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5500 - General Counsel's Opinions
General Counsel's Opinion No. 12, Engaged in the Business of
Receiving
Deposits Other Than Trust Funds
Introduction
The FDIC is authorized to approve or disapprove applications for
federal deposit insurance. See 12
U.S.C. 1815. In determining whether to approve deposit
insurance applications, the FDIC considers the seven factors set forth
in the Federal Deposit Insurance Act (FDI Act). These factors are (1)
the financial history and condition of the depository institution; (2)
the adequacy of the institution's capital structure; (3) the future
earnings
{{2-28-01 p.5559}}prospects of the institution;
(4) the general character and fitness of the management of the
institution; (5) the risk presented by the institution to the Bank
Insurance Fund or the Savings Association Insurance Fund; (6) the
convenience and needs of the community to be served by the institution;
and (7) whether the institution's corporate powers are consistent with
the purposes of the FDI Act. 12 U.S.C.
1816. Also, the FDIC must determine as a threshold matter that
an applicant is a "depository institution which is engaged in the
business of receiving deposits other than trust funds * * *."
12 U.S.C. 1815(a)(1).
Applicants that do not satisfy this threshold requirement are
ineligible for deposit insurance.
The FDIC applies the seven statutory factors in accordance with a
"Statement of Policy on
Applications for Deposit Insurance." See 63 FR 44752 (August
20, 1998). The Statement of Policy discusses each of the factors at
length; however, it does not address the threshold requirement that an
applicant be "engaged in the business of receiving deposits other
than trust funds."
The threshold requirement for obtaining federal deposit insurance is
set forth in section 5 of the FDI Act. See 12 U.S.C. 1815(a)(1). The
language used by section 5 ("engaged in the business of receiving
deposits other than trust funds") also appears in section 8 and
section 3 of the FDI Act. Under section 8, the FDIC is obligated to
terminate the insured status of any depository institution "not
engaged in the business of receiving deposits, other than trust
funds * * *." 12 U.S.C.
1818(p). In section 3, the term "State bank" is defined
in such a way as to include only those State banking institutions
"engaged in the business of receiving deposits, other than trust
funds * * *." 12 U.S.C.
1813(a)(2). This definition is significant because the term
"State bank" appears in a number of sections of the FDI Act.
For many years the FDIC has applied the statutory phrase on a
case-by-case basis. In applying the phrase, the FDIC has approved
applications from institutions that did not intend to accept non-trust
deposits from the general public. The FDIC has thus found that the
acceptance of non-trust deposits from the public at large is not a
necessary component of being "engaged in the business of receiving
[non-trust] deposits." The acceptance of non-trust deposits from a
particular group (such as affiliates or trust customers) has been
deemed by the FDIC to be sufficient.
Prior to 1991 the Office of the Comptroller of the Currency (OCC)
was responsible for determining whether new national banks would be
"engaged in the business of receiving [non-trust] deposits."
See 12 U.S.C. 1814(b) (1980).
The OCC similarly never adopted an interpretation that would require
new national banks to accept non-trust deposits from the general
public.
The long-standing practices of the FDIC and the OCC have not been
sufficient to remove all questions as to the proper interpretation of
being "engaged in the business of receiving deposits other than
trust funds." Questions have arisen from time to time about the
application of the agencies' long-standing interpretation in the
context of certain non-traditional depository institutions, such as
credit card banks and trust companies.
The purpose of this General Counsel's opinion is to clarify the
Legal Division's interpretation of being "engaged in the business
of receiving deposits other than trust funds." Although the primary
purpose of this opinion is to provide guidance to applicants for
deposit insurance under section 5 of the FDI Act, the interpretation in
this opinion also applies to section 8 (dealing with terminations) and
section 3 (definition of "State bank").
Factors
A number of factors must be considered in determining whether a
depository institution should be regarded by the FDIC as "engaged in
the business of receiving deposits other than trust funds." These
factors are (1) the statutory language; (2) the legislative history;
(3) the practices of the FDIC and the OCC; (4) construction with
other federal banking law; (5) the relevant case law; and (6) State
banking statutes. Below, each of these factors is considered in
interpreting the statutory phrase in the FDI Act.
