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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions

Unaffiliated Entity Which Provides "Back Office" Processing Services On Behalf of an Insured State Nonmember Bank is Not Considered a Branch


November 18, 1992

Jeffrey M. Kopchik, Counsel

This is in response to your letter of November 3, 1992 which was received by the FDIC on November 9th and our November 13th telephone conversation. You have inquired as to whether *** ("[Company]") may perform "back office" processing operations on behalf of a state nonmember bank without being considered a "branch" of the bank as that term is defined in section 3(o) of the Federal Deposit Insurance Act ("FDI Act"). 12 U.S.C. 1813(o).

According to your letter, [Company] provides general purpose financial institution software to nearly 1,000 financial institutions across the United States and 27 countries. The company also provides certain back office processing services to financial institutions either on-site or from a remote processing center. These back office processing services include statement rendering for bank customers, signature verification on exception items, bulk filing and sorting, account reconciliation, MICR encoding, providing proof tapes and other documentation for audit purposes, transportation of checks and the creation of a disaster recovery plan. During our telephone conversation, you assured me that [Company] is not owned, directly or indirectly, by or affiliated with an insured depository institution.

Section 3(o) of the FDI Act provides that:

"The term "domestic branch' includes any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State of the United States . . . at which deposits are received or checks paid or money lent. . . ."

12 U.S.C. 1813(o). The FDIC Legal Division staff has long held the opinion that a back office operations facility owned by a state chartered nonmember bank is not a branch of that bank. A back office operations facility does not provide the traditional banking functions of receiving funds from and disbursing funds to customers. It is clear that when the basic definition of branch was crafted over 40 years ago, it was meant to apply to facilities that were established to directly serve a bank's customers by providing traditional banking services. In my opinion, the conclusion is the same with regard to a facility owned by a third party which is not affiliated with the insured depository institution, but which provides back office processing services, similar to what the bank could do itself, pursuant to a contract.

If I may be of any further assistance, please do not hesitate to contact me.

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