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4000 - Advisory Opinions

Bank Acts as Deposit Broker When It Places Portion of Deposits Exceeding Insurance Limit With Affiliated Depository Institutions


October 21, 1992

Joseph A. DiNuzzo, Senior Attorney

In your letter of June 15, 1992, to the Federal Deposit Insurance Corporation on the "deposit broker" activities of *** ("Bank") you noted that the Bank (in response to customer demand for maximum deposit insurance coverage) places a portion of deposits over the insured limits in certificates of deposits of your affiliated banks. In essence, you have asked whether this activity constitutes deposit brokering under section 337.6 of the FDIC's regulations.

Please note that the FDIC does regard such activity to be covered by the brokered deposits regulation. Thus, the Bank will be expected to comply with the requirements of that regulation.

The term "brokered deposit" is defined in section 337.6(a)(3) as "any deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker." The definition of "deposit broker," found in both section 29 of the Federal Deposit Insurance Act ("FDI Act") (12 U.S.C. 1831f) and section 337.6 of the FDIC's regulations, in relevant part, is: "any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. . . ." This definition is quite broad and includes situations in which a bank places or facilitates the placement of deposits with affiliated insured depository institutions. Thus, unless the activity in question comes within one of the statutory or regulatory exclusions, the FDIC must and will consider the activity deposit brokering.

In our opinion the Bank's practice of placing deposits from time to time with affiliated depository institutions does not come within any of the exclusions from the definition of deposit broker. We believe Congress' intent in defining "deposit broker" so broadly was to control the flow of brokered funds to all but the best capitalized depository institutions insured by the FDIC. If, for example, the affiliate with which the Bank places deposits is "well capitalized" (as defined in section 337.6(a)(10) of the brokered deposits regulation) then treating the Bank as a deposit broker would not impede the placement of those funds with that affiliate. Conversely, if the affiliate is not well capitalized then the other limiting provisions of the regulation would apply. We believe this interpretation is consistent with the literal and intended meaning of section 29 of the FDI Act.

I have forwarded copies of your June 15th letter and this response to the FDIC Regional Director in Dallas. The request made in your letter for a waiver from the FDIC for the Bank to receive brokered deposits will be considered by the Dallas Regional Office.

We hope this information is helpful. Please excuse our delay in providing this reply. Feel free to contact us with any other questions or comments on this matter. My telephone number is (202) 898-7349.

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