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4000 - Advisory Opinions

Clarification of Brokered Deposit Interest Rate Restrictions


July 8, 1993

Jefferey M. Kopchik, Counsel

This is in response to your February 1, 1993 letter to Valerie J. Best, Counsel, and your June 11th follow-up letter to Hoyle L. Robinson, Executive Secretary. On behalf of the Federal Deposit Insurance Corporation, I sincerely apologize for the delay in our response.

I have reviewed your February 1st letter wherein you state that all the banks in your holding company are well capitalized as that term is defined in section 337.6(a)(10) of the FDIC's regulations. 12 C.F.R. 337.6(a)(10). In that case, please be advised that the FDIC's brokered deposit regulation does not require well capitalized insured depository institutions which offer high-rate deposits to their customers to notify the FDIC of their status as a deposit broker. Furthermore, the statute (FDI Act § 29, 12 U.S.C. 1831f et seq.) and the regulation do not limit the rates which a well capitalized insured depository institution may pay its depositors. See FDIC Advisory Opinion 93--18. (Copy enclosed.) However, despite the fact that your banks are not required to notify the FDIC of their status as deposit brokers, all insured depository institutions are required to identify brokered deposits on their call reports.

With regard to the numbered questions which appear in your original letter, my opinions are as follows:

Question 1 (Page 1).  A fixed rate certificate of deposit which initially was categorized as a brokered deposit because it paid an interest rate in excess of 75 basis points above the prevailing rate, but is renewed at an interest rate equal to the market rate, should no longer be classified as a brokered deposit.

Question 2 (Page 1).  In the case of a variable rate account with no stated maturity date (e.g., a savings account), the deposit would be considered a brokered deposit during the period of time that the interest rate exceeds the prevailing rate by more than 75 basis points. During the period of time that the rate is less than this, the deposit should not be considered to be a brokered deposit.

Question 3 (Page 2).  In the case of a variable rate account with a stated maturity date, the deposit should be considered a brokered deposit if the annual percentage yield is in excess of 75 basis points above the prevailing rate.

Question 1 (Page 3).  Credit unions should not be considered in determining the prevailing rate for your subsidiary banks. See FDI Act § 29(g)(3).

Question 2 (Page 3).  A literal reading of § 29(b)(4) would indicate that an institution may not include its interest rates in determining the prevailing rate in its market area. However, a reasonable argument can be advanced that an exception may make sense in market areas served by a very limited number of depository institutions. I should also point out that institutions which solicit deposits in your market area, but do not maintain a branch office in the area, may be included in any computation of the prevailing market rate.

I trust that this letter answers your questions. Once again, I apologize for the Corporation's delay in responding.

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