Federal Deposit Insurance Corporation v. Philadelphia Gear Corporation (1985)
- Docket
- 84-1972
- Decided
- 1985-01-01
Summary
Question: Is a standby letter of credit backed by a contingent promissory note insured as a "deposit" under the federal deposit insurance program? Conclusion: No. In light of the longstanding interpretation of the FDIC, such a letter does not create a deposit. This interpretation is consistent with Congress' intent in creating the FDIC, namely ensuring that a deposit of "hard earnings" entrusted to a bank would not lead to a tangible loss in the event of a bank failure. In this case, the standby letter of credit backed by a contingent promissory note did not entrust any noncontingent assets to the Bank. Therefore, such a letter of credit does not give rise to an insured deposit.