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4000 - Advisory Opinions

Bank Acts As Deposit Broker When It Occasionally Invests in CDs With Other Insured Depository Institutions on Behalf, of Its Customers


February 24, 1993

Valerie J. Best, Counsel

This is in response to your letter dated December 15, 1992, regarding brokered deposits.

You state that *** ("Bank") assists about half a dozen of its large customers in obtaining certificates of deposit ("CDs") with money center banks. These customers desire a higher rate than the Bank is willing to pay. In order to accommodate these customers, the Bank agrees to act as agent in purchasing money center CDs. The volume of this business is rather small in terms of the Bank's size and operations; the Bank typically places only five CDs each month, for a total amount of approximately $500,000. There are currently no CDs in effect.

You ask if the Bank qualifies for the regulatory exclusion from the definition of "deposit broker" found in 12 C.F.R. 337.6(a)(5)(ii)(I) because the Bank's primary purpose is not the placement of funds with depository institutions. It is our view that the Bank is acting as a deposit broker when it invests in CDs with other insured depository institutions, so therefore it must register as a deposit broker.

Relevant Statutory Provisions

The term "deposit broker" is defined, in part, to include: "any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. . . ." 12 U.S.C. 1831f(g)(1)(A).1 This definition is quite broad and unless the activity in question comes within one of the statutory or regulatory exclusions, the FDIC must and will consider the activity deposit brokering.

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 depository institution with which your Bank places deposits is "well capitalized" (as defined in 12 C.F.R. 337.6(a)(10)), then treating your Bank as a deposit broker would not impede the placement of those funds with that depository institution. Conversely, if the depository institution is not well capitalized, then the other limiting provisions of the statute and regulation would apply. We believe this interpretation is consistent with the literal and intended meaning of the statute.


The activities of the Bank bring it within the definition of "deposit broker." Further, it does not appear to qualify for any of the exceptions permitted by the statute and regulation. There appears to be no substantial purpose for the arrangement other than the placement of funds in insured depository institutions. Your Bank does not exercise any investment discretion but acts solely at the instruction of the customer.

Consequently, the Bank is a deposit broker as to funds placed with other insured depository institutions. As such, the Bank would have to register with the FDIC as a deposit broker. The registration requirements are outlined on page 3 of the enclosed financial institutions letter.

I trust that this has been responsive to your inquiry.

1Our final regulation on brokered deposits adopts a definition of "deposit broker" identical to that set forth in the statute as quoted above. See 12 C.F.R. 337.6(a)(5)(i)(A). Go back to Text

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