[Federal Register: October 30, 2001 (Volume 66, Number 210)]
[Rules and Regulations]
[Page 54645-54651]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc01-4]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 303
RIN 3064-AC49
Engaged In The Business of Receiving Deposits Other Than Trust
Funds
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: This final rule amends the FDIC's regulations covering filing
procedures and delegations of authority, to clarify the meaning of the
phrase ``engaged in the business of receiving deposits other than trust
funds'' in the Federal Deposit Insurance Act. Under the rule, an
insured depository institution must maintain one or more non-trust
deposit accounts in the aggregate amount of $500,000 in order to be
``engaged in the business of receiving deposits other than trust
funds''. Each newly insured depository institution will be deemed to be
``engaged in the business of receiving deposits other than trust
funds'' for a period of one year from the date it opens for business.
If a newly insured depository institution fails to achieve the minimum
deposit standard by the end of that time period, it will be subject to
a determination by the FDIC that the institution is not ``engaged in
the business of receiving deposits other than trust funds'', and to
appropriate administrative action to terminate its insured status.
Similarly, each insured depository institution, other than a newly
insured depository institution, that is below the minimum deposit
standard on two consecutive call report dates will be subject to a
determination by the FDIC that the institution is not ``engaged in the
business of receiving deposits other than trust funds'', and to
appropriate administrative action to terminate its insured status. The
final rule also clarifies that the maintenance of one or more non-trust
deposit accounts in the aggregate amount of $500,000 is not a ``safe
harbor'', but rather the minimum standard in order for an institution
to be considered ``engaged in the business of receiving deposits other
than trust funds'' under the Federal Deposit Insurance Act.
EFFECTIVE DATE: November 29, 2001.
FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, (202)
898-8839, or Robert C. Fick, Counsel, (202) 898-8962, Legal Division,
Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. The Statute
The FDIC is authorized to approve or disapprove applications by
depository institutions for federal deposit insurance. See 12 U.S.C.
1815. In determining whether to approve deposit insurance applications,
the FDIC considers the seven factors set forth in section 6 of the
Federal Deposit Insurance Act (FDI Act). These factors are (1) the
financial history and condition of the depository institution; (2) the
adequacy of the institution's capital structure; (3) the future
earnings prospects of the institution; (4) the general character and
fitness of the management of the institution; (5) the risk presented by
the institution to the Bank Insurance Fund or the Savings Association
Insurance Fund; (6) the convenience and needs of the community to be
served by the institution; and (7) whether the institution's corporate
powers are consistent with the purposes of the FDI Act. 12 U.S.C. 1816.
Also, under the FDI Act, the FDIC must determine as a threshold matter
that an applicant is a ``depository institution which is engaged in the
business of receiving deposits other than trust funds * * *'' 12 U.S.C.
1815(a)(1). Applicants that do not satisfy this threshold statutory
requirement are ineligible for deposit insurance.
The FDIC applies the seven statutory factors in accordance with its
``Statement of Policy on Applications for Deposit Insurance''. See 63
FR 44752 (August 20, 1998). The Statement of Policy discusses each of
the factors at length; however, it does not address the threshold
requirement that an applicant be ``engaged in the business of receiving
deposits other than trust funds''.
The threshold requirement for obtaining federal deposit insurance
is set forth in section 5 of the FDI Act. See 12 U.S.C. 1815(a)(1). The
language used by section 5 (``engaged in the business of receiving
deposits other than trust funds'') also appears in section 8 and
section 3 of the FDI Act. Under section 8, the FDIC is obligated to
terminate the insured status of any depository institution ``not
engaged in the business of receiving deposits, other than trust funds *
* *'' 12 U.S.C. 1818(p). In section 3, the term ``State bank'' is
defined in such a way as to include only those State banking
institutions
[[Page 54646]]
``engaged in the business of receiving deposits, other than trust funds
* * *'' 12 U.S.C. 1813(a)(2).
The phrase ``engaged in the business of receiving deposits other
than trust funds'' as used in the FDI Act is ambiguous. For example,
the statute does not specify whether a depository institution must hold
a particular dollar amount of deposits in order to be ``engaged in the
business of receiving deposits other than trust funds.'' Similarly, it
does not specify whether a depository institution must accept a
particular number of deposits within a particular period in order to be
``engaged in the business of receiving deposits other than trust
funds.'' In addition, it does not specify whether a depository
institution must accept non-trust deposits from the general public as
opposed to accepting deposits only from one or more members of a
particular group (such as the institution's trust customers, its
employees or affiliates).
