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4000 - Advisory Opinions

Bankers' Bank Acts as Deposit Broker When It Places Deposits for Its Stockholder Banks and Other Depository Institutions


December 10, 1992

Joseph A. DiNuzzo, Senior Attorney

This is in response to your telecopied note dated September 24, 1992, to Valerie Best, Counsel, FDIC Legal Division, inquiring whether the *** Bankers' Bank ("Bank") is a deposit broker under section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f) and the FDIC's brokered deposits regulation (12 C.F.R. 337.6).

Based on the information you provided, among other things, the Bank places funds for its stockholder banks, other banks, savings and loan associations and credit unions. You note that the great majority of the deposits placed by the Bank are with banks in the State of ***.

As we discussed by telephone recently, the definition of deposit broker is very broad. The term "brokered deposit" is defined in section 337.6(a)(3) of the FDIC's regulations 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 FDI Act and section 337.6 of the FDIC's regulations, encompasses the Bank's activity. The pertinent part of that definition is: "any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. . . ." Unless the activity in question comes within one of the statutory or regulatory exclusions, the FDIC must consider the activity deposit brokering.

In our opinion the Bank's practice of placing deposits does not come within any of 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 banks with which the Bank places deposits are "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 the brokered funds with those banks. Conversely, if the banks are 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.

We hope this response has been helpful. 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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