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4000 - Advisory Opinions

Deposit Broker Statute: Whether Well Capitalized Insured Depository Institutions May Accept Deposits From a Deposit Broker Without Restriction


September 9, 1994

Valerie J. Best, Counsel

I am writing in response to your recent telephone inquiry concerning the deposit broker statute.

Insured depository institutions that are well capitalized may accept deposits from a deposit broker without restriction. Further, insured depository institutions that are adequately capitalized may accept deposits from a deposit broker pursuant to a waiver from the FDIC. The vast majority of insured depository institutions are well capitalized. Consequently, the law does not prevent most insured depository institutions from doing business with your company.

Some brokers express the concern that a few disreputable brokers may conceal their status as brokers from troubled depository institutions. It might help you to know that funds placed by deposit brokers can often be detected even if it is not obvious on the face of the deposit that it was placed by an intermediary. The FDIC staff has adopted the position that troubled institutions that accept brokered deposits in contravention of the law will be held responsible if they knew, or had reason to know, that the funds were brokered deposits. (FDIC Advisory Opinion 92--73.) Examiners scrutinize deposits that exhibit highly volatile characteristics or that carry higher interest rates than alternative sources, even if it is not obvious on the face of the deposit instrument that the funds were placed by a deposit broker. In some instances our examiners have contacted the deposit-owners in an effort to uncover the involvement of deposit brokers.

Some brokers also express the concern that troubled institutions are obtaining out-of-market jumbo certificates of deposit through listing services. FDIC staff has published a number of advisory letters concerning listing services. (FDIC Advisory Opinions 90--24, 92--50, among others.) These letters set forth specific guidelines as to when a service will be considered merely an information service (similar to the Dow Jones Report) as opposed to a deposit broker. A service must strictly adhere to each of these guidelines; if it does not, it will be considered a deposit broker. It should be remembered that the brokered deposit statute is not the only means available to the Federal banking agencies to control volatile deposits. A troubled institution's use of volatile deposits can be limited through a safety/soundness order issued by the appropriate Federal banking agency. In addition, the appropriate Federal banking agency can restrict a troubled institution's activities pursuant to the "prompt corrective action" statute (12 U.S.C. 1831o). An institution may be subject to criticism and/or corrective action if its activities contravene general principles of safety/soundness regardless of the source of deposits.

I hope you find the above information helpful.

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