{{2-28-01 p.5560}}
Statutory Language
Under section 5 of the FDI Act an applicant cannot obtain federal
deposit insurance unless it is "engaged in the business of receiving
deposits other than trust funds." 12
U.S.C. 1815(a)(1). The Act does not define "engaged in the
business of receiving deposits other than trust funds"; however, it
defines "deposit" and "trust funds." See
12 U.S.C. 1813(l);
12 U.S.C. 1813(p). The former
term ("deposit") includes but is not limited to the latter term
("trust funds"). See 12 U.S.C.
1813(l)(2). The latter term is defined as funds held by an
insured depository institution in a fiduciary capacity, including funds
held as trustee, executor, administrator, guardian or agent. See
12 U.S.C. 1813(p).
An applicant cannot be insured by the FDIC if it receives "trust
funds" alone. Under section 5, it also must be engaged in the
business of receiving non-trust or non-fiduciary deposits. Generally,
the FDI Act defines "deposit" as the unpaid balance of money or
its equivalent received or held by a bank or savings association in the
usual course of business and for which it has given or is obligated to
give credit, either conditionally or unconditionally, to a commercial,
checking, savings, time, or thrift account, or which is evidenced by
its certificate of deposit, thrift certificate, investment certificate,
certificate of indebtedness or other such certificate. See
12 U.S.C. 1813(l)(1).
The corollary to section 5 of the FDI Act is section 8. Under the
latter section the FDIC must terminate the insured status of any
depository institution "not engaged in the business of receiving
deposits, other than trust funds * * *."
12 U.S.C. 1818(p).
Significantly, section 8 does not provide for any judicial
determination of whether a depository institution is "not engaged in
the business of receiving [non-trust] deposits" or judicial review
of the FDIC's finding on this issue. Rather, section 8 provides that
the FDIC's finding is "conclusive." See id.
The statutory phrase ("engaged in the business of receiving
deposits, other than trust funds") also appears in section 3. In
that section, the term "State bank" is defined in such a way as
to include only those State banking institutions "engaged in the
business of receiving deposits, other than trust funds * * *."
12 U.S.C. 1813(a)(2).
The statutory language is not unambiguous but requires
interpretation by the FDIC in a number of respects. The statute does
not specify whether a depository institution must hold a particular
dollar amount of deposits in order to be "engaged in the business of
receiving [non-trust] deposits." Similarly, the statute does not
specify whether a depository institution must accept a particular
number of deposits within a particular period in order to be
"engaged in the business of receiving [non-trust] deposits." In
addition, the statute does not specify whether a depository institution
must accept non-trust deposits from the general public as opposed to
accepting deposits from one or more members of a particular group (such
as affiliates or trust customers). All these questions are unanswered
and left to the FDIC for consideration and determination.
One possible interpretation is that an insured depository
institution must receive a continuing stream of non-trust deposits from
the general public. The statute refers to the "receiving" of
"deposits"; however, the statute also defines "deposit" in
such a way as to equate "receiving" and "holding." See
12 U.S.C. 1813(l)(1). Moreover,
the statute recognizes that a single deposit can be accepted or
"received" many times through rollovers. See
12 U.S.C. 1831f(b) (dealing
with the acceptance of brokered deposits). Thus, the word
"receiving" in the statute can be reconciled with the
holding--and periodic renewal or rollover--of a single certificate of
deposit. Similarly, the plural word "deposits" is not
inconsistent with the holding of a single deposit account because
multiple deposits of funds can be made into a single account. A
depositor might, for example, make a deposit of funds every month into
the same account. The accrual of interest would represent an additional
deposit into the same account. In the case of a certificate of deposit,
the deposit would be replaced with a new deposit at
maturity.
{{2-28-01 p.5561}}
The ambiguity of the statutory language results from the nature of
the banking business. The opening of a deposit account does not
represent a completed, isolated transaction. Rather, the opening of an
account initiates a continuing business relationship with periodic
withdrawals, deposits, rollovers and the accrual of interest. For this
reason the statutory phrase ("engaged in the business of receiving
deposits other than trust funds") can be interpreted as encompassing
the holding of one or few non-trust deposit accounts. Nothing in the
statute specifies that an institution must receive a continuing stream
of non-trust deposits from the general public.
