FDIC Federal Register Citations

Re: Being Engaged in the Business of Receiving Deposits Other Than Trust Funds
(66 FR 20102)

Dear Mr. Feldman:

The Conference of State Bank Supervisors ("CSBS")¹ welcomes the opportunity to respond to the Federal Deposit Insurance Corporation's ("FDIC's") proposal² ("proposal") to issue a regulation formalizing the FDIC's long-standing interpretation of the Federal Deposit Insurance Act ³("FDI Act") that being "engaged in the business of receiving deposits other than trust funds" is satisfied by the continuous maintenance of one or more non-trust deposits in the aggregate amount of $500,000. CSBS believes that this issue has nationwide significance for the state banking industry, and supports the FDIC's proposal. We offer the following remarks to supplement the comments articulated in our January 12, 2001 petition to the FDIC. (See below.) We ask that the FDIC consider both responses to reflect CSBS' view on this extremely important issue.

Statutory Precedent

The FDIC's proposal is aligned with Congress' recognition that some entities may qualify for FDIC insurance even if they do not regularly accept all deposits from the general public. For example, the Bank Holding Company Act of 1956⁴ was amended by Congress to establish provisions for entities such as credit card banks⁵ and limited purpose trust institutions.⁶ We therefore believe that the FDIC's proposal implements the FDI Act in a manner that is consistent with congressional intent and statutory precedent.

Special Circumstances

The FDIC also asks whether it should create any exceptions to the general rule described in the proposal⁷. We believe the threshold minimum of $500,000 in non-trust deposits is an appropriate dollar amount. However, we also believe that there may be some circumstances in which an institution is eligible for deposit insurance even though it has less than $500,000 in non-trust deposits. For example, a new institution may need a certain period of time before it is able to attain the minimum amount of non-trust deposits. We therefore request that the FDIC revise its proposal to include a limited number of well-defined exceptions to the general rule requiring an institution to maintain one or more non-trust deposits in the aggregate amount of $500,000.

Conclusion

Therefore, CSBS supports the FDIC's proposal formalizing the FDIC's interpretation of the FDI Act that being "engaged in the business of receiving deposits other than trust funds" is satisfied by the continuous maintenance of one or more non-trust deposits in the aggregate amount of $500,000. CSBS appreciates the FDIC's response to our petition and we invite you to call on us if we can provide additional information.

Best personal regards,

Neil Milner
President and CEO
Conference of State Bank Supervisors

Attachment

_______________________

 ^{1 CSBS is the national organization of state officials responsible for chartering, regulating and supervising the nation’s 6,868 state-chartered commercial and savings banks and 419 state-licensed branches and agencies of foreign banks.
 2 66 Fed. Reg. 20102, (Apr. 19, 2001).
 3 12 U.S.C. 1811 et seq.
 4} 12 U.S.C. 1841 note et seq.
 ⁵ 12 U.S.C. 1841 (c)(2)(F). See the Competitive Equality Banking Act of 1987, (Pub. L. 100-86, 101 Stat. 604 (Aug. 10, 1987)).
 ⁶ 12 U.S.C. 1841 (c)(2)(D).  
⁷ 66 Fed. Reg. 20106, (Apr. 19, 2001).

Attachment to Letter from Mr. Milner

January 12, 2001

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Petition to Issue Regulation

Dear Mr. Feldman:

CSBS is petitioning the Federal Deposit Insurance Corporation (FDIC) to issue a regulation formalizing the FDIC's long-standing interpretation of the Federal Deposit Insurance Act¹ ("FDI Act") that being "engaged in the business of receiving deposits other than trust funds" is satisfied by the continuous maintenance of one or more non-trust deposits in the aggregate amount of $500,000.

CSBS' Interest

CSBS is the national organization of state officials responsible for chartering, regulating and supervising the nation's 6,868 state-chartered commercial and savings banks and 419 state-licensed branches and agencies of foreign banks. CSBS believes that it is necessary for the FDIC to issue a regulation formalizing the FDIC's long-standing interpretation of the FDI Act because the issue has nationwide significance for the state banking industry.

Background

The FDIC plays a crucial role in the regulation and supervision of state-chartered banks that are insured by the FDIC and are not members of the Federal Reserve System. For example, the FDIC is responsible for determining whether a state-chartered bank can obtain federal deposit insurance. The eligibility of state-chartered banks for deposit insurance depends, among other things, on whether those banks qualify as "State banks" within the meaning of the FDI Act.

Under the FDI Act, the FDIC may grant deposit insurance to "State banks" that are "engaged in the business of receiving deposits other than trust funds."² In FDIC General Counsel's Opinion Number 12, Engaged in the Business of Receiving Deposits Other Than Trust Funds (General Counsel's Opinion No. 12),³ the FDIC's General Counsel reviewed and approved the FDIC's long-standing and "consistent practice" of granting deposit insurance to state-chartered banks that accept deposits from their affiliates but do not solicit or accept deposits from the "general public."⁴ In the opinion, the FDIC specifically confirmed that the statutory requirement of being "engaged in the business of receiving deposits other than trust funds" is satisfied by the continuous maintenance of one or more non-trust deposits in the aggregate amount of $500,000. CSBS petitions the FDIC to formalize this confirmation in a regulation.

Reasons Why Petition Should Be Granted

CSBS fully supports the careful explanation of the eligibility requirements for state-chartered banks in General Counsel's Opinion No. 12. However, formalizing the FDIC's interpretation reduces the likelihood of inconsistent interpretations about the status of state-chartered banks. Inconsistent interpretations that state-chartered banks are not "State banks" under the FDI Act have adverse consequences for the safety and soundness regulation of state-chartered banks. If state-chartered banks are not "State banks" for the purpose of the FDI Act, they presumably would not be covered by the FDI Act's federal safety and soundness provisions. As a result, the FDI Act's supplemental layer of safety and soundness regulations would not apply to these banks, and state bank regulators would have to consider alternative measures to achieve similar protections, such as supplementing or altering current state law requirements. This could have significant unintended consequences for the state banking system and dramatically alter the regulatory landscape for state-chartered banks. As a result, CSBS urges the FDIC to issue a regulation formalizing the FDIC's interpretation of the FDI Act, as described in General Counsel's Opinion No. 12.

Conclusion

For the reasons described above, CSBS requests that the FDIC grant its petition to issue a regulation implementing the FDIC's long-standing interpretation of the FDI Act that being "engaged in the business of receiving deposits other than trust funds" is satisfied by the continuous maintenance of one or more non-trust deposits in the aggregate amount of $500,000, as described in General Counsel's Opinion No. 12. Further, given the importance of this issue, we suggest the FDIC consider issuing the regulation as an interim final rule.

CSBS appreciates this opportunity to participate in the regulatory process. We invite you to call on us if we can provide additional information.

Best personal regards,

Neil Milner
President and CEO
Conference of State Bank Supervisors

_______________________

 ^{1 12 U.S.C. 1811 et seq.
 2} 12 U.S.C. 1813 (a)(2)(A) and 1815(a)(1)
 ³ 65 Fed. Reg. 14,568 (Mar. 17, 2000)
 ⁴ 65 Fed. Reg. 14,572 (Mar. 17, 2000)