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4000 - Advisory Opinions
Mere Knowledge on Part of Insured Depository Institution That it
is Accepting Funds from Broker is Sufficient to Subject Institution to
Brokered Deposit Restrictions Based on Its Capital Category
FDIC--92--73
October 27, 1992
Valerie J. Best, Counsel
I am writing in response to your letter dated June 19, 1992,
concerning brokered deposits. You write that your institution, which is
adequately capitalized, has funds which have been placed with you on
behalf of third parties, but that you did not solicit
those
{{12-31-92 p.4683}}funds and you do not pay fees for those
funds. You ask us to confirm your understanding that these funds are
not "brokered deposits."
It appears that there may have been some miscommunication on this
matter between you and FDIC staff. I hope that this letter better
explains our views.
The Federal Deposit Insurance Act ("FDI Act") provides that
insured depository institutions that are not well capitalized "may
not accept funds obtained, directly or indirectly, by or
through any deposit broker for deposit into one or more deposit
accounts." 12 U.S.C. § 1831f(a).
The term "deposit broker" is broadly defined in section 29 of
the FDI Act to mean
(A) any 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; and
(B) an agent or trustee who establishes a deposit account to
facilitate a business arrangement with an insured depository
institution to use the proceeds of the account to fund a prearranged
loan.
12 U.S.C. § 1831f(g)(1). 1
Several exceptions to the definition of "deposit broker" are
set forth in the statute. Most of these exceptions concern depository
institutions acting in certain specifically described fiduciary
relationships (e.g., the trust department of an insured
depository institution, the trustee of a pension plan or other employee
benefit plan, etc.). None of the exceptions appear to apply in this
instance.
FDIC regulations define a "brokered deposit" as "any
deposit that is obtained, directly or indirectly, from or through the
mediation or assistance of a deposit broker." 12 C.F.R.
§ 337.6(a)(3).
Given the above-quoted statutory and regulatory provisions, the fact
that an insured depository institution does not pay a fee to the person
or entity placing funds belonging to third parties with the institution
does not necessarily mean that the funds are not received from a
deposit broker. Likewise, the fact that an insured depository
institution does not solicit 2
the person or entity placing funds belonging to third parties with the
institution does not necessarily mean that the funds are not received
from a deposit broker.
The key here is not whether the bank has solicited the funds, but
whether the bank knows or has reason to know that the funds
are being placed by a broker. If so, then the bank will be subject to
any applicable restrictions on acceptance of brokered deposits based on
its capital category. If the institution is undercapitalized, it must
refuse the funds. If the institution is adequately capitalized, then it
must obtain a waiver from the FDIC before accepting, renewing or
rolling over any such deposits. The deposit broker (third-party)
restrictions and the interest rate restrictions imposed by the FDI Act
do not apply to well-capitalized institutions.
As indicated in your letter, [Bank] is aware of the fact that
funds have been placed with it on behalf of third parties. Applying the
foregoing test, it is irrelevant that your institution did not solicit
these funds or pay fees for these funds. Mere knowledge on the part of
your institution that it is accepting funds from a broker is sufficient
to require that [Bank] be subject to the appropriate restrictions
on brokered deposits for adequately capitalized banks. Under section
337.6(b)(2)(i) of the FDIC's regulations, any adequately capitalized
insured depository institution may not accept, renew or roll over any
brokered deposit unless it has applied for and been granted a waiver of
this prohibition by the FDIC. 12
{{12-31-92 p.4684}}C.F.R. § 337.6(b)(2)(i). Accordingly,
must apply to the appropriate FDIC Regional Director for permission to
accept, renew or roll over any of its brokered deposits.
Under the statute, whether or not funds will be considered to be
obtained from or through a "deposit broker" is determined in
light of that person's activities (see 12 U.S.C.
§ 1831f(g)(1) cited above). In most instances, we would anticipate
that banks, in the normal course of business, will be able to determine
when funds are being placed by a broker. However, if an insured
depository institution either does not know the identity of the
depositor or is not aware of the fact that a broker is involved with
the placement of a deposit, then a different issue is presented which
we do not address in this opinion.
I trust this is responsive to your inquiry. Please call me at (202)
898-3812 or write to me at the above address if you have any additional
questions.
1Final regulations adopted by the FDIC on May 29, 1992, to
implement the new brokered deposit prohibitions adopted the
above-quoted definition from the statute without change. 57 Fed. Reg.
23933, 23942 (June 5, 1992) (to be codified at 12 C.F.R.
§ 337.6(a)(5)(i)(A) and (B)). Go Back to Text
2In this context, we are using the term "solicit" to mean
"to try to obtain by entreaty, persuasion, or formal application; to
endeavor to obtain by asking or pleading." Go Back to Text
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