In applying this statutory requirement (``engaged in the business
of receiving deposits other than trust funds'') for over thirty years,
the FDIC has approved applications from many institutions that did not
intend to accept non-trust deposits from the general public. Also, the
FDIC has approved applications from institutions that only intended to
hold one type of deposit account (e.g., certificates of deposit) or
that did not intend to hold more than one or a few non-trust deposit
accounts. However, the FDIC's long-standing practice of approving
applications from such non-traditional depository institutions has not
been formally codified in such a way as to remove public uncertainty as
to the meaning of the phrase ``engaged in the business of receiving
deposits other than trust funds.''
II. General Counsel Opinion No. 12
In order to clarify this ambiguity in the statute, the FDIC
published General Counsel Opinion No. 12. See 65 FR 14568 (March 17,
2000). In that opinion, the FDIC's General Counsel stated that the
statutory requirement of being ``engaged in the business of receiving
deposits other than trust funds'' can be satisfied by the continuous
maintenance of one or more non-trust deposit accounts in the aggregate
amount of $500,000.
The purpose of General Counsel Opinion No. 12 was to remove
uncertainty as to the meaning of being ``engaged in the business of
receiving deposits other than trust funds.'' However, as indicated by a
recent court ruling, issuance of the General Counsel's opinion did not
achieve that purpose. In Heaton v. Monogram Credit Card Bank of
Georgia, 2001 WL 15635 (E.D. La. January 5, 2001) the statutory
interpretation set forth in General Counsel Opinion No. 12 was rejected
by a federal district court. As a result of the court's ruling,
uncertainty continues to exist as to the meaning of being ``engaged in
the business of receiving deposits other than trust funds.''
The phrase ``engaged in the business of receiving deposits other
than trust funds'' should not be subject to differing and, perhaps,
inconsistent judicial interpretations. Uniformity is needed. Both banks
and the public need to know that the applicable Federal banking laws
will be applied consistently throughout the United States. Moreover,
they need assurance that once the FDIC grants insurance to a bank or
thrift, the deposits at that bank or thrift will remain insured so long
as it satisfies the legal requirement of being ``engaged in the
business of receiving deposits other than trust funds,'' and the FDIC
has not terminated its insurance.
III. The Petition
The Conference of State Bank Supervisors (CSBS), an organization
representing state officials responsible for chartering, regulating and
supervising state-chartered banks, petitioned the FDIC's Board of
Directors to promulgate a regulation to clarify the meaning of the
phrase ``engaged in the business of receiving deposits other than trust
funds'' as used in the FDI Act.
An opposing letter submitted by the plaintiff in the Heaton v.
Monogram litigation questioned the timing of the regulation. In this
opposing letter, the plaintiff argued that the promulgation of a
regulation while litigation relating to this issue is pending would
represent an ``abuse of discretion'' and a ``conflict of interest.''
The plaintiff believes that no regulation should be promulgated until
the litigation is completed.
The FDIC does not agree that rulemaking would constitute an ``abuse
of discretion.'' On the contrary, the FDIC believes that rulemaking is
necessary in order to remove the existing uncertainty, confusion and
the potential for inconsistent interpretations. See Smiley v. Citibank,
N.A., 517 U.S. 735, 116 S. Ct. 1730 (1996).
IV. Questions And Comments
When the FDIC's Board of Directors (Board) published its notice of
proposed rulemaking, Being Engaged in the Business of Receiving
Deposits Other Than Trust Funds, 66 FR 20102, (April 19, 2001) it
sought comments from the public on all aspects of the rule and also
sought responses on nine specific questions. The FDIC received twenty-
one timely comment letters and two comment letters submitted after the
end of the comment period. Also, one letter objected to the FDIC's
consideration of comment letters thought to be filed late. Overall,
eighteen timely comment letters were in favor of the regulation and
three were opposed.
The nine questions and a summary of the comments/responses to those
questions are detailed below.
1. Should the FDIC Adopt a Regulatory Standard for Determining Whether
a Depository Institution is ``Engaged in the Business of Receiving
Deposits Other Than Trust Funds''?
Eighteen comment letters were in favor of the FDIC's adoption of a
regulatory standard: eight depository institutions or depository
institution holding companies, three financial institution trade
associations, three law firms, two state banking supervisors, the
Office of Thrift Supervision, and VISA U.S.A., Inc. Three commenters
objected to the adoption of any regulatory standard by the FDIC. These
objections are addressed in detail in the following section.
