATE OF MICHIGAN

MIKE COX, ATTORNEY GENERAL

BANKS AND BANKING:

1943 PA 20:

PUBLIC CORPORATIONS:

CERTIFICATES OF DEPOSIT:

 Investment of public corporation funds in certificates of deposit issued by financial institutions that participate in the Certificate of Deposit Account Registry Service

In accordance with section 1 of 1943 PA 20, MCL 129.91, a public corporation that elects to invest funds in certificates of deposit may only place such funds in financial institutions that maintain a principal office or a branch office located in Michigan. Because the Certificate of Deposit Account Registry Service program commonly known as CDARS is currently structured in such a way that a participating investor must consent to the placement of its deposits with financial institutions that do not maintain a principal office or a branch office located in Michigan, a Michigan public corporation may not participate in the CDARS program.

Opinion No. 7204

September 7, 2007

Honorable Mark H. Schauer
State Senator
The Capitol
Lansing, Michigan

You have asked whether section 1 of 1943 PA 20, MCL 129.91, permits funds of a public corporation to be deposited with a financial institution for investment in certificates of deposit (CDs) issued by FDIC-insured banks and savings and loan associations as part of the Certificate of Deposit Account Registry Service (CDARS).

In Michigan, the investment of funds by a "public corporation" is governed by 1943 PA 20, MCL 129.91 et seq. The term "public corporation" means a county, city, village, township, port district, drainage district, special assessment district, or metropolitan district of this state, or a board, commission, or another authority or agency created by or under an act of the legislature of this state. MCL 129.91(6)(d). MCL 129.91 provides in pertinent part:

(1) Except as provided in section 5, the governing body by resolution may authorize its investment officer to invest the funds of that public corporation in 1 or more of the following:

* * *

(b) Certificates of deposit, savings accounts, deposit accounts, or depository receipts of a financial institution, but only if the financial institution complies with subsection (2).[1]

MCL 129.91(5) places a limitation on which financial institutions may hold the deposits of public corporation funds:

As used in this section, "financial institution" means a state or nationally chartered bank or a state or federally chartered savings and loan association, savings bank, or credit union whose deposits are insured by an agency of the United States government and that maintains a principal office or branch office located in this state under the laws of this state or the United States. [Emphasis added.]

Previous Attorney General opinions have established that public corporations may only invest moneys under their control as the Legislature has specifically authorized in MCL 129.91. OAG, 1987-1988, No 6478, p 224 (October 29, 1987), determined that the Legislature has not authorized townships to invest surplus finds in mortgage-backed certificates guaranteed by the Government National Mortgage Association under 12 USC 1721(g)(1). OAG, 1985-1986, No 6395, p 390 (October 20, 1986), concluded that a city board of trustees established by charter provision to manage a gift for city park and playground purposes is barred from investing moneys under its control in common stocks or other investments not authorized by MCL 129.91.

You ask whether a public corporation may invest its funds in CDs issued by FDIC-insured banks and savings and loan associations that participate in CDARS. The Federal Deposit Insurance Corporation (FDIC) provides insurance on bank and savings and loan deposits up to $100,000 per account.2  12 USC 1821(a)(1)(B). When a deposit account balance exceeds $100,000, only the first $100,000 is insured by the FDIC. Because a depositor's accounts in any given bank3 are aggregated for purposes of FDIC insurance, 12 USC 1821(a)(1)(C), if a depositor desired the safety of FDIC insurance on a total deposit in excess of $100,000, it would be necessary to open accounts in separate banks in increments of $100,000 or less. For a large depositor, this could necessitate many separate accounts in multiple banks.

The CDARS is a national program developed by Promontory Interfinancial Network, LLC, which allows participating insured institutions4 to arrange for allocation of deposits in excess of the $100,000 per account FDIC insurance limit by spreading deposits among several institutions in amounts that are eligible for FDIC insurance. This occurs in increments of less than $100,000 to ensure that both principal and interest are eligible for full FDIC insurance.5  In exchange, the institution receives reciprocal deposits from other institutions and their depositors in an amount equal to the original deposit. The CDARS advertises that twelve banks in Michigan participate in its program.6  However, the CDARS participating institutions must allow the allocation of deposits and receipt of reciprocal deposits from other participating institutions without regard to geographic location.