Legislative History
The phrase "engaged in the business of receiving deposits" can
be traced to the Banking Act of 1935 (Pub. L. 74--305). In that Act the
term "State bank" was defined as any bank, banking association,
trust company, savings bank or other banking institution "which is
engaged in the business of receiving deposits." This qualification
has been retained in the FDI Act, which also defines "State bank"
in such a manner as to include only those institutions "engaged in
the business of receiving deposits, other than trust funds."
12 U.S.C. 1813(a)(2).
The qualification relating to "trust funds" can be traced to
the Banking Act of 1950 (Pub. L. 81--797). In the applicable House
Report the purpose of this qualification is explained as follows:
"The term State bank' is redefined to exclude banking
institutions (certain trust companies) which do not receive deposits
other than trust funds. There appears to be no necessity for such
institutions being insured, as they place most of their uninvested
funds on deposit in insured banks, retaining only nominal amounts, if
any, in their own institutions." H.R. Rep. No. 2564, reprinted in
1950 U.S.C.C.A.N. 3765, 3768. The term "nominal amounts" refers
to uninvested trust funds held by the institution; it does not apply to
non-trust deposits.
The House Report indicates that a trust company cannot obtain
insurance if it does not receive any non-trust deposits. It provides no
guidance, however, as to whether a trust company can be insured if it
accepts a small amount of non-trust deposits from a particular group
(such as affiliates or trust customers) as opposed to a large amount or
continuing stream of non-trust deposits from the general public. In
essence, the House Report simply paraphrases the statutory language
that an insured depository institution must be "engaged in the
business of receiving deposits other than trust funds."
A more useful reflection of Congressional intent may be found in
legislation enacted after the FDIC and the OCC had begun to interpret
the statutory language. As discussed below, this subsequent legislation
indicates that Congress neither modified nor indicated any disagreement
with the broader construction given to the statutory phrase by the FDIC
and the OCC.
Practices of the FDIC and the OCC
The FDIC has acted on a case-by-case basis in determining whether
depository institutions are "engaged in the business of receiving
deposits other than trust funds." The FDIC has never adopted a
formal interpretation or set of guidelines. Under section 5 the FDIC
for many years has approved applications for deposit insurance from
non-traditional depository institutions with few non-trust deposits.
This practice began at least as early as 1969 with Bessemer Trust
Company (Bessemer) located in Newark, New Jersey. Originally, Bessemer
was an uninsured trust company that accepted no deposits except
deposits related to its trust business. In 1969 Bessemer decided to
offer non-trust checking accounts to its trust customers. Bessemer did
not offer non-trust deposit accounts to the general public.
Notwithstanding this fact, the FDIC approved Bessemer's application
for deposit insurance.
In the 1970s the FDIC approved more applications from banks that
intended to serve limited groups of customers. Again, the FDIC did not
object to the fact that the banks did not intend to accept non-trust
deposits from the general public. Some of these banks
were
{{2-28-01 p.5562}}"Regulation Y" trust
companies under the Bank Holding Company Act (BHCA). See
12 U.S.C. 1843(c);
12 CFR Part 225. The FDIC
took the position that the statutory language ("engaged in the
business of receiving [non-trust] deposits") should be construed
very broadly so as to promote public confidence in the greatest number
of institutions.
In the 1980s the FDIC staff reviewed the meaning of being
"engaged in the business of receiving [non-trust] deposits."
The staff noted questions about the insurance of "Regulation Y"
trust companies; the staff also noted questions as to whether the
acceptance of funds from a single non-trust depositor would represent a
sufficient level of non-trust deposit-taking. Notwithstanding these
continuing questions, the FDIC did not adopt a strict interpretation
(or any formal interpretation) of the statutory phrase. Instead, the
FDIC during this period continued to approve applications from
depository institutions with very limited deposit-taking activities.
For example, in 1984 the FDIC's Board of Directors approved an
application from Bear Stearns Trust Company located in Trenton, New
Jersey, even though the institution planned to accept non-trust
deposits only from employees and affiliates. The institution did not
intend to accept non-trust deposits from the general public.