2. If so, Should the Standard be Based on a Particular Number and/or
Amount of Non-Trust Deposits? Or Should the Standard be Based on Other
Factors, Such as the Institution's Legal Authority to Accept Non-Trust
Deposits or the Institution's Policies with Respect to the Acceptance
of Non-Trust Deposits?
Three commenters responded on this question. One thought that the
standard could be based on a particular number and amount of non-trust
deposits. Another thought that the standard should not be based on any
particular number of non-trust deposits as long as the institution had
the capacity to accept even one non-trust deposit. The third commenter
thought that an institution only needs to have the legal authority to
receive non-trust deposits in order to be engaged in the business of
receiving deposits other than trust funds.
The FDIC has considered the suggestions that legal authority or
capacity to accept non-trust deposits alone is sufficient, but believes
that its standard is the better approach. Bare legal authority or
capacity to receive non-trust deposits without the actual receipt or
holding of any deposits evidences only a potential ability to receive
deposits, and this potential may never be realized. If an institution
can be engaged in the business of receiving deposits other than trust
funds simply by having the legal authority or capacity
[[Page 54647]]
to receive deposits, it would be able to enjoy all of the benefits of
being an insured institution e.g., the ability to export interest
rates, without ever actually providing any deposit services. We do not
believe that such a standard would be consistent with the purposes of
federal deposit insurance. Consequently, the FDIC has declined to adopt
that standard.
3. Assuming a Minimum Amount of Non-Trust Deposits is Required, Should
the Standard be Based on a Particular Number of Non-Trust Deposit
Accounts? If so, Should that Number Be One? If not, What Should be the
Minimum Number of Non-Trust Deposit Accounts? Why?
Of the thirteen commenters responding on this question, none
thought that an institution should be required to maintain more than
one deposit account.
4. Assuming That the Standard Should Be Based on a Particular Amount of
Non-Trust Deposits, Should That Amount Be $500,000? If Not, What Should
Be the Minimum Amount of Non-Trust Deposits? Why?
Of the eleven commenters responding on this question, ten thought
the minimum amount of non-trust deposits should be $500,000; the other
commenter thought it should be a ``modest amount.''
5. Should a Depository Institution Be Required To Accept Deposits from
the Public at Large (as Opposed to Accepting Deposits From a Particular
Group Such as the Institution's Trust Customers or Employees or
Affiliates) in Order To Be ``Engaged in the Business of Receiving
Deposits Other Than Trust Funds''? If So, Why?
Of the eleven commenters responding on this question, all thought
that a depository institution should not be required to accept deposits
from the public at large (as opposed to accepting deposits from a
particular group such as the institution's trust customers, employees
or affiliates).
6. Should a Depository Institution be Required To Offer a Selection of
Different Types of Deposits (e.g., Demand Deposits, Savings Deposits,
Certificates of Deposit) in Order To Be ``Engaged in the Business of
Receiving Deposits Other Than Trust Funds''? If So, Why?
Of the eleven commenters responding on this question, all thought
that a depository institution should not be required to offer a
selection of different types of deposits (e.g., demand deposits,
savings deposits, certificates of deposit).
7. Should the FDIC Create Any Exceptions for Special Circumstances? For
Example, Should a New Institution Be Given a Certain Period of Time to
Reach the Minimum Number of Non-Trust Deposit Accounts or To Attain the
Minimum Amount of Non-Trust Deposits?
Of the eight commenters responding on this question, all thought
that the FDIC should permit exceptions for special circumstances. Four
commenters specifically mentioned permitting an exception for newly
insured depository institutions; two also thought that there should be
an exception for institutions (other than the newly insured
institutions) that fall below the minimum to regain sufficient
deposits; and one thought the FDIC should allow some time for banks,
particularly in small communities, to meet the minimum deposit
standard.
The FDIC believes that these suggestions raise significant issues.
At the time they apply for deposit insurance some newly chartered
institutions, for example, those organized by individuals, may not have
received $500,000 in non-trust deposits. Indeed, potential depositors
may not want to put their money in an institution that is not yet
insured. Absent some modification to the rule, this disincentive could
prolong the time it takes an institution to reach the minimum deposit
standard or possibly even prevent it from reaching the minimum deposit
standard. Consequently, the FDIC has decided to modify the rule to
provide that an applicant for deposit insurance would be deemed to be
``engaged in the business of receiving deposits other than trust
funds'' for one year from the date it opens for business. If such an
institution does not meet the minimum deposit standard at the end of
that period, it would be subject to a determination by the FDIC that
the institution is not ``engaged in the business of receiving deposits
other than trust funds'' and to termination of its insured status under
section 8(p) of the FDI Act, 12 U.S.C. 1818(p).
