4000 - Advisory Opinions
Advertisement of FDIC Insurance by Savings Associations
September 21, 1989
John L. Douglas, General Counsel
Chairman L. William Seidman and Director C. C. Hope, Jr. have asked me to respond to your letters to each of them dated August 24, 1989. In your letters you object to advertisements that refer to savings associations as "FDIC-insured." You urge the FDIC to immediately issue a regulation prohibiting savings associations from referring to any governmental agency as their insurer in any advertisement, in any media.
While we are sympathetic with your concerns and the arguments you advance, we do not find any clear and convincing evidence that Congress intended to restrict the ability of any FDIC-insured institution from advertising that fact. It is of course possible that had Congress directly addressed the issue of advertisements by savings associations, it might have precluded their ability to refer to themselves as "FDIC-insured." Congress did not do so, however, and absent such a clear statement from Congress, we are reluctant to attempt to restrict any such advertisement by a savings association that is both factually correct and not misleading.
Savings associations are by definition FDIC-insured. Section 204 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") amends section 3(c) of the Federal Deposit Insurance Act by adding the newly defined term "insured depository institution." The term "insured depository institution" is defined to mean "any bank or savings association the deposits of which are insured by the Corporation pursuant to this Act." In addition, section 202 of FIRREA amends section 1 of the Federal Deposit Insurance Act. Section 1 now reads: "There is hereby created a Federal Deposit Insurance Corporation (hereinafter referred to as the Corporation') which shall insure, as hereinafter provided, the deposits of all banks and savings associations which are entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted." (Emphasis added.)
We recognize that the law prescribing the savings association sign states that "[t]he sign shall not contain any reference to a Government agency . . . ." We do not agree, however, that this language can be construed to mean that a savings association may not refer to the FDIC under any circumstances.
Our interpretation of this provision finds support in the legislative history of FIRREA. In one of the few statements addressing this issue and contained in the legislative history it was stated: "I would expect that thrifts and banks would advertise that they are insured through the FDIC, an agency of the Federal Government. That is a fact." 135 Cong. Rec. S10211 (daily ed. August 4, 1989) (statement of Sen. Roth).
We do not believe an advertisement in which a savings association states it is FDIC-insured is misleading. We could require that any statement include a reference to the specific fund (i.e. the Bank Insurance Fund or the Savings Association Insurance Fund) of which the institution is a member. We are not convinced, however, that such a requirement is appropriate. Since both funds are backed by the full faith and credit of the United States, no useful purpose is achieved by differentiating the funds in advertisements.
As you are aware, the issue of advertising by financial institutions is of great importance to the FDIC. We are concerned that the public not be misled, and are determined to carry out the intent of Congress in this regard. For these very reasons the FDIC issued an Advance Notice of Proposed Rulemaking on the same day that FIRREA was enacted into law.
The Advance Notice states that the FDIC is considering requiring each insured savings association to display a statement in its advertisements to the effect that its deposits are federally insured. In the alternative, the FDIC is considering eliminating the FDIC's current regulation which requires an insured bank to display an official advertising statement in its advertisements. Through the Advance Notice the FDIC has asked the public to comment on the appropriateness of either action.
The Administrative Procedure Act requires the FDIC, with certain limited exceptions, to give notice of proposed rulemaking and to give interested persons an opportunity to participate in the rulemaking through submission of written data, views, or arguments. We believe it is appropriate in this instance to provide notice and comment before implementing any advertising regulations. We anticipate further action, within the limits permitted by the law, will be taken by the FDIC to address these issues upon completion of the notice and comment requirements. You should note, however, that section 18 of the Federal Deposit Insurance Act as amended by FIRREA no longer mandates a statement of insurance coverage in advertisements.
We appreciate your interest and concern in this issue. Your comments have been added to the public file in the rulemaking process in order that the Board of Directors will have the benefit of your views, along with all of the other comments we have received, as it deliberates the alternatives for a final regulation.