Because the FDIC has never adopted a formal interpretation or
guidelines, the FDIC's interpretation has been subject to questions
from time to time. In 1991 the FDIC contemplated whether the insured
status of certain national trust companies should be terminated under
section 8 of the FDI Act because the trust companies held few or no
non-trust deposits. The issue was not resolved because the institutions
terminated their insurance voluntarily.
The practices of the OCC also are relevant. Prior to 1991 the OCC
was responsible for determining whether national banks satisfied the
threshold statutory requirements for obtaining deposit insurance. See
12 U.S.C. 1814(b) (1980). In
exercising this authority the OCC chartered a number of national banks
with limited deposit-taking functions on the basis that such banks were
"engaged in the business of receiving deposits other than trust
funds."
A significant statutory change occurred in 1991. At that time
Congress provided that all applicants for deposit insurance must apply
directly to the FDIC. See 12 U.S.C.
1815(a). Congress thus authorized the FDIC to make the
requisite determination as to whether any applicant for deposit
insurance would be "engaged in the business of receiving deposits
other than trust funds." In making this change, Congress made no
objection to the practices of the FDIC and the OCC in extending
insurance to institutions with limited deposit-taking activities. Thus,
Congress accepted this practice. See Lorillard v. Pons, 434
U.S. 575 (1978). In addition, Congress accepted this practice through
the enactment of certain provisions in the Bank Holding Company Act
(discussed in the next section).
Since 1991 the FDIC has approved applications for deposit insurance
from more than 70 non-traditional depository institutions holding one
or a very limited number of non-trust deposits. Some of these
institutions have been credit card banks; others have been trust
companies. Over the last two years the FDIC has received approximately
20 applications from limited purpose federal savings associations
operating as trust companies and chartered by the Office of Thrift
Supervision (OTS). Approximately 15 of these applications already have
been approved. In granting insurance to some of these institutions, the
FDIC has required the holding of at least one non-trust deposit
(generally owned by a parent or affiliate) in the amount of $500,000.
The practices of the FDIC and the OCC support a broad, flexible
interpretation of being "engaged in the business of receiving
deposits other than trust funds." The agencies have approved
applications from institutions that did not intend to accept deposits
from the general public. Neither agency has ever specifically adopted
the position that an insured depository institution must accept
non-trust deposits from the general public.
{{2-28-01 p.5563}}
The Bank Holding Company Act
The FDI Act also must be reconciled with the Bank Holding Company
Act of 1956 (BHCA) as amended by the Competitive Equality Banking Act
of 1987, Pub. L. No. 100--86 (CEBA). In the BHCA the definition of
"bank" includes banks insured by the FDIC. See
12 U.S.C. 1841(c)(1). A list of
exceptions includes institutions functioning solely in a trust or
fiduciary capacity if several conditions are satisfied. The conditions
related to deposit-taking are: (1) All or substantially all of the
deposits of the institution must be trust funds; (2) insured deposits
of the institution must not be offered through an affiliate; and (3)
the institution must not accept demand deposits or deposits that the
depositor may withdraw by check or similar means. See 12 U.S.C.
1841(c)(2)(D)(i)--(iii). The significant conditions are (1) and (2).
The first condition provides that all or substantially all of the
deposits of the institution must be trust funds; the second condition
involves "insured deposits." Thus, the statute contemplates that
a trust company--functioning solely as a trust company and holding no
deposits (or substantially no deposits) except trust deposits--could
hold "insured deposits." In other words, the BHCA contemplates
that an institution could be insured by the FDIC even though the
institution does not accept non-trust deposits from the general public.
The BHCA is difficult to reconcile fully with the FDI Act, which
mandates that all FDIC-insured institutions must be "engaged in the
business of receiving [non-trust] deposits." The appropriate way
to reconcile the BHCA with the FDI Act is for the FDIC to construe the
threshold requirement of being "engaged in the business of receiving
deposits other than trust funds" in a flexible and broad way. The
FDIC has done so by allowing depository institutions to satisfy the
statutory requirement by receiving very limited non-trust deposits.
Court Decisions
The courts have offered few interpretations of being engaged in the
specific "business of receiving deposits other than trust funds."
The leading case is Meriden Trust and Safe Deposit Company v.