However, certain other newly chartered depository institutions
should be able to meet the $500,000 minimum deposit standard from the
outset. In particular, a newly chartered depository institution that is
organized by, or intended to be owned by, an existing company (whether
or not a bank holding company), typically does not need a grace period
to reach the $500,000 minimum deposit standard. Therefore, the FDIC
intends to include a condition in any order granting deposit insurance
to such a depository institution that the depository institution have
the $500,000 minimum deposit before deposit insurance becomes
effective.
Similarly, several commenters suggested a grace period for
operating insured depository institutions that are not newly insured.
The rationale for such a grace period is that any insured depository
institution may, on occasion, fall below the minimum deposit standard,
and it would be extremely disruptive and harmful if the institution's
status were to immediately and automatically change as a result. For
example, an institution's insured status might be called into doubt if
it fell below the minimum deposit standard even for an instant.
Furthermore, an institution that qualified as a ``State bank'' might
abruptly lose that status if its total non-trust deposits fell below
the minimum deposit standard. Of course, an institution's deposit
insurance continues until terminated by the FDIC.
The FDIC believes, however, that any perception that an institution
might abruptly lose its insured status or its status as a ``State
bank'' may cause uncertainty and disruption. Consequently, the FDIC has
decided to modify the proposed rule to avoid such a result. The final
rule provides that an insured depository institution (other than a
newly insured institution) will be subject to a determination by the
FDIC that the institution is not ``engaged in the business of receiving
deposits other than trust funds'' and to termination of its insured
status through administrative proceedings under section 8(p) of the FDI
Act if the institution is below the minimum deposit standard on two
consecutive call report dates. The term ``call report'' is used herein
to refer collectively to the Consolidated Reports of Condition and
Income, the Thrift Financial Report, and the Report of Assets and
Liabilities of US Branches and Agencies of Foreign Banks. The call
report dates are March 31st, June 30th, September 30th, and December
31st.
A brief discussion about section 8(p) as it relates to the
institution's depositors is warranted. Under section 8(p) of the FDI
Act, the FDIC is obligated to terminate the insured status of a
depository institution that is not ``engaged in the business of
receiving deposits other than trust funds.'' 12 U.S.C. 1818(p). A
finding by the FDIC's Board of Directors that a depository institution
is not ``engaged in the business of receiving deposits other than trust
funds'' is conclusive. Id. Such
[[Page 54648]]
a finding, however, does not result in the immediate loss of deposit
insurance. On the contrary, the institution remains insured for a
period of time during which depositors are provided with notification
of the date on which the institution's deposits will cease to be
insured. See 12 CFR 308.124.
8. Should Operating Insured Depository Institutions Be Held to the Same
Standard as Applicants for Deposit Insurance? In Other Words, Should
the Standard Under Section 8 of the FDI Act (Involving Terminations) Be
the Same as the Standard Under Section 5 (Involving Applications)?
Should the FDIC Terminate the Insured Status of Any Operating
Institution That Does Not Meet the Chosen Standard? Should an Operating
Insured Institution Be Given a Certain Period of Time To Regain the
Level of $500,000 After Falling Below That Level?
Of the five commenters responding on this question, all thought
that operating insured depository institutions should be held to the
same standard as applicants for deposit insurance. As noted above, two
commenters thought that operating insured institutions should be given
a period of time to regain the $500,000 minimum deposit standard after
falling below it.
The FDIC agrees that operating insured depository institutions
should be held to the same standard as applicants for deposit
insurance, and the final rule is consistent with that principle. With
regard to the grace period suggestion, the FDIC has modified the rule,
as discussed above, to provide a period of time for an institution to
regain the minimum deposit standard if the institution should fall
below it.
9. Should the Same Standard Apply to the Definition of ``State bank''
Under Section 3 of the FDI Act? If not, What standard Should Apply?
Why?
Of the seven commenters responding on this question, all thought
that the same standard should apply to the definition of ``State bank''
under section 3 of the FDI Act, and four of the seven thought that the
same standard should apply throughout the FDI Act.
