4000 - Advisory Opinions
Whether a foreign bank could be considered a deposit broker, and if they would be required to notify the FDIC of their status
February 5, 1996
Valerie J. Best, Counsel
Thank you for your letter dated December 27, 1995, concerning 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.1
Description of the Proposed Program
You advise that an unidentified U.S. bank and a foreign bank may enter into an agreement whereby the foreign bank will offer its customers the option of placing time deposits with the U.S. bank. The foreign bank will refer its existing customers to the program and will have all of the account opening materials on site. The foreign bank will then remit the funds to the U.S. bank on the customer's behalf and receive a fee for this service. You write that the interest rate that the U.S. bank will pay on these time deposits is lower than the rate it offers in its regular market area, and that the U.S. bank is well capitalized. You advise that the entire operation, prior to the remittance of the funds, will take place outside the U.S. You ask if the foreign bank would be considered a deposit broker and so required to notify the FDIC of its status as deposit broker.
Based upon my review of 12 U.S.C. 1831f--1 and informal discussions with staff at the U.S. Department of Justice, it is my view that the notification requirements set forth at 12 U.S.C. 1831f--1 do not apply extraterritorially such that a foreign bank is required to notify the FDIC of its status as a deposit broker.
My view is predicated on the understanding that the foreign bank is not engaged, directly or indirectly, in any activity in the United States other than the transmittal of the above-described funds. If the foreign bank does engage in any other activity in the United States or has operations in the U.S., the substance of my opinion may change. This opinion does not address the situation where a U.S. depository institution is operating a foreign branch.
Interest Rate Restrictions
As you may know, 12 U.S.C. 1831f limits the interest rates payable by adequately capitalized and undercapitalized depository institutions. The fact that the foreign bank in your example is not required to notify the FDIC of its status as a deposit broker does not necessarily mean that a bank or thrift that is not well capitalized may pay any rate of interest it chooses on deposits attracted from outside the U.S. Rather, the issue would be which market should be used as a reference point in calculating the maximum rate payable.2
Since your U.S. bank is well capitalized, it is not subject to the interest rate limitations imposed through 12 U.S.C. 1831f, and the question of the appropriate benchmark to use when calculating the maximum interest rate payable is academic at this time.
The views expressed in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.
I trust this fully responds to your inquiry.
2See FDIC Advisory Opinion 93--4 (Jan. 26, 1993) concerning an adequately capitalized U.S. bank. (Copy enclosed.) In that case we opined that the bank should calculate the maximum rate payable by reference to its normal market area; the fact that the depositors resided in Mexico did not persuade us in that instance that Mexico was the bank's market area (or alternatively, that the FDIC should permit the bank to use the national rate). Go back to Text