FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Well-Capitalized Institutions That Solely Offers High-Rate Deposits Need Not Notify FDIC of Its Deposit Broker Status
March 8, 1993
Valerie J. Best, Counsel
I am writing in response to your letter concerning brokered deposits. I apologize for the delay in responding to your inquiry. Due to the large number of inquiries we receive concerning brokered deposits, we are not always able to answer as quickly as we would like.
You wrote to advise us that your institution is well capitalized, as that term is defined in 12 C.F.R. 337.6(a)(10)(i). You stated that, with rare exceptions, your institution does not solicit deposits by offering interest rates that exceed the prevailing rate of interest in your normal market area by more than 75 basis points. Based upon your status as a well capitalized bank and the fact that you do not solicit deposits by offering interest rates that exceed the prevailing rate in the relevant market area by more than 75 basis points, you conclude that your bank is not required to register as a deposit broker. I agree with your conclusion.
Your letter raises the question of whether a bank or savings association that is well capitalized and that is deemed to be a deposit broker solely because it offers high-rate deposits to its customers, must notify the FDIC of its status as a deposit broker. It is my view that an institution that is well capitalized and that is deemed to be a "deposit broker" (pursuant to 12 U.S.C. 1831f(g)(3)) solely because it offers high-rate deposits to its customers,1 is not required to notify the FDIC of its status as a deposit broker pursuant to section 29A of the FDI Act (12 U.S.C. 1831f--1), as implemented by 12 C.F.R. 337.6(h).
The relevant regulatory and statutory provisions state that a deposit broker "shall not solicit or place any deposit with an insured depository institution" unless the deposit broker has provided the FDIC with written notice that it is acting as a deposit broker. Under the situation you describe, and assuming that the well capitalized institution is a "deposit broker," it can be argued that the institution is not placing deposits "with" an insured depository institution. Rather, the well capitalized institution is soliciting and accepting deposits on its own behalf. Consequently, I do not understand this provision to require notification by well capitalized institutions under the limited circumstances described above.
This interpretation finds support when considered in conjunction with the remaining requirements of the notice regulations. Under these regulations, the notice to be filed by a deposit broker must describe the history, nature and volume of its deposit brokerage operations, including the sources and placement of such funds. These requirements have little relevance for a well capitalized institution offering high-rate deposits. For example, the source of the deposits would always be the institution's own customers, and the funds would always be placed with the well capitalized institution itself.
As I understand it, the notification requirement is a means of identifying deposit brokers. Should the need arise, the additional recordkeeping and quarterly reporting requirements facilitate the tracking of a broker's activities.2 These purposes are not furthered by requiring well capitalized institutions to notify the FDIC of their status as a deposit broker under the limited circumstances described above. A well capitalized institution that is offering high-rate deposits does not place such deposits with other institutions. Consequently, requiring well capitalized institutions to notify the FDIC would not further any "identification" purpose. Since well capitalized institutions are permitted to offer high rates in any event, nothing could be gained by implementing the recordkeeping and quarterly reporting requirements.
It should also be noted that the statute and regulation require a deposit broker to notify the FDIC when it ceases being a deposit broker. As indicated by your situation, a well capitalized institution may offer high-rate deposits on an intermittent basis. Nothing would be gained by requiring well capitalized institutions to notify the FDIC when they are about to offer high-rate deposits, and then requiring them to revoke that notice when they stop offering such deposits.
In summary, it is my view that an institution that is well capitalized and that is deemed to be a "deposit broker" solely because it offers high-rate deposits to its customers, is not required to notify the FDIC of its status as a deposit broker pursuant to section 29A of the FDI Act, as implemented by 12 C.F.R. 337.6(h).
Please be advised that the views expressed in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.
Please call me at (202) 898-3812 if you have any questions. Again, I apologize for the delay in responding to your inquiry.
1The relevant statutory provision provides:
(3) Inclusion of depository institutions engaging in certain activities. Notwithstanding paragraph (2), the term "deposit broker" includes any insured depository institution, and any employee of any insured depository institution, which engages, directly or indirectly, in the solicitation of deposits by offering rates of interest (with respect to such deposits) which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in such depository institution's normal market area.
12 U.S.C. 1831f(g)(3).
To the same effect, see 12 C.F.R. 337.6(a)(5)(iii). Go back to Text
2The fact that a deposit broker failed to notify the FDIC of its status does not relieve a depository institution from complying with the brokered deposit restrictions when the depository institution knows, or has reason to know, that it is dealing with a deposit broker. Go back to Text