In addition to the responses to the nine questions, one commenter
suggested that the rule should be a ``safe harbor'' as opposed to a
minimum standard. The FDIC intends a minimum standard. The FDIC does
not believe that a safe harbor approach will adequately clarify the
meaning of the phrase ``engaged in the business of receiving deposits
other than trust funds.'' Under a safe harbor approach uncertainty
would exist as to the status of an institution that did not satisfy the
$500,000 standard. A primary purpose of the rule is to remove ambiguity
and uncertainty in this area, and the safe harbor approach does not
achieve that purpose. Consequently, the FDIC has modified the rule to
make it clear that the rule's requirements are a minimum standard, not
a safe harbor. However, the rule is also structured so that a failure
to satisfy the $500,000 standard will not result in an automatic
termination of an institution's status as an insured institution or as
a ``State bank.'' Rather, such a failure would make the institution
subject to termination proceedings under section 8(p).
V. Objections to the Rule
As noted above three commenters opposed the regulation. One
opponent simply disagreed with the FDIC's interpretation of section 5
of the FDI Act. Another opponent, U.S. Senator Mary L. Landrieu, was
opposed to the FDIC's adoption of the regulation and thought it
inappropriate to promulgate a regulation while the Heaton v. Monogram
litigation was pending.
The FDIC believes that it has acted properly in formalizing its
interpretation of the FDI Act at this time. Because of the FDIC's
statutory responsibility as a federal banking regulator, the FDIC has a
strong interest in interpreting the FDI Act and in providing courts and
private parties with guidance concerning its interpretation. Agencies
often interpret their governing statutes during the course of
litigation in order to provide courts and private litigants with needed
guidance. Indeed, it is often litigation that discloses the need for
such guidance. The Supreme Court cited this practice with approval in
Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996), when it
gave deference under the Chevron doctrine to a regulation interpreting
the statutory term ``interest'' that was promulgated by the Comptroller
of the Currency during the course of litigation. Additionally, it is
appropriate for the FDIC to promulgate its statutory interpretation in
the form of a formal regulation, in view of recent Supreme Court
decisions restricting judicial deference in situations involving less
formal interpretations of a statute. See Christensen v. Harris County,
529 U.S. 576 (2000); U.S. v. Mead Corp., 121 S. Ct. 2164 (2001).
Indeed, this regulation presents a classic example of a federal
agency acting appropriately in furtherance of its statutory
responsibility. The FDIC decided many years ago, in the course of
approving applications for deposit insurance, to interpret the
statutory phrase ``engaged in the business of receiving deposits'' to
include banking institutions with limited deposit-taking activity.
Accordingly, the FDIC approved numerous applications for deposit
insurance from such institutions over a period of more than thirty
years. Because the ongoing litigation has disclosed a need for a more
formal interpretation, the FDIC is adopting this rule interpreting the
statutory phrase consistent with both the FDIC's longstanding
interpretation and other federal and state banking law.
As noted above, the regulation is being issued to eliminate the
current uncertainty and provide for consistency in the interpretation
of the FDI Act. Consequently, the FDIC believes that it is not only
appropriate but essential for the FDIC to issue a regulation clarifying
the meaning of the phrase ``engaged in the business of receiving
deposits other than trust funds.''
The third opposition letter was submitted by a law firm on behalf
of five consumer advocacy groups. These consumer groups are the
National Consumer Law Center, the Consumer Federation of America,
Consumers Union, U.S. Public Interest Research Group and the National
Association of Consumer Advocates. In their letter, the consumer groups
presented three arguments against the adoption of the proposed
regulation. Each of these arguments is addressed in turn below.
First, the consumer groups argued that the integrity of the
regulatory process will be undermined by asserting a position that
supports the defendant in the Heaton v. Monogram litigation. This
argument ignores the nature and extent of the FDIC's statutory duties
under the FDI Act. The FDIC cannot discharge its duties, for example,
under section 5 of the FDI Act (involving applications for deposit
insurance) and section 8 of the Act (involving terminations of
insurance) without interpreting the statutory phrase. For this reason,
the FDIC cannot be neutral. The FDIC must interpret the phrase
``engaged in the business of receiving deposits other than trust
funds'' in order to carry out its duties. Otherwise, the FDIC would be
unable to make any decisions on any applications for deposit insurance.
As pointed out above, it is important to note that the FDIC's
interpretation has existed for many years prior to this litigation. It
was not established with the purpose of either helping or hurting any
party; rather, it was established with the
[[Page 54649]]
purpose of fairly and consistently administering the statute.
