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4000 - Advisory Opinions

Explanation of Section 311 of FDICIA Pertaining to Brokered Deposits and Retention of "Pass-Through" Insurance Coverage for Accounts of Employee Benefit Plans


April 22, 1992

Roger A. Hood, Assistant General Counsel

This is in response to your letter of March 9, 1992 to Mark Mellon pertaining to brokered deposits and the retention of "pass-through" deposit insurance coverage for the accounts of employee benefit plans pursuant to section 311 of the FDIC Improvement Act of 1991 ("FDICIA").

One year after the FDICIA has been enacted, pass-through insurance for the deposits of employee benefit plan accounts will not be provided to insured depository institutions which may not accept brokered deposits. Section 11(a)(1)(D) of the Federal Deposit Insurance Act (the "FDIA"), 12 U.S.C. § 1821(a)(1)(D) as amended by section 311 of the FDICIA. The only depository institutions which may accept brokered deposits are well capitalized institutions and adequately capitalized institutions which have received a waiver from the FDIC. Section 29 of the FDIA, 12 U.S.C. § 1831f as amended by section 301 of the FDICIA. Pass-through insurance coverage for employee benefit plan deposits will still be provided, however, to those institutions which meet applicable capital standards and send written notice to their depositors that their funds are eligible for pass-through deposit insurance. Section 11(a)(1)(D)(iii) of the FDIA as amended by section 311 of the FDICIA.

These provisions create an exception to the bar on pass-through insurance coverage for the deposits of employee benefit plans for those insured depository institutions which are not allowed to accept brokered deposits. An adequately capitalized institution which has not received a waiver from the FDIC to accept brokered deposits (even though it meets applicable capital standards for that waiver) may still retain pass-through coverage for its employee benefit plan deposits as long as the institution sends written notice of that coverage to their depositors.

You ask whether the "depositor" who is referred to in the notice requirement of section 11(a)(1)(D)(iii)(II) of the FDI Act should be interpreted as meaning, in the context of employee benefit plan accounts, each participant in the plan or the plan itself. While regulations have not been issued that deal with this question, it has been the practice of the FDIC in the past to regard notice requirements to depositors as being satisfied if the insured depository institution has provided written notice to the nominal depositors of its accounts, in this case the employee benefit plan itself.

You also ask when the FDIC expects to enact regulations which will define the terms "well capitalized" and "adequately capitalized." The FDIC has already issued a proposed regulation which defines those terms. See Unsafe and Unsound Banking Practices, 57 Fed. Reg. 11442 (1992) (to be codified at 12 C.F.R. Part 337) (proposed April 3, 1992). The terms are not defined with reference to numerical ranges. The FDIC will be accepting comments on these proposed definitions or any other relevant matters until May 4, 1992. We would be happy to consider any comments or questions that you might have concerning the proposed regulation.

I hope that this has been responsive to your inquiry. If you should have any questions on this or any other matter, please do not hesitate to contact me.

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