4000 - Advisory Opinions
Section 29 of FDI Act--Effects of an Institution's Inability to Accept Brokered Deposits on Pass-Through Coverage and the Written Notice Requirement
September 23, 1993
Joseph A. DiNuzzo, Senior Attorney
Your first question is, in essence, how often must an insured depository institution that cannot accept brokered deposits (under section 29 of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. 1831f) but meets each applicable capital standard provide the written notification that employee benefit plan deposits are entitled to "pass-through" insurance coverage (under section 330.12(b) of the FDIC's regulations, 12 C.F.R. 330.12(b))? Section 330.12(b) requires that the depositor receive a written statement from the institution "at the time the deposit is accepted." This language is the same as that used in section 11(a) of the FDI Act (12 U.S.C. 1821(a), as amended by section 311 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102--242, 105 Stat. 2236). The preamble published with the FDIC's revised insurance rules explains that, as used in the statute, the expression "at the time the deposit is accepted" contemplates that the written statement be given each time a deposit is made "which means each time additional funds are deposited in the insured institution." 58 Fed. Reg. 29,957 (May 25, 1993).
The answer to your first question, therefore, is that a written notice must be given each time an employee benefit plan deposit is made during the time the institution cannot accept brokered deposits under section 29 of the FDI Act. We do not believe this conclusion is inconsistent with the interpretation provided in the preamble to the revised insurance coverage rules that, for purposes of "pass-through" deposit insurance coverage, an insured institution's capital category is, in effect, held constant for an entire calendar quarter, "unless there is an intervening event which causes the institution to be in a different category." Id. at 29, 955. Thus, the written notice would have to be provided every time an employee benefit plan deposit is made, but the institution's capital category will remain constant for the calendar quarter, unless an "intervening event" has occurred.
As I understand it, your second question is whether employee benefit plan deposits made when such deposits are not eligible for "pass-through" insurance coverage become eligible for "pass-through" coverage if the institution can later accept brokered deposits under section 29 of the FDI Act. Section 330.12 of the FDIC's regulations and the underlying language of section 11(a) of the FDI Act make clear that the critical time in determining whether "pass-through" insurance coverage is available for an employee benefit plan deposit is when the deposit is "accepted." If an employee benefit plan deposit is eligible for "pass-through" insurance coverage at the time the deposit is accepted, then the deposit will continue to be eligible for such coverage until the deposit is withdrawn or, as discussed below, rolled over or renewed (even if the institution later cannot accept brokered deposits). Conversely, employee benefit plan deposits accepted when they are not eligible for "pass-through" insurance coverage remain ineligible even if the institution's capital position later improves so that new deposits are eligible for "pass-through" coverage.
The preamble to the revised rules concludes, in essence, that renewed and rolled-over deposits are new deposits for purposes of determining whether "pass-through" coverage is available. The preamble notes that if such deposits are not deemed to be the acceptance of new deposits" . . . the intent of Congress to provide pass-through' insurance coverage only in institutions that meet minimum capital requirements could be circumvented . . . [because] deposits . . . could be automatically rolled over or renewed indefinitely and be entitled to pass-through' insurance regardless of the capital level of the institution each time the deposit is rolled over or renewed." Id.
I hope this letter responds fully to your questions. Feel free to phone me at (202) 898-7349 with any additional questions or comments.