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4000 - Advisory Opinions
Company Which Never Has Actual Possession of Investor's Principal
But Facilitates Placement of Deposits Is Deposit Broker
FDIC-92-53
August 3, 1992
Valerie J. Best, Counsel
This is in response to your recent letter concerning deposit
brokers. You ask if your company and its employees are "deposit
brokers" as that term is defined in the Federal Deposit Insurance
("FDI") Act. Based upon the information provided, your company
and its employees are "deposit brokers." Please consider the
following.
{{10-30-92 p.4661}}
Activities of ***
Your company gathers pertinent data from insured depository
institutions including the rates of interest offered at various terms,
the minimum deposit necessary to acquire that rate of interest, the
geographic area from which the institutions wish to draw funds, and
data as to the financial strength of the depository institution. You
then call the institutional investor whose certificate of deposit
portfolio you manage. If that investor is in the market and finds a
rate and term that fits into their investment scheme, you disclose all
of the information known to you regarding the depository institution
selected.
Two scenarios may then unfold. Under the first scenario, you call
the depository institution and provide it with relevant information
concerning the investor (e.g., the investor's name, address,
tax identification number, contact person, term and amount of deposit
desired, etc.). The investor then wires the amount of deposit directly
from their depository institution to the receiving depository
institution. The receiving depository institution issues the
certificate of deposit. Under the second scenario, you provide the
information concerning the depository institution to the investor who
then calls the depository institution directly, provides the
information necessary to open the certificate of deposit, and then wire
transfers funds to the issuing depository institution. Under either
scenario, your company is never in possession of the investor's
principal or interest and never acts as trustee or as agent for the
investor. Your company tracks the certificate of deposit portfolio for
the investor and advises on portfolio yield, trends, and alerts the
investor to upcoming maturities that will need action. Your company is
paid a monthly fee for these services.
Definition of ``Deposit Broker''
The term "deposit broker" is 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)(A) and (B).
Several exceptions to the definition of "deposit broker" are
set out in the statute, most of them concern depositors acting in
certain, specifically described, fiduciary relationships (e.g.,
the trust department of an insured depository institution, the
trustee of a pension plan, etc.). 1
None of the exceptions appears to apply to your company or its
employees.
FDI Act Requirements Applicable to Deposit Brokers
Deposit brokers are prohibited from soliciting or placing any
deposit with an insured depository institution unless the deposit
broker has provided the FDIC with written notice that it is a deposit
broker. 2
Further, undercapitalized insured depository institutions are
prohibited from accepting funds obtained by or through any deposit
broker. Adequately capitalized insured depository institutions are
prohibited from accepting funds obtained by or through any deposit
broker unless they first obtain a waiver from the FDIC. Well
capitalized insured depository institutions, however, may accept such
funds without restriction. 3
{{10-30-92 p.4662}}
Discussion
The fact that your company is never in possession of the investor's
principal or interest and never acts as trustee or agent for the
investor, does not exempt it from the FDI Act requirements applicable
to deposit brokers. The key test is whether your company may be said to
be "engaged in the business of placing deposits, or
facilitating the placement of deposits of third parties with
insured depository
institutions . . . ." 4
In other words, the FDI Act covers scenarios where the broker
"facilitates the placement" of deposits, as well as scenarios
where the broker places deposits in its name as nominee or agent for
others. In common usage, the term "facilitate" means "to free
from difficulty or impediment; to make easy or less
difficult." 5
The activities of your company clearly make it easier for the investor
to place its deposits with insured institutions.
For the most part, the definition of "deposit broker" used in
the FDI Act is derived from regulations issued by the FDIC and the
Federal Home Loan Bank Board in 1984 that were subsequently overruled
as an invalid exercise of authority. 6
The term "deposit broker" was broadly defined in those
regulations and, likewise, is broadly defined in the statute, because
deposit brokering may occur in any one of several ways. In fact, the
discussion accompanying the 1984 regulations specifically describes as
"deposit brokering" a situation such as yours where a broker,
acting on its own or at the request of an institution or institutions,
solicits deposits from its customers, and the interested customer sends
funds directly to the receiving depository institution which has been
given notice by the broker of the impending
purchase. 7
Even where the investor, after having been contacted by you, calls the
depository institution directly to establish an account, you would be
considered to be a deposit broker because you are "facilitating the
placement" of deposits; the broad definition of deposit broker used
in the FDI Act encompasses such "match-making" or "finder"
activities.
Based on the foregoing, your company and its employees are
"deposit brokers" as that term is defined in the FDI Act. As a
result, they are subject to the registration requirements imposed by
the FDI Act. A company may file a single notice on behalf of all of its
employees and/or agents. However, the FDIC reserves the right to
require individual information at any time.
From your letter, I understand that you are also interested in the
restrictions imposed on deposit listing services. Enclosed for your
review is a letter concerning such services.
You may write to me at the above address if you have additional
questions.
{{10-30-92 p.4663}}
112 U.S.C. 1831f(g)(2)(C). Go Back to Text
212 U.S.C. 1831f--1(a). 57 Fed. Reg. 23933, 23944
(June 5, 1992) (to be codified at 12 C.F.R. 337.6(h)). Go Back to Text
312 U.S.C. 1831f. 57 FR 23933 (June 5, 1992) (to be codified at
12 C.F.R. 337.6). Go Back to Text
412 U.S.C. 1831f(1)(A) (emphasis added). Go Back to Text
5Black's Law Dictionary 591 (6th ed. 1990). Whether or not the
activities must be more than merely incidental to the placement of the
deposits is not at issue in this case, given the level of activities of
your company. Go Back to Text
6The brokered deposit amendments to Senate Bill 774 were
sponsored by Senator Murkowski. 135 Cong. Rec. S 4266 (daily ed. April
19, 1989) (statement of Sen. Murkowski). Sen. Murkowski had proposed
similar legislation to restrict brokered deposits prior to sponsoring
the amendment to Senate Bill 774. While introducing these earlier
bills, Mr. Murkowski referenced the 1984 regulations and stated that
the bills were intended to restore the provisions of the 1984 FDIC and
Federal Home Loan Bank Board regulation that was subsequently overruled
in federal court as an invalid exercise of authority. 134 Cong. Rec. S
11456 at 11457 (daily ed. August 10, 1988) and S 115999 at 11600 (daily
ed. August 11, 1988) (statements of Sen. Murkowski) and 135 Cong. Rec.
S 1418 (daily ed. February 9, 1989) and S 1934 (daily ed. March 1,
1989) (statements of Sen. Murkowski). Go Back to Text
748 Fed. Reg. 50339 (Nov. 1, 1983). Go Back to Text
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