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FDIC Federal Register Citations |
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| July 18, 2001 Robert E. Feldman Executive Secretary Attn: Comments/OES Federal Deposit Insurance Corporation 550 17th Street, NW Washington, DC 20429 Re: Notice of Proposed Rulemaking: Being Engaged In the Business of Receiving Deposits Other Than Trust Funds Dear Mr. Feldman: I represent VW Credit, Inc. and its subsidiary, Volkswagen Bank USA (in formation) and appreciate this opportunity to present our position on the addition of the proposed regulation to 12 C.F.R., Part 303. We are currently in the process of establishing a new Industrial Loan Corporation that will take deposits from the public. As we will soon be applying for Federal Deposit Insurance Corporation insurance, it would be tremendously helpful to us to have clear and authoritative guidance on the prerequisites we must satisfy. We believe that General Counsel Opinion No. 12 provides exactly the type of guidance we seek. The reasoning in that opinion (as well as the notice of proposed rulemaking) is persuasive as to (i) the adequacy of a single deposit from either the general public, a particular depositor or a particular type of depositor, (ii) the selection of a $500,000 minimum with the possibility of exceptions in appropriate circumstances and (iii) the need for a consistent standard for applications, termination and the definition of "State Bank." Proposed 12 C.F.R. § 303.14 is built upon a firm foundation of FDIC practice and policy. Applicant institutions, existing insured institutions and customers of insured institutions are entitled to the continuation of a consistent, uniform approach to "receiving deposits." The new regulation will provide that consistency and uniformity and ensure that this critical definition will not vary depending on the interpretation of any particular court or jurisdiction. Allowing the language "engaged in the business of receiving deposits other than trust funds" to have many and varied meanings might cause some institutions to needlessly lose their federal deposit insurance and, in all likelihood, their customers' confidence as well. This result, however, can be easily avoided by formalizing the agency's broad interpretation of "receiving deposits" as a rule. General Counsel Opinion No. 12 concluded that, for purposes of the Federal Deposit Insurance Act, the 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 deposit accounts in the aggregate amount of $500,000. However, that opinion stressed that "[t]his interpretation is not intended to suggest that a depository institution will necessarily not be "engaged in the business of receiving [non-trust] deposits" if it holds such deposits in the aggregate amount of less than $500,000." See 66 Fed. Reg. 20110 (Apr. 19, 2001). The Supplementary Information accompanying the Notice of Proposed Rulemaking discusses in further detail the reasoning behind the $500,000 figure. This number was chosen because it is (i) more than a nominal sum, (ii) low enough to allow non-traditional depository institutions to obtain FDIC insurance when necessary and (iii) equal to the amount of non-trust deposits allowed by the FDIC in recent years In connection with deposit insurance applications. Id. at 20106. The FDIC also acknowledged the existence of an understanding or expectation within the banking industry that holding $500,000 in deposits represents a "safe harbor." Id. Case law, interestingly, suggests that the $500,000 cutoff is too high. In Meriden Trust and Safe Deposit Co, v. FDIC, 62 F.3d 449 (2nd Cir. 1995), the court found that $200,000 in deposits was sufficient and in U.S. v. Jenkins, 943 F.2d 167 (2nd Cir. 1991), cert. denied, 502 U.S. 1014 (1991), the amount was only $150,000. In any event, there is no authority for the proposition that a depository institution must continuously hold $500,000 and no less. The FDIC has indicated a willingness both to allow exceptions for new institutions and to consider each institution's situation on a case-by-case basis. Conceivably, the FDIC would also countenance occasional fluctuations in deposit levels that temporarily reduce an already-insured institution's deposit level below the $500,000 point. Therefore, the proposed rule should be drafted to preserve the soft, "safe harbor" approach and prevent any rigid or inflexible application of the $500,000 minimum. Thank you for allowing us to comment upon this matter. Do not hesitate to contact me if you have any questions. Sincerely, Allen L. Strang Assistant General Counsel Volkswagen Credit cc: Raymond P. Specht President & CEO Volkswagen Bank USA (in formation) George Sutton, Esq.
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| Last Updated 07/19/2001 | regs@fdic.gov |