for the trust account. (§ 564.2 (c) (1) and (2).)

EXAMPLE 7

Question: G is settlor of a short-term irrevocable trust for the benefit of H University. Under the terms of the trust instrument, the university is to receive all of the income (payable annually) for two years. At the end of the two-year period, the trust is to terminate, and the corpus is to revert to G. The trustee invests $60,000 in a trust account. At the date of default, one year of the two-year term of the trust has expired. What is the insurance coverage?

Answer: Although this arrangement constitutes an express irrevocable trust, G's reversionary interest is treated, for insurance purposes, as an individual account owned by him. (§ 561.4). To ascertain the value of H University's remaining one-year income interest in the trust account, the appropriate multiplier (.03382) indicated by Table II of the present worth tables is multiplied by the account balance. H University trust estate in the account is $2,029.20. G's reversionary interest is worth $57,970.80. Assuming that G has no individual interest in any other account, the trustee is entitled to an insurance payment of $42,029.20, representing H University's entire trust estate in the account ($2,029.20) and $40,000 of G's reversionary interest. (§§ 564.2(c) (1) and 564.10).

EXAMPLE 8

Question: H and W create an irrevocable trust for the benefit of their children, S and D, in equal shares. The trust contains $200,000, of which $40,000 was contributed by W. As joint trustees, H and W invest $120,000 of these funds in a trust account. What is the insurance coverage?

Answer: The trust estate of S and D are deemed to be derived from H and W in proportion to the contribution of each to the trust. W has contributed 20% of the funds and H has contributed 80%. S and D have equal beneficial interests in the trust account. Of S's beneficial interest of $60,000, $12,000 (20%) is deemed to be derived from W and $48,000 (80%) is deemed to be derived from H. D's beneficial interest is similarly derived. The trust estate of each beneficiary derived from each settlor is separately insured to the $40,000 maximum. The $12,000 interest derived from W is fully insured, and $40,000 of the interest derived from H is insured, leaving $8,000 uninsured in the case of each beneficiary. The account is insured to a total of $104,000. (§ 564.2(c)(3)).

EXAMPLE 9

Question: X Corporation acts as servicing agent for FHA, VA and conventional mortgage loans. Each month X Corporation collects payments from approximately 2,000

mortgagors and commingles these funds in a single account. The account contains $400,000. What is the insurance coverage?

Answer: The amount of insurance coverage depends upon the terms of the contract or instrument under which X Corporation collects the funds. If it acts in the capacity of a trustee for the benefit of the mortgagors, the interest of each mortgagor is separately insured to the $40,000 maximum. If it acts in the capacity of a trustee for the lenders, the interest of each lender is separately insured to the $40,000 maximum. In either case, this insurance is separate from that afforded the individually owned funds of X Corporation invested in the institution or the individual accounts of any of the mortgagors or lenders. (§ 564.10).

If X Corporation is found to act in the capacity of an agent for either the mortgagors or the lenders, the interest of each such principal is separately insured as his individual account (but added to any other individual accounts which the principal holds in the same institution). (§ 564.3(b)).

If X Corporation is found to hold the funds as owner, or principal, with only a contractual obligation to pay to its creditors, and not as trustee or agent, the account would be insured only to the $40,000 limit. (§ 564.6).

EXAMPLE 10

Question: What is the insurance coverage on other fiduciary accounts, such as clients' funds invested in the name of a lawyer, rent security funds invested in the name of the landlord, escrow funds invested in the name of a real estate broker, litigants' funds invested in the name of a representative of a court, consignors' funds invested in the name of a market servicing agent, and similar funds invested in other custodial accounts?

Answer: Such funds are insured in the same manner as indicated in Example 9. If the funds are held in irrevocable trust pursuant to statute or trust instrument, they are insured as trust funds. If held on an agent-principal basis, they are insured as the individually owned property of the various principals. (§§ 564.3(b) and 564.10).

EXAMPLE 11

Question: A cemetery maintains an account, consisting of its general funds, in the amount of $40,000. It also maintains a properly designated trust account, containing perpetual care funds held in trust pursuant to statute or trust instrument for the benefit of various cemetery lots, in the amount of $100,000. No single perpetual care fund in the trust account exceeds $40,000. What is the insurance coverage?

Answer: The general funds account is separately insured to $40,000. Since each separate trust estate in the trust account is separately insured, the trust account is fully insured in the amount of $100,000. (§ 564.10).