A hypothetical example will serve to help illustrate how this works.7  Assume a depositor has $130,000 to invest in CDs and has expressed an interest in participating through its local bank, Bank A, in the CDARS program. Bank A will provide the depositor with a list of participating institutions in which a portion of the original deposit will be deposited. While a depositor participating in the CDARS program will be provided an opportunity to designate institutions to be excluded from receiving any deposits, that opportunity does not extend to allowing the depositor to limit deposits to insured institutions having their principal or branch offices in Michigan. If the depositor consents to participation in the CDARS program, that has the effect of authorizing a portion of the $130,000 to be placed in an insured institution selected without regard to the location of its principal or branch offices. Bank A then issues a CD worth $95,000, leaving room for interest, and sends the remaining $35,000 to Promontory Interfinancial Network, which arranges for Bank B to issue the depositor a CD for the remaining $35,000. In return, Bank B buys $35,000 in CDs for its customers from Bank A. Promontory Interfinancial Network acts as a clearinghouse by matching deposits from one institution with another so that an amount corresponding to the funds a bank places with other institutions through the CDARS program is invested in that bank by other institutions and, therefore, remains on the bank's balance sheet.8  In the example, the depositor would have invested $130,000 – $95,000 in a CD issued by Bank A and $35,000 in a CD issued by Bank B. The total amount would be eligible for FDIC insurance because it was allocated in CDs issued by two banks.

You indicated that the FDIC has determined that deposit insurance provided under the Federal Deposit Insurance Act, 12 USC 1821(a), as implemented by the FDIC regulations, 12 CFR Part 330, is available on deposits placed through the CDARS system.9

MCL 129.91(1)(b) and (5) provide that a public corporation may invest its funds in "[c]ertificates of deposit . . . of a financial institution." To qualify as a "financial institution," the bank must maintain its principal office or a branch office in Michigan. Financial institutions that do not maintain a principal office or branch office in Michigan are not eligible to receive deposits from a Michigan public corporation. According to information provided to this office by CDARS, only about 12 of the 1600 banks that participate in CDARS maintain offices in Michigan, and, as indicated in the hypothetical scenario above, a depositor is not permitted to specify that its funds only be invested in CDs issued by banks with offices in Michigan.

The primary task in construing a statute is to discern and give effect to the intent of the Legislature as expressed in the statutory language. Gladych v New Family Homes, Inc, 468 Mich 594, 597; 664 NW2d 705 (2003). If the language is unambiguous, as is the case in MCL 129.91(5), the Legislature is presumed to have intended the meaning it clearly expressed and no further construction is allowed. DiBenedetto v West Shore Hosp, 461 Mich 394, 402; 605 NW2d 300 (2000).

Moreover, where powers are expressly conferred, they cannot be extended by inference; indeed, the inference is that it was intended that no other or greater power was given than the power specified. Eikhoff v Detroit Charter Comm, 176 Mich 535, 540; 142 NW 746 (1913), cited in Alcona County v Wolverine Environmental Production, Inc, 233 Mich App 238, 247; 590 NW2d 586 (1998). These rules of construction emphasize that the proper role of the courts is to interpret and not write the law; it is not within the province of the judiciary to read into a statute provisions that the Legislature has not seen fit to incorporate. Piper v Pettibone Corp, 450 Mich 565, 573; 542 NW2d 269 (1995).

It is my opinion, therefore, that in accordance with section 1 of 1943 PA 20, MCL 129.91, a public corporation that elects to invest funds in certificates of deposit may only place such funds in financial institutions that maintain a principal office or a branch office located in Michigan.  Because the Certificate of Deposit Account Registry Service program commonly known as CDARS is currently structured in such a way that a participating investor must consent to the placement of its deposits with financial institutions that do not maintain a principal office or a branch office located in Michigan, a Michigan public corporation may not participate in the CDARS program.

 

MIKE COX
Attorney General

Att. 1
Att. 2

1MCL 129.91(2) provides: "A public corporation that invests its funds under subsection (1) shall not deposit or invest the funds in a financial institution that is not eligible to be a depository of funds belonging to the state under a law or rule of this state or the United States." (Emphasis added.) To answer your question, it is not necessary to address the criteria that a "financial institution" must meet to satisfy the eligibility requirement.

2Deposits in credit unions are insured under a different federal program. See 12 USC 1752a et seq.

3For convenience, references in the balance of this opinion to banks are meant to also include savings and loan associations.

4The CDARS claims national participation by over 1600 insured institutions, www.cdars.com.

5http://www.cdars.com/_docs/P2C.PublicFunds.pdf last accessed on 8/27/2007.

6http://www.cdars.com/find-cdars-state.html#MI last accessed on 8/27/2007.

7This scenario is developed from the model CDARS Deposit Placement Agreement that currently governs these transactions provided to this office by the Promontory Interfinancial Network and from additional information provided in correspondence to this office. (A copy of the agreement is attached to this opinion as Appendix A.)

8http://www.bankrate.com/brm/news/sav/20030820a1.asp last accessed on 8/27/2007.

9See FDIC Counsel letter, July 29, 2003, addressing deposit insurance coverage available for deposits purchased through the CDARS program sponsored by Promontory Interfinancial Network. (A copy of this letter is attached to this opinion as Appendix B.)