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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


"Primary Purpose" Exclusion From Definition of Deposit Broker

FDIC-90-21 May 29, 1990 Adrienne George, Attorney

It has been brought to our attention, through the enclosed letter written by one of your account representatives, that members of your company have been relying upon a certain exclusion to exempt *** from the definition of deposit broker, a definition which the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (hereinafter "FIRREA") inserted into the Federal Deposit Insurance Act (hereinafter the "FDI Act").

The FDI Act exclusion relied upon by *** applies to "an agent or nominee whose primary purpose is not the placement of funds with depository institutions." 12 U.S.C.A. § 1831f(f)(2)(I) (1989). In the enclosed letter, your account representative argues that, because the *** product represents less than 11% of the total gross revenues of its parent corporation, *** fits the exclusion. February 8, 1990 Letter of *** Account Representative, to ***. However, the FDIC does not construe "primary purpose" to mean primary activity; rather, we construe "primary purpose" as primary intent.

Only by defining "primary purpose" in terms of intent can one construe the exclusion you cite--the "agent or nominee" exclusion of 12 U.S.C.A. § 1831f(f)(2)(I) -- in keeping with the previous exclusions (C) through (H). All of these previous exclusions omit from the category of deposit broker those who act in a fiduciary capacity, primarily intending the financial betterment of some trust, pension plan or employee benefit plan, and thus those who are without the primary purpose (intent) of placing funds with insured depository institutions. 12 U.S.C.A. § 337.6(a)(2)(B)(ii)(C) through (H).

Further, the definitions of brokered deposits and deposit broker in FIRREA are broad and far-reaching, and a glance through the legislative history on this subject shows that Congress intended them to be this way. To say that a company must derive more than 50% of its profits from brokered deposits--or spend more than 50% of its time acting as a deposit broker--before the regulation's prohibition against brokered deposits will apply, is to eviscerate the regulation.

Thus, based on the information we have received concerning *** and construing "primary purpose" as we do, *** does not qualify for the exclusion it claims.

I hope that this information will be useful to you. If I can be of any further help, I can be reached at (202) 898-3859.


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