EXAMPLE 12

Question: G creates a charitable trust under which the principal and income are to be used for the furtherance of legal education, in the discretion of the trustee. The trustee invests $60,000 of the trust funds in a properly designated account. What is the insurance coverage?

Answer: Since the beneficiaries under the trust are indefinite and cannot be ascertained, there can be insurance only to the basic insured amount. (§ 564.2(c) (2)). Thus, the account is insured only to $40,000, leaving $20,000 uninsured. (§ 564.10).

[39 FR 41243, Nov. 26, 1974]

Sec.

PART 565-TERMINATION OF INSURANCE

565.1 Voluntary termination of insurance. 565.2 Termination by the Corporation. 565.3 Termination of insurance resulting from removal from Federal Home Loan Bank membership.

565.4 Date of termination of insured status. 565.5 Notice to insured members. 565.8 Cessation of existence; mergers and consolidations.

565.7 Cessation of existence; other cases. 565.8 Surrender of insurance certificate.

AUTHORITY: The provisions of this Part 565 Issued under secs. 402, 407, 48 Stat. 1256, 1257, as amended; 12 U.S.C. 1725, 1730, Reorg. Plan No. 8 of 1947; 3 CFR, 1943-1948 Comp. SOURCE: The provisions of this Part 565 appear at 31 F.R. 16762, Dec. 31, 1966, unless otherwise noted.

§ 565.1 Voluntary termination of insur

ance.

Any insured institution other than a Federal savings and loan association may terminate its status as an insured institution by written notice to the Corporation specifying a date for such termination, accompanied by evidence of appropriate corporate authorization therefor.

$565.2 Termination by the Corporation.

(a) Grounds for termination. Any one or more of the following shall constitute grounds for termination by the Corporation of the status of an insured institution as an insured institution:

(1) The institution has violated its duty as an insured institution;

(2) The institution is engaging or has engaged in an unsafe or unsound practice in conducting the business of such institution;

(3) The institution is in an unsafe or unsound condition to continue operations as an insured institution; or

(4) The institution is violating or has violated an applicable law, rule, regulation, or order, or any condition imposed in writing by the Corporation in connection with the granting of any application or other request by the institution, or any written agreement entered into with the Corporation, including any agreement entered into under section 403 of the National Housing Act.

(b) Statement with respect to violations or practices or conditions. In the event the Corporation is of the opinion that one or more of the grounds enumerated in paragraph (a) of this section exists as to any insured institution, the Corporation will serve upon the institution a statement with respect to such violations or practices or conditions for the purpose of securing the correction thereof, and shall send a copy of such statement to the appropriate State supervisory authority.

(c) Notice of intention to terminate insured status. An institution served with the statement prescribed in paragraph (b) of this section shall have 120 days after service of such statement within which to make correction of the violations or practices or conditions set forth therein, or such shorter period of not less than 20 days after such service as (1) the appropriate State supervisory authority shall require, or (2) the Corporation shall require in any case where the Corporation determines that its insurance risk with respect to such institution could be unduly Jeopardized by further delay in the correction of such violations or practices or conditions. If within such time such correction has not been made or the Corporation shall not have received assurances acceptable to it that such correction will be made within a time and in a manner satisfactory to the Corporation, or in the event such assurances are submitted to and accepted by the Corporation but are not carried out in accordance with their terms, the Corporation may, if it shall determine to proceed further, issue and serve upon the institution written notice of intention to terminate the status of the institution as an insured institution. The notice shall contain a statement of the facts

39-057-75-34

constituting the alleged violation or violations or the unsafe or unsound practice or practices or condition, and shall fix a time and place for a hearing thereon.

(d) Hearing and order terminating insurance. The hearing provided for in paragraph (c) of this section shall be fixed for a date not earlier than 30 days after service of such notice. Unless the institution consents to another place, such hearing shall be held in the Federal judicial district or in the territory (as defined in section 407 of the National Housing Act, as amended) in which the principal office of the institution is located. Such hearing shall be conducted in the manner provided in Part 509 of this chapter. Unless the institution appears at the hearing by a duly authorized representative, it shall be deemed to have consented to the termination of its status as an insured institution. In the event of consent, or if upon the record made at any such hearing the Corporation finds that any violation or unsafe or unsound practice or condition specified in such notice has been established and has not been corrected within the time prescribed in paragraph (c) of this section, the Corporation may issue and serve upon the institution an order terminating the status of the institution as an insured institution.