Second, the consumer groups argued that the FDIC's interpretation
as codified in the proposed regulation conflicts with the FDI Act. This
argument is based upon the statute's use of the word ``business'' and
the words ``receiving deposits.'' According to the consumer groups,
these words mean that a depository institution must receive an
``ongoing'' stream of deposits in order to be ``engaged in the business
of receiving deposits other than trust funds.''
The FDIC does not believe that the interpretation offered by the
consumer groups is correct. The statute refers to ``business,'' not
``primary business.'' See Royal Foods Co. Inc. v. RJR Holdings Inc.,
252 F.3d 1102 (9th Cir. 2001). The statute also recognizes that a
single deposit can be accepted or ``received'' many times through
rollovers. See 12 U.S.C. 1831f(b). Thus, the word ``receiving'' in the
statute is consistent with the holding--and periodic renewal or
rollover--of a single certificate of deposit. Similarly, the plural
word ``deposits'' is not inconsistent with the holding of a single
deposit account because multiple deposits of funds can be made into a
single account. In addition, the periodic accrual of interest
represents the ``receiving'' of ``deposits.'' Moreover, the statute
defines ``deposit'' in such a way as to treat ``receiving'' and
``holding'' with equal significance for purposes of the definition of
``deposit.'' See 12 U.S.C. 1813(l)(1).
In short, the proposed regulation is consistent with the FDI Act.
This conclusion is confirmed by Meriden Trust and Safe Deposit Company
v. FDIC, 62 F.3d 449 (2d Cir. 1995). In that case, the court found that
a bank was ``engaged in the business of receiving deposits other than
trust funds'' even though the bank held only two accounts with a
combined balance of only $200,000. Both of those accounts were from
affiliates: one from the bank's parent company and one from its sister
bank.
In presenting their second argument, the consumer groups asserted
that the Meriden case is distinguishable from the Heaton case. They
noted that the two cases involved separate sections of the FDI Act
(though both cases involved the same definition of ``State bank'').
However, the meaning of being ``engaged in the business of receiving
deposits other than trust funds'' should not vary depending upon which
section of the FDI Act is under consideration and the consumer groups
have presented no argument justifying such variation. Such an approach
would lead to inconsistencies, uncertainties and confusion and would be
contrary to the main purpose of the regulation which is to clarify the
law for the benefit of depository institutions as well as the general
public.
Third, the consumer groups argued that the regulation will harm the
public. This argument is based upon the proposition that an out-of-
state bank should not be able to avoid the host state's consumer
protection laws. This argument is inconsistent with the express
language of section 27 of the FDI Act, 12 U.S.C. 1831d. Through section
27, Congress has specifically provided that an out-of-state ``State
bank'' may export interest rates into a host state notwithstanding the
host state's laws. This section was enacted to provide state banks
competitive equality with national banks.
Finally, the law firm representing the plaintiff in the Heaton v.
Monogram litigation submitted a letter objecting to the FDIC's
consideration of two other letters (both supporting the proposed
regulation). The law firm argued that the two letters in question had
been received by the FDIC after the expiration of the comment period.
In fact, one of the two letters was received by the FDIC on the
last day of the comment period (July 18, 2001). This letter was timely.
The second letter supported the proposed regulation but in broad,
general terms. Substantively, it was similar to a number of other
letters. The FDIC did not rely upon this letter or another late-filed
letter in its consideration of the final rule.
The FDIC has carefully considered all of the timely comments
received; most of the comments received are consistent with the FDIC's
views and suggest no changes to the rule. However, as noted above, the
FDIC has modified the proposed rule to incorporate certain grace
periods suggested in the comments received in response to questions 7
and 8, and has clarified the fact that the rule is not a safe harbor.
VI. Reasons for the Minimum Deposit Standard
There are a number of substantial reasons for adopting the final
rule. First, the statute is ambiguous (as discussed above). The FDIC in
General Counsel Opinion 12 (GC12) discussed the statutory language at
length. See 65 FR 14568, 14569 (March 17, 2000). The statute recognizes
that a single deposit can be accepted or ``received'' many times
through rollovers. See 12 U.S.C. 1831f(b) (dealing with the acceptance
of brokered deposits). Thus, the word ``receiving'' in the statute can
be reconciled with the holding--and periodic renewal or rollover--of a
single deposit. Similarly, the plural word ``deposits'' is not
inconsistent with the holding of a single deposit account because
multiple deposits of funds can be made into a single account. A
depositor might, for example, make a deposit of funds every month into
the same account. The accrual of interest would represent an additional
deposit into the same account. In the case of a certificate of deposit,
the deposit would be replaced with a new deposit at maturity. Moreover,
the statute defines ``deposit'' in such a way as to treat ``receiving''
and ``holding'' with equal significance for purposes of the definition
of ``deposit.'' See 12 U.S.C. 1813(l)(1).