FDIC, 62 F.3d 449 (2d Cir. 1995). In that case, a bank holding
company acquired two State-chartered banks insured by the FDIC. One of
these banks was Meriden Trust; the other was Central Bank. After making
the acquisitions, the holding company transferred most of the assets
and liabilities of Meriden Trust to Central Bank. Nothing was retained
by Meriden Trust except the assets and liabilities relating to its
trust business. Also, Meriden Trust held two non-trust deposits in the
aggregate amount of $200,000. One of the non-trust deposits was owned
by the holding company; the other was owned by Central Bank. In order
to maintain the ability to function as a full-service bank, Meriden
Trust did not seek to terminate its insurance from the FDIC.
Later, Central Bank failed. Meriden Trust then informed the FDIC
that it no longer considered itself an "insured depository
institution" because it had stopped accepting non-trust deposits. By
taking this position, Meriden Trust hoped to avoid liability under
section 5(e) of the FDI Act. Section 5(e) provides that an "insured
depository institution" shall be liable for any loss incurred by the
FDIC in connection with the failure of a commonly controlled insured
depository institution. See 12 U.S.C.
1815(e).
The FDIC did not agree with Meriden Trust. In court, the issue was
whether Meriden Trust was an "insured depository institution."
Under the FDI Act, the term "insured depository institution"
includes any bank insured by the FDIC including a "State bank."
See 12 U.S.C. 1813(c)(2). In
turn, "State bank" includes any State-chartered bank or trust
company "engaged in the business of receiving deposits, other than
trust funds." 12 U.S.C.
1813(a)(2)(A). Again, Meriden Trust argued that it was not
"engaged in the business of receiving deposits, other than trust
funds" because it had stopped accepting non-trust deposits from the
general public.
{{2-28-01 p.5564}}
The position taken by Meriden Trust was rejected by the federal
district court as well as the United States Court of Appeals for the
Second Circuit. The Court of Appeals relied upon the fact that Meriden
Trust held two non-trust deposits (in the aggregate amount of only
$200,000). Also, the court relied upon the fact that Meriden Trust
never obtained a termination of its status as an "insured depository
institution" in the manner prescribed by the FDI Act. Under the Act,
termination of this status requires the involvement or consent of the
FDIC. See 12 U.S.C. 1818;
12 U.S.C. 1828(i)(3).
Another noteworthy case is United States v. Jenkins, 943
F.2d 167 (2d Cir.), cert. denied, 502 U.S. 1014 (1991). In that case
the court found that the defendant had violated the Glass-Steagall Act
by engaging "in the business of receiving deposits" without
proper State or federal authorization. See 12 U.S.C. 378(a). The case
is noteworthy because the defendant was convicted for receiving a
single deposit in the amount of only $150,000.
A recent case is Heaton v. Monogram Credit Card Bank of
Georgia, Civil Action No. 98--1823 (E.D. La.). In that case credit
card holders in Louisiana have brought suit against an insured
State-chartered credit card bank in Georgia. The cardholders have
charged the bank with violating Louisiana restrictions on fees and
interest rates. In its defense the Georgia bank has cited section 27 of
the FDI Act. Under that section, a "State bank" may avoid certain
State restrictions on fees and interest rates when operating outside
its State of incorporation. See 12
U.S.C. 1831d. The key issue in the litigation is whether the
Georgia bank--holding a fixed and limited number of deposits--qualifies
as a "State bank" entitled to protection under section 27.
The Georgia bank in Heaton holds only two deposits and both are from
affiliates. As a non-party in the litigation, the FDIC informed the
court that it deemed the bank to be a "State bank" under the FDI
Act despite the bank's limited number of deposits. The court
disagreed. On November 22, 1999, the federal district court ruled on a
preliminary jurisdictional motion that the Georgia bank was not a
"State bank" because it was not "engaged in the business of
receiving deposits, other than trust funds." The Georgia bank
appealed the court's ruling to the United States Court of Appeals for
the Fifth Circuit. The case is pending before the Court of Appeals.
