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4000 - Advisory Opinions
Bank Acts As Deposit Broker When It Occasionally Invests in CDs
With Other Insured Depository Institutions on Behalf, of Its Customers
FDIC--93--14
February 24, 1993
Valerie J. Best, Counsel
This is in response to your letter dated December 15, 1992,
regarding brokered deposits.
You state that *** ("Bank") assists about half a dozen of its
large customers in obtaining certificates of deposit ("CDs") with
money center banks. These customers desire a higher rate than the Bank
is willing to pay. In order to accommodate these customers, the Bank
agrees to act as agent in purchasing money center CDs. The volume of
this business is rather small in terms of the Bank's size and
operations; the Bank typically places only five CDs each month, for a
total amount of approximately $500,000. There are currently no CDs in
effect.
You ask if the Bank qualifies for the regulatory exclusion from the
definition of "deposit broker" found in 12 C.F.R.
337.6(a)(5)(ii)(I) because the Bank's primary purpose is not the
placement of funds with depository institutions. It is our view that
the Bank is acting as a deposit broker when it invests in CDs with
other insured depository institutions, so therefore it must register as
a deposit broker.
Relevant Statutory Provisions
The term "deposit broker" is defined, in part, to include:
"any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions. . . ." 12 U.S.C.
1831f(g)(1)(A). 1
This definition is quite broad and unless the activity in question
comes within one of the statutory or regulatory exclusions, the FDIC
must and will consider the activity deposit brokering.
{{6-28-93 p.4732}}
We believe Congress' intent in defining "deposit broker" so
broadly was to control the flow of brokered funds to all but the best
capitalized depository institutions insured by the FDIC. If, for
example, the depository institution with which your Bank places
deposits is "well capitalized" (as defined in 12 C.F.R.
337.6(a)(10)), then treating your Bank as a deposit broker would not
impede the placement of those funds with that depository institution.
Conversely, if the depository institution is not well capitalized, then
the other limiting provisions of the statute and regulation would
apply. We believe this interpretation is consistent with the literal
and intended meaning of the statute.
Conclusion
The activities of the Bank bring it within the definition of
"deposit broker." Further, it does not appear to qualify for any
of the exceptions permitted by the statute and regulation. There
appears to be no substantial purpose for the arrangement other than the
placement of funds in insured depository institutions. Your Bank does
not exercise any investment discretion but acts solely at the
instruction of the customer.
Consequently, the Bank is a deposit broker as to funds placed with
other insured depository institutions. As such, the Bank would have to
register with the FDIC as a deposit broker. The registration
requirements are outlined on page 3 of the enclosed financial
institutions letter.
I trust that this has been responsive to your
inquiry.
1Our final regulation on brokered deposits adopts a definition
of "deposit broker" identical to that set forth in the statute as
quoted above. See 12 C.F.R. 337.6(a)(5)(i)(A). Go Back to Text
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