Second, as discussed at length in General Counsel Opinion No. 12,
the legislative history is inconclusive. See H.R. Rep. No. 2564,
reprinted in 1950 U.S.C.C.A.N. 3765, 3768. Third, the FDIC has approved
applications from many non-traditional depository institutions that
intended to maintain only one or a very limited number of non-trust
deposit accounts. This practice began at least as early as 1969 with
Bessemer Trust Company (Bessemer) located in Newark, New Jersey.
Bessemer offered checking accounts to its own trust customers but did
not offer checking accounts or any other type of non-trust accounts to
the general public. Despite this limitation on Bessemer's deposit-
taking activities, the FDIC approved Bessemer's application for deposit
insurance. The FDIC continued to approve such applications (i.e.,
applications from institutions with very limited deposit-taking
activities) from the 1970s to the present. These non-traditional
depository institutions have included trust companies, credit card
banks and other specialized institutions. For example, one depository
institution planned to hold no accounts except escrow accounts relating
to mortgage loans. Another depository institution planned to offer
deposits only to its affiliate's customers.
Fourth, the Bank Holding Company Act (BHCA) contemplates the
existence of depository institutions that are insured by the FDIC even
though they do not accept a continuing stream of non-trust deposits
from the general public. See 12 U.S.C. 1841(c). In the BHCA, the
definition of ``bank'' includes banks insured by the FDIC. See 12
U.S.C. 1841(c)(1). A list of exceptions includes institutions
functioning solely in a trust or fiduciary capacity if several
conditions are satisfied. The conditions related to deposit-taking are:
(1) All or
[[Page 54650]]
substantially all of the deposits of the institution must be trust
funds; (2) insured deposits of the institution must not be offered
through an affiliate; and (3) the institution must not accept demand
deposits or deposits that the depositor may withdraw by check or
similar means. See 12 U.S.C. 1841(c)(2)(D)(i)-(iii). The significant
conditions are (1) and (2). The first condition provides that all or
substantially all of the deposits of the institution must be trust
funds; the second condition involves ``insured deposits.'' Thus, the
statute contemplates that a trust company--functioning solely as a
trust company and holding no deposits (or substantially no deposits)
except trust deposits--could hold ``insured deposits.'' In other words,
the BHCA contemplates (without requiring) that an institution could be
insured by the FDIC even though the institution does not accept non-
trust deposits from the general public.
Fifth, the leading case indicates that a depository institution may
be ``engaged in the business of receiving deposits other than trust
funds'' even though the institution holds a very small amount of non-
trust deposits. See Meriden Trust and Safe Deposit Company v. FDIC, 62
F.3d 449 (2d Cir. 1995). Indeed, this case indicates that an amount as
small as $200,000 is a sufficient amount of non-trust deposits.
Sixth, some state banking statutes contemplate the existence of
FDIC-insured depository institutions that are severely restricted in
their ability to accept non-trust deposits from the general public. For
example, a Virginia statute provides that a general business
corporation may acquire the voting shares of a ``credit card bank''
only if certain conditions are satisfied. See Va. Code 6.1-392.1.A.
These conditions comprise the definition of a ``credit card bank.'' See
Va. Code 6.1-391. These conditions include the following: (1) The bank
may not accept demand deposits; and (2) the bank may not accept savings
or time deposits of less than $100,000. Indeed, the statute provides
that a ``credit card bank'' may accept savings or time deposits (in
amounts in excess of $100,000) only from affiliates of the bank having
their principal place of business outside the state. See Va. Code 6.1-
392.1.A.3-4. In other words, the Virginia statute prohibits the
acceptance of any deposits from the general public. At the same time,
the statute requires the deposits of the bank to be federally insured.
See Va. Code 6.1-392.1.A.4.
The figure of $500,000 is being utilized for several reasons.
First, it is more than a nominal sum. Indeed, it is greater than the
amount involved in the leading case of Meriden Trust and Safe Deposit
Company v. FDIC, 62 F.3d 449 (2d Cir. 1995). In that case, the court
found that only $200,000 of non-trust deposits was a sufficient amount.
Second, the figure of $500,000 is not so great that it would prevent
non-traditional depository institutions from obtaining FDIC insurance.
