|
[Main Tabs]
[Table of Contents - 4000]
[Index]
[Previous Page]
[Next Page]
[Search]
4000 - Advisory Opinions
Applicability of FDIC regulations regarding brokered deposits to
credit union servicors that purchase certificates of deposit from FDIC
insured banks.
May 20, 2002
FDIC--02--02
Christopher L. Hencke, Counsel
In a letter dated March 21, 2002, you requested advice about a
program conducted by the Credit Union Servicor ("Servicor") in
conjunction with Data Corporation ("Corporation"). The purpose of
the program is to enable "State" credit unions to purchase
certificates of deposit ("CDs") from FDIC-insured depository
institutions. These purchases will be made by the credit unions through
Servicor. Information about CDs will be obtained by Servicor from
Corporation. You have described the operation of the program as
follows:
Servicor will . . . provide this information
[i.e., information from Corporation about CDs], by way of online
computer accessible display, to its "State" participating credit
unions (on a net yield basis). Utilizing security codes, a
participating credit union member can, online, request that Servicor,
as an agent of the credit union, attempt to acquire a CD from a bank
designated by the participating member credit union. Servicor will, in
turn, attempt to acquire that CD (in the amount designated by the
participating credit union) for the credit union as its agent. Servicor
provides no investment advice to its participating credit union. The
Bank will be requested to treat (and record) the CD as the
participating credit union's CD. Servicor will safekeep the CD for the
participating credit union, handle the accounting for revenue, collect
interest payments (as well as redemption proceeds as requested by the
participating credit union).
In connection with this program, you have presented five specific
questions. Each of your questions is addressed in turn below.
1. ``Will Servicor be classified as a `deposit broker' as
defined in 12 C.F.R. § 337.6?''
Yes. According to your letter, Servicor "as an agent" will
purchase CDs for participating credit unions. Therefore, Servicor will
be a "deposit broker." See 12
C.F.R. § 337.6(a)(5) (defining "deposit broker" as
[a]ny person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions, or the business of placing deposits with
insured depository institutions for the purpose of selling interests in
those deposits to third parties").
As noted in your letter, the FDIC's regulations no longer require
the filing of notices by deposit brokers or the keeping of records by
deposit brokers. Although the FDIC regulates the acceptance of brokered
deposits by insured depository institutions, the FDIC does not regulate
the activities of deposit brokers.
2. ``Is Servicor, on behalf of its participating member
credit unions, restricted as it relates to placing CDs with
`adequately capitalized' (as contrasted to `well capitalized')
banks and, if so, would it be possible to obtain a blanket (or
streamlined) waiver for credit unions utilizing the program that wish
to purchase (through Servicor) such CDs?''
The FDIC's regulations involving the acceptance of brokered
deposits do not apply to deposit brokers. Rather, they apply to insured
depository institutions. Under the FDIC's regulations, an
"adequately capitalized" insured depository institution may not
accept "brokered deposits" unless the institution has obtained a
waiver from the FDIC. See
12 C.F.R. § 337.6.
Applications for waivers are submitted by adequately capitalized
insured depository institutions; they are not submitted by depositors
or deposit brokers. The FDIC does not issue any type of waiver to
depositors or deposit brokers.
{{10-31-02 p.4984.61}}
3. ``Is Servicor (and its participating member credit unions)
complying with FDIC rules and regulations in listing (but not assisting
in the CD acquisitions from) so-called `undercapitalized' banks?''
As mentioned above, the FDIC's regulations do not apply to deposit
brokers but to insured depository institutions. Nonetheless, I believe
that a deposit broker should not attempt to place funds at an
"undercapitalized" insured depository institution because the
institution will be unable to accept those funds. See
12 C.F.R. § 337.6.
Whether a "listing service" is a "deposit broker"
depends upon a number of factors identified by the FDIC in published
advisory opinions. For your convenience, I have enclosed
Advisory Opinion No. 92--54
(August 3, 1992) and Advisory Opinion
No. 93--44 (July 19, 1993).
4. ``Is Advisory Opinion FDIC–89–55 still in effect to the
effect that an inadvertent purchase of a CD by Servicor. . . from a
bank that is not then `adequately capitalized' will not affect the
FDIC insurance coverage available to the participating member credit
union?''
Yes, Advisory Opinion No.
89--55 remains valid. As explained in that advisory opinion, a
violation of the FDIC's regulations by an "adequately
capitalized" or "undercapitalized" insured depository
institution will not affect the coverage of the brokered deposit. The
insurance coverage of deposits is not affected by the condition of the
insured depository institution except in the case of the deposits of
employee benefit plans. See
12 C.F.R. § 330.14.
5. ``Assuming that the CDs are listed by the particular bank
(as will be directed by Servicor) as owned by the particular
participating member credit union utilizing Servicor as its
agent/custodian (for purposes of purchase, interest collection,
safekeeping and redemption), will the participating member credit union
receive the benefit of `pass-through' FDIC insurance protection as
contemplated in 12 C.F.R. §§ 330.7(a) and 330.5(b)(1)?''
Under the FDIC's regulations, "[f]unds owned by a principal or
principals and deposited into one or more deposit accounts in the name
of an agent, custodian or nominee, shall be insured to the same extent
as if deposited in the name of the principal(s)."
12 C.F.R. § 330.7(a). In
other words, the insurance coverage "passes through" the agent to
the principal(s) or actual owner(s). Such "pass-through" coverage
is not available, however, unless certain requirements are satisfied.
First, the account records of the insured depository institution must
disclose the existence of the fiduciary or agency relationship.
See 12 C.F.R.
§ 330.5(b)(l). Second, the ownership interest of each owner
must be ascertainable from the account records of the insured
depository institution or records maintained in good faith by the
agent. See 12 C.F.R. § 330.5(b)(2). Third, the agency relationship
must be real. This means that the party denominated as an agent
actually must be an agent and the parties denominated as owners
actually must be owners. In other words, the deposit actually must
belong to the alleged owners (and not to the alleged agent).
See 12 C.F.R.
§ 330.3(h); 12 C.F.R. § 330.5(a)(1).
Some would-be deposit brokers enter into debtor/creditor
relationships with their customers--as opposed to agency
relationships--by changing the terms of the CD issued by the insured
depository institution. For example, in purporting to sell interests in
a particular CD, a broker might offer an interest rate and a maturity
date that do not match the interest rate and maturity date of the CD.
By changing the terms, the broker assumes independent debt obligations.
By accepting these changed terms, the customer takes an ownership
interest in a claim against the broker instead of an ownership interest
in the CD. Consequently, the CD will not be insurable on a
"pass-through" basis to the customers.
In this case, you mention that interest rates will be offered on a
"net yield basis." Also, you mention a "spread in the interest
rate." I am not sure of your meaning. As explained above,
"pass-through" insurance coverage is not available unless the
interest rate and maturity date offered to the customer match the
interest rate and maturity date of the CD.
{{10-31-02 p.4984.62}}Again, the customer must be sold an
actual ownership interest in the CD issued by the insured depository
institution (as opposed to an ownership interest in a debt obligation
or debt instrument created by the broker). Also, please note that
deposit brokers must advertise interest rates in accordance with the
Truth in Savings Act and Regulation DD. See
12 C.F.R. § 230.1(c).
I hope that this information is
useful.
[Main Tabs]
[Table of Contents - 4000]
[Index]
[Previous Page]
[Next Page]
[Search]
|
