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4000 - Advisory Opinions

Bank Acts as Deposit Broker When, at Request of Customer, It Purchases CDs at Other Depository Institutions and Charges Fee for Such Service


October 26, 1992

Joseph A. DiNuzzo, Senior Attorney

This is in response to your letter of August 25, 1992, to Valerie Best, Counsel, FDIC Legal Division, on whether *** ("Bank") is a "deposit broker" under the Federal Deposit Insurance Corporation's brokered deposits regulation, 12 C.F.R. 337.6. Please excuse our delay in providing this reply.

You state in the letter that the Bank does not solicit deposits to be placed at other financial institutions, but at the request of your customers the Bank purchases certificates of deposits at other institutions that meet the appropriate capital guidelines. You also state that the Bank usually charges a fee for this service.

Please note that the Bank's activity in this regard constitutes deposit brokering under section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f) and the FDIC's brokered deposits regulation. The definition of deposit broker is very broad. In section 29 of the FDI Act and section 337.6 of the FDIC's regulations it is defined, in pertinent part, as: "[a]ny person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions . . . ." If a certain activity comes within the scope of this definition, the person engaging in that activity will be considered a deposit broker, unless that person is operating in the role specified (in both the brokered deposits statute and regulation) as one of the exclusions from the definition of deposit broker. None of those exclusions seems applicable in this situation.

We believe the brokered deposit statute was enacted to enable the FDIC to control the flow of deposits to all but the best capitalized insured institutions. If in this situation the Bank were not considered a deposit broker, then it could place deposits with undercapitalized banks and thereby circumvent the intent of the statute.

In our view, therefore, the Bank is a deposit broker under section 29 of the FDI Act and section 337.6 of the FDIC's regulations and the deposits placed at the other depository institutions are brokered deposits. As a result, the Bank is subject to the registration requirements imposed by the FDI Act and the FDIC's brokered deposits regulation and the other insured depository institutions are bound by the requirements of the statute and regulation. As provided in the brokered deposits statute and regulation, if the institutions with which the Bank places deposits are "well capitalized" (as defined in the statute and regulation), then they may accept such funds without restrictions.

I hope this information is helpful. Feel free to call me with any comments or questions. My telephone number is (202) 898-7349.

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