As previously mentioned, the Bank Holding Company Act contemplates the
existence of depository institutions that are insured by the FDIC even
though they do not accept a continuing stream of non-trust deposits
from the general public. See 12 U.S.C. 1841(c). Also, some state
banking statutes contemplate the existence of FDIC-insured depository
institutions that are severely restricted in their ability to accept
non-trust deposits from the general public. See, e.g., Va. Code 6.1-
392.1.A.4. Third, $500,000 is the amount of non-trust deposits allowed
by the FDIC in recent years in connection with a number of applications
for deposit insurance. Applications involving the precise amount of
$500,000 can be traced as far back as 1991.
As previously explained, the purpose of the regulation is to create
uniformity and certainty. The choice of any specific dollar figure
would serve this purpose. For the reasons set forth above, the FDIC has
chosen $500,000.
Paperwork Reduction Act
The final rule does not involve any collections of information
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
Consequently, no information has been submitted to the Office of
Management and Budget for review.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) the FDIC hereby certifies that the final rule will
not have a significant economic impact on a substantial number of small
entities. The final rule will apply to all FDIC-insured depository
institutions and will impose no new reporting, recordkeeping or other
compliance requirements. Although the final rule specifies that
depository institutions must hold non-trust deposits in the amount of
$500,000 or more in order to be ``engaged in the business of receiving
deposits other than trust funds,'' the rule does not create a new
requirement. Rather, the final rule clarifies an existing requirement.
Moreover, the final rule is consistent with the standard already
applied to depository institutions by the FDIC. Accordingly, the Act's
requirements relating to an initial and final regulatory flexibility
analysis are not applicable.
Impact on Families
The FDIC has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) (Pub. L. 104-121) provides generally for agencies to report
rules to Congress for review. The reporting requirement is triggered
when the FDIC issues a final rule as defined by the Administrative
Procedure Act (APA) at 5 U.S.C. 551. Because the FDIC is issuing a
final rule as defined by the APA, the FDIC will file the reports
required by SBREFA. The Office of Management and Budget has determined
that this final rule does not constitute a ``major rule'' as defined by
SBREFA.
List of Subjects in 12 CFR Part 303
Administrative practice and procedure, Authority delegations
(Government agencies), Banks, banking, Bank merger, Branching, Foreign
investments, Golden parachute payments, Insured branches, Interstate
branching, Reporting and recordkeeping requirements, Savings
associations.
The Board of Directors of the Federal Deposit Insurance Corporation
hereby amends part 303 of title 12 of the Code of Federal Regulations
as follows:
PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY
1. The authority citation for part 303 continues to read as
follows:
Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819
(Seventh and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1,
1835a, 3104, 3105, 3108, 3207; 15 U.S.C. 1601-1607.
2. New Sec. 303.14 is added to subpart A to read as follows:
Sec. 303.14 Being ``engaged in the business of receiving deposits
other than trust funds.''
(a) Except as provided in paragraphs (b), (c), and (d) of this
section, a depository institution shall be ``engaged in the business of
receiving deposits other than trust funds'' only if it
[[Page 54651]]
maintains one or more non-trust deposit accounts in the minimum
aggregate amount of $500,000.
(b) An applicant for federal deposit insurance under section 5 of
the FDI Act, 12 U.S.C. 1815(a), shall be deemed to be ``engaged in the
business of receiving deposits other than trust funds'' from the date
that the FDIC approves deposit insurance for the institution until one
year after it opens for business.
(c) Any depository institution that fails to satisfy the minimum
deposit standard specified in paragraph (a) of this section as of two
consecutive call report dates (i.e., March 31st, June 30th, September
30th, and December 31st) shall be subject to a determination by the
FDIC that the institution is not ``engaged in the business of receiving
deposits other than trust funds'' and to termination of its insured
status under section 8(p) of the FDI Act, 12 U.S.C. 1818(p). For
purposes of this paragraph, the first three call report dates after the
institution opens for business are excluded.
(d) Notwithstanding any failure by an insured depository
institution to satisfy the minimum deposit standard in paragraph (a) of
this section, the institution shall continue to be ``engaged in the
business of receiving deposits other than trust funds'' for purposes of
section 3 of the FDI Act until the institution's insured status is
terminated by the FDIC pursuant to a proceeding under section 8(a) or
section 8(p) of the FDI Act. 12 U.S.C. 1818(a) or 1818(p).
By order of the Board of Directors.
Dated at Washington, DC, this 23rd day of October 2001.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 01-27198 Filed 10-29-01; 8:45 am]
BILLING CODE 6714-01-P
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