Meriden and Jenkins are more persuasive than the district court's
decision in Heaton. As discussed above, the Court of Appeals in Meriden
found that a trust company was "engaged in the business of receiving
[non-trust] deposits" even though it held only two non-trust
deposits in the aggregate amount of only $200,000. In part the court
relied upon the fact that the insured status of the trust company never
was terminated in the manner prescribed by the FDI Act. This reliance
was appropriate in light of the FDIC's "conclusive" authority
under section 8 to determine whether an insured depository institution
is "not engaged in the business of receiving deposits, other than
trust funds." 12 U.S.C.
1818(p).
In contrast, the Heaton court disregarded the fact that the FDIC has
never terminated the insured status of the Georgia credit card bank.
The implication of the Heaton decision is that a bank may remain
insured by the FDIC under the FDI Act even though it ceases to exist as
a "State bank" under the FDI Act. This interpretation is
irrational. It would lead to the existence of State depository
institutions that are insured by the FDIC but unregulated by every
section of the FDI Act that regulates "State banks." See,
e.g., 12 U.S.C.
1831a (regulating the activities of insured "State
banks").
Meriden and Jenkins support a broad interpretation of being
"engaged in the business of receiving deposits other than trust
funds." These cases involved and are directly relevant to banks.
There are cases outside the banking field that suggest that being
"engaged in a business" implies regularity of participation or
involvement in multiple transactions. See, e.g., McCoach v.
Minehill & Schuylkill Haven Railroad Co., 228 U.S. 295, 302
(1913); United States v. Scavo, 593 F.2d 837, 843 (8th Cir.
1979); United States v. Tarr, 589 F.2d 55, 59 (1st Cir.
1978). It is inappropriate to apply such cases (rather than Meriden
and
{{2-28-01 p.5565}}Jenkins) in the banking
business because, as previously explained, the opening of a single
deposit account initiates a continuing business relationship with
periodic withdrawals, deposits, rollovers and the accrual of interest.
State Banking Statutes
Some State banking statutes impose significant restrictions on the
ability of some depository institutions to accept non-trust deposits.
For example, a Florida statute provides that a "credit card bank"
(1) may not accept deposits at multiple locations; (2) may not accept
demand deposits; and (3) may not accept savings or time deposits of
less than $100,000. At the same time, the statute provides that the
bank must obtain insurance from the FDIC. See Fla. Stat. 658.995(3).
Thus, the statute contemplates that a bank may be "engaged in the
business of receiving [non-trust] deposits" (a necessary condition
for obtaining insurance from the FDIC) even though the bank may not
accept deposits on an unrestricted basis from the general public.
Indeed, the statute contemplates that a bank may be insured by the FDIC
even though the bank's business consists solely of making credit card
loans and conducting such activities as may be incidental to the making
of credit card loans. See Fla. Stat. 658.995(3)(f).
Similarly, a Virginia statute provides that a general business
corporation may acquire the voting shares of a "credit card bank"
only if certain conditions are satisfied. See Va. Code 6.1--392.1.A.
These conditions comprise the definition of a "credit card bank."
See Va. Code 6.1--391. These conditions include the following: (1) The
bank may not accept demand deposits; and (2) the bank may not accept
savings or time deposits of less than $100,000. Indeed, the statute
provides that a "credit card bank" may accept savings or time
deposits (in amounts in excess of $100,000) only from affiliates of the
bank having their principal place of business outside the State. See
Va. Code 6.1--392.1.A.3--4. In other words, the Virginia statute
prohibits the acceptance of any deposits from the general public. At
the same time, the statute requires the deposits of the bank to be
federally insured. See Va. Code 6.1--392.1.A.4.
A third example is the Georgia Credit Card Bank Act. Prior to a
recent amendment, this statute provided that a credit card bank could
take deposits only from affiliated parties. In other words, the Georgia
statute was similar to the current Virginia statute in prohibiting a
credit card bank from accepting deposits from the general public. See
Ga. Code Ann. 7--5--3(7) (1997). At the same time, Georgia law required
such banks to be "authorized to engage in the business of receiving
deposits." Ga. Code Ann. 7--1--4(7) (1997). Thus, Georgia law
(consistent with the current Virginia law) was based on the premise
that the receipt of deposits from the general public is not a necessary
element of being "engaged in the business of receiving deposits."
The receipt of deposits from affiliated parties was deemed sufficient.
(Under the current Georgia law, a credit card bank may accept savings
or time deposits in amounts of $100,000 or more from anyone. See Ga.