(e) Service. Any service upon an institution required or authorized to be made by the Corporation under the provisions of this section shall be made as provided in Part 509 of this chapter. Copies of any statement, notice, or order served upon an institution, pursuant to the provisions of this section, shall also be sent to the appropriate State supervisory authority.

sions of this part shall be the date specified for such termination in the notice by the institution to the Corporation as provided by § 565.1 (or the date to which such specified date is postponed by the Corporation under subsection (c) of section 407 of the National Housing Act, as amended), or the date upon which an order of termination issued by the Corporation under § 565.2(d), or a removal from Federal Home Loan Bank membership referred to in § 565.3, becomes effective.

§ 565.5 Notice to insured members.

Upon any termination of the status of any institution as an insured institution, such institution shall submit to the Corporation, within 60 days from the date of such termination, satisfactory evidence of the giving of notice of termination of insurance of accounts to its insured members, as provided by law, together with a copy of the notice given. In the event of the failure of any such institution to submit such evidence within the 60-day period or in the event the Corporation determines the form of notice given by such institution is unsatisfactory, the Corporation may give such notice to the insured members of the institution of the termination of its status as in insured institution as the Corporation determines appropriate. § 565.6 Cessation of existence; mergers and consolidations.

Subject to the provisions of § 563.16 of this subchapter, the termination of the existence of an insured institution by merger or consolidation shall terminate, as of the effective date of such merger or consolidation, the insured status of such insured institution and all rights of its insured members to insurance by this Corporation and its liability for insurance premiums, except premiums still unpaid (including current annual premium) shall cease as of such date. § 565.7

cases.

Cessation of existence; other

In connection with any other case of cessation of existence of an insured institution, by lapse of charter, dissolution, voluntary liquidation, or otherwise than by reason of a default, the insured status of the insured institution, all rights of its insured members to insurance by this Corporation and its liability for insurance premiums, except premiums still unpaid (including current annual pre

ium) shall cease, as of the date of e distribution of its final liquidation vidend.

565.8 Surrender of insurance certificate.

Upon termination of insurance of any sured institution under this part, the ertificate of insurance shall be surrenered to the Corporation for cancellation.

ART 566-CEASE-AND-DESIST AND SUSPENSION AND REMOVAL ORDERS

ec. 66.1

Cease-and-desist orders. 66.2 Temporary cease-and-desist orders. 66.3 Removal from office and/or prohibition from participation in conduct of affairs of an insured institution. 66.4 Temporary suspension and/or prohibition.

66.5 Suspension and removal where felony charged.

66.6 Notice to State authorities. 66.7 Service.

566.8 Application of the supervisory act

with respect to service corporations. AUTHORITY: The provisions of this Part 566 issued under secs. 402, 403, 407, 48 Stat. 1256, 1257, 1260, as amended; 12 U.S.C. 1725, 1726, 1730, Reorg. Plan No. 8 of 1947; 8 OFE, 1943-1948 Comp.

SOURCE: The provisions of this Part 566 appear at 32 FR 6773, May 3, 1967, unless otherwise noted.

§ 566.1

Cease-and-desist orders.

(a) Grounds. If, in the opinion of the Corporation, any insured institution or any institution any of the accounts of which are insured is engaging or has engaged, or the Corporation has reasonable cause to believe that the institution is about to engage, in an unsafe or unsound practice in conducting the business of such institution, or is violating or has violated, or the Corporation has reasonable cause to believe that the institution is about to violate, a law, rule, or regulation or any condition imposed in writing by the Corporation in connection with the granting of any application or other request by the institution, or written agreement entered into with the Corporation, including any agreement entered into under section 403 of the National Housing Act, the Corporation may issue and serve upon the institution a notice of charges in respect thereof.

(b) Notice of charges; hearing. The notice of charges shall contain a statement of the facts constituting the alleged

violation or violations or the unsafe or unsound practice or practices, and shall fix a time and place at which a hearing will be held to determine whether an order to cease and desist therefrom should issue against the institution. The hearing shall be fixed for a date not earlier than 30 days nor later than 60 days after service of such notice unless an earlier or a later date is set by the Corporation at the request of the institution. Unless the institution consents to another place, such hearing shall be held in the Federal judicial district or in the territory (as defined in subsection (q) of section 407 of the National Housing Act, as amended) in which the principal office of the institution is located. Such hearing shall be conducted in the manner provided in Part 509 of this chapter.

