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4000 - Advisory Opinions
Transaction in Which an Entity Finds Insured Depository
Institutions for Trust Department Investments for a Fee or Commission
is Subject to Brokered Deposit Recordkeeping Requirements
FDIC--93--3
January 25, 1993
Valerie J. Best, Counsel
This is in response to your letter dated January 8, 1993 concerning
brokered deposits. You are a "deposit broker" as that term is
defined in 12 U.S.C. 1831f. You have notified the FDIC of your status
as a deposit broker as required by law.
Recordkeeping Requirements
You write that you are occasionally involved in transactions with
trust departments that are a division of FDIC-insured banks. You find
insured depository institutions that are looking for funds and then
recommend them to the trust departments. The trust departments makes
investments at these institutions on behalf of various investors. An
investor wires his or her funds directly to the trust department, and
the trust department then wires the funds to the institution that you
recommended. You receive fees or commissions for your services. You ask
if this type of transaction should be included in your records of
brokered deposits placed with insured institutions.
The transaction you describe does involve a brokered
deposit. 1
It is therefore subject to the following recordkeeping requirements:
A deposit broker shall maintain sufficient records of the
volume of brokered deposits placed with any insured depository
institution over the preceding 12 months and the volume outstanding
currently, including the maturities, rates and costs associated with
such deposits.
12 C.F.R. 337.6(h)(2). 2
It is likely that you already maintain such records in the ordinary
course of your business.
Deposit Insurance
You also ask if your involvement in these transactions in any way
affects the FDIC insurance on the investments that the trust
departments make if the institution acquiring this block deposit does
not meet the regulatory requirements for capital.
The fact that a deposit broker places or facilitates the placement
of funds in an insured depository institution does not reduce the FDIC
insurance coverage otherwise available for those funds.
Be advised, however, that the fact that the depository institution
acquiring the deposits does not meet its regulatory requirements for
capital, may reduce the amount of deposit insurance coverage otherwise
available if the deposits are owned by certain employee benefit plans.
Please consider the following.
As of December 19, 1992, certain employee benefit plan accounts kept
in undercapitalized institutions and other institutions not authorized
by the FDIC to accept brokered deposits will be covered only up to
$100,000 per plan, not $100,000 per participant. This is true whether
or not a deposit broker is involved in the transaction. The law
restricting "pass-through" insurance coverage refers to insured
depository institution that may not accept "brokered
deposits." This reference to "brokered deposits" does not mean
that funds involving deposit brokers are subjected to special treatment
however. Rather, the
{{6-28-93 p.4714}}reference to "brokered deposits"
is a means of identifying capital categories. A well capitalized
institution may accept brokered deposits without restriction. An
undercapitalized institution is prohibited from accepting brokered
deposits. An adequately capitalized institution that has received a
waiver from the FDIC may accept brokered
deposits. 3
I have enclosed for your review some letters and a proposed rule
that discuss the new limitations on pass-through deposit insurance in
detail. Please call me at (202) 898-3812 if you have additional
questions.
1The trust department or the bank of thrift may also be
considered a deposit broker under certain circumstances. In that event,
the funds would be considered brokered deposits even if you were not
involved in the transaction Go Back to Text
2At its option, the FDIC may require a deposit broker to file
quarterly reports regarding the volume of brokered deposits placed with
any particular insured depository institution, including the
maturities, rates and costs associated with such deposits. 12 CFR
337.6(h)(3). Go Back to Text
3An adequately capitalized institution which has not received a
waiver from the FDIC to accept brokered deposits may still retain
pass-through coverage for its employee benefit plan deposits as long as
the institution sends written notice of that coverage to their
depositors. Go Back to Text
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