Code 7--5--3(7).)
These State laws contemplate a broad and flexible interpretation of
being "engaged in the business of receiving deposits other than
trust funds." Of course, the FDIC in applying the FDI Act cannot be
controlled by State law but the FDIC should be cognizant of the
evolving nature of banking as reflected by State laws.
Confirmation of the FDIC'S Interpretation
For more than 30 years the FDIC has approved applications for
deposit insurance from non-traditional depository institutions. During
this period the FDIC has not required the acceptance of deposits from
the general public in determining that applicants are "engaged in
the business of receiving deposits other than trust funds." On the
contrary, the FDIC has approved applications from many institutions
(such as trust companies and credit card banks) that did not intend to
solicit deposits from the general public. Indeed, some of these
institutions planned to accept no more than one non-trust deposit from
a parent or affiliate.
{{2-28-01 p.5566}}
The FDIC's consistent practice represents an interpretation of
being "engaged in the business of receiving deposits other than
trust funds." This long-standing broad interpretation is consistent
with the protective purposes of deposit insurance generally and is well
within the FDIC's discretion in light of the ambiguity of the
statutory phrase. The FDIC's long-standing interpretation also is
supported by (1) the practices of the OCC; (2) the acceptance by
Congress of the practices of the FDIC and the OCC; (3) the Bank Holding
Company Act; (4) the relevant case law; and (5) State banking statutes.
On the basis of the foregoing, I conclude that the statutory
requirement of being "engaged in the business of receiving deposits
other than trust funds" is satisfied by the continuous maintenance
of one or more non-trust deposits in the aggregate amount of $500,000
(the amount specified in a number of recent applications).
Some discussion is warranted regarding the most limited forms of
being "engaged in the business of receiving deposits other than
trust funds." It could be argued that a difference exists between
allowing depository institutions to decline non-trust deposits from the
general public and allowing depository institutions to decline all
non-trust deposits from all potential depositors with the exception of
a single deposit from a parent or affiliate. Perhaps an argument also
could be made that the minimum number of non-trust depositors or the
minimum number of non-trust deposit accounts should be greater than
one. The problem with this argument is that a single deposit account
can be divided into portions. Moreover, if the FDIC required the
existence of a particular number of depositors or the periodic
acceptance of a particular number of non-trust deposits, institutions
holding one deposit account would simply arrange for the prescribed
number of depositors to hold the funds in the prescribed number of
accounts. At periodic intervals, funds would be withdrawn and
redeposited. The FDIC should not and need not interpret the minimum
threshold requirement of the statute so as to require such stratagems.
In summary, the Legal Division believes and the General Counsel is
of the opinion that the FDIC may determine that a depository
institution is "engaged in the business of receiving deposits other
than trust funds" as required by section 5 of the FDI Act if the
institution holds one or more non-trust deposits in the aggregate
amount of $500,000. This interpretation is not intended to suggest that
a depository institution will necessarily not be "engaged in the
business of receiving [non-trust] deposits" if it holds such
deposits in the aggregate amount of less than $500,000. Rather, the
Legal Division is merely adopting the opinion that the amount of
$500,000 is sufficient for purposes of section 5 as well as section 8
(terminations) and section 3 (definition of "State bank"). If an
applicant for deposit insurance proposes to hold non-trust deposits in
a lesser amount (based on projected deposit levels), the FDIC would
need to determine in that particular case whether the applicant would
be "engaged in the business of receiving [non-trust] deposits."
Similarly, under section 8 or section 3, the FDIC will determine on a
case-by-case basis whether the holding of non-trust deposits in an
amount less than $500,000 constitutes being "engaged in the business
of receiving [non-trust] deposits."
Conclusion
Section 5 of the FDI Act provides that an applicant for deposit
insurance must be "engaged in the business of receiving deposits
other than trust funds." In the opinion of the General Counsel, on
the basis of the foregoing, the holding by a depository institution of
one or more non-trust deposits in the aggregate amount of $500,000 is
sufficient to satisfy this threshold requirement for obtaining deposit
insurance.
[Source:
65
Fed. Reg. March 17, 2000]
[End FDIC General Counsel's Opinions]
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