(c) Issuance of cease-and-desist order. Unless the institution appears at the hearing by a duly authorized representative, it shall be deemed to have consented to the issuance of a cease-anddesist order. In the event of consent, or if upon the record made at any such hearing the Corporation finds that any violation or unsafe or unsound practice specified in the notice of charges has been established, the Corporation may issue and serve upon the institution an order to cease and desist from any such violation or practice. Such order may, by provisions which may be mandatory or otherwise, require the institution and its directors, officers, employees, and agents to cease and desist from the same, and further, to take affirmative action to correct the conditions resulting from any such violation or practice.

(d) Effectiveness of order. A ceaseand-desist order shall become effective at the expiration of 30 days after the service of such order upon the institution concerned (except in the case of a ceaseand-desist order issued upon consent, which shall become effective at the time specified therein), and shall remain effective and enforceable as provided therein, except to such extent as it is stayed, modified, terminated, or set aside by action of the Corporation, or a reviewing court.

(e) Staying, modifying, terminating, or setting aside of order. Whenever any insured institution or any director, officer, employee, or agent thereof, subject to a cease-and-desist order which has become effective, believes that changed conditions of fact or law require the stay, modification, termination, or

setting aside of such order, such institution or person may seek such action by the Corporation by filing with the Corporation a petition requesting a reopening of the proceedings for that purpose. The petition shall state the changes desired, the grounds therefor, and shall include, when available, such supporting evidence as will provide the basis for a Corporation decision on the petition. Such petition and supporting information shall be filed with the Corporation by delivering two copies thereof to the Secretary to the Board.

[32 F.R. 6773, May 3, 1967, as amended at 37 F.R. 11558, June 9, 1972]

§ 566.2 Temporary orders.

cease-and-desist

(a) Issuance. Whenever the Corporation determines that the violation or threatened violation or the unsafe or unsound practice or practices, specified in the notice of charges served upon an institution under paragraph (a) of § 566.1, or the continuation thereof, is likely to cause insolvency (as defined in subsection (q) of section 407 of the National Housing Act, as amended) or substantial dissipation of assets or earnings of the institution, or is likely to otherwise seriously prejudice the interest of its insured members or of the Corporation, the Corporation may issue a temporary order requiring the institution to cease and desist from any such violation or practice.

(b) Effectiveness of temporary order. A temporary order shall become effective upon service upon the institution and, unless set aside, limited, or suspended by a court in proceedings authorized by paragraph (2) of subsection (f) of section 407 of the National Housing Act, as amended, shall remain effective and enforceable pending the completion of the administrative proceedings held pursuant to the notice of charges and until such time as the Corporation shall dismiss the charges specified in such notice or, if a cease-and-desist order is issued against the institution pursuant to § 566.1(c), until the effective date of any such order.

§ 566.3 Removal from office and/or prohibition from participation in conduct of affairs of an insured institution.

(a) Grounds. (1) Whenever, in the opinion of the Corporation, any director or officer of an insured institution has

committed any violation of law, rule, or regulation, or of a cease-and-desist order which has become final (as defined in subsection (q) of section 407 of the National Housing Act, as amended), or has engaged or participated in any unsafe or unsound practice in connection with the institution, or has committed or engaged in any act, omission, or practice which constitutes a breach of his fiduciary duty as such director or officer, and the Corporation determines that the institution has suffered or will probably suffer substantial financial loss or other damage or that the interests of its insured members could be seriously prejudiced by reason of such violation or practice or breach of fiduciary duty, and that such violation or practice or breach of fiduciary duty is one involving personal dishonesty on the part of such director or officer, the Corporation may serve upon such director or officer a written notice of its intention to remove him from office.

(2) Whenever, in the opinion of the Corporation

(1) Any director or officer of an insured institution, by conduct or practice with respect to another insured institution or other business institution which resulted in substantial financial loss or other damage, has evidenced his personal dishonesty and unfitness to continue as a director or officer, or

(ii) Any other person participating in the conduct of the affairs of an insured institution, by conduct or practice with respect to such institution or other insured institution or other business institution which resulted in substantial financial loss or other damage, has evidenced his personal dishonesty and unfitness to participate in the conduct of the affairs of such insured institution, the Corporation may serve upon such director, officer, or other person a written notice of its intention to remove him from office and/or to prohibit his further participation in any manner in the conduct of the affairs of such institution. A copy of such notice shall also be served upon the institution.

(b) Notice of intention to remove from office and/or to prohibit further participation in conduct of affairs; hearing. The notice of intention to remove a director, officer, or other person from office and/or to prohibit his further participation in any manner in the conduct of the affairs of the institution, shall contain a statement of the facts constituting grounds therefor and shall fix a time and place