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4000 - Advisory Opinions

Transaction in Which an Entity Finds Insured Depository Institutions for Trust Department Investments for a Fee or Commission is Subject to Brokered Deposit Recordkeeping Requirements


January 25, 1993

Valerie J. Best, Counsel

This is in response to your letter dated January 8, 1993 concerning brokered deposits. You are a "deposit broker" as that term is defined in 12 U.S.C. 1831f. You have notified the FDIC of your status as a deposit broker as required by law.

Recordkeeping Requirements

You write that you are occasionally involved in transactions with trust departments that are a division of FDIC-insured banks. You find insured depository institutions that are looking for funds and then recommend them to the trust departments. The trust departments makes investments at these institutions on behalf of various investors. An investor wires his or her funds directly to the trust department, and the trust department then wires the funds to the institution that you recommended. You receive fees or commissions for your services. You ask if this type of transaction should be included in your records of brokered deposits placed with insured institutions.

The transaction you describe does involve a brokered deposit.1 It is therefore subject to the following recordkeeping requirements:

A deposit broker shall maintain sufficient records of the volume of brokered deposits placed with any insured depository institution over the preceding 12 months and the volume outstanding currently, including the maturities, rates and costs associated with such deposits.

12 C.F.R. 337.6(h)(2).2

It is likely that you already maintain such records in the ordinary course of your business.

Deposit Insurance

You also ask if your involvement in these transactions in any way affects the FDIC insurance on the investments that the trust departments make if the institution acquiring this block deposit does not meet the regulatory requirements for capital.

The fact that a deposit broker places or facilitates the placement of funds in an insured depository institution does not reduce the FDIC insurance coverage otherwise available for those funds.

Be advised, however, that the fact that the depository institution acquiring the deposits does not meet its regulatory requirements for capital, may reduce the amount of deposit insurance coverage otherwise available if the deposits are owned by certain employee benefit plans. Please consider the following.

As of December 19, 1992, certain employee benefit plan accounts kept in undercapitalized institutions and other institutions not authorized by the FDIC to accept brokered deposits will be covered only up to $100,000 per plan, not $100,000 per participant. This is true whether or not a deposit broker is involved in the transaction. The law restricting "pass-through" insurance coverage refers to insured depository institution that may not accept "brokered deposits." This reference to "brokered deposits" does not mean that funds involving deposit brokers are subjected to special treatment however. Rather, the reference to "brokered deposits" is a means of identifying capital categories. A well capitalized institution may accept brokered deposits without restriction. An undercapitalized institution is prohibited from accepting brokered deposits. An adequately capitalized institution that has received a waiver from the FDIC may accept brokered deposits.3

I have enclosed for your review some letters and a proposed rule that discuss the new limitations on pass-through deposit insurance in detail. Please call me at (202) 898-3812 if you have additional questions.

1The trust department or the bank of thrift may also be considered a deposit broker under certain circumstances. In that event, the funds would be considered brokered deposits even if you were not involved in the transaction Go back to Text

2At its option, the FDIC may require a deposit broker to file quarterly reports regarding the volume of brokered deposits placed with any particular insured depository institution, including the maturities, rates and costs associated with such deposits. 12 CFR 337.6(h)(3). Go back to Text

3An adequately capitalized institution which has not received a waiver from the FDIC to accept brokered deposits 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. Go back to Text

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